Q3 2023 Puma Biotechnology Inc Earnings Call
Participants
Mariann Ohanesian; IR; Puma Biotechnology, Inc.
Alan Auerbach; CEO, President & Chairman of the Board; Puma Biotechnology, Inc.
Jeff Ludwig; Chief Commercial Officer; Puma Biotechnology, Inc.
Maximo Nougues; CFO; Puma Biotechnology, Inc.
Edward White; Analyst; H.C. Wainwright & Co, LLC
Divya Rao; Analyst; TD Cowen
Gena Wang; Analyst; Barclays
Presentation
Operator
Good afternoon. My name is Camilla, and I will be your conference call operator today. (Operator Instructions) As a reminder, this call is being recorded. I would now like to turn the conference call over to Mariann Ohanesian, Senior Director of Investor Relations for Puma Biotechnology. Thank you. You may begin.
Mariann Ohanesian
Thank you, Camilla. Good afternoon and welcome to Puma's conference call to discuss our financial results for the third quarter of 2023. Joining me on the call today are Alan Auerbach, Chief Executive Officer, President and Chairman of the Board of Puma Biotechnology; Maximo Nougues, Chief Financial Officer; and Jeff Ludwig, Chief Commercial Officer.
After market close today, Puma issued a news release detailing third quarter 2023, financial results that news release slides that Jeff will refer to and a webcast of this call are accessible via the homepage and investor sections of our website at pumabiotechnology.com. The webcast and presentation slides will be archived on our website and available for replay for the next 90 days.
Today's conference call will include statements about the company's future expectations, plans and prospects. It constitute forward-looking statements for purposes of federal securities laws. Such statements are subject to risks and uncertainties, and actual events and results may differ from those expressed in these forward-looking statements.
For a full discussion of these risks and uncertainties, please review our periodic and current reports filed with Securities and Exchange Commission from time to time, including our annual report on Form 10-K for the year ended December 31, 2022.
You are cautioned not to place undue reliance on these forward-looking statements. We speak only as of the date of this live conference call, November 2, 2023. The company undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call, except as required by law.
During today's call, we may also refer to certain non-GAAP financial measures that involve adjustments to our GAAP figures. We believe these non-GAAP metrics may be useful to investors as a supplement to but not a substitute for our GAAP financial measures. Please refer to our third quarter 2023 news release for a reconciliation of our GAAP to non-GAAP results. I will now turn the call over to Alan.
Alan Auerbach
Thank you, Marianne, and thank you all for joining our call today. Today, Puma reported total revenue for the third quarter of 2023 of $56.1 million. Total revenue includes product revenue net, which consists entirely of NERLYNX sales as well as royalties from our sub-licensees. Product revenue, net was $51.6 million in the third quarter of 2023, which was unchanged from Q2, 2023 and $2.7 million below $54.3 million reported in Q3 of 2022.
Product revenue for the third quarter of 2023 was impacted by approximately $0.6 million of inventory increase at our specialty pharmacies and specialty distributors. Royalty revenue was $4.5 million in the third quarter of 2023 compared to $3 million in Q2 of 2023 and $2.8 million in Q3 of 2022.
We reported 2,874 bottles of NERLYNX sold in the second quarter of 2023, a decrease of 148 bottles from the 3,022 bottles sold in Q2 of 2023. In Q3, 2023, we estimate that inventory increased by about 32 bottles. In Q3 2023, New Prescriptions or NRx were down approximately 15% compared to Q2 2023. And Total Prescriptions or TRx were down approximately 7% compared to Q2 of 2023. Jeff will provide further details in his comments and slides.
I will now provide a clinical review of the quarter, and then Jeff Ludwig will add additional color on NERLYNX commercial activities. Maximum [guests] will follow with highlights of the key components of our financial statements for the third quarter of 2023. As we mentioned on our last earnings call. In Q3, Puma filed its IND with the FDA for a Phase II study of alisertib monotherapy in patients with small cell lung cancer known as Study PUMA-ALI-4201.
The trial will enroll up to 60 patients with extensive stage small cell lung cancer who progressed after first-line platinum-based chemotherapy and immunotherapy. Patients must provide tissue-based biopsies, so that biomarkers can be analyzed, alisertib will be dosed at 50 milligrams BID on days one through seven of every 21 days cycle. Approval plans to perform an initial interim analysis for the evaluation of the biomarkers as well as an evaluation of the efficacy.
