# Puma Biotechnology, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Puma Biotechnology, Inc.](/companies/pbyi.md) (CIK 1401667)
- Form: 10-Q
- Filed: 2023-11-02
- Accepted by EDGAR: Nov 2, 2023, 16:40 ET
- Period: 2023-09-30
- Accession: 0001437749-23-030028
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1401667/000143774923030028/pbyi20230930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1401667/000143774923030028/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $56.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $163.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $13.3m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $38.4m | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $22.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $69.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $8.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $17.8m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $3.3m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $10.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $213.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $547.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $5.8m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $9.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.12 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.20 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.12 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.20 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 47,819,234 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 47,397,209 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $16.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $95.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $81.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $125.4m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $203.6m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $67.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $164.9m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $76.6m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $22.7m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $38.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 42,941 characters.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in Item 1 in this Quarterly Report on Form 10-Q, (this “Quarterly Report”). The following discussion should also be read in conjunction with our audited consolidated financial statements and the notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Unless otherwise provided in this Quarterly Report, references to the “Company,” “we,” “us,” and “our” refer to Puma Biotechnology, Inc., a Delaware corporation, together with its wholly owned subsidiary.

### Overview

We are a biopharmaceutical company that develops and commercializes innovative products to enhance cancer care and improve treatment outcomes for patients. We are currently commercializing NERLYNX, an oral version of neratinib, for the treatment of certain HER2-positive breast cancers. Additionally, we recently in-licensed and are responsible for global development and commercialization of alisertib. Alisertib is a selective, small-molecule inhibitor of aurora kinase A that is designed to disrupt mitosis leading to apoptosis of rapidly proliferating tumor cells that are dependent on aurora kinase A. Prior to our licensing alisertib from Takeda, alisertib was tested in over 1,300 patients who were treated across 22 company-sponsored trials resulting in a large, well-characterized clinical safety database. Based on information in this database, we believe alisertib has potential application in the treatment of a range of different cancer types, including hormone receptor-positive breast cancer, triple-negative breast cancer and small cell lung cancer. We intend to pursue development of alisertib initially in small cell lung cancer and hormone receptor-positive breast cancer.

NERLYNX is currently approved in the United States for two indications: the extended adjuvant treatment of adult patients with early stage HER2-overexpressed/amplified breast cancer following adjuvant trastuzumab-based therapy and for use in combination with capecitabine for the treatment of adult patients with advanced or metastatic HER2-positive breast cancer who have received two or more prior anti-HER2-based regimens in the metastatic setting.

We currently market NERLYNX in the United States using our direct specialty sales force consisting of approximately 40 sales specialists. Our sales specialists are supported by an experienced sales leadership team consisting of regional managers and directors, as well as a commercial team of experienced professionals in marketing, access and reimbursement, managed markets, marketing research, commercial operations and sales force planning and management. Outside the United States, we seek to enter into exclusive sub-license agreements with third parties to pursue regulatory approval, if necessary, and commercialize NERLYNX, if approved. We are currently party to several sub-licenses in various regions outside the United States, including Europe (excluding Russia and Ukraine), Australia, Canada, China, Southeast Asia, Israel, South Korea, and various countries and territories in Central America, South America and Africa. As of September 30, 2023, NERLYNX has received approval for the treatment of certain patients with extended adjuvant or metastatic HER2-positive breast cancer in over 50 countries outside the United States.

In September 2022, we entered into an exclusive license agreement with Takeda Pharmaceutical Company Limited (“Takeda”) to license the worldwide research and development and commercial rights to alisertib. Alisertib is an investigational, reversible, ATP-competitive inhibitor that is designed to be highly selective for aurora kinase A. Inhibition of aurora kinase A can lead to disruption of mitotic spindle apparatus assembly, disruption of chromosome segregation, and inhibition of cell proliferation. In clinical trials to date, alisertib had shown single agent activity and activity in combination with other cancer drugs in the treatment of many different types of cancers, including hormone receptor-positive breast cancer, triple-negative breast cancer, small cell lung cancer and head and neck cancer.

Under the terms of the exclusive license agreement, we assumed sole responsibility for the global development and commercialization of alisertib. We paid Takeda an upfront license fee of $7.0 million in October 2022, and it is eligible to receive potential future milestone payments of up to $287.3 million upon our achievement of certain regulatory and commercial milestones over the course of the exclusive license agreement, as well as tiered royalty payments for any net sales of alisertib. We recorded in-process research and development expense of $7.0 million during the year ended December 31, 2022, in connection with the up-front payment related to the asset acquisition. As of September 30, 2023, no milestones had been accrued as the underlying contingencies were not probable or estimable.

