Investor.pumabiotechnology.com
Phase III
PB272 COMBINATION
WITH XELODA
Metastatic Breast Cancer
20
13
Annual
2013 PB272 COMBINATIONWITH TORISEL Metastatic Breast Cancer
PB272 SINGLE AGENT/
Metastatic Breast Cancer
with Brain Mets
Neoadjuvant Breast Cancer
PB272 COMBINATION
WITH PACLITAXEL
Metastatic Breast Cancer
Adjuvant Breast Cancer
PB272 (oral) COMBINATION
AND SINGLE AGENT
HER2 Mutated NSCLC
PB272 (oral)
SINGLE AGENT
HER2 Mutated Breast Cancer
PB272 (oral)
SINGLE AGENT
HER2 Mutated Solid Tumors
Puma Biotechnology is focused on the
clinical development of its lead product
candidate PB272, neratinib (oral), for the
treatment of breast cancer, non-small cell
lung cancer and other types of solid
tumors with a HER2 mutation.
Puma's clinical trial pipeline is
summarized in the table above.
Puma Biotechnology, Inc.
10880 Wilshire Blvd., Suite 2150
Los Angeles, CA 90024
Additional information on Puma's
Puma Biotechnology, Inc.
clinical trials is available at
2013 Annual Report
Phase III
PB272 COMBINATION
WITH XELODA
Metastatic Breast Cancer
20
13
Annual
2013 PB272 COMBINATIONWITH TORISEL Metastatic Breast Cancer
PB272 SINGLE AGENT/
Metastatic Breast Cancer
with Brain Mets
Neoadjuvant Breast Cancer
PB272 COMBINATION
WITH PACLITAXEL
Metastatic Breast Cancer
Adjuvant Breast Cancer
PB272 (oral) COMBINATION
AND SINGLE AGENT
HER2 Mutated NSCLC
PB272 (oral)
SINGLE AGENT
HER2 Mutated Breast Cancer
PB272 (oral)
SINGLE AGENT
HER2 Mutated Solid Tumors
Puma Biotechnology is focused on the
clinical development of its lead product
candidate PB272, neratinib (oral), for the
treatment of breast cancer, non-small cell
lung cancer and other types of solid
tumors with a HER2 mutation.
Puma's clinical trial pipeline is
summarized in the table above.
Puma Biotechnology, Inc.
10880 Wilshire Blvd., Suite 2150
Los Angeles, CA 90024
Additional information on Puma's
Puma Biotechnology, Inc.
clinical trials is available at
2013 Annual Report
Puma Biotechnology, Inc. is a development stage biopharmaceutical company that acquires and develops innovative products for the treatment of various forms of cancer. We focus on in-licensing drug candidates that are undergoing or have already completed initial clinical testing for the treatment of cancer and then further develop those drug candidates for commercial use.
Our lead drug candidate PB272
(neratinib (oral)) is a potent irreversible tyrosine kinase inhibitor, which we are developing across a broad range of tumors and indications. We are initially focused on developing PB272 for the treatment of patients with HER2-positive metastatic breast cancer and for patients with non-small cell lung cancer, breast cancer and other solid tumors that have a HER2 mutation.
To Our Stockholders
2013 has been a year of considerable progress and achievement at Puma with the rapid advancement of our Phase III and Phase II clinical programs of PB272 (neratinib). We achieved a significant clinical milestone when we reported strong top line results from the Phase II clinical trial of PB272 for the neoadjuvant treatment of breast cancer (I-SPY 2 TRIAL), and as a result we look forward to the advancement of PB272 in this indication. We believe we are well-positioned to aggressively advance and expand our pipeline and meet our milestones in 2014 and beyond. It is a great pleasure to reflect on our success and accomplishments.
Phase III Clinical Trial in HER2-Positive Metastatic Breast CancerIn June 2013, we achieved a significant milestone with the initiation of our Phase III clinical trial of PB272 in patients with HER2-positive metastatic breast cancer who have failed two or more prior treatments. This is a randomized trial of PB272 plus Xeloda versus Tykerb plus Xeloda in patients with third-line HER2-positive metastatic breast cancer. This indication could represent our first indication for PB272 in the treatment of HER2-positive metastatic breast cancer.
Neratinib in HER2 MutationsBased on preclinical and clinical data with PB272 in patients with activating HER2 mutations, during 2013 Puma began several clinical trials of PB272 in cancer patients with HER2 mutations. The first of these trials is a Puma- sponsored study of PB272 in patients with HER2 mutated non-small cell lung cancer, a trial in which patients are randomized to receive either PB272 alone or PB272 in combination with Torisel.
We also continued to advance our clinical trial of PB272 in patients with metastatic HER2-negative breast cancer who have a HER2 mutation. In this investigator-sponsored trial, patients with metastatic disease are screened for the presence of the HER2 mutation and if the mutation is present, the patient is administered PB272 monotherapy.
In October 2013, we also announced the initiation of a Phase II clinical trial of PB272 as a single agent in patients with solid tumors who have an activating HER2 mutation (basket trial). This Phase II basket trial includes eight cohorts, or baskets, of patients, including (i) bladder/urinary tract cancer; (ii) colorectal cancer; (iii) endometrial cancer; (iv)
gastric/esophageal cancer; (v) ovarian cancer; (vi) all other solid tumors, including prostate, melanoma and pancreatic cancer; (vii) EGFR mutated and/or amplified primary brain cancer; and (viii) solid tumors with a HER3 mutation. We anticipate that the initial clinical data from this trial will be presented in 2014.
Results from I-SPY 2 TRIAL During 2013, we were very pleased to announce that PB272 graduated from the I-SPY 2 TRIAL (Investigation of Serial Studies to Predict Your Therapeutic Response with Imaging And moLecular Analysis 2), which is a randomized Phase II neoadjuvant clinical trial for women with newly diagnosed stage 2 or higher breast cancer. We reported positive top line data from this trial in December 2013. Notably, this represented the first clinical data on PB272 in the neoadjuvant treatment of HER2-positive breast cancer and suggested that the combination of paclitaxel plus PB272 has potent activity for the treatment of HER2-positive breast cancer. We look forward to advancing PB272 in this indication and toward future involvement with the I-SPY 3 Phase III trial.
Looking ForwardIt is with great pleasure that I lead Puma into a truly exciting time in our Company's history. Puma is uniquely positioned to successfully execute its strategic plan in the upcoming years and build value for its stockholders.
I would like to acknowledge the contribution of Puma's employee, whose skills, experience and commitment enabled us to reach our milestones in 2013 and who diligently strive to continue this momentum in 2014 and beyond.
On behalf of the Company and its Board of Directors, I also would like to take this opportunity to sincerely thank our loyal stockholders for their ongoing support.
Alan H. AuerbachChairman, Chief Executive Officer and President, Founder
Puma Biotechnology, Inc.
PBYI Daily Closing Prices
April 20, 2012 through April 15, 2014*
*From April 20, 2012 through October 18, 2012, shares of Puma Biotechnology
common stock were quoted on the OTC Bulletin Board (OTCBB) under the symbol
"PBYI." On October 19, 2012, Puma shares commenced trading on the New York
Stock Exchange under the symbol "PBYI" and ceased being quoted on the OTCBB.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
È
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
‘
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
Commission File Number: 001-35703
PUMA BIOTECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
10880 Wilshire Boulevard, Suite 2150
Los Angeles, CA 90024
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, par value $0.0001 per share
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of thischapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post suchfiles).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reportingcompany" in Rule 12b-2 of the Exchange Act.
Large accelerated filer È
Accelerated filer
Non-accelerated filer
‘ (Do not check if a smaller reporting company)
Smaller reporting company ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
The aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2013, was $703,209,481
based upon the closing price of $44.37 per share of the registrant's common stock on the New York Stock Exchange onFriday, June 28, 2013, the last business day of the registrant's most recently completed second fiscal quarter. Shares ofcommon stock held by each executive officer, director and holder of 10% or more of the outstanding common stock havebeen excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily aconclusive determination for other purposes. As of February 28, 2014, there were 30,117,819 shares of the registrant'scommon stock outstanding.
Documents Incorporated by Reference:Portions of the Proxy Statement for the registrant's 2014 Annual Meeting of Stockholders (the "2014 Proxy Statement")
are incorporated by reference in Part III of the Form 10-K to the extent stated herein.
TABLE OF CONTENTS
Part IItem 1.
Part IIItem 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
Management's Discussion and Analysis of Financial Condition and Results of
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial
Part IIIItem 10.
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related
Certain Relationships and Related Transactions, and Director Independence . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . .
Part IVItem 15.
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . .
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, or the Exchange Act. Any statements about our expectations,beliefs, plans, objectives, assumptions, future events or performance are not historical facts and may be forward-looking. These forward-looking statements include, but are not limited to, statements about:
the development of our drug candidates, including when we expect to undertake, initiate and completeclinical trials of our product candidates;
the regulatory approval of our drug candidates;
our use of clinical research organizations and other contractors;
our ability to find collaborative partners for research, development and commercialization of potentialproducts;
our ability to market any of our products;
our history of operating losses;
our expectations regarding our costs and expenses;
our anticipated capital requirements and estimates regarding our needs for additional financing;
our ability to compete against other companies and research institutions;
our ability to secure adequate protection for our intellectual property;
our ability to attract and retain key personnel; and
our ability to obtain adequate financing.
These statements are often, but not always, made through the use of words or phrases such as "anticipate,"
"estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend" and similar words orphrases. Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actualresults to differ materially from those expressed in them. Discussions containing these forward-lookingstatements may be found throughout this Annual Report, including the sections entitled "Item 1. Business" and"Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II ofthis Annual Report. These forward-looking statements involve risks and uncertainties, including the risksdiscussed in Part I of this Annual Report, in the section entitled "Item 1A. Risk Factors," that could cause ouractual results to differ materially from those in the forward-looking statements. We undertake no obligation toupdate the forward-looking statements or to reflect events or circumstances after the date of this document. Therisks discussed in this Annual Report should be considered in evaluating our prospects and future financialperformance.
Unless otherwise provided in this Annual Report, references to the "Company," "we," "us," and "our"
refer to Puma Biotechnology, Inc., a Delaware corporation formed on April 27, 2007 and formerly known asInnovative Acquisitions Corp., together with its wholly-owned subsidiary, Puma Biotechnology Ltd., and allreferences to "Former Puma" refer to Puma Biotechnology, Inc., a privately-held Delaware corporation formedon September 15, 2010, that merged with and into us in October 2011. We refer to this transaction as the"Merger."
We are a development stage biopharmaceutical company with a focus on the acquisition, development and
commercialization of innovative products to enhance cancer care. We aim to acquire proprietary rights to theseproducts, by license or otherwise, fund their research and development and bring the products to market. Ourefforts and resources to date have been focused primarily on acquiring and developing our pharmaceuticaltechnologies, raising capital and recruiting personnel.
We currently license the rights to three drug candidates:
PB272 (neratinib (oral)), which we are developing for the treatment of advanced breast cancer patients,non-small cell lung cancer patients and patients with HER2 mutation-positive solid tumors;
PB272 (neratinib (intravenous)), which we are developing for the treatment of advanced cancerpatients; and
PB357, which we believe can serve as a backup compound to PB272, and which we are evaluating forfurther development.
We are initially focused on developing neratinib for the treatment of patients with human epidermal growth
factor receptor type 2, or HER2, positive breast cancer, HER2 mutated non-small cell lung cancer, HER2-negative breast cancer that has a HER2 mutation and other solid tumors that have an activating mutation inHER2. Studies show that approximately 20% to 25% of breast cancer tumors have an over-expression of theHER2 protein. Women with breast cancer that over-expresses HER2, referred to as HER2-positive breast cancer,are at greater risk for disease progression and death than women whose tumors do not over-express HER2.
Therapeutic strategies, such as the use of Herceptin (trastuzumab), Perjeta (pertuzumab), and Kadcyla (T-DM1),produced by Genentech, and Tykerb (lapatinib), produced by GlaxoSmithKline, given either alone or incombination with chemotherapy, have been developed to improve the treatment of this cancer by binding to theHER2 protein. There are also a number of trials ongoing that involve various combinations of these drugs (forexample, Perjeta plus Kadcyla). Based on pre-clinical studies and clinical trials to date, we believe that neratinibmay offer an advantage over existing treatments by more potently inhibiting HER2 at a different site and using adifferent mechanism than these other drugs.
Currently, the first-line therapy approved by the U.S. Food and Drug Administration, or FDA, for treatment
of HER2-positive metastatic breast cancer is the combination of Perjeta plus Herceptin and taxane chemotherapy.
The drug Tykerb, given in combination with the chemotherapy drug capecitabine, is also FDA approved for thetreatment of HER2-positive metastatic breast cancer that has failed prior treatment. In a Phase III clinical trial,patients with HER2-positive metastatic breast cancer who received the combination of Tykerb plus capecitabinedemonstrated a median progression free survival, or PFS, of 27.1 weeks and a response rate of 23.7%.
Results from a Phase II clinical study, where patients with HER2-positive metastatic breast cancer who had
failed prior treatments were administered the combination of neratinib and capecitabine, demonstrated a medianPFS of 40.3 weeks and an overall response rate of 64%. In February 2013, we announced that we had reached anagreement with the FDA under a Special Protocol Assessment, or SPA, for our planned Phase III clinical trial of
PB272 in patients with HER2-positive metastatic breast cancer who have failed two or more prior treatments(third-line disease). The European Medicines Agency, or EMA, has also provided follow-on scientific advice, orSA, consistent with that of the FDA regarding our Phase III trial design and endpoints to be used and ability ofsuch design to support the submission of a European Union, or EU, Market Authorization Application, or MAA.
We commenced our Phase III clinical trial of neratinib (oral) for breast cancer patients who have previouslyfailed two or more prior HER2-directed treatments in the second quarter of 2013.
We are also exploring the safety and efficacy of neratinib (oral):
in combination with temsirolimus in patients with HER 2-positive metastatic breast cancer who havefailed multiple prior treatments;
for the treatment of patients with HER2-positive metastatic breast cancer with brain metastases;
for the treatment of HER2-positive neoadjuvant breast cancer;
for the adjuvant treatment of HER2-positive breast cancer in patients who have completed adjuvanttreatment with Herceptin;
for the treatment of patients with first line HER2-positive metastatic breast cancer who have notpreviously received treatment in the metastatic setting;
for the treatment of HER2 mutated non-small cell lung cancer;
for the treatment of patients with HER2-negative breast cancer that has a HER2 mutation; and
for the treatment of patients with solid tumors who have an activating HER2 mutation.
We have ongoing clinical trials for each of these indications.
We licensed the exclusive worldwide rights to our current drug candidates from Pfizer Inc., or Pfizer, which
had previously been responsible for the clinical trials regarding neratinib. We have modified Pfizer's clinicaldevelopment strategy and during the next 12 to 18 months plan to:
continue our Phase III clinical trials of neratinib in patients with HER2-positive metastatic breastcancer who have previously failed two or more prior treatments;
commence a Phase III trial of neratinib for the neoadjuvant treatment of HER2-positive breast cancerand for the neoadjuvant treatment of a subset of patients with HER2-negative breast cancer;
continue the ongoing Phase II clinical trials of neratinib in the neoadjuvant treatment of HER2-positivebreast cancer, the ongoing Phase II trial in patients with HER2-positive metastatic breast cancer thathas metastasized to the brain, the ongoing Phase II trial in the treatment of HER2 mutated non-smallcell lung cancer, the ongoing Phase II trial in the treatment of patients with HER2-negative breastcancer that have a HER2 mutation, the ongoing Phase II trial in the treatment of solid tumors that havean activating HER2 mutation, the ongoing Phase III trial for the adjuvant treatment of HER2 positivebreast cancer in patients who have completed adjuvant treatment with Herceptin, and the ongoingPhase II trial for the treatment of patients with first line HER2-positive metastatic breast cancer whohave not previously received treatment in the metastatic setting; and
continue to evaluate the application of neratinib in the treatment of other forms of HER2-positive orHER2 mutated cancers where there may be unmet medical needs.
Our strategy is to become a leading oncology-focused biopharmaceutical company. The key elements of our
strategy are as follows:
Advance PB272 (neratinib (oral)), our lead drug candidate, toward regulatory approval andcommercialization. We are primarily focused on developing neratinib for the treatment of patients withHER2-positive metastatic breast cancer, HER2 mutated non-small cell lung cancer, HER2-negativebreast cancer who have a HER2 mutation and other solid tumors with an activating mutation in HER2.
We have modified the previous clinical development strategy that Pfizer employed by focusing ourcurrent and planned Phase II and Phase III clinical trials on the use of neratinib in these patientpopulations, which we believe may be underserved by current treatment alternatives and where clinicaltrials have shown substantial levels of activity. We are also focusing on the development of neratinib inthe neoadjuvant treatment of patients with HER2-positive breast cancer and in patients withHER2-positive metastatic breast cancer that has metastasized to the brain and in the adjuvant treatmentof HER2-positive breast cancer.
Expand our product pipeline by pursuing additional applications of neratinib. We believe there areadditional applications for neratinib in the treatment of HER2 mutated non-small cell lung cancer,which we also believe may be underserved by current treatment alternatives; in the treatment ofpatients with a HER2-negative breast cancer who have a HER2 mutation; and in tumor types whereHER2 is over-expressed or mutated. We intend to further evaluate the safety and efficacy of neratinibfor treating these cancers.
Focus on developing innovative cancer therapies. We focus on oncology drug candidates in order tocapture efficiencies and economies of scale. We believe that drug development for cancer markets isparticularly attractive because relatively small clinical trials can provide meaningful informationregarding patient response and safety. Furthermore, we believe that our capabilities are well suited tothe oncology market and represent distinct competitive advantages.
Build a sustainable pipeline by employing multiple therapeutic approaches and disciplined decisioncriteria based on clearly defined proof of principal goals. We seek to build a sustainable productpipeline by employing multiple therapeutic approaches and by acquiring drug candidates belonging toknown drug classes. In addition, we employ disciplined decision criteria to assess drug candidates,favoring drug candidates that have undergone at least some clinical study. Our decision to license adrug candidate will also depend on the scientific merits of the technology; the costs of the transactionand other economic terms of the proposed license; the amount of capital required to develop thetechnology; and the economic potential of the drug candidate, should it be commercialized. We believethis strategy minimizes our clinical development risk and allows us to accelerate the development andpotential commercialization of current and future drug candidates. We intend to pursue regulatoryapproval for a majority of our drug candidates in multiple indications.
Evaluate the commercialization strategies on a product-by-product basis in order to maximize thevalue of each. As we move our drug candidates through development toward regulatory approval, wewill evaluate several options for each drug candidate's commercialization strategy. These optionsinclude building our own internal sales force; entering into a joint marketing partnership with anotherpharmaceutical or biotechnology company, whereby we jointly sell and market the product; and out-licensing our product, whereby another pharmaceutical or biotechnology company sells and marketsour product and pays us a royalty on sales. Our decision will be made separately for each product andwill be based on a number of factors including capital necessary to execute on each option, size of themarket to be addressed and terms of potential offers from other pharmaceutical and biotechnologycompanies. It is too early for us to know which of these options we will pursue for our drug candidates,assuming their successful development.
Product Development Pipeline
Breast Cancer Overview
Breast cancer is the leading cause of cancer death among women worldwide, with approximately 1 million
new cases reported each year and more than 400,000 deaths per year. Approximately 20% to 25% of breastcancer tumors show over-expression of the HER2 protein. Women with breast cancer that over-expresses HER2are at greater risk for disease progression and death than women whose tumors do not over-express HER2.
Therapeutic strategies have been developed to block HER2 in order to improve the treatment of this cancer.
Trastuzumab, pertuzumab and T-DM1 are drugs that bind to the HER2 protein and thereby cause the cells to
cease reproducing. Trastuzumab and pertuzumab given in combination with chemotherapy is the current first-linestandard of care for HER2-positive metastatic breast cancer. Lapatinib is a small molecule that also binds to theHER2 protein and causes the cell to cease reproducing. Lapatinib given in combination with the chemotherapydrug capecitabine is FDA-approved for the treatment of patients who have failed prior treatments. Unfortunately,most patients with HER2-positive breast cancer eventually develop resistance to these treatments, resulting indisease progression. For these reasons, there is a need for alternatives to block HER2 signaling in patients whofail treatment with prior HER2 directed treatments. PB272 is an orally active small molecule that inhibits HER2at a different site and uses a different mechanism than trastuzumab. As a result, we believe that PB272 may haveutility in patients with HER2-positive metastatic breast cancer who have failed treatment with trastuzumab. Webelieve that there are approximately 36,000 patients in the United States and 34,000 patients in the EuropeanUnion, or EU, with newly diagnosed HER2-positive breast cancer, representing an estimated total marketopportunity between $1 billion and $2 billion. We also believe that there are between 5,000 and 6,000 patients inthe United States with third-line or later HER2-positive metastatic breast cancer. In 2013, worldwide sales ofTykerb for this indication were approximately $325 million.
The following chart shows each of our current drug candidates and their clinical development stage:
Combination with Xeloda
Combination with Torisel
Metastatic Breast
Single agent / combination
Cancer with Brain Mets
Combination with chemotherapy
Combination with Paclitaxel
Adjuvant Breast
Single agent
PB272 (oral)
HER2 Mutated NSCLC
Combination and Single agent
PB272 (oral)
HER2 Mutated
Single agent
PB272 (oral)
HER2 Mutated
Single agent
Solid Tumors
PB272 (neratinib (oral))—Breast Cancer
Neratinib is a potent irreversible tyrosine kinase inhibitor, or TKI, that blocks signal transduction through
the epidermal growth factor receptors, HER1, HER2 and HER4. We believe neratinib has clinical application inthe treatment of several cancers, including breast cancer, non-small cell lung cancer and other tumor types thatover-express or have a mutation in HER2.
Advantages of Neratinib
Based on pre-clinical studies and clinical trials to date, we believe that neratinib may offer an advantage
over existing treatments that are used in the treatment of patients with HER2-positive metastatic breast cancerwho have failed prior treatments, including treatment with trastuzumab, pertuzumab, and T-DM1. Currently, thetreatment of metastatic breast cancer patients involves treatment with these agents either alone or in combinationwith chemotherapy. We believe that by more potently inhibiting HER2 at a different site and acting via amechanism different from other agents, neratinib may have therapeutic benefits in patients who have failed theseexisting treatments, most notably due to its increased selectivity and stronger inhibition of the HER2 targetenzyme.
PB272 (neratinib (intravenous))—Breast Cancer
We also plan to develop neratinib as an intravenously administered agent. In pre-clinical studies, the
intravenous version of neratinib resulted in higher exposure levels of neratinib in pre-clinical models. We believethat this may result in higher blood levels of neratinib in patients, which may translate into better efficacy. We planto file an Investigational New Drug Application, or IND, for the intravenous formulation of neratinib in 2014.
PB357 is an orally administered agent that is an irreversible TKI that blocks signal transduction through the
epidermal growth factor receptors, HER1, HER2 and HER4. PB357 is structurally similar to PB272. Pfizer hadcompleted single dose Phase I trials of PB357. We are evaluating PB357 and considering options relative to itsdevelopment in 2014.
Clinical Trials of Neratinib in Patients with Metastatic Breast Cancer
Trials of Neratinib as a Single Agent. In 2009, Pfizer presented data at the CTRC-AACR San Antonio
Breast Cancer Symposium from a Phase II trial of neratinib administered as a single agent to patients withHER2-positive metastatic breast cancer. Final results from this trial were published in the Journal of ClinicalOncology in March 2010.
The trial involved a total of 136 patients, 66 of whom had received prior treatment with trastuzumab and
70 of whom had not received prior treatment with trastuzumab. The results of the study showed that neratinibwas reasonably well-tolerated among both the pretreated patients and the patients who had not received priortreatment with trastuzumab. Diarrhea was the most common side effect, but was manageable with antidiarrhealagents and dose modification. Efficacy results from the trial showed that the objective response rate was 24% forpatients who had received prior trastuzumab treatment and 56% for patients with no prior trastuzumab treatment.
Furthermore, the median PFS was 22.3 weeks for the patients who had received prior trastuzumab and 39.6weeks for the patients who had not received prior trastuzumab.
Trials of Neratinib in Combination with Other Anti-Cancer Drugs. At the 2010 CTRC-AACR San Antonio
Breast Cancer Symposium, Pfizer presented data from Phase II trials of neratinib when given in combination withother anti-cancer drugs that are currently used for the treatment of HER2-positive metastatic breast cancer. OnePhase II trial evaluated the safety and efficacy of neratinib given in combination with the anti-cancer drug paclitaxelin patients with HER2-positive metastatic breast cancer. The results presented showed that, for the 66 patients in thetrial who had previously been treated with at least one prior line of therapy, the combination of neratinib withpaclitaxel was shown to have a favorable safety profile that was similar to that of each drug when given alone. Theefficacy results from the trial demonstrated an objective response rate of 74% and PFS of 63.1 weeks.
Pfizer also presented data from a second Phase II trial at the 2010 CTRC-AACR San Antonio Breast Cancer
Symposium, which evaluated the safety and efficacy of neratinib when given in combination with the anti-cancerdrug vinorelbine in patients with HER2-positive metastatic breast cancer. In the 56 patients who had not beenpreviously treated with the anti-HER2 therapy lapatinib, treatment with the combination of vinorelbine plusneratinib resulted in an overall response rate of 57% and PFS was 44.1 weeks. For those patients who hadreceived prior treatment with lapatinib, the overall response rate was 50%. The combination of vinorelbine andneratinib was generally well tolerated.
Data from a third Phase II study, in which patients with confirmed HER2-positive metastatic breast cancer
who had failed treatment with trastuzumab and taxane chemotherapy were given PB272 in combination withcapecitabine, was presented at the 2011 CTRC-AACR San Antonio Breast Cancer Symposium. The results of thestudy showed that the combination of PB272 and capecitabine had acceptable tolerability. The efficacy resultsfrom the trial showed that for the 61 patients in the trial who had not been previously treated with the HER2targeted anti-cancer drug lapatinib, there was an overall response rate of 64% and a clinical benefit rate of 72%.
In addition, for the seven patients in the trial who had previously been treated with lapatinib, there was an overallresponse rate of 57% and a clinical benefit rate of 71%. The median PFS for patients who had not received priortreatment with lapatinib was 40.3 weeks and the median PFS for the patients who had received prior lapatinibtreatment was 35.9 weeks.
In February 2013, we announced that we reached agreement with the FDA under an SPA for our planned
Phase III clinical trial of PB272 in patients with HER2-positive metastatic breast cancer who have failed two ormore prior treatments (third-line disease). The SPA is a written agreement between us, as the trial's sponsor, andthe FDA regarding the design, endpoints, and planned statistical analysis of the Phase III trial with respect to theeffectiveness of PB272 for the indication to be studied to support a New Drug Application, or NDA. The EMAhas also provided follow-on SA consistent with that of the FDA regarding our Phase III trial design andendpoints to be used and ability of such design to support the submission of an MAA in the EU.
Pursuant to the SPA and SA, the Phase III trial is designed as a randomized study of PB272 plus
capecitabine versus Tykerb plus capecitabine in patients with third-line HER2-positive metastatic breast cancer.
The trial is expected to enroll approximately 600 patients who will be randomized (1:1) to receive either PB272plus capecitabine or Tykerb plus capecitabine. The trial will be conducted at approximately 150 sites in NorthAmerica, Europe and Asia-Pacific. The agreed upon co-primary endpoints of the trial are PFS and overallsurvival. Our plan is to use the PFS data from the trial as the basis for submission of an NDA/MAA forAccelerated/Conditional Approval for PB272 from the regulatory agencies. We commenced patient enrollment inthis Phase III trial in the second quarter of 2013.
In 2010, Pfizer also initiated a Phase I/II trial of neratinib in combination with the anti-cancer drug
temsirolimus, or Torisel, in patients with HER2-positive metastatic breast cancer who have failed multiple priortreatments. The study enrolled patients with either HER2-positive metastatic breast cancer and diseaseprogression on trastuzumab or with triple-negative breast cancer. The updated Phase II results of this trial werepresented at the 2011 CTRC-AACR San Antonio Breast Cancer Symposium. The results of the study showedthat the combination of PB272 and temsirolimus had acceptable tolerability. The efficacy results from the trialshowed that for the 27 evaluable patients, 12 patients, or 44%, experienced a partial response and one patient, or4%, experienced prolonged stable disease for greater than six months, which translates to a clinical benefit rate of48%. Patients who experienced a partial response to the combination of neratinib plus temsirolimus demonstrateda maximum change in the size of their target lesions of between 33% and 83%. Clinical benefit was seen inpatients previously treated with trastuzumab as well as lapatinib, T-DM1 and pertuzumab. Enrollment in this trialis continuing and we expect additional data from this trial to be presented in 2014. The Company also intends toprogress the combination of PB272 and temsirolimus into Phase III trials and currently anticipates that it willcommence Phase III trials of the combination in 2014.
