Puma Biotechnology (NYSE:PBYI) is inching closer to its transformation from a research and development (or R&D) biopharmaceutical company to a full-fledged commercial organization. This company which has in-licensed development and commercialization rights for oral and intravenous formulations of irreversible tyrosine kinase inhibitor or TKI, neratinib, and also another irreversible TKI, PB357, achieved the first major milestone for 2017 on May 24, 2017. On this day, FDA's Oncologic Drugs Advisory Committee or ODAC recommended approval for Nerlynx (neratinib) as extended adjuvant therapy for patients suffering with early stage, human epidermal growth factor receptor type 2 - positive or HER2-positive breast cancer after being previously treated with surgery and adjuvant treatment with Roche Holdings' (OTCQX:RHHBY) Herceptin (trastuzumab).

Besides this indication, Puma Biotechnology expects neratinib to demonstrate efficacy in other cancers such a non small cell lung cancer and tumors related to expression or over-mutation in HER2 such as HER2-positive cancer, HER-2 cancer that has metastasized to brain, HER2-positive neoadjuvant breast cancer.

Hence, there is high probability that Neratinib can prove to be a blockbuster drug for Puma Biotechnology. I believe this is a solid reason for considering the company as a favorable investment opportunity in 2017. In this article, I will explain the key drivers that make Puma Biotechnology a compelling investment opportunity in 2017.

Extended adjuvant setting is a larger underserved market segment

Currently, the target breast cancer market in extended adjuvant setting comprises around 36,000 patients in USA and 34,000 in EU. In 2015, Herceptin's sales in adjuvant indication were around $4.5 billion to $5.0 billion. All these patients form a target market for neratinib in the following year. Currently, letrozole is the only FDA approved therapy in extended adjuvant setting.

Puma Biotechnology expects to launch Neratinib as extended adjuvant breast cancer therapy in 2017

In July 2016, Puma Biotechnology filed new drug application or NDA with FDA, seeking approval for neratinib in extended adjuvant setting for early stage HER2-overexpressed/amplified breast cancer. The regulatory agency accepted the application in September 2016.

Further, the European Medicines Agency or EMA also validated Puma's application for neratinib in extended adjuvant setting in August 2016. On advice of EMA, in March 2017, the company revised its label to only include those early stage HER2+ breast cancer patients who had been previously treated for up to 1 year with adjuvant herceptin. Puma Biotechnology initiated a managed access program for neratinib in this indication in Q4 2016 and an expanded access program in Q1 2017.

While all these have been major milestones for the company in the past, the upcoming milestone will be FDA approval for orally administered neratinib in extended adjuvant setting, anticipated in 3Q 2017.

This approval is expected to be mainly based on results obtained from phase 3 trial, ExteNET, in which neratinib managed to hit its primary endpoints. In the intent-to-treat or ITT population, the 2-year disease free survival or DFS in neratinib arm was seen to be 93.9% while that in the placebo arm was 91.6%, which implies absolute improvement of 2.4%. In ITT population, there has been a 2.5% absolute improvement in 5-year DFS for neratinib arm as compared to placebo arm.

In case of patients confirmed with HER+ breast cancer, neratinib demonstrated 2-year DFS of 94.7%, while it was only 90.6% for the placebo arm. While this is an absolute improvement of 4.1%, the 5-year DFS with neratinib in HER+ patients is slightly higher at 4.4%.

Data from ExteNET trial has also shown 33% reduction in risk of disease recurrence for patients in neratinib arm as compared to those in placebo arm in ITT population. Further, for confirmed HER+ early stage breast cancer patients, the reduction in risk of disease recurrence for those on neratinib therapy in extended adjuvant setting is as high as 49%.

All these statistics are in line with those seen for the already approved extended adjuvant breast cancer drug, letrozole, as well as data obtained from development trials for hormone receptor positive or HR+ adjuvant breast cancer therapies, Pfizer's (NYSE:PFE) Aromasin and AstraZeneca's (NYSE:AZN) Arimidex. This implies that there are high chances for neratinib to secure FDA approval in extended adjuvant setting.

Neratinib has demonstrated higher benefit as adjuvant therapy in HR+ breast cancer patients

For HR+ breast cancer patients in ExteNET trial, the adjuvant therapy of neratinib demonstrated DFS rate of 95.4%, while the placebo arm showed DFS of 91.2%. This implied an absolute benefit of 4.2% after 2 years.

