Q4 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.

Divya Rao; Analyst; TD Cowen

Presentation

Operator

Good afternoon. My name is Alicia, 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 IR for Puma Biotechnology. You may begin your conference.

Mariann Ohanesian

Thank you, Alicia. Good afternoon and welcome to Puma's conference call to discuss our financial results for the fourth 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, Jeff Ludwig, Chief Commercial Officer.
After market close today, Puma issued a news release detailing fourth-quarter and full-year 2023 financial results. That news release, the slides that Jeff will refer to, and a webcast of this call are accessible via the homepage and investor sections of our website @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 that constitutes forward-looking statements for purposes of federal securities law. 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 the SEC from time to time, including our annual report on Form 10-K for the year ended December 31, 2023. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this live conference call, February 29, 2024. 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 fourth-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, Mariann, and thank you all for joining our call today. Today, Puma reported total revenue for the fourth quarter of $72.2 million. Total revenue includes product revenue net, which consists entirely of NERLYNX sales as well as royalties from our sublicenses. Product revenue net was $53.2 million in the fourth quarter of 2023, which was an increase from the Q3 2023 and slightly below $53.7 million reported in Q4 2022.
Product revenue for the fourth quarter of 2023 was impacted by approximately $2.1 million of inventory increase at our specialty pharmacies and specialty distributors. Royalty revenue was $19 million in the fourth quarter of 2023 compared to $4.5 million in Q3 of 2023 and $12 million in Q4 of 2022. We reported 2,881 bottles of NERLYNX sold in the fourth quarter of 2023, essentially unchanged from the 2,874 bottles sold in Q3 of 2023.
In Q4 of '23, we estimate that inventory increased by about 127 bottles. In Q4 2023, new prescriptions or NRx were down approximately 9% compared to Q3 2023; and total prescriptions, TRx, were down approximately 7% compared to Q3 '23. Jeff will provide further details in his comments and slides.
NERLYNX sales were negatively impacted by the decline in enrollments that we mentioned in our third quarter earnings call, a lower than anticipated rate of conversion from enrollment to commercial new patient starts and a higher than expected gross to net. Jeff and Maximo will discuss these topics further in their comments. We have continued to reduce our internal expenses to account for these factors as we recognize our fiscal responsibility to the shareholders and continue to be net income positive in 2024.
I will now provide a clinical review of the quarter. Then Jeff Ludwig will add additional color on NERLYNX commercial activities and natural gas will follow with highlights of the key components of our financial statements for the fourth quarter of 2023.
In February, we are pleased to announce that we initiated the alisertib in cancer or ALISCA-Lung 1 trial, a Phase 2 clinical trial of alisertib monotherapy for the treatment of patients with extensive stage small cell lung cancer. This trial was previously referred to as Study PUMA-ALI-4201. The trial will enroll up to 60 patients with extensive-stage small cell lung cancer who have progressed after first-line platinum-based chemotherapy and immunotherapy.
Patients must provide tissue-based biopsies so that biomarkers can be analysed. Alisertib will be dosed at 50 milligrams BID on days one to seven of every 21 day cycles. So our plan is to perform an initial interim analysis for the evaluation of the biomarkers as well as an evaluation of efficacy.
As we discussed in our last earnings call, the goal of this Phase 2 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 of these biomarker subgroups in the ALISCA-Lung 1 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 previously published in the Journal of Thoracic Oncology in 2020.
If the efficacy and biomarker data are comparable from the two studies, the company believed it would represent a potential accelerated approval strategy and would engage FDA to discuss this further. We currently have four sites open for enrollment and expect to have 10 to 15 sites open within the next 30 to 60 days. We anticipate that we will be able to share interim data from this trial with investors in the second half of 2024.
We also anticipate the initiation of ALISCA-Breast1, a Phase 2 trial of alisertib in combination with endocrine treatment in patients with chemotherapy-naïve HER2-negative, hormone receptor-positive breast cancer in Q4 of 2024. We additionally anticipate two clinical data presentations on alisertib in the first half of 2024.
Investors will remember that the Phase 2 trial referred to as TBCRC-041, which was a Phase 2 trial of alisertib monotherapy versus alisertib plus endocrine therapy in patients with HER2-negative, hormone receptor-positive metastatic breast cancer was published in JAMA Oncology in 2023. As part of this trial, an analysis of biomarkers was performed in order to determine if the efficacy of alisertib in patients with HER2 negative hormone receptor-positive metastatic breast cancer correlates with any biomarkers. We anticipate that the biomarker data from this trial will be presented in the first half of 2024.
In addition, there's an ongoing investigator-sponsored trial of alisertib given in combination with osimertinib in patients with metastatic EGFR-mutant non-small cell lung cancer. More specifically patients with metastatic EGFR-mutant non-small cell lung cancer are treated with osimertinib, and then at the time of progression, alisertib is added to osimertinib in order to see if alisertib can overcome osimertinib resistance.
Interim data on this trial as previously presented at ASCO, prior to Puma licensing the drug. We anticipate that updated data from this trial will be presented in the first half of 2024. Most notably, a recent biomarker analysis from this trial has demonstrated a subgroup of patients with a biomarker with aurora kinase pathway plays a role or alisertib appears to have much greater efficacy when added to osimertinib at the time of progression on osimertinib. This biomarker occurs in about half of the patients in the trial, which is consistent with the published literature on this biomarker in this patient population.
Based on this biomarker data, the trial is being amended to limit enrollment in the trial to only continue enrolling patients who have this biomarker. We believe that this might represent a another potential indication for alisertib, and we look forward to discussing this data with investors once it has been presented publicly.
As mentioned on previous 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 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