Approximately one-third of the patients with HER2-positive metastatic breast cancer develop metastases that
spread to their brain. The current antibody-based treatments, including Herceptin, Perjeta and T-DM1, do not enterthe brain and therefore are not believed to be effective in treating these patients. In a Phase II trial with Tykerb givenas a single agent, Tykerb demonstrated a 6% objective response rate in the patients with HER2-positive metastaticbreast cancer whose disease spread to their brain. In January 2012, a Phase II trial of neratinib as a single agent andin combination with the anticancer drug capecitabine in patients with HER2-positive metastatic breast cancer thathas spread to their brain was initiated in conjunction with the Dana Farber Translational Breast Cancer ResearchConsortium. We anticipate that results from this trial will be presented in 2014.
At the 2010 CTRC-AACR San Antonio Breast Cancer Symposium, the results of the Neoadjuvant Lapatinib
and/or Trastuzumab Treatment Optimisation) Study, or the Neo-ALTTO study, were presented. In this trial, patientswith HER2-positive breast cancer were randomized to receive either the combination of paclitaxel plus trastuzumab,the combination of paclitaxel plus lapatinib or the combination of paclitaxel plus trastuzumab plus lapatinib, aneoadjuvant (preoperative) therapy. The results of the trial demonstrated that the patients who received thecombination of paclitaxel plus trastuzumab demonstrated a pathological complete response rate, or pCR, in the
breast and lymph nodes of 27.6%, the patients who received paclitaxel plus lapatinib had a pCR of 20.0% and thepatients who received the combination of paclitaxel plus trastuzumab plus lapatinib had a pCR of 46.8%.
Also at the 2010 CTRC-AACR San Antonio Breast Cancer Symposium, the results of the Neo-Sphere study
were presented. In this trial, patients with HER2-positive breast cancer were randomized to receive either thecombination of docetaxel plus trastuzumab, the combination of docetaxel plus pertuzumab, the combination oftrastuzumab plus pertuzumab or the combination of docetaxel plus trastuzumab plus pertuzumab, as aneoadjuvant (preoperative) therapy. The results of the trial demonstrated that the patients who received thecombination of docetaxel plus trastuzumab demonstrated a pCR in the breast and lymph nodes of 21.5%, thepatients who received docetaxel plus pertuzumab had a pCR of 17.7%, the patients who received pertuzumabplus trastuzumab had a pCR of 11.2% and the patients who received the combination of docetaxel plustrastuzumab plus pertuzumab had a pCR of 39.3%.
In 2010, Pfizer, in collaboration with the National Surgical Adjuvant Breast and Bowel Project, or NSABP,
a clinical trials cooperative group supported by the National Cancer Institute, or NCI, initiated a study toinvestigate the use of neratinib as a neoadjuvant (preoperative) therapy for newly diagnosed HER2-positivebreast cancer. In this trial, a total of 129 patients are randomized to receive either neratinib plus thechemotherapy drug paclitaxel or trastuzumab plus paclitaxel prior to having surgery to remove their tumors. Thepurpose of this study is to test whether adding neratinib to paclitaxel chemotherapy is better than trastuzumabplus paclitaxel chemotherapy before having surgery. This trial was modified in 2012 to include a third treatmentarm where patients will receive the combination of neratinib plus trastuzumab plus paclitaxel prior to havingsurgery to remove their tumors. Enrollment in all three arms of this trial is ongoing and we anticipate that theresults of this trial will be presented in 2014.
I-SPY 2 Trial. In 2010, the Foundation for the National Institutes of Health initiated the I-SPY 2 TRIAL
(Investigation of Serial Studies to Predict Your Therapeutic Response with Imaging And moLecular Analysis 2).
The I-SPY 2 TRIAL is a randomized Phase II clinical trial for women with newly diagnosed Stage 2 or higher(tumor size at least 2.5 cm) breast cancer that addresses whether adding investigational drugs to standardchemotherapy in the neoadjuvant setting is better than standard chemotherapy. The primary endpoint is pCR inthe breast and the lymph nodes at the time of surgery. The goal of the trial is to match investigational regimenswith patient subsets on the basis of molecular characteristics, referred to as biomarker signatures, that benefitfrom the regimen.
In December 2013, we announced top line results from the I-SPY 2 TRIAL. The I-SPY 2 TRIAL involves
an adaptive trial design based on Bayesian predictive probability that a regimen will be shown to be statisticallysuperior to standard therapy in an equally randomized 300-patient confirmatory trial. Regimens that have a highBayesian predictive probability of showing superiority in at least one of 10 predefined signatures graduate fromthe trial. Regimens are dropped for futility if they show a low predictive probability of showing superiority overstandard therapy in all 10 signatures. A maximum total of 120 patients can be assigned to each experimentalregimen. A regimen can graduate early and at any time after having 60 patients assigned to it. The neratinib-containing regimen, which was neratinib plus paclitaxel followed by doxorubicin and cyclophosphamide,graduated from the I-SPY 2 TRIAL based on having a high probability of success in Phase III with a signature ofHER2-positive/HR-negative. In this group, treatment with the neratinib containing regimen resulted in a higherpCR rate compared to the control arm, which was standard neoadjuvant chemotherapy: paclitaxel in combinationwith Herceptin (trastuzumab) followed by doxorubicin and cyclophosphamide. The Bayesian probability ofsuperiority for the neratinib-containing regimen compared to standard therapy was 94.7%, which is analogous toa p-value of 0.053. In addition, the Bayesian predictive probability of showing statistical superiority in a 300-patient Phase III randomized trial of paclitaxel plus neratinib versus paclitaxel plus trastuzumab, both followedby doxorubicin/cyclophosphamide, was 78.1%.
There were 115 patients assigned to neratinib in the trial, including 65 patients who were HER2-positive.
For the patients in the trial who were HER2-positive, including those who were either hormone receptor positiveor negative, treatment with the neratinib-containing regimen also resulted in a higher pCR rate compared to the
control arm. The Bayesian probability of superiority for the neratinib-containing regimen was 95.3%, which isanalogous to a p-value of 0.047. In addition, the Bayesian predictive probability of showing statistical superiorityin a 300-patient Phase III randomized trial of paclitaxel plus neratinib versus paclitaxel plus trastuzumab was72.5%. Based on the results from the I-SPY 2 TRIAL, neratinib is now eligible for the upcoming I-SPY 3 PhaseIII trial. We intend to provide additional detail regarding the results of the I-SPY 2 TRIAL for PB272 at ascientific meeting during 2014.
Safety Database. Our safety database includes over 3,000 patients that have been treated with neratinib. To
date, the most significant grade 3 or higher adverse event associated with neratinib has been diarrhea, whichoccurs in approximately 30% of patients receiving the drug. Historically, once diarrhea occurred, patients weretreated with loperamide and/or a reduction in the dose of neratinib. We have evaluated a prophylactic protocolpursuant to which a high dose of loperamide, approximately 16 mg, is given together with the initial dose ofneratinib and then tapered down during the first cycle of treatment. In early 2013, an analysis of 24 patients thathad received this loperamide prophylaxis protocol together with neratinib showed that none of the patients hadgrade 3 or higher diarrhea. We plan to continue evaluating this protocol and expect that this treatment will helpsignificantly reduce the incidence of diarrhea.
Discontinued Pfizer Legacy Studies. Pfizer had previously sponsored two additional clinical trials of
neratinib. The first trial, referred to as the NEfERTT™ trial, was a Phase II randomized trial of neratinib incombination with the anti-cancer drug paclitaxel versus trastuzumab in combination with paclitaxel for thetreatment of patients who have not receive previous treatment for HER2-positive metastatic breast cancer. Thesecond trial, referred to as the ExteNET™ trial, was a Phase III study investigating the effects of neratinib afteradjuvant trastuzumab in patients with early stage breast cancer. In October 2011, enrollment in the ExteNET trialwas halted at approximately 2,800 patients and the NefERTT trial had completed enrollment at approximately450 patients. We anticipate that results from the ExteNET and NefERTT trials will be reported in 2014.
PB272 (neratinib (oral))—Other Potential Applications
Approximately 2% to 4% of patients with non-small cell lung cancer have a HER2 mutation in the kinase
domain. This mutation is believed to narrow the ATP binding cleft which results in increased tyrosine kinaseactivity. The mutation is also believed to result in increased PI3K activity and mTOR activation. Published datasuggests that patients with HER2 mutated non-small cell lung cancer do not respond to platinum chemotherapyand do not respond to epidermal growth factor receptor inhibitors. Pfizer previously conducted a Phase I trial ofneratinib given in combination with the anti-cancer drug temsirolimus in patients with solid tumors. In this trial,seven patients with HER2 mutated non-small cell lung cancer were enrolled in the trial. These patients hadreceived a median of three prior treatments for their disease. The results from the trial were presented at the 2011American Society of Clinical Oncology (ASCO) Annual Meeting and at the 2012 International Association forthe Study of Lung Cancer meeting and demonstrated that, for the six evaluable patients, two patients, or 33%,demonstrated a partial radiological response and three patients had stable disease evidenced by tumor shrinkageof between approximately 5% and 28%. We are currently enrolling a Phase II randomized trial of neratinib plustemsirolimus versus neratinib monotherapy in patients with HER2 mutated non-small cell lung cancer. Weanticipate that data from this trial will be presented in 2014.
A new HER2 mutation in patients with HER2-negative breast cancer was identified as part of a study
performed by the Cancer Genome Atlas Network and published in Cancer Discovery in December 2012. Webelieve this mutation may occur in an estimated 2% of patients with breast cancer. Pre-clinical data from thispublication demonstrated that neratinib was active in pre-clinical models of HER2-negative breast cancer that havethis HER2 mutation and that neratinib has more anti-cancer activity than either trastuzumab or lapatinib in cellswith this mutation. A Phase II trial of neratinib in HER2-negative breast cancer patients who have a HER2 mutationopened for enrollment in December 2012. We anticipate that data from this trial will be reported in 2014.
Basket Trial for HER2 Mutation-Positive Solid Tumors
Based on the results from the Cancer Genome Atlas Study we estimate that between 2% and 11% of each
solid tumor has a mutation in HER2. In the United States, this includes new diagnoses of an estimated 7,000 -7,500 patients with bladder cancer; 4,000 - 4,500 patients with colorectal cancer; 1,500 - 2,000 patients withglioblastoma; 1,000 patients with melanoma; 4,000 - 5,000 patients with prostate cancer; 1,000 patients withstomach cancer and 1,000 - 2,000 patients with uterine cancer.
In October 2013, we announced that we had initiated a Phase II clinical trial of neratinib as a single agent in
patients with solid tumors that have an activating HER2 mutation (basket trial). The Phase II basket trial is anopen-label, multicenter, multinational study to evaluate the safety and efficacy of PB272 administered daily topatients who have solid tumors with activating HER2 mutations. The study initially included six cohorts(baskets) of patients, each of which will include one of the following cancers: (1) bladder/urinary tract cancer;(2) colorectal cancer; (3) endometrial cancer; (4) gastric/esophageal cancer; (5) ovarian cancer; and (6) all othersolid tumors (including prostate, melanoma and pancreatic cancer). Each basket will initially consist of sevenpatients. If a certain predetermined objective response rate is seen in the initial cohort of seven patients, thebasket will be expanded to include a larger number of patients. Additionally, we expect to add two additionalbaskets to the basket trial this year to enroll patients with epidermal growth factor receptor mutated brain tumorsand patients with HER3 mutations. We anticipate that the initial clinical data from this trial will be presented in2014.
We also plan to develop neratinib as an intravenously administered agent. The intravenous version of
neratinib resulted in higher exposure levels of neratinib in pre-clinical models. We believe that this may result inhigher blood levels of neratinib in patients, and may translate into enhanced efficacy. We plan to file an IND forthe intravenous formulation of neratinib in 2014 or 2015.
PB357 is an orally administered agent that is an irreversible TKI that blocks signal transduction through the
epidermal growth factor receptors, HER1, HER2 and HER4. PB357 is structurally similar to PB272. Pfizercompleted single-dose Phase I trials of PB357. We are evaluating PB357 and considering options relative to itsdevelopment in 2014.
Clinical Testing of Our Products in Development
Each of our products in development, and likely all future drug candidates we in-license, will require
extensive pre-clinical and clinical testing to determine the safety and efficacy of the product applications prior toseeking and obtaining regulatory approval. This process is expensive and time-consuming. In completing thesetrials, we are dependent upon third-party consultants, consisting mainly of investigators and collaborators, whowill conduct such trials.
We and our third-party consultants conduct pre-clinical testing in accordance with Good Laboratory
Practices, or GLP, and clinical testing in accordance with Good Clinical Practice standards, or GCP, which areinternational ethical and scientific quality standards utilized for pre-clinical and clinical testing, respectively.
GCP is the standard for the design, conduct, performance, monitoring, auditing, recording, analysis and reportingof clinical trials, and the FDA requires compliance with GCP regulations in the conduct of clinical trials.
Additionally, our pre-clinical and clinical testing completed in the EU is conducted in accordance with applicableEU standards, such as the EU Clinical Trials Directive (Directive 2001/20/EC of April 4, 2001), or the EUClinical Trials Directive, and the national laws of the Member Estates of the EU implementing its provisions.
We have entered into, and may enter into in the future, master service agreements with clinical research
organizations, or CROs, with respect to initiating, managing and conducting the clinical trials of our products.
These contracts contain standard terms for the type of services provided and contain cancellation clauses thatrequire between 30 and 45 days written notice and that obligate us to pay for any services previously renderedwith prepaid, unused funds being returned to us.
The development and commercialization of new products to treat cancer is highly competitive and we
expect considerable competition from major pharmaceutical, biotechnology and specialty cancer companies. As aresult, there are and will likely continue to be, extensive research and substantial financial resources invested inthe discovery and development of new cancer products. Our potential competitors include, but are not limited to,Genentech, GlaxoSmithKline, Roche, Boehringer Ingelheim, Takeda, Array Biopharma and Ambit Biosciences.
We are an early-stage company with no history of operations and we recently acquired the rights to the drugcandidates we expect to develop. Many of our competitors have substantially more financial and technicalresources than we do. In addition, many of our competitors have more experience than we have in pre-clinicaland clinical development, manufacturing, regulatory and global commercialization. We are also competing withacademic institutions, governmental agencies and private organizations that are conducting research in the fieldof cancer. We anticipate that we will face intense competition.
We expect that our products under development and in clinical trials will address major markets within the
cancer sector. Our competition will be determined in part by the potential indications for which drugs aredeveloped and ultimately approved by regulatory authorities. Additionally, the timing of market introduction ofsome of our potential products or of competitors' products may be an important competitive factor. Accordingly,the speed with which we can develop products, complete pre-clinical testing, clinical trials and approvalprocesses, and supply commercial quantities to market are expected to be important competitive factors. Weexpect that competition among products approved for sale will be based on various factors, including productefficacy, safety, reliability, availability, price, reimbursement and patent position.
Intellectual Property and License Agreements
We hold a worldwide exclusive license under our license agreement with Pfizer to four granted U.S. patents
and nine pending U.S. patent applications, as well as foreign counterparts thereof, and other patent applicationsand patents claiming priority therefrom.
In the United States, we have a license to an issued patent, which currently will expire in 2025, for the
composition of matter of neratinib, our lead compound. We have a license to an issued U.S. patent covering afamily of compounds including neratinib, as well as equivalent patents in the European Union and Japan, thatcurrently expire in 2019. We also have a license to an issued U.S. patent for the use of neratinib in the treatmentof breast cancer, which currently expires in 2025, and an issued U.S. polymorph patent for neratinib, whichcurrently expires in 2028. In jurisdictions which permit such, we will seek patent term extensions where possiblefor certain of our patents. We plan to pursue additional patents in and outside the United States coveringadditional therapeutic uses and polymorphs of neratinib from these existing applications. In addition, we willpursue patent protection for any new discoveries or inventions made in the course of our development ofneratinib.
If we obtain marketing approval for neratinib or other drug candidates in the United States or in certain
jurisdictions outside the United States, we may be eligible for regulatory protection, such as five years of newchemical entity exclusivity and, as mentioned above, up to five years of patent term extension potentiallyavailable in the United States under the Hatch-Waxman Act. In addition, eight to 11 years of data and marketingexclusivity potentially are available for new drugs in the European Union; up to five years of patent extension arepotentially available in Europe (Supplemental Protection Certificate), and eight years of data exclusivity are
potentially available in Japan. There can be no assurance that we will qualify for any such regulatory exclusivity,or that any such exclusivity will prevent competitors from seeking approval solely on the basis of their ownstudies. See "Government Regulation" below.
The intellectual property portfolio that was licensed from Pfizer in 2011 when we licensed neratinib
included issued patents in a number of countries, including in Europe (EP 1848414) as well as pending patentapplications in several countries, including the United States relating to methods of treating gefitinib and/orerlotinib resistant cancer. More specifically, the patent that was issued in Europe in April 2011 included specificclaims that included a pharmaceutical composition for use in treating cancer in a subject with a cancer having amutation in epidermal growth factor receptor with a T790M mutation. On November 28, 2011, BoehringerIngelheim International GmbH filed an opposition to this patent asking for this patent to be revoked. The OralProceedings of the European Patent Office were held in Munich, Germany on February 4, 2014. The decision ofthe European Patent Office was to uphold the granted claims of the European patent that relate to the T790Mmutation without any modification. This included specific claims that include claims for the pharmaceuticalcomposition comprising an irreversible epidermal growth factor receptor inhibitor for use in treating cancer in asubject having a T790M mutation, and claims for the pharmaceutical composition for use in the treatment ofnumerous cancers, including lung cancer and non-small cell lung cancer.
Our goal is to obtain, maintain and enforce patent protection for our products, formulations, processes,
methods and other proprietary technologies, preserve our trade secrets, and operate without infringing on theproprietary rights of other parties, both in the United States and in other countries. Our policy is to actively seekto obtain, where appropriate, the broadest intellectual property protection possible for our current productcandidates and any future product candidates, proprietary information and proprietary technology through acombination of contractual arrangements and patents, both in the United States and abroad. However, even patentprotection may not always provide us with complete protection against competitors who seek to circumvent ourpatents. See "Risk Factors—Risks Related to Our Intellectual Property—Our proprietary rights may notadequately protect our intellectual property and potential products, and if we cannot obtain adequate protection ofour intellectual property and potential products, we may not be able to successfully market our potentialproducts."
We depend upon the skills, knowledge and experience of our scientific and technical personnel, as well as
that of our advisors, consultants and other contractors, none of which is patentable. To help protect ourproprietary know-how, which is not patentable, and inventions for which patents may be difficult to obtain orenforce, we rely on trade secret protection and confidentiality agreements to protect our interests. To this end, werequire all of our employees, consultants, advisors and other contractors to enter into confidentiality agreementsthat prohibit the disclosure of confidential information and, where applicable, require disclosure and assignmentto us of the ideas, developments, discoveries and inventions important to our business.
In August 2011, Former Puma entered into an agreement pursuant to which Pfizer agreed to grant to Former
Puma a worldwide license for the development, manufacture and commercialization of neratinib (oral), neratinib(intravenous), PB357, and certain related compounds. Pursuant to the terms of the agreement, the license wouldnot become effective until Former Puma closed a capital raising transaction in which it raised at least $25 millionin aggregate net proceeds and had a net worth of at least $22.5 million. Upon the closing of the financing thatpreceded the Merger, this condition was satisfied.
We assumed the license agreement, in accordance with its terms, in the Merger. The license is exclusive
with respect to certain patent rights owned or licensed by Pfizer. Under the license agreement, Pfizer is obligatedto transfer to us certain information, records, regulatory filings, materials and inventory controlled by Pfizer andrelating to or useful for developing these compounds and to continue to conduct certain ongoing clinical studiesuntil a certain time. After that time, we are obligated to continue such studies pursuant to an approveddevelopment plan, including after the license agreement terminates for reasons unrelated to Pfizer's breach of the
license agreement, subject to certain specified exceptions. We are also obligated to commence a new clinical trialfor a product containing one of these compounds within a specified period of time and use commerciallyreasonable efforts to complete such trial and achieve certain milestones as provided in a development plan. Ifcertain of our out-of-pocket costs in completing such studies exceed a mutually agreed amount, Pfizer will payfor certain additional out-of-pocket costs to complete such studies. We must use commercially reasonable effortsto develop and commercialize products containing these compounds in specified major-market countries andother countries in which we believe it is commercially reasonable to develop and commercialize such products.
As consideration for the license, we are required to make payments totaling $187.5 million upon the
achievement of certain milestones if all such milestones are achieved. Should we commercialize any of thecompounds licensed from Pfizer or any products containing any of these compounds, we will be obligated to payto Pfizer incremental annual royalties between approximately 10% and 20% of net sales of all such products,subject, in some circumstances, to certain reductions. Our royalty obligation continues, on a product-by-productand country-by-country basis, until the later of (i) the last to expire valid claim of a licensed patent covering theapplicable licensed product in such country, or (ii) the earlier of generic competition for such licensed productreaching a certain level of sales in such country or expiration of a certain time period after first commercial saleof such licensed product in such country. In the event that we sublicense the rights granted to us under the licenseagreement with Pfizer to a third party, the same milestone and royalty payments are required. We can terminatethe license agreement at will at any time after April 4, 2013, or for safety concerns, in each case upon specifiedadvance notice. Each party may terminate the license agreement if the other party fails to cure any breach of amaterial obligation by such other party within a specified time period. Pfizer may terminate the licenseagreement in the event of our bankruptcy, receivership, insolvency or similar proceeding. The license agreementcontains other customary clauses and terms as are common in similar agreements in the industry.
United States—FDA Process
The research, development, testing, manufacture, labeling, promotion, advertising, distribution and
marketing, among other things, of drug products are extensively regulated by governmental authorities in theUnited States and other countries. In the United States, the FDA regulates drugs under the Federal Food, Drug,and Cosmetic Act, or the FDCA, and its implementing regulations. Failure to comply with the applicable U.S.
requirements may subject us to administrative or judicial sanctions, such as FDA refusal to approve pendingNDAs, warning letters, fines, civil penalties, product recalls, product seizures, total or partial suspension ofproduction or distribution, injunctions and/or criminal prosecution.
Drug Approval Process. None of our drug product candidates may be marketed in the United States until the
drug has received FDA approval. The steps required before a drug may be marketed in the United Statesgenerally include the following:
completion of extensive pre-clinical laboratory tests, animal studies, and formulation studies inaccordance with the FDA's GLP regulations;
submission to the FDA of an IND for human clinical testing, which must become effective beforehuman clinical trials may begin;
performance of adequate and well-controlled human clinical trials to establish the safety and efficacyof the drug for each proposed indication;
submission to the FDA of an NDA after completion of all pivotal clinical trials;
satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities atwhich the active pharmaceutical ingredient, or API, and finished drug product are produced and testedto assess compliance with current Good Manufacturing Practices, or cGMPs; and
FDA review and approval of the NDA prior to any commercial marketing or sale of the drug in theUnited States.
The development and approval process requires substantial time, effort and financial resources, and we
cannot be certain that any approvals for our product candidates will be granted on a timely basis, if at all.
Pre-clinical tests include laboratory evaluation of product chemistry, toxicity and formulation, as well as
animal studies. The conduct of the pre-clinical tests and formulation of the compounds for testing must complywith federal regulations and requirements. The results of the pre-clinical tests, together with manufacturinginformation and analytical data, are submitted to the FDA as part of an IND, which must become effective beforehuman clinical trials may begin. An IND will automatically become effective 30 days after receipt by the FDA,unless before that time the FDA raises concerns or questions about the conduct of the trial, such as whetherhuman research subjects will be exposed to an unreasonable health risk. In such a case, the IND sponsor and theFDA must resolve any outstanding FDA concerns or questions before clinical trials can proceed. We cannot besure that submission of an IND will result in the FDA allowing clinical trials to begin.
Clinical trials involve administration of the investigational drug to human subjects under the supervision of
qualified investigators. Clinical trials are conducted under protocols detailing the objectives of the study, theparameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol must beprovided to the FDA as part of a separate submission to the IND. Further, an Institutional Review Board, or IRB,for each medical center proposing to conduct the clinical trial must review and approve the study protocol andinformed consent information for study subjects for any clinical trial before it commences at that center, and theIRB must monitor the study until it is completed. There are also requirements governing reporting of ongoingclinical trials and clinical trial results to public registries. Study subjects must sign an informed consent formbefore participating in a clinical trial. Clinical trials necessary for product approval typically are conducted inthree sequential phases, but the phases may overlap. Phase I usually involves the initial introduction of theinvestigational drug into a limited population, typically healthy humans, to evaluate its short-term safety, dosagetolerance, metabolism, pharmacokinetics and pharmacologic actions, and, if possible, to gain an early indicationof its effectiveness. Phase II usually involves trials in a limited patient population to (i) evaluate dosage toleranceand appropriate dosage; (ii) identify possible adverse effects and safety risks; and (iii) evaluate preliminarily theefficacy of the drug for specific targeted indications. Multiple Phase II clinical trials may be conducted by thesponsor to obtain information prior to beginning larger and more expensive Phase III clinical trials. Phase IIItrials, commonly referred to as pivotal studies, are undertaken in an expanded patient population at multiple,geographically dispersed clinical trial centers to further evaluate clinical efficacy and test further for safety byusing the drug in its final form. There can be no assurance that Phase I, Phase II or Phase III testing will becompleted successfully within any specified period of time, if at all. Furthermore, we, the FDA or an IRB maysuspend clinical trials at any time on various grounds, including a finding that the subjects or patients are beingexposed to an unacceptable health risk. Moreover, the FDA may approve an NDA for a product candidate, butrequire that the sponsor conduct additional clinical trials to further assess the drug after NDA approval under apost-approval commitment. Post-approval trials are typically referred to as Phase IV clinical trials.
During the development of a new drug, sponsors are given an opportunity to meet with the FDA at certain
points. These points may be prior to submission of an IND, at the end of Phase II, and before an NDA issubmitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsorto share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and theFDA to reach an agreement on the next phase of development. Sponsors typically use the end of Phase II meetingto discuss their Phase II clinical results and present their plans for the pivotal Phase III clinical trial that theybelieve will support approval of the new drug. A sponsor may request an SPA to reach an agreement with theFDA that the protocol design, clinical endpoints, and statistical analyses are acceptable to support regulatoryapproval of the product candidate with respect to effectiveness in the indication studied. If such an agreement isreached, it will be documented and made part of the administrative record, and it will be binding on the FDAexcept in limited circumstances, such as if the FDA identifies a substantial scientific issue essential todetermining the safety or effectiveness of the product after clinical studies begin, or if the sponsor fails to followthe protocol that was agreed upon with the FDA. There is no guarantee that a study will ultimately be adequate tosupport an approval, even if the study is subject to an SPA.
Concurrent with clinical trials, companies usually complete additional animal safety studies and must also
develop additional information about the chemistry and physical characteristics of the drug and finalize a processfor manufacturing the product in accordance with cGMP requirements. The manufacturing process must becapable of consistently producing quality batches of the drug candidate and the manufacturer must developmethods for testing the quality, purity and potency of the final drugs. Additionally, appropriate packaging mustbe selected and tested and stability studies must be conducted to demonstrate that the drug candidate does notundergo unacceptable deterioration over its shelf life.
Assuming successful completion of the required clinical testing, the results of pre-clinical studies and of
clinical trials, together with other detailed information, including information on the manufacture andcomposition of the drug, are submitted to the FDA in the form of an NDA requesting approval to market theproduct for one or more indications. An NDA must be accompanied by a significant user fee, which is waived forthe first NDA submitted by a qualifying small business. In July 2012, the Food and Drug Administration Safetyand Innovation Act, or FDASIA, was signed into law. Among other things, FDASIA reauthorizes the FDA'sauthority to collect user fees from industry participants to fund reviews of innovator drugs.
The testing and approval process requires substantial time, effort and financial resources. The FDA will
review the NDA and may deem it to be inadequate to support approval, and we cannot be sure that any approvalwill be granted on a timely basis, if at all. The FDA may also refer the application to the appropriate advisorycommittee, typically a panel of clinicians, for review, evaluation and a recommendation as to whether theapplication should be approved. The FDA is not bound by the recommendations of the advisory committee, but ittypically follows such recommendations.
Before approving an NDA, the FDA inspects the facility or the facilities at which the drug and/or its active
pharmaceutical ingredient is manufactured and will not approve the product unless the manufacturing is incompliance with cGMPs. If the FDA evaluates the NDA and the manufacturing facilities are deemed acceptable,the FDA may issue an approval letter, or in some cases a Complete Response Letter. The approval letterauthorizes commercial marketing of the drug for specific indications. As a condition of NDA approval, the FDAmay require post-marketing testing and surveillance to monitor the drug's safety or efficacy, or impose otherconditions. A Complete Response Letter indicates that the review cycle of the application is complete and theapplication is not ready for approval. A Complete Response Letter may require additional clinical data and/oradditional pivotal Phase III clinical trial(s), and/or other significant, expensive and time-consuming requirementsrelated to clinical trials, pre-clinical studies or manufacturing. Even if such additional information is submitted,the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data from clinical trials isnot always conclusive and the FDA may interpret data differently than we or our collaborators interpret data.