Our expenses to date have been related to hiring staff, commencing company-sponsored clinical trials and the build out of our corporate infrastructure and, since 2017, the commercial launch of NERLYNX. Accordingly, our success depends not only on the safety and efficacy of our product candidates, but also on our ability to finance product development. To date, our major sources of working capital have been proceeds from product and license revenue, public offerings of our common stock, proceeds from our credit facility and sales of our common stock in private placements. We intend to satisfy our near-term liquidity requirements through a combination of our existing cash and cash equivalents and marketable securities as of September 30, 2023, and proceeds that will become available to us through product sales, royalties and sub-license milestone payments. However, this intention is based on assumptions that may prove to be wrong. Changes may occur that would consume our available capital faster than anticipated, including changes in and progress of our development activities, the impact of commercialization efforts, acquisitions of additional drug candidates and changes in regulation. Some of these developments have had and may continue to have an adverse effect on our revenue and thus could have an adverse effect on our ability to satisfy the minimum revenue and cash balance covenants contained in the Athyrium Notes.

### Critical Accounting Policies

As of the date of the filing of this Quarterly Report, we believe there have been no material changes to our critical accounting policies and estimates during the nine months ended September 30, 2023 from our accounting policies at December 31, 2022, as reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

#### Reclassification:

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. An adjustment to the presentation of operating lease assets and liabilities, net has been made to the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022.

### Summary of Income and Expenses

#### Product revenue, net:

Product revenue, net consists of revenue from sales of NERLYNX. We sell NERLYNX to a limited number of specialty pharmacies and specialty distributors in the United States. We record revenue at the net sales price, which includes an estimate for variable consideration for which reserves are established. Variable consideration consists of trade discounts and allowances, product returns, provider chargebacks and discounts, government rebates and other incentives.

Product revenue also consists of product sales under sub-license agreements to our sub-licensees, who then sell into their respective international territories.

#### License revenue:

License revenue consists of consideration earned for performance obligations satisfied pursuant to our sub-license agreements.

#### Royalty revenue:

Royalty revenue consists of consideration earned related to product sales made by our sub-licensees in their respective territories pursuant to our sub-license agreements.

#### Cost of sales:

Cost of sales consists of third-party manufacturing costs, freight, and indirect overhead costs associated with sales of NERLYNX. Cost of product sales also includes period costs related to royalty charges payable to Pfizer, the amortization of milestone payments made under our license agreement with Pfizer, certain inventory manufacturing services, inventory adjustment charges, unabsorbed manufacturing and overhead costs, and manufacturing variances. Cost of sales includes applicable license termination fees.

#### Selling, general and administrative expenses:

Selling, general and administrative expenses (“SG&A expenses”) consist primarily of salaries and payroll-related costs, stock-based compensation expense, professional fees, business insurance, rent, general legal activities, credit loss expense and other corporate expenses. We expense SG&A expenses as they are incurred.

#### Research and development expenses:

Research and development expenses (“R&D expenses”) include costs associated with services provided by consultants who conduct and perform clinical services on our behalf and contract organizations for the manufacturing of clinical materials. During the three and nine months ended September 30, 2023 and 2022, our R&D expenses consisted primarily of clinical research organization (“CRO fees”), fees paid to consultants; salaries and related personnel costs; and stock-based compensation. We expense our R&D expenses as they are incurred. Internal R&D expenses primarily consist of payroll-related costs and also include equipment costs, travel expenses and supplies.

#### Acquired In-Process Research and Development Expense:

Acquired in-process research and development expense includes the rights to develop new product candidates. Payments to acquire a new product candidate are immediately expensed as acquired in-process research and development provided that the product candidate has not achieved regulatory approval for marketing and, absent obtaining such approval, has no alternative future use.

### Results of Operations

#### Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

#### Total revenue:

Total revenue for the three months ended September 30, 2023 was approximately $56.1 million, compared to $57.1 million for the three months ended September 30, 2022. This decrease in total revenue was primarily due to a decrease in product revenue, net of approximately $2.7 million, partially offset by an increase in royalty revenue of $1.7 million.

#### Product revenue, net:

Product revenue, net was approximately $51.6 million for the three months ended September 30, 2023, compared to $54.3 million for the three months ended September 30, 2022. This decrease in product revenue, net was primarily attributable a decrease of approximately 10% in bottles of NERLYNX sold compared to the three months ended September 30, 2022, partially offset by an increase in net selling price compared to the three months ended September 30, 2022. The related deductions to gross revenue for variable consideration for the three months ended September 30, 2023 were slightly lower compared to the three months ended September 30, 2022.

#### Royalty revenue:

Royalty revenue was approximately $4.5 million for the three months ended September 30, 2023, compared to approximately $2.8 million for the three months ended September 30, 2022. The increase was due primarily to the timing of sales made in China by Puma's sub-licensee.

#### Cost of sales:

Cost of sales was approximately $13.3 million for the three months ended September 30, 2023, compared to approximately $12.5 million for the three months ended September 30, 2022. The increase was primarily due to higher unit volume sales to our sub-licensees and the related higher royalty expense and by increased intangible amortization related to the $12.5 million paid to Pfizer for meeting a commercial sales milestone as of December 31, 2022.