Hey, thanks, Alan. Appreciate it, and thanks to everyone for joining our fourth-quarter earnings call. Before I move into the commercial review, just a reminder that I will be making forward looking statements. Let me again start with a high-level overview of our commercial strategy, and then I will go into more details as we discuss specific slides.
From a commercial strategy perspective, we believe that NERLYNX can benefit patients in the metastatic setting, but we remain heavily focused on early-stage breast cancer. We do not have direct competition in the extended adjuvant setting and believe that there remains significant unmet need, especially for patients who were deemed to be at higher risk or reoccurrence. We want to see NERLYNX play a larger role in helping patients reduce the risk of reoccurrence and avoid metastatic disease.
We believe NERLYNX continues to be promotionally sensitive. Our sales and marketing teams are working hard to expand their reach and frequency, both with personal and nonpersonal promotion. HCP calls in the fourth quarter increased about 12% year over year with about 80% of those calls being live interactions. In addition to pure call activity, we are using internal and external data to try and improve our abilities to engage with clinicians at the right time, given the various treatment decisions and duration of therapies.
Finally, as a commercial organization, we remain committed to being more efficient and effective with our resources. We will continue to adapt to the changes in the business and the needs of the broader Puma organization. Let me now transition to some of the commercial slides where I will provide some additional specifics around performance. Once I have finished, I will 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. Now this model has not changed and remains separated into two distinct channels, the specialty pharmacy channel and a specialty distributor channel. We do see quarterly fluctuations, but the majority of our business continues to flow through the specialty pharmacy channel.
In Q4, about 74% of our business went through the specialty pharmacy channel and our remaining 26% went through the specialty distributor channel. As a comparison, this compares to the 80% specialty pharmacy channel and 20% specialty distributor channel that we reported in Q3 of '23.
Turning to slide 4, NERLYNX net revenue in Q4 2023 was $53.2 million, which is a $1.6 million increase from the $51.6 million we reported in Q3 of '23 and about a $500,000 reduction from the $53.7 million we reported in Q4 of 2022. Inventory changes will impact these comparisons, so let me provide some additional information here. In Q4 2023, we estimated that inventory increased by about $2.1 million. As a comparison, we estimate that inventory increased by about $600,000 in Q3 of '23 and increased by about $2.6 million in Q4 of 2022.
Turning to Slide 5. Slide 5 shows Q4 2023 ex-factory bottle sales and also provides both a year-over-year and a quarter-over-quarter comparison. In Q4 of 2023, NERLYNX's ex-factory bottle sales were 2,881, which represents a slight increase of about 0.2% quarter over quarter and a 13% decline year over year.
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 127 bottles in the fourth quarter of 2023. As a comparison, we estimate that inventory increased by about 164 bottles in Q4 of 2022 and increased by about 32 bottles in Q3 of 2023.
Now, let me share some additional metrics and insights into our fourth quarter performance. In Q4, we saw new patient starts or NRx declined about 9% quarter over quarter and about 25% year over year. In terms of total prescriptions or TRx, we saw about 7% quarter over quarter decline and about 17% decline year over year.
Our SD business did grow 10% quarter over quarter and about 4% year over year. As a reminder, we do not pick up NRx or TRx data in the SD channel. Overall, demand decreased 3.1% quarter over quarter and about 12.8% year over year.
As Alan mentioned, Q4 performance was negatively impacted by several factors. First, let me talk about enrollments. Enrollments are a very important leading indicator as they convert into new patient starts, new patient starts turning into refills, which influence performance in subsequent quarters.
Q4 performance was negatively impacted by the decline in enrollments we saw in Q3 and discussed during the Q3 earnings call. Soft Q3 enrollments had a negative impact on fourth quarter new patient starts, TRx, and overall demand. As I mentioned during the third quarter earnings call, we did see the enrollment trend improve as the third quarter progressed.
Early in the fourth quarter, we increased the amount of HCP nonpersonal promotion. As we have discussed with investors in prior earnings calls, we typically see a decline in enrollments in the fourth quarter as patients delay starting therapy until after the holidays.
In Q4, we were pleased to see enrollments continue to improve from Q3, and we saw Q4 enrollments grow 12% sequentially. This is the first time we have seen this growth Q4 over Q3. We are hopeful that this increase in nonpersonal promotion was contributor to this enrollment growth; however, we are waiting on additional data before making that conclusion.
The second factor that negatively impacted our Q4 performance was the conversion rate from enrollments to commercial new patient starts. In Q4, we saw a decrease in a percent of patients converting from enrollments to new patient starts with the majority of that being driven by an increase in PAP or free goods. We do see quarterly fluctuations in these conversion rates, but in Q4 we had this metric move in a negative direction.
Turning to slide 6. Slide 6 highlights the adoption of dose escalation since launch. We continue to believe that monitoring the adoption of dose escalation is an important metric for NERLYNX. Patients that started a reduced dose will experience significantly lower Grade 3 diarrhea and are likely to have a lower rate of discontinuation.
In Q4, approximately 76% 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 am pleased with the feedback that we receive from customers.
Slide 7 highlights the collaborations we have formed across the globe. I have highlighted in red a number of updates since our Q3 earnings call. We are pleased to announce that in late Q3, NERLYNX received regulatory approval in Mexico in the metastatic setting and also received regulatory approval in the United Arab Emirates in the extended adjuvant setting.
In addition, in Q1, NERLYNX recently received regulatory approval in Syria in the extended adjuvant setting and was officially launched in Morocco, also in the extended adjuvant setting. We truly appreciate all the efforts put forth by our partners to make NERLYNX available to more patients around the world.
I'd like to wrap up by thanking my colleagues at Puma for their passion and dedication to making an impact on the lives of patients and their families battling cancer. This team is committed to finding ways to be more efficient and effective and adapting to the changing needs of the business. I will now turn the call over to Maximo for a review of our full financial results. Maximo?