Alternatively, the FDA could also approve the NDA with a Risk Evaluation and Mitigation Strategy to mitigaterisks of the drug, which could include medication guides, physician communication plans, or elements to assuresafe use, such as restricted distribution methods, patient registries or other risk minimization tools. Once the FDAapproves a drug, the FDA may withdraw product approval if ongoing regulatory requirements are not met or ifsafety problems occur after the product reaches the market. In addition, the FDA may require testing, includingPhase IV clinical trials, and surveillance programs to monitor the safety effects of approved products that havebeen commercialized. The FDA has the power to prevent or limit further marketing of a product based on theresults of these post-marketing programs or other information.
Expedited Review and Approval. The FDA has various programs, including Fast Track designation, priority
review, accelerated approval, and breakthrough therapy designation, which are intended to expedite or simplify theprocess for reviewing drugs, and/or provide for approval on the basis of surrogate endpoints. Even if a drugqualifies for one or more of these programs, the FDA may later decide that the drug no longer meets the conditionsfor qualification or that the time period for FDA review or approval will not be shortened. Generally, drugs that maybe eligible for these programs are those for serious or life-threatening diseases or conditions, those with the potentialto address unmet medical needs, and those that offer meaningful benefits over existing treatments. For example,Fast Track is a designation designed to facilitate the development and expedite the review of drugs to treat serious
or life-threatening diseases or conditions and which demonstrate the potential to address an unmet medical need.
Priority review is designed to give drugs that offer major advances in treatment or provide a treatment where noadequate therapy exists an initial review within six months as compared to a standard review time of 10 monthsfrom the date the application is accepted for filing. Although Fast Track designation and priority review do notaffect the standards for approval, the FDA will attempt to facilitate early and frequent meetings with a sponsor of aFast Track designated drug and expedite review of the application for a drug designated for priority review. TheFDA may also initiate review of sections of an NDA before the application is complete for drugs with Fast Trackdesignation. This "rolling review" is available if the applicant provides and the FDA approves a schedule forsubmission of portions of the application. Accelerated approval provides an earlier approval of drugs to treat seriousor life-threatening diseases or conditions, including a Fast Track product, upon a determination that the product hasan effect on a surrogate endpoint, which is a laboratory measurement or physical sign used as an indirect orsubstitute measurement representing a clinically meaningful outcome, or on a clinical endpoint that can bemeasured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversiblemorbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the conditionand the availability or lack of alternative treatments. As a condition of approval, the FDA may require that a sponsorof a drug receiving accelerated approval perform post-marketing clinical trials. Breakthrough therapy designation isfor drugs intended, alone or in combination with one or more other drugs, to treat a serious or life-threateningdisease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantialimprovement over existing therapies on one or more clinically significant endpoints, such as substantial treatmenteffects observed early in clinical development. Drugs designated as breakthrough therapies receive all the benefitsof a Fast Track designation, as well as intensive guidance on efficient drug development and organizationalcommitment involving senior managers in the FDA. In June 2013, the FDA issued draft guidance on theseexpedited review and approval programs.
Post-Approval Requirements. After a drug has been approved by the FDA for sale, the FDA may require
that certain post-approval requirements be satisfied, including the conduct of additional clinical studies. Inaddition, certain changes to an approved product, such as adding new indications, making certain manufacturingchanges, or making certain additional labeling claims, are subject to further FDA review and approval. Before acompany can market products for additional indications, it must obtain additional approvals from the FDA,typically, and requires a new NDA. Obtaining approval for a new indication generally requires that additionalclinical studies be conducted. A company cannot be sure that any additional approval for new indications for anyproduct candidate will be approved on a timely basis, or at all.
If post-approval conditions are not satisfied, the FDA may withdraw its approval of the drug. In addition,
holders of an approved NDA are required to (i) report certain adverse reactions to the FDA and maintainpharmacovigilance programs to proactively look for these adverse events; (ii) comply with certain requirementsconcerning advertising and promotional labeling for their products; and (iii) continue to have quality control andmanufacturing procedures conform to cGMPs after approval. The FDA periodically inspects the sponsor'srecords related to safety reporting and/or manufacturing facilities; this latter effort includes assessment ofongoing compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money and effortin the area of production and quality control to maintain cGMP compliance. We intend to use third-partymanufacturers to produce our products in clinical and commercial quantities, and future FDA inspections mayidentify compliance issues at the facilities of our contract manufacturers that may disrupt production ordistribution, or require substantial resources to correct. In addition, discovery of problems with a product afterapproval may result in restrictions on a product, manufacturer or holder of an approved NDA, including recall ofthe product from the market or withdrawal of approval of the NDA for that drug.
Patent Term Restoration and Marketing Exclusivity. Depending upon the timing, duration and specifics of
FDA approval of the use of our drugs, some of our U.S. patents may be eligible for limited patent term extensionunder the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-WaxmanAmendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years ascompensation for patent term lost during product development and the FDA regulatory review process. However,
patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from theproduct's approval date. The patent term restoration period is generally one-half the time between the effectivedate of an IND and the submission date of an NDA, plus the time between the submission date of an NDA andthe approval of that application. Only one patent applicable to an approved drug is eligible for the extension andthe extension must be requested prior to expiration of the patent. The U.S. Patent and Trademark Office, orUSPTO, in consultation with the FDA, reviews and approves the application for any patent term extension orrestoration. In the future, we intend to apply for restorations of patent term for some of our currently owned orlicensed patents to add patent life beyond their current expiration date, depending on the expected length ofclinical trials and other factors involved in the submission of the relevant NDA.
Data and market exclusivity provisions under the FDCA also can delay the submission or the approval of
certain applications. The FDCA provides a five-year period of non-patent data exclusivity within theUnited States to the first applicant to gain approval of an NDA for a new chemical entity. A drug is a newchemical entity if the FDA has not previously approved any other new drug containing the same active moiety,which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, theFDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submittedby another company for another version of such drug where the applicant does not own or have a legal right ofreference to all the data required for approval. However, an application may be submitted after four years if itcontains a certification of patent invalidity or non-infringement. The FDCA also provides three years ofmarketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinicalinvestigations, other than bioavailability studies, conducted or sponsored by the applicant are deemed by theFDA to be essential to the approval of the application, for example, for new indications, dosages or strengths ofan existing drug. This three-year exclusivity covers only the conditions associated with the new clinicalinvestigations and does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for drugs containingthe original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a fullNDA; however, an applicant submitting a full NDA would be required to conduct, or obtain a right of referenceto all of the pre-clinical studies, adequate and well-controlled clinical trials necessary to demonstrate safety andeffectiveness.
In addition to regulations in the United States, we will be subject to a variety of foreign regulations
governing clinical trials and commercial sales and distribution of our products. Whether or not we obtain FDAapproval for a product, we must obtain approval by the comparable regulatory authorities of foreign countriesbefore we can commence clinical trials and approval of foreign countries or economic areas, such as theEuropean Union, before we may market products in those countries or areas. The approval process andrequirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatlyfrom place to place, and the time may be longer or shorter than that required for FDA approval.
In the European Economic Area, or EEA, which is comprised of the 27 member states of the European
Union, or Member States, plus Norway, Iceland and Liechtenstein, medicinal products can only becommercialized after obtaining a Marketing Authorization, or MA. There are two types of MAs:
Community MAs – These are issued by the European Commission through the Centralized Procedure,based on the opinion of the Committee for Medicinal Products for Human Use, or CHMP, of theEuropean Medicines Agency, or EMA, and are valid throughout the entire territory of the EEA. TheCentralized Procedure is mandatory for certain types of products, such as biotechnology medicinalproducts, orphan medicinal products, and medicinal products indicated for the treatment of AIDS,cancer, neurodegenerative disorders, diabetes, auto-immune and viral diseases. The CentralizedProcedure is optional for products containing a new active substance not yet authorized in the EEA; forproducts that constitute a significant therapeutic, scientific or technical innovation; or for products thatare in the interest of public health in the European Union.
National MAs – These are issued by the competent authorities of the Member States of the EEA andonly cover their respective territory, and are available for products not falling within the mandatoryscope of the Centralized Procedure. Where a product has already been authorized for marketing in aMember State of the EEA, this National MA can be recognized in another Member State through theMutual Recognition Procedure. If the product has not received a National MA in any Member State atthe time of application, it can be approved simultaneously in various Member States through theDecentralized Procedure. Under the Decentralized Procedure, an identical dossier is submitted to thecompetent authorities of each of the Member States in which the MA is sought, one of which isselected by the applicant as the Reference Member State. The competent authority of the ReferenceMember State prepares a draft assessment report, a draft summary of the product characteristics, orSPC, and a draft of the labeling and package leaflet, which are sent to the other Member States(referred to as the Member States Concerned) for their approval. If the Member States Concerned raiseno objections, based on a potential serious risk to public health, to the assessment, SPC, labeling orpackaging proposed by the Reference Member State, the product is subsequently granted a NationalMA in all the Member States, i.e., in the Reference Member State and the Member States Concerned.
Under the above described procedures, before granting the MA, the EMA or the competent authorities of the
Member States of the EEA assess the risk-benefit balance of the product on the basis of scientific criteriaconcerning its quality, safety and efficacy.
As in the United States, it may be possible in foreign countries to obtain a period of market and/or data
exclusivity that would have the effect of postponing the entry into the marketplace of a competitor's genericproduct. For example, if any of our products receive marketing approval in the EEA, we expect they will benefitfrom eight years of data exclusivity and ten years of marketing exclusivity. An additional non-cumulative one-year period of marketing exclusivity is possible if during the data exclusivity period (the first eight years of the10-year marketing exclusivity period), we obtain an authorization for one or more new therapeutic indicationsthat are deemed to bring a significant clinical benefit compared to existing therapies. The data exclusivity periodbegins on the date of the product's first marketing authorization in the European Union and prevents genericsfrom relying on the marketing authorization holder's pharmacological, toxicological and clinical data for a periodof eight years. After eight years, a generic product application may be submitted and generic companies may relyon the marketing authorization holder's data. However, a generic cannot launch until two years later (or a total of10 years after the first marketing authorization in the European Union of the innovator product), or three yearslater (or a total of 11 years after the first marketing authorization in the European Union of the innovator product)if the marketing authorization holder obtains marketing authorization for a new indication with significantclinical benefit within the eight-year data exclusivity period. In Japan, our products may be eligible for eightyears of data exclusivity. There can be no assurance that we will qualify for such regulatory exclusivity, or thatsuch exclusivity will prevent competitors from seeking approval solely on the basis of their own studies.
When conducting clinical trials in the European Union, we must adhere to the provisions of the European
Union Clinical Trials Directive and the laws and regulations of the European Union Member Statesimplementing them. These provisions require, among other things, that the prior authorization of an EthicsCommittee and the competent Member State authority is obtained before commencing the clinical trial.
Coverage and Reimbursement
In the United States and internationally, sales of products that we market in the future, and our ability to
generate revenues on such sales, are dependent, in significant part, on the availability of adequate coverage andreimbursement from third-party payors, such as state and federal governments, managed care providers andprivate insurance plans. Private insurers, such as health maintenance organizations and managed care providers,have implemented cost-cutting and reimbursement initiatives and likely will continue to do so in the future.
These include establishing formularies that govern the drugs and biologics that will be offered and the out-of-pocket obligations of member patients for such products. We may need to conduct pharmacoeconomic studies to
demonstrate the cost-effectiveness of our products for formulary coverage and reimbursement. Even with suchstudies, our products may be considered less safe, less effective or less cost-effective than existing products, andthird-party payors may not provide coverage and reimbursement for our product candidates, in whole or in part.
In addition, particularly in the United States and increasingly in other countries, we are required to provide
discounts and pay rebates to state and federal governments and agencies in connection with purchases of ourproducts that are reimbursed by such entities. It is possible that future legislation in the United States and otherjurisdictions could be enacted to potentially impact reimbursement rates for the products we are developing andmay develop in the future and could further impact the levels of discounts and rebates paid to federal and stategovernment entities. Any legislation that impacts these areas could impact, in a significant way, our ability togenerate revenues from sales of products that, if successfully developed, we bring to market.
Political, economic and regulatory influences are subjecting the healthcare industry in the United States to
fundamental changes. There have been, and we expect there will continue to be, legislative and regulatory proposalsto change the healthcare system in ways that could significantly affect our future business. For example, the PatientProtection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, orcollectively, the ACA, enacted in March 2010, substantially changes the way healthcare is financed by bothgovernmental and private insurers. Among other cost containment measures, ACA establishes:
an annual, nondeductible fee on any entity that manufactures or imports certain branded prescriptiondrugs and biologic agents;
a new Medicare Part D coverage gap discount program, in which pharmaceutical manufacturers whowish to have their drugs covered under Part D must offer discounts to eligible beneficiaries during theircoverage gap period, or the donut hole; and
a new formula that increases the rebates a manufacturer must pay under the Medicaid Drug RebateProgram.
In addition, other legislative changes have been proposed and adopted in the United States since the ACA
was enacted. On August 2, 2011, the Budget Control Act of 2011, among other things, created measures forspending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending atargeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach requiredgoals, thereby triggering the legislation's automatic reduction to several government programs. This includesaggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect onApril 1, 2013. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012,or the ATRA, which among other things, also reduced Medicare payments to several providers, includinghospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for thegovernment to recover overpayments to providers from three to five years.
In the future, there may continue to be additional proposals relating to the reform of the U.S. healthcare
system. Future legislation, or regulatory actions implementing recent or future legislation may have a significanteffect on our business. Our ability to successfully commercialize products depends in part on the extent to whichreimbursement for the costs of our products and related treatments will be available in the United States andworldwide from government health administration authorities, private health insurers and other organizations.
The adoption of certain proposals could limit the prices we are able to charge for our products, the amounts ofreimbursement available for our products, and limit the acceptance and availability of our products. Therefore,substantial uncertainty exists as to the reimbursement status of newly approved health care products by third-party payors.
Sales and Marketing
The FDA regulates all advertising and promotion activities for products under its jurisdiction prior to and
after approval, including standards and regulations for direct-to-consumer advertising, dissemination of off-label
information, industry-sponsored scientific and educational activities and promotional activities involving theInternet. Drugs may be marketed only for the approved indications and in accordance with the provisions of theapproved label. Further, if there are any modifications to the drug, including changes in indications, labeling, ormanufacturing processes or facilities, we may be required to submit and obtain FDA approval of a new orsupplemental NDA, which may require us to collect additional data or conduct additional pre-clinical studies andclinical trials. Failure to comply with applicable FDA requirements may subject a company to adverse publicity,enforcement action by the FDA, corrective advertising, consent decrees and the full range of civil and criminalpenalties available to the FDA.
Physicians may prescribe legally available drugs for uses that are not described in the drug's labeling and
that differ from those tested by us and approved by the FDA. Such off-label uses are common across medicalspecialties, and often reflect a physician's belief that the off-label use is the best treatment for the patient. TheFDA does not regulate the behavior of physicians in their choice of treatments, but FDA regulations do imposestringent restrictions on manufacturers' communications regarding off-label uses. Failure to comply withapplicable FDA requirements may subject a company to adverse publicity, enforcement action by the FDA,corrective advertising, consent decrees and the full range of civil and criminal penalties available to the FDA.
Outside the United States, our ability to market a product is contingent upon obtaining marketing
authorization from the appropriate regulatory authorities. The requirements governing marketing authorization,pricing and reimbursement vary widely from country to country.
Healthcare Fraud and Abuse Laws
We may also be subject to various federal and state laws pertaining to health care "fraud and abuse,"
including anti-kickback laws and false claims laws. Anti-kickback laws make it illegal for a prescription drugmanufacturer to solicit, offer, receive, or pay any remuneration in exchange for, or to induce, the referral ofbusiness, including the purchase or prescription of a particular drug. Due to the breadth of the statutoryprovisions and the absence of guidance in the form of regulations and very few court decisions addressingindustry practices, it is possible that our practices might be challenged under anti-kickback or similar laws. Falseclaims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented, for payment tothird-party payors (including Medicare and Medicaid) claims for reimbursed drugs or services that are false orfraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items orservices. In addition, some state prohibitions apply to the referral of patients for healthcare items or servicesreimbursed by any source, not only the Medicare and Medicaid programs. Our activities relating to the sales andmarketing of our products may be subject to scrutiny under any of these laws.
Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including fines and
civil monetary penalties, the possibility of exclusion from federal health care programs (including Medicare andMedicaid) and corporate integrity agreements, which impose, among other things, rigorous operational andmonitoring requirements on companies. Similar sanctions and penalties also may be imposed upon executiveofficers and employees, including criminal sanctions against executive officers under the so-called "responsiblecorporate officer" doctrine, even in situations where the executive officer did not intend to violate the law andwas unaware of any wrongdoing. Given the penalties that may be imposed on companies and individuals ifconvicted, allegations of such violations often result in settlements even if the company or individual beinginvestigated admits no wrongdoing. Settlements often include significant civil sanctions, including fines and civilmonetary penalties, and corporate integrity agreements. If the government were to allege or determine that we orour executive officers had violated these laws, our business could be harmed. In addition, private individualshave the ability to bring similar actions.
Further, there are new federal requirements under ACA and an increasing number of state laws that require
manufacturers to disclose and make reports to the government of any "transfer of value" made or distributed tophysicians, teachings and other healthcare providers. Many of these laws contain ambiguities as to what is
required to comply with the laws. Given the lack of clarity in laws and their implementation, our reportingactions could be subject to the penalty provisions of the applicable state and/or federal authorities.
Our activities could be subject to challenge for the reasons discussed above due to the breadth of these laws
and the increasing attention being given to them by law enforcement authorities. The costs of defending suchclaims, as well as any sanctions imposed or negative public perceptions resulting therefrom, could require us torestructure our operations and have a material adverse effect on our financial performance.
We do not currently have our own manufacturing facilities. We intend to continue to use our financial
resources to accelerate development of our drug candidates rather than diverting resources to establish our ownmanufacturing facilities. We intend to meet our pre-clinical and clinical trial manufacturing requirements byestablishing relationships with third-party manufacturers and other service providers to perform these services forus. While our drug candidates were being developed by Pfizer, both the drug substance and drug product weremanufactured by third-party contractors. We are currently using the same third-party contractors to manufacture,supply, store and distribute drug supplies for our clinical trials.
Should any of our drug candidates obtain marketing approval, we anticipate establishing relationships with
third-party manufacturers and other service providers in connection with commercial production of our products.
We have some flexibility in securing other manufacturers to produce our drug candidates; however, ouralternatives may be limited due to proprietary technologies or methods used in the manufacture of some of ourdrug candidates.
Other Laws and Regulatory Processes
We are subject to a variety of financial disclosure and securities trading regulations as a public company in
the United States with securities traded on the New York Stock Exchange, or the NYSE, including laws relatingto the oversight activities of the Securities and Exchange Commission, or the SEC, and the rules and regulationsof the NYSE. In addition, the Financial Accounting Standards Board, or FASB, the SEC, and other bodies thathave jurisdiction over the form and content of our accounts, our financial statements and other public disclosureare constantly discussing and interpreting proposals and existing pronouncements designed to ensure thatcompanies best display relevant and transparent information relating to their respective businesses.
Our present and future business has been and will continue to be subject to various other laws and
regulations. Various laws, regulations and recommendations relating to safe working conditions, laboratorypractices, experimental use of animals, and the purchase, storage, movement, import and export, and use anddisposal of hazardous or potentially hazardous substances used in connection with our research work are or maybe applicable to our activities. Certain agreements entered into by us involving exclusive license rights oracquisitions may be subject to national or supranational antitrust regulatory control, the effect of which cannot bepredicted. The extent of government regulation that might result from future legislation or administrative actioncannot accurately be predicted.
Research and Development Expenses
Research and development activities, which include personnel costs, research supplies, clinical and pre-
clinical study costs, are the primary source of our overall expenses. Such expenses related to the research anddevelopment of our product candidates totaled $45.1 million for the year ended December 31, 2013,$49.6 million for the year ended December 31, 2012, $0.8 million for the year ended December 31, 2011, and$95.5 million from September 15, 2010, the date of inception, through December 31, 2013.
As of December 31, 2013, we had 72 employees, all of whom are full-time employees. We believe our
relations with our employees are good. Over the course of the next year, we anticipate hiring up to 30 additionalfull-time employees devoted to clinical activities, six additional full-time employees for the regulatory andquality assurance function, and three additional full-time employees for general and administrative activities. Inaddition, we intend to continue to use CROs and third parties to perform our clinical studies and manufacturing.
Corporate Information and History
Our principal executive offices are located at 10880 Wilshire Boulevard, Suite 2150, Los Angeles,
California 90024 and our telephone number is (424) 248-6500. Our internet address is
www.pumabiotechnology.com. Our annual, quarterly and current reports, and any amendments to those reports,filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 may be accessed freeof charge through our website after we have electronically filed or furnished such material with the SEC. We alsomake available free of charge on or through our website our Code of Business Conduct and Ethics, CorporateGovernance Guidelines, Audit Committee Charter, Compensation Committee Charter and Nominating andCorporate Governance Committee Charter. The reference to www.pumabiotechnology.com (including any otherreference to such address in this Annual Report) is an inactive textual reference only, meaning that theinformation contained on or accessible from the website is not part of this Annual Report on Form 10-K and isnot incorporated in this report by reference.
We were originally incorporated in the State of Delaware in April 2007 under the name Innovative
Acquisitions Corp. We were a "shell" company registered under the Exchange Act with no specific business planor purpose until we acquired Former Puma in the Merger. As a result of this transaction, Former Puma becomeour wholly-owned subsidiary and subsequently merged with and into us, at which time we adopted FormerPuma's business plan and changed our name to "Puma Biotechnology, Inc."
The Merger was accounted for as a reverse acquisition whereby Former Puma was deemed to be the
acquirer for accounting and financial reporting purposes and we were deemed to be the acquired party.
Consequently, our financial statements prior to the Merger reflect the assets and liabilities and the historicaloperations of Former Puma from its inception on September 15, 2010, through the closing of the Merger onOctober 4, 2011. Our financial statements after completion of the Merger include the assets and liabilities of usand Former Puma, the historical operations of Former Puma, and the operations of us following the closing dateof the Merger.
The merger of a private operating company into a non-operating public shell corporation with nominal net
assets is considered to be a capital transaction, in substance, rather than a business combination, for accountingpurposes. Accordingly, we treated this transaction as a capital transaction without recording goodwill oradjusting any of our other assets or liabilities.
In November 2012, we established and incorporated Puma Biotechnology Ltd, a wholly owned subsidiary,
for the sole purpose of serving as our legal representative in the United Kingdom and the European Union inconnection with our clinical trial activity in those countries.
ITEM 1A. RISK FACTORS
In addition to the other information contained in this Annual Report, the following risk factors should be
considered carefully in evaluating our company. Our business, financial condition, liquidity or results ofoperations could be materially adversely affected by any of these risks.
Risks Related to our Business
We currently have no product revenues and no products approved for marketing, and will need to raise
additional capital to operate our business.
To date, we have generated no product revenues. Until, and unless, we receive approval from the U.S. Food
and Drug Administration, or FDA, and other regulatory authorities overseas for one or more of our drugcandidates, we cannot market or sell our products and will not have product revenues. Currently, our only drugcandidates are neratinib (oral), neratinib (intravenous) and PB357, and none of these products has been approvedby the FDA for sale in the United States or by other regulatory authorities for sale outside the United States.
Moreover, each of these drug candidates is in clinical development and will require significant time and capitalbefore we can even apply for approval from the FDA. Therefore, for the foreseeable future, we do not expect toachieve any product revenues and will have to fund all of our operations and capital expenditures from cash onhand, licensing fees and grants, and potentially, future offerings of our securities. We believe that our cash onhand is sufficient to fund our operations beyond 2015. However, changes may occur that would consume ouravailable capital faster than anticipated, including changes in and progress of our development activities,acquisitions of additional drug candidates and changes in regulation. In such situations, we may need to seekadditional sources of financing, which may not be available on favorable terms, if at all. If we do not succeed intimely raising additional funds on acceptable terms, we may be unable to complete planned pre-clinical andclinical trials or obtain approval of any drug candidates from the FDA and other regulatory authorities. Inaddition, we could be forced to discontinue product development and forego attractive business opportunities.
Any additional sources of financing will likely involve the issuance of additional equity securities, which willhave a dilutive effect on our stockholders.
We have a limited operating history and are not profitable and may never become profitable.
We were formed in April 2007 and were a "shell" company with no specific business plan or purpose until
we acquired Former Puma on October 4, 2011. Former Puma was a development stage company formed inSeptember 2010 and, prior to entering into the license agreement with Pfizer in August 2011, its operations werelimited to identifying compounds for in-licensing. As a result, we have a history of operating losses and nomeaningful operations upon which to evaluate our business. We expect to incur substantial losses and negativeoperating cash flow for the foreseeable future as we continue development of our drug candidates, which we donot expect will be commercially available for a number of years, if at all. Even if we succeed in developing andcommercializing one or more drug candidates, we expect to incur substantial losses for the foreseeable future andmay never become profitable. The successful development and commercialization of any drug candidates willrequire us to perform a variety of functions, including:
undertaking pre-clinical development and clinical trials;
hiring additional personnel;
participating in regulatory approval processes;
formulating and manufacturing products;
initiating and conducting sales and marketing activities; and
implementing additional internal systems and infrastructure.
We will likely need to raise additional capital in order to fund our business and generate significant revenue
in order to achieve and maintain profitability. We may not be able to generate this revenue, raise additional
capital or achieve profitability in the future. Our failure to achieve or maintain profitability could negativelyimpact the value of our common stock.
We are heavily dependent on the success of neratinib (oral), our lead drug candidate, which is still under
clinical development, and we cannot be certain that neratinib (oral) will receive regulatory approval or be
successfully commercialized even if we receive regulatory approval.
We currently have no products that are approved for commercial sale, and we may never be able to develop
marketable drug products. We expect that a substantial portion of our efforts and expenditures over the next fewyears will be devoted to our lead drug candidate, neratinib (oral). Accordingly, our business currently dependsheavily on the successful development, regulatory approval and commercialization of neratinib (oral). We cannotbe certain that neratinib (oral) will receive regulatory approval or be successfully commercialized even if wereceive regulatory approval. The research, testing, manufacturing, labeling, approval, sale, marketing anddistribution of drug products are and will remain subject to extensive regulation by the FDA and other regulatoryauthorities in the United States and other countries that each have differing regulations. We are not permitted tomarket neratinib (oral) or any of our drug candidates in the United States until they receive approval of a NewDrug Application, or NDA, from the FDA, or in any foreign countries until they receive the requisite approvalfrom such countries. We have not submitted an NDA to the FDA or comparable applications to other regulatoryauthorities and do not expect to be in a position to do so for the foreseeable future. Obtaining approval of anNDA is an extensive, lengthy, expensive and inherently uncertain process, and the FDA may delay, limit or denyapproval of neratinib (oral) for many reasons, including:
we may not be able to demonstrate that neratinib (oral) is safe and effective as a treatment for ourtargeted indications to the satisfaction of the FDA;
the results of our clinical trials may not meet the level of statistical or clinical significance required bythe FDA for marketing approval;
the FDA may disagree with the number, design, size, conduct or implementation of our clinical trials;
the clinical research organization, or CRO, that we retain to conduct clinical trials or any other thirdparties involved in the conduct of trials may take actions outside of our control that materiallyadversely impact our clinical trials;
the FDA may not find the data from pre-clinical studies and clinical trials sufficient to demonstrate thatthe clinical and other benefits of neratinib (oral) outweigh its safety risks;
the FDA may disagree with our interpretation of data from our pre-clinical studies and clinical trials ormay require that we conduct additional studies or trials;
the FDA may not accept data generated at our clinical trial sites;
if our NDA is reviewed by an advisory committee, the FDA may have difficulties scheduling anadvisory committee meeting in a timely manner or the advisory committee may recommend againstapproval of our application or may recommend that the FDA require, as a condition of approval,additional pre-clinical studies or clinical trials, limitations on approved labeling or distribution and userestrictions;
the advisory committee may recommend that the FDA require, as a condition of approval, additionalpre-clinical studies or clinical trials, limitations on approved labeling or distribution and userestrictions;
the FDA may require development of a Risk Evaluation and Mitigation Strategy as a condition toapproval;
the FDA may identify deficiencies in the manufacturing processes or facilities of our third-partymanufacturers; or
the FDA may change its approval policies or adopt new regulations.
Clinical trials are very expensive, time-consuming and difficult to design and implement.