#### Selling, general and administrative expenses:

SG&A expenses were approximately $22.8 million for the three months ended September 30, 2023, compared to approximately $24.0 million for the three months ended September 30, 2022. SG&A expenses for the three months ended September 30, 2023 and 2022 were as follows:

*(in thousands)*

| Selling, general, and administrative expenses | For the Three Months Ended September 30, 2023 | 2022 | Change $% 2023/2022 | 2023/2022 |
| --- | ---: | ---: | ---: | ---: |
| Payroll and related costs | $7,973 | $7,780 | $193 | 2.5% |
| Professional fees and expenses | 9,152 | 10,794 | (1,642) | -15.2% |
| Travel and meetings | 1,099 | 1,130 | (31) | -2.7% |
| Facilities and equipment costs | 1,283 | 1,331 | (48) | -3.6% |
| Stock-based compensation | 1,795 | 1,938 | (143) | -7.4% |
| Loss on impairment of asset | 625 | — | 625 | 100.0% |
| Other | 874 | 988 | (114) | -11.5% |
|  | $22,801 | $23,961 | $(1,160) | -4.8% |

SG&A expenses decreased by approximately $1.2 million for the three months ended September 30, 2023, compared to the same period in 2022, primarily attributable to the following:

- a decrease in professional fees and expenses of approximately $1.6 million, primarily related to a $0.6 million decrease in legal fees, a $0.6 million decrease in consultants and contractors, and a $0.3 million decrease in insurance costs;
- a decrease in stock-based compensation expense of approximately $0.1 million, primarily due to lower fair val ue on equity grants as a result of a lower market price for our common stock;
- a decrease in other expenses of $0.1 million, primarily due to lower training related expenses; partially offset by
- an increase in payroll and related costs of approximately $0.2 million, primarily related to salary increases that began in the first quarter of 2023; and
- an increase in loss on impairment of asset expense of $0.6 million in connection with our decision to sublease a portion of our leased office space, which was recorded as an operating asset in accordance with ASC 842.

#### Research and development expenses:

R&D expenses were approximately $11.4 million for the three months ended September 30, 2023, compared to approximately $11.3 million for the three months ended September 30, 2022. R&D expenses for the three months ended September 30, 2023 and 2022, were as follows:

*(in thousands)*

| Research and development expenses | For the Three Months Ended September 30, 2023 | 2022 | Change $% 2023/2022 | 2023/2022 |
| --- | ---: | ---: | ---: | ---: |
| Clinical trial expense | $2,791 | $2,737 | $54 | 2.0% |
| Internal R&D | 7,307 | 6,844 | 463 | 6.8% |
| Consultant and contractors | 597 | 780 | (183) | -23.5% |
| Stock-based compensation | 751 | 892 | (141) | -15.8% |
|  | $11,446 | $11,253 | $193 | 1.7% |

R&D expenses increased by approximately $0.2 million for the three months ended September 30, 2023, compared to the same period in 2022, primarily attributable to the following:

- an increase in internal R&D of approximately $0.5 million, primarily related to salary increases in the first quarter of 2023; partially offset by
- a decrease in consultant and contractors expense of approximately $0.2 million, primarily due to the reduction and closure of clinical trial sites with respect to NERLYNX; and
- a decrease in stock-based compensation expense of approximately $0.1 million, primarily due to lower fair value on equity grants as a result of a lower market price for our common stock.

#### Other income (expenses):

*(in thousands)*

| Other income (expenses) | For the Three Months Ended September 30, 2023 | 2022 | Change $% 2023/2022 | 2023/2022 |
| --- | ---: | ---: | ---: | ---: |
| Interest income | $689 | $216 | $473 | 219.0% |
| Interest expense | (3,339) | (2,947) | (392) | 13.3% |
| Legal verdict expense | — | (19) | 19 | -100.0% |
| Other income | 74 | 64 | 10 | 15.6% |
|  | $(2,576) | $(2,686) | $110 | -4.1% |

#### Interest income:

For the three months ended September 30, 2023, we recognized approximately $0.7 million in interest income, compared to approximately $0.2 million of interest income for the three months ended September 30, 2022. The increase in interest income was primarily the result of higher interest rates and an increase in return on investment securities compared to the same period in 2022.

#### Interest expense:

For the three months ended September 30, 2023, we recognized approximately $3.3 million in interest expense, compared to approximately $2.9 million of interest expense for the three months ended September 30, 2022. The increase in interest expense was primarily related to higher interest rates on our Athyrium Notes, which is partially determined by the three-month SOFR rate, for the three months ended September 30, 2023 (see Part I., Item 3 of this Form 10-Q), as well as imputed interest on $8.0 million related to the final installment payment on the Eshelman litigation settlement due on or before November 1, 2024.

#### Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

#### Total revenue:

Total revenue for the nine months ended September 30, 2023 was approximately $163.5 million, compared to $162.4 million for the nine months ended September 30, 2022. This increase in total revenue was primarily due to an increase in product revenue, net of approximately $3.6 million, partially offset by a decrease in royalty revenue of approximately $2.5 million in the nine months ended September 30, 2023.

#### Product revenue, net:

Product revenue, net was approximately $149.9 million for the nine months ended September 30, 2023, compared to $146.3 million for the nine months ended September 30, 2022. This increase in product revenue, net was primarily attributable to an increase in net selling price compared to the nine months ended September 30, 2022, partially offset by a decrease of approximately 3.7% in bottles of NERLYNX sold compared to the nine months ended September 30, 2022.The related deductions to gross revenue for variable consideration for the nine months ended September 30, 2023 were consistent with the nine months ended September 30, 2022.

#### Royalty revenue:

Royalty revenue was approximately $13.5 million for the nine months ended September 30, 2023, compared to approximately $16.0 million for the nine months ended September 30, 2022. The decrease of approximately $2.5 million was due to the timing of sales made in China by Puma's sub-licensee.

#### Cost of sales:

Cost of sales was approximately $38.4 million for the nine months ended September 30, 2023, compared to approximately $38.3 million for the nine months ended September 30, 2022. The increase was due to lower royalty expense related primarily to the timing of sales made in China by Puma's sub-licensee, partially offset by increased intangible amortization related to the $12.5 million paid to Pfizer for meeting a commercial sales milestone as of December 31, 2022.

#### Selling, general and administrative expenses:

SG&A expenses were approximately $69.7 million for the nine months ended September 30, 2023, compared to approximately $64.9 million for the nine months ended September 30, 2022. SG&A expenses for the nine months ended September 30, 2023 and 2022 were as follows:

*(in thousands)*

| Selling, general, and administrative expenses | For the Nine Months Ended September 30, 2023 | 2022 | Change $% 2023/2022 | 2023/2022 |
| --- | ---: | ---: | ---: | ---: |
| Payroll and related costs | $26,066 | $21,172 | $4,894 | 23.1% |
| Provision for credit loss | 514 | — | 514 | 100.0% |
| Professional fees and expenses | 26,377 | 27,192 | (815) | -3.0% |
| Travel and meetings | 4,268 | 3,636 | 632 | 17.4% |
| Facilities and equipment costs | 3,873 | 4,042 | (169) | -4.2% |
| Stock-based compensation | 5,424 | 6,248 | (824) | -13.2% |
| Loss on impairment of asset | 625 | — | 625 | 100.0% |
| Other | 2,602 | 2,649 | (47) | -1.8% |
|  | $69,749 | $64,939 | $4,810 | 7.4% |

SG&A expenses increased by approximately $4.8 million for the nine months ended September 30, 2023, compared to the same period in 2022, primarily attributable to the following:

- an increase in payroll and related costs of approximately $4.9 million, primarily related to a $2.0 million tax credit under the CARES Act recorded during the nine months ended September 30, 2022, without a comparable tax credit in 2023, salary increases that began in the first quarter of 2023, as well as lower turnover during the nine months ended September 30, 2023;
- an increase in provision for credit loss of approximately $0.5 million, primarily due to a royalty receivable due from a sub-license partner, compared to no provision for credit loss expense for the nine months ended September 30, 2022;
- an increase in travel and meetings expenses of approximately $0.6 million, primarily due to the overall easing of COVID-19 travel restrictions;
- an increase in loss on impairment of asset expense of approximately $0.6 million in connection with our decision to sublease the right to use a portion of our leased office space recorded as an operating asset in accordance with ASC 842; partially offset by
- a decrease in professional fees and expenses of approximately $0.8 million, consisting of a decrease of approximately $1.3 million in consultant and contractor fees and a decrease of $1.1 million in insurance and other costs, offset by an increase of approximately $1.6 million in legal fees (see Part II, Item 1. of this Form 10-Q);
- a decrease in facilities and equipment costs of approximately $0.2 million, primarily due to lower depreciation expense for fully depreciated assets; and
- a decrease in stock-based compensation expense of approximately $0.8 million, primarily due to lower fair value on equity grants as a result of a lower market price for our common stock.

