Here's What's Behind Puma's Crash

Puma Biotech (PBYI) is working on a promising breast cancer drug, but its shares are dropping sharply. Here's what you need to know about neratinib and why Puma investors got nervous.

Apr 11, 2014 at 6:30PM

Alan Auerbach, the former CEO of Cougar Biotechnology -- the company that developed Johnson & Johnson's widely successful Zytiga prostate cancer drug -- hopes he has another blockbuster potential drug on his hands at Puma Biotechnology (NYSE:PBYI).

Auerbach, who sold Cougar to Johnson & Johnson in for $1 billion in 2009, is working on neratinib, a treatment for stage 2 and higher breast cancer. Neratinib's promise, and Auerbach's previous success at Cougar, launched shares of Puma to stratospheric highs last year. However, shares have fallen sharply in the past week, shaking investors' confidence. So, let's take a look and see what's behind the drop.

PBYI Chart

PBYI data. Source: YCharts.

First, a bit of background
Puma is essentially a one-drug company, which means its fate is tied to neratinib, a drug it licensed from Pfizer in 2011 when Pfizer was downsizing to blunt the patent loss of its top-selling cholesterol drug Lipitor.

A year ago, Puma kicked off a 600-patient phase 3 trial that pitted oral neratinib and Roche's (NASDAQOTH:RHHBY) Xeloda head to head against GlaxoSmithKline's Tykerb and Xeloda. Early data from that trial isn't expected until 2015, and the studies estimated primary completion date isn't until May 2017. That long wait may have investors nervous that they've gotten a bit ahead of their valuation for Puma.

Arguably, that's true. After all, investors awarded Puma an eye-popping $3 billion market cap based solely on mid-stage results for one drug. That said, the mid-stage results appear solid.

A phase 2 trial combing neratinib with paclitaxel showed that patients treated with that combination outperformed patients treated with Roche's infused Herceptin and generic paclitaxel.

Those results, presented at the American Association for Cancer Research meeting on Monday, showed that nearly 56% of those treated with the neratinib regimen had no remaining evidence of the tumor in the breast or lymph nodes, versus 33% for those taking Herceptin. In HER2 positive patients, 39% of those in the neratinib arm showed no remaining evidence of the tumor, versus 23% for Herceptin.

Using Bayesian predictive probability to determine whether neratinib would outperform Herceptin in a 300-patient trial shows neratinib would have a 79% likelihood of besting Herceptin.

If that estimate proves true in phase 3 trials, it could suggest neratinib has big blockbuster potential given sales of Roche's Herceptin totaled more than $6 billion in 2013.

So, why did shares crash?
The data appears strong and suggests neratinib would probably outperform Herceptin in phase 3, but investors appear to have wanted a bigger confidence boost than a statistical likelihood in order to justify such a rich valuation.

Also, the drug showed a common adverse effect of moderate to severe diarrhea. Since nearly 40% of neratinib patients suffered from diarrhea, Puma has adjusted its treatment to include an anti-diarrhea medicine that appears to effectively reduce occurrences to manageable levels. However, the recognition of that side effect may be spooking investors given the risk of dehydration and patient dropouts.

Foolworthy final thoughts
There's little question this is a big and attractive market opportunity for Puma. In 2010, $16.5 billion was spent on breast cancer treatment in the U.S., and as much as $25 billion could be spent treating the disease by 2010, according to the National Cancer Institute.

Additionally, the World Health Organization reports that 1.4 million new cases are diagnosed each year, and that more than 450,000 die annually from the cancer. 

Since there's a big and growing unmet need for new therapies, it's certainly possible Puma will find a willing suitor. Conceivably, Johnson & Johnson's success with Zytiga could encourage it to work with Auerbach again. Or, Roche's desire to protect its Herceptin franchise might mean it would be interested. Either way, Pfizer will remain a beneficiary given it will collect royalties on sales tied to its license with Puma.

Of course, that leaves investors questioning how much that potential is worth. Today, they're thinking the answer is far less than it was at Puma's recent peak, but the reality could end up being somewhere in between, given that markets tend to overreact both on the way up and on the way down.

Investors looking for growth with fewer question marks ought to know about these six ideas.
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently, one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his six carefully chosen picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Todd Campbell has no position in any stocks mentioned. He owns E.B. Capital Markets, LLC, whose clients may or may not have positions in the companies mentioned. He also owns Gundalow Advisors, LLC, whose clients do not have positions in the companies mentioned.

The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers