Should Puma Biotechnology Stock Be in Your Portfolio?

Clinical stage biotechs are infamous for their volatile ways. Because these stocks trade more on news and rumors than fundamentals, they are often subject to the whims of emotional investors.

With that being said, developmental biotechs that fall hard on news could be worth taking a look at because they may have fallen for all the wrong reasons. Puma Biotechnology (NYSE: PBYI  ) , for example, plummeted by 25% about a month ago after reporting mid-stage clinical trial data for the company's flagship cancer drug PB272 (neratinib).

PBYI Chart

PBYI data by YCharts

Specifically, Puma reported data for PB272's ongoing trial at the American Society for Clinical Oncology's annual meeting for its first cohort of 40 patients with metastatic breast cancer that has metastasized to the brain. What's key to understand is that 19 out of the 40 evaluable patients showed some form of response to the drug, but investors keyed in on the reports of severe diarrhea occurring in a number of patients. 

In a double whammy, GlaxoSmithKline (NYSE: GSK  ) reported at the same meeting that Tykerb failed to meet its primary endpoint of improved disease-free survival in a late-stage study in combination with Herceptin for HER2-positive early stage breast cancer in an adjuvant setting. Because PB272 is also being studied as a treatment for breast cancer in an adjuvant setting, investors appear to think Tykerb's failure bodes poorly for PB272. 

Given that Puma shares are still down over 30% year to date, let's consider two reasons why this downtrodden biotech is actually could be a great investment opportunity.

Reason No. 1
Perhaps the biggest reason I think Puma is exciting at these levels is because PB272 is being studied in a diverse array of breast cancers, giving the company multiple shots on goal so to speak. It's no secret that breast cancer is one of the largest market opportunities in biopharma, boasting of one of the best-selling drugs ever in Roche's (NASDAQOTH: RHHBY  ) Herceptin.  

The problem with new breast cancer drugs is that they tend to run up against Herceptin's stellar clinical performance at some point during their development and ultimately fail to show much in the way of improving clinical outcomes. Indeed, this is what happened to Tykerb in the adjuvant setting, showing a mere 2% improvement compared to Herceptin alone. 

So an important goal of developing any breast cancer drug is to find a handful of niches where Herceptin hasn't proven to be the go to drug. And that is part and parcel of Puma's plan for PBT272. Namely, Puma is performing clinical studies to test PB272 as a potential second- and third-line breast-cancer treatment, where it would compete more with Tykerb than Herceptin. 

What's key to understand is that the company believes this niche market could be worth up to $500 million alone. Given that the drug is currently in a variety of different trials as monotherapy or in combination for a variety of different cancer indications, it's easy to see how PB272 could end up being a decent revenue driver for the company moving forward. 

Reason No. 2
I think the negativity regarding PB272's adverse effects is simply overblown. Prior to licensing the drug from Pfizer in 2011, the drug's issues with triggering severe diarrhea in some patients were already well known.

To lower the incidence of severe diarrhea in ongoing trials, Puma has started to treat patients prior to onset with loperamide, which appears to have helped in some cases in the ongoing breast cancer trial with brain metastases. In short, I think this particular adverse effect is both manageable and pales in comparison to the consequences of untreated disease with few available therapies.

Foolish wrap-up
Breast cancer drugs are one of the most sought after new products in the biopharma industry, which is the reason why Puma shares soared last year. Now that the company has hit the inevitable speed bumps that come with developing drugs for difficult indications, investors have voted with their feet, shunning this once high flying biotech.

That being said, I think the large number of ongoing trials for PB272 gives it ample opportunity to become part of the breast cancer treatment landscape. And the issues with adverse effects appear to be more than manageable through the proactive use of antidiarrheals.

In sum, Puma could have up to seven clinical catalysts this year and its market cap of $2.16 billion isn't unreasonable in light of PB272's commercial potential. As such, you might want to keep a close eye on this clinical stage biopharma.    

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