#### Research and development expenses:

R&D expenses were approximately $37.5 million for the nine months ended September 30, 2023, compared to approximately $38.5 million for the nine months ended September 30, 2022. R&D expenses for the nine months ended September 30, 2023 and 2022, were as follows:

*(in thousands)*

| Research and development expenses | For the Nine Months Ended September 30, 2023 | 2022 | Change $% 2023/2022 | 2023/2022 |
| --- | ---: | ---: | ---: | ---: |
| Clinical trial expense | $9,583 | $13,048 | $(3,465) | -26.6% |
| Internal R&D | 23,364 | 19,964 | 3,400 | 17.0% |
| Consultant and contractors | 2,170 | 2,494 | (324) | -13.0% |
| Stock-based compensation | 2,392 | 2,950 | (558) | -18.9% |
|  | $37,509 | $38,456 | $(947) | -2.5% |

R&D expenses decreased by approximately $0.9 million for the nine months ended September 30, 2023, compared to the same period in 2022, primarily attributable to the following:

- a decrease in clinical trial expense of approximately $3.5 million, primarily due to the reduction and closure of clinical trial sites with respect to NERLYNX;
- a decrease in consultant and contractors of approximately $0.3 million, primarily due to the reduction and closure of clinical trial sites with respect to NERLYNX;
- a decrease in stock-based compensation of approximately $0.6 million, primarily due to lower fair value on equity grants as a result of a lower market price for our common stock; partially offset by
- an increase in internal R&D of approximately $3.4 million, primarily due to a $1.8 million tax credit recorded during the nine months ended September 30, 2022 under the CARES Act without a comparable tax credit in 2023, as well as salary increases that began in the first quarter of 2023.

#### Other income (expenses):

*(in thousands)*

| Other income (expenses) | For the Nine Months Ended September 30, 2023 | 2022 | Change $% 2023/2022 | 2023/2022 |
| --- | ---: | ---: | ---: | ---: |
| Interest income | $1,886 | $294 | $1,592 | 541.5% |
| Interest expense | (9,976) | (8,313) | (1,663) | 20.0% |
| Legal verdict expense | — | (92) | 92 | -100.0% |
| Other income | 118 | 176 | (58) | -33.0% |
|  | $(7,972) | $(7,935) | $(37) | 0.5% |

#### Interest income:

For the nine months ended September 30, 2023, we recognized approximately $1.9 million in interest income, compared to approximately $0.3 million of interest income for the nine months ended September 30, 2022. The increase in interest income was primarily the result of higher interest rates and an increase in return on investment securities compared to the same period in 2022.

#### Interest expense:

For the nine months ended September 30, 2023, we recognized approximately $10.0 million in interest expense, compared to approximately $8.3 million of interest expense for the nine months ended September 30, 2022. The increase in interest expense was primarily related to higher interest rates on our Athyrium loan, which is partially determined by the three-month SOFR rate, for the nine months ended September 30, 2023 (see Item 3 of this Form 10-Q) as well as imputed interest on $8.0 million related to the final installment payment on the Eshelman litigation settlement due on or before November 1, 2024.

### Liquidity and Capital Resources

The following table, which summarizes our liquidity and capital resources as of September 30, 2023 and December 31, 2022 and for the nine months ended September 30, 2023 and 2022, is intended to supplement the more detailed discussion that follows:

| Liquidity and capital resources (in thousands) | As of September 30, 2023 | As of December 31, 2022 |
| --- | ---: | ---: |
| Cash and cash equivalents | $81,800 | $76,201 |
| Marketable securities | $3,229 | $4,873 |
| Working capital | $57,992 | $56,797 |
| Long-term debt | $76,634 | $98,307 |
| Stockholders' equity | $38,742 | $21,608 |

| Cash provided by (used in): | Nine Months Ended September 30, 2023 | Nine Months Ended September 30, 2022 |
| --- | ---: | ---: |
| Operating activities | $16,554 | $(23,510) |
| Investing activities | (10,955) | 18,977 |
| Financing activities | — | 9,792 |
| Net increase in cash, cash equivalents and restricted cash | $5,599 | $5,259 |

On October 26, 2023, we implemented a reduction in our workforce of approximately 5% across the Company. We anticipate that we will incur approximately $0.4 million in related costs, which include severance payments and insurance premiums. These costs will be recorded in the fourth quarter of 2023. We believe that all payments related to this plan will be made by March 31, 2024.

#### Operating Activities:

Cash provided by operating activities for the nine months ended September 30, 2023 was $16.6 million and consisted of net income of approximately $9.3 million, offset by a decrease of approximately $17.6 million of non-cash items. These non-cash items included stock-based compensation, depreciation and amortization, provision for credit loss and loss on impairment of asset. In addition, there were decreases in cash flows from operations due to a decrease in accrued expenses and other of approximately $18.9 million, which included an $8.0 million payment related to the Eshelman litigation settlement, net, a decrease of $3.3 million in variable considerations, and $2.5 million in the employee bonus accrual, and a net decrease of $4.0 million in our Pfizer royalty accrual. Additional decreases in cash flows were due to a decrease in our post-marketing commitment liability of approximately $0.7 million, a decrease of $1.4 million in accounts payable and an increase of $1.2 million in inventory. These decreases in cash flows were partially offset increases in cash flows due to a decrease of $10.9 million in accounts receivable from collections and a decrease of $1.4 million in prepaid expenses and other. The decrease of $0.4 million in other current assets was due to receipt of CARES Act funds, partially offset by an increase of a $1.7 million receivable from a vendor related to damaged inventory.