As we discussed in our last earnings call, the goal of this Phase II study will be to confirm the efficacy of alisertib monotherapy in patients with small cell lung cancer with biomarkers where the Aurora kinase pathway plays a role. The goal would be to correlate the efficacy in these biomarker subgroups in the PUMA-ALI-4201 study to the efficacy that was previously seen in the biomarker subgroups from the randomized trial of paclitaxel plus alisertib versus paclitaxel plus placebo, that was published in the Journal of Thoracic Oncology in 2021.
If the efficacy and biomarker data are comparable from the two studies. The company believes it could represent a potential accelerated approval strategy. In August, we announced that the FDA has determined that the Phase II PUMA-ALI-4201 study was safe to proceed. We expect to have multiple sites open for enrollment between now and the end of the year. And we are hopeful that we will be able to enroll patients by year end.
Although we recognize the challenges of trying to enroll patients during the November and December holidays. We continue to anticipate that there will be several clinical milestones for the alisertib program in the coming months. This includes initiating a Phase II clinical trial of our alisertib in small cell lung cancer before the end of the year, conducting a meeting with the FDA to discuss the clinical development and registration path for alisertib in hormone receptor positive, HER2-negative breast cancer in the fourth quarter of 2023 and then initiating the Phase II trial of alisertib in this patient population in 2024.
As mentioned on prior earnings calls and in response to investor questions. Puma continues to evaluate several drugs to potentially in-license that would allow the company to diversify itself and leverage Puma's existing R&D, regulatory and commercial infrastructure. The company will keep continue to keep investors updated on this as it progresses.
I will now turn the call over to Jeff Ludwig, Puma's Chief Commercial Officer, for a review of our commercial performance during the quarter.
Jeff Ludwig
Thanks, Alan. Appreciate it, and thanks to everyone for joining our third quarter earnings call. Before I move into the commercial review, just a reminder that I will be making forward-looking statements. Now let me start with an overview of our commercial strategy. We remain largely focused on the extended adjuvant indication for NERLYNX, where about 90% of our business is generated.
We believe there continues to be significant unmet need, especially for patients at higher risk of reoccurrence. We also believe that NERLYNX is promotionally sensitive. And given this our sales and marketing teams are focused on increasing reach and frequency with both personal and nonpersonal promotion.
It's important to engage with customers at the right time, given the various treatment decisions and duration of therapies. As a commercial organization, we are committed to becoming more efficient and more effective with our resources, and we'll adapt appropriately based on changes in the business. Let me transition to some of the commercial slides, where I will provide additional specifics around performance. Once I've finished, I'll turn the call over to Maximo for a more detailed review of our financial results.
Turning to Slide 3. Slide 3 provides an overview of our distribution model, and this model has not changed and remain separated into two distinct channels that provide NERLYNX to patients. We refer to these channels as our specialty pharmacy channel and our specialty distributor channel. Most of our business continues to flow through the specialty pharmacy channel. In Q3 of 2023 approximately 80% of our business went through the specialty pharmacy channel, which is up from the 74% we reported in Q2 of this year and identical to what we reported in Q3 of 2022.
Turning to Slide 4 NERLYNX net revenue in Q3 of 2023 was $51.6 million, which is identical to what we reported in Q2 of 2023 and down approximately $2.7 million from what we reported in Q3 of 2022. Inventory changes can have an impact in these numbers.
So let me give you some additional insights which are also included on this slide. In Q3 of 2023, we estimated inventory increased by about $600,000, as a comparator, we estimate that inventory increased by about $500,000 in Q3 of 2022 and decreased by about $1.5 million in Q2 of 2023.
Slide 5 shows Q3, Ex-factory bottle sales and also provides both a year over year and a quarter over quarter comparison. In Q3 of 2023, NERLYNX Ex-factory bottle sales were 2,874, which represents about a 5% quarter over quarter decline and about a 10% year over year decline.
Let me again provide more specifics around the inventory impact, which is also included at the bottom of this slide, we estimate that inventory increased by about 32 bottles in the third quarter of 2023. As a comparison, we estimated inventory increased by about 30 bottles in Q3 of last year and declined by about 89 bottles in Q2 of 2023.
