Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐.

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post such~~ files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. ~~37,529,536~~39,676,779 shares of Common Stock, par value $0.0001 per share, were outstanding as of ~~November 6, 2017.~~

This Quarterly Report on Form 10-Q, or this Quarterly Report, contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Any statements about our expectations, beliefs, plans, objectives, assumptions, future events or performance are not historical facts and may be forward looking. These forward-looking statements include, but are not limited to, statements about:

These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend” and similar words or phrases. Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Discussions containing these forward-looking statements may be found throughout this Quarterly Report, ~~on Form 10-Q,~~ including, in Part I, the section entitled “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These forward-looking statements involve risks and uncertainties, including the risks discussed in Part ~~II,~~I, Item 1A. “Risk Factors” of ~~this~~our Annual Report on Form 10-K for the year ended December 31, 2019 and in Part II, Item 1A, “Risk Factors” of our Quarterly Report on Form 10-Q for the Quarter ended March 31, 2020 that could cause our actual results to differ materially from those in the forward-looking statements. Such risks should be considered in evaluating our prospects and future financial performance. We undertake no obligation to update the forward-looking statements or to reflect events or circumstances after the date of this document.

	June 30, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	90,896		$	60,037
Marketable securities		16,376			51,607
Accounts receivable, net		23,987			28,896
Inventory, net		2,891			3,170
Prepaid expenses, current		12,600			13,259
Deferred rent		198			154
Restricted cash, current		8,850			8,850
Other current assets		3,426			323
Total current assets		159,224			166,296
Lease right-of-use assets, net		17,494			18,522
Property and equipment, net		2,859			3,304
Intangible assets, net		78,148			40,461
Restricted cash, long-term		3,312			4,323
Prepaid expenses and other, long-term		2,777			1,999
Total assets	$	263,814		$	234,905
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	11,767		$	19,183
Accrued expenses		68,640			69,030
Accrued in-licensed rights, current		10,182			—
Post-marketing commitment liability, current		1,085			—
Lease liabilities, current		2,852			2,624
Total current liabilities		94,526			90,837
Accrued in-licensed rights, long-term		20,363			—
Lease liabilities, long-term		21,159			22,643
Post-marketing commitment liability, long-term		7,790			9,000
Long-term debt		96,573			94,962
Total liabilities		240,411			217,442
Commitments and contingencies (Note 13)
Stockholders' equity:
Common stock - $.0001 par value per share; 100,000,000 shares authorized; 39,626,917 shares issued and outstanding at June 30, 2020 and 39,203,304 issued and outstanding at December 31, 2019		4			4
Additional paid-in capital		1,314,572			1,295,033
Accumulated other comprehensive income		1			62
Accumulated deficit		(1,291,174	)		(1,277,636	)
Total stockholders' equity		23,403			17,463
Total liabilities and stockholders' equity	$	263,814		$	234,905

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

September 30, 2017

December 31, 2016 (Note 1)

ASSETS

Current assets:

Cash and cash equivalents

$
79,717

$
194,494

Marketable securities

26,620

34,982

Accounts receivable, net

3,890

—

Inventory

89

—

Prepaid expenses and other, current

9,281

6,998

Total current assets

119,597

236,474

Property and equipment, net

4,714

5,153

Prepaid expenses and other, long-term

3,851

6,846

Intangible assets, net

49,379

—

Restricted cash

4,317

4,317

Total assets

$
181,858

$
252,790

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$
17,644

$
20,035

Accrued expenses

79,608

17,426

Total current liabilities

97,252

37,461

Deferred rent

5,438

5,505

Total liabilities

102,690

42,966

Commitments and contingencies (Note 8)

Stockholders' equity:

Common stock - $.0001 par value;  100,000,000 shares authorized;  37,384,975 shares issued
   and outstanding at September 30, 2017 and 36,826,010 issued and outstanding at
   December 31, 2016

4

4

Additional paid-in capital

1,109,212

1,006,344

Receivable from exercise of stock options

(5,653
)

—

Accumulated other comprehensive loss

(7
)

(13
)
Accumulated deficit

(1,024,388
)

(796,511
)
Total stockholders' equity

79,168

209,824

Total liabilities and stockholders' equity

$
181,858

$
252,790

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020			2019			2020			2019
Revenue:
Product revenue, net	$	48,771		$	53,864		$	97,380		$	99,431
License revenue		20,700			—			22,700			53,500
Royalty revenue		1,111			55			1,719			55
Total revenue		70,582			53,919			121,799			152,986
Operating costs and expenses:
Cost of sales		9,415			9,317			18,491			17,302
Selling, general and administrative		29,347			33,527			60,284			79,033
Research and development		24,691			36,855			50,146			72,583
Total operating costs and expenses		63,453			79,699			128,921			168,918
Income (loss) from operations		7,129			(25,780	)		(7,122	)		(15,932	)
Other income (expenses):
Interest income		66			908			452			1,780
Interest expense		(3,784	)		(4,448	)		(6,852	)		(8,891	)
Legal verdict expense		(93	)		—			(186	)		(16,350	)
Loss on debt extinguishment		—			(8,103	)		—			(8,103	)
Other income (expenses)		77			(1	)		170			(15	)
Total other expenses		(3,734	)		(11,644	)		(6,416	)		(31,579	)
Net income (loss)	$	3,395		$	(37,424	)	$	(13,538	)	$	(47,511	)
Net income (loss) applicable to common stockholders	$	3,395		$	(37,424	)	$	(13,538	)	$	(47,511	)
Net income (loss) per share of common stock—basic	$	0.09		$	(0.97	)	$	(0.34	)	$	(1.23	)
Net income (loss) per share of common stock—diluted	$	0.08		$	(0.97	)	$	(0.34	)	$	(1.23	)
Weighted-average shares of common stock outstanding—basic		39,432,030			38,647,775			39,361,596			38,565,258
Weighted-average shares of common stock outstanding—diluted		39,997,571			38,647,775			39,361,596			38,565,258

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

For the Three Months Ended June 30, 2020
							Receivables		Accumulated
					Additional		from		Other
	Common Stock				Paid-in		Exercises		Comprehensive			Accumulated
	Shares		Amount		Capital		of Options		Income (Loss)			Deficit			Total
Balance at March 31, 2020		39,317,221	$	4	$	1,303,940	$	—	$	2		$	(1,294,569	)	$	9,377
Stock-based compensation		—		—		10,630		—		—			—			10,630
Shares issued or restricted stock units vested under employee stock plans		309,696		—		2		—		—			—			2
Unrealized loss on available- for-sale securities		—		—		—		—		(1	)		—			(1	)
Net income		—		—		—		—		—			3,395			3,395
Balance at June 30, 2020		39,626,917	$	4	$	1,314,572	$	—	$	1		$	(1,291,174	)	$	23,403

For the Three Months Ended June 30, 2019
							Receivables			Accumulated
					Additional		from			Other
	Common Stock				Paid-in		Exercises			Comprehensive		Accumulated
	Shares		Amount		Capital		of Options			Income (Loss)		Deficit			Total
Balance at March 31, 2019		38,573,118	$	4	$	1,255,586	$	(11	)	$	20	$	(1,212,128	)	$	43,471
Stock-based compensation		—		—		15,440		—			—		—			15,440
Shares issued or restricted stock units vested under employee stock plans		165,589		—		183		11			—		—			194
Unrealized gain on available-for-sale securities		—		—		—		—			90		—			90
Net loss		—		—		—		—			—		(37,424	)		(37,424	)
Balance at June 30, 2019		38,738,707	$	4	$	1,271,209	$	—		$	110	$	(1,249,552	)	$	21,771

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2017

2016

2017

2016

Product Revenue, net
$
6,077

$
—

$
6,077

$
—

Operating costs and expenses:

     Cost of sales
$
1,526

$
—

$
1,526

$
—

     Selling, general and administrative

32,489

14,022

75,819

37,326

     Research and development

49,502

51,977

157,556

166,400

Total operating expense

83,517

65,999

234,901

203,726

Loss from operations

(77,440
)

(65,999
)

(228,824
)

(203,726
)
Other (expenses) income:

Interest income

305

214

1,035

756

Other (expenses) income

(45
)

4

(88
)

(380
)
Total other (expenses) income

260

218

947

376

Net loss
$
(77,180
)

$
(65,781
)

$
(227,877
)

$
(203,350
)
Net loss applicable to common stock
$
(77,180
)

$
(65,781
)

$
(227,877
)

$
(203,350
)
Net loss per common share—basic and diluted
$
(2.07
)

$
(2.02
)

$
(6.15
)

$
(6.26
)
Weighted-average common shares outstanding—basic and diluted

37,214,002

32,497,168

37,046,765

32,489,584

							Receivables		Accumulated
					Additional		from		Other
	Common Stock				Paid-in		Exercises		Comprehensive			Accumulated
	Shares		Amount		Capital		of Options		Income (Loss)			Deficit			Total
Balance at December 31, 2019		39,203,304	$	4	$	1,295,033	$	—	$	62		$	(1,277,636	)	$	17,463
Stock-based compensation		—		—		19,537		—		—			—			19,537
Shares issued or restricted stock units vested under employee stock plans		423,613		—		2		—		—			—			2
Reclassification of gain on available-for-sale securities		—		—		—		—		3			—			3
Unrealized loss on available- for-sale securities		—		—		—		—		(64	)		—			(64	)
Net loss		—		—		—		—		—			(13,538	)		(13,538	)
Balance at June 30, 2020		39,626,917	$	4	$	1,314,572	$	—	$	1		$	(1,291,174	)	$	23,403

For the Six Months Ended June 30, 2019
							Receivables		Accumulated
					Additional		from		Other
	Common Stock				Paid-in		Exercises		Comprehensive			Accumulated
	Shares		Amount		Capital		of Options		Income (Loss)			Deficit			Total
Balance at December 31, 2018		38,325,037	$	4	$	1,236,355	$	—	$	(12	)	$	(1,202,041	)	$	34,306
Stock-based compensation		—		—		33,578		—		—			—			33,578
Shares issued or restricted stock units vested under employee stock plans		413,670		—		1,276		—		—			—			1,276
Unrealized gain on available-for-sale securities		—		—		—		—		122			—			122
Net loss		—		—		—		—		—			(47,511	)		(47,511	)
Balance at June 30, 2019		38,738,707	$	4	$	1,271,209	$	—	$	110		$	(1,249,552	)	$	21,771

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2017

2016

2017

2016

Net loss
$
(77,180
)

$
(65,781
)

$
(227,877
)

$
(203,350
)
Other comprehensive income (loss)

Unrealized gain (loss) on available-for-sale
securities

18

(28
)

6

150

Comprehensive loss
$
(77,162
)

$
(65,809
)

$
(227,871
)

$
(203,200
)

	For the Six Months Ended June 30,
	2020			2019
Operating activities:
Net loss	$	(13,538	)	$	(47,511	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		4,153			4,235
Stock-based compensation		19,537			33,578
Disposal of property and equipment		—			54
Loss on debt extinguishment		—			8,047
Changes in operating assets and liabilities:
Accounts receivable, net		4,909			(4,573	)
Inventory, net		279			(635	)
Prepaid expenses and other		(119	)		2,258
Other current assets		(3,103	)		1,457
Accounts payable		(7,416	)		(5,613	)
Accrued expenses		155			27,820
Deferred rent		(44	)		—
Post-marketing commitment liability		(125	)		9,000
Net cash provided by operating activities		4,688			28,117
Investing activities:
Purchase of property and equipment		(12	)		—
Purchase of available-for-sale securities		(16,376	)		(127,974	)
Sale of available-for-sale securities		—			28,135
Maturity of available-for-sale securities		51,546			66,462
Purchase of intangible assets		(10,000	)		—
Net cash provided by (used in) investing activities		25,158			(33,377	)
Financing activities:
Net proceeds from shares issued under employee stock plans		2			1,276
Proceeds from debt		8,444			25,000
Payment of debt		(8,444	)		(80,000	)
Payment of debt extinguishment costs		—			(7,793	)
Payment of debt issuance costs		—			(5,625	)
Net cash provided by (used in) financing activities		2			(67,142	)
Net increase (decrease) in cash, cash equivalents and restricted cash		29,848			(72,402	)
Cash, cash equivalents and restricted cash, beginning of period		73,210			112,738
Cash, cash equivalents and restricted cash, end of period	$	103,058		$	40,336


Supplemental disclosures of non-cash investing and financing activities:
Intangibles in accrued expenses	$	30,000		$	—

Supplemental disclosure of cash flow information:
Interest paid	$	4,721		$	7,914

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

Receivables

Accumulated

Additional

from

Other

Common Stock

Paid-in

the Exercises

Comprehensive

Accumulated

Shares

Amount

Capital

of Options

Loss

Deficit

Total

Balance at December 31, 2016

36,826,010

$
4

$
1,006,344

$
—

$
(13
)

$
(796,511
)

$
209,824

Stock-based compensation

—

—

83,213

—

—

—

83,213

Exercises of stock
options/issuances of RSUs

558,965

—

19,655

(5,653
)

—

—

14,002

Unrealized gain on available-for-
sale securities

—

—

—

—

6

—

6

Net loss

—

—

—

—

—

(227,877
)

(227,877
)
Balance at September 30, 2017

37,384,975

$
4

$
1,109,212

$
(5,653
)

$
(7
)

$
(1,024,388
)

$
79,168

~~See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements~~

For the Nine Months Ended

2017

2016

Operating activities:

Net loss

$
(227,877
)

$
(203,350
)
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

1,451

565

Built-out allowance received from landlord

—

2,997

Stock-based compensation

83,213

87,990

Disposal of leasehold improvements

—

368

Changes in operating assets and liabilities:

Accounts receivable, net

(3,890
)

—

Inventory

(89
)

—

Other receivables

—

(1,179
)
Prepaid expenses and other

712

2,832

Intangible assets, net

—

Accounts payable

(2,496
)

3,075

Accrued expenses

12,182

2,082

Accrual of deferred rent

(67
)

3,891

Net cash used in operating activities

(136,861
)

(100,729
)
Investing activities:

Purchase of property and equipment

(286
)

(3,730
)
Restricted cash

—

(3
)
Expenditures for leasehold improvements

—

(2,997
)
Purchase of available-for-sale securities

(79,728
)

(81,794
)
Sale/maturity of available-for-sale securities

88,096

209,874

Net cash provided by investing activities

8,082

121,350

Financing activities:

Net proceeds from the exercise of options

14,002

351

Net cash provided by financing activities

14,002

351

Net (decrease) increase in cash and cash equivalents

(114,777
)

20,972

Cash and cash equivalents, beginning of period

194,494

31,569

Cash and cash equivalents, end of period

$
79,717

$
52,541

Supplemental disclosures of non-cash investing and financing activities:

Property and equipment purchases in accounts payable

$
105

$
—

Licensor fee due in accrued expenses

$
50,000

$
—

Receivables related to stock option exercises

$
5,653

$
—

~~See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements~~

Puma Biotechnology, Inc., or ~~Puma,~~the Company, is a biopharmaceutical company based in Los Angeles, California with a focus on the development and commercialization of innovative products to enhance cancer care. The Company in-licenses from Pfizer, Inc., or Pfizer, the global development and commercialization rights to ~~three drug candidates—~~PB272 (neratinib ~~(oral))~~oral), PB272 (neratinib, ~~(intravenous))~~intravenous) and ~~PB357.~~PB357, as well as certain related compounds. Neratinib is a potent irreversible tyrosine kinase inhibitor that blocks signal transduction through the epidermal growth factor receptors HER1, HER2 and HER4. Currently, the Company is primarily focused on the development and commercialization of the oral version of neratinib, and its most advanced drug candidates are directed at the treatment of HER2-positive breast ~~cancer.~~cancer and HER2 mutated cancers. The Company believes that neratinib has clinical application in the treatment of several other cancers as well, including ~~non-small cell lung cancer and~~ other tumor types that over-express or have a mutation in ~~HER2.~~HER2, such as breast cancer, cervical cancer, lung cancer or other solid tumors.

~~In November 2012, the~~The Company ~~established and incorporated~~has 2 subsidiaries, Puma Biotechnology Ltd., a ~~wholly owned subsidiary,~~United Kingdom company, and Puma Biotechnology, B.V., a Netherlands company. These subsidiaries were established for the ~~sole~~ purpose of ~~serving as Puma’s~~ legal ~~representative~~representation in the United Kingdom and the European ~~Union in connection with Puma’s clinical trial activity in those countries.~~Union.

The Company is focused on developing and commercializing neratinib for the treatment of patients with human epidermal growth factor receptor type 2, or HER2-positive, breast cancer, HER2 mutated non-small cell lung cancer, HER2-negative breast cancer that has ~~a HER2 mutation and other solid tumors that have an activating mutation in HER2.~~incurred significant operating losses since its inception. The Company has reported a net loss of approximately $77.2 million and $227.9 million for the three and nine months ended September 30, 2017, and negative cash flows from operations of approximately $136.9 million for the nine months ended September 30, 2017. Management believes that ~~the Company~~it will continue to incur net losses and may incur negative net cash flows from operating activities through the drug development process and ~~early~~global commercialization.

The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC, for interim financial information. Accordingly, the unaudited condensed consolidated financial statements do not include all information and footnotes required by GAAP for complete annual financial statements. In the opinion of management, the accompanying unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation. Interim operating results are not necessarily indicative of results that may be expected for the year ending December 31, 2017, or for any subsequent period. These unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The condensed consolidated balance sheet at December 31, 2016 has been derived from the audited consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

~~The Company has incurred significant operating losses since its inception, which raises substantial doubt about its ability to continue as a going concern. On July 17,~~ 2017, the Company received U.S. Food and Drug Administration, or FDA, approval for its first product, NERLYNX® (neratinib), formerly known as PB272 (neratinib (oral)), for the extended adjuvant treatment of adult patients with early stage HER2-overexpressed/amplified breast cancer following adjuvant trastuzumab-based therapy. Following FDA approval in July 2017, NERLYNX ~~recently~~ became available by prescription in the United States, and the Company ~~has~~ commenced commercialization. ~~The Company is exploring methods~~

In February 2020, NERLYNX was also approved by ~~which to commercially launch neratinib~~the FDA 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.

In 2018, the European Commission, or EC, granted marketing authorization for NERLYNX in the European Union ~~should~~for the extended adjuvant treatment of adult patients with early stage hormone receptor positive HER2-overexpressed/amplified breast cancer and who are less than one year from the completion of prior adjuvant trastuzumab-based therapy.

The Company is required to make substantial payments to Pfizer upon the achievement of certain milestones and has contractual obligations for clinical trial contracts.

The Company has entered into other exclusive sub-license agreements with various parties to pursue regulatory approval, ~~be granted by the European Medicines Agency, or EMA. Commercialization~~if necessary, and commercialize NERLYNX, if approved, in numerous regions outside the United States, including Europe (excluding Russia and Ukraine), Canada, China, Southeast Asia, Israel, Mexico, South Korea, and various countries and territories in Central and South America. The Company plans to continue to pursue commercialization of NERLYNX in other countries outside the United States, if ~~approved, in~~approved.

The Company has reported net income of approximately $3.4 million and a net loss of approximately $13.5 million for the ~~European Union,~~three and six months ended June 30, 2020, and cash flows from operations of approximately $4.7 million for the six months ended June 30, 2020. The Company’s commercialization, research and development or marketing efforts may require funding in addition to the cash and cash equivalents totaling approximately $90.9 million and marketable securities totaling approximately ~~$106.3~~$16.4 million available at ~~September~~June 30, ~~2017. While~~2020. The Company believes that its existing cash and cash equivalents and marketable securities as of June 30, 2020 and proceeds that will become available to the ~~consolidated~~Company through product sales and sub-license payments are sufficient to satisfy its operating cash and needs for at least one year after the filing of the Quarterly Report on Form 10-Q in which these financial statements ~~have been prepared on a going concern basis, the~~are included. The Company continues to remain dependent on its ability to obtain sufficient funding to sustain operations and continue to successfully commercialize neratinib in the United ~~States, and, if approved, launch in the European Union.~~States. While the Company has been successful in raising ~~financing~~capital in the past, there can be no assurance that it will be able to do so in the future. The Company’s ability to obtain funding may be adversely impacted by uncertain market conditions, the Company’s success in commercializing neratinib, unfavorable decisions of regulatory authorities or adverse clinical trial results. The outcome of these matters cannot be predicted at this time. ~~The~~Additionally, the terms of the Company’s ~~continued operations will depend~~loan and security agreement place restrictions on ~~its~~the Company’s ability to ~~successfully commercialize NERLYNX,~~operate the business and on the Company’s ~~only product,~~financial flexibility, and the Company may be unable to ~~raise funds through various potential sources, such as equity and debt financing.~~achieve the revenue necessary to satisfy the minimum revenue covenants.

Since its inception through ~~September~~June 30, ~~2017,~~2020, the Company’s financing ~~was~~has primarily ~~through~~been proceeds from product and license revenue, public offerings ~~of Company common stock and private equity placements. The Company sold shares~~ of its common stock, ~~through an underwritten public offering~~private equity placements, and borrowings under its loan and security agreement.

in October 2016 (see Note 6 to the Annual Report on Form 10-K for the year ended December 31, 2016). As a result, the Company received net proceeds of approximately $161.9 million. The Company may need additional financing before it can achieve profitability, if ever. There can be no assurance that additional capital will be available on favorable terms or at all or that any additional capital that the Company is able to obtain will be sufficient to meet its needs. If it is unable to raise additional capital, the Company could likely be forced to curtail desired development activities, which will delay the development of its product candidates.

The significant accounting policies followed in the preparation of these unaudited ~~condensed~~ consolidated financial statements are as follows:

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Management has determined that the Company operates in 1 business segment, which is the development and commercialization of innovative products to enhance cancer care.

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the balance sheet, and reported amounts of revenues and expenses for the period presented. Accordingly, actual results could differ from those estimates.

Significant estimates include estimates for variable consideration for which reserves were established. These estimates are included in the calculation of net revenues and include trade discounts and allowances, product returns, provider chargebacks and discounts, government rebates, payor rebates, and other incentives, such as voluntary patient assistance, and other allowances that are offered within contracts between the Company and its customers, payors, and other indirect customers relating to the Company’s sale of its products.

Basic net income (loss) per share of common stock is computed by dividing net income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding during the periods presented, as required by Accounting Standards Codification, or ASC, 260, Earnings per Share. For purposes of calculating diluted net income (loss) per share of common stock, the denominator includes both the weighted-average number of shares of common stock outstanding and the number of dilutive common stock equivalents, such as stock options, restricted stock units, or RSUs, and warrants. A common stock equivalent is not included in the denominator when calculating diluted earnings per common share if the effect of such common stock equivalent would be anti-dilutive and a net loss is reported. For the three months ended June 30, 2020, potentially dilutive securities excluded from the calculations were 4,930,672 shares issuable upon exercise of options, 2,116,250 shares issuable upon exercise of a warrant, and 1,290,442 shares underlying RSUs that were subject to vesting and were anti-dilutive. For the six months ended June 30, 2020, potentially dilutive securities excluded from the calculations were 5,172,638 shares issuable upon exercise of options, 2,116,250 shares issuable upon exercise of a warrant, and 2,316,621 shares underlying RSUs that were subject to vesting and were antidilutive. For the three and six months ended June 30, 2019, potentially dilutive securities excluded from the calculations were 5,291,407 shares issuable upon exercise of options, 2,116,250 shares issuable upon exercise of a warrant, and 1,905,241 shares underlying RSUs that were subject to vesting and were antidilutive. The 2,116,250 shares underlying the warrant will not have an impact on our diluted net income (loss) per share until the average market price of our common stock exceeds the exercise price of $16 per share. Refer to Note 11 for further details about the warrant.

A reconciliation of the numerators and denominators of the basic and diluted net income (loss) per share of common stock computations is as follows (in thousands, except per share amounts):

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2020		2019			2020			2019
Numerator:
Net income (loss)	$	3,395	$	(37,424	)	$	(13,538	)	$	(47,511	)
Denominator:
Weighted average common stock outstanding for basic net income (loss) per share		39,432		38,648			39,362			38,565
Net effect of dilutive common stock equivalents		566		-			-			-
Weighted average common stock outstanding for diluted net income (loss) per share		39,998		38,648			39,362			38,565
Net income (loss) per share of common stock
Basic	$	0.09	$	(0.97	)	$	(0.34	)	$	(1.23	)
Diluted	$	0.08	$	(0.97	)	$	(0.34	)	$	(1.23	)

Under ASC Topic 606, Revenue from Contracts with Customers, or ASC 606, the Company recognizes revenue when its customer obtains control of the promised goods or services, in an amount that reflects the consideration which the entity expects to be entitled in exchange for those goods or services. The Company had no contracts with customers until the FDA approved NERLYNX on July 17, 2017. Subsequent to receiving FDA approval, the Company entered into a limited number of arrangements with specialty pharmacies and specialty distributors in the United States to distribute NERLYNX. These arrangements are the Company’s initial contracts with customers. The Company has determined that these sales channels with customers are similar.

The Company sells NERLYNX to a limited number of specialty pharmacies and specialty distributors in the United States. These customers subsequently resell the Company’s products to patients and certain medical centers or hospitals. In addition to distribution agreements with these customers, the Company enters into arrangements with health care providers and payors that provide for government mandated and/or privately negotiated rebates, chargebacks and discounts with respect to the purchase of the Company’s products.

The Company recognizes revenue on product sales when the specialty pharmacy or specialty distributor, as applicable, obtains control of the Company's product, which occurs at a point in time (upon delivery). Product revenue is recorded net of applicable reserves for variable consideration, including discounts and allowances. The Company’s payment terms range between 10 and 68 days.

Shipping and handling costs for product shipments occur prior to the customer obtaining control of the goods and are recorded in cost of sales.

If taxes should be collected from customers relating to product sales and remitted to governmental authorities, they will be excluded from revenue. The Company expenses incremental costs of obtaining a contract when incurred if the expected amortization period of the asset that the Company would have recognized is one year or less. However, 0 such costs were incurred during the six months ended June 30, 2020 and 2019.

Revenue from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, provider chargebacks and discounts, government rebates, payor rebates, and other incentives, such as voluntary patient assistance, and other allowances that are offered within contracts between the Company and its customers, payors, and other indirect customers relating to the Company’s sale of its products. These reserves, as detailed below, are based on the related sales, and are classified as reductions of accounts receivable, net or as a current liability. These estimates take into consideration a range of possible outcomes that are probability-weighted in accordance with the expected value method in ASC 606 for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts.

The amount of variable consideration that is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. The Company’s analyses also contemplated application of the constraint in accordance with the guidance, under which it determined a material reversal of revenue would not occur in a future period for the estimates detailed below as of June 30, 2020 and, therefore, the transaction price was not reduced further during the quarter ended June 30, 2020. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

The Company generally provides customers with discounts, which include incentive fees that are explicitly stated in the Company’s contracts and are recorded as a reduction of revenue in the period the related product revenue is recognized. The reserve for discounts is established in the same period that the related revenue is recognized, together with reductions to accounts receivables, net on the consolidated balance sheets. In addition, the Company compensates its customers for sales order management, data, and distribution services. The Company has determined such services received to date are not distinct from the Company’s sale of products to its customers and, therefore, these payments have been recorded as a reduction of revenue within the statements of operations.

Consistent with industry practice, the Company offers the specialty pharmacies and specialty distributors that are its customers limited product return rights for damaged and expiring product, provided it is within a specified period around the product expiration date as set forth in the applicable individual distribution agreement. The Company estimates the amount of its product sales that may be returned by its customers and records this estimate as a reduction of product revenue, net in the period the related product revenue is recognized, as well as a reduction to accounts receivables, net on the consolidated balance sheets. The Company currently estimates product returns using its own sales information, including its visibility into the inventory remaining in the distribution channel. The Company has an insignificant amount of returns to date and believes that returns of its products will continue to be minimal.

Chargebacks for fees and discounts to providers represent the estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices charged to its customers who directly purchase the product from the Company. Customers charge the Company for the difference between what they pay for the product and the ultimate selling price to the qualified healthcare providers. The reserve for chargebacks is established in the same period the related revenue is recognized, resulting in a reduction of product revenue, net and a reduction to accounts receivable, net on the consolidated balance sheets. Chargeback amounts are generally determined at the time of resale to the qualified healthcare provider by customers, and the Company generally issues credits for such amounts within a few weeks of the customer’s notification to the Company of the resale. Chargebacks consist of credits the Company expects to issue for units that remain in the distribution channel at each reporting period-end that the Company expects will be sold to qualified healthcare providers and chargebacks that customers have claimed, but for which the Company has not yet issued a payment.

The Company is subject to discount obligations under state Medicaid programs and Medicare. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue, net and the establishment of a current liability, which is included in accrued expenses on the consolidated balance sheets. The Company’s liability for these rebates consists of invoices received for claims from prior quarters that have not been paid or for which an invoice has not yet been received, estimates of claims for the current quarter, and estimates of future claims that will be made for product that has been recognized as revenue, but which remains in the distribution channel at the end of each reporting period.

The Company contracts with certain private payor organizations, primarily insurance companies and pharmacy benefit managers, for the payment of rebates with respect to utilization of its products. The Company estimates these rebates and records such estimates in the same period the related revenue is recognized, resulting in a reduction of product revenue, net and the establishment of a current liability, which is included in accrued expenses on the consolidated balance sheets.

Other incentives the Company offers include voluntary patient assistance programs, such as the co-pay assistance program, which are intended to provide financial assistance to qualified commercially-insured patients with prescription drug co-payments required by payors. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that the Company expects to receive associated with product that has been recognized as revenue, but remains in the distribution channel at the end of each reporting period. The adjustments are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability, which is included as a component of accrued expenses on the consolidated balance sheets.