Cash used in operating activities for the nine months ended September 30, 2022 was $23.5 million and consisted of net income of approximately $5.6 million, offset by a decrease of approximately $15.9 million of non-cash items, including stock-based compensation, and depreciation and amortization. Further changes in cash flows from operations included a decrease in accrued expenses and other of approximately $53.8 million related primarily to the $54.3 million in payments related to our class action lawsuit settlement, an increase in other assets of approximately $3.7 million due to a tax credit receivable related to the CARES Act, an increase of approximately $3.8 million in accounts payable, a decrease in our post-marketing commitment liability of approximately $0.7 million, offset by a decrease of approximately $4.5 million in accounts receivable, a decrease of $3.2 million in prepaid expense, and a decrease in inventory of approximately $1.7 million.

#### Investing Activities:

Cash used in investing activities for the nine months ended September 30, 2023 was approximately $11.0 million, compared to net cash provided by investing activities of approximately $19.0 million for the same period in 2022. Cash used in investing activities was primarily due to the purchase of the intangible asset of $12.5 million, and the purchase of available-for-sale securities of approximately $12.5 million, offset by the maturity of available-for-sale securities of approximately $14.2 million for the nine months ended September 30, 2023.

Cash provided by investing activities for the nine months ended September 30, 2022 was approximately $19.0 million, primarily due to maturity of available-for-sale securities.

#### Financing Activities:

There was no cash provided by or used in financing activities for the nine months ended September 30, 2023.

Cash provided by financing activities for the nine months ended September 30, 2022 was approximately $9.8 million, representing the cash raised from the Purchase Agreement entered into on March 8, 2022 from Mr. Auerbach and Athyrium Opportunities IV Co-Invest 2 LP.

#### Athyrium Note Purchase Agreement:

We issued senior notes for an aggregate principal amount of $100.0 million pursuant to the note purchase agreement dated July 23, 2021, by us, and our subsidiaries, and Athyrium, as Administrative Agent, and certain other investor parties (the “Note Purchase Agreement”), with an initial maturity date of July 23, 2026 (the “Athyrium Notes”). The Athyrium Notes were issued for face amount of $100.0 million net of an original issue discount of $1.5 million. The Athyrium Notes also require a 2.0% exit payment to be made on each payment of principal. The borrowings under the Athyrium Notes, together with cash on hand, were used to repay our outstanding indebtedness, including the applicable exit and prepayment fees owed to lenders under our Oxford Credit Facility. We can borrow up to an additional $25.0 million under the Note Purchase Agreement for general corporate purposes and to further support commercial initiatives. The Athyrium Notes are secured by substantially all of our assets. We incurred $1.9 million of deferred financing costs with the borrowing.

Prior to October 1, 2022, the Athyrium Notes bore interest at an annual rate equal to the sum of (i) 8.0% and (ii) three-month London Interbank Offering Rate (“LIBOR”) rate where the three-month LIBOR rate could not be less than 1.5% or greater than 3.5%. (or a comparable or successor rate that gives due consideration to the then prevailing rate used by commercial banks in the United States, which rate is reasonably determined by Athyrium). Interest was payable quarterly on the last business day of March, June, September and December each year. Beginning June 30, 2024, principal payments are required to be made quarterly at 11.11% of the original face amount with the remaining balance paid at maturity. Each principal payment also included a 2.0% exit payment.

On September 16, 2022, we entered into a third amendment to the Note Purchase Agreement in which the Secured Overnight Financing Rate (“SOFR”) is to be used in place of the LIBOR rate in calculating interest on the Athyrium Notes, beginning on October 1, 2022. The Athyrium Notes bear interest at an annual rate equal to the sum of (a) eight percent (8.00%) plus (b) adjusted three-month term SOFR for such interest period. The adjusted three-month term SOFR means, with respect to any interest period, the lesser of (a) the sum of (i) three-month term SOFR and (ii) 0.26161% (26.161 basis points) and (b) three and one-half of one percent (3.50%) per annum. The interest rate applicable to the Athyrium Notes during the period from September 16, 2022, until the expiration of the interest period ending on September 30, 2022, was equal to the sum of (a) eight percent (8.00%) plus (b) adjusted three-month LIBOR. The modification of the Note Purchase Agreement did not meet the requirements of a debt extinguishment under ASC 470-50 - *Debt Modifications and Exchanges* and no gain or loss was recognized. The Company performed a quantitative analysis and determined that the terms of the new debt and original debt instrument were not substantially different. Accordingly, the September 16, 2022 amendment was accounted for as a debt modification.

