What Will Puma Biotechnology Inc's $700 Million Man Do Next?

A sale to Johnson & Johnson, Pfizer, Roche, or one of the other big pharmas seems like the most likely outcome for Puma Biotechnology Inc.

Jul 23, 2014 at 7:21PM

Alan Auerbach, CEO, president, and chairman of Puma Biotechnology (NYSE:PBYI), you just personally made over $700 million after your biotech suddenly soared 295% (more if you exercise all those warrants and options you have), what are you going to do now?

"You have my word that I will do what is in the best interest of the investors. And since it's public information that I am the largest shareholder of the company, I think my interests are heavily aligned with those of the other shareholders."-On Tuesday's conference call to announce the positive clinical trial results.

Good answer. But no really, what are you going to do? Sell the company? License it out? Sell it yourself? Later in the call:

"My goal is to do what is in the best interest of the investors."

I can see where not getting anywhere here.

Puma

This cat should be smiling.
Source: Puma Biotechnology

Let's speculate anyway
If history repeats itself, Puma Biotechnology will get sold. That's what Auerbach did with his previous company, Cougar Biotechnology.

Johnson & Johnson (NYSE:JNJ) snatched up Cougar for $970 million to get a hold of its prostate cancer drug Zytiga while the drug was still in phase 3 development. Second quarter Zytiga sales were $562 million, so the acquisition has certainly paid off for Johnson & Johnson.

Since Puma Biotechnology already has positive phase 3 data for neratinib, any suitor is going to have to pay more. A lot more.

Puma's current market cap is $7 billion. A company might be willing to pay that much, but we need to see the full data and data from clinical trials testing neratinib in other settings before we know its full potential.

Pfizer (NYSE:PFE) is an obvious potential suitor since it originally owned the molecule before out-licensing it to Puma Biotechnology. The pharma giant is due royalties on neratinib, but Pfizer would obviously have more control over the drug's potential if it purchased Puma and sold the drug itself.

Roche (NASDAQOTH: RHHBY) might want to get a hold of neratinib, especially if the drug beats Roche's Herceptin in an ongoing head-to-head trial in patients with breast cancer that has metastasized to other parts of the body. Even if neratinib doesn't beat Herceptin in that setting, an acquisition could make sense because the drugs will be used sequentially as adjuvants after surgery, making marketing pretty easy. The only catch is that Roche also sells Perjeta and Kadcyla that, like Herceptin and neratinib, are designed to treat HER2-positive breast cancer. I'm not sure Roche needs a fourth drug.

And given Auerbach's previous relationship with Johnson & Johnson, I guess it could be a contender too. Really any large pharma with an oncology program -- sorry GlaxoSmithKlineyou're out -- could presumably buy Puma.

I think Auerbach will try and sell Puma, but if we take him at his word, he's not going to let the company go for a bargain price. If investors bid up the company in anticipation of a sale, Puma might have trouble finding a buyer, forcing the company to look for a marketing partner or sell the drug itself.

It's hard to know which would be better for shareholders. A large partner would offer economies of scale, which would reduce expenses and help maximize profits for Puma. But holding onto the full rights might make Puma more attractive down the line once the company has proven neratinib's potential.

Either way, Auerbach is a very rich man.

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Brian Orelli has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson and owns shares of the company. 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.

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