Shares of Puma Biotechnology (PBYI 3.30%) fell over 17% last month, according to data provided by S&P Global Market Intelligence. Most of the drop occurred on the first of the month following the announcement of an exclusive license agreement for Nerlynx, the company's sole drug, in Europe. Investors weren't happy with the terms of the deal in what's expected to be the drug's second most important global market.
Puma Biotechnology received an up-front payment of $60 million and is eligible to receive up to $345 million in regulatory and commercial milestone payments. It will also receive "significant" double-digit royalties, according to the press release. That wasn't enough for Wall Street.
In the company's defense, the European licensing deal is pretty significant relative to other global deals announced to date. The $60 million up-front payment is the largest, topping the $40 million earned from CANbridge Pharmaceutical for distribution rights in China, Taiwan, and Hong Kong. The $345 million in potential regulatory and commercial milestone payments also dwarfs the agreed value for the Asian deal, which was just $40 million. All regional distribution agreements thus far come with double-digit royalties.
Of course, markets such as Israel or Canada, covered by existing agreements, aren't as valuable due to lower populations and different regulatory environments. But investors really can't fault Puma Biotechnology for its moves to turn its lone drug asset profitable. With a market cap of just $1.1 billion and a stock trading at just 4.5 times sales, the business seems a little undervalued relative to its potential.
Puma Biotechnology now has six regional distribution deals in place for Nerlynx in addition to the U.S. market. That should create a steady stream of market launches between this year and 2021. While relatively small, they could combine to drive significant value for the business. Now investors simply have to wait for the results from ongoing clinical trials aimed at expanding the drug's use.