Let me provide some additional metrics and insights into our third quarter performance. In Q3, we saw new patient starts or NRx decline, about 15% quarter over quarter and about 30% year over year. In terms of total prescriptions, we saw about a 7% decline quarter over quarter and about 11% decline year over year. As a reminder, we do not pick up NRx or TRx data in the [FD] channel. So, we do not have the same level of visibility for patients that start and stay in the FD channel.
In regard to demand, we saw demand decrease about 8.5% quarter over quarter and about 10% year over year. Now our Q3 performance was heavily driven by a decline in enrollments that occurred for several consecutive weeks (inaudible) in a quarter. We saw solid increase in enrollments in June, but saw significant decline in enrollment starting the second week in July and continuing through early August.
We reached out to customers across the country to inquire about patient flow and patient volume. And although there were some reported softness. It was not a consistent trend. Since that early softness, which occurred largely in July, we have seen steady monthly improvement with enrollments trending positively month over month throughout Q3. In addition, October enrollments have continued that positive trend and are in line with enrollment seen in Q1 and Q2.
Slide 6 highlights the adoption of dose escalation. Dose escalation is an important metric for us as it serves to improve the tolerability of NERLYNX by significantly reducing Grade three diarrhea and decreasing overall discontinuation rates. In Q3, approximately 71% of patients who received commercial drug started NERLYNX on a lower daily dose. We have seen a fairly steady increase in the adoption of dose escalation over the last several years, and I'm overall pleased with that uptake.
Moving to slide 7, Slide 7 highlights the strategic collaborations we have formed across the globe. In Q3, we are very pleased to announce that NERLYNX received regulatory approval in the metastatic setting in Malaysia and was also formally launched in the metastatic setting in Colombia. We truly appreciate the efforts by all of our partners to continue to make NERLYNX available to more patients around the world.
I'd like to wrap up by thanking my colleagues for their support and commitment. The team is absolutely passionate about making a difference in the lives of patients battling cancer. They are also committed to being more efficient and more effective with our resources, and they are committed to balancing the short- term and long-term priorities of Puma and its shareholders.
I will now turn the call over to Maximo for a review of our financial results. Maximo?
Maximo Nougues
Thanks, Jeff. I will begin with a brief summary of our financial results for the third quarter of 2023. Please note that I will make comparisons to Q2 2023, which we believe is a better indication of our progress as a commercial company than year-over-year comparisons.
For more information, I recommend you refer to our Q3 2023,10-Q, which will be filed today and includes our consolidated financial statements. For the third quarter 2023, reported net income based on GAAP of $5.8 million or $0.12 per share. This compares to a net income in Q2 2023 of $2.1 million or $0.05 per share.
On a non-GAAP basis, which is adjusted to remove the impact of stock-based compensation expense, we reported net income of $8.3 million or $0.18 per share for the third quarter of 2023. Gross revenue from NERLYNX sales was $60.4 million in Q3 2023 and $62.8 million in Q2 2023.
As Alan mentioned, net product revenue from NERLYNX sales was $51.6 million, unchanged from the $51.6 million reported in Q2 2023. We believe that Q3 net sales were impacted by approximately $600,000 of inventory increases from our distributors versus approximately $1.5 million of inventory drawdown in Q2 2023.
Royalty revenue totaled $4.5 million in the third quarter of 2023 compared to $3 million in Q2 2023. The higher royalties versus Q2 reflect the timing of shipments to our partner in China, as we noted last quarter, our gross-to-net adjustment in Q3 2023, was about 14.6% compared to the 17.9% gross-to-net adjustment reported in Q2 2023.
Lower Medicaid rebate was the main driver of the decrease versus Q2 2023. In Q3 2023, we released prior period accruals related to expected medical rebates that have not materialized to date. Cost of sales for Q3 2023, was $13.3 million, including $2.4 million for the amortization of intangible assets related to the tower neratinib license cost of sales from Q2 2023, was $11.9 million.
Going forward, we will continue to recognize amortization of milestones to the licensor of about $2.4 million per quarter as cost of sales. Fiscal year 2023, Puma anticipates the net NERLYNX product revenue will be in the range of $206 million to $209 million. We also anticipate that our gross-to-net adjustment for the full year 2023, will be between 17.5% and 18%.
