Puma Biotechnology Stock Is Flying; Time to Buy?

Puma Biotechnology (NYSE: PBYI  ) is up huge after reporting positive phase 3 data for its breast cancer drug neratinib. The primary endpoint of the trial was Disease Free Survival (DFS), the results of the trial indicated a 33% increase in DFS versus the placebo group. The trial (ExteNET Trial) was a double blind, phase 3 placebo controlled study after adjuvant treatment with trastuzamab (Herceptin) in women with early stage HER-2 positive breast cancer.

What this means for investors
Neratinib now looks like it has a high probability of approval, and the company plans to file for FDA regulatory approval in the first half of 2015. Neratinib has been the main compound Puma has been focused on developing, with phase 2 and 3 trials testing the drug in a variety of cancers, including breast, NSCLC, and solid tumors.

Puma Biotechnology also announced an amendment to its licensing agreement with Pfizer, reducing the royalty rate it will be required to pay on Neratinib. The royalty rate is revised from its original 10-20% sales of Neratinib to a fixed rate in the low to mid teens. This royalty decrease is projected to increase research and development expenses by $30 million, with a significant amount of this occurring in 2014, decreasing with time as the trial is completed. This looks like a positive for Puma shareholders, as this change dramatically increases the potential value of the drug.

As if all this news weren't good enough, analysts at Citi are arguing that the company could be a takeout target. Nonetheless, there are major risks to investing in Puma after this large run up though. Firstly, despite the positive trial data, there is still a chance that neratinib will not be approved which could be a huge negative catalyst. Also even if it is approved, there is no guarantee that commercialization will succeed --  marketing and distribution execution is still a major unknown, particularly for a small, clinical-stage biotech.

My Foolish take
Ultimately Puma showed some great data for neratinib, and there could be additional upside from a takeout. However, there are still major risks and given the huge run-up the shares look like they have a lot of expectation baked in. If you believe that neratinib will be approved and expect the company to do a good job of commercialization, Puma could be a good long term investment despite the short-term volatility.

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