The Company also recognizes license revenue under certain of the Company’s sub-license agreements that are within the scope of ASC 606. The terms of these agreements may contain multiple performance obligations, which may include licenses and research and development activities. The Company evaluates these agreements under ASC 606 to determine the distinct performance obligations. Non-refundable, upfront fees that are not contingent on any future performance and require no consequential continuing involvement by the Company, are recognized as revenue when the license term commences and the licensed data, technology or product is delivered. The Company defers recognition of non-refundable upfront license fees if the performance obligations are not satisfied.

Prior to recognizing revenue, the Company makes estimates of the transaction price, including variable consideration that is subject to a constraint. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and when the uncertainty associated with the variable consideration is subsequently resolved.

If there are multiple distinct performance obligations, the Company allocates the transaction price to each distinct performance obligation based on its relative standalone selling price. The standalone selling price is generally determined based on the prices charged to customers or using expected cost-plus margin. Revenue is recognized by measuring the progress toward complete satisfaction of the performance obligations using an input measure.

During the second quarter of 2020, the Company entered into a sub-license agreement, or the Bixink Agreement, with Bixink Therapeutics Co., Ltd., or Bixink. The Bixink Agreement granted intellectual property rights and set forth the respective obligations with respect to development, commercialization and supply of NERLYNX in South Korea, or the Bixink Territory. Pursuant to the Bixink Agreement, the Company received and recognized as license revenue an upfront payment of $0.5 million during the second quarter of 2020. As of June 30, 2020, the Bixink Agreement includes potential milestone payments due to the Company upon successful completion of certain performance obligations, such as achieving regulatory approvals, which would entitle the Company to receive payments totaling approximately $5.5 million if all respective performance obligations are achieved. In addition, the Company is entitled to receive double-digit royalties on sales of licensed products, calculated as a percentage of net sales of licensed products throughout the Bixink Territory. At this time, the Company cannot estimate if or when these milestone-related performance obligations might be achieved.

During the first quarter of 2018, the Company entered into a sub-license agreement, or the CANbridge Agreement, with CANbridge Limited, or CANbridge, to pursue regulatory approval and commercialize NERLYNX, if approved, in the People’s Republic of China (including mainland China, Hong Kong, Macao, and Taiwan), or the CANbridge Territory. The CANbridge Agreement granted intellectual property rights and set forth the parties’ respective obligations with respect to development, commercialization and supply of the licensed product. Pursuant to the CANbridge Agreement, as of June 30, 2020, the potential milestone payments due to the Company upon successful completion of certain performance obligations total approximately $195.0 million if all respective performance obligations are achieved. During the second quarter of 2020, the Company achieved a development-based milestone, which satisfied a performance obligation necessary to recognize the associated $20.0 million in license revenue.In addition, the Company is entitled to receive double-digit royalties on sales of licensed products, calculated as a percentage of net sales of licensed products in the CANbridge Territory. On July 28, 2020, the Company filed a request for arbitration against CANbridge asserting that CANbridge breached, or alternatively is in anticipatory breach of, this agreement; that CANbridge’s conduct constitutes grounds for termination of the agreement; that CANbridge has failed to use commercially reasonable efforts to commercialize NERLYNX as required under the agreement; and that CANbridge must obtain the Company’s consent before transferring the agreement to a third party, subject to certain limitations that do not currently apply. At this time, the Company cannot estimate if or when these remaining milestone-related performance obligations might be achieved or affected by the arbitration.

During the first quarter of 2018, the Company entered into a sub-license agreement, or the Medison Agreement, with Medison Pharma Ltd., or Medison. Pursuant to the Medison Agreement, the Company granted to Medison, under certain of the Company’s intellectual property rights relating to neratinib, an exclusive license to commercialize neratinib and certain related compounds and participate in the named patient supply in Israel, or the Medison Territory, subject to the terms of the Medison Agreement and the related supply agreement. Pursuant to the Medison Agreement, as of June 30, 2020, the potential milestone payments due to the Company upon successful completion of certain separate, distinct performance obligations total approximately $0.3 million if all respective performance obligations are achieved.During the second quarter of 2020, the Company achieved a certain development-based milestone, which satisfied performance obligations necessary to recognize the associated $0.2 million in license revenue. The payment associated with this license revenue is included in accounts receivable, net on the consolidated balance sheet as of June 30, 2020. In addition, the Company is entitled to receive double-digit royalties on sales of licensed products, calculated as a percentage of net sales of licensed products in the Medison Territory.At this time, the Company cannot estimate if or when the remaining milestone-related performance obligations might be achieved.

During the first quarter of 2018, the Company entered into a sub-license agreement, or the Pint Agreement, with Pint Pharma International SA, or Pint. The Pint Agreement granted intellectual property rights and set forth the respective obligations with respect to development, commercialization and supply of NERLYNX in Mexico and 21 countries and territories in Central and South America, or the Pint Territory. Pursuant to the Pint Agreement, as of June 30, 2020, the potential milestone payments due to the Company upon successful completion of certain performance obligations, such as achieving regulatory approvals, total approximately $20.0 million if all respective performance obligations are achieved. During the third quarter of 2019, the Company achieved a development-based milestone, which satisfied a performance obligation necessary to recognize the associated license revenue. The $2.5 million associated with this license revenue for the milestone met in the third quarter of 2019 is included in accounts receivable, net on the consolidated balance sheet as of June 30, 2020. In addition, the Company is entitled to receive double-digit royalties on sales of licensed products, calculated as a percentage of net sales of licensed products throughout the Pint Territory. At this time, the Company cannot estimate if or when the remaining milestone-related performance obligations might be achieved.

During the first quarter of 2019, the Company entered into a sub-license agreement, or the Knight Agreement, with Knight Therapeutics, Inc., or Knight. The Knight Agreement, granted to Knight an exclusive, sublicensable (under certain circumstances) license (i) to commercialize any product containing neratinib and certain related compounds in Canada, or the Knight Territory, (ii) to seek and maintain regulatory approvals for the licensed products in the Knight Territory and (iii) to manufacture the licensed products anywhere in the world solely for the development and commercialization of the licensed products in the Knight Territory for human use. Pursuant to the Knight Agreement, as of June 30, 2020, the potential milestone payments due to the Company upon successful completion of certain regulatory and commercial milestones total approximately $5.4 million. In addition, the Company is entitled to receive double-digit royalties on sales of licensed products, calculated as a percentage of net sales of licensed products in the Knight Territory. At this time, the Company cannot estimate if or when the remaining milestone-related performance obligations might be achieved.

During the first quarter of 2019, the Company entered into a sub-license agreement, or the Pierre Fabre Agreement, with Pierre Fabre Medicament SAS, or Pierre Fabre. The Pierre Fabre Agreement granted intellectual property rights and set forth the parties’ respective obligations with respect to development, commercialization and supply of any pharmaceutical product containing neratinib in European countries excluding Russia and Ukraine, along with countries in North Africa and francophone countries of West Africa, or the Pierre Fabre Territory. During the fourth quarter of 2019, the Company entered into a license amendment, or the Pierre Fabre Amendment, with Pierre Fabre to extend the terms of the Pierre Fabre Agreement to the Middle East, South Africa, Sudan and Turkey, or the Pierre Fabre Amendment Territory. Pursuant to the Pierre Fabre Agreement and Pierre Fabre Amendment, as of June 30, 2020, the potential milestone payments due to the Company upon successful completion of certain regulatory and sales-based milestones total approximately $348.0 million. In addition, the Company is entitled to receive double-digit royalties on sales of licensed products throughout the Pierre Fabre Territory and the Pierre Fabre Amendment Territory. At this time, the Company cannot estimate if or when the remaining milestone-related performance obligations might be achieved.

Royalty revenue consists of consideration earned related to international sales of NERLYNX made by the Company’s sub-licensees in their respective territories. The Company recognizes royalty revenue when the performance obligations have been satisfied.

Royalties incurred in connection with the Company’s license agreement with Pfizer, as disclosed in Note 13—Commitments and Contingencies, are expensed to cost of ~~services provided by consultants who manage~~sales as revenue from product sales is recognized.

Research and development expenses, or R&D, are charged to operations as incurred. The major components of R&D include clinical manufacturing costs, clinical trial expenses, consulting and other third-party costs, salaries and employee benefits, stock-based compensation expense, supplies and materials, and allocations of various overhead costs. Clinical trial expenses include, but are not limited to, investigator fees, site costs, comparator drug costs, and clinical research organization, or CRO, costs. In the normal course of business, the Company contracts with third parties to perform various clinical trial activities in the ongoing development of potential products. The financial terms of these agreements are subject to negotiation and variations from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events, the successful enrollment of patients and the completion of portions of the clinical trial or similar conditions. The Company’s accruals for clinical trials ~~and conduct research and clinical trials~~are based on ~~behalf~~estimates of the ~~Company that are billed on a delayed basis.~~services received and efforts expended pursuant to contracts with numerous clinical trial sites, cooperative groups and CROs. As ~~the~~ actual costs become known, the Company adjusts its ~~estimated cost~~accruals in that period. ~~The~~

In instances where the Company enters into agreements with third parties for clinical trials and other consulting activities, upfront amounts are recorded to prepaid expenses and other in the accompanying consolidated balance sheets and expensed as services are performed or as the underlying goods are delivered. If the Company does not expect the services to be rendered or goods to be delivered, any remaining capitalized amounts for non-refundable upfront payments are charged to expense immediately. Amounts due under such arrangements may be either fixed fee or fee for service, and may include upfront payments, monthly payments and payments upon the completion of milestones or receipt of deliverables.

Costs related to the acquisition of technology rights and patents for which development work is still in process are charged to operations as incurred and considered a component of research and development costs.

ASC Topic 718, Compensation-Stock Compensation, or ASC 718, requires the fair value of all share-based payments to employees and nonemployees, including grants of stock options, to be recognized in the statement of operations over the requisite service period. Under ASC 718, employee and nonemployee option grants are generally valued at the grant date and those valuations do not change once they have been established. The fair value of each option award is estimated on the grant date using the Black-Scholes Option Pricing Method. As allowed by ASC 718, the Company’s estimate of expected volatility is based on its average volatilities using its past six years of publicly traded history. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant valuation. Option forfeitures are estimated when the option is granted to reduce the option expense to be recognized over the life of the award. The estimated forfeiture rate considers historical employee turnover rates stratified into employee pools, actual forfeiture experience and other factors. The option expense is adjusted upon the actual forfeiture of a stock option grant and the Company periodically revises the estimated forfeiture rate in subsequent periods if actual forfeitures differ from those estimates. Due to its limited history of stock option exercises, the Company uses the simplified method to determine the expected life of the option grants. Compensation expense related to modified stock options is measured based on the fair value for the awards as of the modification date. Any incremental compensation expense arising from the excess of the fair value of the awards on the modification date compared to the fair value of the awards immediately before the modification date is recognized at the modification date or ratably over the requisite service period, as appropriate.

RSUs are valued on the grant date and the fair value of the RSUs is equal to the market price of the Company’s common stock on the grant date. The RSU expense is recognized over the requisite service period. When the requisite service period begins prior to the grant date (because the service inception date occurs prior to the grant date), the Company is required to begin recognizing compensation cost before there is a measurement date (i.e., the grant date). The service inception date is the beginning of the requisite service period. If the service inception date precedes the grant date, accrual of compensation cost for periods before the grant date shall be based on the fair value of the award at the reporting date. In the period in which the grant date occurs, cumulative compensation cost shall be adjusted to reflect the cumulative effect of measuring compensation cost based on fair value at the grant date rather than the fair value previously used at the service inception date (or any subsequent reporting date). RSU forfeitures are estimated when the RSU is granted to reduce the RSU expense to be recognized over the life of the award. The estimated forfeiture rate considers historical employee turnover rates stratified into employee pools, actual forfeiture experience and other factors. The RSU expense is adjusted upon the actual forfeiture of an RSU grant and the Company periodically revises the estimated forfeiture rate in subsequent periods if actual forfeitures differ from those estimates. Compensation expense related to modified restricted stock units is measured based on the fair value for the awards as of the modification date. Any incremental compensation expense arising from the excess of the fair value of the awards on the modification date compared to the fair value of the awards immediately before the modification date is recognized at the modification date or ratably over the requisite service period, as appropriate.

Warrants (refer to Note 11 for further details) granted to employees and nonemployees are normally valued at the fair value of the instrument on the grant date and are recognized in the statement of operations over the requisite service period. When the requisite service period precedes the grant date and a market condition exists in the warrant, the Company values the warrant using the Monte Carlo Simulation Method. When the terms of the warrant become fixed, the Company values the warrant using the Black-Scholes Option Pricing Method. As allowed by ASC 718, the Company’s estimate of expected volatility is based on its average volatilities using its past six years of publicly traded history. The risk-free rate for periods within the contractual life of the warrant is based on the U.S. Treasury yield curve in effect at the time of grant valuation. In determining the value of the warrant until the terms are fixed, the Company factors in the probability of the market condition occurring and several possible scenarios. When the requisite service period precedes the grant date and is deemed to be complete, the Company records the fair value of the warrant at the time of issuance as an equity stock-based compensation ~~includes estimates based on future events, which~~transaction. The grant date is determined when all pertinent information, such as exercise price and quantity are ~~difficult to predict. It is at least reasonably possible that a change in the estimates used to record accrued expenses and to value the stock-based compensation will occur in the near term.~~known.

The ~~unaudited condensed~~Company follows ASC Topic 740, Income Taxes, or ASC 740, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements ~~include~~or tax returns. Under this method, deferred tax assets and liabilities are based on the ~~accounts~~differences between the consolidated financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the asset will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The standard addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of the ~~Company~~position. The tax benefits recognized in the consolidated financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of June 30, 2020, the Company’s uncertain tax position reserves include a reserve for its ~~wholly owned subsidiary. All intercompany balances~~R&D credits.

The carrying value of financial instruments, such as cash equivalents, accounts receivable and ~~transactions have been eliminated in consolidation.~~accounts payable, approximate their fair value because of their short-term nature. The carrying value of long-term debt approximates its fair value as the principal amounts outstanding are subject to variable interest rates that are based on market rates which are regularly reset.

The Company ~~considers~~classifies all highly liquid ~~investments~~instruments with an original ~~maturities~~maturity of three months or less ~~to be~~as cash equivalents. ~~Cash equivalents are carried~~

Restricted cash represents cash held at ~~cost, which approximates fair value.~~financial institutions that is pledged as collateral for stand-by letters of credit for lease and legal verdict commitments. The lease-related letters of credit will lapse at the end of the respective lease terms through 2026. At June 30, 2020 and December 31, 2019, the Company had restricted cash in the amount of $12.2 million and $13.2 million, respectively.

The Company classifies all investment securities ~~(short term)~~(short-term and long-term) as available-for-sale, as the sale of such securities may be required prior to maturity to implement management’s strategies. These securities are carried at fair value, with the unrealized gains and losses reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity until realized. Realized gains and losses from the sale of available-for-sale securities, if any, are determined on a specific identification basis. A decline in the market value of any available-for-sale security below cost that is determined to be other than temporary results in athe revaluation of its carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established.

~~Accounts receivable~~ Premiums and discounts are recorded net of customer allowances for distribution fees, prompt payment discounts, chargebacks, and doubtful accounts. Allowances for distribution fees, prompt payment discounts and chargebacks are based on contractual terms. The Company estimates the allowance for doubtful accounts based on existing contractual payment terms, actual payment patterns of its customers and individual customer circumstances. At September 30, 2017, the Company determined that an allowance for doubtful accounts was not required. No accounts were written off during the periods presented.

The Company expenses amounts paid to acquire licenses associated with products under development when the ultimate recoverability of the amounts paid is uncertain and the technology has no alternative future use when acquired. Acquisitions of technology licenses are charged to expenseamortized or capitalized based upon the asset achieving technological feasibility in accordance with management’s assessment regarding the ultimate recoverability of the amounts paid and the potential for alternative future use. The Company has determined that technological feasibility for its product candidates is reached when the requisite regulatory approvals are obtained to make the product available for sale. The Company capitalizes technology licenses upon reaching technological feasibility.

In connection with the FDA approval of NERLYNX in July 2017, the Company triggered a one-time milestone payment pursuant to its 2014 license agreement with Pfizer Inc., or the Licensor. The Company capitalized the milestone payment as an intangible asset and is amortizing the asset on a straight-line basisaccreted over the ~~estimated useful~~ life of the ~~licensed patent through 2030. The Company recorded amortization expense~~ related security as an adjustment to its intangible asset of $0.6 million for the three months ended September 30, 2017. As of September 30, 2017, estimated future amortization expense related to the Company’s intangible asset was $1.0 million for the remainder of 2017, approximately $3.9 million for each year starting 2018 through 2029, and $1.0 million for 2030.

Royalties incurred in connection with the Company’s license agreement with the Licensor, as disclosed in Note 9-Commitments and Contingencies, are expensed to cost of sales as revenue from product sales is recognized.

The Company maintains definite-lived intangible assets related to the Licensor agreement. These assets are amortized over their remaining useful lives, which are estimated based on the shorter of the remaining patent life or the estimated useful life of the underlying product. Intangible assets are amortizedyield using the ~~economic consumption method if anticipated future revenues can be reasonably estimated. The~~ straight-line ~~method is used when future revenues cannot be reasonably estimated.~~

The Company values its inventories at the lower of cost or estimated net realizable value. The Company determines the cost of its inventories, which includes amounts related to materials and manufacturing overhead, on a first-in, first-out basis. The Company performs an assessment of the recoverability of capitalized inventory during each reporting period, and it writes down any excess and obsolete inventories to their estimated realizable value in the period in which the impairment is first identified. Such impairment charges, should they occur, are recorded within the cost of sales. The determination of whether inventory costs will be realizable requires estimates by management. If actual market conditions are less favorable than projected by management, additional write-downs of inventory may be required, which would be recorded as a cost of sales in the consolidated statements of operations and comprehensive loss.

The Company capitalizes inventory costs associated with the Company’s products after regulatory approval, if any, when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized. Inventory acquired prior to receipt of marketing approval of a product candidate is expensed as research and development expense as incurred. Inventory that can be used in either the production of clinical or commercial product is expensed as research and development expense when selected for use in a clinical trial. Starter kits, provided to patients prior to insurance approval, are expensed by the Company to sales and marketing expense as incurred.

The Company adopted Accounting Standards Codification (“ASC”) Topic 606 - Revenue from Contracts with Customers (“Topic 606”) on January 1, 2017. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements, and financial instruments. Under Topic 606, an entity recognizes revenue when its customer obtains control of the promised goods or services, in an amount that reflects the consideration which the entity expects to be entitled in exchange for those goods or services. The Company had no contracts with customers until the FDA approved NERLYNX on July 17, 2017. Subsequent to receiving FDA approval, the Company entered into a limited number of arrangements with specialty pharmacies (“SPs”) and specialty distributors (“SDs”) in the U.S. (collectively, its “Customers”) to distribute NERLYNX. These arrangements are the Company’s initial contracts with customers. The Company has determined that these sales channels with customers are similar.

(iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to arrangements that meet the definition of a contract under Topic 606, including when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. For a complete discussion of accounting for product revenue, see ~~Product Revenue, Net~~ ~~(below).~~

The Company sells NERLYNX to a limited number of SPs and SDs in the U.S. (collectively, its “Customers”). These Customers subsequently resell the Company’s products to patients and certain medical centers or hospitals. In addition to distribution agreements with Customers, the Company enters into arrangements with health care providers and payors that provide for government mandated and/or privately negotiated rebates, chargebacks, and discounts with respect to the purchase of the Company’s products.

The Company recognizes revenue on product sales when the Customer obtains control of the Company's product, which occurs at a point in time (upon delivery). Product revenue is recorded net of applicable reserves for variable consideration, including discounts and allowances. The Company’s payment terms range between 10 and 60 days.

~~Shipping and handling costs for product shipments occur prior to the customer obtaining control of the goods, and are recorded in cost of sales.~~

If taxes should be collected from Customers relating to product sales and remitted to governmental authorities, they will be excluded from revenue. The Company expenses incremental costs of obtaining a contract when incurred, if the expected amortization period of the asset that the Company would have recognized is one year or less. However, no such costs were incurred during the three months ended September 30, 2017.

Revenue from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, provider chargebacks and discounts, government rebates, payor rebates, and other incentives, such as voluntary patient assistance, and other allowances that are offered within contracts between the Company and its Customers, payors, and other indirect customers relating to the Company’s sale of its products. These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales, and are classified as reductions of accounts receivable (if the amount is payable to the Customer) or a current liability (if the amount is payable to a party other than a Customer). These estimates take into consideration a range of possible outcomes which are probability-weighted in accordance with the expected value method in Topic 606 for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts.

The amount of variable consideration which is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. The Company’s analyses also contemplated application of the constraint in accordance with the guidance, under which it determined a material reversal of revenue would not occur in a future period for the estimates detailed below as of September 30, 2017 and, therefore, the transaction price was not reduced further during the three months ended September 30, 2017. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

The Company generally provides Customers with discounts which include incentive fees that are explicitly stated in the Company’s contracts and are recorded as a reduction of revenue in the period the related product revenue is recognized. In addition, the Company compensates (through trade discounts and allowances) its Customers for sales order management, data, and distribution services. However, the Company has determined such services received to date are not distinct from the Company’s sale of products to the Customer and, therefore, these payments have been recorded as a reduction of revenue within the statement of operations and

~~comprehensive loss through September 30, 2017, as well as a reduction to trade receivables, net on the condensed consolidated balance sheets.~~

Consistent with industry practice, the Company offers the SPs and SDs limited product return rights for damages and expiring product, provided it is within a specified period around the product expiration date as set forth in the applicable individual distribution agreement. The Company estimates the amount of its product sales that may be returned by its Customers and records this estimate as a reduction of revenue in the period the related product revenuemethod. Interest income is recognized as well as reductions to trade receivables, net on the condensed consolidated balance sheets. The Company currently estimates product return liabilities using available industry data and its own sales information, including its visibility into the inventory remaining in the distribution channel. The Company has not received any returns to date and believes that returns of its products will be minimal.

Chargebacks for fees and discounts to providers represent the estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices charged to Customers who directly purchase the product from the Company. Customers charge the Company for the difference between what they pay for the product and the ultimate selling price to the qualified healthcare providers. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and trade receivables, net. Chargeback amounts are generally determined at the time of resale to the qualified healthcare provider by Customers, and the Company generally issues credits for such amounts within a few weeks of the Customer’s notification to the Company of the resale. Reserves for chargebacks consist of credits that the Company expects to issue for units that remain in the distribution channel inventories at each reporting period-end that the Company expects will be sold to qualified healthcare providers, and chargebacks that Customers have claimed, but for which the Company has not yet issued a credit.

The Company is subject to discount obligations under state Medicaid programs and Medicare. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included in accrued expenses and other current liabilities on the condensed consolidated balance sheets. For Medicare, the Company also estimates the number of patients in the prescription drug coverage gap for whom the Company will owe an additional liability under the Medicare Part D program. The Company’s liability for these rebates consists of invoices received for claims from prior quarters that have not been paid or for which an invoice has not yet been received, estimates of claims for the current quarter, and estimated future claims that will be made for product that has been recognized as revenue, but which remains in the distribution channel inventories at the end of each reporting period.

Other incentives which the Company offers include voluntary patient assistance programs, such as the co-pay assistance program, which are intended to provide financial assistance to qualified commercially-insured patients with prescription drug co-payments required by payors. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that the Company expects to receive associated with product that has been recognized as revenue, but remains in the distribution channel inventories at the end of each reporting period. The adjustments are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included as a component of accrued expenses and other current liabilities on the condensed consolidated balance sheets.when earned.

~~Accounting Standards Codification, or~~ ASC Topic 820, Fair Value Measurement, or ASC 820, provides a single definition of fair value and a common framework for measuring fair value as well as ~~new~~ disclosure requirements for fair value measurements used in financial statements. Under ASC 820, fair value is determined based upon the exit price that would be received by a company to sell

an asset or paid by a company to transfer a liability in an orderly transaction between market participants, exclusive of any transaction costs. Fair value measurements are determined by either the principal market or the most advantageous market. The principal market is the market with the greatest level of activity and volume for the asset or liability. Absent a principal market to measure fair value, the Company uses the most advantageous market, which is the market from which the Company would receive the highest selling price for the asset or pay the lowest price to settle the liability, after considering transaction costs. However, when using the most advantageous market, transaction costs are only considered to determine which market is the most advantageous and these costs are then excluded when applying a fair value measurement. ASC 820 creates a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below, with Level 1 having the highest priority and Level 3 having the lowest.

Following are the major categories of assets measured at fair value on a recurring basis as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3) (in thousands):

September 30, 2017

Level 1

Level 2

Level 3

Total

Cash equivalents

$
68,911

$
—

$
—

$
68,911

Marketable securities - corporate
bonds

—

26,620

—

26,620

$
68,911

$
26,620

$
—

$
95,531

December 31, 2016

Level 1

Level 2

Level 3

Total

Cash equivalents

$
188,543

$
—

$
—

$
188,543

Commercial paper

—

5,998

—

5,998

Marketable securities - corporate
bonds

—

28,984

—

28,984

$
188,543

$
34,982

$
—

$
223,525

June 30, 2020	Level 1		Level 2		Level 3		Total
Cash equivalents	$	76,909	$	—	$	—	$	76,909
Commercial paper		—		10,837		—		10,837
Corporate bonds		—		5,539		—		5,539
Totals	$	76,909	$	16,376	$	—	$	93,285

December 31, 2019	Level 1		Level 2		Level 3		Total
Cash equivalents	$	41,295	$	—	$	—	$	41,295
Corporate bonds		—		41,557		—		41,557
U.S. government securities		10,050		—		—		10,050
Totals	$	51,345	$	41,557	$	—	$	92,902

The Company’s investments in commercial paper, corporate bonds and U.S. government securities are exposed to price fluctuations. The fair value measurements for commercial paper, corporate bonds and U.S. government securities are based upon the quoted prices of similar items in active markets multiplied by the number of securities owned.

The Company invests its excess cash in commercial paper and debt instruments of corporations. As of September 30, 2017, the Company’s short-term investments had a weighted average maturity of less than one year.

The following tables summarize the Company’s short-term investments (in thousands):

Maturity

Amortized

Unrealized

Estimated

September 30, 2017

(in years)

cost

Gains

Losses

fair value

Cash equivalents

$
68,911

$
—

$
—

$
68,911

Marketable securities - corporate
bonds

Less than 1

26,620

—

(7
)

26,613

$
95,531

$
—

$
(7
)

$
95,524

Maturity

Amortized

Unrealized

Estimated

December 31, 2016

(in years)

cost

Gains

Losses

fair value

Cash equivalents

$
188,543

$
—

$
—

$
188,543

Commercial paper

Less than 1

5,998

—

—

5,998

Marketable securities - corporate
bonds

Less than 1

28,984

—

(13
)

28,971

$
223,525

$
—

$
(13
)

$
223,512

	Maturity	Amortized		Unrealized				Estimated
June 30, 2020	(in years)	cost		Gains		Losses		fair value
Cash equivalents		$	76,909	$	—	$	—	$	76,909
Commercial paper			10,837		—		—		10,837
Corporate bonds	Less than 1		5,538		1		—		5,539
Totals		$	93,284	$	1	$	—	$	93,285

	Maturity	Amortized		Unrealized				Estimated
December 31, 2019	(in years)	cost		Gains		Losses		fair value
Cash equivalents		$	41,295	$	—	$	—	$	41,295
Corporate bonds	Less than 1		41,507		50		—		41,557
U.S. government securities	Less than 1		10,038		12		—		10,050
Totals		$	92,840	$	62	$	—	$	92,902

Financial instruments, which potentially subject the Company to concentrations of credit risk, principally consist of cash and cash ~~equivalents.~~equivalents, marketable securities, and accounts receivable, net. The Company’s cash and cash equivalents and restricted cash in excess of the Federal Deposit Insurance Corporation and the Securities Investor Protection Corporation insured limits at ~~September~~June 30, ~~2017,~~2020, were approximately ~~$85.4~~$103.4 million. The Company does not

believe it is exposed to any significant credit risk due to the quality nature of the financial instruments in which the money is held. Pursuant to the Company’s internal investment policy, investments must be rated A-1/P-1 or better by Standard and Poor’s ~~Corporation~~Rating Service and Moody’s Investors Service at the time of purchase.

The Company sells its products in the United States primarily through specialty pharmacies and specialty distributors. Therefore, wholesale distributors and large pharmacy chains account for a large portion of its accounts receivables, net and product revenues, net. The creditworthiness of its customers is continuously monitored, and the Company has internal policies regarding customer credit limits. The Company estimates an allowance for doubtful accounts primarily based on the credit worthiness of its customers, historical payment patterns, aging of receivable balances and general economic conditions. The Company recorded $0 as an allowance for doubtful accounts in the three and six months ended June 30, 2020 and 2019.

The Company’s success depends on its ability to successfully commercialize NERLYNX. The Company currently has a single product and limited commercial sales experience, which makes it difficult to evaluate its current business, predict its future prospects and forecast financial performance and growth. The Company has invested a significant portion of its efforts and financial resources in the development and commercialization of the lead product, NERLYNX, and expects NERLYNX to constitute the vast majority of product revenue for the foreseeable future.

The Company relies exclusively on third parties to formulate and manufacture NERLYNX and its drug candidates. The commercialization of NERLYNX and any other drug candidates, if approved, could be stopped, delayed or made less profitable if those third parties fail to provide sufficient quantities of product or fail to do so at acceptable quality levels or prices. The Company has no experience in drug formulation or manufacturing and does not intend to establish its own manufacturing facilities. The Company lacks the resources and expertise to formulate or manufacture NERLYNX and other drug candidates. While the drug candidates were being developed by Pfizer, both the drug substance and drug product were manufactured by third-party contractors. The Company is using the same third-party contractors to manufacture, supply, store and distribute drug supplies for clinical trials and the commercialization of NERLYNX. If the Company is unable to continue its relationships with one or more of these third-party contractors, it could experience delays in the development or commercialization efforts as it locates and qualifies new manufacturers. The Company intends to rely on one or more third-party contractors to manufacture the commercial supply of drugs.