In addition, for fiscal year 2023, we anticipate receiving royalties from our partners around the world in the range of $30 million to $32 million. We don't expect license revenue in 2023. We also expect that net income for the full year will be in the range of $22 million to $25 million. Our royalties in the fourth quarter are dependent on shipments to our ex-US partners that are expected to occur between now and the end of the year.
If there are any delays to this shipment, it could adversely impact our revenue. We anticipate that for Q4 2023, NERLYNX next product revenue will be in the range of $56 million to $59 million. We also expect Q4 royalty revenues will be in the range of $16 million to $19 million. We further estimate that the gross-to-net adjustment in Q4 2023, will be approximately 15.5% to 16.5%.
Puma anticipate our Q4 net income between $13 million and $16 million. SG&A expenses were $22.8 million in the third quarter of 2023, compared to $24.4 million for the second quarter. SG&A expenses included noncash charges for stock compensation of $1.8 million for Q3 2023, unchanged from Q2 2023. Research and development expenses were $11.4 million in the third quarter of 2023, compared to 13.4 million for the second quarter.
R&D expenses including non-cash charges for stock-based compensation of $0.8 million in the third quarter of 2023, unchanged from the second quarter. In the third quarter of 2023, Puma reported cash earn of approximately $10.6 million. This compares to cash earn of approximately $3.2 million in Q2 2023.
On the expense side, Puma continues to anticipate a reduction in total operating expenses in 2023, compared to 2022. More specifically, we anticipate SG&A expenses to be flat or increase by approximately 1% to 2% and R&D expenses to increase 1% to 3% year over year.
On September 30, 2023, we had approximately $85 million in cash, cash equivalents and marketable securities. Our accounts receivables balance was $29 million. For accounts receivable terms range between 10 days and 68 days. While our days sales outstanding are about 45 days, we estimate that as of September 30, 2023, our distribution network maintain approximately three weeks of inventory. Overall, we continued to deployed our financial resources to focus on the commercialization of NERLYNX. The development of our value, certainty and controlling our expenses.
Alan Auerbach
Thanks, Maximo. We are pleased to report positive net income as well as positive cash flow during the third quarter of 2023. From the senior management in cooperation with Board Directors continues to remain focused on improving nearly sales in 2023 and beyond. In fourth quarter 2021, we implemented a reduction in expenses with the goal of reducing expenses in order to maximize operating cash flows.
We believe that the positive net income and cash flow reported in the third quarter, reflect this expense reduction. The expense reductions that we have previously performed and continue to perform are also a major contributor to the positive net income and positive cash flow, the company is anticipating for full year 2023.
Company remains committed to continuing to achieve these operational cash flows and net income and will continue to reduce expenses if needed, In order to achieve this. We look forward to updating investors on this in the future. It continues to remain a significant unmet need for patients battling breast cancer, lung cancer and other solid tumors. We at Puma are committed and passionate about finding more effective ways at helping these patients during their journey, and we will continue to strive to achieve that goal.
This concludes today's presentation. We will now turn the floor back to the operator for Q&A. Operator?
Question and Answer Session
Operator
Thank you. (Operator Instructions)
Ed White with H.C. Wainwright.
Edward White
Hi, good afternoon, thanks for taking my questions. First question is just sort of a housekeeping thing and maybe I missed it, but what was the percentage of free drug that you experienced this past quarter?
Jeff Ludwig
And I'm looking for that exact percentage. And if you just give me a moment, I'll find that too. But we've not seen any significant change in free drug increases or decreases over the last several quarters. So, give me second. As you ask your second question, I'll give you up our presenter.
Edward White
Okay, yeah. Jeff, the other question was for you, too, and just wanted to get a little bit more color about the new prescription weakness in July and into August and what gives you confidence that you'll see a recovery in the fourth quarter?
Jeff Ludwig
And thanks for the question. And we free drug were about 14% of free drug, and that's been fairly consistent for us over the last several quarters in terms of total bottles. Good question on the softness we saw in early and let me just remind you what I said upfront and give you a little bit more color. As I mentioned, we did have solid enrollments in June and the first week in July, but we did see a drop starting the second week in July for about five weeks.