Each of our drug candidates is still in development and will require extensive clinical testing before we can
submit an NDA for regulatory approval. We cannot predict with any certainty if or when we might submit anNDA for regulatory approval for any of our drug candidates or whether any such NDA will be approved by theFDA. Human clinical trials are very expensive and difficult to design and implement, in part because they aresubject to rigorous regulatory requirements. The clinical trial process is also time-consuming. We estimate thatclinical trials of our drug candidates will take at least several years to complete. Furthermore, failure can occur atany stage of the trials, and we could encounter problems that cause us to abandon or repeat clinical trials. Thecommencement and completion of clinical trials may be delayed by several factors, including:
imposition of a clinical hold or failure to obtain regulatory authorization or approval to commence atrial;
unforeseen safety issues;
determination of dosing issues;
lack of effectiveness during clinical trials;
inability to reach agreement on acceptable terms with prospective CROs and clinical trial sites;
slower-than-expected rates of patient recruitment;
failure to manufacture sufficient quantities of a drug candidate for use in clinical trials;
inability to monitor patients adequately during or after treatment; and
inability or unwillingness of medical investigators to follow our clinical protocols.
Further, we, the FDA or an Institutional Review Board, or IRB, may suspend our clinical trials at any time if
it appears that we or our collaborators are failing to conduct a trial in accordance with regulatory requirements,that we are exposing participants to unacceptable health risks, or if the FDA finds deficiencies in our INDsubmissions or the conduct of these trials. Therefore, we cannot predict with any certainty the schedule forcommencement and completion of future clinical trials. If we experience delays in the commencement orcompletion of our clinical trials, or if we terminate a clinical trial prior to completion, the commercial prospectsof our drug candidates could be harmed, and our ability to generate revenues from the drug candidates may bedelayed. In addition, any delays in our clinical trials could increase our costs, slow down the approval processand jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harmour business, financial condition and results of operations.
Enrollment and retention of patients in clinical trials is an expensive and time-consuming process and could
be made more difficult or rendered impossible by multiple factors outside our control.
We may encounter delays in enrolling, or be unable to enroll, a sufficient number of patients to complete
any of our clinical trials, and even once enrolled we may be unable to retain a sufficient number of patients tocomplete any of our trials. Patient enrollment and retention in clinical trials depends on many factors, includingthe size of the patient population, the nature of the trial protocol, the existing body of safety and efficacy datawith respect to the study drug, the number and nature of competing treatments and ongoing clinical trials ofcompeting drugs for the same indication, the proximity of patients to clinical sites and the eligibility criteria forthe study. Furthermore, any negative results we may report in clinical trials of any of our drug candidates maymake it difficult or impossible to recruit and retain patients in other clinical studies of that same drug candidate.
Delays or failures in planned patient enrollment and/or retention may result in increased costs, program delays orboth, which could have a harmful effect on our ability to develop our drug candidates, or could render furtherdevelopment impossible. In addition, we expect to rely on CROs and clinical trial sites to ensure proper andtimely conduct of our future clinical trials and, while we intend to enter into agreements governing their services,we will be limited in our ability to compel their actual performance.
The results of our clinical trials may not support our drug candidate claims.
Even if our clinical trials are completed as planned, we cannot be certain that their results will support the
safety and effectiveness of our drug candidates for our targeted indications. Success in pre-clinical testing andearly clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that theresults of later clinical trials will replicate the results of prior clinical trials and pre-clinical testing. A failure of aclinical trial to meet its predetermined endpoints would likely cause us to abandon a drug candidate and maydelay development of other drug candidates. Any delay in, or termination of, our clinical trials will delay thefiling of our NDAs with the FDA and, ultimately, our ability to commercialize our drug candidates and generateproduct revenues.
While we have negotiated a special protocol assessment agreement with the FDA relating to our Phase III
clinical study of PB272, this agreement does not guarantee approval of PB272 or any other particular
outcome from regulatory review of the clinical trial or the drug candidate.
In February 2013, we announced that we reached agreement with the FDA under a special protocol
assessment, or SPA, for our Phase III clinical trial of PB272 in patients with HER2-positive metastatic breastcancer who have failed two or more prior treatments. We commenced the Phase III clinical trial in June 2013.
The FDA's SPA process is designed to facilitate the FDA's review and approval of drugs by allowing the FDA toevaluate the proposed design and size of Phase III clinical trials that are intended to form the primary basis fordetermining a drug product's efficacy. Upon specific request by a clinical trial sponsor, the FDA will evaluatethe protocol and respond to a sponsor's questions regarding, among other things, primary efficacy endpoints, trialconduct and data analysis, within 45 days of receipt of the request. The FDA ultimately assesses whether theprotocol design and planned analysis of the trial are acceptable to support regulatory approval of the productcandidate with respect to the effectiveness of the identified indication. All agreements between the FDA and thesponsor regarding an SPA must be clearly documented in writing, either in the form of an SPA letter or minutesof a meeting between the sponsor and the FDA at which the SPA agreement was reached. However, an SPAagreement does not guarantee approval of a product candidate, and even if the FDA agrees to the design,execution, and analysis proposed in protocols reviewed under the SPA process, the FDA may revoke or alter itsagreement in certain circumstances. In particular, an SPA agreement is not binding on the FDA if public healthconcerns emerge that were unrecognized at the time of the SPA agreement, other new scientific concernsregarding product safety or efficacy arise, the sponsor company fails to comply with the agreed upon trialprotocols, or the relevant data, assumptions or information provided by the sponsor in a request for the SPAchange or are found to be false or omit relevant facts. In addition, even after an SPA agreement is finalized, theSPA agreement may be modified, and such modification will be deemed binding on the FDA review division,except under the circumstances described above, if the FDA and the sponsor agree in writing to modify theprotocol and such modification is intended to improve the study. The FDA retains significant latitude anddiscretion in interpreting the terms of the SPA agreement and the data and results from any study that is thesubject of the SPA agreement.
We cannot assure you that our Phase III clinical trial will succeed, or that the SPA will ultimately be binding
on the FDA or will result in any FDA approval for PB272. The trial is expected to enroll approximately600 patients. We expect that the FDA will review our compliance with the SPA, evaluate the results of theclinical trials and conduct inspections of some of the approximately 150 sites in North America, Europe andAsia-Pacific where the clinical trials will be conducted. We cannot assure you that each of the clinical trial siteswill pass such FDA inspections, and negative inspection results could significantly delay or prevent any potentialapproval for PB272. If the FDA revokes or alters its agreement under the SPA, or interprets the data collectedfrom the clinical trial differently than we do, the FDA may deem the data insufficient to support regulatoryapproval, which could materially adversely affect our business, financial condition and results of operations.
Physicians and patients may not accept and use our drugs.
Even if the FDA approves one or more of our drug candidates, physicians and patients may not accept and
use them. Acceptance and use of our product will depend upon a number of factors including:
perceptions by members of the health care community, including physicians, about the safety andeffectiveness of our drug;
cost-effectiveness of our products relative to competing products;
availability of coverage and reimbursement for our products from government or other healthcarepayors; and
effectiveness of marketing and distribution efforts by us and our licensees and distributors, if any.
Because we expect sales of our current drug candidates, if approved, to generate substantially all of our
product revenues for the foreseeable future, the failure of these drugs to find market acceptance would harm ourbusiness and could require us to seek additional financing.
We rely on third parties to conduct our pre-clinical studies and clinical trials. If these third parties do not
successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain
regulatory approval for our drug candidates.
We depend upon independent investigators and collaborators, such as CROs, universities and medical
institutions, to conduct our pre-clinical studies and clinical trials under agreements with us. These collaboratorsare not our employees and we cannot control the amount or timing of resources that they devote to our programs.
Nevertheless, we are responsible for ensuring that each of our clinical trials is conducted in accordance withregulatory requirements and the applicable protocol. These investigators may not assign as great a priority to ourprograms or pursue them as diligently as we would if we were undertaking such programs ourselves. If outsidecollaborators fail to devote sufficient time and resources to our drug-development programs, or if theirperformance is substandard or otherwise fails to satisfy applicable regulatory requirements, the approval of ourFDA applications, if any, and our introduction of new drugs, if any, will be delayed. These collaborators mayalso have relationships with other commercial entities, some of whom may compete with us. If our collaboratorsassist our competitors to our detriment, our competitive position would be harmed. If any of our relationshipswith these third-party collaborators terminate, we may not be able to enter into arrangements with alternativethird parties on commercially reasonable terms, or at all. Switching or adding additional third parties to ourclinical trial programs can involve substantial costs and require extensive management time and focus.
We will rely exclusively on third parties to formulate and manufacture our drug candidates. The
commercialization of any of our drug candidates could be stopped, delayed or made less profitable if those third
parties fail to provide us with sufficient quantities of product or fail to do so at acceptable quality levels or prices.
We have no experience in drug formulation or manufacturing and do not intend to establish our own
manufacturing facilities. We lack the resources and expertise to formulate or manufacture our own drugcandidates. While our drug candidates were being developed by Pfizer, both the drug substance and drug productwere manufactured by third-party contractors. We are using the same third-party contractors to manufacture,supply, store and distribute drug supplies for our clinical trials. If we are unable to continue our relationshipswith one or more of these third-party contractors, we could experience delays in our development efforts as welocate and qualify new manufacturers. If any of our current drug candidates, or any drug candidates we maydevelop or acquire in the future, receive FDA approval, we intend to rely on one or more third-party contractorsto manufacture the commercial supply of our drugs. Our anticipated future reliance on a limited number of third-party manufacturers exposes us to the following risks:
We may be unable to identify manufacturers on acceptable terms or at all because the number ofpotential manufacturers is limited and the FDA must approve any replacement manufacturer. Thisapproval would require new testing and compliance inspections. In addition, a new manufacturer would
have to be educated in, or develop substantially equivalent processes for, production of our productsafter receipt of FDA approval, if any.
Our third-party manufacturers might be unable to formulate and manufacture our drugs in the volumeand of the quality required to meet our clinical needs and commercial needs, if any.
Our future contract manufacturers may not perform as agreed or may not remain in the contractmanufacturing business for the time required to supply our clinical trials or to successfully produce,store and distribute our products.
Drug manufacturers are subject to ongoing periodic unannounced inspection by the FDA, the DrugEnforcement Administration, similar non-U.S. regulatory agencies and corresponding state agencies toensure strict compliance with regulations on current good manufacturing practices, or cGMPs, andother government regulations and corresponding foreign standards. We do not have control over third-party manufacturers' compliance with these regulations and standards.
If any third-party manufacturer makes improvements in the manufacturing process for our products, wemay not own, or may have to share, the intellectual property rights to the innovation.
Each of these risks could delay our clinical trials, the approval, if any, of our drug candidates by the FDA or
the commercialization of our drug candidates or result in higher costs or deprive us of potential product revenues.
We have no experience selling, marketing or distributing products and no internal capability to do so.
We currently have no sales, marketing or distribution capabilities. We do not anticipate having the resources
in the foreseeable future to allocate to the sales and marketing of our proposed products. Our future success willdepend, in part, on our ability to enter into and maintain collaborative relationships for such capabilities, thecollaborator's strategic interest in the products under development and such collaborator's ability to successfullymarket and sell any such products. We intend to pursue collaborative arrangements regarding the sale andmarketing of our products if and when they are approved; however, we cannot assure you that we will be able toestablish or maintain such collaborative arrangements, or if able to do so, that they will have effective salesforces. To the extent that we decide not to, or are unable to, enter into collaborative arrangements with respect tothe sales and marketing of our proposed products, significant capital expenditures, management resources andtime will be required to establish and develop an in-house marketing and sales force with technical expertise. Wealso cannot assure you that we will be able to establish or maintain relationships with third-party collaborators ordevelop in-house sales and distribution capabilities. To the extent that we depend on third parties for marketingand distribution, any revenues we receive will depend upon the efforts of such third parties, and there can be noassurance that such efforts will be successful. In addition, there can also be no assurance that we will be able tomarket and sell our products in the United States or overseas.
We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of
that technology, including any cybersecurity incidents, could harm our ability to operate our business
effectively.
Our internal computer systems and those of third parties with which we contract may be vulnerable to
damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war andtelecommunication and electrical failures despite the implementation of security measures. System failures,accidents or security breaches could cause interruptions in our operations, and could result in a materialdisruption of our clinical activities and business operations, in addition to possibly requiring substantialexpenditures of resources to remedy. The loss of clinical trial data could result in delays in our regulatoryapproval efforts and significantly increase our costs to recover or reproduce the data. To the extent that anydisruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriatedisclosure of confidential or proprietary information, we could incur liability and our research and developmentprograms and the development of our product candidates could be delayed.
Health care reform measures may hinder or prevent our drug candidates' commercial success.
The United States and some foreign jurisdictions have enacted or are considering enacting a number of legislative
and regulatory proposals to change the healthcare system in ways that could affect our ability to profitably sell ourproducts, if and when they are approved. Among policy makers and payors in the United States and elsewhere, there issignificant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs,improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particularfocus of these efforts and has been significantly affected by major legislative initiatives.
In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and
Education Reconciliation Act, or collectively, ACA, became law in the United States. ACA substantiallychanged and will continue to change the way healthcare is financed by both governmental and private insurersand significantly affects the pharmaceutical industry. Among the provisions of ACA, of greatest importance tothe pharmaceutical industry are the following:
an annual, nondeductible fee on any entity that manufactures or imports certain branded prescriptiondrugs and biologic agents, apportioned among these entities according to their market share in certaingovernment healthcare programs;
an increase in the rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1%and 13% of the average manufacturer price for branded and generic drugs, respectively;
a new methodology by which rebates owed by manufacturers under the Medicaid Drug RebateProgram are calculated for drugs that are inhaled, infused, instilled, implanted or injected;
a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiariesduring their coverage gap period, as a condition for the manufacturers' outpatient drugs to be coveredunder Medicare Part D;
extension of manufacturers' Medicaid rebate liability to covered drugs dispensed to individuals whoare enrolled in Medicaid managed care organizations;
expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offerMedicaid coverage to additional individuals, which began in April 2010 and by adding new eligibilitycategories for certain individuals with income at or below 133% of the Federal Poverty Levelbeginning in 2014, thereby potentially increasing manufacturers' Medicaid rebate liability;
increase in the number of entities eligible for discounts under the Public Health Service pharmaceuticalpricing program;
a new requirement to annually report drug samples that manufacturers and distributors provide tophysicians;
a licensure framework for follow-on biologic products; and
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conductcomparative clinical effectiveness research, along with funding for such research.
The ACA also requires adults not covered by employer or government-sponsored insurance plans to
maintain health insurance coverage or pay a penalty, a provision commonly referred to as the individual mandate.
In addition, other legislative changes have been proposed and adopted in the United States since the ACA wasenacted. On August 2, 2011, the Budget Control Act of 2011, among other things, created measures for spendingreductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeteddeficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals,thereby triggering the legislation's automatic reduction to several government programs. This includes aggregatereductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect on April 1,2013. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, or
ATRA, which, among other things, also reduced Medicare payments to several providers, including hospitals,imaging centers and cancer treatment centers, and increased the statute of limitations period for the governmentto recover overpayments to providers from three to five years. We cannot predict all of the ways in which futurefederal or state legislative or administrative changes relating to healthcare reform will affect our business.
Nevertheless, we anticipate that the ACA, as well as other healthcare reform measures that may be adopted
in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price thatwe receive for any approved product, and could seriously harm our business. Any reduction in reimbursementfrom Medicare or other government programs may result in a similar reduction in payments from private payors.
Thus, we expect to experience pricing pressures in connection with the sale of neratinib (oral), neratinib(intravenous), PB357 and any other products that we may develop, due to the trend toward managed healthcare,the increasing influence of health maintenance organizations and additional legislative proposals. There may beadditional pressure by payors and healthcare providers to use generic drugs that contain the active ingredientsfound in neratinib (oral), neratinib (intravenous), PB357 or any other drug candidates that we may develop. If wefail to successfully secure and maintain adequate coverage and reimbursement for our products or aresignificantly delayed in doing so, we will have difficulty achieving market acceptance of our products andexpected revenue and profitability which would have a material adverse effect on our business, results ofoperations and financial condition.
We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse and false claims laws
and regulations. Prosecutions under such laws have increased in recent years and we may become subject to
such litigation. If we are unable to comply, or have not fully complied, with such laws, we could face
substantial penalties.
If we obtain FDA approval for any of our drug candidates and begin commercializing those products in the
United States, our operations will be subject directly or indirectly through our customers, to various state andfederal fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute and federal FalseClaims Act and the state law equivalents of such laws. These laws may impact, among other things, our proposedsales, marketing, and education programs.
The federal Anti-Kickback Statute prohibits persons from knowingly and willingly soliciting, offering,
receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of anindividual, or the furnishing or arranging for a good or service, for which payment may be made under a federalhealthcare program such as the Medicare and Medicaid programs. The Anti-Kickback Statute is broad and,despite a series of narrow safe harbors, prohibits many arrangements and practices that are lawful in businessesoutside of the healthcare industry. Penalties for violations of the federal Anti-Kickback Statute include criminalpenalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid andother federal healthcare programs. Many states have also adopted laws similar to the federal Anti-KickbackStatute, some of which apply to the referral of patients for healthcare items or services reimbursed by any source,including private insurance programs.
The federal False Claims Act prohibits persons from knowingly filing, or causing to be filed, a false claim, or
the knowing use of false statements, to obtain payment from the federal government. Suits filed under the FalseClaims Act, known as "qui tam" actions, can be brought by any individual on behalf of the government, and suchindividuals, commonly known as "whistleblowers," may share in any amounts paid by the entity to the governmentin fines or settlement. The frequency of filing qui tam actions has increased significantly in recent years, causinggreater numbers of pharmaceutical, medical device and other healthcare companies to have to defend False ClaimsAct actions. When it is determined that an entity has violated the False Claims Act, the entity may be required topay up to three times the actual damages sustained by the government, plus civil penalties for each separate falseclaim. Various states have also enacted laws modeled after the federal False Claims Act.
We may also be subject to federal criminal healthcare fraud statutes that were created by the federal Health
Insurance Portability and Accountability Act of 1996, or HIPAA. The HIPAA health care fraud statute prohibits,
among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud anyhealthcare benefit program, including private payors. A violation of this statute is a felony and may result infines, imprisonment and/or exclusion from government sponsored programs. The HIPAA false statements statuteprohibits, among other things, knowingly and willfully falsifying, concealing or covering up a material fact ormaking any materially false, fictitious or fraudulent statement or representation in connection with the delivery ofor payment for healthcare benefits, items or services. A violation of this statute is a felony and may result in finesand/or imprisonment.
The ACA, among other things, amends the intent requirement of the federal Anti-Kickback Statute and
criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute orspecific intent to violate it. In addition, the ACA provides that the government may assert that a claim includingitems or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulentclaim for purposes of the False Claims Act.
The ACA also enacted new provisions that require manufacturers of drugs, devices, biologics, and medical
supplies to report annually to the U.S. Department of Health and Human Services information related topayments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, andownership and investment interests held by physicians and other healthcare providers and their immediate familymembers and applicable group purchasing organizations. Manufacturers were required to begin collecting dataon August 1, 2013 and will be required to submit reports to the government by March 31, 2014, and by the 90thday of each subsequent calendar year. In addition, there has been a recent trend of increased federal and stateregulation of payments made to physicians. Certain states mandate implementation ofcommercial compliance programs, impose restrictions on drug manufacturer marketing practices, and/or thetracking and reporting of gifts, compensation and other remuneration to physicians.
We are unable to predict whether we could be subject to actions under any of these or other fraud and abuse
laws, or the impact of such actions. If we are found to be in violation of any of the laws described above andother applicable state and federal fraud and abuse laws, we may be subject to penalties, including civil andcriminal penalties, damages, fines, exclusion from government healthcare reimbursement programs and thecurtailment or restructuring of our operations, any of which could have a material adverse effect on our businessand results of operations.
If we cannot compete successfully for market share against other drug companies, we may not achieve
sufficient product revenue and our business will suffer.
The market for our drug candidates is characterized by intense competition and rapid technological advances.
If any of our drug candidates receives FDA approval, it will compete with a number of existing and future drugs andtherapies developed, manufactured and marketed by others. Existing or future competing products may providegreater therapeutic convenience or clinical or other benefits for a specific indication than our products, or may offercomparable performance at a lower cost. In addition, a large number of companies are pursuing the development ofpharmaceuticals that target the same diseases and conditions that we are targeting. If our products fail to capture andmaintain market share, we may not achieve sufficient product revenue and our business will suffer.
We will compete against fully integrated pharmaceutical companies and smaller companies that are
collaborating with larger pharmaceutical companies, academic institutions, government agencies and other publicand private research organizations. Many of these competitors have oncology compounds that have already beenapproved or are in development. In addition, many of these competitors, either alone or together with theircollaborative partners, operate larger research and development programs or have substantially greater financialresources than we do, as well as significantly greater experience in the following:
developing drugs;
undertaking pre-clinical testing and clinical trials;
obtaining FDA and other regulatory approvals of drugs;
formulating and manufacturing drugs; and
launching, marketing and selling drugs.
Our ability to generate product revenues will be diminished if our drugs sell for inadequate prices or patients
are unable to obtain coverage or adequate levels of reimbursement.
Our ability to commercialize our drugs, alone or with collaborators, will depend in part on the extent to
which reimbursement will be available from the following:
government and health administration authorities;
private health maintenance organizations and health insurers; and
other healthcare payors.
Significant uncertainty exists as to the coverage and reimbursement status of newly approved healthcare
products. Healthcare payors, including Medicare, are challenging the prices charged for medical products andservices. Government and other healthcare payors increasingly attempt to contain healthcare costs by limitingboth coverage and the level of reimbursement for drugs. Even if one of our drug candidates is approved by theFDA, insurance coverage may not be available, or reimbursement levels may be inadequate to cover such drug. Ifgovernment and other healthcare payors do not provide adequate coverage and reimbursement for any of ourproducts, once approved, market acceptance of such product could be reduced.
We may be exposed to liability claims associated with the use of hazardous materials and chemicals.
Our research and development activities may involve the controlled use of hazardous materials and
chemicals. Although we believe that our safety procedures for using, storing, handling and disposing of thesematerials comply with federal, state and local laws and regulations, we cannot completely eliminate the risk ofaccidental injury or contamination from these materials. In the event of such an accident, we could be held liablefor any resulting damages and any liability could materially adversely affect our business, financial condition andresults of operations. In addition, the federal, state and local laws and regulations governing the use,manufacture, storage, handling and disposal of hazardous or radioactive materials and waste products mayrequire us to incur substantial compliance costs that could materially adversely affect our business, financialcondition and results of operations.
The loss of one or more key members of our management team could adversely affect our business.
Our success and future growth depends to a significant degree on the skills and continued services of our
management team, in particular Alan H. Auerbach, our President and Chief Executive Officer. If Mr. Auerbachresigns or becomes unable to continue in his present role and is not adequately replaced, our business operationscould be materially adversely affected. We do not maintain "key man" life insurance for Mr. Auerbach.
If we are unable to hire additional qualified personnel, our ability to grow our business may be harmed.
As of December 31, 2013, we had 72 employees, including our Chief Executive Officer and President. Our
future success depends on our ability to identify, attract, hire, train, retain and motivate other highly skilledscientific, technical, marketing, managerial and financial personnel. Although we will seek to hire and retainqualified personnel with experience and abilities commensurate with our needs, there is no assurance that we willsucceed despite their collective efforts. Competition for personnel is intense, and any failure to attract and retainthe necessary technical, marketing, managerial and financial personnel would have a material adverse effect onour business, prospects, financial condition and results of operations.
We may not successfully manage our growth.
Our success will depend upon the expansion of our operations and our ability to successfully manage our
growth. Our future growth, if any, may place a significant strain on our management and on our administrative,operational and financial resources. Our ability to manage our growth effectively will require us to implementand improve our operational, financial and management systems and to expand, train, manage and motivate ouremployees. These demands may require the hiring of additional management personnel and the development ofadditional expertise by management. Any increase in resources devoted to research and product developmentwithout a corresponding increase in our operational, financial and management systems could have a materialadverse effect on our business, financial condition and results of operations.
We may be adversely affected by the current economic environment.
Our ability to attract and retain collaborators or customers, invest in and grow our business and meet our
financial obligations depends on our operating and financial performance, which, in turn, is subject to numerousfactors, including the prevailing economic conditions and financial, business and other factors beyond ourcontrol, such as the rate of unemployment, the number of uninsured persons in the United States and inflationarypressures. We cannot anticipate all the ways in which the current economic climate and financial marketconditions could adversely impact our business.
We are exposed to risks associated with reduced profitability and the potential financial instability of our
collaborators or customers, many of which may be adversely affected by volatile conditions in the financialmarkets. For example, unemployment and underemployment, and the resultant loss of insurance, may decreasethe demand for healthcare services and pharmaceuticals. If fewer patients are seeking medical care because theydo not have insurance coverage, our collaboration partners or customers may experience reductions in revenues,profitability and/or cash flow that could lead them to modify, delay or cancel orders for our products oncecommercialized. If collaboration partners or customers are not successful in generating sufficient revenue or areprecluded from securing financing, they may not be able to pay, or may delay payment of, accounts receivablethat are owed to us. This, in turn, could adversely affect our financial condition and liquidity. In addition, ifeconomic challenges in the United States result in widespread and prolonged unemployment, either regionally oron a national basis, prior to the effectiveness of certain provisions of the ACA, a substantial number of peoplemay become uninsured or underinsured. To the extent economic challenges result in fewer individuals pursuingor being able to afford our products once commercialized, our business, results of operations, financial conditionand cash flows could be adversely affected.
We may incur substantial liabilities and may be required to limit commercialization of our products in
response to product liability lawsuits.
The testing and marketing of medical products entail an inherent risk of product liability. If we cannot
successfully defend ourselves against product liability claims, we may incur substantial liabilities or be requiredto limit commercialization of our products. If we are unable to obtain sufficient product liability insurance at anacceptable cost to protect against potential product liability claims, the commercialization of pharmaceuticalproducts we develop, alone or with collaborators, could be prevented or inhibited.
Our cash and cash equivalents could be adversely affected if the financial institutions in which we hold our
cash and cash equivalents fail.
We regularly maintain cash balances at third-party financial institutions in excess of the Federal Deposit
Insurance Corporation, or FDIC, insurance limit. While we monitor daily the cash balances in the operatingaccounts and adjust the balances as appropriate, these balances could be impacted, and there could be a materialadverse effect on our business, if one or more of the financial institutions with which we deposit fails or issubject to other adverse conditions in the financial or credit markets. To date, we have experienced no loss or
lack of access to our invested cash or cash equivalents; however, we can provide no assurance that access to ourinvested cash and cash equivalents will not be impacted by adverse conditions in the financial and credit markets.
Our investments in marketable securities are subject to market, interest and credit risk that may reduce their
value.
The value of our investments in marketable securities may be adversely affected by changes in interest rates,
downgrades in the creditworthiness of bonds we hold, turmoil in the credit markets and financial servicesindustry and by other factors which may result in other than temporary declines in the value of our investments.
Decreases in the market value of our marketable securities could have an adverse impact on our statements offinancial position, results of operations and cash flow.
Risks Related to Our Intellectual Property
We depend significantly on intellectual property licensed from Pfizer and the termination of this license would
significantly harm our business and future prospects.
We depend significantly on our license agreement with Pfizer. Our license agreement with Pfizer may be
terminated by Pfizer if we materially breach the agreement and fail to cure our breach during an applicable cureperiod. Our failure to use commercially reasonable efforts to develop and commercialize licensed products incertain specified major market countries would constitute a material breach of the license agreement. Pfizer mayalso terminate the license agreement if we become involved in bankruptcy, receivership, insolvency or similarproceedings. In the event our license agreement with Pfizer is terminated, we will lose all of our rights to developand commercialize the drug candidates covered by such license, which would significantly harm our businessand future prospects.
Our proprietary rights may not adequately protect our intellectual property and potential products, and if we
cannot obtain adequate protection of our intellectual property and potential products, we may not be able to
successfully market our potential products.
Our commercial success will depend in part on obtaining and maintaining intellectual property protection
for our products, formulations, processes, methods and other technologies. We will only be able to protect thesetechnologies and products from unauthorized use by third parties to the extent that valid and enforceableintellectual property rights, including patents, cover them, or other market exclusionary rights apply. The patentpositions of pharmaceutical companies, like ours, can be highly uncertain and involve complex legal and factualquestions for which important legal principles remain unresolved. No consistent policy regarding the breadth ofclaims allowed in such companies' patents has emerged to date in the United States. The general environment forpharmaceutical patents outside the United States also involves significant uncertainty. Accordingly, we cannotpredict the breadth of claims that may be allowed or enforced, or that the scope of these patent rights couldprovide a sufficient degree of future protection that could permit us to gain or keep our competitive advantagewith respect to these products and technology. For example, we cannot predict:
the degree and range of protection any patents will afford us against competitors, including whetherthird parties will find ways to make, use, sell, offer to sell or import competitive products withoutinfringing our patents;
if and when patents will issue;
whether or not others will obtain patents claiming inventions similar to those covered by our patentsand patent applications; or
whether we will need to initiate litigation or administrative proceedings in connection with patentrights, which may be costly whether we win or lose.
