Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Puma Biotechnology (PBYI +3.17%), a clinical-stage biopharmaceutical company focused on developing novel cancer care therapies, rocketed higher by as much as 17% during Thursday's trading session following a price target increase from Citigroup and merger and acquisition activity within the biotech industry.
So what: First, following Puma Biotechnology's quarterly earnings release earlier this week, Citigroup maintained its "buy" rating on the company but slightly lifted its price target from $263 to $266, implying nearly 30% upside from yesterday's closing price.
More importantly, though, AbbVie (ABBV 0.70%) agreed to purchase Pharmacyclics (NASDAQ: PCYC) for nearly $21 billion. Pharmacyclics' key drug is Imbruvica, which was co-developed with Johnson & Johnson, and is designed to fight different types of blood cancers. In clinical studies it led to markedly higher overall response rates and response durability than the current standard of care that it was pitted against, leading Wall Street to project peak annual sales of the drug could hit as high as $9 billion, especially if it find new label indications.
In other words, AbbVie agreed to pay a hefty premium over where Pharmacyclics was valued just last month in order to secure a single, potent cancer drug, and many investors probably think Puma is next.
Now what: Puma Biotechnology is currently developing PB272 (also known as neratinib) for the neoadjuvant treatment of HER2-positive breast cancer, and potentially a number of other indications. In its I-SPY 2 trial as a neoadjuvant treatment it was shown to be nearly 95% superior to the current standard of treatment in HER2-positive/HR-negative breast cancer patients based on Bayesian predictive models. Puma is also planning on presenting or posting plenty of additional data this year on its leading experimental drug according to its latest quarterly filing.
Peak sales estimates for PB272 are literally all over the place because a lot is riding on whether it can gain additional labels. In general, Wall Street estimates for peak annual sales tend to fall between $3 billion and $6 billion. At the midpoint, and assuming a similar valuation of 2.3 times peak annual sales as given to Pharmacyclics by AbbVie, this would value Puma at roughly $343 per share under a similar scenario.
Now is Puma worth $343, or even the $237 it's trading at as of the time of this writing? It's a bit unfair to say as we have so much data left to see this year, and there are so many label expansion studies left to be uncovered. I'm a bit leery of supporting a $7 billion valuation on Puma considering it has nothing else in its pipeline. You heard me right, all nine onogng clinical studies involve PB272. Being tied to one drug can be a dangerous proposition if even the slightest thing goes wrong with safety, efficacy, or even in the manufacturing process post-approval.
For now I believe investors' best bet is to stick to the sidelines and wait for additional data from a handful of its midstage studies before making a decision on whether Puma is worth the price of admission.