Obviously, we look at those trend changes. And as I mentioned in my opening remarks, we reached out to customers across the country to check on patient flow or any kind of patient impact there. And we just didn't see anything consistent as you can guess. We also look at any other factors just to make sure nothing's impacting sales from pathways, formularies, competitive activities. And there is nothing significant from that standpoint, either to the point out.
We do look internally, and I'll tell you as I mentioned many times, we do believe NERLYNX is promotionally sensitive. And so, as I look at Q3, as not uncommon for Q3 with holidays and vacations, we do tend to see a slight drop-in call activity in Q3. We saw that tends to occur early, and we expect that to improve. We also pay very close attention to our broader promotional efforts as well, non-personal promotion, et cetera.
And we looked at that throughout Q3, we've made some adjustments to ensure it stays broad in right away to make sure that we have good reach and frequency moving forward. As a reminder, we did see that softness in early July. But as I mentioned, we saw improvements in August. We saw improvements in September. We also have seen that trend continued in October. So, as you asked me, the final part of your question was, what gives me confidence that we're seeing changes, it is the numbers and the trends that we're seeing. Hopefully, that helps.
Alan Auerbach
So, Ed, If I can jump in here, if you want to kind of think about how the enrollments have looked so far this year, we always see a spike up in January because you get the patients who didn't want to go on the drug due to the side effect profile, which as usually in that 1st month, we didn't want to go on it in December for the holidays.
So, in January it was got a big spike. it's kind of relatively similar February, March, April, May than it jumped up in June and then it jumped down in July. And then August was higher than July. September was higher than August and October was higher than September and October was more basically very in line with that baseline that had been set in that kind of February through May time period.
So, looks you can speculate Okay. Is the June spike people, who would have gone out at July, we're taking vacations or whatever you want to be to the side effects. That could be remember that patients have up to two years from when they complete adjuvant therapy to take NERLYNX. So, it gives them a little more flexibility on when they start to not like a metastatic disease, where you have to start right away because of the disease.
So, we're in year six of launch to my recollection. We have seen this drop in July before and I think back then our assumption was it's the holidays or it's people taking vacations or whatever on again, it's not something really like Jeff said, the numbers have come back to what they were previously. We don't really, I think it's anything to be concerned about.
Edward White
Okay. Thanks for the added color and also taking your thoughts on ex-US sales potential. Obviously, you raise royalty revenue guidance. It seems like this impact is somewhat overlooked by investors. And I just wanted to get your thoughts on the potential outside the US for sales, particularly in China?
Alan Auerbach
Yes. Thanks, Ed. So, the launch in China is still rolling out and our partner has done a wonderful job there. We do tend to see, if you look at the numbers, you have a big bolus of the royalties coming in the Q4. So, we're expecting that this year, just like we did last year that the rollout is still going, and they've done a nice job with the growth.
We've been very, very pleased with their execution. I would say China is probably second largest market for us just due to number of patients. And I think in terms of our royalties, that's where it looks like it's coming. It's probably the highest area that we're seeing royalties from. So, I think it's still got some momentum to go there. And you know, the numbers obviously show that, and I would look forward to continuing to see that in the future.
Edward White
Great. Thanks, Alan, for taking my questions.
Operator
Thank you.
Divya Rao, Cowen.
Divya Rao
Hi, guys. This is Divya on for Mark. Thanks for taking my question. I wanted to get a better idea of the Phase III trial of an alisertib metastatic breast cancer. I know that you've yet to speak with the FDA, but do you anticipate having for I guess, in an ideal scenario, would you like to have a similar trial design to what you see with this muscle on Phase II? Or is there a potential that you could explore combination therapy here? And then as a follow-up to that, given the other agents that are also being developed in this space? How do you guys define success in this trial things?
Alan Auerbach
Thanks for the question, Divya. with alisertib noted, we are very focused on the biomarker populations where there's a biomarker that's indicative of the Aurora kinase pathway being activated. And so in the small cell lung cancer trial, for example, you saw that with the C Mick and with the RB1 mutations, and there's a few others that haven't yet been published as well.
In terms of your question, you're correct, the small cell lung cancer, the previous trial done was paclitaxel plus alisertib sort of against paclitaxel plus placebo. The feedback we've been getting from the KOLs has been they would like to use it earlier, kind of in the pre-chemotherapy setting.