The patents we have licensed may be subject to challenge and possibly invalidated or rendered
unenforceable by third parties. Changes in either the patent laws or in the interpretations of patent laws in theUnited States or other countries may diminish the value of our intellectual property.
In addition, others may independently develop similar or alternative products and technologies that may be
outside the scope of our intellectual property. Furthermore, others may have invented technology claimed by ourpatents before we or our licensors did so, and they may have filed patents claiming such technology before wedid so, weakening our ability to obtain and maintain patent protection for such technology. Should third partiesobtain patent rights to similar products or technology, this may have an adverse effect on our business.
We may also rely on trade secrets to protect our technology, especially where we do not believe patent
protection is appropriate or obtainable. Trade secrets, however, are difficult to protect. While we believe that wewill use reasonable efforts to protect our trade secrets, our own or our strategic partners' employees, consultants,contractors or advisors may unintentionally or willfully disclose our information to competitors. We seek toprotect this information, in part, through the use of non-disclosure and confidentiality agreements withemployees, consultants, advisors and others. These agreements may be breached, and we may not have adequateremedies for a breach. In addition, we cannot ensure that those agreements will provide adequate protection forour trade secrets, know-how or other proprietary information or prevent their unauthorized use or disclosure.
To the extent that consultants or key employees apply technological information independently developed
by them or by others to our potential products, disputes may arise as to the proprietary rights in such information,which may not be resolved in our favor. Consultants and key employees who work with our confidential andproprietary technologies are required to assign all intellectual property rights in their discoveries to us. However,these consultants or key employees may terminate their relationship with us, and we cannot preclude themindefinitely from dealing with our competitors. If our trade secrets become known to competitors with greaterexperience and financial resources, the competitors may copy or use our trade secrets and other proprietaryinformation in the advancement of their products, methods or technologies. If we were to prosecute a claim that athird party had illegally obtained and was using our trade secrets, it could be expensive and time consuming andthe outcome could be unpredictable. In addition, courts outside the United States are sometimes less willing toprotect trade secrets than courts in the United States. Moreover, if our competitors independently developequivalent knowledge, we would lack any legal or contractual claim to prevent them from using suchinformation, and our business could be harmed.
Our ability to commercialize our potential products will depend on our ability to sell such products without
infringing the patent or proprietary rights of third parties. If we are sued for infringing intellectual property
rights of third parties, it will be costly and time consuming, and an unfavorable outcome in that litigation
would have a material adverse effect on our business.
Our ability to commercialize our potential products will depend on our ability to sell such products without
infringing the patents or other proprietary rights of third parties. Third-party intellectual property rights in ourfield are complicated and continuously evolving. The coverage of patents is subject to interpretation by thecourts, and this interpretation is not always consistent.
Other companies may have or may acquire intellectual property rights that could be enforced against us. If
they do so, we may be required to alter our products, formulations, processes, methods or other technologies,obtain a license, assuming one can be obtained, or cease our product-related activities. If our products ortechnologies infringe the intellectual property rights of others, they could bring legal action against us or ourlicensors or collaborators claiming damages and seeking to enjoin any activities that they believe infringe theirintellectual property rights. If we are sued for patent infringement, we would need to demonstrate that ourproducts or methods of use either do not infringe the patent claims of the relevant patent or that the patent claimsare invalid or unenforceable, and we may not be able to do this. Proving the invalidity of a patent is particularlydifficult in the United States, since it requires a showing of clear and convincing evidence to overcome the
presumption of validity enjoyed by issued patents. If we are found to infringe a third-party patent, we may needto cease the commercial sale of our products.
Because patent applications can take many years to issue, there may be currently pending applications
unknown to us or reissue applications that may later result in issued patents upon which our products ortechnologies may infringe. There could also be existing patents of which we are unaware that our products ortechnologies may infringe. In addition, if third parties file patent applications or obtain patents claiming productsor technologies also claimed by us in pending applications or issued patents, we may have to participate ininterference proceedings in the U.S. Patent and Trademark Office, or USPTO, to determine priority of invention.
If third parties file oppositions in foreign countries, we may also have to participate in opposition proceedings inforeign tribunals to defend the patentability of our filed foreign patent applications. Some of our competitors maybe able to sustain the costs of complex patent litigation more effectively than we can because they havesubstantially greater resources. Additionally, any uncertainties resulting from the initiation and continuation ofany litigation may have a material adverse effect on our ability to raise the funds necessary to continue ouroperations.
If a third party claims that we infringe its intellectual property rights, it could cause our business to suffer in
a number of ways, including:
we may become involved in time-consuming and expensive litigation, even if the claim is withoutmerit, the third party's patent is ultimately invalid or unenforceable, or we are ultimately found to havenot infringed;
we may become liable for substantial damages for past infringement if a court decides that ourtechnologies infringe upon a third party's patent;
we may be ordered by a court to stop making, selling or licensing our products or technologies withouta license from a patent holder, and such license may not be available on commercially acceptableterms, if at all, or may require us to pay substantial royalties or grant cross-licenses to our patents; and
we may have to redesign our products so that they do not infringe upon others' patent rights, whichmay not be possible or could require substantial investment and/or time.
If any of these events occur, our business could suffer and the market price of our common stock may
As is common in the biotechnology and pharmaceutical industries, we employ individuals who were
previously employed at other companies in these industries, including our competitors or potential competitors.
We may become subject to claims that these employees or we have inadvertently or otherwise used or disclosedtrade secrets or other proprietary information of their former employers, although no such claims are pending.
Litigation may be necessary to defend against these claims. Even if we successfully defend any such claims, wemay incur substantial costs in such defense, and our management may be distracted by these claims.
Risks Related to Owning our Common Stock
Our stock price may fluctuate significantly and you may have difficulty selling your shares based on current
trading volumes of our stock. In addition, numerous other factors could result in substantial volatility in the
trading price of our stock.
Our common stock has been listed on the New York Stock Exchange, or NYSE, since October 19, 2012.
Prior to October 2012, shares of our common stock had been quoted for trading on the OTC Bulletin Board andOTCQB Market in limited volumes. We cannot predict the extent to which investor interest in our company willbe sufficient to maintain an active trading market on the NYSE or any other exchange in the future. We haveseveral stockholders, including affiliated stockholders, who hold substantial blocks of our stock. As ofDecember 31, 2013, we had 28,991,289 shares of common stock outstanding, and stockholders holding at least
5% of our stock, individually or with affiliated entities, collectively beneficially owned or controlledapproximately 53.7% of such shares. Sales of large numbers of shares by any of our large stockholders couldadversely affect our trading price, particularly given our relatively small historic trading volumes. If stockholdersholding shares of our common stock sell, indicate an intention to sell, or if it is perceived that they will sell,substantial amounts of their common stock in the public market, the trading price of our common stock coulddecline. Moreover, if there is no active trading market or if the volume of trading is limited, holders of ourcommon stock may have difficulty selling their shares.
The price of our common stock could be subject to volatility related or unrelated to our operations.
The trading price of our common stock may be highly volatile and could be subject to wide fluctuations in
response to various factors, some of which are beyond our control. These factors include:
actual or anticipated quarterly variation in our results of operations or the results of our competitors;
announcements regarding results of any clinical trials relating to our drug candidates;
announcements of medical innovations or new products by our competitors;
issuance of new or changed securities analysts' reports or recommendations for our stock;
developments or disputes concerning our intellectual property or other proprietary rights;
commencement of, or involvement in, litigation;
market conditions in the biopharmaceutical industry;
timing and announcement of regulatory approvals;
any future sales of our common stock or other securities in connection with raising additional capital orotherwise;
any major change to the composition of our board of directors or management; and
general economic conditions and slow or negative growth of our markets.
The stock market in general, and market prices for the securities of technology-based companies like ours in
particular, have from time to time experienced volatility that often has been unrelated to the operatingperformance of the underlying companies. These broad market and industry fluctuations may adversely affect themarket price of our common stock, regardless of our operating performance. In several recent situations wherethe market price of a stock has been volatile, holders of that stock have instituted securities class action litigationagainst the company that issued the stock. If any of our stockholders were to bring a lawsuit against us, thedefense and disposition of the lawsuit could be costly and divert the time and attention of our management andharm our operating results.
Issuance of stock to fund our operations may dilute your investment and reduce your equity interest.
We may need to raise capital in the future to fund the development of our drug candidates or for other
purposes. Any equity financing may have a significant dilutive effect to stockholders and a material decrease inour existing stockholders' equity interest in us. Equity financing, if obtained, could result in substantial dilutionto our existing stockholders. At its sole discretion, our board of directors may issue additional securities withoutseeking stockholder approval, and we do not know when we will need additional capital or, if we do, whether itwill be available to us.
Upon the exercise of our outstanding warrant, holders of our common stock may experience immediate
dilution and the market price of our common stock may be adversely affected.
Following an October 2011 private placement, Alan H. Auerbach, our founder, President and Chief
Executive Officer, held approximately 21% of our outstanding shares of common stock. Pursuant to the terms of
the Securities Purchase Agreement for the private placement, we issued an anti-dilutive warrant to Mr. Auerbach.
The warrant has a 10-year term expiring in October 2021 for 2,116,250 shares with an exercise price of $16.00per share.
If any portion of the outstanding warrant is exercised for shares of our common stock, our stockholders may
experience immediate dilution and the market price of our common stock may be adversely affected.
We will incur increased costs and demands upon management as a result of complying with the laws and
regulations affecting public companies, which could harm our operating results.
As a public company, we incur significant legal, accounting and other expenses, including costs associated
with public company reporting requirements. We also incur costs associated with current corporate governancerequirements, including requirements under Section 404 and other provisions of the Sarbanes-Oxley Act of 2002,as amended, or the Sarbanes-Oxley Act, as well as rules implemented by the Securities and ExchangeCommission, or the SEC, or the NYSE or any stock exchange or inter-dealer quotations system on which ourcommon stock may be listed in the future. The expenses incurred by public companies for reporting andcorporate governance purposes have increased dramatically in recent years. We expect these rules andregulations to substantially increase our legal and financial compliance costs and to make some activities moretime-consuming and costly. We are unable to currently estimate these costs with any degree of certainty. We alsoexpect that these new rules and regulations may make it difficult and expensive for us to obtain director andofficer liability insurance, and if we are able to obtain such insurance, we may be required to accept reducedpolicy limits and coverage or incur substantially higher costs to obtain the same or similar coverage available toprivately held companies. As a result, it may be more difficult for us to attract and retain qualified individuals toserve on our board of directors or as our executive officers.
If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely
financial statements could be impaired, which could harm our operating results, our ability to operate our
business and investors' views of us.
We are subject to the rules and regulations of the SEC, including those rules and regulations mandated by
the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act requires public companies to include in theirannual report a statement of management's responsibilities for establishing and maintaining adequate internalcontrol over financial reporting, together with an assessment of the effectiveness of those internal controls.
Section 404 also requires the independent auditors of certain public companies to attest to, and report on, thismanagement assessment. We are required to comply with these requirements beginning with this Annual Reporton Form 10-K. Ensuring that we have adequate internal financial and accounting controls and procedures in placeso that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort thatwill need to be evaluated frequently. Our failure to maintain the effectiveness of our internal controls inaccordance with the requirements of the Sarbanes-Oxley Act could have a material adverse effect on ourbusiness. We could lose investor confidence in the accuracy and completeness of our financial reports, whichcould have an adverse effect on the price of our common stock. In addition, if our efforts to comply with new orchanged laws, regulations, and standards differ from the activities intended by regulatory or governing bodiesdue to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and ourbusiness may be harmed.
The resale of shares covered by a registration statement could adversely affect the market price of our
common stock in the public market, should one develop, which result would in turn negatively affect our
ability to raise additional equity capital.
The sale, or availability for sale, of our common stock in the public market may adversely affect the
prevailing market price of our common stock and may impair our ability to raise additional capital by selling
equity or equity-linked securities. Pursuant to the terms of a registration rights agreement, as amended, betweenus and certain of our stockholders, we maintain an effective registration statement registering the resale of sharesof our common stock by certain of our stockholders. As of April 2013, the most recent effective date of theregistration statement, approximately 10,942,158 shares of our common stock remained available for resaleunder the registration statement. The resale of a substantial number of shares of our common stock in the publicmarket could adversely affect the market price for our common stock and make it more difficult for investors inour common stock to sell shares of our common stock at times and prices that such investors feel are appropriate.
Furthermore, we expect that, because there are a large number of shares registered pursuant to the resaleregistration statement, the selling stockholders identified in such registration statement will continue to offershares covered by such registration statement for a significant period of time, the precise duration of whichcannot be predicted. Accordingly, the adverse market and price pressures resulting from offerings pursuant to theregistration statement may continue for an extended period of time and continued negative pressure on themarket price of our common stock could have a material adverse effect on our ability to raise additional equitycapital.
If securities or industry analysts do not publish, or cease publishing, research or reports about us, our
business or our market, or if they change their recommendations regarding our stock adversely, our stock
price and trading volume could decline.
The trading market for our common stock is and will be influenced by whether industry or securities
analysts publish research and reports about us, our business, our market or our competitors and, if any analystsdo publish such reports, what they publish in those reports. We may not obtain analyst coverage in the future.
Any analysts who do cover us may make adverse recommendations regarding our stock, adversely change theirrecommendations from time to time, and/or provide more favorable relative recommendations about ourcompetitors. If any analyst who may cover us in the future were to cease coverage of our company or fail toregularly publish reports on us, or if analysts fail to cover us or publish reports about us at all, we could losevisibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
We do not foresee paying cash dividends in the foreseeable future.
We currently intend to retain any future earnings for funding growth. We do not anticipate paying any
dividends in the foreseeable future. As a result, you should not rely on an investment in our securities if yourequire dividend income. Capital appreciation, if any, of our shares may be your sole source of gain for theforeseeable future. Moreover, you may not be able to re-sell your shares in us at or above the price you paid forthem.
Our ability to use our net operating losses and research and development credit carryforwards to offset future
taxable income may be subject to certain limitations.
In general, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, a
corporation that undergoes an "ownership change," generally defined as a greater than 50% change (by value) inits equity ownership over a three year period, is subject to limitations on its ability to utilize its pre-change netoperating losses, or NOLs, and its research and development credit carryforwards to offset future taxable income.
Our existing NOLs and research and development credit carryforwards may be subject to limitations arising fromprevious ownership changes, and if we undergo an ownership change, our ability to utilize NOLs and researchand development credit carryforwards could be further limited by Sections 382 and 383 of the Code. Futurechanges in our stock ownership, some of which might be beyond our control, could result in an ownershipchange under Sections 382 and 383 of the Code. Furthermore, our ability to utilize NOLs and research anddevelopment credit carryforwards of any companies we may acquire in the future may be subject to limitations,in accordance with Sections 382 and 383 of the Code. For these reasons, in the event we experience a change ofcontrol, we may not be able to utilize a material portion of the NOLs and research and development creditcarryforwards, even if we attain profitability.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
We lease approximately 22,800 square feet of office space in the building located at 10880 Wilshire
Boulevard, Los Angeles, California for use as our corporate headquarters. This lease commenced inDecember 2011 and terminates in December 2018, with an option to extend for an additional five-year term. Wealso lease approximately 9,500 square feet of office space in the building located at 701 Gateway Blvd, SouthSan Francisco, California. The lease for the South San Francisco facility commenced in October 2012 andterminates in October 2019, with an option to extend for an additional five-year term. We believe that ourexisting office space is adequate to meet current and anticipated future requirements and that additional orsubstitute space will be available as needed to accommodate any expansions that our operations require.
We are not involved in any material pending legal proceedings. Additionally, we are not aware of any
contemplated proceedings against us by any governmental authority.
MINE SAFETY DISCLOSURE
Not applicable.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for Common Stock
From April 20, 2012, through October 18, 2012, shares of our common stock were quoted on the OTC
Bulletin Board, or OTCBB*, under the symbol "PBYI." On October 19, 2012, shares of our common stockcommenced trading on the NYSE under the symbol "PBYI" and ceased being quoted on the OTCBB. The highand low bid quotations of our common stock on the OTCBB and the high and low sales prices of our commonstock on the NYSE are set forth below:
NYSE: October 19—December 31 . . . . . . . . . . . . . . . . .
The OTCBB is a quotation medium for subscribing members, not an issuer listing service. OTCBBsecurities are traded by a community of market makers that enter quotes and trade reports through a closedcomputer network.
On February 28, 2014, the last reported sale price for our common stock on the NYSE was $116.26 per share.
On February 25, 2014, we had 43 holders of record of our common stock. We believe approximately
14,100 additional owners held our common stock in "Street Name" as of that date.
We have never declared or paid any cash dividends on our capital stock. Currently, we anticipate that we
will retain all available funds for use in the operation and expansion of our business and do not anticipate payingany cash dividends in the foreseeable future. Any future determination relating to dividend policy will be made atthe discretion of our board of directors and will depend on our future earnings, capital requirements, financialcondition, prospects, applicable Delaware law, which provides that dividends are only payable out of surplus orcurrent net profits, and other factors that our board of directors deems relevant.
Securities Authorized for Issuance Under Equity Compensation Plans
The information included under Item 12 of Part III of this Annual Report, "Securities Authorized for
Issuance Under Equity Compensation Plans," is hereby incorporated by reference into this Item 5 of Part II ofthis Annual Report.
Recent Sales of Unregistered Securities
We did not make any sales of unregistered securities during fiscal year 2013.
Use of Proceeds from Registered Securities
On October 18, 2012, our Registration Statement on Form S-1, as amended (File No. 333-184187), was
declared effective for our first registered offering, pursuant to which we registered the offering and sale of anaggregate of 8,625,000 shares of common stock, par value $0.0001 per share, at a price of $16.00 per share.
Included in the above amount is the underwriters' overallotment of 1,125,000 shares of common stock, whichoverallotment was exercised on October 19, 2012. The offering, which closed on October 24, 2012, did notterminate until after the sale of all of the shares registered on the registration statement. Merrill Lynch, PierceFenner & Smith Incorporated and Leerink Swann LLC acted as joint book-running managers for the offering,and Stifel Nicolaus & Company, Incorporated, Cowen and Company, LLC, and UBS Securities LLC acted asco-managers for the offering.
As a result of the offering, we received net proceeds of approximately $129.2 million, which is comprised of
gross proceeds of approximately $138 million, offset by the underwriting discount and estimated offeringexpenses of $8.8 million payable by us. No payments for such expenses were made directly or indirectly to(i) any of our officers or directors or their associates, (ii) any persons owning 10% or more of any class of ourequity securities or (iii) any of our affiliates.
We placed the net proceeds of approximately $129.2 million from this offering in a money market account
and invested a portion of the net proceeds in short-term, investment-grade, interest-bearing securities based onour projected cash needs and pending the application of the net proceeds as described below. We intend tocontinue using these proceeds for the overall development of our drug candidates in 2014 and beyond, including,but not limited to, research and development and clinical trial expenditures, and for general corporate andworking capital purposes. There has been no material change in the planned use of proceeds from our offeringfrom that described in the final prospectus filed with the SEC pursuant to Rule 424(b) on October 19, 2012.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Neither we nor any "affiliated purchasers" within the definition of Rule 10b-18(a)(3) made any purchases of
our equity securities during the fourth quarter of 2013.
SELECTED FINANCIAL DATA
The following financial data should be read in conjunction with our consolidated financial statements and
the related notes thereto appearing elsewhere in this Annual Report and with the section entitled "Management'sDiscussion and Analysis of Financial Condition and Results of Operations."
The Consolidated Statements of Operations data for the years ended December 31, 2013, 2012, 2011 and for
the period since our inception on September 15, 2010 through December 31, 2013, and the balance sheet data asof December 31, 2013 and 2012 have been derived from our audited consolidated financial statements includedelsewhere in this Annual Report. The Consolidated Statement of Operations data for the year endedDecember 31, 2010, and the Consolidated Balance Sheet data as of December 31, 2011 and 2010, are derivedfrom our audited consolidated financial statements not included herein. Historical results are not necessarilyindicative of the results to be expected in the future, and the results for the years presented should not beconsidered indicative of our future results of operations.
September 15, 2010
(date of inception)
Years ended December 31,
December 31, 2013
(in millions, except share data)
Statement of Operations Data:Expenses:General and administrative . . . .
Research and development . . . .
Operating loss . . . . . . . . .
Interest income . . . . . . . . .
Other income . . . . . . . . . .
Net loss attributable to common
Net loss per common share—basic
Weighted-average common shares
outstanding—basic and diluted . .
(in millions, except share data)
Balance Sheet Data:Total assets . . . . . . . . . .
Total liabilities . . . . . . . . .
Total stockholders' equity . . . . .
Years ended December 31,
(in millions, except share data)
Other Financial Data:Net cash used in operating
activities . . . . . . . . . . .
Net cash used in investing
activities . . . . . . . . . . .
Net cash provided by financing
activities . . . . . . . . . . .
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Annual Report on Form 10-K contains forward-looking statements within the meanings of the federal
securities laws. These statements are subject to risks and uncertainties that could cause actual results and eventsto differ materially from those expressed or implied by such forward-looking statements. For a detaileddiscussion of these risks and uncertainties, see the "Risk Factors" section in Item 1A of Part I of this Form 10-K.
We caution the reader not to place undue reliance on these forward-looking statements, which reflectmanagement's analysis only as of the date of this Form 10-K. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Form 10-K.
We are a development stage biopharmaceutical company based in Los Angeles, California with a focus on
the acquisition, development and commercialization of innovative products to enhance cancer care. We aim toacquire proprietary rights to these products, by license or otherwise, fund their research and development andbring the products to market. Our efforts and resources to date have been focused primarily on acquiring anddeveloping our pharmaceutical technologies, raising capital and recruiting personnel. As a development stagecompany, we have had no product sales to date and we will have no product sales until we receive approval fromthe United States Food and Drug Administration, or FDA, or equivalent foreign regulatory bodies to beginselling our pharmaceutical candidates. Developing pharmaceutical products, however, is a lengthy and veryexpensive process. Assuming we do not encounter any unforeseen safety issues during the course of developingour product candidates, we do not expect to receive approval of a product candidate until approximately 2015.
We currently license the rights to three drug candidates:
PB272 (neratinib (oral)), which we are developing for the treatment of advanced breast cancer patients,non-small cell lung cancer and patients with HER2 mutation-positive solid tumors;
PB272 (neratinib (intravenous)), which we are developing for the treatment of advanced cancerpatients; and
PB357, which we believe can serve as a backup compound to PB272, and which we are evaluating forfurther development.
A large portion of our expenses to date have been related to the clinical development of our lead product
candidate, PB272 (neratinib (oral)), and the transition of the neratinib program from the licensor. During thistransition period, as we built up our infrastructure and assumed responsibility for the neratinib program, aduplication of effort took place that resulted in higher than normal operating expenses. We estimate theduplication of effort had an impact on research and development, or R&D, operating expense for the years endedDecember 31, 2013 and December 31, 2012, of approximately $0.3 million and $5.1 million, respectively.
The license agreement for PB272 established a limit for our expenses related to the Pfizer-initiated clinical
trials for PB272 that were ongoing at the time of the agreement. This capped our "out-of-pocket" costs incurredin conducting these existing trials beginning January 1, 2012. We reached the cost cap during the fourth quarterof 2012, which resulted in a reduction of our R&D expenses for the fourth quarter of 2012. The licensor willcontinue to be responsible for these expenses until the licensor legacy trials are completed. Additionally, ourexpenses to date have been related to hiring staff, commencing company-sponsored clinical trials and the buildout of our corporate infrastructure. As we proceed with clinical development of PB272 (neratinib (oral)), and aswe further develop PB272 (neratinib (intravenous)), and PB357, our second and third product candidates,respectively, we expect our R&D expenses and expenses related to our third-party contractors will continue toincrease.
To the extent we are successful in acquiring additional product candidates for our development pipeline, our
need to finance R&D will increase. Accordingly, our success depends not only on the safety and efficacy of ourproduct candidates, but also on our ability to finance product development. Our major sources of working capitalhave been proceeds from public offerings of our common stock and sales of our common stock in privateplacements.
Summary of Expenses
General and administrative, or G&A, expenses consist primarily of salaries and related personnel costs,
including stock-based compensation expense, professional fees, business insurance, rent, general legal activities,and other corporate expenses. Stock-based compensation expense for the year ended December 31, 2012,included approximately $18.2 million of stock-based compensation related to an anti-dilutive warrant issued toour Founder and Chief Executive Officer in 2011, of which the exercise price and the number of underlyingshares were established in 2012. We do not expect to incur such additional expense for this warrant in the future.
R&D expenses include costs associated with services provided by consultants who conduct clinical services
on our behalf, contract organizations for manufacturing of clinical materials and clinical trials. During the yearended December 31, 2013, our R&D expenses consisted primarily of clinical research organization, or CRO fees;fees paid to consultants; salaries and related personnel costs; stock-based compensation; and facility costs.
During the year ended December 31, 2012, our R&D expenses consisted primarily of transition costs, as clinicaltrial responsibilities shifted from the licensor to us and our outside clinical research organization, or CRO; feespaid to other consultants; salaries and related personnel costs; stock-based compensation; and facility costs. Weexpense our R&D costs as they are incurred.
Results of Operations
The following summarizes our results of operations for the years ended December 31, 2013, 2012 and 2011.
General and administration expenses:
Annual percentage change
General and administrative expenses(in thousands)
Payroll and related costs . . . . . . . . . . . . .
Professional fees and expenses . . . . . . . . . .
Facility and equipment costs . . . . . . . . . . .
Employee stock-based compensation expense . . . .
Year ended December 31, 2013 Compared to Year ended December 31, 2012
Total G&A expenses decreased approximately 61% to $9.8 million for the year ended December 31, 2013
from $24.8 million for the year ended December 31, 2012. This decrease was primarily attributable to a decreasein stock-based compensation of approximately $16.4 million, offset by increases in payroll and related costs,facility costs and professional fees. Stock-based compensation expense decreased to $2.3 million in 2013 from$18.7 million in 2012. The approximately $18.7 million of stock-based compensation expense in 2012, includedapproximately $18.2 million for an anti-dilutive warrant issued to the our Chief Executive Officer (see Note 6 inthe accompanying notes to the consolidated financial statements). We had no additional expense for this anti-dilutive warrant in 2013 because it was fully expensed prior to December 31, 2012. We do not expect this levelof expense to reoccur in the future. The increase in payroll and related costs primarily related to our adding G&Aemployees to support increased operations and to increase staffing in other areas such as accounting and humanresources. The increase in overall facility and equipment costs was primarily due to additional leased office space
and corresponding equipment to support corporate growth. The increase in professional fees and expenses wasincurred primarily in support of meeting the requirements of becoming a large accelerated filer under theSecurities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002. We expect G&A expenses to increaseslightly going forward as we support the corporate growth of the Company.
Year ended December 31, 2012 Compared to Year ended December 31, 2011
Total G&A expenses increased approximately 166% to $24.8 million for the year ended December 31, 2012
from $9.3 million for the year ended December 31, 2011. The increase was primarily related to increases inemployee stock-based compensation expense, facility and equipment costs, payroll and related costs andprofessional fees and expenses. Stock-based compensation increased to $18.7 million in 2012 compared to $7.6million in 2011. This increase primarily related to the change in fair value of a warrant issued to our ChiefExecutive Officer. In connection with the closing of a public offering on October 24, 2012, the exercise price andnumber of shares underlying the anti-dilutive warrant issued to our Chief Executive Officer were established (seeNote 6 in the accompanying notes to the consolidated financial statements), and accordingly, the final value ofthe warrant became fixed. The final valuation of the warrant based on the Black-Scholes Option Pricing Method,was approximately $25.8 million and resulted in an adjustment to the fair value of the warrant of $18.2 million,which is included in G&A expenses for 2012, compared to the $7.6 million estimated fair value of the warrantrecorded in 2011. The remaining employee stock-based compensation expense represents the fair value of stockoption grants to employees applicable to the reporting period. Facility and equipment costs increased toapproximately $0.8 million in 2012 from approximately $52,000 in 2011, primarily due to our not having aphysical office location until December 2011, and therefore incurring minimal expense in 2011 versus havingtwo office locations in 2012. Payroll and related costs increased to approximately $2.1 million in 2012 fromapproximately $0.5 million in 2011, due to our having eight fulltime employees at December 31, 2012 versusfour at December 31, 2011. Professional fees and expenses increased to approximately $2.1 million in 2012 fromapproximately $1.0 million in 2011, which resulted primarily from our having limited operations in 2011 prior toOctober 2011.
Research and development expenses:
Annual percentage change
Research and development expenses(in thousands)
Outside CRO/licensor services . . . . . . . . . . . .
Outside other clinical development . . . . . . . . . . .