Maximo Nougues

Thanks, Jeff. I will begin with a brief summary of our financial results for the fourth quarter of 2023. Please note that I will make comparisons to Q3 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 that you refer to our 2023 10-K, which will be filed today and includes our consolidated financial statements.
In the fourth quarter of 2023, we reported net income based on GAAP of $12.3 million or $0.26 per share. This compares to net income in Q3 2023 of $5.8 million or $0.12 per share. On a non-GAAP basis, which is adjusted to remove the impact of stock-based compensation expense, we reported net income of $14.8 million or $0.31 per share for the fourth quarter of 2023.
Gross revenue from NERLYNX sales was $64.9 million in Q4 2023 and $60.4 million in Q3 2023. As Alan mentioned it, net product revenue from NERLYNX sales was $53.2 million, an increase from $51.6 million reported in Q3 2023. Q4 net sales were impacted by lower volumes in Q3 as well as a higher gross-to-net in Q4.
Inventory build up by our distributors was approximately $2.1 million in Q4, which was lower than expected versus approximately $0.6 million buildup in Q3 2023. Royalty revenue totaled at $19 million in the fourth quarter of 2023 compared to $4.5 million in Q3 2023. Higher royalties versus Q3 reflect the timing of shipments to our partner in China as we noted last quarter.
Our gross-to-net adjustment in Q4 2023 was about 18.1% compared to the 14.6% gross-to-net adjustment recorded in Q3 2023. Higher Medicaid routes share, particularly from patients in Puerto Rico and higher government charge-backs were the main drivers of the increase versus Q3 2023.
Cost of sales for Q4 2023 was $24.3 million, including $2.4 million for the amortization of intangible assets related to our neratinib license. Cost of sales for Q3 2023 was $13.3 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.
For fiscal year 2024, Puma anticipates that NERLYNX product revenue will be in the range of $183 million to $190 million. We also anticipate that our gross to net adjustment for the full year 2024 will be between 21.5% and 22.5%, driven by the Inflation Reduction Act and higher expected Medicaid rebates.
In addition, for fiscal year 2024, we anticipate receiving royalties from our partners around the world in the range of $30 million to $33 million. We expect license revenue in 2024 in the range of $1 million to $2 million. We also expect the net income for the full year will be in the range of $12 million to $15 million.
We anticipate that for Q1 2024, NERLYNX product revenue net will be in the range of $38 million to $40 million. Also, we expect Q1 royalty revenues will be in the range of $2.5 million to $3 million and no license revenue. We further estimate that the gross to net adjustment in Q1 2024 will be approximately 23% to 24%.
We must anticipate a Q1 net loss of between $10 million and $12 million. Puma anticipates a Q1 net loss between $10 million and $12 million. As investors are aware, Q1 usually represent the lowest net product revenue on the fourth quarter due to the burn-off from inventory build from Q4.
Also due to our litigation expense and a one-time alisertib expense, we expect higher expenses in Q1 than other quarters in 2024. Due to those items, we are forecasting a net loss in Q1, but anticipate that we will be net income positive for the remainder of 2024 as well as for the full year.
SG&A expenses were $20.2 million in the fourth quarter of 2023, compared to $22.8 million for the third quarter. SG&A expenses included noncash charges for stock-based compensation of $1.8 million for Q4 2023, unchanged from Q3 2023.
Research and development expenses were $12.9 million in the fourth quarter of 2023 compared to $11.4 million for the third quarter. R&D expenses included non-cash charges for stock-based compensation of $0.8 million in the fourth quarter of 2023, unchanged from the third quarter.
On the expense side, Puma anticipates flat total operating expenses in 2024 compared to 2023. More specifically, we anticipate SG&A expenses to decrease by 8% to 12% and R&D expenses to increase 17% to 20% year over year. Due to our litigation expenses, we expect G&A expenses in Q1 and Q2 to be significantly higher than Q3 and Q4.
In the fourth quarter of 2023, Puma reported cash earn of approximately $10.4 million. This compares to cash earn of approximately $10.6 million in Q3 2023. For a full year, Puma reported cash earn of approximately $14.4 million.
2023, we made a $12.5 million payment for a sales milestone from Pfizer and an $8 million settlement payment as well. At December 31, 2023, we had approximately $96 million cash, cash equivalents, and marketable securities versus $81 million a year earlier. Our accounts receivables balance was $47.8 million.
Our accounts receivable terms range between 10 and 68 days, while our days sales outstanding to about 46 days. We estimate that as of December 31, 2023, our distribution network maintain approximately three weeks of inventory. Overall, we continue to deploy our financial resources to focus on the commercialization of NERLYNX, the development of alisertib and controlling our expenses.

Alan Auerbach

Thanks, Massimo. We are pleased to report positive net income for the fourth quarter of 2023 and for full year 2023. Puma's senior management in cooperation with the Board of Directors continues to remain focused in nearing sales trends in 2024 and beyond and recognizes this fiscal responsibility to shareholders to continue to maintain positive net income.
In the fourth quarter of 2021, we implemented a reduction in expenses with the goal of reducing expenses in order to maximize operational cash flows. We believe that the positive net income reported in the fourth quarter and for the full year 2023 reflects these expense reduction.
Expense reductions that we have previously performed and continue to perform are also a major contributor to the positive net income that the company is guiding to for full year 2024. The company remains committed to continuing to achieve this positive net income and will continue to reduce expenses if needed 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 and 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 call back back to the operator for Q&A. Operator?

Question and Answer Session

Operator

(Operator Instructions) Divya Rao, TD Cowen.