The Company values its inventories at the lower of cost and estimated net realizable value. The Company determines the cost of its inventories, which includes amounts related to materials and manufacturing overhead, on a first-in, first-out basis. The Company performs an assessment of the recoverability of capitalized inventory during each reporting period, and it writes down any excess and obsolete inventories to their estimated realizable value in the period in which the impairment is first identified. Such impairment charges, should they occur, are recorded within the cost of sales in the consolidated statements of operations. The determination of whether inventory costs will be realizable requires estimates by management. If actual market conditions are less favorable than projected by management, additional write-downs of inventory may be required, which would be recorded as a cost of sales in the consolidated statements of operations.

The Company capitalizes inventory costs associated with the Company’s products after regulatory approval, if any, when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized. Inventory totaling $4.5 million, acquired prior to receipt of marketing approval of a product candidate, was recorded as research and development expense in the year ended December 31, 2017. Inventory that can be used in either the production of clinical or commercial product is recorded as research and development expense when selected for use in a clinical trial. Starter kits, provided to patients prior to insurance approval, are expensed by the Company to selling, general and administrative expense as incurred.

As of June 30, 2020, the Company’s inventory balance consisted primarily of raw materials purchased subsequent to FDA approval of NERLYNX.

Property and equipment are ~~recorded~~stated at cost less accumulated depreciation and ~~depreciated~~amortization. Depreciation is computed using the straight-line method over the estimated useful lives ~~ranging from~~of the assets, which is generally three ~~to five~~ years for computer hardware and software, three years for phone equipment, and seven years for furniture and fixtures. Leasehold improvements are amortized using the straight-line ~~method. Leasehold improvements are recorded at cost and amortized~~method over the ~~shorter~~lesser of ~~their~~the useful ~~lives~~life or the ~~term~~lease term. Upon retirement or sale, the cost of assets disposed of and the ~~lease by use of~~related accumulated depreciation are eliminated from the ~~straight-line method. Maintenance~~accounts and ~~repair~~any resulting gain or loss is credited or charged to operations. Repairs and maintenance costs are ~~charged to operations~~expensed as ~~incurred.~~incurred.

The Company ~~assesses the impairment of~~reviews its long-lived assets ~~primarily property and equipment,~~used in operations for impairment whenever events or changes in ~~business~~ circumstances indicate that the carrying ~~amounts~~amount of ~~the assets~~an asset may not be ~~fully recoverable. When such events occur, management determines whether there has been impairment~~recoverable, as required by ASC Topic 360, Property, Plant, and Equipment, or ASC 360. The Company performs a recoverability test by comparing the ~~asset’s carrying value with its fair value, as measured by the anticipated undiscounted net cash flows~~sum of the ~~asset. Should impairment exist, the asset is written down to its~~ estimated ~~fair value. The Company has not recognized any impairment losses through September 30, 2017.~~

Research and development expenses are charged to operations as incurred. The major components of research and development costs include clinical manufacturing costs, clinical trial expenses, consulting and other third-party costs, salaries and employee benefits, stock-based compensation expense, supplies and materials, and allocations of various overhead costs. Clinical trial expenses include, but are not limited to, investigator fees, site costs, comparator drug costs, and clinical research organization, or CRO, costs. In the normal course of business, the Company contracts with third parties to perform various clinical trial activities in the ongoing development of potential products. The financial terms of these agreements are subject to negotiation and variations from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events, the successful enrollment of patients and the completion of portions of the clinical trial or similar conditions. The Company’s accruals for clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with numerous clinical trial sites, cooperative groups and CROs. The objective of the Company’s accrual policy is to record expenses in the unaudited condensed consolidated financial statements as the actual services are performed and efforts expended. As actual costs become known, the Company records the actual expenses in that period.

In instances where the Company enters into agreements with third parties for clinical trials and other consulting activities, upfront amounts are recorded to prepaid expenses and other in the accompanying unaudited condensed consolidated balance sheets and expensed as services are performed or as the underlying goods are delivered. If the Company does not expect the services to be rendered or goods to be delivered, any remaining capitalized amounts for non-refundable upfront payments are charged to expense immediately. Amounts due under such arrangements may be either fixed fee or fee for service, and may include upfront payments, monthly payments and payments upon the completion of milestones or receipt of deliverables.

~~ASC 718,~~ ~~Compensation — Stock Compensation~~, or ASC 718, requires the fair value of all share-based payments to employees, including grants of stock options, to be recognized in the statement of operations over the requisite service period. Under ASC 718, employee option grants are generally valued at the grant date and those valuations do not change once they have been established. The fair value of each option award is estimated on the grant date using the Black-Scholes Option Pricing Method. As allowed by ASC 718 for companies with a short period of publicly traded stock history, the Company’s estimate of expected volatility is based on the average expected volatilities of a sampling of seven companies with similar attributes to the Company, including industry, stage of life cycle, size and financial leverage. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant valuation. Option forfeitures are calculated when the option is granted to reduce the option expense to be recognizedundiscounted cash flows over the life of the ~~award and updated upon receipt of further information as to the amount of options expected to be forfeited. The option expense is “trued-up” upon the actual forfeiture of a stock option grant. Due~~asset to its ~~limited history,~~carrying value on the consolidated balance sheet. If the undiscounted cash flows used in the recoverability test are less than the carrying value, the Company ~~uses the simplified method to~~would then determine ~~the expected life of the option grants.~~

~~The~~ ~~restricted stock units, or RSUs,~~ ~~are valued on the grant date and~~ the fair value of the ~~RSUs~~long-lived asset and recognize an impairment loss for the amount in excess of the carrying value.

ASC Topic 842, Leases, as adopted in the first quarter of 2019, requires lessees to recognize most leases on the balance sheet with a corresponding right-of-use asset, or ROU asset. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of fixed lease payments over the lease term. ROU assets are evaluated for impairment using the long-lived assets impairment guidance, as required by ASC 360. A significant indication of impairment of an ROU asset would include a change in the extent or manner in which the asset is being used. The Company must make assumptions which underlie the most significant and subjective estimates in determining whether any impairment exists. Those estimates, and the underlying assumptions, include estimates of future cash flow utilizing market lease rates and determination of fair value. If an ROU asset related to an operating lease is impaired, the carrying value of the ROU asset post-impairment should be amortized on a straight-line basis through the earlier of the end of the useful life of the ROU asset or the end of the lease term. Post impairment, a lessee must calculate the amortization of the ROU asset and interest expense on the lease liability separately, although the sum of the two continues to be presented as a single lease cost. If a lease is planned to be abandoned with no intention of subleasing, the ROU asset should be assessed for impairment.

Leases will be classified as financing or operating, which will drive the expense recognition pattern. The Company elects to exclude short-term leases if and when the Company has them. For additional information, see Note 6—Leases.

The Company leases office space and copy machines, all of which are operating leases. Most leases include the option to renew and the exercise of the renewal options is at the Company’s sole discretion. Options to extend or terminate a lease are considered in the lease term to the extent that the option is reasonably certain of exercise. The leases do not include options to purchase the leased property. The depreciable life of assets and leasehold improvements is limited by the expected lease term. Covenants imposed by the leases include letters of credit required to be obtained by the lessee.

The incremental borrowing rate, or IBR, represents the rate of interest the Company would expect to pay on a collateralized basis to borrow an amount equal to the ~~market price~~lease payments under similar terms. When determinable, the Company uses the rate implicit in the lease to determine the present value of lease payments. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company’s average IBR for existing leases as of June 30, 2020 is 10.9%.

The Company decided to cease the use of a portion of its leased office space in 2019. In connection with the decreased need for the right to use the ROU asset, the Company entered into a sublease for the underlying asset, in which the sublease income is less than the original lease payments, indicating impairment. In performing the recoverability test on the effective date, the undiscounted future estimated cash flows and carrying value were identified for the subleased portion of the leased building, as an individual asset group, defined under ASC 360. A reduction to the carrying value of the ROU asset of approximately $1.2 million was recorded, representing the fair value amount in excess of the carrying value, with a corresponding impairment charge recorded as selling, general and administration expense, in the consolidated statements of operations for the year ended December 31, 2019. There were no indications for impairment during the quarter ended June 30, 2020.

The Company expenses amounts paid to acquire licenses associated with products under development when the ultimate recoverability of the amounts paid is uncertain and the technology has no alternative future use when acquired. Acquisitions of technology licenses are charged to expense or capitalized based upon the asset achieving technological feasibility in accordance with management’s assessment regarding the ultimate recoverability of the amounts paid and the potential for alternative future use. The Company has determined that technological feasibility for its product candidates is reached when the requisite regulatory approvals are obtained to make the product available for sale. The Company capitalizes technology licenses upon reaching technological feasibility.

The Company maintains definite-lived intangible assets related to the license agreement with Pfizer. These assets are amortized over their remaining useful lives, which are estimated based on the shorter of the remaining patent life or the estimated useful life of the underlying product. Intangible assets are amortized using the economic consumption method if anticipated future revenues can be reasonably estimated. The straight-line method is used when future revenues cannot be reasonably estimated. Amortization costs are recorded as part of cost of sales.

The Company assesses its intangible assets for impairment if indicators are present or changes in circumstance suggest that impairment may exist. Events that could result in an impairment, or trigger an interim impairment assessment, include the receipt of additional clinical or nonclinical data regarding one of the Company’s ~~common stock~~drug candidates or a potentially competitive drug candidate, changes in the clinical development program for a drug candidate, or new information regarding potential sales for the drug. If impairment indicators are present or changes in circumstance suggest that impairment may exist, the Company performs a recoverability test by comparing the sum of the estimated undiscounted cash flows of each intangible asset to its carrying value on the ~~grant date. The RSU expense is recognized over~~consolidated balance sheet. If the ~~requisite service period. When~~undiscounted cash flows used in the ~~requisite service period begins prior to~~recoverability test are less than the ~~grant date (because the service inception date occurs prior to the grant date),~~carrying value, the Company is required to begin recognizing compensation cost before there is a measurement date (i.e., the grant date). The service inception date is the beginning of the requisite service period. If the service inception date precedes the grant date, accrual of compensation cost for periods before the grant date shall be based onwould determine the fair value of the ~~award at~~intangible asset and recognize an impairment loss if the ~~reporting date. In the period in which the grant date occurs, cumulative compensation cost shall be adjusted to reflect the cumulative effect of measuring compensation cost based on fair~~carrying value ~~at the grant date rather than the fair value previously used at the service inception date (or any subsequent reporting date).~~

Basic net loss per common share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during the periods presented as required by ASC 260, ~~Earnings per Share. Diluted earnings per common share are the same as basic earnings per common share because the assumed exercise~~ of the intangible asset exceeds its fair value. In connection with the FDA approval of NERLYNX in July 2017, the Company triggered a one-time milestone payment pursuant to its license agreement with Pfizer. In June 2020, the Company entered into a letter agreement with Pfizer relating to the method of payment associated with a milestone payment under the Company’s ~~outstanding options are anti-dilutive. For the three~~license agreement with Pfizer (see Note 13-Commitments and nine months ended September 30, 2017, potentially dilutive securities excluded from the calculations were 6,295,192 shares issuable upon exercise of options, 2,116,250 shares issuable upon exercise of a warrant, and 956,060 shares underlying restricted stock units that are subject to vesting and are antidilutive. For the three and nine months ended September 30, 2016, potentially dilutive securities excluded from the earnings per common share calculation were 5,730,151 issuable upon exercise of options, 9,469 issuable as performance shares and 2,116,250 shares issuable upon exercise of a warrant.

Contingencies). The Company ~~has entered into operating lease agreements for its corporate offices in Los Angeles~~capitalized the milestones as intangible assets and ~~South San Francisco that contain provisions for future rent increases, leasehold improvement allowances and rent abatements. The Company records monthly rent expense equal~~is amortizing the assets to the total of the payments due over the lease term, divided by the number of months of the lease term. The difference between the rent expense recorded and the amount paid is credited or charged to deferred rent, which is reflected as a separate line item in the accompanying unaudited condensed consolidated balance sheets. Additionally, the Company recorded as deferred rent the cost of ~~the leasehold improvements paid by the landlord, which is amortized~~sales on a straight-line basis over the ~~term~~estimated useful life of the ~~lease.~~

~~Issuance~~licensed patent through 2030. The Company recorded amortization expense related to its intangible assets of ~~Common Stock Upon Exercise of Stock Option Grants:~~

~~When a stock option grant is exercised, the Company notifies its transfer agent to release the required number of shares of common stock from the reserve~~$1.3 million and $2.3 million for the ~~Puma Biotechnology, Inc. 2011 Incentive Award Plan, as amended, or~~three and six months ended June 30, 2020, respectively. As of June 30, 2020, estimated future amortization expense related to the ~~2011 Plan. The Company records the transaction~~Company’s intangible assets was approximately $4.0 million for the ~~cash received~~remainder of 2020 and the issuance of common shares. Should there be a delay in the cash receipts due to the settlement period, the Company records a receivable from the exercise of an option as a reduction of stockholders’ equity on the unaudited condensed consolidated balance sheet.$8.0 million for each year starting 2021 through 2029, and $2.0 million for 2030.

In ~~May 2014,~~June 2016, the ~~Financial Accounting Standards Board,~~ FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, this standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. These amendments under ASU 2016-13 are effective for interim and annual fiscal periods beginning after December 15, 2019. The adoption of ASU 2016-13 did not have a ~~new~~material effect on the Company’s current financial position, results of operations or financial statement disclosures.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in ASU 2018-13 modifies the disclosure requirements on fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted for any removed or modified disclosures. The amendments did not have an impact on the Company’s financial statement disclosures.

In December 2019, the FASB issued ASU No 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, as part of its Simplification Initiative to reduce the cost and complexity in accounting ~~standard that amends~~for income taxes. The amendments in ASU 2019-12 remove certain exceptions related to the ~~guidance~~approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of ~~revenue from contracts with customers to transfer goods and services. The FASB has subsequently issued additional, clarifying standards to address issues arising from implementation~~deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the ~~new revenue recognition standard.~~guidance to help simplify and promote consistent application of GAAP. The ~~new revenue recognition standard and clarifying standards are~~guidance is effective for interim and annual periods beginning on January 1, 2018, but could have been adopted early beginning January 1, 2017. The Company has chosen to adopt this standard in 2017 as it began to generate revenue. The Company has also identified and implemented changes to its accounting policies, business processes, and internal controls to support the new accounting and disclosure requirements.

~~In February 2016, the FASB issued Accounting Standards Update, or ASU, No. 2016-02,~~ ~~Leases~~. The amendments in ASU 2016-02 will require organizations that lease assets, with lease terms of more than 12 months, to recognize on their balance sheet the assets and liabilities for the rights and obligations created by those leases. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP which requires only capital leases to be recognized on the balance sheet, ASU No. 2016-02 will require both types of leases to be recognized on the balance sheet. ASU 2016-02 will be effective for fiscal years beginning after December 15, ~~2018, including interim periods within those fiscal years. Early~~2020, with early adoption is permitted. The Company ~~is currently in the process of evaluating the impact of~~does not expect ASU ~~2016-02~~2019-12 to have a material effect on the Company’s ~~outstanding leases and expects that adoption will have an impact on~~current financial position, results of operations or financial statement disclosures.

Accounts receivable, net consisted of the ~~consolidated balance sheets~~following (in thousands):

Accounts receivable, net, consists entirely of amounts owed from our customers related to ~~recording right-of-use assets~~product sales. The license revenue receivable as of June 30, 2020 relates to amounts owed from Pint relating to license revenue recognized during the third quarter of 2019 and ~~corresponding lease liabilities.~~

from Medison relating to license revenue recognized during the second quarter of 2020. The license revenue receivable as of December 31, 2019 relates to amounts owed from Pint relating to license revenue recognized during the third quarter of 2019.

~~In March 2016, the FASB issued ASU No. 2016-09,~~ ~~Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting,~~ which was intended to simplify various aspects of accounting for share-based payment transactions. The new guidance requires immediate recognition of all excess tax benefits and deficiencies in the income statement; requires classification of excess tax benefits as an operating activity as opposed to a financing activity in the statements of cash flows; requires the classification of cash paid by an employer when directly withholding shares for tax-withholding purposes be classified as a financing activity on the statements of cash flows; and allows the Company to make an accounting policy election to either estimate the number of awards expected to vest or account for forfeitures when they occur. The standard is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual reporting periods. The Company applied this standard in the first quarter of 2017 using the prospective method of adoption. In conjunction with this adoption, the Company applied an accounting policy election to estimate forfeitures and then true up actual forfeitures as they occur. Because this treatment was in line with the Company’s current treatment of forfeitures, the impact was insignificant as of September 30, 2017. Additionally, the Company believes there is no effect on its consolidated financial statements from either the new guidance of immediate recognition of all excess tax benefits and deficiencies in the income statement or the requirement to classify excess tax benefits as an operating activity, as opposed to a financing activity, in the statements of cash flows, as the Company currently has a full valuation for any deferred tax asset; therefore, there would be no net effect on the Company’s consolidated financial statements. Finally, the Company does not directly withhold shares for tax-withholding purposes; therefore, this change has no net effect on its consolidated financial statements.

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows~~ (~~Topic 230~~)~~: Classification of Certain Cash Receipts and Cash Payments~~ (~~a consensus of the Emerging Issues Task Force~~), which addresses the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU 2016-15 will be effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of adopting ASU 2016-15 on its consolidated financial statements.

~~In November 2016, the FASB issued ASU No. 2016-18,~~ ~~Statement of Cash Flows~~ (~~Topic 230~~): ~~Restricted Cash~~ that changes the presentation of restricted cash and cash equivalents on the statement of cash flows. Restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This amendment is effective for the Company in the fiscal year beginning December 15, 2017, but early adoption is permissible. The Company is currently evaluating the effect that the adoption of ASU 2016-18 will have on its consolidated financial statements.

~~In January~~ ~~2017, the FASB issued ASU No. 2017-01,~~ ~~Business Combinations (Topic 805): Clarifying the Definition of a Business~~. Public companies should apply these amendments to annual periods beginning after December 15, 2017, including interim periods within those periods. All other entities should apply the amendments to annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The Company is currently evaluating the effect that the adoption of ASU 2017-01 will have on its consolidated financial statements.

The Company, from time to time, makes payments to certain vendors for which the service relates to future periods. In these cases, the Company classifies these expenses as prepaid and other and amortizes those payments over the period for which the services relate. In some cases, the vendors require an upfront payment to be applied to the final invoices under the agreements. In those cases, if the contract extends beyond the period of one year, the prepayments are classified as long-term.

	September 30, 2017		December 31, 2016		June 30, 2020		December 31, 2019
Current:
CRO services	$	6,724	$	3,471	$	3,642	$	4,810
Other clinical development		664		1,069		3,208		2,043
Insurance		255		1,159		1,547		3,452
Professional fees						1,476		544
Other		1,638		1,299		2,727		2,410
		9,281		6,998		12,600		13,259
Long-term:
CRO services		1,726		5,077		702		400
Other clinical development		565		1,243		341		468
Insurance		16		40
Other		1,544		486		1,734		1,131
		3,851		6,846		2,777		1,999
Totals	$	13,132	$	13,844	$	15,377	$	15,258

Other current prepaid amounts consist primarily of deposits, licenses, subscriptions and software. Other long-term prepaid amounts consist primarily of deposits, licenses, subscriptions, software, a capitalized sublease commission and a sublease tenant improvement allowance, net of amortization.

Other current asset amounts consist primarily of capitalized sublease commission and a sublease tenant improvement allowances, net of amortization.

In December 2011, the Company entered into a non-cancelable operating lease for office space in Los Angeles, California, which was subsequently amended in November 2012, December 2013, March 2014, July 2015, and December 2017. The initial term of the lease was for seven years and commenced on December 10, 2011. As amended, the Company rents approximately 65,656 square feet. The term of the lease runs until March 2026, and rent amounts payable by the Company increase approximately 3% per year. Concurrent with the execution of the lease, the Company provided the landlord an automatically renewable stand-by letter of credit in the amount of $2.0 million, a decrease of $0.5 million during the quarter ended June 30, 2020 from $2.5 million as of the quarter ended March 31, 2020. The stand-by letter of credit is collateralized by a high-yield savings account, which is classified as restricted cash, long-term on the accompanying consolidated balance sheets.

In June 2012, the Company entered into a long-term lease agreement for office space in South San Francisco, California, which was subsequently amended in May 2014 and July 2015. As amended, the Company rents approximately 29,470 square feet. The term of this lease runs until March 2026, with the option to extend for an additional five-year term, and rents payable by the Company increase approximately 3% per year. The Company provided the landlord an automatically renewable stand-by letter of credit in the amount of $1.1 million, a decrease of $0.5 million during the quarter ended June 30, 2020 from $1.6 million as of the quarter ended March 31, 2020. The stand-by letter of credit is collateralized by a high-yield savings account, which is classified as restricted cash, long-term on the accompanying consolidated balance sheets.

The Company also leases copier equipment for use in the office spaces. Components of lease expense include fixed lease expense and variable lease expense of approximately $2.4 million and $0.2 million, respectively, for the six months ended June 30, 2020. Fixed lease expense and variable lease expense for the six months ended June 30, 2019, was approximately $2.4 million and $0.2 million, respectively. For purposes of determining straight-line rent expense, the lease term is calculated from the date the Company first takes possession of the facility, including any periods of free rent and any renewal option periods that the Company is reasonably certain of exercising. The Company’s office and equipment leases generally have contractually specified minimum rent and annual rent increases that are included in the measurement of the ROU asset and related lease liability. Additionally, under these lease arrangements, the Company may be required to pay directly, or reimburse the lessors, for real estate taxes, insurance, utilities, maintenance and other operating costs. Such amounts are generally variable and therefore not included in the measurement of the ROU asset and related lease liability but are instead recognized as variable lease expense in selling, general and administrative costs in the consolidated statements of operations when they are incurred.

Supplemental cash flow information related to leases for the six months ended June 30, 2020:

The maturity of lease liabilities as of June 30, 2020 were as follows (in thousands):

In February 2019, the Company entered into a long-term sublease agreement for 12,429 square feet of the office space in Los Angeles, California. The term of the lease runs until March 2026 and rent amounts payable to the Company increase approximately 3% per year. The Company recorded operating sublease income of $0.1 million and $0.2 million for the three and six months ended June 30, 2020, respectively, in other income (expenses) in the consolidated statements of operations.

The future minimum lease payments to be received as of June 30, 2020 were as follows (in thousands):

For the three and six months ended June 30, 2020, the Company incurred depreciation expense of $0.3 million and $0.5 million, respectively.

For the three and six months ended June 30, 2020, the Company incurred amortization expense of $1.3 million and $2.3 million, respectively. The estimated remaining useful life of the intangible assets as of June 30, 2020 is ten years.

Accrued CRO services, accrued other clinical development expenses, and accrued legal fees represent the Company’s ~~estimate~~estimates of such costs and ~~will be adjusted~~are recognized as incurred. Accrued royalties represent royalties incurred in the period the actual costs become known. Accrued compensation includes estimated bonus and earned but unused vacation for full-time employees. When actual performance bonuses are paid out to employees, the bonus expense will be adjusted to reflect the actual expense for the year. Accrued in-licensed rights represent amounts owed pursuant toconnection with the Company’s license agreement with ~~the Licensor. Pursuant to the license agreement, the Company licensed certain intellectual property rights for neratinib~~Pfizer. Accrued compensation includes accrued commissions and ~~is obligated to make a one-time regulatory milestone payment to the Licensor upon obtaining regulatory approval of its NDA from the FDA. Additionally,~~accrued vacation, which is accrued at the rate the employee earns vacation and reduced as vacation is used by the employee. Accrued variable consideration represents estimates of adjustments to product revenue, net for which reserves are established. Other accrued expenses consist primarily of accrued contractor/consultant costs, business license fees, taxes, insurance, and marketing fees.

Accrued legal verdict expense represents an estimate of a range between $9.1 million and $18.1 million that may be owed to class action participants as a result of the jury verdict in Hsu v. Puma Biotechnology, Inc., and an estimate of $22.4 million that may be owed to the plaintiff as a result of the jury verdict inEshelman v. Puma Biotechnology, Inc., et al. The total amount of damages in Hsu and Eshelman is uncertain and will be ascertained only after an extensive claims process in Hsu, and the completion of post-trial proceedings, and the exhaustion of any appeals in both cases. It is also reasonably possible that the total damages will be higher than these estimates.

In October 2017, the Company entered into a loan and security agreement with Silicon Valley Bank, or SVB, as administrative agent, and the lenders party thereto from time to time, or the Original Lenders, including Oxford Finance LLC, or Oxford, and SVB. Pursuant to the terms of the credit facility provided for by the loan and security agreement, or the Original Credit Facility, the Company borrowed $50.0 million.

In May 2018, the Company entered into an amendment to the loan and security agreement, which provided for an amended credit facility, or the Amended Credit Facility. Under the Amended Credit Facility, the Original Lenders agreed to make term loans available to the Company in an aggregate amount of $155.0 million, consisting of (i) an aggregate amount of $125.0 million, the proceeds of which, in part, were used to repay the $50.0 million borrowed under the Original Credit Facility, and (ii) an aggregate amount of $30.0 million that the Company drew in December 2018, which was available under the Amended Credit Facility as a result of achieving a specified minimum revenue milestone. The Company was in compliance with all applicable financial covenants during the entire term of the Amended Credit Facility.

Prior to the amendment and restatement of the loan and security agreement in June 2019, which provided for a new credit facility, or the New Credit Facility, the term loans under the Amended Credit Facility bore interest at an annual rate equal to the greater of (i) 8.25% and (ii) the sum of (a) the “prime rate,” as reported in The Wall Street Journal on the last business day of the month that immediately preceded the month in which the interest accrued, plus (b) 3.5%. The Company was required to make monthly interest-only payments on each term loan commencing on the first calendar day of the calendar month following the funding date of such term loan, and continuing on the first calendar day of each calendar month thereafter through July 1, 2020. Commencing on July 1, 2020, and continuing on the first calendar day of each calendar month thereafter, the Company would have been required to make consecutive equal monthly payments of principal, together with applicable interest, in arrears to each original lender, calculated pursuant to the Amended Credit Facility. All unpaid principal and accrued and unpaid interest with respect to each term loan would have been due and payable in full on May 1, 2023. Upon repayment of the term loans, the Company was also required to make a final payment to the Original Lenders equal to 7.5% of the original principal amount of term loans funded.

The Company was also permitted to prepay the outstanding principal balance of any term loan under the Amended Credit Facility, in whole but not in part, subject to a prepayment fee of 3.0% of any amount prepaid if the prepayment were to occur through and including the first anniversary of the funding date of such term loan, 2.0% of any amount prepaid if the prepayment were to occur after the first anniversary of the funding date of such term loan through and including the second anniversary of the funding date of such term loan, and 1.0% of the amount prepaid if the prepayment were to occur after the second anniversary of the funding date of such term loan and prior to May 1, 2023.

On June 28, 2019, or the Effective Date, the Company entered into the New Credit Facility with Oxford, as collateral agent, and the lenders party thereto from time to time, including Oxford, pursuant to which the Company repaid the $155.0 million outstanding under the Amended Credit Facility, as well as all applicable exit and prepayment fees owed to the Original Lenders under the Amended Credit Facility, using cash on hand and $100.0 million in new borrowings from the New Credit Facility. Under the New Credit Facility, the Company issued to Oxford new and/or replacement secured promissory notes in an aggregate principal amount for all such promissory notes of $100.0 million evidencing the New Credit Facility. NaN additional money remains available to the Company under the New Credit Facility.

The New Credit Facility is secured by substantially all of the Company’s personal property other than its intellectual property. The Company also pledged 65% of the issued and outstanding capital stock of its subsidiaries, Puma Biotechnology Ltd. and Puma Biotechnology B.V. The New Credit Facility limits the Company’s ability to grant any interest in its intellectual property to certain permitted licenses and permitted encumbrances set forth in the agreement.

The term loans under the New Credit Facility bear interest at an annual rate equal to the greater of (i) 9.0% and (ii) the sum of (a) the “prime rate,” as reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue, plus (b) 3.5%. The Company is required to make monthly interest-only payments on each term loan under the New Credit Facility commencing on the first calendar day of the calendar month following the funding date of such term loan, and continuing on the first calendar day of each calendar month thereafter through August 1, 2021, or the Amortization Date. Commencing on the Amortization Date, and continuing on the first calendar day of each calendar month thereafter, the Company will make consecutive equal monthly payments of principal, together with applicable interest, in arrears to each lender under the New Credit Facility, calculated pursuant to the New Credit Facility. All unpaid principal and accrued and unpaid interest with respect to each term loan under the New Credit Facility is due and payable in full on June 1, 2024, or the Maturity Date. Upon repayment of such term loans, the Company is also required to make a final payment to the lenders equal to 7.5% of the aggregate principal amount of such term loans outstanding as of the Effective Date.

At the Company’s option, the Company may prepay the outstanding principal balance of any term loan in whole but not in part, subject to a prepayment fee of 3.0% of any amount prepaid if the prepayment occurs through and including the first anniversary of the funding date of such term loan, 2.0% of the amount prepaid if the prepayment occurs after the first anniversary of the funding date of such term loan through and including the second anniversary of the funding date of such term loan, and 1.0% of the amount prepaid if the prepayment occurs after the second anniversary of the funding date of such term loan and prior to the Maturity Date.