Internal regulatory affairs and quality assurance . . . . .
Internal clinical development . . . . . . . . . . . . .
Internal chemical manufacturing . . . . . . . . . . . .
Employee stock-based compensation . . . . . . . . . .
Year ended December 31, 2013 Compared to Year ended December 31, 2012
Total R&D expenses decreased approximately 9% to $45.0 million for the year ended December 31, 2013
from $49.6 million for the year ended December 31, 2012. This decrease is due to an approximately$16.4 million decrease in costs associated with outside CRO/licensor services due to our reaching the cap onexpenses for the on-going clinical trials that we assumed from the licensor, which we refer to as our licensorlegacy clinical trials (see Note 2 to the accompanying notes to the consolidated financial statements). The licenseagreement contained a cap on the external costs associated with the licensor legacy clinical trials for which weare responsible. We reached this cost cap in the fourth quarter of 2012 and the above table reflects the outsideservices incurred by us net of the excess cost billed back to the licensor. As a result of our reaching this cap, the
outside CRO/licensor service costs and other outside clinical development costs pertaining to the licensor legacyclinical trials decreased significantly. This large decrease was offset by the initiation of our company-sponsoredclinical trials. During 2013, we incurred increased outside CRO and other clinical development costs and expectthese costs to increase significantly in the coming year. The decrease in outside CRO/licensor service expenseswas partially offset by an increase in outside other clinical development expenses to approximately $15.4 millionin 2013 from approximately $5.1 million in 2012. In 2013, outside other clinical development consisted ofapproximately $6.2 million in clinical services, which includes data management and our company-sponsoredclinical trial specific activities, approximately $5.1 million in chemical manufacturing and controls,approximately $2.9 million in consultant and contract labor and approximately $1.2 million in legal services forclinical trial-related contracts in support of our company-sponsored clinical trials. The increases in 2013 from2012 in internal chemical manufacturing costs, internal clinical development costs and internal regulatory affairsand quality assurance costs were primarily due to an increase in employee headcount in support of our company-sponsored clinical trials. Employee stock-based compensation included in R&D expenses for the year endedDecember 31, 2013, was approximately $5.2 million compared to $0.9 million in 2012 and increased as a resultof the increase in the number of employees.
Year ended December 31, 2012 Compared to Year ended December 31, 2011
Total R&D expenses increased to $49.6 million for the year ended December 31, 2012 from $0.8 million for
the year ended December 31, 2011. This increase was primarily driven by outside CRO/licensor service expensesof approximately $34.8 million in 2012. The majority of these expenses, approximately $31.5 million, wereassociated with our licensor legacy clinical trials. This included approximately $5.1 million of duplicate costsfrom contracting a CRO to take over the management of our licensor legacy clinical trials. Outside other clinicaldevelopment expenses of approximately $5.1 million were incurred during 2012, as we became responsible forexpenses and services related to maintaining and managing the licensor legacy clinical trials. The licenseagreement contained a cap on the external costs associated with the licensor legacy clinical trials for which weare responsible. We reached this cost cap in the fourth quarter of 2012 and the above table reflects the outsideservices incurred by us net of the excess cost billed back to the licensor. Internal expenses, which include allemployee-related costs such as payroll, benefits and travel, were approximately $4.8 million for regulatoryaffairs and quality assurance, approximately $3.7 million for clinical development, and approximately $0.3million for internal chemical manufacturing for the year ended December 31, 2012. Employee stock-basedcompensation included in R&D expenses for the year ended December 31, 2012, was approximately $0.9 millioncompared to $38,000 in 2011 and increased as a result of the increase in the number of employees.
While expenditures on current and future clinical development programs, particularly our PB272 program,
are expected to be substantial and to increase in 2014, they are subject to many uncertainties, including theresults of our clinical trials and whether we develop any of our drug candidates with a partner or independently.
As a result of such uncertainties, we cannot predict with any significant degree of certainty the duration andcompletion costs of our R&D projects or whether, when and to what extent we will generate revenues from thecommercialization and sale of any of our product candidates. The duration and cost of clinical trials may varysignificantly over the life of a project as a result of unanticipated events arising during clinical development and avariety of other factors, including:
the number of trials and studies in a clinical program;
the number of patients who participate in the trials;
the number of sites included in the trials;
the rates of patient recruitment and enrollment;
the duration of patient treatment and follow-up;
the costs of manufacturing our drug candidates; and
the costs, requirements, timing of, and ability to secure regulatory approvals.
Interest income:
For the year ended December 31, 2013, we recognized approximately $172,000 in interest income compared
to approximately $98,000 and $4,000 of interest income for the years ended December 31, 2012 and 2011,respectively. The increase in interest income reflects excess cash invested in money market accounts, marketablesecurities and "high yield" savings accounts for a full year and cash invested from a public offering of ourcommon stock completed in October 2012 (see Note 6 in the accompanying notes to consolidated financialstatements).
Adjusted Statement of Operations:
The following tables present our operating results, as calculated in accordance the accounting principles
generally accepted in the United States, or GAAP, as adjusted to remove the impact of employee stock-basedcompensation and the outside CRO/licensor services and outside clinical development costs associated with thelicensor legacy clinical trials that we are in the process of completing. These non-GAAP financial measures arenot, and should not be viewed as, substitutes for GAAP reporting measures. We believe these non-GAAPmeasures enhance understanding of our financial performance, are more indicative of our operationalperformance and facilitate a better comparison among fiscal periods.
For the year ended December 31, 2013, stock-based compensation represented approximately 13.7% of our
loss from operations. This cost is related to our employee hiring practice and the fair market value of the stockoption grant on the day granted. The major component of the stock-based compensation for 2012 was the valuationof an anti-dilutive warrant issued to Mr. Auerbach, our President and Chief Executive Officer. These non-GAAPfinancial measures are not, and should not be viewed as, substitutes for GAAP reporting measures. We believe thesenon-GAAP measures enhance understanding of our financial performance, are more indicative of our operationalperformance and facilitate a better comparison among fiscal periods. We believe the issuance of the anti-dilutivewarrant was a onetime occurrence and the full value of the warrant has been recorded in our consolidated financialstatements.
The majority of the cost associated with the licensor legacy clinical trials during 2012 were related to
external costs that we were responsible for but that were subject to a cap. Having reached the cap, the licensorbecame responsible for all external costs associated with the licensor legacy clinical trials going forward and wehad only limited costs associated with our managing these trials during 2013 and expect to have limited costthrough to completion of these studies.
Reconciliation of GAAP and Non-GAAP Financial Information
(in thousands except share and per share data)
Expense Adjustments
Operating expense:General and administrative . . . . . . . . . . .
Research and development . . . . . . . . . . .
Other income (expense):Interest income . . . . . . . . . . . . . . .
Net loss applicable to common stock . . . . . . .
Net loss per common share—basic and diluted . . .
Weighted-average common shares outstanding—
Expense Adjustments
Operating expense:General and administrative . . . . . . . . . . .
Research and development . . . . . . . . . . .
Other income (expense):Interest income . . . . . . . . . . . . . . .
Net loss applicable to common stock . . . . . . .
Net loss per common share—basic and diluted . . .
Weighted-average common shares outstanding—
Liquidity and Capital Resources
We reported a net loss of approximately $54.7 million, $74.4 million, and $10.2 million for the years ended
December 31, 2013, 2012 and 2011, respectively. We also reported negative cash flows from operating activitiesof approximately $55.0 million, $44.0 million and $1.8 million for the years ended December 31, 2013, 2012,and 2011, respectively. Our net loss from Former Puma's date of inception, September 15, 2010, toDecember 31, 2013, amounted to approximately $139.3 million, while negative cash flows from operatingactivities amounted to approximately $100.9 million.
Net cash used in operating activities for the year ended December 31, 2013, includes a net loss of $54.7 million
adjusted for non-cash items of approximately $7.5 million for stock option expense and $0.4 million fordepreciation and amortization of property and equipment. Further adjustments include a decrease in accountspayable and accrued expenses of approximately $2.4 million, a decrease of $0.8 million in licensor receivables, andan increase in prepaid expenses and other assets of approximately $6.7 million. At December 31, 2012, we had alarge receivable from the licensor covering costs incurred in the fourth quarter of 2012. The decrease in bothaccounts payable and accrued expenses reflect the payment of this receivable and subsequent payments for ongoingcosts associated with the licensor-initiated clinical trials. The increase in prepaid expenses and other assets reflectsup-front payments made to various CROs for company-initiated clinical trials and for various insurance policies.
Net cash used in operating activities for the year ended December 31, 2012, includes a net loss of
approximately $74.4 million adjusted for non-cash items of approximately $18.2 million from the issuance of ananti-dilutive warrant, stock option expense of $1.4 million, $0.5 million resulting from an allowance received fromthe landlord, an increase in accounts payable and accrued expenses of approximately $21.1 million, an increase of$10.6 million in licensor receivables and an increase in prepaid expenses of approximately $0.7 million. Theincrease in accounts payable and accrued expenses, compared to 2011, is a direct result of us assuming operationaland financial responsibility for the clinical trials transferred from the licensor. These accruals and payables consistmainly of fees due to the licensor and CROs for maintaining and managing our clinical trials. The licensorreceivable represents costs in excess of a "cap cost" established in the license agreement. The license agreementallows us to bill back any external costs associated with the transferred trials in excess of the cap cost to the licensor.
We reached the cap cost during the fourth quarter of 2012.
Net cash used in operating activities through December 31, 2011, includes a net loss of $10.2 million adjusted
from non-cash items of approximately $7.6 million for the issuance of an anti-dilutive warrant, stock option expenseof $0.1 million, $0.4 million resulting for an allowance received from the landlord, $0.6 million increase in accountspayable and accrued expenses, and $0.3 million increase in prepaid expenses and other assets. The increase inaccounts payable and accrued expenses is a direct result of us commencing operations in the fourth quarter of 2011.
Net cash used in investing activities was approximately $41.5 million for the year ended December 31,
2013. The major portion of this is comprised of cash used for the purchase of available-for-sale securities ofapproximately $49.3 million offset by the sale and maturity of available-for-sale securities of $8.4 million. Weinvest our excess cash in available-for-sale securities. Additionally, approximately $0.6 million of cash used ininvesting activities was used for the purchase of property and equipment to support corporate growth.
Net cash used in investing activities was approximately $1.2 million for the year ended December 31, 2012.
The major portion for 2012, $0.6 million, represents additional computer equipment and infrastructure, alongwith $0.5 million in leasehold improvements to support our growth in the number of employees and facilities.
Net cash used in investing activities was approximately $1.7 million for the year ended December 31, 2011.
The major investing activity for 2011 was the acquisition of a high yield savings account in the amount of$1.1 million, which was used to secure a stand-by letter of credit issued to our landlord as collateral for our office
lease and leasehold improvements. We also incurred $0.4 million for leasehold improvements and $0.3 millionfor computers and office furniture in 2011.
February 2014 Common Stock Offering. On February 14, 2014, we completed an underwritten public
offering of 1,126,530 shares of our common stock (including an additional 146,938 shares of our common stockissued and sold pursuant to the underwriters' option to purchase additional shares), par value $0.0001 per share,at a price of $122.50 per share, less the underwriting discount. The net proceeds received by us wereapproximately $129.3 million after deducting the underwriting discount and estimated offering expenses payableby us.
During the year ended December 31, 2013, the cash provided by financing activities was approximately
$2.2 million. This represents proceeds to us from employee stock options exercised during 2013.
October 2012 Common Stock Offering. On October 18, 2012, we entered into an underwriting agreement
with Merrill Lynch, Pierce, Fenner & Smith Incorporated and Leerink Swann LLC, as representatives of severalunderwriters providing for the offer and sale in a firm-commitment underwritten public offering of 7,500,000shares of our common stock, par value $0.0001 per share at a price of $16 per share, less the underwritingdiscount. On October 19, 2012, the underwriters exercised the overallotment option granted to the underwritersto purchase an additional 1,125,000 shares of our common stock from us at $16 per share, less the underwritingdiscount. The transactions were completed on October 24, 2012, and we received net proceeds of approximately$129.2 million, which is comprised of gross proceeds of approximately $138 million, less $8.8 million ofunderwriting fees and other offering expenses payable by us.
2011 Private Placements. Immediately prior to the Merger, Former Puma entered into a securities purchase
agreement with certain institutional and accredited investors, pursuant to which it sold 14,666,733 shares of itscommon stock at a price per share of $3.75, for aggregate gross proceeds of approximately $55 million. FormerPuma also issued a warrant to each investor that provided such investor with anti-dilution protection in regard tocertain issuances of securities. We assumed these warrants in the Merger and they subsequently terminatedunexercised in accordance with their terms upon our quotation on the OTC Bulletin Board in April 2012.
We reimbursed the lead investor in this private placement $125,000 for all of its reasonable fees and
expenses, including legal fees, associated with the private placement. In addition, we paid Leerink approximately$2.3 million as compensation for acting as our placement agent in connection with this offering and $75,000 forreimbursable expenses.
In November 2011, we entered into subscription agreements with 139 accredited investors, pursuant to
which we sold in a private placement an aggregate of 1,333,267 shares of common stock at a price per share of$3.75 per share, for aggregate gross proceeds of approximately $5.0 million. Leerink acted as lead placementagent and National Securities Corporation acted as co-placement agent in connection with this private placementand received compensation of approximately $84,000 and $150,000, respectively. In addition to the costs notedabove, we incurred legal fees and other costs totaling approximately $487,000 associated with the equity raises.
Current and Future Financing Needs
We have incurred negative cash flows from operations since we started our business. We have spent, and
expect to continue to spend, substantial amounts in connection with implementing our business strategy,including our planned product development efforts, our clinical trials, and our R&D efforts. Given the currentand desired pace of clinical development of our three product candidates, over the next 12 months we estimatethat our R&D spending will be approximately $50 million to $60 million, excluding stock-based compensation.
We will need approximately $7 million to $8 million for general and administrative expenses over the next
12 months, excluding stock-based compensation. The actual amount of funds we will need to operate is subject tomany factors, some of which are beyond our control.
While we believe that the approximately $43.0 million in cash and cash equivalents and $40.9 million in
marketable securities as of December 31, 2013, and the $129.3 million raised on February 14, 2014, from our commonstock offering, will be sufficient to enable us to meet our anticipated expenditures for at least 2015 and beyond, wemay seek to obtain additional capital through the sale of debt or equity securities, if necessary, especially inconjunction with opportunistic acquisitions or licensing arrangements. We expect to continue incurring significantlosses for the foreseeable future and our continuing operations will depend on whether we are able to raise additionalfunds through additional equity or debt financing or entering into a strategic alliance with a third party concerning oneor more of our product candidates. Through December 31, 2013, and into 2014, a significant portion of our financinghas been through public offerings and private placements of our equity securities. We will continue to fund operationsfrom cash on hand and marketable securities and through the similar sources of capital previously described. We cangive no assurances that any additional capital raised will be sufficient to meet our needs. Further, in light of currenteconomic conditions, including the lack of access to the capital markets being experienced by small companies,particularly in our industry, there can be no assurance that such capital will be available to us on favorable terms or atall. If we are unable to raise additional funds in the future, we may be forced to delay or discontinue the developmentof one or more of our product candidates and forego attractive business opportunities. Any additional sources offinancing will likely involve the sale of our equity securities, which will have a dilutive effect on our stockholders.
In addition, we have based our estimate on assumptions that may prove to be wrong. We may need to obtain
additional funds sooner than planned or in greater amounts than we currently anticipate. Potential sources offinancing include strategic relationships, public or private sales of equity or debt and other sources of funds. Wemay seek to access the public or private equity markets when conditions are favorable due to our long-termcapital requirements. We do not have any committed sources of financing at this time, and it is uncertain whetheradditional funding will be available when we need it on terms that will be acceptable to us, or at all. If we raisefunds by selling additional shares of common stock or other securities convertible into common stock, theownership interests of our existing stockholders will be diluted. If we are not able to obtain financing whenneeded, we may be unable to carry out our business plan. As a result, we may have to significantly limit ouroperations, and our business, financial condition and results of operations would be materially harmed. In suchan event, we will be required to undertake a thorough review of our programs, and the opportunities presented bysuch programs, and allocate our resources in the manner most prudent.
Off-Balance Sheet Arrangements
We do not have any "off-balance sheet arrangements," as defined by the SEC regulations.
Contractual obligations represent future cash commitments and liabilities under agreements with third
parties, and exclude contingent liabilities for which we cannot reasonably predict future payment. Ourcontractual obligations result from property leases for office space. Although we do have obligations for CROservices, the table below excludes potential payments we may be required to make under our agreements withCROs because timing of payments and actual amounts paid under those agreements may be different dependingon the timing of receipt of goods or services or changes to agreed-upon terms or amounts for some obligations,and those agreements are cancelable upon written notice by the Company and therefore, not long-term liabilities.
Additionally, the expected timing of payment of the obligations presented below is estimated based on currentinformation.
The following table represents our contractual obligations as of December 31, 2013, aggregated by type (in
Payments due by Period
Less than
More than
1-3 years
3-5 years
Operating Lease Obligations . . . . . . . . . . . . .
Critical Accounting Policies
Our discussion and analysis of our consolidated financial condition and results of operations are based upon
our consolidated financial statements, which have been prepared in conformity with accounting principlesgenerally accepted in the United States, or GAAP. The preparation of these consolidated financial statementsrequires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, andexpenses, and related disclosure of contingent assets and liabilities reported in our consolidated financialstatements. The estimation process requires assumptions to be made about future events and conditions and, as aresult, is inherently subjective and uncertain. Actual results could differ materially from our estimates.
The SEC defines critical accounting policies as those that are, in management's view, most important to the
portrayal of our financial condition and results of operations and most demanding of our judgment. We considerthe following policies to be critical to an understanding of our consolidated financial statements and theuncertainties associated with the complex judgments made by us that could impact our results of operations,financial position, and cash flows.
Property and Equipment:
Property and equipment are recorded at cost and depreciated over estimated useful lives ranging from three
to five years using the straight-line method. Leasehold improvements are recorded at cost and amortized over theshorter of their useful lives or the term of the lease by use of the straight-line method. Maintenance and repaircosts are charged to operations as incurred.
The Company assesses the impairment of long-lived assets, primarily property and equipment, whenever
events or changes in business circumstances indicate that carrying amounts of the assets may not be fullyrecoverable. When such events occur, management determines whether there has been an impairment bycomparing the asset's carrying value with its fair value, as measured by the anticipated undiscounted net cashflows of the asset. Should impairment exist, the asset is written down to its estimated fair value. The Companyhas not recognized any impairment losses through December 31, 2013.
Research and Development Expenses:
R&D expenses are charged to operations as incurred. The major components of R&D costs include clinical
manufacturing costs; clinical trial expenses; consulting and other third-party costs; salaries and employeebenefits, stock-based compensation expense, supplies and materials, and allocations of various overhead costs.
Clinical trial expenses include, but are not limited to, investigator fees, site costs, comparator drug costs, andCRO costs. In the normal course of business, we contract with third parties to perform various clinical trialactivities in the ongoing development of potential products. The financial terms of these agreements are subjectto negotiation and variations from contract to contract and may result in uneven payment flows. Payments underthe contracts depend on factors such as the achievement of certain events, the successful enrollment of patients
and the completion of portions of the clinical trial or similar conditions. Our cost accruals for clinical trials arebased on estimates of the services received and efforts expended pursuant to contracts with numerous clinicaltrial sites, cooperative groups and CROs. The objective of our accrual policy is to match the recording ofexpenses in our consolidated financial statements to the actual services received and efforts expended. As actualcosts become known, we adjust our accruals in that period.
In instances where we enter into agreements with third parties for clinical trials and other consulting
activities, upfront amounts are recorded as prepaid expenses and expensed as services are performed or as theunderlying goods are delivered. If we do not expect the services to be rendered or goods to be delivered, anyremaining capitalized amounts for non-refundable upfront payments are charged to expense immediately.
Amounts due under such arrangements may be either fixed fee or fee for service, and may include upfrontpayments, monthly payments and payments upon the completion of milestones or receipt of deliverables.
Costs related to the acquisition of technology rights and patents for which development work is still in
process are charged to operations as incurred and considered a component of R&D costs.
Research and Development Reimbursement:
The licensing agreement set a "cap" on the amount of external expenses we would incur, beginning
January 1, 2012, in completing the clinical trials transferred from the licensor to the Company. The licenseagreement stipulates that the licensor would be responsible for all external expenses associated with thetransferred clinical trials and that we would invoice for such costs on a quarterly basis. All amounts reimbursedfrom the licensor represent charges for services provided by third parties and not by us. Accordingly, we haveelected to treat the reimbursed costs as a "pass-through" expense billable to the licensor and as an off-set to ouractual R&D expenses. Therefore, our R&D expenses are recorded net of any excess cap costs billed to thelicensor. We recognized approximately $16.4 million and $10.6 million of excess cap cost billings in the yearsended December 31, 2013 and 2012, respectively.
Stock option awards:
Accounting Standards Codification 718,
Compensation-Stock Compensation, or ASC 718, requires the fair
value of all share-based payments to employees, including grants of stock options, to be recognized in thestatement of operations over the requisite service period. Under ASC 718, employee option grants are generallyvalued at the grant date and those valuations do not change once they have been established. The determinationof the fair value using the Black-Scholes Option Pricing Method is affected by our stock price as well as anumber of complex and subjective variables, including expected stock price volatility, risk-free interest rate,expected dividends and projected employee stock option exercise behaviors. As allowed by ASC 718 forcompanies with a short period of publicly traded stock history, our estimate of expected volatility is based on theaverage expected volatilities of a sampling of five companies with similar attributes to us, including industry,stage of life cycle, size and financial leverage. The five companies are reviewed quarterly as the volatility has thegreatest impact on the calculation. The risk-free rate for periods within the contractual life of the option is basedon the U.S. Treasury yield curve in effect at the time of grant valuation. ASC 718 does not allow companies toaccount for option forfeitures as they occur; instead, estimated option forfeitures must be calculated when theoption is granted to reduce the option expense to be recognized over the life of the award and updated uponreceipt of further information as to the amount of options expected to be forfeited. Due to our limited history, weuse the simplified method to determine the expected life of the option grants.
Warrants granted to employees are normally valued at the fair value of the instrument on the grant date and are
recognized in the statement of operations over the requisite service period. When the requisite service periodprecedes the grant date and a market condition exists in the warrant, the Company values the warrant using the
Monte Carlo Simulation Method. When the terms of the warrant become fixed, the Company values the warrantusing the Black-Scholes Option Pricing Method. As allowed by ASC 718 for companies with a short period ofpublicly traded stock history, the Company's estimate of expected volatility is based on the average volatilities of asampling of eight to nine companies with similar attributes to the Company, including industry, stage of life cycle,size and financial leverage. The risk-free rate for periods within the contractual life of the warrant is based on theU.S. Treasury yield curve in effect at the time of grant valuation. In determining the value, until the terms are fixedthe Company factors in the probability of the market condition occurring and several possible scenarios. When therequisite service period precedes the grant date and is deemed to be complete, the Company records the fair value ofthe warrant at the time of issuance as an equity stock-based compensation transaction. The warrant is revalued eachreporting period up to the grant date when the final fair value of the warrant is established and recorded. The grantdate is determined when all pertinent information, such as exercise price and quantity are known.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of our investing activities is to preserve principal while maximizing the income we
receive from our investments without significantly increasing the risk of loss. Some of the investable securitiespermitted under our cash management policy may be subject to market risk for changes in interest rates. Tomitigate this risk, we maintain a portfolio of cash equivalents and available-for-sale investments in a variety ofsecurities, which may include investment grade commercial paper, money market funds, government debt issuedby the United States of America, state debt, certificates of deposit and investment grade corporate debt.
Presently, we are exposed to minimal market risks associated with interest rate changes because of the relativelyshort maturities of our investments and we do not expect interest rate fluctuations to materially affect theaggregate value of our financial instruments. We manage our sensitivity to these risks by maintaininginvestments grade short-term investments. Our cash management policy does not allow us to purchase or holdderivative or commodity instruments or other financial instruments for trading purposes. Additionally, our policystipulates that we periodically monitor our investments for adverse material holdings related to the underlyingfinancial solvency of the issuer. As of December 31, 2013, our investments consisted primarily of U.S.
government and agency obligations and corporate obligations. Our results of operations and financial conditionwould not be significantly impacted by either a 10% increase or 10% decrease in interest rates due mainly to theshort-term nature of our investment portfolio. We have not used derivative financial instruments in ourinvestment portfolio. Additionally, we do not invest in foreign currencies or other foreign investments.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
All financial statements and supplementary data required by this Item are listed in Part IV, Item 15 of this
Annual Report and are presented beginning on Page F-1.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be
disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the timelinesspecified in the SEC's rules and forms, and that such information is accumulated and communicated to ourmanagement, including our Chief Executive Officer and Senior Vice President, Finance and Administration andTreasurer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating thedisclosure controls and procedures, management recognized that any controls and procedures, no matter how welldesigned and operated, can only provide reasonable assurance of achieving the desired control objectives and in
reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating thecost-benefit relationship of possible controls and procedures.
Under the supervision and with the participation of our management, including our Chief Executive Officer
and Senior Vice President, Finance and Administration and Treasurer, we have evaluated the effectiveness of ourdisclosure controls and procedures (as defined under Exchange Act Rule 13a-15(e)), as of December 31, 2013.
Based on that evaluation, our Chief Executive Officer and Senior Vice President, Finance and Administration andTreasurer have concluded that these disclosure controls and procedures were effective as of December 31, 2013.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fourth quarter
ended December 31, 2013, that has materially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financialreporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting andthe preparation of financial statements for external purposes in accordance with accounting principles generallyaccepted in the United States of America.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk thatcontrols may become inadequate because of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our Chief Executive Officer
and Senior Vice President, Finance and Administration and Treasurer, we conducted an evaluation of theeffectiveness of our internal control over financial reporting as of December 31, 2013. Management based itsassessment on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commissionin
Internal Control—Integrated Framework. Based on this evaluation and criteria, our management concludedthat as of December 31, 2013, our internal control over financial reporting was effective at the reasonableassurance level.
Our internal control over financial reporting as of December 31, 2013 has been audited by PKF Certified
Public Accountants, A Professional Corporation, our independent registered public accounting firm, as stated intheir report, which expresses an unqualified opinion on the effectiveness of the Company's internal control overfinancial reporting as of December 31, 2013.
ITEM 9B. OTHER INFORMATION
Not applicable.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item will be included in our 2014 Proxy Statement, which will be filed
with the SEC, and is incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be included in our 2014 Proxy Statement, which will be filed
with the SEC, and is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information required by this Item will be included in our 2014 Proxy Statement, which will be filed
with the SEC, and is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
The information required by this Item will be included in our 2014 Proxy Statement, which will be filed
with the SEC, and is incorporated by reference herein.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item will be included in our 2014 Proxy Statement, which will be filed
with the SEC, and is incorporated by reference herein.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Reference is made to the Index to Consolidated Financial Statements beginning on Page F-1 hereof.
Consolidated Financial Statement Schedules
(a) Documents Filed as Part of Report
(1) Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . F-2
Consolidated Balance Sheets at December 31, 2013 and 2012 . . . . . . . . . . . . F-4
Consolidated Statements of Operations for the Years Ended December 31, 2013, 2012,2011 and for the Period from September 15, 2010 (date of inception) throughDecember 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Loss for the Years Ended December 31,2013, 2012, 2011 and for the Period from September 15, 2010 (date of inception)through December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders' Equity for the Period from September 15,2010 (date of inception) through December 31, 2013 . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012,2011 and for the Period from September 15, 2010 (date of inception) throughDecember 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . F-9
(2) Consolidated Financial Statement Schedules
Consolidated Financial Statement Schedules have been omitted because they are either not required or not
applicable, or because the information required to be presented is included in the consolidated financialstatements or the notes thereto included in this Annual Report.
The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference as part of this
Annual Report and such Exhibit Index is incorporated by reference.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 3,2014.
PUMA BIOTECHNOLOGY, INC.
By: /s/ Alan H. Auerbach
Alan H. Auerbach
President & Chief Executive Officer(Principal Executive Officer)
KNOWN BY ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Alan H. Auerbach and Charles R. Eyler, or either of them, as his true and lawfulattorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place andstead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and anydocuments related to this report and filed pursuant to the Securities Exchange Act of 1934, and to file the same,with all exhibits thereto, and other documents in connection therewith, with the Securities and ExchangeCommission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform eachand every act and thing requisite and necessary to be done in connection therewith as fully to all intents andpurposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact andagents, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. This power ofattorney shall be governed by and construed with the laws of the State of Delaware and applicable federalsecurities laws.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the
following persons in the capacities and on the dates indicated.