Divya Rao

Hi, guys. Congrats on the quarter. This is Divya on for Marc. So I had a few questions on the Phase 2 trial in small cell lung cancer. One would be, in terms of the second half days disclosure, should we expect it to be at a medical meeting or do you think it could be a press release?
And then my second question is, I know you mentioned that the biomarker data was going to be one of the metrics that you use from the interim analysis to determine whether you move forward talking with the FDA. Is the Alisertib combo trial with paclitaxel also the best bar to look at when you're looking at efficacy and you feel like you want to see both the biomarker and the efficacy data kind of line up with that trial before moving forward with the FDA on a future discussion? Thanks.

Alan Auerbach

Yeah. So Divya, thank you for your question. In terms of the disclosure, I would imagine it would be something more direct to investors, not at a medical meeting because just to present at a medical meeting, you have to submit lab abstract and there's a lead time there. And I'm not sure how much data we would have to submit to at a medical meeting.
So a medical meeting presentation, I would guess probably is more of a 2025 event, but presenting that in some way, shape, or form to investors, that would be the way we would do this; and obviously, in as much detail as we can.
As we mentioned, we're going to be greatly increasing the number of sites this month. And so we're anticipating we're going to have a good number of patients to talk about. In terms of your second question, so obviously, in small cell lung cancer, you have both the chemotherapy sensitive group and the chemotherapy refractory group or the resistant group. So it's two different totally homogeneous.
I don't know that cross trial comparison is going to be -- compared to this trial, it gets a little tricky in terms of prior treatments and things like that. I think the clear signal we're looking for is both response rate and PFS. But to see something that's better in the group that has the biomarker, has been doesn't from the early, data because again, the thesis we have is that, alisertib is an aurora kinase inhibitor. So the biomarkers that are involved in the aurora kinase pathway is where we should see the best efficacy.
That's really the signal we want to confirm. Because of different numbers and things like that, I'm not quite sure if we're going to want to do cross-trial comparisons quite yet. But in terms of the early data, that's really what we're going to be looking for is to see, is there a biomarker subgroup that selects for the patients who are most likely to benefit from the drug.

Divya Rao

Got it. That's helpful. Thank you.

Operator

Gena Wang.

Hi, good afternoon. Thanks for taking your questions. This is Rashida on for Gena. I had a couple on alisertib, and Alan, you touched on this a little bit in the previous question. But I wanted to get some more color on what the efficacy bar would be for alisertib in the small cell trial?
And I understand you disclosed that you don't want to make cross-trial comparisons, but any color you can shed on how you're thinking about alisertib, especially in light of the DLL3 targeting agents that are in development, including Amgen's polatuzumab that has approval later this year, and Harpoon's TriTAC, that got taken over by Merck. They had shown some early results in Phase 1. So just keeping this in the background, I was curious if you could shed some color on how you're thinking about alisertib.

Alan Auerbach

Yeah. So with reference to the deal of three drugs, trastuzumab was a third line drug. So challenging from that perspective, just try to compare second line third line. And also I would say that, while I recognize, response rate is the typical thing people like to do cross-trial comparisons on.
As you're aware, you can't just get approval on response rate. You need actually show a magnitude of that benefit, so a PFS or survival benefit. So I think all of those are going to be important for us to look at. There is data on alisertib as a monotherapy that was published in Lancet Oncology previously. And off the top my head, remembering it was like a 20%-ish response rate and some around three month PFS in a non selected group.
So that would kind of be the only data we have for alisertib as a single agent if you will. But trying to compare it to other agents, especially just looking at response rates. In small cell lung cancer, unfortunately, you've seen lots of drugs that have got really high response rate, but they can't confirm the clinical benefits because of no increase in PFS or OS. So I think, again, it's going to be really a totality of data where we want to see a response rate improvement, a PFS improvement. And the PFS and the OS, obviously, are going to be the ones going to be more important to us.

Got it. Thank you. That's helpful. And then just a quick question again on alisertib. Have you disclosed what the exact royalty percentages you owe to Takeda if the product's approved commercialized?

Alan Auerbach

I do not have that in front of me. In terms of our public disclosure. My recollection is we said something in the single digit range if I remember correctly.

That helpful. Got it. Thank you so much.

Operator

Thank you. There are no further questions at this time. I would like to turn the conference back over to Mariann for closing comments.

Mariann Ohanesian

Thank you all for joining us today. As a reminder, this call may be accessed via replay of the webcast at pumabiotechnology.com, beginning later today. Have a good evening.

Operator

Ladies and gentlemen, thank you for participating in today's conference call. This concludes our program. Everyone have a great day. You may disconnect.