Puma Biotechnology Inc's Overnight Triple is Just the Beginning

Pfizer gives Puma Biotechnology a gift, while Puma might be able to steal sales from Roche.

Jul 22, 2014 at 8:03PM

Look at that cat go.

Puma Biotechnology (NYSE:PBYI) more than tripled in afterhours after announcing that its phase 3 trial testing neratinib in breast cancer patients was successful.

The trial enrolled patients with early breast tumors having a mutation that causes overexpression of HER2. The typical course of treatment involves surgery and then taking Roche's (NASDAQOTH:RHHBY) Herceptin for a year to ensure that any remaining cancer cells are killed. After that, patients in the trial got either neratinib or placebo for a year.

After two years from the end of the Herceptin treatment, patients that took neratinib had a 33% improvement in disease-free survival compared to placebo. Treatment with neratinib also helped patients avoid ductal carcinoma in situ, a non-invasive early stage of breast cancer. There was a 37% improvement in disease-free survival including ductal carcinoma in situ for patients taking neratinib compared to placebo .

Puma plans to file for approval with the Food and Drug Administration in the first half of 2015.

I'll gladly cover your trial today for lower royalty payments tomorrow
In addition to the positive clinical trial data, Puma announced a revision to its licensing deal with Pfizer (NYSE:PFE), which could give it better economics on neratinib .

When Puma Biotechnology licensed neratinib from Pfizer, the biotech inherited some clinical trials that were still ongoing. The agreement had Puma paying for the trials until a cap was reached, after which Pfizer took over payments.

In an effort to clean up its books, Pfizer asked Puma to pick up the tab on the remaining trials and agreed to adjust the royalty payments Puma owes Pfizer. Puma estimates it'll cost $30 million to finish up the legacy trials, and Pfizer agreed to change the royalty from a sliding scale of 10% to 20% depending on sales to a fixed rate in the low-teens to mid-teens.

We don't know the full details of the original deal, but at the high end of the sliding scare, Puma is saving at least 5%, which at that savings, Puma can make back the $30 million after $600 million in sales. Considering that Roche's Herceptin is a multibillion dollar drug, it certainly looks like Puma got the better end of the deal.

More data to come
The safety database for the trial released today hasn't been validated yet, but in previous trials, about 30% of patients had bad gastrointestinal issues, mainly diarrhea. The side effect probably isn't enough to keep the drug off the market, but it could limit sales if patients can't tolerate the drug.

Puma is testing taking neratinib with Imodium, to prevent the side effect. Since Imodium is available as a generic drug -- over the counter, no less -- doctors should be comfortable prescribing the drug combination if the data supports it.

And the drug could be used in settings other than as a post-surgery adjuvant. Puma is testing neratinib in the neoadjuvant setting prior to surgery either in combination with Herceptin or without it. And has another trial testing neratinib head-to-head against Herceptin in patients with tumors that have metastasized to other parts of the body. Both those trials are finishing up and should read out data this quarter. If they're positive, the potential sales would go up substantially and could start cutting into Roche's sales of Herceptin.

After the post-data jump, Puma Biotechnology has a market cap a little above $5 billion, which doesn't seem out of line given the potential for multibillion dollars in sales. Heck, we might even see Pfizer acquire the company to get the full economics of neratinib.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

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