Chairman of the Board of Directors, President and
Chief Executive Officer (Principal ExecutiveOfficer)
Senior Vice President, Finance and
Administration and Treasurer (Principal FinancialOfficer and Principal Accounting Officer)
Incorporation by Reference
Filing Date
Agreement and Plan of Merger, dated September 29, 2011,
by and among Innovative Acquisitions Corp., IAC MergerCorporation, a Delaware corporation and wholly-ownedsubsidiary of the Company, and Puma Biotechnology, Inc., aDelaware corporation
Certificate of Merger relating to the merger of IAC Merger
Corporation with and into Puma Biotechnology, Inc., filedwith the Secretary of State of Delaware on October 4, 2011
Certificate of Ownership and Merger relating to the merger
of Puma Biotechnology, Inc. with and into InnovativeAcquisitions Corp., filed with the Secretary of State of theState of Delaware on October 4, 2011
Amended and Restated Certificate of Incorporation, as filed
with the Secretary of State of the State of Delaware onNovember 14, 2011
Bylaws of Puma Biotechnology, Inc.
Form of Common Stock Certificate
Warrant to Purchase Shares of Common Stock of Puma
Biotechnology, Inc., dated October 4, 2011, issued to AlanH. Auerbach
License Agreement, dated August 18, 2011, by and between
the Company, as successor to Puma Biotechnology, Inc., andPfizer Inc.
Puma Biotechnology, Inc. 2011 Incentive Award Plan
Form of Stock Option Grant Notice and Stock Option
Agreement, issued pursuant to the 2011 Incentive AwardPlan
Form of Chief Executive Officer Stock Option Grant Notice
and Stock Option Agreement, issued pursuant to the 2011Incentive Award Plan
Form of Performance Share Award Agreement, issuedpursuant to the 2011 Incentive Award Plan
Registration Rights Agreement, dated October 4, 2011, by
and among Puma, the investors listed on Exhibit A attachedthereto and the Company
Amendment No. 1 to Registration Rights Agreement
Letter Agreement, dated October 21, 2011, between the
Company and Richard Phillips
Letter Agreement, dated October 21, 2011, between the
Company and Charles Eyler
Incorporation by Reference
Filing Date
Office Lease by and between the Company and CA – 10880
Wilshire Limited Partnership, executed on December 7, 2011
First Amendment to the Office Lease, dated as of November 28,
2012, by and between the Company and CA – 10880 WilshireLimited Partnership
Second Amendment to the Office Lease, dated as of December 3,2013, by and between the Company and CA – 10880 WilshireLimited Partnership
Employment Agreement, dated January 19, 2012, by and
between the Company and Alan H. Auerbach
Office Lease by and between DWF III Gateway, LLC and the
Company, executed June 7, 2012
Letter Agreement, dated May 2, 2012, between the Company and
Form of Indemnification Agreement
Non-Employee Director Compensation Program
Consent of Independent Registered Public Accounting Firm
Power of Attorney (included on signature page)
Certification of Principal Executive Officer, as required bySection 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Financial Officer, as required bySection 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Executive Officer, as required bySection 906 of the Sarbanes-Oxley Act of 2002
Certification of Principal Financial Officer, as required bySection 906 of the Sarbanes-Oxley Act of 2002
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Linkbase Document
Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidentialtreatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934.
PUMA BIOTECHNOLOGY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independence Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets at December 31, 2013 and 2012 . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the Years Ended December 31, 2013, 2012, 2011 and for the
Period from September 15, 2010 (date of inception) through December 31, 2013 . . . . . . . . . .
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2013, 2012, 2011 and
for the Period from September 15, 2010 (date of inception) through December 31, 2013 . . . . . . .
Consolidated Statements of Stockholders' Equity for the Period from September 15, 2010 (date of
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012, 2011 and for the
Period from September 15, 2010 (date of inception) through December 31, 2013 . . . . . . . . . .
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Puma Biotechnology, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Puma Biotechnology, Inc. and Subsidiary (ADevelopment Stage Company) (the "Company") as of December 31, 2013 and 2012, and the related consolidatedstatements of operations, comprehensive loss, changes in stockholders' equity, and cash flows for each of thethree years ended 2013, 2012, and 2011, and for the period from September 15, 2010 (date of inception) throughDecember 31, 2013. We also have audited Puma Biotechnology, Inc.'s internal control over financial reporting asof December 31, 2013, based on criteria established in
Internal Control—Integrated Framework (1992) issued bythe Committee of Sponsoring Organizations of the Treadway Commission (COSO). Puma Biotechnology Inc.'smanagement is responsible for these consolidated financial statements, for maintaining effective internal controlover financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,included in the accompanying Management's Report on Internal Control over Financial Reporting. Ourresponsibility is to express an opinion on these consolidated financial statements and an opinion on theCompany's internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance aboutwhether the consolidated financial statements are free of material misstatement and whether effective internalcontrol over financial reporting was maintained in all material respects. Our audits of the consolidated financialstatements included examining, on a test basis, evidence supporting the amounts and disclosures in theconsolidated financial statements, assessing the accounting principles used and significant estimates made bymanagement, and evaluating the overall financial statement presentation. Our audit of internal control overfinancial reporting included obtaining an understanding of internal control over financial reporting, assessing therisk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internalcontrol based on the assessed risk. Our audits also included performing such other procedures as we considerednecessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with accounting principles generally accepted in the United States of America. A company's internalcontrol over financial reporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of thecompany; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with accounting principles generally accepted in the United States of America,and that receipts and expenditures of the company are being made only in accordance with authorizations ofmanagement and directors of the company; and (3) provide reasonable assurance regarding prevention or timelydetection of unauthorized acquisition, use, or disposition of the company's assets that could have a materialeffect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detectmisstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk thatcontrols may become inadequate because of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, thefinancial position of Puma Biotechnology, Inc. and Subsidiary as of December 31, 2013 and 2012, and the resultsof its operations, comprehensive loss, changes in stockholders' equity and its cash flows for each of the threeyears ended 2013, 2012, and 2011, and for the period from September 15, 2010 (date of inception) throughDecember 31, 2013, in conformity with accounting principles generally accepted in the United States ofAmerica. Also in our opinion, Puma Biotechnology, Inc. and Subsidiary maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2013, based on criteria established in
Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO).
San Diego, California
Certified Public AccountantsA Professional Corporation
PUMA BIOTECHNOLOGY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31,
December 31,
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other, long-term . . . . . . . . . . . . . . . . . . .
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies (Note 9)Stockholders' equity:Common stock—$.0001 par value; 100,000,000 shares authorized; 28,991,289
issued and outstanding at December 31, 2013, and 28,676,666 issued andoutstanding at December 31, 2012 . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . .
Deficit accumulated during the development stage . . . . . . . . . . . . . .
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . .
See Accompanying Notes to the Consolidated Financial Statements
PUMA BIOTECHNOLOGY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
September 15, 2010
Years Ended December 31,
(date of inception) to
December 31, 2013
Operating expenses:General and administrative . . . . . . . . . . . $
Research and development . . . . . . . . . . .
Other income (expenses):Interest income . . . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . . . .
(74,352) $ (10,233)
Net loss applicable to common stock . . . . . . . $
(74,352) $ (10,233)
Net loss per common share—basic and diluted . . . $
Weighted-average common shares outstanding—
See Accompanying Notes to the Consolidated Financial Statements
PUMA BIOTECHNOLOGY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
September 15, 2010
Years Ended December 31,
(date of inception) to
December 31, 2013
$(54,659) $(74,352) $(10,233)
Other comprehensive income (loss)
Unrealized gain on available-for-sale securities . . . .
$(54,656) $(74,352) $(10,233)
See Accompanying Notes to the Consolidated Financial Statements
PUMA BIOTECHNOLOGY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THE PERIOD FROM SEPTEMBER 15, 2010 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2013
(in thousands except share data)
Additional Comprehensive Accumulated
Common Stock
During the
Balances, beginning . . . . . . . . .
Common stock issued for cash at $0.0001
Paid-in capital . . . . . . . . . . . .
Balance at December 31, 2010 . . . . .
Paid-in capital . . . . . . . . . . . .
Issuance of shares of common stock
through private placementsat $3.75 pershare, net of issuance costs . . . . . . 16,000,000
Conversion of stockholder's note payable
Stock option compensation . . . . . .
Anti-dilutive warrant . . . . . . . . .
Balance at December 31, 2011 . . . . . 20,040,000
Issuance of shares of common stock
through equity placement at $16.00 pershare, net of issuance costs . . . . . .
Stock option compensation . . . . . .
Anti-dilutive warrant . . . . . . . . .
Exercises of stock options . . . . . . .
Balance at December 31, 2012 . . . . . 28,676,666
Stock option compensation . . . . . .
Exercises of stock options . . . . . . .
Unrealized gain on available for sale
Balance at December 31, 2013 . . . . . 28,991,289
$(139,251) $ 83,987
See Accompanying Notes to the Consolidated Financial Statements
PUMA BIOTECHNOLOGY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
September 15, 2010
(date of inception) to
Years Ended December 31,
$ (54,659) $ (74,352) $(10,233)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization . . . . . . . . . . . .
Build-out allowance received from landlord . . . . . .
Anti-dilutive warrant . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:Licensor receivable . . . . . . . . . . . . . . . .
Prepaid expenses and other . . . . . . . . . . . . .
Net cash used in operating activities . . . . . . . . .
Investing activities:Purchase of property and equipment . . . . . . . . .
Expenditures for leasehold improvements . . . . . . .
Purchase of available-for-sale securities . . . . . . . .
Sale/maturity of available-for-sale securities . . . . . .
Net cash used in investing activities . . . . . . . . .
Financing activities:Proceeds from issuance of stockholder's convertible
Net proceeds from issuance of common stock . . . . .
Net proceeds from exercise of options . . . . . . . . .
Capital contributions by stockholder . . . . . . . . .
Net cash provided by financing activities . . . . . . .
Net (decrease) increase in cash and cash equivalents . . .
Cash and cash equivalents, beginning of period . . . . .
Cash and cash equivalents, end of period . . . . . . .
Supplemental disclosures of non-cash investing and
financing activities:
Conversion of stockholder's note payable to common
See Accompanying Notes to the Consolidated Financial Statements
PUMA BIOTECHNOLOGY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Business and Basis of Presentation:
Puma Biotechnology, Inc., or Puma, is a development stage biopharmaceutical company based in Los
Angeles, California. References in these Notes to Consolidated Financial Statements to the "Company" refer toPuma Biotechnology, Inc., a private Delaware company formed on September 15, 2010, for periods prior to theMerger (as defined below), which took place on October 4, 2011, and Puma Biotechnology, Inc., a Delawarecompany formed on April 27, 2007, and formerly known as Innovative Acquisitions Corp., for periods followingthe Merger. The Company is a development stage biopharmaceutical company with a focus on the acquisition,development and commercialization of innovative products to enhance cancer care. The Company focuses on in-licensing drug candidates that are undergoing or have already completed initial clinical testing for the treatmentof cancer and then seeks to further develop those drug candidates for commercial use.
In November 2012, the Company established and incorporated Puma Biotechnology Ltd., a wholly owned
subsidiary, for the sole purpose of serving as Puma's legal representative in the United Kingdom and theEuropean Union in connection with Puma's clinical trial activity in those countries.
Basis of Presentation:
The Company is a development stage enterprise since it has not yet generated any revenue from the sale of
products through December 31, 2013. The Company is initially focused on developing neratinib for the treatmentof patients with human epidermal growth factor receptor type 2, or HER2-positive, breast cancer, HER2 mutatednon-small cell lung cancer, HER2-negative breast cancer that has a HER2 mutation and other solid tumors thathave an activating mutation in HER2. Accordingly, the accompanying consolidated financial statements havebeen prepared in accordance with the Financial Accounting Standards Board, or FASB, Accounting StandardsCodification, or ASC, ASC 915,
Development Stage Entities. The Company has reported a net loss of $54.7million and negative cash flows from operations of $55.0 million for the year ended December 31, 2013. The netloss from the date of inception, September 15, 2010, to December 31, 2013, amounted to $139.3 million whilethe negative cash flows from operations from the date of inception amounted to $100.9 million. Managementbelieves that the Company will continue to incur net losses and negative net cash flows from operating activitiesthrough the drug development process.
The Company's continued operations will depend on its ability to raise funds through various potential
sources, such as equity and debt financing. Through December 31, 2013, and into 2014, the Company's financingwas primarily through public offerings of Company common stock and private equity placements. Given thecurrent and desired pace of clinical development of its three product candidates, management estimates that theCompany had sufficient cash on hand at December 31, 2013, to fund clinical development through 2015 andbeyond. The Company sold additional shares of its common stock through an underwritten public offering inFebruary 2014 (see Note 10). As a result, the Company received net proceeds of approximately $129.3 million.
The Company may need additional financing until it can achieve profitability, if ever. There can be no assurancethat additional capital will be available on favorable terms or at all or that any additional capital that theCompany is able to obtain will be sufficient to meet its needs. If it is unable to raise additional capital, theCompany could likely be forced to curtail desired development activities, which will delay the development of itsproduct candidates.
Merger with Public Company:
On September 29, 2011, the Company entered into an agreement and plan of merger, or the Merger
Agreement, with Innovative Acquisitions Corp., or IAC, and IAC's wholly-owned subsidiary, IAC MergerCorporation, or Merger Sub. On October 4, 2011, the Company completed a reverse merger in which Merger Submerged with and into the Company and the Company became a wholly-owned subsidiary of IAC, or the Merger.
At the effective time of the Merger, the Company's then issued and outstanding 18,666,733 shares of commonstock were exchanged for 18,666,733 shares of common stock of IAC and each share of the Company's commonstock that was outstanding immediately prior to the effective time was cancelled, with one share of the Companycommon stock issued to IAC. Concurrently, IAC redeemed all of its shares from its pre-Merger stockholders inexchange for aggregate consideration of $40,000 paid by the Company. The Company also paid $40,000 forIAC's professional fees associated with the Merger, directly to legal counsel for IAC's former stockholders.
Following the Merger and the redemption, the Company's prior stockholders owned the same percentage ofIAC's common stock as they held of the Company's common stock prior to the Merger.
Upon completion of the Merger, the Company merged with and into IAC, and IAC adopted the Company's
business plan and changed its name to "Puma Biotechnology, Inc." Further, upon completion of the Merger, theexisting officers and directors of IAC resigned and the existing officers and directors of the Company wereappointed officers and directors of IAC.
The Merger was accounted for as a reverse acquisition, with the Company as the accounting acquirer and
IAC as the accounting acquiree. The merger of a private operating company into a non-operating public shellcorporation with nominal net assets is considered to be a capital transaction, in substance, rather than a businesscombination for accounting purposes. Accordingly, the Company treated this transaction as a capital transactionwithout recording goodwill or adjusting any of its other assets or liabilities. Consideration in the amount of$80,000 paid to the former stockholders of IAC and their attorney was recorded as an other expense item andincluded in the Company's net loss for the year ended December 31, 2011.
Note 2—Significant Accounting Policies:
The significant accounting policies followed in the preparation of these consolidated financial statements
Use of Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States, or GAAP, requires management to make estimates and assumptions that affect reported amountsof assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet andreported amounts of expenses for the period presented. Accordingly, actual results could differ from thoseestimates. Significant estimates include accrued expenses for the cost of services provided by consultants whomanage clinical trials and conduct research and clinical trials on behalf of the Company that are billed on adelayed basis. As the actual costs become known, the Company adjusts its estimated cost in that period. Thevalue of stock-based compensation includes estimates based on future events which are difficult to predict. It is atleast reasonably possible that a change in the estimates used to record accrued expenses and to value the stock-based compensation will occur in the near term.
Principles of Consolidation:
The Consolidated Financial Statements include the accounts of the Company and its wholly owned
subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents:
The Company considers all highly liquid investments with original maturities of three months or less to be
cash equivalents. Cash equivalents are carried at cost, which approximates fair value.
Licensor receivable represents external "out of pocket" clinical trial costs in excess of an agreed upon "cap
cost" for clinical trials that were ongoing at the time the licensing agreement with the Licensor (defined below)was entered (see Note 9). The licensing agreement allows the Company to bill the Licensor for all external "outof pocket" costs in excess of the cap cost on a quarterly basis. Licensor receivables include both invoiced and un-invoiced costs in excess of the cap. The Company has not established a reserve against this receivable as it isdeemed to be 100% collectable.
The Company classifies all investment securities (short term and long term) as available-for-sale, as the sale
of such securities may be required prior to maturity to implement management's strategies. These securities arecarried at fair value, with the unrealized gains and losses, reported as a component of accumulated othercomprehensive income (loss) in stockholders' equity until realized. Realized gains and losses from the sale ofavailable-for-sale securities, if any, are determined on a specific identification basis. A decline in the marketvalue of any available-for-sale security below cost that is determined to be other than temporary results in arevaluation of its carrying amount to fair value. The impairment is charged to earnings and a new cost basis forthe security is established. Premiums and discounts are amortized or accreted over the life of the related securityas an adjustment to yield using the straight-line method. Interest income is recognized when earned.
Assets Measured at Fair Value on a Recurring Basis:
ASC 820,
Fair Value Measurement, or ASC 820, provides a single definition of fair value and a common
framework for measuring fair value as well as new disclosure requirements for fair value measurements used infinancial statements. Under ASC 820, fair value is determined based upon the exit price that would be receivedby a company to sell an asset or paid by a company to transfer a liability in an orderly transaction betweenmarket participants, exclusive of any transaction costs. Fair value measurements are determined by either theprincipal market or the most advantageous market. The principal market is the market with the greatest level ofactivity and volume for the asset or liability. Absent a principal market to measure fair value, the Company usesthe most advantageous market, which is the market from which the Company would receive the highest sellingprice for the asset or pay the lowest price to settle the liability, after considering transaction costs. However,when using the most advantageous market, transaction costs are only considered to determine which market isthe most advantageous and these costs are then excluded when applying a fair value measurement. ASC 820creates a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. Thebasis for fair value measurements for each level within the hierarchy is described below, with Level 1 having thehighest priority and Level 3 having the lowest.
Quoted prices in active markets for identical assets or liabilities.
Quoted prices for similar assets or liabilities in active markets; quoted prices for identical orsimilar instruments in markets that are not active; and model-derived valuations in which allsignificant inputs are observable in active markets.
Valuations derived from valuation techniques in which one or more significant inputs areunobservable.
Following are the major categories of assets measured at fair value on a recurring basis as of December 31,
2013 and 2012, using quoted prices in active markets for identical assets (Level 1), significant other observableinputs (Level 2), and significant unobservable inputs (Level 3) (in thousands):
December 31, 2013
Marketable securities—corporate bonds . . . . . .
December 31, 2012
The Company's investments in corporate bonds are exposed to price fluctuations. The fair value
measurements for corporate bonds are based upon the quoted prices of similar items in active markets multipliedby the number of securities owned, exclusive of any transaction costs and without any adjustments to reflectdiscounts that may be applied to selling a large block of securities at one time.
Concentration of Risk:
Financial instruments, which potentially subject the Company to concentrations of credit risk, principally
consist of cash and cash equivalents. The Company's cash and cash equivalents in excess of the Federal DepositInsurance Corporation and the Securities Investor Protection Corporation insured limits at December 31, 2013,were approximately $44.2 million. The Company does not believe it is exposed to any significant credit risk dueto the quality nature of the financial instruments in which the money is held. Pursuant to the Company's internalinvestment policy, investments must be rated A-1/P-1 or better by Standard and Poor's Corporation and Moody'sInvestor Services at the time of purchase.
Property and Equipment:
Property and equipment are recorded at cost and depreciated over estimated useful lives ranging from three
to five years using the straight-line method. Leasehold improvements are recorded at cost and amortized over theshorter of their useful lives or the term of the lease by use of the straight-line method. Maintenance and repaircosts are charged to operations as incurred.
The Company assesses the impairment of long-lived assets, primarily property and equipment, whenever
events or changes in business circumstances indicate that carrying amounts of the assets may not be fullyrecoverable. When such events occur, management determines whether there has been impairment by comparingthe asset's carrying value with its fair value, as measured by the anticipated undiscounted net cash flows of theasset. Should impairment exist, the asset is written down to its estimated fair value. The Company has notrecognized any impairment losses through December 31, 2013.
Research and Development Expenses:
Research and development expenses are charged to operations as incurred. The major components of
research and development costs include clinical manufacturing costs, clinical trial expenses, consulting and otherthird-party costs, salaries and employee benefits, stock-based compensation expense, supplies and materials, andallocations of various overhead costs. Clinical trial expenses include, but are not limited to, investigator fees, sitecosts, comparator drug costs, and clinical research organization, or CRO, costs. In the normal course of business,the Company contracts with third parties to perform various clinical trial activities in the ongoing development ofpotential products. The financial terms of these agreements are subject to negotiation and variations fromcontract to contract and may result in uneven payment flows. Payments under the contracts depend on factors
such as the achievement of certain events, the successful enrollment of patients and the completion of portions ofthe clinical trial or similar conditions. The Company's accruals for clinical trials are based on estimates of theservices received and efforts expended pursuant to contracts with numerous clinical trial sites, cooperativegroups and CROs. The objective of the Company's accrual policy is to match the recording of expenses in theConsolidated Financial Statements to the actual services received and efforts expended. As actual costs becomeknown, the Company adjusts its accruals in that period.
In instances where the Company enters into agreements with third parties for clinical trials and other
consulting activities, upfront amounts are recorded to prepaid expenses and other in the accompanyingConsolidated Balance Sheets and expensed as services are performed or as the underlying goods are delivered. Ifthe Company does not expect the services to be rendered or goods to be delivered, any remaining capitalizedamounts for non-refundable upfront payments are charged to expense immediately. Amounts due under sucharrangements may be either fixed fee or fee for service, and may include upfront payments, monthly paymentsand payments upon the completion of milestones or receipt of deliverables.
Costs related to the acquisition of technology rights and patents for which development work is still in
process are charged to operations as incurred and considered a component of research and development costs.
Research and Development Reimbursement:
The licensing agreement set a "cap" on the amount of external expenses the Company would incur,
beginning January 1, 2012, in completing the clinical trials transferred from the Licensor to the Company. Thelicense agreement stipulates that the Licensor would be responsible for all external expenses associated with thetransferred clinical trials and that the Company would invoice for such costs on a quarterly basis. All amountsreimbursed by the Licensor represent charges for services provided by third parties and not by the Company;accordingly, the Company has elected to treat the reimbursed costs as a "pass-through" expense billable to theLicensor and as an off set to research and development expenses. Consequently, research and developmentexpenses are recorded net of any excess cap costs billed to the Licensor. The Company recognized approximately$16.4 million and $10.6 million of excess cap cost billed to the Licensor in 2013 and 2012, respectively.
Stock option awards:
ASC 718,
Compensation-Stock Compensation, or ASC 718, requires the fair value of all share-based
payments to employees, including grants of stock options, to be recognized in the statement of operations overthe requisite service period. Under ASC 718, employee option grants are generally valued at the grant date andthose valuations do not change once they have been established. The fair value of each option award is estimatedon the grant date using the Black-Scholes Option Pricing Method. As allowed by ASC 718 for companies with ashort period of publicly traded stock history, the Company's estimate of expected volatility is based on theaverage expected volatilities of a sampling of five companies with similar attributes to the Company, includingindustry, stage of life cycle, size and financial leverage. The risk-free rate for periods within the contractual lifeof the option is based on the U.S. Treasury yield curve in effect at the time of grant valuation. ASC 718 does notallow companies to account for option forfeitures as they occur; instead, estimated option forfeitures must becalculated when the option is granted to reduce the option expense to be recognized over the life of the award andupdated upon receipt of further information as to the amount of options expected to be forfeited. Due to itslimited history, the Company uses the simplified method to determine the expected life of the option grants.
Warrants granted to employees are normally valued at the fair value of the instrument on the grant date and
are recognized in the statement of operations over the requisite service period. When the requisite service period
precedes the grant date and a market condition exists in the warrant, the Company values the warrant using theMonte Carlo Simulation Method. When the terms of the warrant become fixed, the Company values the warrantusing the Black-Scholes Option Pricing Method. As allowed by ASC 718 for companies with a short period ofpublicly traded stock history, the Company's estimate of expected volatility is based on the average volatilities ofa sampling of eight to nine companies with similar attributes to the Company, including industry, stage of lifecycle, size and financial leverage. The risk-free rate for periods within the contractual life of the warrant is basedon the U.S. Treasury yield curve in effect at the time of grant valuation. In determining the value of the warrantuntil the terms are fixed, the Company factors in the probability of the market condition occurring and severalpossible scenarios. When the requisite service period precedes the grant date and is deemed to be complete, theCompany records the fair value of the warrant at the time of issuance as an equity stock-based compensationtransaction. The warrant is revalued each reporting period up to the grant date when the final fair value of thewarrant is established and recorded. The grant date is determined when all pertinent information, such as exerciseprice and quantity are known.
The Company follows ASC 740,
Income Taxes, or ASC 740
, which requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that have been included in theconsolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are basedon the differences between the consolidated financial statement and tax bases of assets and liabilities usingenacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets arereduced by a valuation allowance to the extent management concludes it is more likely than not that the asset willnot be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply totaxable income in the years in which those temporary differences are expected to be recovered or settled.
The standard addresses the determination of whether tax benefits claimed or expected to be claimed on a tax
return should be recorded in the Consolidated Financial Statements. Under ASC 740, the Company mayrecognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position willbe sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefitsrecognized in the Consolidated Financial Statements from such a position should be measured based on thelargest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 alsoprovides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interimperiods and requires increased disclosures. At the date of adoption, and as of December 31, 2013 and 2012, theCompany did not have a liability for unrecognized tax uncertainties.
The Company is subject to routine audits by taxing jurisdictions. As of December 31, 2013, the Company's
tax years for 2010, 2011 and 2012 are subject to examination by the authorities. Currently, the Company is underreview for the 2011 and 2012 tax years by the Internal Revenue Service. The Company's policy is to recordinterest and penalties on uncertain tax positions as income tax expense. As of December 31, 2013 and 2012, theCompany had no accrued interest or penalties related to uncertain tax positions.
Net Loss per Common Share:
Basic net loss per common share is computed by dividing net loss applicable to common stockholders by the
weighted average number of common shares outstanding during the periods presented as required by ASC 260,
Earnings per Share. Diluted earnings per common share are the same as basic earnings per share because theassumed exercise of the Company's outstanding options are anti-dilutive. For the year ended December 31, 2013,potentially dilutive securities excluded from the calculations were 2,604,224 shares issuable upon exercise ofoptions and 2,116,250 shares issuable upon exercise of a warrant. For the years ended December 31, 2012 and2011, potentially dilutive securities excluded from the earnings per common share calculation were 4,022,584and 670,000, respectively.
The Company has entered into operating lease agreements for its corporate offices in Los Angeles and
South San Francisco that contain provisions for future rent increases, leasehold improvement allowances and rentabatements. The Company records monthly rent expense equal to the total of the payments due over the leaseterm, divided by the number of months of the lease term. The difference between the rent expense recorded andthe amount paid is credited or charged to deferred rent, which is reflected as a separate line item in theaccompanying Consolidated Balance Sheets. Additionally, the Company recorded as deferred rent the cost of theleasehold improvements paid by the landlord, which is amortized on a straight-line basis over the term of thelease.
Certain amounts for 2012 and 2011 have been reclassified to conform to the current year's presentation.
Note 3—Prepaid Expenses and Other:
Prepaid expenses and other consisted of the following at December 31 (in thousands):
Other clinical development . . . . . . . . . . . . . . .
Other clinical development . . . . . . . . . . . . . . .
Note 4—Property and Equipment:
Property and equipment consisted of the following at December 31 (in thousands):
Leasehold improvements . . . . . . . . . . . . . . .
Less: accumulated depreciation and amortization . . . . .
Note 5—Accrued Expenses:
Accrued expenses consisted of the following at December 31 (in thousands):
Accrued CRO/licensor services . . . . . . . . . . . .
Accrued other clinical development . . . . . . . . . .
Accrued CRO/licensor services represent the Company's estimate of such costs as of December 31, 2013,
which will be adjusted in the period the actual costs become known.
Note 6—Stockholders' Equity:
The Company issued 4,000,000 shares of common stock at $0.0001 per share to its Founder and Chief
Executive Officer and President, Alan Auerbach, in September 2010 for $400. Additionally, Mr. Auerbachcontributed capital totaling $6,531 during the year ended December 31, 2010.
During the year ended December 31, 2011, Mr. Auerbach contributed capital totaling $61,983. Additionally,
in October 2011, 40,000 shares of common stock were issued to Mr. Auerbach through debt conversion at $3.75per share, or $150,000.
