PropThink: PBYI Makes a Big Splash on the NYSE; Why all the Excitement?

By Jake King

Puma Biotechnology PBYI uplisted to the New York Stock Exchange from the OTC Bulletin Board on Friday, generating significant trading interest in the stock and a 40% rally. The company was founded by some of the same executives who built and then sold Cougar Biotechnology for $1B to Johnson and Johnson JNJ in 2009. Before noon Friday, more than 1.8M shares had already traded hands, a stark contrast to the stock's 17,000 average. Puma also increased the size of its previously announced common stock offering from 6.5M to 7.5M shares today, priced at $16, with a 1.125M over-allotment for underwriters; the sale should generate more than $100M after expenses.

Puma is a relatively new cancer-focused drug developer and has only been trading publicly since April. The company's lead and only compound is PB272 (neratinib), an oral tyrosine kinase inhibitor being tested as a single agent and in combinations for metastatic and mutated breast cancer; the drug is in a number of Phase II trials. If management's track record is any indication, Puma hopes to find success in-licensing and developing clinically-tested cancer drugs. When Cougar was sold, the company had three products in late-stage development, including what is now known commercially as Zytiga; analysts estimate peak sales of $1B for the prostate cancer drug. The company is accruing significant capital through the latest stock offering, and may move to acquire another drug in the near future in order to expand its pipeline

The market is now valuing PBYI at over $450M, a valuation that very few single-candidate Phase II biotechs attain, and only then through significant analyst and market vetting. After trading only sporadically for the last six months, PBYI's action today is largely a result of increased liquidity and momentum due to the stock's NYSE listing. Friday's gains, while impressive, probably won't be sustainable for long. Profit-taking will further pressure PBYI in the near-term, and although interest in the stock should increase, the current $23 share price is overdone. Leerink Swann and Stifel Nicolaus both initiated coverage of the company in the last 6 months with price targets of $20 and $19 respectively, and we agree that a lower share price is more adequate for this young biotech until the market can more accurately evaluate the business.

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