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295% Pop: Too Late to Buy Puma Biotechnology Stock?

Puma Biotechnology (NYSE: PBYI  ) surged more than 200% after the bell on Tuesday after reporting that its development-stage cancer drug neratinib scored an important victory in phase 3 trials.

The news surprised investors, whose worries over side effects in previous trials caused shares to fall by more than 50%, as shares held short increased from 1.5 million to nearly 1.7 million, or roughly 8% of all Puma's shares available for trading.

Delivering the goods
Investing in biotechnology stocks is notoriously hit-and-miss, and Puma's roller-coaster ride over the past year serves as an important reminder that risk-averse investors should stay at bay when it comes to the rollicking industry.

But that's not the only lesson to be learned from Puma's pop-and-drop history.

The company's dramatic rise on Tuesday afternoon also reminds investors that short-term news shouldn't dictate long-term investment decisions

That's because what may seem bad today may not be viewed as bad tomorrow, particularly when it comes to hard-to-treat disease like cancer.

It was only a month ago that the revelation of moderate to severe diarrhea in neratinib patients had investors overlooking what appeared to be otherwise solid trial results.

Source: Puma Biotechnology

Updating results
In phase 3, neratinib has again posted impressive results.

Patients with HER2-positive breast cancer who were treated with neratinib in a 2,800-person trial did better than those who received a placebo following treatment with Herceptin.

Neratinib patients saw a 33% improvement in disease-free survival over the control group, and that has Puma aiming for an FDA filing of neratinib in the extended adjunctive setting in the first half of 2015.

Why that matters
The U.S. spent $16.5 billion on breast cancer treatment in 2010, and as much as $25 billion could be spent treating the disease by 2020, according to the National Cancer Institute.

Source: National Cancer Institute

One of the reasons for the jump in spending is an ever-climbing number of patients diagnosed with the disease. According to the World Health Organization, 1.4 million new cases of breast cancer are diagnosed each year. As a result, the National Cancer Institute estimates that the number of Americans diagnosed with breast cancer will climb from 3.46 million in 2010 to 4.33 million people in 2020.

Fool-worthy final thoughts
The man behind Puma is CEO Alan Auerbach, the same person who successfully developed Johnson & Johnson's blockbuster Zytiga, which J&J acquired when it bought Auerbach's Cougar Biotechnology for $1 billion in 2009.

Auerbach acquired neratinib from Pfizer in 2011, and it's anyone's guess whether he hopes to sell Puma, too. If so, those potential acquirers will have to pay a lot more than they would've had to pay a month ago, and that's a lesson investors may want to remember.

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Todd Campbell

Todd has been helping buy side portfolio managers as an independent researcher for over a decade. In 2003, Todd founded E.B. Capital Markets, LLC, a research firm providing action oriented ideas to professional investors. Todd has provided insight to a variety of publications, including SmartMoney, Barron's, and CNN/fn.

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Related Tickers

9/1/2015 11:56 AM
PBYI $90.60 Down -1.32 -1.44%
Puma Biotechnology… CAPS Rating: *