October 2011 Common Stock Offering. Immediately prior to the Merger, pursuant to a securities purchase
agreement, or the Securities Purchase Agreement, Puma sold 14,666,733 shares of its common stock to certaininstitutional and accredited investors at a price per share of $3.75, for aggregate gross proceeds of approximately$55 million. Puma also issued a warrant to each investor that provided such investor with anti-dilution protectionin regard to certain issuances of securities. The Company assumed these warrants in the Merger and they wereexercisable only if the Company sold securities at a price below $3.75 per share on or prior to the date on whichshares of Company common stock were first quoted in an over-the-counter market or listed for quotation on anational securities exchange or trading system if the Company had not previously sold securities for less than$3.75 per share. Otherwise, the warrants had a ten-year term and an exercise price of $0.01 per share. TheCompany's common stock was approved for quotation on April 18, 2012, and began trading on April 20, 2012,on the OTC Bulletin Board, or OTCBB, and the OTCQB under the symbol "PBYI" and the Company did not sellsecurities at a price below $3.75 per share on or prior to such date. These warrants subsequently terminatedunexercised in accordance with their terms.
November 2011 Common Stock Offering. On November 18, 2011, the Company entered into subscription
agreements with 139 accredited investors, pursuant to which the Company sold in a private placement anaggregate of 1,333,267 shares of common stock at a price per share of $3.75 per share, for aggregate grossproceeds of approximately $5.0 million. Leerink Swann LLC, or Leerink, acted as lead placement agent andNational Securities Corporation acted as co-placement agent in connection with this private placement andreceived compensation of approximately $84,000 and $150,000, respectively. In addition to the costs notedabove, the Company incurred legal fees and other costs totaling approximately $487,000.
October 2012 Common Stock Offering. On October 18, 2012, the Company entered into an underwriting
agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated and Leerink, as representatives of severalunderwriters, providing for the offer and sale in a firm-commitment underwritten public offering of 7,500,000shares of the Company's common stock, par value $0.0001 per share, at a price of $16 per share, less the
underwriting discount. On October 19, 2012, the underwriters exercised the overallotment option granted to theunderwriters to purchase an additional 1,125,000 shares of Company common stock from the Company at $16per share, less the underwriting discount. The transactions were completed on October 24, 2012; the Companyreceived net proceeds of approximately $129.2 million, which is comprised of gross proceeds of approximately$138 million, offset by the underwriting discount and estimated offering expenses of $8.8 million payable by theCompany.
The Company issued 314,623 and 11,666 shares of common stock upon exercise of stock options during the
years ended December 31, 2013 and 2012, respectively.
At inception, the Company had 1,200,000 shares of stock authorized for issuance, all of which were
common stock, par value $0.0001 per share. On September 15, 2011, the total number of shares of common stockthe Company was authorized to issue was increased to 25,000,000. Immediately following the increase inauthorized shares, the Company executed a four-for-one forward stock split. The share amounts, includingearnings per share, stated in the Company's Consolidated Financial Statements have been adjusted to reflect thefour-for-one stock split.
Following the Merger, the Company had 110,000,000 shares of stock authorized for issuance, of which
100,000,000 were common stock, par value $0.0001 per share, and 10,000,000 were preferred stock, par value$0.0001 per share. On October 4, 2011, the Board of Directors of the Company and the stockholders owning100% of the Company's issued and outstanding common stock approved an Amended and Restated Certificate ofIncorporation, or the Amended Certificate, which eliminated the Company's entire authorized class of preferredstock and reduced the total number of shares of capital stock that the Company may issue from 110,000,000shares to 100,000,000 shares, all of which are designated as common stock, par value $0.0001 per share. TheAmended Certificate became effective on November 14, 2011, upon the filing of the Amended Certificate withthe Secretary of State of the State of Delaware.
In October 2011, the Company issued anti-dilutive warrants to 27 investors pursuant to a securities purchase
agreement. These warrants were exercisable only if the Company sold securities at a price below $3.75 per share onor prior to the date on which the Company's common stock was first quoted in an over-the-counter market or listedfor quotation on a national securities exchange or trading system. The Company's common stock was approved forquotation on the OTCBB, on April 18, 2012, and began trading on April 20, 2012 under the symbol "PBYI" and theCompany did not sell securities at a price below $3.75 per share on or prior to such date. Accordingly, thesewarrants subsequently terminated unexercised in accordance with their terms. The fair value of the warrants issuedwas determined using the Monte Carlo Simulation Method with the following assumptions:
Common stock price on date of issuance . . . . . . . .
Using the above assumptions, the portion of the private placement proceeds attributed to the fair value of the
warrants was determined to be approximately $1.8 million and recorded within additional paid-in capital.
Following the October 2011 common stock offering, Mr. Auerbach held approximately 21% of the
18,666,733 outstanding shares of the Company's common stock.
Pursuant to the terms of the securities purchase agreement, the Company issued an anti-dilutive warrant toMr. Auerbach, as the Company's founder. The warrant was issued to provide Mr. Auerbach with the right tomaintain ownership of at least 20% of the Company's common stock in the event that the Company raised capitalthrough the sale of its securities in the future.
The warrant has a ten-year term and is exercisable only in the event of the first subsequent financing,
excluding certain types of financings set forth in the warrant, that results in gross cash proceeds to the Companyof at least $15 million. The warrant has an exercise price equal to the price paid per share in such financing and isexercisable for the number of shares of the Company's common stock necessary for Mr. Auerbach to maintainownership of at least 20% of the outstanding shares of Company common stock after such financing. Upon theoccurrence of the first subsequent financing of at least $15 million, the warrant may be exercised any time up tothe ten-year expiration date of October 4, 2021. The grant date of the warrant would occur on the date of thesubsequent financing when the aggregate number of shares exercisable and the price per share will bedetermined. The Company determined that the warrant has an implied service requisite period in 2011 that isprior to its grant date. The Company also determined that a market condition subsequent to the implied serviceperiod exists as the exercise or partial exercise of the warrant can only occur if there is a subsequent financing.
In connection with the closing of a public offering on October 24, 2012, the exercise price and number of
shares underlying the warrant issued to Mr. Auerbach were established and, accordingly, the final value of thewarrant became fixed. Pursuant to the terms of the warrant, Mr. Auerbach may exercise the warrant to acquire2,116,250 shares of the Company's common stock at $16 per share until October 4, 2021.
The warrant was valued at approximately $6.9 million at the time of issuance, using the Monte Carlo
Simulation Method, and recorded to the Consolidated Statements of Operations. The warrant was revalued atapproximately $7.6 million on December 31, 2011, using the Monte Carlo Simulation Method. Once the terms ofthe warrant became fixed, the fair value of the warrant as of October 24, 2012, using the Black-Scholes OptionPricing Method, was approximately $25.8 million and resulted in an adjustment to the fair value of the warrant of$18.2 million in 2012, which is included in general and administrative expense in the accompanyingConsolidated Statements of Operations for the year ended December 31, 2012.
The fair value of the warrant at October 24, 2012, was determined by the following assumptions using the
Black-Scholes Option Pricing Method:
Remaining warrant term in years . . . . . . . . . . .
The fair value at December 31, 2011, was determined by the following assumptions using the Monte Carlo
Simulation Method:
Risk-free interest rate . . . . . . . . . . . . . .
The fair value of the warrant, on December 31, 2011 was estimated based on projected equity raises ranging
from $15 million to $100 million in 2013 using weighted probability factors.
The Company's 2011 Incentive Award Plan, or the 2011 Plan, was adopted by the Board of Directors on
September 15, 2011. Pursuant to the 2011 Plan, the Company may grant incentive stock options and nonqualifiedstock options, as well as other forms of equity-based compensation. Incentive stock options may be granted onlyto employees, while consultants, employees, officers and directors are eligible for the grant of nonqualifiedoptions under the 2011 Plan. The maximum term of stock options granted under the 2011 Plan is 10 years. Theexercise price of incentive stock options granted under the 2011 Plan must be at least equal to the fair value ofsuch shares on the date of grant. Through December 31, 2013, a total of 3,529,412 shares of the Company'scommon stock has been reserved for issuance under the 2011 Plan.
The Company awarded only "plain vanilla options" as determined by the SEC Staff Accounting Bulletin
107, or
Share Based Payment. As of December 31, 2013, 2,604,224 shares of the Company's common stock areissuable upon the exercise of outstanding awards granted under the 2011 Plan and 598,899 shares of theCompany's common stock are available for future issuance under the 2011 Plan. The fair value of optionsgranted to employees was estimated using the Black-Scholes Option Pricing Method (see Note 2) with thefollowing weighted-average assumptions used during the years ended December 31:
83.6% 86.4% 86.0%
Employee stock-based compensation was as follows for the years ended December 31 (in thousands except
Research and development . . . . . . .
General and administrative, or G&A . . .
Total share-based compensation expense . . . .
Impact on basic and diluted net loss per share . .
Weighted average shares (basic and diluted) . .
Activity with respect to options granted under the 2011 Plan is summarized as follows:
Outstanding at December 31, 2011 . . . . . .
Options granted in the period ended March 31,
2012 for which compensation was recognizedduring 2011 . . . . . . . . . . . . . .
Granted during 2012 . . . . . . . . . . .
Forfeited during 2012 . . . . . . . . . . .
Exercised during 2012 . . . . . . . . . . .
Outstanding at December 31, 2012 . . . . . .
Granted during 2013 . . . . . . . . . . .
Forfeited during 2013 . . . . . . . . . . .
Exercised during 2013 . . . . . . . . . . .
Outstanding at December 31, 2013 . . . . . .
Unvested at December 31, 2013 . . . . . . .
Exercisable at December 31, 2013 . . . . . .
At December 31, 2013, total estimated unrecognized employee compensation cost related to non-vested
stock options granted prior to that date was approximately $33.8 million, which is expected to be recognized overa weighted-average period of 2.5 years. The weighted-average grant date fair value of options granted during theyears ended December 31, 2013 and 2012, was $29.94 per share and $6.38 per share, respectively.
Nonvested shares at December 31, 2012 . . . . . . .
Nonvested shares at December 31, 2013 . . . . . . .
Note 7—401(k) Savings Plan:
During 2012, the Company adopted a 401(k) savings plan for the benefit of its employees. The Company is
required to make matching contributions to the 401(k) plan equal to 100% of the first 3% of wages deferred byeach participating employee and 50% on the next 2% of wages deferred by each participating employee. TheCompany incurred expenses for employer matching contributions of approximately $0.2 million, $0.1 million,and $0 for the years ended December 31, 2013, 2012, and 2011, respectively.
Note 8—Income Taxes:
Temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes (net operating loss carry-forwards) give rise to theCompany's deferred income taxes. The components of the Company's net deferred tax assets as of December 31,2013 and 2012 are as follows (in thousands):
Deferred tax assets—2013:Net operating loss carry forwards . . . . . . . . .
Business credit carryforwards . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . .
Deferred tax assets—2012:Net operating loss carry . . . . . . . . . . . . .
forwardsOrganization costs . . . . . . . . . . . . . . .
Deferred tax liabilities— depreciation . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . .
As the ultimate realization of the potential benefits of the Company's deferred tax assets is considered
unlikely by management, the Company has offset the deferred tax assets attributable to those potential benefitsthrough valuation allowances. Accordingly, the Company did not recognize any benefit from income taxes in theaccompanying consolidated statements of operations to offset its pre-tax losses. The valuation allowanceincreased $25.3 million in 2013 and $29.2 million in 2012. At December 31, 2013, the Company had federal andstate net operating loss carryforwards of approximately $104.8 million each, which will begin to expire in 2031.
At December 31, 2013, the Company also has federal and state research and development credit carryforwards ofapproximately $4.4 million and $2.9 million, respectively. Pursuant to the Internal Revenue Code, Sections 382and 383, use of the Company's net operating loss and credit carryforwards could be limited if a cumulativechange in ownership of more than 50% occurs within a three-year period. The Company has not yet performedan assessment on the potential limitation on net operating loss and credit carryforwards.
As a result of certain realization requirements of ASC 718, the table of deferred tax assets and liabilities
shown above does not include certain deferred tax assets as of December 31, 2013 and 2012 that arose directlyfrom (or the use of which was postponed by) tax deductions related to equity compensation in excess ofcompensation recognized for financial reporting. Those deferred tax assets include federal and net operating
losses. Equity will be increased by approximately $8.1 million if and when such deferred tax assets are ultimatelyrealized. The Company uses ASC 740 ordering when determining when excess tax benefits have been realized.
The provision (credit) for income taxes in the accompanying Consolidated Statements of Operations differs
from the amount calculated by applying the statutory income tax rate to income (loss) from continuing operationsbefore income taxes. The primary components of such differences are as follows as of December 31 (inthousands):
Tax computed at the federal statutory rate . . . . . .
Change in valuation allowance . . . . . . . . . .
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits at December 31:
Unrecognized tax benefits—January 1 . . . . . . . . . . . . . .
Gross increases—tax positions in prior period . . . . . . . . . . .
Gross decreases—tax positions in prior period . . . . . . . . . . .
Gross increases—tax positions in current period . . . . . . . . . . .
Unrecognized tax benefits—December 31 . . . . . . . . . . . . .
The unrecognized tax benefits that, if recognized, would affect the effective tax rate is zero at December 31,
2013. The Company does not have tax positions for which it is reasonable possible that the total amounts ofunrecognized tax benefit will significantly increase or decrease within 12 months of the reporting date.
Note 9—Commitments and Contingencies:
On December 7, 2011, the Company, entered into a non-cancelable operating lease for office space. The
initial term of the lease is for seven years and commenced on December 10, 2011. The base rent wasapproximately $44,400 per month during the first year and will increase each year during the initial term, up toapproximately $53,000 per month during the seventh year. The lease has an expiration date of December 9, 2018.
In addition, the Company has an option to extend the lease for an additional five-year term. The lease is subjectto additional charges for common area maintenance and other costs. Concurrent with the execution of the lease,the Company provided the landlord an automatically renewable stand-by letter of credit in the amount of$1,000,000. The stand-by letter of credit is collateralized by a high-yield savings account in the amount ofapproximately $1,053,000, which is classified as restricted cash on the accompanying Consolidated BalanceSheets. Rent expense for the years ended December 31, 2013, 2012, and 2011, was approximately $872,500,$526,900 and $41,125, respectively.
On June 7, 2012, the Company entered into a long-term lease agreement for office space in South San
Francisco, California. The initial term of the lease is seven years and commenced on November 1, 2012. Thebase rent was approximately $20,250 per month during the first year and will increase over the course of theinitial term, up to approximately $30,820 per month during the seventh year. In addition, the Company has anoption to extend the lease for an additional five-year term, which would commence upon the expiration of the
initial term. In the event the Company elects to extend the lease, the minimum monthly rent payable for theadditional term will be the then-current fair market rent calculated in accordance with the terms of the lease. TheCompany provided the landlord an automatically renewable stand-by letter of credit in the amount of $150,000.
The stand-by letter of credit is collateralized by a high-yield savings account in the amount of approximately$159,000, which is classified as restricted cash on the accompanying Consolidated Balance Sheets.
On November 28, 2012, the Company entered into an amendment to the lease for its office space in Los
Angeles, California. This amendment added approximately 3,500 rentable square feet to the existing lease ofapproximately 13,250 square feet. Pursuant to the amendment, the Company's monthly rent increased byapproximately $12,145 per month following the execution of the amendment and will be increased toapproximately $14,080 per month at the end of the lease term.
On December 1, 2013, the Company entered into a second amendment to the lease for its office space in Los
Angeles, California. This amendment added approximately 5,949 rentable square feet to the existing lease ofapproximately 16,750 square feet. Pursuant to the amendment, the Company's monthly rent increased byapproximately $10,400 per month following the execution of the amendment and will be increased toapproximately $25,100 per month at the end of the lease term.
Future minimum lease payments for each of the years subsequent to December 31, 2013, are as follows (inthousands):
Year Ending December 31,
In August 2011, the Company entered into an agreement pursuant to which Pfizer, Inc., or the Licensor,
agreed to grant it a worldwide license for the development, manufacture and commercialization of PB272neratinib (oral), PB272 neratinib (intravenous) and PB357, and certain related compounds. The license isexclusive with respect to certain patent rights owned by or licensed to the Licensor. Under the agreement, theCompany is obligated to commence a new clinical trial for a product containing one of these compounds within aspecified period of time and to use commercially reasonable efforts to complete clinical trials and to achievecertain milestones as provided in a development plan. From the closing date of the agreement throughDecember 31, 2011, the Licensor continued to conduct the existing clinical trials on behalf of the Company at theLicensor's sole expense. At the Company's request, the Licensor has agreed to continue to perform certainservices in support of the existing clinical trials at the Company's expense. These services will continue throughthe completion of the transitioned clinical trials. The license agreement "capped" the out of pocket expense theCompany would be responsible for completing the then existing clinical trials. All agreed upon costs incurred bythe Company above the "cost cap" would be reimbursed by the Licensor. The Company exceeded the "cost cap"during the fourth quarter for 2012. In accordance with the license agreement, the Company billed the Licensorfor agreed upon costs above the "cost cap" and will continue to do so until the various clinical trials are closed.
As consideration for the license, the Company is required to make substantial payments upon the
achievement of certain milestones totaling approximately $187.5 million if all such milestones are achieved.
Should the Company commercialize any of the compounds licensed from the Licensor or any productscontaining any of these compounds, the Company will be obligated to pay to the Licensor annual royalties
between approximately 10% and 20% of net sales of all such products, subject to certain reductions and offsets insome circumstances. The Company's royalty obligation continues, on a product-by-product and country-by-country basis, until the later of (i) the last to expire licensed patent covering the applicable licensed product insuch country, or (ii) the earlier of generic competition for such licensed product reaching a certain level in suchcountry or expiration of a certain time period after first commercial sale of such licensed product in such country.
In the event that the Company sublicenses the rights granted to the Company under the license agreement withthe Licensor to a third party, the same milestone and royalty payments are required. The Company can terminatethe license agreement at will at any time after April 4, 2013, or for safety concerns, in each case upon specifiedadvance notice.
Clinical Research Organization Contracts:
The Company engages with clinical research organizations, or CROs, for the management of its ongoing
clinical trials. The Company may cancel these agreements with a 30 to 45 day written notice to the CRO. TheCompany would be obligated to pay for services rendered up to that point. The CRO contracts held by theCompany as of December 31, 2013, are summarized as follows (in thousands):
HER2 Mutation Positive Solid Tumor (5201) . . . .
HER2 Mutuant Non-Small Cell Lung Cancer (4201) .
HER2 Overexpressed/Amplified Breast Cancer
(Licensor Legacy Clinical Trials) . . . . . . . .
HER2 Plus Metastatic Breast Cancer (1301) . . . . .
Metastatic HER2-Amplified or Triple-Negative Breast
Note 10—Subsequent Event:
On February 14, 2014, the Company completed an underwritten offering of 1,126,530 shares of the
Company's common stock (including an additional 146,938 shares of Company common stock issued and soldpursuant to the underwriters' option to purchase additional shares), par value $0.0001 per share, at a price of$122.50 per share, less the underwriting discount. The net proceeds received by the Company wereapproximately $129.3 million after deducting the underwriting discount and estimated offering expenses payableby the Company.
Note 11 – Quarterly Financial Data:
Quarterly financial data (in thousands except sharedata):(unaudited)
Three Months Ended
Net loss applicable to common stock . .
Net loss per share—basic and diluted . .
Weighted-average common shares
outstanding—basic and diluted . . .
Net loss applicable to common stock . .
Net loss per share—basic and diluted . .
Weighted-average common shares
outstanding—basic and diluted . . . .
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER,
AS ADOPTED PURSUANT TO SECTION 302
I, Alan H. Auerbach, certify that:
1. I have reviewed this Annual Report on Form 10-K of Puma Biotechnology, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrantas of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internalcontrol over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant andhave:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, includingits consolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end ofthe period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case ofan annual report) that has materially affected, or is reasonably likely to materially affect, the registrant'sinternal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant'sboard of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant's ability to record,process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
/s/ Alan H. Auerbach
Alan H. AuerbachPresident and Chief Executive Officer(Principal Executive Officer)
Date: March 3, 2014
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER,
AS ADOPTED PURSUANT TO SECTION 302
I, Charles R. Eyler, certify that:
1. I have reviewed this Annual Report on Form 10-K of Puma Biotechnology, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrantas of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internalcontrol over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant andhave:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, includingits consolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end ofthe period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case ofan annual report) that has materially affected, or is reasonably likely to materially affect, the registrant'sinternal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant'sboard of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant's ability to record,process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
/s/ Charles R. Eyler
Charles R. EylerSenior Vice President, Finance and Administrationand Treasurer(Principal Financial Officer and Principal AccountingOfficer)
Date: March 3, 2014
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Alan H. Auerbach, President and Chief Executive Officer of Puma Biotechnology, Inc. (the "Company"),certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002, that, to the best of my knowledge:
1. The accompanying Annual Report on Form 10-K of the Company for the annual period endedDecember 31, 2013 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), asapplicable, of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial conditionand results of operations of the Company.
/s/ Alan H. Auerbach
Alan H. AuerbachPresident and Chief Executive Officer(Principal Executive Officer)
Date: March 3, 2014
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. §1350, andis not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to beincorporated by reference into any filing of the Company, whether made before or after the date hereof,regardless of any general incorporation language in such filing. A signed original of this statement has beenprovided to the Company and will be retained by the Company and furnished to the Securities and ExchangeCommission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Charles R. Eyler, Senior Vice President, Finance and Administration and Treasurer of Puma Biotechnology,Inc. (the "Company"), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1. The accompanying Annual Report on Form 10-K of the Company for the annual period endedDecember 31, 2013 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), asapplicable, of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial conditionand results of operations of the Company.
/s/ Charles R. Eyler
Charles R. EylerSenior Vice President, Finance and Administrationand Treasurer(Principal Financial Officer and Principal AccountingOfficer)
Date: March 3, 2014
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. §1350, andis not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to beincorporated by reference into any filing of the Company, whether made before or after the date hereof,regardless of any general incorporation language in such filing. A signed original of this statement has beenprovided to the Company and will be retained by the Company and furnished to the Securities and ExchangeCommission or its staff upon request.
Puma Biotechnology, Inc. (PBYI)*
Stock Price Performance Graph
The graph and table below compare the cumulative total return on Puma Biotechnologycommon stock from October 19, 2012, through December 31, 2013, with the cumulative totalreturns on (i) the NYSE ARCA Biotech Index, (ii) the NYSE Healthcare Index, and (iii) theNYSE Composite Index. The comparison assumes investment of $100 on October 19, 2012,in our common stock and in each index and, for each index, assumes reinvestment of alldividends.
The historical stock price performance included below is not necessarily indicative of futurestock price performance.
Puma Biotechnology, Inc.
NYSE ARCA Biotech Index
NYSE Healthcare Index
NYSE Composite Index
Cumulative Total Return
Puma Biotechnology, Inc. Compared to the NYSE ARCA Biotech Index,
NYSE Healthcare Index and NYSE Composite Index
Puma Biotechnology, Inc.
NYSE ARCA Biotech Index
NYSE Healthcare Index
NYSE Composite Index
* Shares of Puma Biotechnology were quoted on the OTC Bulletin Board from April 20, 2012, through October 18, 2012.
On October 19, 2012, shares of Puma common stock were listed and began trading on the New York Stock Exchange.
Company Leadership
Stockholder Information
Board of Directors
Alan H. Auerbach
Puma Biotechnology, Inc.
Chairman, President and Chief Executive Officer
10880 Wilshire Blvd., Suite 2150
Puma Biotechnology, Inc.
Los Angeles, CA 90024424-248-6500
Thomas R. Malley
President
Mossrock Capital, LLC
Securities analysts, investment professionals and stockholders should direct inquiries to Investor Relations
Jay M. Moyes
at 424-248-6500 Ext. 2011 or
[email protected].
Chief Financial Officer (retired)Myriad Genetics, Inc.
For further information about Puma, please visit our website at www.pumabiotechnology.com.
Troy E. Wilson, Ph.D., J.D.
President and Chief Executive Officer
Common Stock
Avidity NanoMedicines LLC
Puma's common stock is listed on the New York Stock
President and Chief Executive Officer
Exchange under the trading symbol "PBYI."
Wellspring Biosciences LLC
Wells Fargo Shareowner Services SM
Alan H. Auerbach
Chairman, President and Chief Executive Officer
P.O. Box 64854St. Paul, MN 55164
Richard P. Bryce, MBChB, MRCGP, MFPM
Senior Vice President, Clinical Research & Development
Courier:1110 Centre Pointe Curve, Suite 101
Charles R. Eyler
Mendota Heights, MN 55120-4100
Senior Vice President, Finance and Administration, and Treasurer
Richard B. Phillips, Ph.D.
Senior Vice President, Regulatory Affairs, Quality Assurance and Pharmacovigilance
Annual Meeting
The 2014 Annual Meeting of Stockholders will be held
at 1:00 p.m. PDT on Tuesday, June 10, 2014, at the
Luxe Sunset Boulevard Hotel
11461 Sunset Boulevard
Los Angeles, CA 90049
Independent Registered Public Accounting Firm
PKF Certified Public Accountants, a Professional Corporation
2020 Camino del Rio North, Suite 500
San Diego, CA 92108
Forward-Looking StatementsThis document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securi-ties Exchange Act of 1934, as amended, including statements regarding anticipated timing for the commencement and completion of various clinical trials and the announcement of data relative to these trials. These statements are often, but not always, made through the use of words or phrases such as "anticipates," "expects," "plans," "believes," "intends," and similar words or phrases. Discussions containing these forward-looking statements may be found throughout this docu-ment, including the sections entitled "Item 1. Business" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013. All forward-looking statements included in this document involve risks and uncertainties that could cause the Company's actual results to differ materially from the anticipated results and expectations expressed in these forward-looking statements. These statements are based on current expectations, forecasts and assumptions, and actual outcomes and results could differ materially from these statements due to a number of factors, which include, but are not limited to, the fact that the Company has no product revenue and no products approved for marketing; the Company's dependence on PB272 (neratinib (oral)), which is its lead product candidate and is still under development and may never receive regula-tory approval; the challenges associated with conducting and enrolling clinical trials; the risk that the results of clinical trials may not support the Company's drug candidate claims; even if approved, the risk that physicians and patients may not accept or use the Company's products; the Company's reliance on third parties to conduct its clinical trials and to formulate and manufacture its drug candidates; the Company's dependence on licensed intellectual property; and the other risk fac-tors disclosed in the periodic reports filed by the Company with the Securities and Exchange Commission from time to time, including the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013, which is included herein. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company assumes no obligation to update these forward-looking statements, except as required by law.
Phase III
PB272 COMBINATION
WITH XELODA
Metastatic Breast Cancer
20
13
Annual
2013 PB272 COMBINATIONWITH TORISEL Metastatic Breast Cancer
PB272 SINGLE AGENT/
Metastatic Breast Cancer
with Brain Mets
Neoadjuvant Breast Cancer
PB272 COMBINATION
WITH PACLITAXEL
Metastatic Breast Cancer
Adjuvant Breast Cancer
PB272 (oral) COMBINATION
AND SINGLE AGENT
HER2 Mutated NSCLC
PB272 (oral)
SINGLE AGENT
HER2 Mutated Breast Cancer
PB272 (oral)
SINGLE AGENT
HER2 Mutated Solid Tumors
Puma Biotechnology is focused on the
clinical development of its lead product
candidate PB272, neratinib (oral), for the
treatment of breast cancer, non-small cell
lung cancer and other types of solid
tumors with a HER2 mutation.
Puma's clinical trial pipeline is
summarized in the table above.
Puma Biotechnology, Inc.
10880 Wilshire Blvd., Suite 2150
Los Angeles, CA 90024
Additional information on Puma's
Puma Biotechnology, Inc.
clinical trials is available at
2013 Annual Report
PUMA BIOTECH ANNUAL REPORT
Source: http://investor.pumabiotechnology.com/sites/pumabiotechnology.investorhq.businesswire.com/files/doc_library/file/Puma_Biotechnology_2013_Annual_Report.pdf
3 – 7 September 2007 Hobart, Tasmania AUSTRALIA THE ORGANISERS OF THE 6th INTERNATIONAL PENGUIN CONFERENCE GRATEFULLY ACKNOWLEDGE THE FOLLOWING SPONSORS AND SUPPORTERS OF THE CONFERENCE. Sponsors Supporters 3 – 7 September 2007 Hobart, Tasmania AUSTRALIA
Pt. Govind Ballabh Pant Memorial Lecture - XI Medicinal Plants for Health Care Prof. S.S. Handa Senior Specialist, Earth Environment and Marine Sciences & Technologies, UNIDO September 10, 2006, Mohal-Kullu, H.P. Anbout Prof. S.S. Handa Ex-Director, RRL-Jammu (CSIR) and formerly Professor and Head of the University Institute of Pharmaceutical Sciences, Panjab University, Chandigarh; Presently Senior specialist Industrial utilization of Medicinal and Aromatic Plants, Earth Environment and Marine Sciences & Technologies United Nations Industrial Development Organization (UNIDO) International Centre for Science & High Technologies Area Science Park, Padriciano 99. 34012 Trieste, Italy. (Permanent residence: C-522A, Sushant Lok-1,Gurgaon – 122 002)
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