The New Credit Facility includes affirmative and negative covenants applicable to the Company, its current subsidiaries and any subsidiaries the Company creates in the future. The affirmative covenants include, among others, covenants requiring the Company to maintain its legal existence and governmental approvals, deliver certain financial reports, maintain insurance coverage and satisfy certain requirements regarding deposit accounts. The Company must also achieve certain product revenue targets, measured as of the last day of each fiscal quarter on a trailing year-to-date basis. New minimum revenue levels will be established for each subsequent fiscal year by mutual agreement of the Company, Oxford, as collateral agent, and the lenders under the New Credit Facility. The negative covenants include, among others, restrictions on the Company’s 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.

The New Credit Facility also includes events of default, the occurrence and continuation of which could cause interest to be charged at the rate that is otherwise applicable plus 5.0% and would provide Oxford, as collateral agent, with the right to exercise remedies against the Company and the collateral securing the New Credit Facility, including foreclosure against the property securing the New Credit Facility, including the Company’s cash. These events of default include, among other things, the Company’s failure to pay principal or interest due under the New Credit Facility, a breach of certain covenants under the New Credit Facility, the Company’s insolvency, a material adverse change, the occurrence of any default under certain other indebtedness in an amount greater than $500,000 and one or more judgments against the Company in an amount greater than $500,000 individually or in the aggregate that remains unsatisfied, unvacated, or unstayed for a period of 10 days after its entry.

On August 5, 2020, the Company entered into an amendment to the amended and restated loan and security agreement to revise the minimum revenue levels that it must achieve under the terms of the New Credit Facility for the year-to-date periods ending September 30, 2020 and December 31, 2020.

As of June 30, 2020, there was $100.0 million in term loans outstanding under the New Credit Facility, representing all of the Company’s long-term debt outstanding as of that date. As of June 30, 2020 the Company was in compliance with all applicable covenants under the New Credit Facility.

The future minimum principal payments under the New Credit Facility as of June 30, 2020 were as follows (in thousands):

On April 20, 2020, the Company received loan proceeds from SVB of $8.4 million under the Paycheck Protection Program, or PPP, of the Coronavirus Aid, Relief, and Economic Security Act. Following the issuance of additional guidance from the U.S. Small Business Administration regarding eligibility requirements for borrowers under the PPP, the Company returned the full amount of the loan to SVB on April 30, 2020.

The Company issued 500 and 67,625shares of common stock upon exercise of stock options during the six months ended June 30, 2020 and 2019, respectively. The Company issued 423,113 and 346,045shares of common stock upon vesting of RSUs during the six months ended June 30, 2020 and 2019, respectively.

The Company has 100,000,000 shares of stock authorized for issuance, all of whichare common stock, par value $0.0001 per share.

In October 2011, the Company issued an anti-dilutive warrant to Alan Auerbach, the Company’s founder and chief executive officer. The warrant was issued to provide Mr. Auerbach with the right to maintain ownership of at least 20% of the Company’s common stock in the event that the Company raised capital through the sale of its securities in the future.

In connection with the closing of a public offering in October 2012, the exercise price and number of shares underlying the warrant issued to Mr. Auerbach were established and, accordingly, the final value of the warrant became fixed. Pursuant to the terms of the warrant, Mr. Auerbach may exercise the warrant to acquire 2,116,250 shares of the Company’s common stock at $16 per share until October 4, 2021.

The Company’s 2011 Incentive Award Plan, as amended, or the 2011 Plan, was adopted by the ~~board~~Company’s Board of ~~directors~~Directors on September 15, 2011. Pursuant to the 2011 Plan, the Company may grant incentive stock options and nonqualified stock options, ~~and restricted stock units,~~ as well as other forms of equity-based compensation. Incentive stock options may be granted only to employees, while consultants, employees, officers and directors are eligible for the grant of nonqualified options ~~and restricted stock units~~ under the 2011 Plan. The maximum term of stock options granted under the 2011 Plan is 10 ~~years.~~years and the awards generally vest over a three-year period. The exercise price of incentive stock options granted under the 2011 Plan must be at least equal to the fair value of such shares on the date of grant. Through ~~September~~June 30, ~~2017,~~2020, a total of 12,529,412 shares of the Company’s common stock ~~have~~had been reserved for issuance under the 2011 Plan.

All of the options awarded by the Company have been “plain vanilla options” as determined by the SEC Staff Accounting Bulletin 107, or Share Based Payment. As of June 30, 2020, 6,230,574 shares of the Company’s common stock are issuable upon the exercise of outstanding stock options and vesting of RSUs granted under the 2011 Plan and 2,122,539 shares of the Company’s common stock are available for future issuance under the 2011 Plan. The fair value of options granted to employees and nonemployees was estimated using the Black-Scholes Option Pricing Method (see Note 2) with the following weighted-average assumptions used during the six months ended June 30:

The Company’s 2017 Employment Inducement Incentive Award Plan, or the 2017 Plan, was adopted by the ~~board~~Company’s Board of ~~directors~~Directors on April 27, 2017. Pursuant to the 2017 Plan, the Company may grant stock options and ~~restricted stock units,~~RSUs, as well as other forms of equity-based compensation to employees, as an inducement to join the Company. The maximum term of stock options granted under the 2017 Plan is 10 ~~years.~~years and the awards generally vest over a three-year period. The exercise price of stock options granted under the 2017 Plan must be at least equal to the fair market value of such shares on the date of grant. As of ~~September~~June 30, ~~2017,~~2020, a total of ~~1,000,000~~2,000,000 shares of the Company’s common stock have been reserved for issuance under the 2017 Plan. As of ~~September~~June 30, ~~2017, 233,250~~2020, 1,258,685 shares ~~have been awarded~~of the Company’s common stock are issuable upon the exercise of outstanding stock options and vesting of RSUs granted under the 2017 Plan and 538,182 shares of the Company’s common stock are available for future issuance under the 2017 Plan.

~~Employee stock-based~~Stock-based compensation ~~for the three and nine months ended September 30, 2017 and 2016 were~~expense was as follows (in ~~thousands, except share and per share data)~~thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

Stock-based compensation:

Options -

Research and development, or R&D

$
15,825

$
20,258

$
54,062

$
66,376

Selling, general and administrative, or SG&A

5,817

6,802

18,371

18,852

Performance shares - R&D

—

68

—

139

Restricted stock units -

R&D

2,333

1,754

6,185

1,754

SG&A

2,513

869

4,595

869

Total stock-based compensation expense

$
26,488

$
29,751

$
83,213

$
87,990

The fair value of options granted to employees was estimated using the Black-Scholes Option Pricing Method (see Note 2—Significant Accounting Policies) with the following weighted-average assumptions used during the nine months ended September 30, 2017 and 2016:

2017

2016

Dividend yield

0.0
%

0.0
%
Expected volatility

70.2
%

67.3
%
Risk-free interest rate

2.0
%

1.4
%
Expected life in years

5.83

5.72

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Stock-based compensation:
Options -
Selling, general, and administrative	$	963	$	1,952	$	1,883	$	4,938
Research and development		731		1,882		1,572		4,215
Restricted stock units -
Selling, general, and administrative		3,767		5,500		7,539		12,389
Research and development		5,169		6,106		8,543		12,036
Total stock-based compensation expense	$	10,630	$	15,440	$	19,537	$	33,578

Activity with respect to options granted under the 2011 Plan and 2017 Plan is summarized as follows:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (in thousands)		Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2016		6,578,522		$	87.52		8.0	$	18,442
Outstanding at December 31, 2019											5,042,325		$	82.42		5.2	$	1,951
Granted		519,791		$	38.87						606,900		$	9.96		9.7
Forfeited		(272,399	)	$	50.26						-		$	-
Exercised		(419,504	)	$	46.85			$	18,366		(500	)	$	3.75			$	5
Expired		(111,218	)	$	117.89						(476,087	)	$	92.81
Outstanding at September 30, 2017		6,295,192		$	87.29		7.4	$	318,349
Nonvested at September 30, 2017		2,333,232			58.97		8.8	$	151,369
Outstanding at June 30, 2020											5,172,638		$	72.97		5.5	$	3,723
Nonvested at June 30, 2020											944,433		$	13.49		9.4
Exercisable											4,228,205		$	86.25		4.6	$	2,329

At ~~September~~June 30, ~~2017,~~2020, total estimated unrecognized employee compensation cost related to ~~nonvested~~non-vested stock options ~~and restricted stock units~~ granted prior to that date ~~were~~was approximately ~~$68.7~~$8.7 million, ~~and $56.3 million, respectively. These unrecognized expenses are~~which is expected to be recognized over a weighted-average period of ~~1.4 years for stock options and 2.5 years for restricted stock units.~~1.9 years. At June 30, 2020, the total estimated unrecognized employee compensation cost related to non-vested RSUs was approximately $30.6 million, which is expected to be recognized over a weighted-average period of 1.6 years. The weighted-average grant date fair value of options granted during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016, were $24.30~~2019 was $7.86 and $21.82 per share, respectively. The weighted average grant date fair value of RSUs awarded during the six months ended June 30, 2020 and ~~$26.79~~2019 was $10.61 and $22.14 per share, respectively.

Restricted ~~stock units have been awarded to certain employees under the 2011 and 2017 Plan. These awards vest over three years.~~Stock Unit Rollforward

During 2012, the Company adopted a 401(k) savings plan for the benefit of its employees. The Company is required to make matching contributions to the 401(k) plan equal to 100% of the first 3% of wages deferred by each participating employee and 50% on the next 2% of wages deferred by each participating employee. The Company incurred expenses for employer matching contributions of approximately ~~$0.6~~ $0.7 million and ~~$0.7~~$0.8 millionfor the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively.

Contractual obligations represent future cash commitments and liabilities under agreements with third parties, and exclude contingent liabilities for which the Company cannot reasonably predict future payment. The Company’s contractual obligations result primarily from obligations for various contract manufacturing organizations and clinical research organizations, which include potential payments we may be required to make under our agreements. The contracts also contain variable costs and milestones that are hard to predict as they are based on such things as patients enrolled and clinical trial sites. The timing of payments and actual amounts paid under contract manufacturing organization, or CMO, and CRO agreements may be different depending on the timing of receipt of goods or services or changes to agreed-upon terms or amounts for some obligations. Also, those agreements are cancelable upon written notice by the Company and, therefore, not long-term liabilities.

In August 2011, the Company entered into an agreement pursuant to which Pfizer agreed to grant it a worldwide license for the development, manufacture and commercialization of PB272 neratinib (oral), PB272 neratinib (intravenous) and PB357, and certain related compounds. The license is exclusive with respect to certain patent rights owned by or licensed to Pfizer. Under the agreement, the Company is obligated to commence a new clinical trial for a product containing one of these compounds within a specified period of time and to use commercially reasonable efforts to complete clinical trials and to achieve certain milestones as provided in a development plan. From the closing date of the agreement through December 31, 2011, Pfizer continued to conduct the existing clinical trials on behalf of the Company at Pfizer’s sole expense. At the Company’s request, Pfizer has agreed to continue to perform certain services in support of the existing clinical trials at the Company’s expense. These services will continue through the completion of the transitioned clinical trials. The license agreement “capped” the out of pocket expense the Company would incur to complete the then existing clinical trials. All agreed upon costs incurred by the Company above the “cost cap” would be reimbursed by Pfizer. The Company exceeded the “cost cap” during the fourth quarter of 2012. In accordance with the license agreement, the Company billed Pfizer for agreed upon costs above the “cost cap” until December 31, 2013.

On July 18, 2014, the Company entered into an amendment to the license agreement with Pfizer. The amendment amends the agreement to (1) reduce the royalty rate payable by the Company to Pfizer on sales of licensed products; (2) release Pfizer from its obligation to pay for certain out-of-pocket costs incurred or accrued on or after January 1, 2014 to complete certain ongoing clinical studies; and (3) provide that Pfizer and the Company will continue to cooperate to effect the transfer to the Company of certain records, regulatory filings, materials and inventory controlled by Pfizer as promptly as reasonably practicable.

As consideration for the license, the Company is required to make substantial payments upon the achievement of certain milestones totaling approximately $187.5 million if all such milestones are achieved. In connection with the FDA approval of NERLYNX in July of 2017, the Company triggered a one-time milestone payment pursuant to the agreement. In June 2020, the Company entered into a letter agreement, or the Letter Agreement, with Pfizer relating to the method of payment associated with a one-time milestone payment under the license agreement with Pfizer. The Letter Agreement permits the Company to make the milestone payment in installments with the amounts payable to Pfizer (including interest) to be made in November 2020 for approximately $10.4 million and in September 2021 for approximately $21.9 million. Unpaid portions of the milestone payment will accrue interest at 6.25% per annum until paid. The installment payments and accrued interest are included in accrued in-licensed rights on the accompanying consolidated balance sheets. The Company may trigger additional milestone payments in the future. Should the Company commercialize any more of the compounds licensed from Pfizer or any products containing any of these compounds, the Company will be obligated to pay to Pfizer annual royalties at a fixed rate in the low-to-mid teens of net sales of all such products, subject to certain reductions and offsets in some circumstances. The Company’s royalty obligation continues, on a product-by-product and country-by-country basis, until the later of (1) the last to expire licensed patent covering the applicable licensed product in such country, or (2) the earlier of generic competition for such licensed product reaching a certain level in such country or expiration of a certain time period after first commercial sale of such licensed product in such country. In the event that the Company sublicenses the rights granted to the Company under the license agreement with Pfizer to a third party, the same milestone and royalty payments are required. The Company can terminate the license agreement at will, or for safety concerns, in each case upon specified advance notice.

The Company ~~is involved in various lawsuits, claims~~ and ~~other legal matters from time to time that arise~~certain of its executive officers were named as defendants in the ~~ordinary course of conducting business.~~lawsuits detailed below. The Company records a liability in the consolidated financial statements for loss contingencies when a ~~particular contingency~~loss is known or considered probable and ~~estimable. The~~the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss is reasonably possible but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is disclosed. When determining the estimated loss or range of loss, significant judgment is required to estimate the amount and timing of a loss to be recorded. Currently, the Company has ~~not~~ accrued ~~for any contingency at September 30, 2017, as the Company does not consider any contingency~~estimated losses of $9.1 million related to ~~be probable or estimable. The Company faces contingencies that are reasonably possible~~Hsu v. Puma Biotechnology, Inc. and $22.4 million related to occur; however, they cannot currently be estimated. While complete assurance cannot be given to the outcome of these proceedings, management does not currently believe that any of these matters, individually or in the aggregate, will have a material adverse effect on the Company’s financial condition, liquidity or results of operations.

~~Hsu vs.~~ Eshelman v. Puma Biotechnology, Inc., ~~et.~~et al.as detailed below. For certain legal expenses related to the verdicts listed below, the Company has received reimbursements from its insurers.

On June 3, 2015, Hsingching Hsu, ~~or the “plaintiff,”~~ individually and on behalf of all others similarly situated, filed a class action lawsuit against ~~us or “the defendants”~~the Company and certain of ~~our~~its executive officers in the United States District Court for the Central District of California (Case No. 8:15-cv-00865-AG-JCG). On October 16, 2015, lead plaintiff Norfolk Pension Fund filed a consolidated complaint on behalf of all persons who purchased ~~our~~the Company’s securities between July 22, 2014 and May 29, 2015. ~~The consolidated complaint alleges that~~A trial on the ~~Company and certain of our executive officers made~~claims relating to four statements alleged to have been false or misleading ~~statements and failed~~was held from January 15, 2019 to ~~disclose material adverse facts about our business, operations, prospects and performance in violation of Sections 10(b) (and Rule 10b-5 promulgated thereunder) and 20(a)~~January 29, 2019. At trial, the jury found that three of the ~~Exchange Act.~~four challenged statements were not false or misleading, and thus found in the defendants’ favor on those claims. The ~~plaintiff seeks~~jury found liability as to one statement and awarded a maximum of $4.50 per share in damages, ~~interest, costs, attorneys' fees,~~which represents approximately 5% of the total claimed damages of $87.20 per share. Trading models suggest that approximately 10 million shares traded during the class period may be eligible to claim damages. Based on prior lawsuits, the Company believes that the number of stockholders who submit proof of claims sufficient to recover damages is typically in the range of 20% to 40% of the total eligible shares. Based on these assumptions, total damages after claims could range from $9.0 million to $18.0 million. The total amount of aggregate class-wide damages remains uncertain and ~~other unspecified equitable relief.~~ will be ascertained only after an extensive claims process and the exhaustion of any appeals and it is reasonably possible that the total damages will be higher than this estimate; however, the amount is not estimable at this time.

On September ~~30, 2016,~~9, 2019, the ~~court denied~~Court entered an order specifying the ~~defendants’ motion~~rate of prejudgment interest to ~~dismiss~~be awarded on any valid claims at the ~~consolidated complaint.~~ 52-week Treasury Bill rate. The Court’s order also established a claims process, which is expected to take about twelve months. A final judgment has not been entered. Based on the final total damages, the Company may owe a success-based legal fee to the Company’s legal counsel in the amount of $3.0 million. As the total damages remains uncertain, 0 liability has been recorded for the legal fee. The Company recognizes legal fees in connection with a loss contingency as incurred.

On June 6, 2017, the lead plaintiff filed a first amended complaint that included new claims about additional statements that plaintiff alleges are false or misleading. On June 19, 2017, defendants moved to dismiss the new claims in the amended complaint. On July 25, 2017, the court denied the motion to dismiss. A trial date is currently set for November 6, 2018. The Company intends to vigorously defend against this matter.

OnIn February 2, 2016, Fredric N. Eshelman filed a lawsuit against ~~our~~the Company’s Chief Executive Officer and President, Alan H. Auerbach, and the Company in the United States District Court for the Eastern District of North Carolina (Case No. 7:16-cv-00018-D). The complaint generally ~~alleges~~alleged that Mr. Auerbach and the Company made defamatory statements regarding Dr. Eshelman in connection with a proxy contest. ~~Dr. Eshelman seeks compensatory and punitive damages and expenses and costs, including attorneys’ fees. On April 4, 2016, the Company filed a motion to dismiss the complaint. On~~In May 2, 2016, Dr. Eshelman filed a notice of voluntary dismissal of the claims against Mr. Auerbach. ~~On February 6, 2017,~~A trial on the ~~court~~remaining defamation claims against the Company took place from March 11 to March 15, 2019. At trial, the jury found the Company liable and awarded Dr. Eshelman $15.9 million in compensatory damages and $6.5 million in punitive damages. The Company strongly disagrees with the verdict and, on April 22, 2019, filed a motion for a new trial or, in the alternative, a reduced damages award. The Court denied that motion on March 2, 2020. The Company has appealed that ruling, and the verdict. Additionally, after trial, the plaintiff filed a motion seeking approximately $3 million in attorneys’ fees, as well as prejudgment interest. In the Court’s March 2 ruling, it denied the ~~Company’s~~ motion for attorneys’ fees but granted the request for prejudgment interest, bringing the total judgment to ~~dismiss. Discovery ended in September 2017.~~$26.3 million. On March 30, 2020, the plaintiff filed a notice of cross-appeal and conditional cross-appeal, appealing the Court’s order denying the plaintiff’s request for attorneys’ fees and conditionally cross-appealing a Court ruling that certain communications between Mr. Auerbach and his attorneys were protected by attorney-client privilege and a related evidentiary ruling. The Company ~~intends to vigorously defend against Dr. Eshelman’s claims.~~

~~On April 12 and April 14, 2016, alleged shareholders filed two derivative lawsuits purportedly on behalf~~estimates the high end of ~~the Company against certain of our officers and directors~~potential damages in the ~~Superior Court of~~matter could be approximately $27.2 million; however, the State of California, Los Angeles, captioned Xing Xie v. Alan H. Auerbach, No. BC616617, and Kevin McKenney v. Auerbach, No. BC617059. The complaints assert claims for breach of fiduciary duty, unjust enrichment, abuse of control, mismanagement and waste of corporate assets arising from substantially similar allegations as those contained in the securities class action described above. The complaints seek an unspecified sumactual amount of damages ~~and equitable relief. The Company intends to vigorously defend against this matter.~~

On September 13, 2017, a purported stockholder filed a complaint in the Court of Chancery of the State of Delaware seeking an equitable apportionment of attorneys’ fees in an unspecified amount. The purported stockholder alleges that his actions caused Company’s board of directors to implement certain governance reforms and enhancements to our director compensation program, and that, as a result of his actions, the purported stockholder is entitled to attorneys’ fees in an amount commensurate to those purported benefits. The Company filed an answer to the complaint on October 20, 2017. The Company intends to vigorously defend against this matter.

The pending proceedings described in this section involve complex questions of fact and law and will require the expenditure of significant funds and the diversion of other resources to defend. The results of legal proceedings are inherently uncertain, and material adverse outcomes are possible.

~~Under the Company’s license agreement with the Licensor, pursuant to which the Company licensed certain intellectual property rights for neratinib,~~payable by the Company is ~~obligated to make a one-time regulatory milestone payment~~still uncertain and will be ascertained only after completion of the appeal and any subsequent proceedings, and such amount could be greater than the amount of expense already recognized or the high end of the estimate. Due to the ~~Licensor upon obtaining regulatory approval~~appeal, the Company secured a bond for the potential damages, which is collateralized by an automatically renewable stand-by letter of ~~its NDA from~~credit in the ~~FDA.~~amount of $8.9 million. The stand-by letter of credit is collateralized by a high-yield savings account which is classified as restricted cash, current on the accompanying consolidated balance sheets.

On July 28, 2020, the Company filed a request for arbitration against CANbridge before the ICC International Court of Arbitration. The Company is asserting that CANbridge has violated the terms of the Company’s agreement with CANbridge in which it granted CANbridge an exclusive sublicense to develop and commercialize NERLYNX throughout greater China. The Company is seeking an arbitral award that CANbridge breached, or alternatively is in anticipatory breach of, our agreement; that CANbridge’s conduct constitutes grounds for termination of the agreement; that CANbridge has failed to use commercially reasonable efforts to commercialize NERLYNX as required under the agreement; and that CANbridge must obtain the Company’s consent before transferring the agreement to a third party, subject to certain limitations that do not currently apply. The Company is also ~~required to make royalty payments on net product sales, if any.~~seeking damages, costs, and attorneys’ fees. The request for arbitration remains pending.

~~The Company entered into a loan agreement with Silicon Valley Bank and Oxford Finance for a term loan~~

On July 16, 2020, the Company’s sub-licensee, Specialised Therapeutics Asia, received marketing approval of ~~up to $100.0 million, subject to funding~~NERLYNX (neratinib) in ~~two tranches. The Company received gross proceeds of $50.0 million~~Malaysia from the ~~first tranche~~Drug Control Agency, under Malaysia’s Ministry of Health, for the ~~credit facility upon closing on October 31, 2017~~extended adjuvant treatment of adult patients with early stage hormone receptor positive HER2-overexpressed/amplified breast cancer and ~~intends to use the funds for general corporate purposes and to further support NERLYNX commercial initiatives. The second tranche~~who are less than one year from completion of ~~$50.0 million may be drawn at the Company’s option between March 31, 2018 and June 30, 2018 provided~~prior adjuvant trastuzumab-based therapy.

On July 28, 2020, the Company ~~has achieved~~filed a ~~specified minimum revenue milestone~~request for arbitration against CANbridge before the ICC International Court of Arbitration. See Note 13—Commitments and ~~no event of default is occurring. The loan will mature on October 31, 2022.~~

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.~~10-Q, or 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, ~~2016.~~2019.

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, Puma Biotechnology Ltd.~~wholly owned subsidiaries.

We are a biopharmaceutical company with a focus on the development and commercialization of innovative products to enhance cancer care. We in-license from Pfizer, Inc., or Pfizer, the global development and commercialization rights to ~~three drug candidates—~~PB272 (neratinib, ~~(oral))~~oral), PB272 (neratinib, ~~(intravenous))~~intravenous) and PB357. Neratinib is a potent irreversible tyrosine kinase inhibitor, or TKI, that blocks signal transduction through the human epidermal growth factor receptors, HER1, HER2 and HER4. Currently, we are primarily focused on the development and commercialization of the oral version of neratinib, and our most advanced drug candidates are directed at the treatment of HER2-positive breast ~~cancer.~~cancer and HER2 mutated cancers. We believe neratinib has clinical application in the treatment of several other cancers as well, including ~~non-small cell lung cancer and~~ other tumor types that over-express or have a mutation in ~~HER2. Until recently,~~HER2, such as breast cancer, cervical cancer, lung cancer or other solid tumors.

Prior to 2017, our efforts and resources had been focused primarily on acquiring and developing our pharmaceutical technologies, raising capital and recruiting personnel.

~~We submitted a New Drug Application, or NDA, with~~ In 2017, the U.S. Food and Drug Administration, or FDA, for regulatory approval of neratinib in the extended adjuvant setting in the United States in July 2016 and a Marketing Authorization Application, or MAA, with the European Medicines Agency, or EMA, in June 2016. On July 17, 2017, we received regulatory approval of our first product,approved NERLYNX, ~~(neratinib),~~ formally known as PB272 (neratinib (oral)), for the extended adjuvant treatment of adult patients with early stage HER2-overexpressed/amplified breast cancer following adjuvant trastuzumab-based ~~therapy~~therapy. In February 2020, NERLYNX was also approved by the FDA 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. In 2018, the European Commission, or EC, granted marketing authorization for NERLYNX in the European Union for the extended adjuvant treatment of adult patients with early stage hormone receptor positive HER2-overexpressed/amplified breast cancer and who are less than one year from the ~~FDA.~~ completion of prior adjuvant trastuzumab-based therapy.

We ~~must receive equivalent foreign~~have entered into exclusive sub-license agreements with various parties to pursue regulatory approval, ~~to begin selling a drug product~~if necessary, and commercialize NERLYNX, if approved, in ~~countries other than~~numerous regions outside the United ~~States.~~States, including Europe (excluding Russia and Ukraine), Canada, China, Southeast Asia, Israel, Mexico, South Korea, and various countries and territories in Central and South America. We ~~recently commenced~~plan to continue to pursue commercialization of NERLYNX in ~~the United States using a direct sales force and are continuing to evaluate potential commercialization options for neratinib in this indication~~other countries outside the United States, if ~~approved, including developing a direct~~approved.

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. 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.

Our priorities during the COVID-19 pandemic are protecting the health and safety of our employees while continuing our mission to develop and commercialize innovative products to enhance cancer care. Substantially all geographic regions in which our U.S. sales force ~~contracting~~operates have imposed, and those regions or other regions in which our sales force operates may in the future impose, “shelter-in-place” orders, quarantines or similar orders or restrictions to control the spread of COVID-19. These types of restrictions may deter or prevent cancer patients from traveling to see their doctors and result in a decline in revenue for NERLYNX, our only commercial product. Additionally, our commercial team and sales force have limited travel and personal interactions with ~~third parties~~physicians and customers, including visits to ~~provide~~healthcare provider offices due to limitations that have been imposed at certain hospitals and medical facilities, and are currently conducting a large percentage of promotional activities virtually. These types of restrictions have adversely impacted our ability to engage with our customers and have adversely impacted sales of NERLYNX, our only commercial product, and ~~marketing capabilities, some~~they may continue to do so. The respective commercial teams of certain of the companies to which we sub-license the commercial rights to NERLYNX, and on which we rely for our international sales, have chosen or have been forced to take similar action, and other sub-licensees of NERLYNX may choose or be forced to take similar action. Furthermore, the COVID-19 pandemic has resulted in dramatic increases in unemployment rates, which may result in a substantial number of people becoming uninsured or underinsured. Any of these developments may have an adverse effect on our revenue. We have observed disruptions in patient enrollments in the United States and in our SUMMIT basket trial. If the COVID-19 pandemic continues to spread in the geographies in which we are conducting clinical trials, we may experience additional disruptions in those clinical trials, which could have a material adverse impact on our clinical trial plans and timelines.

Our ability to continue to operate without any significant negative impacts will in part depend on the length and severity of the COVID-19 pandemic and our ability to protect our employees and our supply chain. We continue to follow and monitor recommended actions of government and health authorities to protect our employees worldwide. For the the six months ended June 30, 2020, we and our key third-party suppliers and manufacturers were able to broadly maintain operations. We rely exclusively on third-party manufacturers to manufacture NERLYNX.

We intend to satisfy our near-term liquidity requirements through a combination of ~~these two options or other strategic options. We expect~~our existing cash and cash equivalents and marketable securities as of June 30, 2020 and proceeds that will become available to us through product sales, royalties and license milestone payments. However, this intention is based on assumptions that may prove to be wrong. Changes may occur that would consume our ~~expenses will continue~~available capital faster than anticipated, including the length and severity of the COVID-19 pandemic and measures taken to ~~increase~~control the spread of COVID-19, as ~~we continue~~well as changes in and progress of our development activities, the impact of commercialization ~~efforts.~~efforts, acquisitions of additional drug candidates and changes in regulation.

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~~three months and six months ended ~~September~~June 30, ~~2017~~2020 from our accounting policies at December 31, ~~2016,~~2019, as reported in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016, with~~2019. We had the ~~exception of those listed below.~~

Accounts receivable are recorded net of customer allowances for distribution fees, prompt payment discounts, chargebacks, and doubtful accounts. Allowances for distribution fees, prompt payment discounts and chargebacks are based on contractual terms. The Company estimates the allowance for doubtful accounts based on existing contractual payment terms, actual payment patterns of its customers and individual customer circumstances. At September 30, 2017, the Company determined that an allowance for doubtful accounts was not required. No accounts were written offfollowing activity related to sub-license agreements during the ~~periods presented.~~six months ended June 30, 2020:

We ~~expense amounts paid to acquire licenses associated with products~~recognize license revenue under development when the ultimate recoverability of the amounts paid is uncertain and the technology has no alternative future use when acquired. Acquisitions of technology licenses are charged to expense or capitalized based upon the asset achieving technological feasibility in accordance with management’s assessment regarding the ultimate recoverability of the amounts paid and the potential for alternative future use. We have determined that technological feasibility for our product candidates is reached when the requisite regulatory approvals are obtained to make the product available for sale.