Following the effectiveness of the Third Amendment, the Athyrium Notes bear interest at an annual rate equal to the sum of (a) eight percent (8.00%) plus (b) the lesser of (i) the sum of (x) three-month term SOFR for an interest period of three months plus (y) 0.26161% (26.161 basis points) and (ii) three and one-half of one percent (3.50%) per annum. Interest is payable quarterly on the last business day of March, June, September and December each year. Beginning June 30, 2024, principal payments are required to be made quarterly at 11.11% of the original face amount with the remaining balance paid at maturity. Each principal payment will also include a 2.0% exit payment. As of September 30, 2023, the effective interest rate for the loan was 12.99%.

At our option, we may prepay the outstanding principal balance of the notes in whole or in part, subject to a prepayment fee of 2.0% of the amount prepaid if the prepayment occurs on or prior to the second anniversary of the issuance date of such notes, plus the present value of remaining interest that would have accrued through and including the second anniversary date, and 2.0% of the amount prepaid if the prepayment occurs after the second anniversary but on or prior to the third anniversary of the issuance date of such notes.

The Athyrium Notes include affirmative and negative covenants applicable to us. The affirmative covenants include, among others, covenants requiring us to maintain our legal existence and governmental approvals, deliver certain financial reports, maintain insurance coverage, and satisfy certain requirements regarding deposit accounts. The negative covenants include, among others, restrictions on our transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, selling assets and suffering a change in control, in each case subject to certain exceptions. We are also required to maintain minimum cash balances and achieve certain minimum product revenue targets, measured as of the last day of each fiscal quarter on a trailing year-to-date basis.

As of September 30, 2023, there were $102.0 million in term loans outstanding under the Athyrium Notes, representing all of our long-term debt outstanding as of that date, and we were in compliance with all applicable covenants.

#### Current and Future Financing Needs:

We have spent, and expect to continue to spend, substantial amounts in connection with implementing our business strategy, including our planned product development efforts, our clinical trials, our research and development efforts and our commercialization efforts.

We may choose to begin new research and development efforts, or we may choose to launch additional marketing efforts. For example, we recently in-licensed alisertib from Takeda and assumed sole responsibility for its global development and commercialization. These efforts may require funding in addition to our cash and cash equivalents totaling approximately $81.8 million at September 30, 2023. While our consolidated financial statements have been prepared on a going concern basis, we expect to continue incurring significant losses for the foreseeable future and will need to generate significant revenue to sustain operations, successfully commercialize neratinib and develop alisertib. While we have been successful in raising financing in the past, there can be no assurance that we will be able to do so in the future. Our ability to obtain funding may be adversely impacted by uncertain market conditions, including our success in commercializing NERLYNX, unfavorable decisions of regulatory authorities or adverse clinical trial results. The outcome of these matters cannot be predicted at this time.

In addition, we have based our estimate of capital needs on assumptions that may prove to be wrong. Changes may occur that would consume our available capital faster than anticipated, including changes in and progress of our development activities, the impact of commercialization efforts, acquisitions of additional drug candidates and changes in regulation. Potential sources of financing include strategic relationships, public or private sales of equity or debt, third-party debt financing and other sources of funds. We may seek to access the public or private equity markets when conditions are favorable due to our long-term capital requirements. If we raise funds by selling additional shares of common stock or other securities convertible into common stock, the ownership interests of our existing stockholders will be diluted. If we are not able to obtain financing when needed, we may be unable to carry out our business plan. As a result, we may have to significantly limit our operations, and our business, financial condition and results of operations would be materially harmed. In such an event, we will be required to undertake a thorough review of our programs, and the opportunities presented by such programs, and allocate our resources in the manner most prudent.

### Non-GAAP Financial Measures

In addition to our operating results, as calculated in accordance with Generally Accepted Accounting Principles (“GAAP”) we use certain non-GAAP financial measures when planning, monitoring, and evaluating our operational performance. The following table presents our net income and net income per share, as calculated in accordance with GAAP, as adjusted to remove the impact of stock-based compensation. For the three and nine months ended September 30, 2023, stock-based compensation represented approximately 7.4% and 7.3% of our operating expenses, respectively, compared to 8.0% and 8.9% for the same respective periods in 2022, in each case excluding cost of sales and acquired in-process research and development. Our management believes that these non-GAAP financial measures are useful to enhance understanding of our financial performance, are more indicative of our operational performance and facilitate a better comparison among fiscal periods. These non-GAAP financial measures are not, and should not be viewed as, substitutes for GAAP reporting measures.