So, it would be more similar to the study that was done the TBCRC41, where it was kind of alisertib with endocrine therapy that would be kind of where they would like to position the drug and specifically or were they kind of look to position it would be kind of after the patient has as CDK4/6 perhaps after they've had in other agent that's also involving an endocrine therapy and then kind of using it in that in the pre-chemo setting. So, that would be where we'd be positioning it on. You had a follow-up question as well?
Divya Rao
And that's helpful. I just wanted to know, just given the other agents that are being developed like how do you and the KOLs, how do you define success in this trial, if it is a single agent on trial in this setting?
Alan Auerbach
Yes. So, I don't know if the trial will be alisertib alone or alisertib plus endocrine. That would obviously be an easier trial to do like alisertib plus endocrine against placebo plus endocrine, a well-designed well-controlled trial, you're correct. There's lot of other agents, a lot of the ADCs, especially, but that tends to be in more of the chemo and post-chemo setting. And that this kind of pre-chemo setting.
In terms of what success would look like there is a good (technical difficulty). There is a good precedent here in ER-positive, HER2-negative breast cancer for a targeted agent being developed in the pre-chemo setting, which is your peak rate, which is the picture you see a mutation drug. And so, I think that that kind of playbook, if you will, would be what we'd be looking to do, which was developed in the pre-chemo population. It was peak rate plus endocrine against endocrine alone. That type of design and that type of outcome would be looking for.
Divya Rao
That�s very helpful. Thank you so much.
Alan Auerbach
Sure.
Operator
Thank you.
Gena Wang, Barclays.
Gena Wang
Hi, good afternoon. This is [Hoshida] on for Gena. Thanks for taking our questions. And a couple of quick ones, perhaps for Alan, for the 4Q FDA meeting for breast cancer. Did you already request the meeting?
Alan Auerbach
Yes. Meeting is requested and has been scheduled, it's either this month or next month. I can't remember which one.
Gena Wang
Perfect thanks for the clarity on that. And then second her question on and I understand you provide very detailed guidance in the quarters to come. And for the full year 2023 you provide a guidance. But as alisertib, you're starting the small cell lung cancer trial. And then, you know, the breast cancer trial will probably potentially be starting 2024. Are you able to provide any color right now on how we should see like expenses changing with regards to R&D? Any color you can provide on that would be helpful.
Alan Auerbach
Yes. So, from an R&D perspective, remember that we still have some your rent in R&D items in the forecast, which is we're still closing down a lot of the previous sites. So, those have to come out. And then there is a in Europe, we had a post-approval commitment study, which was the study of neratinib using it basically was similar to the control study, but being done the European population. So, it was rather been extended adjuvants, looking at all the different ways of reducing the diarrhea. That study will be concluding shortly.
And so the expenses from that will be coming out as well. So, we do have a lot of R&D budget items coming out. You're correct going in, we would have coming into the expenses would be the alisertib of small cell lung and HR-positive breast.
We have gotten the question earlier, and I think we got one at one of the conferences as well on that. And what we had said was listen, it is very important to us, that we continue to be a net income positive company. So, if we had to stagger the development of the drug in order to do that. And that's what we're going to do. We completely recognize our responsibility to shareholders, not just in developing new drugs, et cetera, but also our fiscal responsibility.
And so, we think that as something very important is being able to be a net income positive company. So, if we have to stagger the expense and stagger the trials in order to do that. That's what we're going to do. But our commitment is to maintain net income positivity.
Gena Wang
That�s helpful. Thank you.
And I just have one last quick question. Are you able to disclose how many sites you anticipate on opening for the small-cell lung cancer trial? Yeah small- cell lung cancer trail.
Alan Auerbach
That is a good question. I apologize. I don't have that number in front of me. My ballpark memory is like 10 to 15, if I remember maybe 20, somewhere in that general range 10, 20.
Gena Wang
No worries, it's still helpful. Thank you so much.
Alan Auerbach
Sure.
Operator
Thank you. This concludes our question-and-answer session. And I would now like to turn the conference back over to Mariann Ohanesian for closing remarks.
Mariann Ohanesian
Thank you for joining us today. As a reminder, this call may be accessed via replay at puma biotechnology.com beginning later today, have a good day.
Divya Rao
Ladies and gentlemen, thank you for participating in today's conference call. This does conclude our program. Thank you, and have a great day. You may now disconnect.