In connection with the FDA approval of NERLYNX in July 2017, we triggered a one-time milestone payment pursuant to our 2014 license agreement with the Pfizer, Inc., or Pfizer or the Licensor. We capitalized the milestone payment as an intangible asset

and are amortizing the asset on a straight-line basis over the estimated useful life of the licensed patent through 2030. We recorded amortization expense related to our intangible asset of $0.6 million for the three months ended September 30, 2017. As of September 30, 2017, estimated future amortization expense related to our intangible asset was $1.0 million for the remainder of 2017, approximately $3.9 million for each year starting 2018 through 2029, and $1.0 million for 2030.

~~Royalties incurred in connection with the license agreement with the Licensor, as disclosed in Note 9, are expensed to cost of sales as sales from product revenue is recognized.~~

We maintain definite-lived intangible assets related to the Licensor agreement. These assets are amortized over their remaining useful lives, which are estimated based on the shorter of the remaining patent life or the estimated useful life of the underlying product. Intangible assets are amortized using the economic consumption method if anticipated future revenues can be reasonably estimated. The straight-line method is used when future revenues cannot be reasonably estimated.

We assess our intangible assets for impairment if indicators are present or changes in circumstance suggest that impairment may exist. Events that could result in an impairment, or trigger an interim impairment assessment, include the receipt of negative additional clinical or nonclinical data regarding onecertain of our drug candidates or a potentially competitive drug candidate, adverse changes in the clinical development program for a drug candidate, or new information regarding potential sales for the drug. If impairment indicators are present or changes in circumstance suggest that impairment may exist, we perform a recoverability test by comparing the sum of the estimated undiscounted cash flows of each intangible asset to its carrying value on the condensed consolidated balance sheet. If the undiscounted cash flows used in the recoverability test are less than the carrying value, we would determine the fair value of the intangible asset and recognize an impairment loss if the carrying value of the intangible asset exceeds its fair value.

We value our inventories at the lower of cost or estimated net realizable value. We determine the cost of our inventories, which includes amounts related to materials and manufacturing overhead, on a first-in, first-out basis. We perform an assessment of the recoverability of capitalized inventory during each reporting period, and we write down any excess and obsolete inventories to their estimated realizable value in the period in which the impairment is first identified. Such impairment charges, should they occur, are recorded within the cost of sales. The determination of whether inventory costs will be realizable requires estimates by management. If actual market conditions are less favorable than projected by management, additional write-downs of inventory may be required, which would be recorded as a cost of sales in the consolidated statements of operations and comprehensive loss.

We capitalize inventory costs associated with our products after regulatory approval when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized. Inventory acquired prior to receipt of marketing approval of a product candidate is expensed as research and development expense as incurred. Inventory that can be used in either the production of clinical or commercial product is expensed as research and development expense when selected for use in a clinical trial. Starter kits, provided to patients prior to insurance approval, are expensed by us to sales and marketing expense as incurred.

We adopted Accounting Standards Codification (“ASC”) Topic 606 - Revenue from Contracts with Customers (“Topic 606”) on January 1, 2017. This standard applies to all contracts with customers, except for contractssub-license agreements that are within the scope of ~~other standards, such~~ASC 606. The terms of these agreements may contain multiple performance obligations, which may include licenses and research and development activities. We evaluate these agreements under ASC 606 to determine the distinct performance obligations. Non-refundable, up-front fees that are not contingent on any future performance and require no consequential continuing involvement by us, are recognized as ~~leases, insurance, collaboration arrangements, and financial instruments. Under Topic 606, an entity recognizes~~ revenue when ~~its customer obtains control~~the license term commences and the licensed data, technology or product is delivered. We defer recognition of the promised goods or services, in an amount that reflects the consideration which the entity expects to be entitled in exchange for those goods or services. We had no contracts with customers until the FDA approved NERLYNX on July 17, 2017. Subsequent to receiving FDA approval, we entered into a limited number of arrangements with specialty pharmacies (“SPs”) and specialty distributors (“SDs”) in the U.S. (collectively, its “Customers”) to distribute NERLYNX. These arrangements are our initial contracts with customers. We have determined that these sales channels with our customers are similar.

To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer, (ii) identifynon-refundable upfront license fees if the performance obligations ~~in the contract, (iii) determine the transaction price, (iv) allocate the transaction price~~are not satisfied.

Prior to ~~the performance obligations in the contract, and (v) recognize~~recognizing revenue, ~~when (or as) the entity satisfies a performance obligation. We only apply the five-step model to arrangements that meet the definition of a contract under Topic 606, including when it is probable that~~ we ~~will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the~~

scope of Topic 606, we assess the goods or services promised within each contract and determine those that are performance obligations, and assesses whether each promised good or service is distinct. We then recognize as revenue the amountmake estimates of the transaction price, including variable consideration that is ~~allocated to the respective performance obligation when (or as) the performance obligation is satisfied.~~

~~We sell NERLYNX~~subject to a limited number of customers in the U.S. These customers subsequently resell our products to patients and certain medical centers or hospitals. In addition to distribution agreements with Customers, we enter into arrangements with health care providers and payors that provide for government mandated and/or privately negotiated rebates, chargebacks, and discounts with respect to the purchase of our products. Our payment terms range between 10 and 60 days.

We recognize revenue on product sales when the customer obtains control of our product, which occurs at a point in time (upon delivery). Product revenue is recorded net of applicable reserves for variable consideration.

~~Shipping and handling costs for product shipments occur prior to the customer obtaining control of the goods, and are recorded in cost of goods sold.~~

If taxes should be collected from customers relating to product sales and remitted to governmental authorities, they will be excluded from revenue. We expense incremental costs of obtaining a contract when incurred, if the expected amortization period of the asset that we would have recognized is one year or less. However, no such costs were incurred during the three months ended September 30, 2017.

~~Product revenue is recorded at the net sales price (transaction price), which includes estimates~~constraint. Amounts of variable consideration ~~for which reserves~~ are established. Components of variable consideration include trade discounts and allowances, product returns, provider chargebacks and discounts, government rebates, payor rebates, and other incentives, such as voluntary patient assistance, and other allowances that are offered within contracts between us and our customers, payors, and other indirect customers relating to the sale of our products. These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales, and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a party other than a customer). These estimates take into consideration a range of possible outcomes which are probability-weighted in accordance with the expected value method in Topic 606 for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which we are entitled based on the terms of the respective underlying contracts.

~~The amount of variable consideration which is~~ included in the transaction price ~~may be constrained, and is included in the net sales price only~~ to the extent that it is probable that a significant reversal in the amount of ~~the~~ cumulative revenue recognized ~~under the contract~~ will not occur ~~in a future period. Our analysis also contemplated application of~~and when the ~~constraint in accordance~~uncertainty associated with the ~~guidance, under which~~variable consideration is subsequently resolved. Variable consideration may include nonrefundable upfront license fees, payments for research and development activities, reimbursement of certain third-party costs, payments based upon the achievement of specified milestones, and royalty payments based on product sales derived from the collaboration.

If there are multiple distinct performance obligations, we ~~determined a material reversal of revenue would not occur in a future period for the estimates detailed below as of September 30, 2017 and, therefore,~~allocate the transaction price ~~was not reduced further~~to each distinct performance obligation based on its relative standalone selling price. The standalone selling price is generally determined based on the prices charged to customers or using expected cost-plus margin. Revenue is recognized by measuring the progress toward complete satisfaction of the performance obligations.

During the second quarter of 2020, we entered into a sub-license agreement, or the Bixink Agreement, with Bixink Therapeutics Co., Ltd., or Bixink. The Bixink Agreement granted intellectual property rights and set forth the respective obligations with respect to development, commercialization and supply of NERLYNX in South Korea, or the Bixink Territory. Pursuant to the Bixink Agreement, we received and recognized as license revenue an upfront payment of $0.5 million during the ~~three months ended September~~second quarter of 2020. As of June 30, ~~2017. Actual amounts~~2020, the Bixink Agreement includes potential milestone payments due to us upon successful completion of ~~consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates,~~certain performance obligations, such as achieving regulatory approvals, which would ~~affect net product revenue and earnings in the period such variances become known.~~

~~We generally provide customers with discounts that include incentive fees that~~entitle us to receive payments totaling approximately $5.5 million if all respective performance obligations are ~~explicitly stated in our contracts and are recorded as a reduction of revenue in the period the related product revenue is recognized.~~achieved. In addition, we ~~compensate (through trade discounts~~are entitled to receive double-digit royalties on sales of licensed products, calculated as a percentage of net sales of licensed products throughout the Bixink Territory. At this time, we cannot estimate if or when these milestone-related performance obligations might be achieved.

During the first quarter of 2018, we entered into a sub-license agreement, or the CANbridge Agreement, with CANbridge Limited, or CANbridge, to pursue regulatory approval and ~~allowances) our customers~~commercialize NERLYNX, if approved, in the People’s Republic of China (including mainland China, Hong Kong, Macao, and Taiwan), or the CANbridge Territory. The CANbridge Agreement granted intellectual property rights and set forth the parties’ respective obligations with respect to development, commercialization and supply of the licensed product. Pursuant to the CANbridge Agreement, as of June 30, 2020, the potential milestone payments due to us upon successful completion of certain performance obligations total approximately $195.0 million if all respective performance obligations are achieved. During the second quarter of 2020, we achieved a development-based milestone, which satisfied a performance obligation necessary to recognize the associated $20.0 million in license revenue. In addition, we are entitled to receive double-digit

royalties on sales of licensed products, calculated as a percentage of net sales of licensed products in the CANbridge Territory. On July 28, 2020, we filed a request for ~~sales order management, data,~~arbitration against CANbridge asserting that CANbridge breached, or alternatively is in anticipatory breach of, this agreement; that CANbridge’s conduct constitutes grounds for termination of the agreement; that CANbridge has failed to use commercially reasonable efforts to commercialize NERLYNX as required under the agreement; and ~~distribution services. However,~~that CANbridge must obtain the Company’s consent before transferring the agreement to a third party, subject to certain limitations that do not currently apply. At this time, we ~~have determined such services received~~cannot estimate if or when these remaining milestone-related performance obligations might be achieved or affected by the arbitration.

During the first quarter of 2018, we entered into a sub-license agreement, or the Medison Agreement, with Medison Pharma Ltd., or Medison. Pursuant to ~~date are not distinct from~~ the ~~sale~~Medison Agreement, we granted to Medison, under certain of our ~~products~~intellectual property rights relating to neratinib, an exclusive license to commercialize neratinib and certain related compounds and participate in the named patient supply in Israel, or the Medison Territory, subject to the ~~customer~~terms of the Medison Agreement and ~~therefore, these~~the related supply agreement. Pursuant to the Medison Agreement, as of June 30, 2020, the potential milestone payments ~~have been recorded as~~due to us upon successful completion of certain separate, distinct performance obligations total approximately $0.3 million if all respective performance obligations are achieved.During the second quarter of 2020, we achieved a ~~reduction of~~certain development-based milestone, which satisfied performance obligations necessary to recognize the associated $0.2 million in license revenue. The payment associated with this license revenue ~~within the statement of operations and comprehensive loss through September 30, 2017, as well as a reduction to trade receivables,~~is included in accounts receivable, net on the ~~condensed~~ consolidated balance ~~sheets.~~sheet as of June 30, 2020. In addition, we are entitled to receive double-digit royalties on sales of licensed products, calculated as a percentage of net sales of licensed products in the Medison Territory.At this time, we cannot estimate if or when these remaining milestone-related performance obligations might be achieved

During the first quarter of 2018, we entered into a sub-license agreement, or the Pint Agreement, with ~~industry practice, we offer the customers limited product return~~Pint Pharma International SA, or Pint. The Pint Agreement granted intellectual property rights ~~for damages~~ and ~~expiring product, provided it is within a specified period around the product expiration date as~~ set forth the respective obligations with respect to development, commercialization and supply of NERLYNX in Mexico and 21 countries and territories in Central and South America, or the Pint Territory. The Pint Agreement includes potential future milestone and royalty payments due to us upon successful completion of certain performance obligations, such as achieving regulatory approvals. Pursuant to the Pint Agreement, as of June 30, 2020, the potential milestone payments due to us upon successful completion of certain performance obligations, such as achieving regulatory approvals, total approximately $20.0 million if all respective performance obligations are achieved. During the third quarter of 2019, we achieved a development-based milestone, which satisfied a performance obligation necessary to recognize the associated license revenue. The $2.5 million associated with this license revenue for the milestone met in the ~~applicable individual distribution agreement. We estimate~~third quarter of 2019 is included in accounts receivable, net on the ~~amount~~consolidated balance sheet as of ~~our product~~June 30, 2020. In addition, we are entitled to receive double-digit royalties on sales ~~that may be returned by our customers and record this estimate~~of licensed products, calculated as a ~~reduction~~percentage of net sales of licensed products throughout the Pint Territory. At this time, we cannot estimate if or when these remaining milestone-related performance obligations might be achieved.

During the first quarter of 2019, we entered into a sub-license agreement, or the Knight Agreement, with Knight Therapeutics, Inc., or Knight. The Knight Agreement, granted to Knight an exclusive, sublicensable (under certain circumstances) license (i) to commercialize any product containing neratinib and certain related compounds in Canada, or the Knight Territory, (ii) to seek and maintain regulatory approvals for the licensed products in the Knight Territory and (iii) to manufacture the licensed products anywhere in the world solely for the development and commercialization of the licensed products in the Knight Territory for human use. Pursuant to the Knight Agreement, as of June 30, 2020, the potential milestone payments due to us upon successful completion of certain regulatory and commercial milestones total approximately $5.4 million. In addition, we are entitled to receive double-digit royalties on sales of licensed products, calculated as a percentage of net sales of licensed products in the Knight Territory. At this time, we cannot estimate if or when the remaining milestone-related performance obligations might be achieved.

During the first quarter of 2019, we entered into a sub-license agreement, or the Pierre Fabre Agreement, with Pierre Fabre Medicament SAS, or Pierre Fabre. The Pierre Fabre Agreement granted intellectual property rights and set forth the parties’ respective obligations with respect to development, commercialization and supply of any pharmaceutical product containing neratinib in European countries excluding Russia and Ukraine, along with countries in North Africa and francophone countries of West Africa, or the Pierre Fabre Territory. During the fourth quarter of 2019, we entered into a license amendment, or the Pierre Fabre Amendment, with Pierre Fabre to extend the terms of the Pierre Fabre Agreement to the Middle East, South Africa, Sudan and Turkey, or the Pierre Fabre Amendment Territory. Pursuant to the Pierre Fabre Agreement and Pierre Fabre Amendment, as of June 30, 2020, the potential milestone payments due to us upon successful completion of certain regulatory and sales-based milestones total approximately $348.0 million. In addition, we are entitled to receive double-digit royalties on sales of licensed products throughout the Pierre Fabre Territory and the Pierre Fabre Amendment Territory. At this time, we cannot estimate if or when the remaining milestone-related performance obligations might be achieved.

Summary of revenue in the period the related product revenue is recognized, as well as reductions to trade receivables, net on the condensed consolidated balance sheets. We currently estimate product return liabilities using available industry dataIncome and our own sales information, including our visibility into the inventory remaining in the distribution channel. We have not received any returns to date and believe that future returns of our products will be minimal.

Chargebacks for fees and discounts to providers represent the estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices charged to customers who directly purchase the product from us. Customers charge us for the difference between what they pay for the product and the ultimate selling price to the qualified healthcare providers. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and trade receivables, net on the condensed consolidated balance sheets. Chargeback amounts are generally determined at the time of resale to the qualified healthcare provider by customers, and we generally issue credits for such amounts within a few weeks of the customer’s notification to us of the resale. Reserves for chargebacks consist of credits that we expect to issue for units that remain in the distribution channel inventories at each reporting period-end that we expect will be sold to qualified healthcare providers, and chargebacks that customers have claimed, but for which we have not yet issued a credit.

We are subject to discount obligations under state Medicaid programs and Medicare. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability, which is included in accrued expenses and other current liabilities on the condensed consolidated balance sheets. For Medicare, we also estimate the number of patients in the prescription drug coverage gap for whom we will owe an additional liability under the Medicare Part D program. Our liability for these rebates consists of invoices received for claims from prior quarters that have not been paid or for which an invoice has not yet been received, estimates of claims for the current quarter, and estimated future claims that will be made for product that has been recognized as revenue, but which remains in the distribution channel inventories at the end of each reporting period.

We contract with certain private payor organizations, primarily insurance companies and pharmacy benefit managers, for the payment of rebates with respect to utilization of our products. We estimate these rebates and record such estimates in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability.

Other incentives that we offer include voluntary patient assistance programs, such as the co-pay assistance program, which are intended to provide financial assistance to qualified commercially-insured patients with prescription drug co-payments required by payors. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that we expect to receive associated with product that has been recognized as revenue, but remains in the distribution channel inventories at the end of each reporting period. The adjustments are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability, which is included as a component of accrued expenses and other current liabilities on the condensed consolidated balance sheets.

Product revenue, net ~~consist~~consists of revenue from sales of NERLYNX. We sell NERLYNX ~~our first~~to a limited number of specialty pharmacies and ~~only commercial product to date. The FDA approved NERLYNX in July 2017, and we launched the product~~specialty distributors in the United ~~States~~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.

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

Royalty revenue consists of consideration earned related to product sales made by our licensees in ~~September 2017.~~their respective territories pursuant to our license agreements.

Cost of sales consists of third-party manufacturing costs, freight, ~~royalties,~~ and indirect overhead costs associated with sales of NERLYNX. Cost of sales ~~may~~ also ~~include~~includes period costs related to royalty charges payable to Pfizer, the amortization of milestone payments made to Pfizer, certain inventory manufacturing services, inventory adjustment charges, unabsorbed manufacturing and overhead costs, and manufacturing variances. ~~The cost of manufacturing NERLYNX prior to FDA approval in July 2017 has been expensed. Due to that, the cost of sales will appear artificially low until additional product is manufactured.~~

Selling, general and administrative, or SG&A, expenses consist primarily of salaries and ~~related personnel~~payroll-related costs, ~~including~~ stock-based compensation expense, professional fees, business insurance, rent, general legal activities, ~~preparation for commercialization~~ and other corporate expenses. We expense SG&A expenses as they are incurred.

R&D expenses include costs associated with services provided by consultants who conduct clinical services on our behalf, contract organizations for the manufacturing of clinical materials and clinical trials. During the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, our R&D expenses consisted primarily of clinical research organization, or CRO, ~~fees,~~fees; fees paid to ~~consultants,~~consultants; salaries and related personnel ~~costs~~costs; and stock-based compensation. We expense our R&D costs as they are incurred. Internal R&D expenses primarily consist of payroll-related costs, and also include equipment costs, travel expenses and supplies.

Three Months Ended ~~September~~June 30, ~~2017~~2020 Compared to Three Months Ended ~~September~~June 30, ~~2016~~2019

~~Product revenue, net~~ was ~~$6.1~~approximately $70.6 million, compared to $53.9 million for the three months ended ~~September~~June 30, ~~2017 compared to $0 for the three months ended September 30, 2016. The increase in product~~2019.

Product revenue, net was ~~entirely attributable to the commercial launch of NERLYNX, our initial product, in July 2017.~~

~~Cost of sales was $1.5~~approximately $48.8 million for the three months ended ~~September~~June 30, ~~2017~~2020, compared to $0$53.9 million for the three months ended ~~September~~June 30, ~~2017.~~2019. The decrease in product revenue, net was attributable to a volume decrease of approximately 22% in bottles of NERLYNX sold, and an increase in reserves for variable consideration from approximately 11% of product revenue for the three months ended June 30, 2019 to approximately 14% of product revenue for the three months ended June 30, 2020. The increase in reserves for variable consideration is primarily due to an increase in government rebates. The decrease in product revenue, net was partially offset by an approximately 10% increase in gross selling price that occurred in the third quarter of 2019 and again in the first quarter of 2020.

License revenue was approximately $20.7 million for the three months ended June 30, 2020, compared to no license revenue for the three months ended June 30, 2019. The increase in license revenue was primarily due to an upfront payment and satisfaction of two performance-based milestones related to sub-license agreements in the three months ended June 30, 2020.

Royalty revenue was $1.1 million for the three months ended June 30, 2020, compared to $0.1 million for the three months ended June 30, 2019. The increase was due to increased product sales by our sub-licensees.

Cost of sales was approximately $9.4 million for the three months ended June 30, 2020, compared to $9.3 million for the three months ended June 30, 2019. The increase in cost of sales was ~~entirely~~primarily attributable to an increase in the ~~commercial launch~~amortization of ~~NERLYNX, our initial~~the milestone payments made to Pfizer and increased royalty expense due to Pfizer related to the increase in royalty revenue, which was partially offset by decreased royalty expenses due to Pfizer related to the decrease in product ~~in July 2017.~~

For the three months ended ~~September~~June 30, ~~2017,~~2020, SG&A expenses were approximately ~~$32.5~~$29.3 million, compared to approximately ~~$14.0~~$33.5 million for the three months ended ~~September~~June 30, ~~2016.~~2019. SG&A expenses for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 were as follows:

Selling, general and administrative expenses	For the Three Months Ended September 30,				Period to period percentage
Selling, general, and administrative expenses								For the Three Months Ended				Change
(in thousands)	2017		2016		change			June 30,				$			%
								2020		2019		2020/2019			2020/2019
Payroll and related costs								$	10,817	$	10,646	$	171			1.6	%
Professional fees and expenses	$	13,124	$	2,644		396.4	%		10,551		9,577		974			10.2	%
Payroll and related costs		7,804		1,680		364.5	%
Facility and equipment costs		1,249		1,251		(0.2	%)
Employee stock-based compensation expense		8,330		7,671		8.6	%
Travel and meetings									517		2,712		(2,195	)		-80.9	%
Facilities and equipment costs									1,427		1,499		(72	)		-4.8	%
Stock-based compensation									4,730		7,452		(2,722	)		-36.5	%
Other		1,982		776		155.4	%		1,305		1,641		(336	)		-20.5	%
	$	32,489	$	14,022		131.7	%	$	29,347	$	33,527	$	(4,180	)		-12.5	%

For the three months ended ~~September~~June 30, ~~2017,~~2020, SG&A expenses ~~increased~~decreased by approximately ~~$18.5~~$4.2 million compared to the same period in ~~2016. Approximately $0.7~~2019,primarily attributable to the following:

For the three months ended June 30, 2020, R&D expenses were approximately $24.7 million, compared to approximately $36.9 million for the three months ended June 30, 2019. R&D expenses for the three months ended June 30, 2020 and 2019 were as follows:

For the three months ended June 30, 2020, R&D expenses decreased approximately $12.2 million compared to the same period in 2019, primarily attributable to the following:

For the three months ended June 30, 2020, we recognized approximately $0.1 million in interest income compared to approximately $0.9 million of interest income for the ~~increase was related~~three months ended June 30, 2019. The decrease in interest income reflects less cash invested in money market accounts and high yield savings accounts in 2020 compared to ~~an increase~~2019.

For the three months ended June 30, 2020, we recognized approximately $3.8 million in ~~stock-based compensation~~interest expense, ~~attributable~~compared to ~~our increased headcount and additional incentive awards to existing employees. The remaining $17.8~~$4.4 million of ~~the increase in SG&A~~interest expense for the three months ended ~~September~~June 30 ~~2017,~~, 2019. The decrease in interest expense was primarily the result of having less borrowings outstanding in the second quarter of 2020 than in the second quarter of 2019.

For the quarter ended June 30, 2020, we recognized $0.1 million in legal verdict expense, which represents an estimate of service fees incurred related to the class action administrator as a result of the Hsu v. Puma Biotechnology, Inc., et al. claims process and post-judgment interest for the Eshelman v. Puma Biotechnology, Inc., et al. judgment.

For the three months ended June 30, 2019, we recognized approximately $8.1 million in loss on debt extinguishment related to the fees paid in connection with our debt refinancing during the second quarter of 2019.

For the six months ended June 30, 2020, total revenue was approximately $121.8 million, compared to $153.0 million for the six months ended June 30, 2019.

Product revenue, net was approximately $97.4 million for the six months ended June 30, 2020, compared to $99.4 million for the six months ended June 30, 2019. The decrease in product revenue, net was attributable to a volume decrease of approximately 16% in bottles of NERLYNX sold, partially offset by an approximately 10% increase in gross selling price that occurred in the third quarter of 2019 and again in the first quarter of 2020.

License revenue was approximately $22.7 million for the six months ended June 30, 2020, compared to $53.5 million for the six months ended June 30, 2019. The decrease in license revenue is primarily due to a decrease in upfront payments and satisfaction of different performance-based milestones related to sub-license agreements in the six months ended June 30, 2020, compared to the six months ended June 30, 2019.

Royalty revenue was $1.7 million for the six months ended June 30, 2020, compared to $0.1 million for the six months ended June 30, 2019. The increase was due to royalty revenue recognized related to the start of product sales by our sub-licensees.

For the six months ended June 30, 2020, cost of sales was approximately $18.5 million compared to $17.3 million for the six months ended June 30, 2019. The increase in cost of sales was primarily attributable to increased royalty expense due to Pfizer related to the increase in royalty revenue and an increase in the amortization of the milestone payments made to Pfizer, which was partially offset by decreased royalty expenses due to Pfizer related to the decrease in product revenue, net.

For the six months ended June 30, 2020, SG&A expenses were approximately $60.3 million, compared to approximately $79.0 million for the six months ended June 30, 2019. SG&A expenses for the six months ended June 30, 2020 and 2019 were as follows:

Selling, general, and administrative expenses	For the Six Months Ended				Change
(in thousands)	June 30,				$			%
	2020		2019		2020/2019			2020/2019
Payroll and related costs	$	21,384	$	21,823	$	(439	)		-2.0	%
Professional fees and expenses		20,981		28,692		(7,711	)		-26.9	%
Travel and meetings		2,933		5,455		(2,522	)		-46.2	%
Facilities and equipment costs		2,864		2,939		(75	)		-2.6	%
Stock-based compensation		9,422		17,327		(7,905	)		-45.6	%
Other		2,700		2,797		(97	)		-3.5	%
	$	60,284	$	79,033	$	(18,749	)		-23.7	%

For the six months ended June 30, 2020, SG&A expenses decreased by approximately $18.7 million compared to the same period in ~~2016, was~~ 2019,primarily attributable ~~to:~~to the following:

For the ~~three~~six months ended ~~September~~June 30, ~~2017,~~2020, R&D expenses were approximately ~~$49.5~~$50.1 million, compared to approximately ~~$52.0~~$72.6 million for the ~~three~~six months ended ~~September~~June 30, ~~2016.~~2019. R&D expenses for the ~~three~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 were as follows:

Research and development expenses

For the Three Months Ended September 30,

Period to period percentage

(in thousands)

2017

2016

change

Clinical trial expense

$
16,557

$
17,889

(7.4
%)
Internal clinical development

7,366

6,179

19.2
%
Consultants and contractors

4,258

2,973

43.2
%
Internal regulatory affairs and quality assurance

2,585

2,361

9.5
%
Internal chemical manufacturing

578

495

16.8
%
Employee stock-based compensation

18,158

22,080

(17.8
%)

$
49,502

$
51,977

(4.8
%)

Research and development expenses	For the Six Months Ended				Change
(in thousands)	June 30,				$			%
	2020		2019		2020/2019			2020/2019
Clinical trial expense	$	15,873	$	29,414	$	(13,541	)		-46.0	%
Internal R&D		20,123		19,973		150			0.8	%
Consultant and contractors		4,035		6,945		(2,910	)		-41.9	%
Stock-based compensation		10,115		16,251		(6,136	)		-37.8	%
	$	50,146	$	72,583	$	(22,437	)		-30.9	%

For the ~~three~~six months ended ~~September~~June 30, ~~2017,~~2020, R&D expenses decreased approximately ~~$2.5~~$22.4 million compared to the same period in 2016. Stock-based compensation expense decreased approximately $3.9 million, and consists of forfeitures for employees who exited the company, offset by grants to new employees and additional awards to existing employees for the three months ended September 30, 2017. Further to this decrease was a decrease in clinical trial expense of approximately $1.3 million2019, primarily attributable to ~~decreased expenses for preclinical studies and drug supply manufacturing logistics. The decreases in expenses were partially offset by:~~the following:

a slight increase of approximately $1.5 million in internal clinical development, internal regulatory affairs and quality assurance, and internal chemical manufacturing expenses due to wage progression and a slight increase in headcount to 155 from 135 for the three months ended September 30, 2017, compared to the same period in 2016.

We expect R&D expenses, excluding stock-based compensation, to continue at levels similar to the three months ended September 30, 2017, for our existing clinical trials as we conclude the work performed by CRO and related clinical services; however, should we choose to pursue additional clinical trials, R&D expenses may increase accordingly.

~~Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016~~

Product revenue, net was $6.1 million for the nine months ended September 30, 2017 compared to $0 for the nine months ended September 30, 2016. The increase in product revenue, net was entirely attributable to the commercial launch of NERLYNX, our initial product, in July 2017.