For 5-year period, the DFS with neratinib in HR+ patients was 91.7% while that in placebo arm was 86.9%, implying 4.8% absolute benefit.

Neratinib has demonstrated superior results in HR+ patients mainly on account of dual suppression of the crosstalk between estrogen receptor-positive or ER+ and HER+. Since ER+ breast cancer patients in the ExteNET trial were already on background endocrine therapy, it helped suppress the ER while neratinib suppressed both EGFR and HER2. This dual suppression has been seen only in neratinib and not in trials of other breast cancer drugs such Roche Holdings Herceptin and Novartis' (NYSE:NVS) Tykerb.

In case of HR- patients, however, ExteNET trial demonstrated improvement with neratinib between months 0 to 12 as compared to placebo. This was essentially when the patients were being administered the drug. However, the benefit in DFS in the neratinib arm over placebo arm seemed to become statistically insignificant over 5 year horizon.

Puma Biotechnology has also introduced loperamide prophylaxis therapy to prevent diarrhea resulting from neratinib.

Prior to Puma Biotechnology in-licensing Neratinib, it was being tested on 3,000 patients in various trials. It was seen that these patients suffered from grade 3 or grade 4 diarrhea in the first 28 days after initiating therapy. However, this could be treated with antidiarrheal drug, loperamide.

Puma Biotechnology is instead focusing on preventing this side-effect of neratinib using loperamide prophylaxis. Data from multiple studies has shown that the rate of grade 3 diarrhea reduced from the range of 30% to 53% in case of no loperamide prophylaxis to the range of 0% to 17% with loperamide prophylaxis. The total duration of diarrhea also dropped from 14 days to 2 days with loperamide prophylaxis.

Since ExteNET trial did not involve any anti-diarrheal prophylaxis therapy, Puma Biotechnology separately studied the impact of loperamide prophylaxis alone and in combination with other anti-inflammatory agents in extended adjuvant setting in early stage HER2+ breast cancer patients in another phase 2 trial, CONTROL. Data from this trial showed that while rate of grade 3 diarrhea in ExteNET trial was 39.8%, loperamide prophylaxis reduced the rate to 30.7%, loperamide and budesonide prophylaxis to 23.4%, and loperamide and colestipol to 11.5%.

Further, while the duration of diarrhea in ExteNET trial was 59 days, the various prophylaxis regimens in the CONTROL trial have brought the down to the range of 8 to 12 days. Episodes of diarrhea were also brought down from 8 in ExteNET trial to the range of 2 to 4 in CONTROL trial.

The CONTROL trial has also shown improvement in tolerability for the drug, which was being mainly affected due to diarrhea.

All this shows that the major side-effect of Neratinib, diarrhea, is easily manageable with effective prophylaxis therapy. Further, it is only seen that grade 3 diarrhea was witnessed by patients only in first cycle or first 28 days of neratinib therapy.

The company's cash reserves can sustain its operations through mid-2018

At the end of Q1 2017, Puma Biotechnology had $194 million worth cash reserves on its balance sheet. The company's cash burn rate in Q1 2017 was $36.0 million. This can be considered representative for all the quarters in 2017, as Puma has been highly involved in preparing for regulatory approval and commercial launch of neratinib. Based on these assumptions, the company can sustain its business operations upto the first half of 2018, without depending on external funding.

Further, with a solid oncology drug in the pipeline, Puma Biotechnology will also not find it difficult to raise capital from the public, either as equity or debt. Hence, the company seems to be at a comfortable position.

Investors should not ignore certain company-specific risks

Today, Puma Biotechnology is equivalent to neratinib. In absence of any commercial product or advanced stage research product, Puma Biotechnology is excessively dependent on the successful commercial launch of Neratinib. Since the product has not yet received FDA approval for even a single indication, this may prove to be too risky investment for investors with average risk appetite.

Further, the company also does not have proven marketing and distribution capabilities. In absence of a strong commercial partner, Puma Biotechnology may land up being commercially unsuccessful, despite securing FDA approval for neratinib.

Investors should consider these major risk factors while considering Puma Biotechnology as an opportunity in 2017.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Originally posted here:
Puma Biotechnology's Neratinib Set To Target Extended Adjuvant Opportunity - Seeking Alpha