What happened

Shares of Puma Biotechnology (NASDAQ:PBYI) fell as much as 20.2% after the company disclosed through a filing with the Securities and Exchange Commission that Chief Commercial Officer Steven Lo will resign on Oct. 18 to become the CEO of an emerging pharmaceutical company. However, a departing executive isn’t the real reason shares are tumbling. 

In an unrelated move, Goldman Sachs analyst Paul Choi downgraded Puma Biotechnology stock from neutral to sell, changed the price target from $24 to $8 per share, cut his 2025 sales estimate by 25%, and reminded investors that Seattle Genetics (NASDAQ:SGEN) has a drug candidate that might compete well against Puma’s Nerlynx, according to StreetInsider.com

As of 11:08 a.m. EDT, Puma Biotechnology stock had settled to a 17.4% loss.

A sad-looking scientist in a lab with his left hand on his forehead.

Image source: Getty Images.

So what

Puma Biotechnology hasn’t been able to convince investors or Wall Street that Nerlynx can live up to its blockbuster potential. The drug product, prescribed for one year to individuals that have completed treatment for breast cancer, has faltered recently. A significant number of individuals have to discontinue treatment due to severe side effects, although that decision is a lot easier for doctors to make considering the drug’s questionable value and high cost.

While Nerlynx has gradually earned supplemental approvals from regulators to expand its use, revenue growth has slowed significantly due to patient churn. Sales in the second quarter of 2019 grew only 6% from the year-ago period. Licensing revenue from international sales should begin to trickle in soon, and operating losses are beginning to shrink, but investors are concerned with the drug’s future. Nerlynx is the only drug product or drug candidate owned by Puma Biotechnology.

Nerlynx has struggled to overcome its own inherent problems relating to tolerability, which Choi thinks could be further exposed by a drug candidate from Seattle Genetics. Tucatinib is being evaluated in the same settings as Nerlynx, has proven to have fewer side effects, and is expected to have new data from an important clinical trial before the end of 2019. Choi thinks better tolerability could allow tucatinib to grab more market share than Nerlynx even if it proves less effective, but the drug candidate has to earn marketing approval first.

Now what

It may be tempting to label Puma Biotechnology as a value stock, especially considering that the company’s market cap now sits at just $325 million. On the one hand, the business could achieve sustainable operations with just a little more growth from Nerlynx. Choi’s optimism for tucatinib from Seattle Genetics may be a bit premature and overblown. After all, many have questioned the value of Nerlynx based on its high cost and slight improvement to overall survival, so could a less effective drug really make a splash even if it has fewer side effects?

On the other hand, Nerlynx is clearly not living up to expectations. It should receive a boost from recent supplemental approvals and international expansion, but investors might be better off waiting to see another quarter or two of operating results before getting too carried away.