Cost of sales was $1.5 million for the nine months ended September 30, 2017 compared to $0 for the nine months ended September 30, 2017. The increase in cost of sales was entirely attributable to the commercial launch of NERLYNX, our initial product, in July 2017. Other income (expenses):

For the nine months ended September 30, 2017, SG&A expenses were approximately $75.8 million, compared to approximately $37.3 million for the nine months ended September 30, 2016. SG&A expenses for the nine months ended September 30, 2017 and 2016 were as follows:

For the nine months ended September 30, 2017, SG&A expenses increased approximately $38.5 million compared to the same period in 2016. Approximately $3.2 million of the increase was related to an increase in stock-based compensation expense attributable to our increased headcount and additional incentive awards to existing employees. The remaining $35.2 million of the increase in SG&A expense for the nine months ended September 30, 2017, compared to the same period in 2016, was primarily attributable to:

For the nine months ended September 30, 2017, R&D expenses were approximately $157.6 million, compared to approximately $166.4 million for the nine months ended September 30, 2016. R&D expenses for the nine months ended September 30, 2017 and 2016 were as follows:

For the nine months ended September 30, 2017, R&D expenses decreased approximately $8.8 million compared to the same period in 2016. Stock-based compensation expense decreased approximately $8.0 million, which consisted of forfeitures for employees who exited the company, offset by grants to new employees and additional awards to existing employees for the nine months ended September 30, 2017. Further to this decrease was a decrease in clinical trial expense of approximately $5.0 million

primarily attributable to decreased expenses due to a decrease in regulatory submission activity during the nine months ended September 30, 2017 compared to the same period in 2016, decreased preclinical study activities and decreased drug supply manufacturing logistics. The decreases in expenses were offset by:

While expenditures on current and future clinical development programs, particularly our PB272 program, are expected to be substantial, they are subject to many uncertainties, including the results of clinical trials and whether we develop any of our drug candidates with a partner or independently. As a result of such uncertainties, we cannot predict with any significant degree of certainty the duration and completion costs of our research and development projects or whether, when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates. The duration and cost of clinical trials may vary significantly over the life of a project as a result of unanticipated events arising during clinical development and a variety of other factors, including:

For the ~~three and nine~~six months ended ~~September~~June 30 ~~2017,~~, 2020, we recognized approximately ~~$0.3 million and $1.0~~$0.5 million in interest income compared to approximately ~~$0.2~~$1.8 million ~~and $0.8 million~~of interest income for the ~~same periods in 2016, respectively.~~six months ended June 30, 2019. The ~~increase~~decrease in interest income ~~is due~~reflects less cash invested in money market accounts and “high yield” savings accounts in 2020 compared to 2019.

For the ~~additional cash, cash equivalents and marketable securities on hand~~six months ended June 30, 2020, we recognized approximately $6.9 million in interest expense, compared to $8.9 million of interest expense for the ~~three and nine~~six months ended ~~September~~June 30 ~~2017, from~~, 2019. The decrease in interest expense was primarily the ~~underwritten public offering~~result of having less borrowings outstanding in ~~October 2016.~~

~~During the three and nine months ended September 30, 2017, other expenses, consisting primarily of foreign exchange loss, were approximately $0.0 and $0.1 million. During the same periods~~2020 than in ~~2016, other expenses were approximately $$0.0 and $0.4 million. The nine months ended September 30, 2016 included~~ ~~approximately $0.4 million on the disposal of leasehold improvements due to the relocation of our South San Francisco office.~~2019.

For the six months ended June 30, 2020, we recognized $0.2 million in legal verdict expense that represents an estimate of service fees incurred related to the class action administrator as a result of the Hsu v. Puma Biotechnology, Inc., et al. claims process and post-judgment interest for the Eshelman v. Puma Biotechnology, Inc., et al. judgment. For the six months ended June 30, 2019, we recognized approximately $16.4 million in legal verdict expense related to the Eshelman v. Puma Biotechnology, Inc., et al. verdict. The legal verdict expense of $16.4 million was the result of our initial estimate of the total damages payable in the matter of $22.4 million, net of $6.0 million in insurance reimbursements.

For the six months ended June 30, 2019, we recognized approximately $8.1 million in loss on debt extinguishment related to the fees paid in connection with our debt refinancing during the second quarter of 2019.

The following table summarizes our liquidity and capital resources as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, and for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, and is intended to supplement the more detailed discussion that follows:

							As of		As of
Liquidity and capital resources (in thousands)	September 30, 2017			December 31, 2016			June 30, 2020		December 31, 2019
Cash and cash equivalents	$	79,717		$	194,494		$	90,896	$	60,037
Marketable securities		26,620			34,982		$	16,376	$	51,607
Working capital		22,345			199,013		$	64,698	$	75,459
Stockholders' equity		79,168			209,824		$	23,403	$	17,463

	Nine Months Ended			Nine Months Ended
	September 30, 2017			September 30, 2016			Six Months Ended		Six Months Ended
							June 30, 2020		June 30, 2019
Cash provided by (used in):
Operating activities	$	(136,861	)	$	(100,729	)	$	4,688	$	28,117
Investing activities		8,082			121,350			25,158		(33,377	)
Financing activities		14,002			351			2		(67,142	)
(Decrease) increase in cash and cash equivalents	$	(114,777	)	$	20,972
Net increase (decrease) in cash, cash equivalents and restricted cash							$	29,848	$	(72,402	)

For the ~~three and nine~~six months ended ~~September~~June 30, ~~2017,~~2020 we reported a net loss of approximately ~~$77.2 million and $227.9~~$13.5 million, compared to approximately ~~$65.8 million and $203.4~~$47.5 million for the same ~~periods~~period in ~~2016, respectively.~~2019. Additionally, cash ~~used in~~provided by operating activities for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017~~2020 was approximately ~~$54.9~~$4.7 million ~~and $136.9 million, respectively,~~ compared to approximately ~~$34.9~~$28.1 million ~~and $100.7 million for the same periods in 2016, respectively.~~

~~Cash used in~~of cash provided by operating activities for the ~~nine~~same period in 2019, respectively.

Cash provided by operating activities for the six months ended ~~September~~June 30, ~~2017~~2020 consisted of a net loss of ~~$227.9~~approximately $13.5 million, offset by approximately ~~$84.7~~$23.7 million of non-cash items, such as stock-based compensation and depreciation and amortization, a decrease in accounts receivable, net of approximately $4.9 million, and ~~stock-based compensation,~~other immaterial changes of $0.1 million; partially offset by an increase in other current assets of approximately ~~$3.9~~$3.1 million in accounts receivables, an increase of approximately $0.1 million for inventory, an increase of approximately $9.7 million in accrued expenses and accounts payable, a decrease of approximately $0.1 million for deferred rent and a decrease in accounts payable of approximately ~~$0.7 million in prepaid expenses and other.~~$7.4 million.

Cash ~~used in~~provided by operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2019 consisted of a net loss of ~~$203.4~~approximately $47.5 million, ~~offset by~~an increase in prepaid expenses and other of $2.2 million, an increase in other current assets of $1.5 million, an increase of $27.8 million in accrued expenses, an increase of approximately ~~$91.9~~$9.0 million in a post-marketing commitment liability, and $45.9 million of non-cash items such as stock-based compensation, depreciation and amortization, ~~a build-out allowance from the landlord for our office space, the disposal of leasehold improvements~~ and ~~stock-based compensation; an increase of approximately $3.9 million in the liability for deferred rent;~~debt extinguishment fees. These were offset by an increase in ~~other receivables~~net accounts receivable of approximately ~~$1.2~~$4.6 million, ~~related to the build-out allowance to be received from the landlord;~~ an increase in inventory of ~~approximately $5.2~~$0.6 million, ~~in accrued expenses and accounts payable;~~ and a decrease in ~~prepaid expenses and other~~accounts payable of ~~approximately $2.8 million~~$5.6 million.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, net cash provided by investing activities was approximately ~~$8.1~~$25.2 million, compared to ~~approximately $121.4~~net cash used in investing activities of $33.4 million for the same period in ~~2016. The approximately $8.1 million of net~~2019.

Net cash provided by investing activities during the ~~nine~~six months ended ~~September~~June 30, ~~2017 was made up~~2020 consisted of approximately ~~$88.1~~$51.5 million of maturities of available-for-sale securities, partially offset by the purchase of available for sale securities of approximately $16.4 million and an increase in intangible assets relating to the milestone achieved under the Company’s license agreement with Pfizer of $10.0 million.

Net cash used in investing activities during the six months ended June 30, 2019 consisted of approximately $128.0 million of purchases of available-for-sale securities, offset by approximately $94.6 million of sales or maturities of available-for-sale ~~securities, offset by $79.7~~securities. This difference of approximately $33.4 million ofrepresented excess cash being invested in ~~available-for-sale securities, and approximately $0.3 million used~~short-term investments according to purchase property and equipment. During the nine months ended September 30, 2016, cash provided by investing activities was primarily made up of approximately $81.8 million used for the purchase of available-for-sale securities, offset by approximately $209.9 million of cash provided by the sale or maturities of available-for-sale securities, approximately $3.7 million used to purchase property and equipment and approximately $3.0 million of expenditures for leasehold improvements.our investment policy.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, net cash ~~provided~~was unchanged by financing activities. During April 2020, approximately $8.4 million was borrowed and fully repaid with no penalty or interest from Silicon Valley Bank, or SVB, under the Paycheck Protection Program, or PPP, of the Coronavirus Aid, Relief, and Economic Security Act. During the same period in 2019, cash used in financing activities was approximately $67.1 million, which consisted of approximately ~~$14.0~~$80.0 million ~~of net~~in debt repayments, $7.8 million in debt extinguishment costs and $5.6 million in debt issuance costs, offset by $25.0 million in proceeds from long-term debt and $1.3 million in proceeds from the exercise of stock options. ~~During~~

In October 2017, we entered into a loan and security agreement with SVB, as administrative agent, and the ~~same period in 2016, cash~~lenders party thereto from time to time, or the Original Lenders, including Oxford Finance, LLC, or Oxford, and SVB. Pursuant to the terms of the credit facility provided by ~~financing activities~~the loan and security agreement, or the Original Credit Facility, we borrowed $50 million. In May 2018, we entered into an amendment to the loan and security agreement, which provided for an amended credit facility, or the Amended Credit Facility. Under the Amended Credit Facility, the Original Lenders agreed to make term loans available to us in an aggregate amount of $155 million, consisting of (i) a term loan in an aggregate amount of $125 million, the proceeds of which, in part, were used to repay the $50 million we borrowed under the Original Credit Facility, and (ii) a term loan in an aggregate amount of $30 million that we drew in December 2018, which was ~~approximately $0.4~~available to us under the Amended Credit Facility as a result of achieving a specified minimum revenue milestone. We were in compliance with all applicable financial covenants during the entire term of the Amended Credit Facility.

On June 28, 2019, or the Effective Date, we entered into a new credit facility, or the New Credit Facility, with Oxford, as collateral agent, and the lenders party thereto from time to time, including Oxford, pursuant to which we repaid the $155.0 million ~~also comprised of net proceeds~~outstanding under the Amended Credit Facility, as well as all applicable exit and prepayment fees owed to the Original Lenders under the Amended Credit Facility, using cash on hand and $100.0 million in new borrowings from the ~~exercise~~New Credit Facility. Under the New Credit Facility, we issued to Oxford new and/or replacement secured promissory notes in an aggregate principal amount for all such promissory notes of $100.0 million evidencing the New Credit Facility. No additional money remains available to us under the New Credit Facility.

The New Credit Facility is secured by substantially all of our personal property other than our intellectual property. We also pledged 65% of the issued and outstanding capital stock ~~options.~~of our subsidiaries, Puma Biotechnology Ltd. and Puma Biotechnology B.V. The New Credit Facility limits our ability to grant any interest in our intellectual property to certain permitted licenses and permitted encumbrances set forth in the agreement.

The term loans under the New Credit Facility bear interest at an annual rate equal to the greater of (i) 9.0% and (ii) the sum of (a) the “prime rate,” as reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue, plus (b) 3.5%. We are required to make monthly interest-only payments on each term loan under the New Credit Facility commencing on the first calendar day of the calendar month following the funding date of such term loan, and continuing on the first calendar day of each calendar month thereafter through August 1, 2021, or the Amortization Date. Commencing on the Amortization Date, and continuing on the first calendar day of each calendar month thereafter, we will make consecutive equal monthly payments of principal, together with applicable interest, in arrears to each lender under the New Credit Facility, calculated pursuant to the New Credit Facility. All unpaid principal and accrued and unpaid interest with respect to each term loan under the New Credit Facility is due and payable in full on June 1, 2024, or the Maturity Date. Upon repayment of such term loans, we are also required to make a final payment to the new lenders equal to 7.5% of the aggregate principal amount of such term loans outstanding as of the Effective Date.

At our option, we may prepay the outstanding principal balance of any term loan in whole but not in part, subject to a prepayment fee of 3.0% of any amount prepaid if the prepayment occurs through and including the first anniversary of the funding date of such term loan, 2.0% of the amount prepaid if the prepayment occurs after the first anniversary of the funding date of such term loan through and including the second anniversary of the funding date of such term loan, and 1.0% of the amount prepaid if the prepayment occurs after the second anniversary of the funding date of such term loan and prior to the Maturity Date.

The New Credit Facility includes affirmative and negative covenants applicable to us, our current subsidiaries and any subsidiaries we create in the future. 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. We must also achieve certain product revenue targets, measured as of the last day of each fiscal quarter on a trailing year-to-date basis. New minimum revenue levels will be established for each subsequent fiscal year by mutual agreement of us, Oxford, as collateral agent, and the lenders under the New Credit Facility. 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.

The New Credit Facility also includes events of default, the occurrence and continuation of which could cause interest to be charged at the rate that is otherwise applicable plus 5.0% and would provide Oxford, as collateral agent, with the right to exercise remedies against us and the collateral securing the New Credit Facility, including foreclosure against the property securing the New Credit Facility, including our cash. These events of default include, among other things, our failure to pay principal or interest due under the New Credit Facility, a breach of certain covenants under the New Credit Facility, our insolvency, a material adverse change, the occurrence of any default under certain other indebtedness in an amount greater than $500,000 and one or more judgments against us in an amount greater than $500,000 individually or in the aggregate that remains unsatisfied, unvacated, or unstayed for a period of 10 days after its entry.

On August 5, 2020, we entered into an amendment to the amended and restated loan and security agreement to revise the minimum revenue levels that we must achieve under the terms of the New Credit Facility for the year-to-date periods ending September 30, 2020 and December 31, 2020.

As of June 30, 2020, there were $100.0 million in term loans outstanding under the New Credit Facility, representing all of our long-term debt outstanding as of that date, and we were in compliance with all applicable covenants under the New Credit Facility.

We ~~have incurred negative cash flows from operations since we started our business. On July 17, 2017, we received FDA approval~~did not receive or record any product revenues until the third quarter of ~~our first product, NERLYNX. NERLYNX is now commercially available by prescription in the United States and we received our first product revenue during the three months ending September 30,~~ 2017. 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 R&D efforts and our ~~continuing~~ commercialization efforts. ~~Given the current and desired pace of clinical development of our product candidates, over the next 12 months~~

We may choose to begin new R&D efforts or we ~~estimate that our R&D spending will be approximately $130 million~~may choose to $145 million, excluding stock-based compensation. Furthermore, the FDA approval of the NDA triggered a milestone payment due to the Licensor. Additionally, we expect increased SG&A expenses as we continue to commercialize NERLYNX.

~~Ongoing commercialization~~launch additional marketing efforts. These efforts may require funding in addition to the cash and cash equivalents totaling approximately $90.9 million and $16.4 million in marketable securities ~~totaling approximately $106.3 million~~ available at ~~September~~June 30, ~~2017.~~ 2020. While our ~~unaudited~~ consolidated financial statements have been prepared on a going concern basis, we expect to continue incurring significant losses for the foreseeable future and will ~~continue~~need to ~~remain dependent on our ability to obtain sufficient funding~~generate significant revenue to sustain operations and successfully commercialize ~~neratinib based on the approval by the FDA for the United States and, if approved, by the EMA, launch in the European Union.~~neratinib. 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 on account of the global COVID-19 pandemic, our success in commercializing neratinib, 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 the length and severity of the COVID-19 pandemic and measures taken to control the spread of COVID-19, as well as 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 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. ~~We do not have any committed sources of financing at this time, and it is uncertain whether additional funding will be available when we need it on terms that will be acceptable to us, or at all.~~ 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.

In addition to our operating results, as calculated in accordance with generally accepted accounting principles, or GAAP, we use certain non-GAAP financial measures when planning, monitoring, and evaluating our operational performance. The following table presents our net income (loss) and net income (loss) per share, as calculated in accordance with GAAP, as adjusted to remove the impact of stock-based compensation. For the three and six months ended June 30, 2020, stock-based compensation represented approximately 19.7% and 17.7% of our operating expenses, respectively, and 21.9% and 22.1% for the same period in 2019, in each case excluding cost of sales. 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 (Loss) and

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

	For the Three Months Ended June 30,							For the Six Months Ended June 30,
	2020			2019				2020				2019
GAAP net income (loss)	$	3,395		$	(37,424	)		$	(13,538	)		$	(47,511	)
Adjustments:
Stock-based compensation -
Selling, general and administrative		4,730			7,452				9,422				17,327		(1)
Research and development		5,900			7,988				10,115				16,251		(2)
Non-GAAP adjusted net income (loss)	$	14,025		$	(21,984	)		$	5,999			$	(13,933	)

GAAP net income (loss) per share—basic	$	0.09		$	(0.97	)		$	(0.34	)		$	(1.23	)
Adjustment to net income (loss) (as detailed above)		0.27			0.40				0.49				0.87
Non-GAAP adjusted basic net income (loss) per share	$	0.36	(3)	$	(0.57	)	(4)	$	0.15		(3)	$	(0.36	)	(4)

GAAP net income (loss) per share—diluted	$	0.08		$	(0.97	)		$	(0.34	)		$	(1.23	)
Adjustment to net income (loss) (as detailed above)		0.27			0.40				0.49				0.87
Non-GAAP adjusted diluted net income (loss) per share	$	0.35	(5)	$	(0.57	)	(6)	$	0.15		(5)	$	(0.36	)	(6)

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

In June 2020, we entered into a letter agreement, or the Letter Agreement, with Pfizer relating to the method of payment associated with our achievement of a milestone that triggered a $40 million payment under our license agreement with Pfizer. The Letter Agreement permits us to make the milestone payment in installments with the majority of the amounts payable to Pfizer (including interest) to be made in 2021 and the final payment occurring on September 30, 2021. Unpaid portions of the milestone payment will accrue interest at 6.25% per annum until paid.

Other than as described in the preceding paragraph, 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, 2019.

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 June 30, 2020. 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 our loan and security agreement. As of June 30, 2020, the outstanding principal amount of our borrowings was $100.0 million. Our borrowings under the loan and security agreement, ~~which we refer to~~ as the credit facility, with Silicon Valley Bank, or SVB, as administrative and collateral agent, and the lenders party thereto from time to time, including Oxford Finance LLC, or Oxford, and SVB, pursuant to which the lenders agreed to make term loans available to us in an aggregate amount of $100 million, consisting of (i) a Term Loan A in an aggregate amount of $50 million available on the effective date and (ii) a Term Loan B in an aggregate amount of $50 million available to be drawn at our option between March 31, 2018 and June 30, 2018 provided we have achieved a specified minimum revenue milestone and no event of default is occurring. Proceeds from the Term Loans may be used for working capital and general business purposes. Upon the entry into the credit facility, we were required to pay the lenders aggregate fees of $1,500,000, consisting of a facility fee of $750,000 and an arrangement fee of $750,000. The credit facility is secured by substantially all of our personal property other than our intellectual property. We also pledged 65% of the issued and outstanding capital stock of our subsidiary, Puma Biotechnology Ltd. The credit facility limits our ability to grant any interest in our intellectual property to certain permitted licenses and permitted encumbrances set forth in the agreement.

~~The Term Loans under the credit facility~~amended, bear interest at an annual rate equal to the greater of (i) ~~7.75%~~9.0% and (ii) the sum of (a) the “prime rate,” as reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue, plus (b) 3.5%. We are required to make monthly interest-only payments on each Term Loan commencing on the first calendar day of the calendar month following the funding date of such Term Loan, and continuing on the first calendar day of each calendar month thereafter through December 1, 2019, or the Amortization Date. Commencing on the Amortization Date, and continuing on the first calendar day of each calendar month thereafter, we will make consecutive equal monthly payments of principal, together with applicable interest, in arrears to each Lender, calculated pursuant to the credit facility. All unpaid principal and accrued and unpaid interest with respect to each Term Loan is due and payable in full on October 31, 2022. Upon repayment of the Term Loans, we are also required to make a final payment to the lenders equal to 7.5% of the original principal amount of Term Loans funded.

At our option, we may prepay the outstanding principal balance of any Term Loan in whole but not in part, subject to a prepayment fee of 2.0% of any amount prepaid if the prepayment occurs through and including the first anniversary of the funding date of such Term Loan, 1.0% of the amount prepaid if the prepayment occurs after the first anniversary of the funding date of such Term Loan through and including the second anniversary of the funding date of such Term Loan.

~~The credit facility includes affirmative and negative covenants applicable to us, our current subsidiary and any subsidiaries we create~~Changes in the ~~future. The affirmative covenants include, among others, covenants requiring us to maintain~~prime rate may therefore affect our legal existence and governmental approvals, deliver certain financial reports, maintain insurance coverage and satisfy certain requirements regarding deposit accounts. We must also achieve product revenue, measured as of the last day of each fiscal quarter on a trailing 3-month basis, that is (i) greater than or equal to 70% of the revenue target set forth ininterest expense associated with our board-approved projections for the 2017 fiscal year, (ii) greater than or equal to 50% of the revenue target set forth in our board-approved projections for the 2018 fiscal year, and (iii) greater than or equal to 50% of the revenue target set forth in our board-approved projections for the 2019 fiscal year. New minimum revenue levels will be established for each subsequent fiscal year by mutual agreement of us, SVB, as administrative agent, and the lenders. The negative covenants include, among others, restrictions on us 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.

The credit facility also includes events of default, the occurrence and continuation of which could cause interest to be charged at the rate that is otherwise applicable plus 5.0% and would provide SVB, as collateral agent, with the right to exercise remedies against us and the collateral securing the credit facility, including foreclosure against the property securing the credit facilities, including our cash. These events of default include, among other things, our failure to pay principal or interest dueborrowings under the credit facility, a breach of certain covenants under the credit facility, our insolvency, a material adverse change, the occurrence of any default under certain other indebtedness in an amount greater than $500,000loan and ~~one or more judgments against us in an amount greater than $500,000 individually or in the aggregate.~~

Our former independent registered public accounting firm issued a report on our audited consolidated financial statements for the year ended December 31, 2016 that included an explanatory paragraph referring to our significant operating losses and expressing substantial doubt in our ability to continue as a going concern. Our unaudited condensed consolidated financial statements have been prepared on a going concern basis, which assumes the realization of assets and settlement of liabilities in the normal course of business. Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that we will be able to continue as a going concern. Our consolidated financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.

In addition to our operating results, as calculated in accordance with generally accepted accounting principles, or GAAP, we use certain non-GAAP financial measures when planning, monitoring, and evaluating our operational performance. The following table presents our net loss and net loss per share, as calculated in accordance with GAAP, as adjusted to remove the impact of employee stock-based compensation. Stock-based compensation represented approximately 34.3% and 36.5% of our net loss for the three and nine months ended September 30, 2017, respectively, and approximately 45.2% and 43.3% for the same periods in 2016. Although net loss is important to measure our financial performance, we currently place an emphasis on cash burn and, more specifically, cash used in operations. Because stock-based compensation appears in the GAAP net loss but is removed from net loss to arrive at cash used in operations on the statement of cash flows due to its non-cash nature, we believe these non-GAAP measures 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.

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2017

2016

2017

2016

GAAP net loss

$
(77,180
)

$
(65,781
)

$
(227,877
)

$
(203,350
)

Adjustments:

Stock-based compensation -

Selling, general and administrative

8,330

7,671

22,966

19,721

(1)
Research and development

18,158

22,080

60,247

68,269

(2)
Non-GAAP adjusted net loss

$
(50,692
)

$
(36,030
)

$
(144,664
)

$
(115,360
)

GAAP net loss per share—basic and
diluted

$
(2.07
)

$
(2.02
)

$
(6.15
)

$
(6.26
)

Adjustment to net loss (as detailed
above)

0.71

0.91

2.25

2.71

Non-GAAP adjusted net loss per share

$
(1.36
)

$
(1.11
)

$
(3.90
)

$
(3.55
)
(3)

(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 net loss per share was calculated based on 37,214,002 and 32,497,168 weighted average common shares outstanding for the three months ended September 30, 2017 and 2016, respectively, and 37,046,765 and 32,489,584 weighted average common shares outstanding for the nine months ended September 30, 2017 and 2016, respectively.

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

The primary objective of our investing activities is to preserve principal while maximizing the income we receive from our investments without significantly increasing the risk of loss. Some of the investable securities permitted under our cash management policy may be subject to market risk for changes in interest rates. To mitigate this risk, we maintain a portfolio of cash equivalents and available-for-sale investments in a variety of securities, which may include investment grade commercial paper, money market funds, government debt issued by the United States of America, state debt, certificates of deposit and investment grade corporate debt. Presently, we are exposed to minimal market risks associated with interest rate changes because of the relatively short maturities of our investments and we do not expect interest rate fluctuations to materially affect the aggregate value of our financial instruments. We manage our sensitivity to these risks by maintaining investment grade short-term investments. We do not purchase or hold derivative or commodity instruments or other financial instruments for trading purposes. Additionally, we periodically monitor our investments for adverse material holdings related to the underlying financial solvency of the issuer. As of September 30, 2017, our investments consisted primarily of corporate obligations. Our results of operations and financial condition would not be significantly impacted by either a 10% increase or 10% decrease in interest rates, due mainly to the short-term nature of our investment portfolio. We have not used derivative financial instruments in our investment portfolio. Additionally, we do not invest in foreign currencies or other foreign investments.

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 ~~(the~~

~~Company’s principal executive officer)~~ and ~~Senior Vice President, Finance and Administration and Treasurer (the Company’s principal financial and accounting officer),~~Chief Financial Officer, as appropriate, to allow timely decisions regarding required ~~disclosure.~~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 ~~Senior Vice President, Finance and Administration and Treasurer,~~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~~June 30, ~~2017.~~2020. Based on that evaluation, our Chief Executive Officer and ~~Senior Vice President, Finance and Administration and Treasurer~~Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of ~~September~~June 30, ~~2017.~~2020.

There ~~was~~were no ~~change~~changes in our internal control over financial reporting that occurredduring the ~~fiscal quarter~~three months ended ~~September~~June 30, ~~2017,~~2020 that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial ~~reporting other than controls that were added as a result of the Company's commercialization subsequent to FDA approval and the related product launch of NERLYNX.~~

On June 3, 2015, Hsingching Hsu, ~~or the “plaintiff,”~~ individually and on behalf of all others similarly situated, filed a class action lawsuit against us ~~or “the defendants��~~ and certain of our executive officers in the United States District Court for the Central District of California (Case No. 8:15-cv-00865-AG-JCG). On October 16, 2015, lead plaintiff Norfolk Pension Fund filed a consolidated complaint on behalf of all persons who purchased our securities between July 22, 2014 and May 29, 2015. ~~The consolidated complaint alleges that we and certain of our executive officers made~~A trial on the claims relating to four statements alleged to have been false or misleading ~~statements and failed~~was held from January 15 to ~~disclose material adverse facts about our business, operations, prospects and performance in violation of Sections 10(b) (and Rule 10b-5 promulgated thereunder) and 20(a)~~January 29, 2019. At trial, the jury found that three of the ~~Exchange Act. The plaintiff seeks damages, interest, costs, attorneys' fees,~~four challenged statements were not false or misleading, and ~~other unspecified equitable relief. On September 30, 2016, the court denied~~thus found in the defendants’ ~~motion~~favor on those claims. The jury found liability as to ~~dismiss~~one statement and awarded a maximum of $4.50 per share in damages, which represents approximately 5% of the ~~consolidated complaint. On June 6, 2017,~~total claimed damages of $87.20 per share. Trading models suggest that approximately ten million shares traded during the ~~lead plaintiff filed a first amended complaint~~class period may be eligible to claim damages. Based on prior lawsuits, we believe that ~~included new~~the number of stockholders who submit proof of claims ~~about additional statements that plaintiff alleges are false or misleading. On June 19, 2017, defendants moved~~sufficient to ~~dismiss the new claims~~recover damages is typically in the ~~amended complaint. On July 25, 2017,~~range of 20% to 40% of the ~~court denied~~total eligible shares. Based on these assumptions, total damages after claims could range from $9 million to $18 million. The total amount of aggregate class-wide damages remains uncertain and will be ascertained only after an extensive claims process and the ~~motion to dismiss. A trial date~~exhaustion of any appeals, and it is ~~currently set for November 6, 2018. We intend to vigorously defend against~~reasonably possible that the total damages will be higher than this ~~matter.~~estimate. However, the amount is not estimable at this time.

On September 9, 2019, the Court entered an order specifying the rate of prejudgment interest to be awarded on any valid claims at the 52-week Treasury Bill rate. The Court’s order also established a claims process, which is expected to take about twelve months. A final judgment has not been entered.

