Alisertib Trials May Expand Market Reach, But NERLYNX's Revenue Decline And Competition Will Challenge Future Earnings

Key Takeaways

• Expanding NERLYNX's market through strategic collaborations and international launches could significantly boost revenue, especially with recent market entries.
  
• Biotech acquisitions and ongoing trials for new drug indications are pivotal for diversifying revenue streams and enhancing long-term earnings.
  
• Declining NERLYNX revenue, regulatory challenges in China, and rising competition threaten Puma's financial stability and long-term revenue growth.

Catalysts

A biopharmaceutical company, focuses on the development and commercialization of products to enhance cancer care in the United States and internationally.

• Puma anticipates presenting interim data from a Phase I trial combining neratinib with Enhertu in metastatic solid tumors, potentially revealing safety and efficacy information. This could influence future revenue by expanding market potential if successful.
  
• Two ongoing Phase II trials for alisertib in different cancer types might yield promising data in 2025, potentially increasing revenue and earnings by expanding the drug's indications and market reach.
  
• Puma is exploring biotech acquisitions to leverage their R&D and commercial infrastructure, which could diversify their revenue streams and enhance long-term earnings potential.
  
• Puma's focus on increasing NERLYNX's market penetration through strategic collaborations and international launches may boost revenue, especially with recent approvals and launches in new markets like Turkey and Saudi Arabia.
  
• Efforts to increase patient persistence and compliance with NERLYNX through dose escalation strategies could improve effectiveness and sales, potentially enhancing net margins due to higher average treatment duration.

Puma Biotechnology Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Puma Biotechnology's revenue will decrease by 0.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 13.1% today to 9.4% in 3 years time.
• Analysts expect earnings to reach $21.8 million (and earnings per share of $0.44) by about March 2028, down from $30.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $33.2 million in earnings, and the most bearish expecting $10.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.9x on those 2028 earnings, up from 5.6x today. This future PE is lower than the current PE for the US Biotechs industry at 18.1x.
• Analysts expect the number of shares outstanding to grow by 2.84% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.87%, as per the Simply Wall St company report.

Puma Biotechnology Future Earnings Per Share Growth

Risks

• The decline in NERLYNX product revenue from $56.1 million in Q3 2024 to $54.4 million in Q4 2024, coupled with a significant reduction in royalty revenue from $24.4 million in Q3 2024 to $4.7 million in Q4 2024, primarily due to lower sales to China, presents a risk to future revenue stability, impacting overall earnings.
  
• There is a forecasted decline in NERLYNX product supply revenue and a drop in projected royalties for 2025 due to regulatory transitions in China. This could lead to reduced total revenue, affecting Puma’s ability to maintain or grow earnings.
  
• The reliance on inventory increases and a high gross-to-net adjustment affecting quarterly revenue highlights potential volatility in net margins and earnings, especially if inventory levels or pricing pressures change unexpectedly.
  
• Puma Biotechnology expects a Q1 2025 net loss between $2 million and breakeven, due to inventory build burn-off from Q4 2024, indicating potential short-term financial instability which may impact investor perception and future stock performance.
  
• The increasing competition in the HER2-positive breast cancer market and evolving treatment landscape could limit NERLYNX’s market share, negatively impacting revenue growth prospects and net income margins in the long-term.

Valuation

• The analysts have a consensus price target of $4.333 for Puma Biotechnology based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $7.0, and the most bearish reporting a price target of just $2.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $232.3 million, earnings will come to $21.8 million, and it would be trading on a PE ratio of 12.9x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of $3.39, the analyst price target of $4.33 is 21.8% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.