### Reconciliation of GAAP Net Income (Loss) to Non-GAAP Adjusted Net Income and

### GAAP Net Income (Loss) Per Share to Non-GAAP Adjusted Net Income Per Share

### (in thousands except share and per share data)

|  | For the Three Months Ended September 30, 2023 |  | 2022 |  | For the Nine Months Ended September 30, 2023 |  | 2022 |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| GAAP net income (loss) | $5,796 |  | $(360) |  | $9,323 |  | $5,608 |  |
| Adjustments: |  |  |  |  |  |  |  |  |
| Stock-based compensation - |  |  |  |  |  |  |  |  |
| Selling, general and administrative (1) | 1,794 |  | 1,938 |  | 5,424 |  | 6,248 |  |
| Research and development (2) | 751 |  | 892 |  | 2,391 |  | 2,950 |  |
| Non-GAAP adjusted net income | $8,341 |  | $2,470 |  | $17,138 |  | $14,806 |  |
| GAAP net income (loss) per share—basic | $0.12 |  | $(0.01) |  | $0.20 |  | $0.13 |  |
| Adjustment to net income (loss) (as detailed above) | 0.06 |  | 0.06 |  | 0.16 |  | 0.20 |  |
| Non-GAAP adjusted basic net income per share | $0.18 | (3) | $0.05 | (4) | $0.36 | (3) | $0.33 | (4) |
| GAAP net income (loss) per share—diluted | $0.12 |  | $(0.01) |  | $0.20 |  | $0.13 |  |
| Adjustment to net income (loss) (as detailed above) | 0.05 |  | 0.06 |  | 0.16 |  | 0.20 |  |
| Non-GAAP adjusted diluted net income per share | $0.17 | (5) | $0.05 | (6) | $0.36 | (5) | $0.33 | (6) |

(1) To reflect a non-cash charge to operating expense for selling, general, and administrative stock-based compensation.

(2) To reflect a non-cash charge to operating expense for research and development stock-based compensation.

(3) Non-GAAP adjusted basic net income per share was calculated based on 47,520,338 and 46,977,127 weighted-average shares of common stock outstanding for the three and nine months ended September 30, 2023, respectively.

(4) Non-GAAP adjusted basic net income per share was calculated based on 45,567,739 and 44,290,432 weighted-average shares of common stock outstanding for the three and nine months ended September 30, 2022, respectively.

(5) Non-GAAP adjusted diluted net income per share was calculated based on 47,819,234 and 47,397,209 weighted-average shares of common stock outstanding for the three and nine months ended September 30, 2023, respectively.

(6) Non-GAAP adjusted diluted net income per share was calculated based on 45,797,841 and 44,464,682 weighted-average shares of common stock outstanding for the three and nine months ended September 30, 2022, respectively.

### Off-Balance Sheet Arrangements

We do not have any “off-balance sheet arrangements,” as defined by SEC regulations.

### Contractual Obligations

There have been no material changes outside the ordinary course of business to our contractual obligations and commitments as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022.

## Market risk

As filed, 1,677 characters.

Some of the securities that we invest in have market risk in that a change in prevailing interest rates may cause the principal amount of the cash equivalents to fluctuate. Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash and cash equivalents. We invested our excess cash primarily in cash equivalents such as money market investments as of September 30, 2023. The primary objectives of our investment activities are to ensure liquidity and to preserve principal while at the same time maximizing the income we receive from our cash and cash equivalents without significantly increasing risk. Additionally, we established guidelines regarding approved investments and maturities of investments, which are designed to maintain safety and liquidity.

Because of the short-term maturities of our cash equivalents, we do not believe that a 10% increase in interest rates would have a material effect on the realized value of our cash equivalents.

We also have interest rate exposure as a result of borrowings outstanding under the Athyrium Notes. As of September 30, 2023 the aggregate outstanding principal amounts of the Athyrium Notes was $100.0 million. The Athyrium Notes bear interest at a rate per annum equal to the sum of 8.00% plus the adjusted three-month term SOFR and the lesser of (a) the sum of (i) three-month term SOFR and (ii) 0.26161% (26.161 basis points) and (b) three and one-half of one percent (3.50%) per annum. If overall interest rates had increased by one hundred basis points during the quarter ended September 30, 2023, our interest expense would have increased by $1.0 million.

## Controls and procedures

As filed, 1,744 characters.

### Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the timelines specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined under Exchange Act Rule 13a-15(e)), as of September 30, 2023. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of September 30, 2023.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 891 characters.

Under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, we identified important factors that could affect our financial performance and could cause our actual results for future periods to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statements made in this Quarterly Report. Except as described below, there has been no material change in our risk factors subsequent to the filing of our prior reports referenced above. However, the risks described in our reports are not the only risks we face. Additional risks and uncertainties that we currently deem to be immaterial or not currently known to us, as well as other risks reported from time to time in our reports to the SEC, also could cause our actual results to differ materially from our anticipated results or other expectations.

Filed Nov 2, 2023.
Source: SEC EDGAR, the filing index for accession 0001437749-23-030028. Last ingested by Listed: Nov 5, 2026, 17:46 ET. No prices; not investment advice.