OnIn February 2, 2016, Fredric N. Eshelman filed a lawsuit against our Chief Executive Officer and President, Alan H. Auerbach, and us in the United States District Court for the Eastern District of North Carolina (Case No. 7:16-cv-00018-D). The complaint generally ~~alleges~~alleged that we and Mr. Auerbach ~~and we~~ made defamatory statements regarding Dr. Eshelman in connection with a proxy contest. ~~Dr. Eshelman seeks compensatory and punitive damages and expenses and costs, including attorneys’ fees. On April 4, 2016, we filed a motion to dismiss the complaint. On~~In May 2, 2016, Dr. Eshelman filed a notice of voluntary dismissal of the claims against Mr. Auerbach. A trial on the remaining defamation claims against us took place from March 11 to March 15, 2019. At trial, the jury found us liable and awarded Dr. Eshelman $15.9 million in compensatory damages and $6.5 million in punitive damages. We strongly disagree with the verdict and, on April 22, 2019, filed a motion for a new trial or, in the alternative, a reduced damages award. The Court denied that motion on March 2, 2020. We have appealed that ruling and the verdict. Additionally, after trial, the plaintiff filed a motion seeking approximately $3 million in attorneys’ fees, as well as pre-judgment interest. In the Court’s March 2 ruling, it denied the motion for attorneys’ fees but granted the request for pre-judgment interest, bringing the total judgment to $26.3 million. On ~~February 6, 2017,~~March 30, 2020, the ~~court denied our motion to dismiss. Discovery ended~~plaintiff filed a notice of cross-appeal and conditional cross-appeal, appealing the Court’s order denying the plaintiff’s request for attorneys’ fees and conditionally cross-appealing a Court ruling that certain communications between Mr. Auerbach and his attorneys were protected by attorney-client privilege and a related evidentiary ruling. We estimate the high end of potential damages in ~~September 2017.~~the matter could be approximately $27.2 million; however, the actual amount of damages payable by us is still uncertain and will be ascertained only after completion of the appeal and any subsequent proceeding, and such amount could be greater than the amount of expense already recognized or the high end of the estimate.

On July 28, 2020, we filed a request for arbitration against CANbridge Biomed Limited, or CANbridge, before the ICC International Court of Arbitration. We ~~intend to vigorously defend against Dr. Eshelman’s claims.~~

~~On April 12 and April 14, 2016, alleged shareholders filed two derivative lawsuits purportedly on behalf of us against certain~~are asserting that CANbridge has violated the terms of our ~~officers~~agreement with CANbridge in which granted CANbridge an exclusive sublicense to develop and ~~directors~~commercialize NERLYNX throughout greater China. We are seeking an arbitral award that CANbridge breached, or alternatively is in ~~the Superior Court~~anticipatory breach of, our agreement; that CANbridge’s conduct constitutes grounds for termination of the State of California, Los Angeles, captioned Xing Xie v. Alan H. Auerbach, No. BC616617, and Kevin McKenney v. Auerbach, No. BC617059. The complaints assert claims for breach of fiduciary duty, unjust enrichment, abuse of control, mismanagement and waste of corporate assets arising from substantially similar allegationsagreement; that CANbridge has failed to use commercially reasonable efforts to commercialize NERLYNX as ~~those contained in~~required under the ~~securities class action described above. The complaints seek an unspecified sum of damages and equitable relief. We intend to vigorously defend against this matter.~~

On September 13, 2017, a purported stockholder filed a complaint in the Court of Chancery of the State of Delaware seeking an equitable apportionment of attorneys’ fees in an unspecified amount. The purported stockholder alleges that his actions caused our board of directors to implement certain governance reforms and enhancements to our director compensation program,agreement; and that asCANbridge must obtain our consent before transferring the agreement to a ~~result of his actions, the purported stockholder is entitled~~third party, subject to certain limitations that do not currently apply. We are also seeking damages, costs, and attorneys’ ~~fees in an amount commensurate to those purported benefits. We filed an answer to the complaint on October 20, 2017. We intend to vigorously defend against this matter.~~

fees. The pending proceedings described in this section involve complex questions of fact and law and will require the expenditure of significant funds and the diversion of other resources to defend. The results of legal proceedings are inherently uncertain, and material adverse outcomes are possible.request for arbitration remains pending.

~~In addition~~Under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019, and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, we identified important factors that could affect our financial performance and could cause our actual results for future periods to ~~the~~differ materially from our anticipated results or other ~~information contained~~expectations, including those expressed in any forward-looking statements made in this Quarterly ~~Report, the following~~Report. There has been no material change in our risk factors ~~should be considered carefully~~subsequent to the filing of our prior reports referenced above. However, the risks described in ~~evaluating~~ our ~~company. Our business, financial condition, liquidity or results of operations could be materially adversely affected by any of these risks. The risks and uncertainties described below~~reports are not the only ~~ones~~risks we face. Additional risks and uncertainties that we ~~are unaware of, or that we~~ currently ~~believe are not material, may also become important factors that affect us.~~

~~We have a limited operating history and are not profitable and may never become profitable.~~

We have a limited operating history and until recently our efforts and resources have been focused primarily on acquiring and developing our pharmaceutical technologies, raising capital and recruiting personnel. On July 17, 2017, the FDA approved our first product, NERLYNX, for the extended adjuvant treatment of early stage, HER2-positive breast cancer in the United States and NERLYNX only recently became commercially available in the United States. We have a history of operating losses with net losses of $227.9 million for the nine months ended September 30, 2017 and $276.0 million and $239.3 million for the fiscal years ended December 31, 2016 and 2015, respectively. As of September 30, 2017, we had an accumulated deficit of approximately $1,024.4 million.

Although we received FDA approval of NERLYNX, we expect to incur substantial losses for the foreseeable future and may never become profitable. Moreover, even if we succeed in developing and commercializing one or more of other drug candidates, we may never become profitable. The successful development and commercialization of any drug candidates will require us to perform a variety of functions, including:

We will likely need to raise additional capital in order to fund our business and generate significant revenue in order to achieve and maintain profitability. We may not be able to generate this revenue, raise additional capital or achieve profitability in the future. As a result, we expect our losses to continue for the foreseeable future. Accordingly, we cannot assure you that we will achieve profitability in the future or that, if we do become profitable, we will sustain profitability. Our failure to achieve or maintain profitability could negatively impact the value of our common stock.

Our success depends on our ability to successfully commercialize NERLYNX. We are currently a single product company with limited commercial sales experience, which makes it difficult to evaluate our current business, predict our future prospects and forecast our financial performance and growth.

We have invested a significant portion of our efforts and financial resources in the development and commercialization of our lead product, NERLYNX, which was approved by the FDA for the extended adjuvant treatment of early stage, HER2-positive breast cancer in the United States on July 17, 2017, and we expect NERLYNX to constitute the vast majority of our product revenue for the foreseeable future. Our success depends on our ability to effectively commercialize NERLYNX. Successful commercialization of NERLYNX is subject to many risks. We have never, as an organization, launched or commercialized a product, and there is no guarantee that we will be able to do so successfully with NERLYNX for this indication. There are numerous examples of unsuccessful product launches and failures to meet high expectations of market potential, including by pharmaceutical companies with more experience and resources than we have. We are continuing to build our commercial team and hire our U.S. sales force, and therefore, we will need to further develop and train the team and any new hires in orderdeem to be ~~prepared~~immaterial or not currently known to ~~successfully commercialize of NERLYNX. Even if we are successful~~us, as well as other risks reported from time to time in ~~building out~~ our ~~commercial team, there are many factors that~~reports to the SEC, also could cause ~~the commercialization of NERLYNX~~our actual results to ~~be unsuccessful, including a number of factors that are outside~~differ materially from our ~~control. The commercial success of NERLYNX depends on the extent to which patients and physicians accept and adopt NERLYNX. For example, if the expected patient population is smaller than we estimate~~anticipated results or if physicians are unwilling to prescribe or patients are unwilling to take NERLYNX due to the related side effects, including diarrhea, the commercial potential of NERLYNX will be limited. In addition, we also do not know how physicians, patients and payors will respond to the pricing of NERLYNX. Thus, significant uncertainty remains regarding the commercial potential of NERLYNX. Moreover, our ability to effectively generate product revenue from NERLYNX will depend on our ability to, among other ~~things:~~

~~Any disruption in our ability to generate product revenue from the sale of NERLYNX will have a material and adverse impact on our results of operations.~~

We currently have no experience as a company in marketing or distributing pharmaceutical products. If we are unable to expand our marketing capabilities and effectively commercialize NERLYNX, our business, results of operations and financial condition may be materially adversely affected.

Our strategy is to build our sales, marketing and distribution capabilities to successfully commercialize NERLYNX in the United States. While we are continuing to establish our commercial team and hire our U.S. sales force, we do not have any experience commercializing pharmaceutical products as an organization. In order to successfully market NERLYNX, we must continue to build our sales, marketing, managerial, compliance, and related capabilities or make arrangements with third parties to perform these services. If we are unable to establish adequate sales, marketing, and distribution capabilities, whether independently or with third parties, we may not be able to appropriately commercialize NERLYNX and may not become profitable.

Included in our strategy in the United States is the establishment of a direct sales force to commercialize NERLYNX, and we will need to conduct further activities to develop our sales force. These efforts will continue to be expensive and time-consuming, and we cannot be certain that we will be able to successfully develop this capability. NERLYNX is a newly-marketed drug and, therefore, none of the members of our sales force has ever promoted NERLYNX prior to its commercial launch. In addition, we must train our sales force to ensure that a consistent and appropriate message about NERLYNX is being delivered to our potential customers. If we are unable to effectively train our sales force and equip them with effective materials, including medical and sales literature to help them inform and educate potential customers about the benefits of NERLYNX and its proper administration, our efforts to successfully commercialize NERLYNX could be harmed, which would negatively impact our ability to generate product revenue.

Additionally, even though we have commenced the commercialization of NERLYNX, we will need to maintain and further develop our sales force to achieve commercial success, and we will be competing with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel. In the event we are unable to continue to develop and effectively maintain our commercial team, including our U.S. sales force, our ability to successfully commercialize NERLYNX would be limited, and we would not be able to generate product revenue successfully. There are risks involved both with establishing our own sales and marketing capabilities and with entering into arrangements with third parties to perform these services. For example, any efforts to develop a direct sales and marketing organization would be subject to numerous risks, including:

Similarly, if we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenue or the profitability associated with any product revenue may be lower than if we were to market and sell any products that we develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell and market our proposed products or may be unable to do so on terms that are favorable to us. We may have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. Moreover, we may be negatively impacted by other factors outside of our control relating to such third parties, including, but not limited to, their inability to comply with regulatory requirements. If we do not establish sales, marketing and distribution capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our proposed products.

We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs and our failure to obtain additional financing when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development or commercialization efforts or other operations.

Our operations have consumed substantial amounts of cash since inception. We expect our costs and expenses to increase in the future as we commercialize NERLYNX, including the cost of a direct sales force and the cost of manufacturing. We will also continue to expend substantial amounts on research and development of our other product candidates, including conducting clinical trials. Our future capital requirements will depend on many factors, including:

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 continue to remain dependent on our ability to obtain sufficient funding to sustain operation and successfully commercialize NERLYNX. The Company entered into a loan agreement with Silicon Valley Bank and Oxford Finance for a term loan of up to $100.0 million, subject to funding in two tranches. The Company received gross proceeds of $50.0 million from the first tranche of the credit facility upon closing on October 31, 2017 and intends to use the funds for general corporate purposes and to further support NERLYNX commercial initiatives. The second tranche of $50.0 million may be drawn at the Company’s option and subject to the achievement of certain revenue milestones. The loan will mature on October 31, 2022. 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. Additional financing may not be available on a timely basis on terms acceptable to us, or at all. We may raise funds in equity or debt financings to access funds for our capital needs. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. Any debt financing obtained by us in the future would cause us to incur debt service expenses and could include restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and pursue business opportunities. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, we may terminate or delay the development of one or more of our product candidates, delay clinical trials necessary to market our products, or delay establishment of sales and marketing capabilities or other activities necessary to commercialize our products. If this were to occur, our ability to continue to grow and support our business and to respond to business challenges could be significantly limited. Furthermore, our ability to obtain funding may be adversely impacted by uncertain market conditions, unfavorable decisions of regulatory authorities or adverse clinical trial results. The outcome of these matters cannot be predicted at this time. If the going concern assumption was not appropriate for the preparation of our consolidated financial statements, adjustment might be necessary to the consolidated financial statements.

~~Our former independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.~~

Our historical consolidated financial statements have been prepared under the assumption that we will continue as a going concern. Our former independent registered public accounting firm has issued a report on our audited consolidated financial statements for the year ended December 31, 2016 that included an explanatory paragraph referring to our significant operating losses and expressing substantial doubt in our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to obtain additional equity financing or other capital, attain further operating efficiencies, reduce expenditures, and, ultimately, to generate revenue. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. However, if adequate funds are not available to us when we need it, we will be required to curtail our operations which would, in turn, further raise substantial doubt about our ability to continue as a going concern. The doubt regarding our potential ability to continue as a going concern may adversely affect our ability to obtain new financing on reasonable terms or at all. Additionally, if we are unable to continue as a going concern, our stockholders may lose some or all of their investment in the Company.

The terms of our credit facility place restrictions on our ability to operate our business and on our financial flexibility, and we may be unable to achieve the revenue necessary for us to incur additional borrowings under the credit facility or to satisfy the minimum revenue covenants.

The terms of our credit facility place restrictions on our ability to operate our business and our financial flexibility. On October 31, 2017, we entered into a loan and security agreement, which we refer to as the credit facility, with Silicon Valley Bank, or SVB, as administrative and collateral agent, and the lenders party thereto from time to time, including SVB and Oxford Finance LLC, or Oxford, pursuant to which the lenders agreed to make term loans available to us in an aggregate amount of $100 million, consisting of (i) a Term Loan A in an aggregate amount of $50 million available on the effective date and (ii) a Term Loan B in an aggregate amount of $50 million available to be drawn at our option between March 31, 2018 and June 30, 2018 provided we have achieved a specified minimum revenue milestone and no event of default is occurring. As of October 31, 2017, we had $50.0 million in principal outstanding under the credit facility. We cannot assure you that we will achieve the revenue milestone that will trigger our ability to draw the Term Loan B, and accordingly, we may never be able to borrow the additional $50.0 million provided for in the credit facility. The credit facility is secured by substantially all of our personal property, other than our intellectual property.

The credit facility includes affirmative and negative covenants applicable to us, our current subsidiary and any subsidiaries we create in the future. 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. We must also achieve product revenue, measured as of the last day of each fiscal quarter on a trailing 3-month basis, that is (i) greater than or equal to 70% of the revenue target set forth in our board-approved projections for the 2017 fiscal year, (ii) greater than or equal to 50% of the revenue target set forth in our board-approved projections for the 2018 fiscal year, and (iii) greater than or equal to 50% of the revenue target set forth in our board-approved projections for the 2019 fiscal year. New minimum revenue levels will be established for each subsequent fiscal year by mutual agreement of us, SVB, as administrative agent, and the

lenders. The negative covenants include, among others, restrictions on us 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. These covenants may make it difficult for us to operate our business. In addition, we are in the early stages of commercializing NERLYNX and we cannot assure you that we will be able to achieve the minimum revenue requirements provided for in the credit facility. Our failure to satisfy the revenue, or any other, covenant could result in an event of default under the loan.

The credit facility also includes events of default, the occurrence and continuation of which could cause interest to be charged at the rate that is otherwise applicable plus 5.0% and would provide SVB, as collateral agent, with the right to exercise remedies against us and the collateral securing the credit facility, including foreclosure against the property securing the credit facilities, including our cash. These events of default include, among other things, our failure to pay principal or interest due under the credit facility, a breach of certain covenants under the credit facility, our insolvency, a material adverse change, the occurrence of any default under certain other indebtedness in an amount greater than $500,000 and one or more judgments against us in an amount greater than $500,000 individually or in the aggregate.

Even though the FDA has granted approval of NERLYNX for the treatment for the extended adjuvant treatment of early-stage, HER2-positive breast cancer, the terms of the approval may limit its commercial potential.

Even though the FDA has granted approval of NERLYNX, the scope and terms of the approval may limit our ability to commercialize NERLYNX and, therefore, our ability to generate substantial sales revenue. The FDA has approved NERLYNX only for the extended adjuvant treatment of early-stage, HER2-positive breast cancer. In connection with the FDA approval, we have committed to conduct the following post-marketing studies: (i) a physiologically-based pharmacokinetic, or PBPK, modeling/simulation study to evaluate the effect of repeat doses of a moderate CYP3A4 inhibitor on the single dose pharmacokinetics of neratinib and its active metabolites to assess the magnitude of increased drug exposure and to address the potential for excessive drug toxicity, or if the PBPK modeling/simulation is not feasible, a clinical pharmacokinetic trial, (ii) a PBPK modeling/simulation study or a clinical pharmacokinetic trial with repeat doses of a moderate CYP3A4 inducer on the single dose pharmacokinetics of neratinib and its active metabolites to assess the magnitude of decreased drug exposure and to determine appropriate dosing recommendations, (iii) a clinical pharmacokinetic trial to evaluate whether separating the dosing of H2-receptor antagonists and neratinib can minimize the drug-drug interaction potential, (iv) the submission of the final results of our 2-year carcinogenicity study in the rat, and (v) submission of certain trial data from our ongoing clinical trials. If we fail to comply with our post-marketing commitments, or if the results of the post-marketing studies, or any other ongoing clinical studies of NERLYNX, are negative, the FDA could decide to withdraw approval, add warnings or narrow the approved indication in the product label.

We are heavily dependent on the success of NERLYNX, which is still under clinical development for various additional indications. While the FDA has approved NERLYNX for the extended adjuvant treatment of patients with early stage HER2-positive breast cancer, we cannot be certain that NERLYNX will receive regulatory approval for any other indication for which we may seek approval.

~~The FDA has approved NERLYNX only for the extended adjuvant treatment of early stage, HER2-positive breast cancer.~~ We expect that a substantial portion of our efforts and expenditures over the next few years will be devoted to the development of NERLYNX in various additional indications. Accordingly, our business currently depends heavily on the successful development and regulatory approval of NERLYNX for additional indications. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of drug products are and will remain subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries that each have differing regulations. We are not permitted to market NERLYNX for other indications or any of our other drug candidates in the United States until they receive approval of a New Drug Application, or NDA, from the FDA, or in any foreign countries until they receive the requisite approval from such countries. In June 2016, we submitted a MAA with the European Medicines Agency, or EMA. The Committee for Medicinal Products for Human Use of the EMA, or CHMP, recently issued its Day-180 List of Outstanding issues in the process of their ongoing regulatory review of the MAA. The CHMP has requested additional data analyses related to the safety and efficacy of neratinib and has instituted a clock stop in order to allow the Company time to respond to this List of Outstanding Issues. The CHMP has set a deadline of December 22, 2017 for the Company to respond to the list. The Company expects the CHMP to issue an opinion regarding the MAA for neratinib in the first quarter of 2018. Approval of NERLYNX by the FDA for the extended adjuvant treatment of early stage, HER2-positive breast cancer does not ensure that the foreign jurisdictions will also approve NERLYNX for that indication, nor does it ensure that NERLYNX will be approved by the FDA for any other indications. Obtaining approval of an NDA or foreign marketing application is an extensive, lengthy, expensive and inherently uncertain process, and the FDA or foreign regulator may delay, limit or deny approval of a drug candidate for many reasons, including:

If we do not obtain regulatory approval of NERLYNX for other indications in the United States, or for any indications in foreign jurisdictions, we will not be able to market NERLYNX for other indications or in other jurisdictions, which will limit our commercial revenue.

We will rely exclusively on third parties to formulate and manufacture NERLYNX and our drug candidates. The commercialization of NERLYNX and any of our other drug candidates, if approved, could be stopped, delayed or made less profitable if those third parties fail to provide us with sufficient quantities of product or fail to do so at acceptable quality levels or prices.

We have no experience in drug formulation or manufacturing and do not intend to establish our own manufacturing facilities. We lack the resources and expertise to formulate or manufacture our own drug candidates. While NERLYNX and our drug candidates were being developed by Pfizer, both the drug substance and drug product were manufactured by third-party contractors. We are using the same third-party contractors to manufacture, supply, store and distribute drug supplies for our clinical trials and the commercialization of NERYLNX. If we are unable to continue our relationships with one or more of these third-party contractors, we could experience delays in our development or commercialization efforts as we locate and qualify new manufacturers. We intend to rely on one or more third-party contractors to manufacture the commercial supply of our drugs. Our anticipated future reliance on a limited number of third-party manufacturers exposes us to the following risks:

Each of these risks could delay our clinical trials, the approval, if any, of our drug candidates by the FDA or the commercialization of NERLYNX or our other drug candidates or result in higher costs or deprive us of potential product revenue.

If our third-party manufacturers fail to manufacture NERLYNX in sufficient quantities and at acceptable quality and pricing levels, or fail to fully comply with cGMP regulations, we may face delays in commercialization or be unable to meet market demand, and may lose potential revenues.

The manufacture of NERLYNX requires significant expertise and capital investment, including the development of advanced manufacturing techniques, process controls and the use of specialized processing equipment. Our third-party maunfacturers must comply with federal, state and foreign regulations, including the FDA’s regulations governing cGMP, enforced by the FDA through its facilities inspection program and by similar regulatory authorities in other jurisdictions where we do business. These requirements include, among other things, quality control, quality assurance and the maintenance of records and documentation. The FDA or similar foreign regulatory authorities at any time may implement new standards, or change their interpretation and enforcement of existing standards for manufacture, packaging or testing of our products. Any failure by us or our third-party maunfacturers to comply with applicable regulations may result in fines and civil penalties, suspension of production, product seizure or recall, operating restrictions, imposition of a consent decree, modification or withdrawal of product approval or criminal prosecution and would limit the availability of our product. Any manufacturing defect or error discovered after products have been produced and distributed also could result in significant consequences, including costly recall procedures, re-stocking costs, damage to our reputation and potential for product liability claims.

If our third-party manufacturers are unable to produce the required commercial quantities of NERLYNX to meet market demand for NERLYNX on a timely basis or at all, or if they fail to comply with applicable laws for the manufacturing of NERLYNX, we will suffer damage to our reputation and commercial prospects and we will lose potential revenue.

~~Clinical trials are very expensive, time-consuming and difficult to design and implement.~~

Although the FDA approved NERLYNX for the extended adjuvant treatment of early stage, HER2-positive breast cancer in the United States on July 17, 2017, NERLYNX is still under development for various indications and our other drug candidates are in development as well, all of which will require extensive clinical testing before we can submit any NDA for regulatory approval. We cannot predict with any certainty that any NDA submitted by us will be approved by the FDA. Human clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. The clinical trial process is also time consuming. We estimate that clinical trials of our other drug candidates will take at least several years to complete. Furthermore, failure can occur at any stage of the trials, and we could encounter problems that cause us to abandon or repeat clinical trials. The results of pre-clinical studies and early clinical trials of our drug candidates may not be predictive of the results of later-stage clinical trials. Drug candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through pre-clinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Our future clinical trial results may not be successful.

~~The commencement and completion of clinical trials may be delayed by several factors, including:~~

Further, we, the FDA, foreign regulatory authorities, or an Institutional Review Board, or IRB, may suspend our clinical trials at any time if it appears that we or our collaborators are failing to conduct a trial in accordance with regulatory requirements, that we are exposing participants to unacceptable health risks, or if the FDA or such other regulator finds deficiencies in our IND or comparable submissions or the conduct of these trials. Therefore, we cannot predict with any certainty the schedule for commencement and completion of future clinical trials. If we experience delays in the commencement or completion of our clinical trials, or if we terminate a clinical trial prior to completion, the commercial prospects of our drug candidates could be harmed, and our ability to generate revenue from the drug candidates may be delayed. In addition, any delays in our clinical trials could increase our costs, slow down the approval process and jeopardize our ability to commence product sales and generate revenue. Any of these occurrences may harm our business, financial condition and results of operations. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our drug candidates.

~~Enrollment and retention of patients in clinical trials is an expensive and time-consuming process and could be made more difficult or rendered impossible by multiple factors outside our control.~~

We may encounter delays in enrolling, or be unable to enroll, a sufficient number of patients to complete any of our clinical trials, and even once enrolled we may be unable to retain a sufficient number of patients to complete any of our trials. Patient enrollment and retention in clinical trials depends on many factors, including the size of the patient population, the nature of the trial protocol, the existing body of safety and efficacy data with respect to the study drug, the number and nature of competing treatments and ongoing clinical trials of competing drugs for the same indication, the proximity of patients to clinical sites and the eligibility criteria for the study. Furthermore, any negative results we may report in clinical trials of any of our drug candidates may make it difficult or impossible to recruit and retain patients in other clinical studies of that same drug candidate. Delays or failures in planned patient enrollment and/or retention may result in increased costs, program delays or both, which could have a harmful effect on our ability to develop our drug candidates, or could render further development impossible. In addition, we expect to rely on CROs and clinical trial sites to ensure proper and timely conduct of our future clinical trials and, while we intend to enter into agreements governing their services, we will be limited in our ability to compel their actual performance.

~~The results of our clinical trials may not support our drug candidate claims.~~

Even if our clinical trials are completed as planned, we cannot be certain that their results will support the safety and effectiveness of our drug candidates for our targeted indications. Success in pre-clinical testing and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the results of later clinical trials will replicate the results of prior clinical trials and pre-clinical testing. A failure of a clinical trial to meet its predetermined endpoints would likely cause us to abandon a drug candidate and may delay development of other drug candidates. Any delay in, or termination of, our clinical trials will delay the filing of our NDAs with the FDA and, ultimately, our ability to commercialize our drug candidates and generate product revenue.

While we have negotiated a Special Protocol Assessment, or SPA, agreement with the FDA relating to our Phase III clinical study of PB272, this agreement does not guarantee approval of PB272 or any other particular outcome from regulatory review of the clinical trial or the drug candidate.

In February 2013, we announced that we reached agreement with the FDA under a Special Protocol Assessment, or SPA, for our Phase III clinical trial of PB272 in patients with HER2-positive metastatic breast cancer who have failed two or more prior treatments. We commenced the Phase III clinical trial in June 2013. The FDA’s SPA process is designed to facilitate the FDA’s review and approval of drugs by allowing the FDA to evaluate the proposed design and size of Phase III clinical trials that are intended to form the primary basis for determining a drug product’s efficacy. Upon specific request by a clinical trial sponsor, the FDA will evaluate the protocol and respond to a sponsor’s questions regarding, among other things, primary efficacy endpoints, trial conduct and data analysis, within 45 days of receipt of the request. The FDA ultimately assesses whether the protocol design and planned analysis of the trial are acceptable to support regulatory approval of the product candidate with respect to the effectiveness of the identified indication. All agreements between the FDA and the sponsor regarding an SPA must be clearly documented in writing, either in the form of an SPA letter or minutes of a meeting between the sponsor and the FDA at which the SPA agreement was reached. However, an SPA agreement does not guarantee approval of a product candidate, and even if the FDA agrees to the design, execution, and analysis proposed in protocols reviewed under the SPA process, the FDA may revoke or alter its agreement in certain circumstances. In particular, an SPA agreement is not binding on the FDA if public health concerns emerge that were unrecognized at the time of the SPA agreement, other new scientific concerns regarding product safety or efficacy arise, the sponsor company fails to comply with the agreed upon trial protocols, or the relevant data, assumptions or information provided by the sponsor in a request for

the SPA change or are found to be false or omit relevant facts. In addition, even after an SPA agreement is finalized, the SPA agreement may be modified, and such modification will be deemed binding on the FDA review division, except under the circumstances described above, if the FDA and the sponsor agree in writing to modify the protocol and such modification is intended to improve the study. The FDA retains significant latitude and discretion in interpreting the terms of the SPA agreement and the data and results from any study that is the subject of the SPA agreement.

We cannot assure you that our Phase III clinical trial will succeed, or that the SPA will ultimately be binding on the FDA or will result in any FDA approval for PB272. The trial is expected to enroll approximately 600 patients. We expect that the FDA will review our compliance with the SPA, evaluate the results of the clinical trials and conduct inspections of some of the approximately 250 sites in North America, Europe and Asia-Pacific where the clinical trials will be conducted. We cannot assure you that each of the clinical trial sites will pass such FDA inspections, and negative inspection results could significantly delay or prevent any potential approval for PB272. If the FDA revokes or alters its agreement under the SPA, or interprets the data collected from the clinical trial differently than we do, the FDA may deem the data insufficient to support regulatory approval, which could materially adversely affect our business, financial condition and results of operations.

NERLYNX or our other drug candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any, as applicable.

Undesirable side effects caused by NERLYNX or our other drug candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. To date, subjects treated with NERLYNX have experienced drug-related side effects including diarrhea. Results of our trials could reveal a high and unacceptable severity and prevalence of these or other side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.

~~Additionally, if we or others later identify undesirable side effects caused by any approved product, a number of potentially significant negative consequences could result, including:~~

Any of these events could prevent us from achieving or maintaining market acceptance of NERLYNX or the particular product candidate, if approved, and could significantly harm our business, results of operations and prospects.

Regulatory approval for any approved product is limited by the FDA to those specific indications and conditions for which clinical safety and efficacy have been demonstrated as set forth on the product label. If we market NERLYNX for uses beyond such approved indications, we could be subject to enforcement action, which could have a material adverse effect on our business.

The FDA strictly regulates marketing, labeling, advertising and promotion of prescription drugs. These regulations include standards and restrictions for direct-to-consumer advertising, industry-sponsored scientific and educational activities, promotional activities involving the internet and off-label promotion. Any regulatory approval that the FDA grants is limited to those specific diseases and indications for which a product is deemed to be safe and effective by the FDA. For example, the FDA-approved label for NERLYNX is limited to the extended adjuvant treatment of early stage, HER2-positive breast cancer. In addition to the FDA approval required for new formulations, any new indication for an approved product also requires FDA approval. If we are not able to obtain FDA approval for any desired future indications for our drugs and drug candidates, our ability to effectively market and sell our products may be reduced and our business may be adversely affected.

While physicians in the United States may choose, and are generally permitted, to prescribe drugs for uses that are not described in the product’s labeling and for uses that differ from those tested in clinical trials and approved by the regulatory authorities, our ability to promote the products is narrowly limited to those indications that are specifically approved by the FDA. These “off-label” uses are common across medical specialties and may constitute an appropriate treatment for some patients in varied circumstances.

Regulatory authorities in the United States generally do not regulate the behavior of physicians in their choice of treatments. Regulatory authorities do, however, restrict communications by pharmaceutical companies on the subject of off-label use. Although recent court decisions suggest that certain off-label promotional activities may be protected under the First Amendment, the scope of any such protection is unclear. If our promotional activities fail to comply with the FDA’s regulations or guidelines, we may be subject to warnings from, or enforcement action by, these authorities. In addition, our failure to follow FDA rules and guidelines relating to promotion and advertising may cause the FDA to issue warning letters or untitled letters, bring an enforcement action against us, suspend or withdraw an approved product from the market, require a recall or institute fines or civil fines, or could result in disgorgement of money, operating restrictions, injunctions or criminal prosecution, any of which could harm our reputation and our business.

Even though the FDA has approved NERLYNX for the extended adjuvant treatment of early stage, HER2-positive breast cancer, we will be subject to ongoing obligations and continued regulatory review with regard to NERLYNX and any other drug candidates that receive FDA approval, which may result in significant additional expense. Additionally, NERLYNX and our drug candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products.

The FDA’s approval of the NDA for NERLYNX may, and any regulatory approvals that we receive for our other drug candidates may, also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase IV clinical trials, and surveillance to monitor the safety and efficacy of the drug candidate. In addition, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs and GCPs for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our drug candidates. For example, in December 2016, the 21st Century Cures Act, or Cures Act, was signed into law. The Cures Act, among other things, is intended to modernize the regulation of drugs and spur innovation. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.

We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. For example, certain policies of the Trump administration may impact our business and industry. Namely, the Trump administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. Notably, on January 30, 2017, President Trump issued an Executive Order, applicable to all executive agencies, including the FDA, that requires that for each notice of proposed rulemaking or final regulation to be issued in fiscal year 2017, the agency shall identify at least two existing regulations to be repealed, unless prohibited by law. These requirements are referred to as the “two-for-one” provisions. This Executive Order includes a budget neutrality provision that requires the total incremental cost of all new regulations in the 2017 fiscal year, including repealed regulations, to be no greater than zero, except in limited circumstances. For fiscal years 2018 and beyond, the Executive Order requires agencies to identify regulations to offset any incremental cost of a new regulation. In interim guidance issued by the Office of Information and Regulatory Affairs within OMB on February 2, 2017, the administration indicates that the “two-for-one” provisions may apply not only to agency regulations, but also to significant agency guidance documents. It is difficult to predict how these requirement will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose constraints on FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.

We rely on third parties to conduct our pre-clinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for our drug candidates.

We depend upon independent investigators and collaborators, such as CROs, universities and medical institutions, to conduct our pre-clinical studies and clinical trials under agreements with us. These collaborators are not our employees and we cannot control the amount or timing of resources that they devote to our programs. Nevertheless, we are responsible for ensuring that each of our clinical trials is conducted in accordance with regulatory requirements, including good clinical practice, or GCP, requirements, and the applicable protocol. If we, or any of our CROs or third party contractors, fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted with product produced under current cGMP regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process. Moreover, third party contractors and investigators may not assign as great a priority to our programs or pursue them as diligently as we would if we were undertaking such programs ourselves. If outside collaborators fail to devote sufficient time and resources to our drug-development programs, or if their performance is substandard or otherwise fails to satisfy applicable regulatory requirements, the approval of our FDA applications, if any, and our introduction of new drugs, if any, will be delayed. These collaborators may also have relationships with other commercial entities, some of whom may compete with us. If our collaborators assist our competitors to our detriment, our competitive position would be harmed. If any of our relationships with these third-party collaborators terminate, we may not be able to enter into arrangements with alternative third parties on commercially reasonable terms, or at all. Switching or adding additional third parties to our clinical trial programs can involve substantial costs and require extensive management time and focus.

We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability to operate our business effectively.

Our internal computer systems and those of third parties with which we contract may be vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures despite the implementation of security measures. System failures, accidents or security breaches could cause interruptions in our operations, and could result in a material disruption of our clinical activities and business operations, in addition to possibly requiring substantial expenditures of resources to remedy. The loss of clinical trial data could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and our research and development programs and the development of our drug candidates could be delayed.

~~Health care reform measures may hinder or prevent our products’ and product candidates’ commercial success.~~

The United States and some foreign jurisdictions have enacted or are considering enacting a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to profitably sell our product and product candidates, if and when they are approved. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.

In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the ACA, became law in the United States. The ACA substantially changed and will continue to change the way healthcare is financed by both governmental and private insurers and significantly affects the pharmaceutical industry. Among the provisions of the ACA, of greatest importance to the pharmaceutical industry are the following:

The ACA also requires adults not covered by employer or government-sponsored insurance plans to maintain health insurance coverage or pay a penalty, a provision commonly referred to as the individual mandate.

Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA. As a result, there have been delays in the implementation of, and action taken to repeal or replace, certain aspects of the ACA. We expect that the Trump administration and U.S. Congress will continue to seek to modify, repeal, or otherwise invalidate all, or certain provisions of, the ACA. We cannot predict the ultimate content, timing or effect of any healthcare reform legislation or the impact of potential legislation on us.

In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. On August 2, 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments, will remain in effect through 2030 unless additional Congressional action is taken. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, or ATRA, which, among other things, also reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Recently, there has also been heightened governmental scrutiny over the manner in which drug manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed bills designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. For example, the 21st Century Cures Act changes the reimbursement methodology for infusion drugs and biologics furnished through durable medical equipment in an attempt to remedy over- and underpayment of certain drugs. We cannot predict all of the ways in which future federal or state legislative or administrative changes relating to healthcare reform will affect our business.

Individual states in the United States have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs.

We anticipate that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies and additional downward pressure on the price that we receive for any approved product, and could seriously harm our business. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our product and product candidates, if approved.

Failure to obtain or maintain adequate coverage and reimbursement for our products or product candidates, if approved, could limit our ability to market those products and decrease our ability to generate revenue.

Successful commercial sales of any approved products will depend on the availability of adequate coverage and reimbursement from government health administration authorities, private health insurers and other third-party payors. Each third-party payor

separately decides which products it will cover and establishes the reimbursement level, and there is no guarantee that any of our approved products or product candidates that may be approved for marketing by regulatory authorities will receive adequate coverage or reimbursement levels. Obtaining and maintaining coverage approval for a product is time-consuming, costly and may be difficult. We may be required to conduct expensive pharmacoeconomic studies to justify coverage and reimbursement or the level of coverage and reimbursement relative to other therapies. If coverage and adequate reimbursement are not available or limited, we may not be able to successfully commercialize any product or product candidate for which we obtain marketing approval. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for drugs and biologics. Even if we obtain coverage for a given product, the resulting reimbursement rates may be inadequate and may affect the demand for, or the price of, any product candidate for which we obtain marketing approval.

We expect to experience pricing pressures in connection with the sale of NERLYNX (oral), NERLYNX (intravenous), PB357 and any other products that we may develop, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative proposals. There may be additional pressure by payors and healthcare providers to use generic drugs that contain the active ingredients found in neratinib (oral), neratinib (intravenous), PB357 or any other drug candidates that we may develop. If we fail to successfully secure and maintain adequate coverage and reimbursement for our products or are significantly delayed in doing so, we will have difficulty achieving market acceptance of our products and expected revenue and profitability which would have a material adverse effect on our business, results of operations and financial condition.

We are subject, directly and indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, physician payment transparency laws and health information privacy and security laws. Failure to comply with these laws may subject us to substantial penalties.

We do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors. However, federal and state healthcare laws and regulations pertaining to fraud and abuse, physician payment transparency, privacy and security laws and regulations may apply to us depending on programs we operate and have been asserted by the government and others to apply to companies like us, and our arrangements with healthcare providers, customers and other entities, including our marketing practices, educational programs and pricing policies. These laws include:

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is possible that some of our business activities, including our relationships with physicians and other healthcare providers, some of whom recommend, purchase and/or prescribe our products, and the manner in which we promote our products, could be subject to challenge under one or more of such laws.

We are also exposed to the risk that our employees, independent contractors, principal investigators, consultants, vendors, distributors and agents may engage in fraudulent or other illegal activity. While we have policies and procedures in place prohibiting such activity, misconduct by these parties could include, among other infractions or violations, intentional, reckless and/or negligent conduct or unauthorized activity that violates FDA requirements, including those laws that require the reporting of true, complete and accurate information to the FDA, manufacturing standards, federal and state healthcare fraud and abuse laws and regulations, laws that require the true, complete and accurate reporting of financial information or data or other commercial or regulatory laws or requirements. It is not always possible to identify and deter misconduct by our employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.

If our operations are found to violate any of the laws described above or any other laws and regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, disgorgement, the curtailment or restructuring of our operations, the exclusion from participation in federal and state healthcare programs and imprisonment of officers involved, any of which could adversely affect our ability to market our current and any future products, once approved, and materially adversely affect our business, results of operations and financial condition. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.

If we fail to comply with our reporting and payment obligations under the Medicaid Drug Rebate Program or other governmental pricing programs in the United States, we could be subject to additional reimbursement requirements, penalties, sanctions and fines, which could have a material adverse effect on our business, results of operations and financial condition.

We participate in the Medicaid Drug Rebate Program, as administered by the CMS, and other federal and state government pricing programs in the United States, and we may participate in additional government pricing programs in the future. These programs generally require us to pay rebates or otherwise provide discounts to government payors in connection with drugs, including NERLYNX, that are dispensed to beneficiaries of these programs. In some cases, such as with the Medicaid Drug Rebate Program, the rebates are based on pricing and rebate calculations that we report on a monthly and quarterly basis to the government agencies that administer the programs. Pricing and rebate calculations are complex, vary among products and programs, and are often subject to interpretation by governmental or regulatory agencies and the courts. The terms, scope and complexity of these government pricing programs change frequently. Responding to current and future changes may increase our costs and the complexity of compliance will be time consuming.

In addition, there is increased focus by the Office of Inspector General on the methodologies used by manufacturers to calculate average manufacturer price (“AMP”), and best price (“BP”), to assess manufacturer compliance with reporting requirements under the Medicaid Drug Rebate Program. We are liable for errors associated with our submission of pricing data and for any overcharging of government payors. For example, failure to submit monthly/quarterly AMP and BP data on a timely basis could result in a civil monetary penalty per day for each day the submission is late beyond the due date. Failure to make necessary disclosures and/or to identify overpayments could result in allegations against us under the Federal False Claims Act and other laws and regulations.

Any required refunds to the U.S. government or responding to a government investigation or enforcement action would be expensive and time consuming and could have a material adverse effect on our business, results of operations and financial condition. In the event that the CMS were to terminate our rebate agreement, no federal payments would be available under Medicaid or Medicare for our covered outpatient drugs.

~~If we cannot compete successfully for market share against other drug companies, we may not achieve sufficient product revenue and our business will suffer.~~

The market for our drugs and drug candidates is characterized by intense competition and rapid technological advances. NERLYNX and any of our other drug candidates that receives FDA approval will compete with a number of existing and future drugs and therapies developed, manufactured and marketed by others. Existing or future competing products may provide greater therapeutic convenience or clinical or other benefits for a specific indication than our products, or may offer comparable performance at a lower cost. In addition, a large number of companies are pursuing the development of pharmaceuticals that target the same diseases and conditions that we are targeting. If our products fail to capture and maintain market share, we may not achieve sufficient product revenue and our business will suffer.

We will compete against fully integrated pharmaceutical companies and smaller companies that are collaborating with larger pharmaceutical companies, academic institutions, government agencies and other public and private research organizations. Many of these competitors have oncology compounds that have already been approved or are in development. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs or have substantially greater financial resources than we do, as well as significantly greater experience in the following:

~~We may be exposed to liability claims associated with the use of hazardous materials and chemicals.~~

Our research and development activities may involve the controlled use of hazardous materials and chemicals. Although we believe that our safety procedures for using, storing, handling and disposing of these materials comply with federal, state and local laws and regulations, we cannot completely eliminate the risk of accidental injury or contamination from these materials. In the event of such an accident, we could be held liable for any resulting damages and any liability could materially adversely affect our business, financial condition and results of operations. In addition, the federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous or radioactive materials and waste products may require us to incur substantial compliance costs that could materially adversely affect our business, financial condition and results of operations.

~~The loss of one or more key members of our management team could adversely affect our business.~~

Our success and future growth depends to a significant degree on the skills and continued services of our management team, in particular Alan H. Auerbach, our Chief Executive Officer and President. If Mr. Auerbach resigns or becomes unable to continue in his present role and is not adequately replaced, our business operations could be materially adversely affected. We do not maintain “key man” life insurance for Mr. Auerbach.

~~If we are unable to hire additional qualified personnel, our ability to grow our business may be harmed.~~

As of September 30, 2017, we had 308 employees, including our Chief Executive Officer and President. Our future success depends on our ability to identify, attract, hire, train, retain and motivate other highly skilled scientific, technical, marketing, managerial and financial personnel. Although we will seek to hire and retain qualified personnel with experience and abilities commensurate with our needs, there is no assurance that we will succeed despite their collective efforts. Competition for personnel is intense, and any failure to attract and retain the necessary technical, marketing, managerial and financial personnel would have a material adverse effect on our business, prospects, financial condition and results of operations.

Our success will depend upon the expansion of our operations and our ability to successfully manage our growth. Our future growth, if any, may place a significant strain on our management and on our administrative, operational and financial resources. Our ability to manage our growth effectively will require us to implement and improve our operational, financial and management systems and to expand, train, manage and motivate our employees. These demands may require the hiring of additional management personnel and the development of additional expertise by management. Any increase in resources devoted to research and product development without a corresponding increase in our operational, financial and management systems could have a material adverse effect on our business, financial condition and results of operations.

Our ability to attract and retain collaborators or customers, invest in and grow our business and meet our financial obligations depends on our operating and financial performance, which, in turn, is subject to numerous factors, including the prevailing economic conditions and financial, business and other factors beyond our control, such as the rate of unemployment, the number of uninsured persons in the United States and inflationary pressures. We cannot anticipate all the ways in which the current economic climate and financial market conditions could adversely impact our business.

We are exposed to risks associated with reduced profitability and the potential financial instability of our collaborators or customers, many of which may be adversely affected by volatile conditions in the financial markets. For example, unemployment and underemployment, and the resultant loss of insurance, may decrease the demand for healthcare services and pharmaceuticals. If fewer patients are seeking medical care because they do not have insurance coverage, our collaboration partners or customers may experience reductions in revenues, profitability and/or cash flow that could lead them to modify, delay or cancel orders for our products once commercialized. If collaboration partners or customers are not successful in generating sufficient revenue or are precluded from securing financing, they may not be able to pay, or may delay payment of, accounts receivable that are owed to us. This, in turn, could adversely affect our financial condition and liquidity. In addition, if economic challenges in the United States result in widespread and prolonged unemployment, either regionally or on a national basis, prior to the effectiveness of certain provisions of the ACA, a substantial number of people may become uninsured or underinsured. To the extent economic challenges result in fewer individuals pursuing or being able to afford our products once commercialized, our business, results of operations, financial condition and cash flows could be adversely affected.

~~We may incur substantial liabilities and may be required to limit commercialization of our products in response to product liability lawsuits.~~

The testing and marketing of medical products entail an inherent risk of product liability. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our products. If we are unable to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims, the commercialization of pharmaceutical products we develop, alone or with collaborators, could be prevented or inhibited.

~~Our cash and cash equivalents could be adversely affected if the financial institutions in which we hold our cash and cash equivalents fail.~~

We regularly maintain cash balances at third-party financial institutions in excess of the Federal Deposit Insurance Corporation, or FDIC, insurance limit. While we monitor daily the cash balances in the operating accounts and adjust the balances as appropriate, these balances could be impacted, and there could be a material adverse effect on our business, if one or more of the financial institutions with which we deposit fails or is subject to other adverse conditions in the financial or credit markets. To date, we have experienced no loss or lack of access to our invested cash or cash equivalents; however, we can provide no assurance that access to our invested cash and cash equivalents will not be impacted by adverse conditions in the financial and credit markets.

~~Our investments in marketable securities are subject to market, interest and credit risk that may reduce their value.~~

The value of our investments in marketable securities may be adversely affected by changes in interest rates, downgrades in the creditworthiness of bonds we hold, turmoil in the credit markets and financial services industry and by other factors which may result in other than temporary declines in the value of our investments. Decreases in the market value of our marketable securities could have an adverse impact on our consolidated financial statements, results of operations and cash flow.

~~We depend significantly on intellectual property licensed from Pfizer and the termination of this license would significantly harm our business and future prospects.~~

We depend significantly on our license agreement with Pfizer. Our license agreement with Pfizer may be terminated by Pfizer if we materially breach the agreement and fail to cure our breach during an applicable cure period. Our failure to use commercially reasonable efforts to develop and commercialize licensed products in certain specified major market countries would constitute a material breach of the license agreement. Pfizer may also terminate the license agreement if we become involved in bankruptcy, receivership, insolvency or similar proceedings. In the event our license agreement with Pfizer is terminated, we will lose all of our rights to develop and commercialize the drug candidates covered by such license, which would significantly harm our business and future prospects.

Our proprietary rights may not adequately protect our intellectual property and potential products, and if we cannot obtain adequate protection of our intellectual property and potential products, we may not be able to successfully market our potential products.

Our commercial success will depend in part on obtaining and maintaining intellectual property protection for our products, formulations, processes, methods and other technologies. We will only be able to protect these technologies and products from unauthorized use by third parties to the extent that valid and enforceable intellectual property rights, including patents, cover them, or other market exclusionary rights apply. The patent positions of pharmaceutical companies, like ours, can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in such companies’ patents has emerged to date in the United States. The general environment for pharmaceutical patents outside the United States also involves significant uncertainty. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced, or that the scope of these patent rights could provide a sufficient degree of future protection that could permit us to gain or keep our competitive advantage with respect to these products and technology. For example, we cannot predict:

The patents we have licensed may be subject to challenge and possibly invalidated or rendered unenforceable by third parties. Changes in either the patent laws or in the interpretations of patent laws in the United States or other countries may diminish the value of our intellectual property.

In addition, others may independently develop similar or alternative products and technologies that may be outside the scope of our intellectual property. Furthermore, others may have invented technology claimed by our patents before we or our licensors did so, and they may have filed patents claiming such technology before we did so, weakening our ability to obtain and maintain patent protection for such technology. Should third parties obtain patent rights to similar products or technology, this may have an adverse effect on our business.

We may also rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or obtainable. Trade secrets, however, are difficult to protect. While we believe that we will use reasonable efforts to protect our trade secrets, our own or our strategic partners’ employees, consultants, contractors or advisors may unintentionally or willfully disclose our information to competitors. We seek to protect this information, in part, through the use of non-disclosure and confidentiality agreements with employees, consultants, advisors and others. These agreements may be breached, and we may not have adequate remedies for a breach. In addition, we cannot ensure that those agreements will provide adequate protection for our trade secrets, know-how or other proprietary information or prevent their unauthorized use or disclosure.

To the extent that consultants or key employees apply technological information independently developed by them or by others to our potential products, disputes may arise as to the proprietary rights in such information, which may not be resolved in our favor. Consultants and key employees who work with our confidential and proprietary technologies are required to assign all intellectual property rights in their discoveries to us. However, these consultants or key employees may terminate their relationship with us, and we cannot preclude them indefinitely from dealing with our competitors. If our trade secrets become known to competitors with greater experience and financial resources, the competitors may copy or use our trade secrets and other proprietary information in the

advancement of their products, methods or technologies. If we were to prosecute a claim that a third party had illegally obtained and was using our trade secrets, it could be expensive and time consuming and the outcome could be unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets than courts in the United States. Moreover, if our competitors independently develop equivalent knowledge, we would lack any legal or contractual claim to prevent them from using such information, and our business could be harmed.

Our ability to commercialize our potential products will depend on our ability to sell such products without infringing the patent or proprietary rights of third parties. If we are sued for infringing intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in that litigation would have a material adverse effect on our business.

Our ability to commercialize our potential products will depend on our ability to sell such products without infringing the patents or other proprietary rights of third parties. Third-party intellectual property rights in our field are complicated and continuously evolving. The coverage of patents is subject to interpretation by the courts, and this interpretation is not always consistent.

Other companies may have or may acquire intellectual property rights that could be enforced against us. If they do so, we may be required to alter our products, formulations, processes, methods or other technologies, obtain a license, assuming one can be obtained, or cease our product-related activities. If our products or technologies infringe the intellectual property rights of others, they could bring legal action against us or our licensors or collaborators claiming damages and seeking to enjoin any activities that they believe infringe their intellectual property rights. If we are sued for patent infringement, we would need to demonstrate that our products or methods of use either do not infringe the patent claims of the relevant patent or that the patent claims are invalid or unenforceable, and we may not be able to do this. Proving the invalidity of a patent is particularly difficult in the United States, since it requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. If we are found to infringe a third-party patent, we may need to cease the commercial sale of our products.

Because patent applications can take many years to issue, there may be currently pending applications unknown to us or reissue applications that may later result in issued patents upon which our products or technologies may infringe. There could also be existing patents of which we are unaware that our products or technologies may infringe. In addition, if third parties file patent applications or obtain patents claiming products or technologies also claimed by us in pending applications or issued patents, we may have to participate in interference proceedings in the U.S. Patent and Trademark Office, or USPTO, to determine priority of invention. If third parties file oppositions in foreign countries, we may also have to participate in opposition proceedings in foreign tribunals to defend the patentability of our filed foreign patent applications. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. Additionally, any uncertainties resulting from the initiation and continuation of any litigation may have a material adverse effect on our ability to raise the funds necessary to continue our operations.

~~If a third party claims that we infringe its intellectual property rights, it could cause our business to suffer in a number of ways, including:~~

~~If any of these events occur, our business could suffer and the market price of our common stock may decline.~~

As is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously employed at other companies in these industries, including our competitors or potential competitors. We may become subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers, although no such claims are pending. Litigation may be necessary to defend against these claims. Even if we successfully defend any such claims, we may incur substantial costs in such defense, and our management may be distracted by these claims.

Our stock price may fluctuate significantly and you may have difficulty selling your shares based on current trading volumes of our stock. In addition, numerous other factors could result in substantial volatility in the trading price of our stock.

We cannot predict the extent to which investor interest in our company will be sufficient to maintain an active trading market on the NASDAQ Global Select Market or any other exchange in the future. We have several stockholders, including affiliated stockholders, who hold substantial blocks of our stock. As of September 30, 2017 we estimate that our officers, directors and their affiliated entities, and our 5% or greater stockholders, collectively beneficially owned approximately 89.9% of our outstanding shares of common stock. Sales of large numbers of shares by any of our large stockholders could adversely affect our trading price. If stockholders holding shares of our common stock sell, indicate an intention to sell, or if it is perceived that they will sell, substantial amounts of their common stock in the public market, the trading price of our common stock could decline. Moreover, if there is a less active trading market, holders of our common stock may have difficulty selling their shares.

~~The price of our common stock could be subject to volatility related or unrelated to our operations.~~

~~The trading price of our common stock may be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. These factors include:~~

The stock market in general, and market prices for the securities of biotechnology companies like ours in particular, have from time to time experienced volatility that often has been unrelated to the operating performance of the underlying companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance.

Volatility in the price of our common stock may subject us to securities litigation, which could cause us to incur substantial costs and divert management's attention, financial resources and other company assets.

In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. This risk is especially relevant for us because pharmaceutical companies have experienced significant stock price volatility in recent years. In addition, we and certain of our executive officers have been named as defendants in a securities class action and derivative lawsuits captioned HSC v. Puma Biotechnology, Inc., et al., Xing Xie v. Alan H. Auerbach, and Kevin McKenney v. Auerbach. These lawsuits and any future lawsuits to which we may become a party are subject to inherent uncertainties and will likely be expensive and time-consuming to investigate, defend and resolve, and will divert our management's attention and financial and other resources. The outcome of litigation is necessarily uncertain, and we could be forced to expend significant resources in the defense of these and other suits, and we may not prevail. Any litigation to which we are a party may result in an onerous or unfavorable judgment that may not be reversed upon appeal or in payments of substantial monetary damages or fines, or we may decide to settle this or other lawsuits on similarly unfavorable terms, which could adversely affect our business, financial

~~condition, results of operations or stock price. See Item 3. “Legal Proceedings” below for additional information regarding the securities class action and derivative lawsuits.~~

~~Issuance of stock to fund our operations may dilute your investment and reduce your equity interest.~~

We may need to raise capital in the future to fund the development of our drug candidates or for other purposes. Any equity financing may have a significant dilutive effect to stockholders and a material decrease in our existing stockholders’ equity interest in us. Equity financing, if obtained, could result in substantial dilution to our existing stockholders. At its sole discretion, our board of directors may issue additional securities without seeking stockholder approval, and we do not know when we will need additional capital or, if we do, whether it will be available to us.

~~Upon the exercise of our outstanding warrant, holders of our common stock may experience immediate dilution and the market price of our common stock may be adversely affected.~~

Following an October 2011 private placement, Alan H. Auerbach, our founder, Chief Executive Officer and President, held approximately 21% of our outstanding shares of common stock. Pursuant to the terms of the Securities Purchase Agreement for the private placement, we issued an anti-dilutive warrant to Mr. Auerbach. The warrant has a 10-year term expiring in October 2021 for 2,116,250 shares with an exercise price of $16.00 per share.

If any portion of the outstanding warrant is exercised for shares of our common stock, our stockholders may experience immediate dilution and the market price of our common stock may be adversely affected.

~~We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could harm our operating results.~~

As a public company, we incur significant legal, accounting and other expenses, including costs associated with public company reporting requirements. We also incur costs associated with current corporate governance requirements, including requirements under Section 404 and other provisions of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, as well as rules implemented by the SEC, or NASDAQ or any stock exchange or inter-dealer quotations system on which our common stock may be listed in the future. The expenses incurred by public companies for reporting and corporate governance purposes have increased dramatically in recent years. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We are unable to currently estimate these costs with any degree of certainty. We also expect that these rules and regulations may make it difficult and expensive for us to maintain the appropriate level of director and officer insurance for a company with our market capitalization. If we are unable to maintain an appropriate level of such insurance, we may be required to accept reduced policy limits and coverage or larger deductible limits. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as our executive officers.

If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors’ views of us.

We are subject to the rules and regulations of the SEC, including those rules and regulations mandated by the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act requires public companies to include in their annual report a statement of management’s responsibilities for establishing and maintaining adequate internal control over financial reporting, together with an assessment of the effectiveness of those internal controls. Section 404 also requires the independent auditors of certain public companies to attest to, and report on, this management assessment. Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that will need to be evaluated frequently. Our failure to maintain the effectiveness of our internal controls in accordance with the requirements of the Sarbanes-Oxley Act could have a material adverse effect on our business. We could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the price of our common stock. In addition, if our efforts to comply with new or changed laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

Sales of a substantial number of shares of our common stock in the public market could cause the market price of our common stock to drop significantly, even if our business is doing well, which result would in turn negatively affect our ability to raise additional equity capital.

Sales of a substantial number of shares of our common stock in the public market, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. A substantial majority of the outstanding shares of our common stock are freely tradable without restriction or further registration under the Securities Act of

1933, as amended. We have also registered all shares of common stock that we may issue under our equity compensation plan, which can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates. We are unable to predict the effect that sales may have on the prevailing market price of our common stock. However, an adverse effect on the market price of our common stock could have a material adverse effect on our ability to raise additional equity capital.

If securities or industry analysts do not publish, or cease publishing, research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

The trading market for our common stock is and will be influenced by whether industry or securities analysts publish research and reports about us, our business, our market or our competitors and, if any analysts do publish such reports, what they publish in those reports. We may not obtain analyst coverage in the future. Any analysts who do cover us may make adverse recommendations regarding our stock, adversely change their recommendations from time to time, and/or provide more favorable relative recommendations about our competitors. If any analyst who may cover us in the future were to cease coverage of our company or fail to regularly publish reports on us, or if analysts fail to cover us or publish reports about us at all, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

We currently intend to retain any future earnings for funding growth. We do not anticipate paying any dividends in the foreseeable future. As a result, you should not rely on an investment in our securities if you require dividend income. Capital appreciation, if any, of our shares may be your sole source of gain for the foreseeable future. Moreover, you may not be able to re-sell your shares in us at or above the price you paid for them.

~~Our ability to use our net operating losses and research and development credit carryforwards to offset future taxable income may be subject to certain limitations.~~

In general, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three year period, is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, and its research and development credit carryforwards to offset future taxable income. Our existing NOLs and research and development credit carryforwards may be subject to limitations arising from previous ownership changes, and if we undergo an ownership change, our ability to utilize NOLs and research and development credit carryforwards could be further limited by Sections 382 and 383 of the Code. Future changes in our stock ownership, some of which might be beyond our control, could result in an ownership change under Sections 382 and 383 of the Code. Furthermore, our ability to utilize NOLs and research and development credit carryforwards of any companies we may acquire in the future may be subject to limitations, in accordance with Sections 382 and 383 of the Code. For these reasons, in the event we experience a change of control, we may not be able to utilize a material portion of the NOLs and research and development credit carryforwards, even if we attain profitability.

We did not sell any of our equity securities without registration under the Securities Act of 1933, as amended, during the ~~quarter~~three months ended ~~September~~June 30, ~~2017.~~2020.

Neither we nor any “affiliated purchasers” within the definition of Rule 10b-18(a)(3) promulgated under the Exchange Act made any purchases of our equity securities during the quarter ended ~~September~~June 30, ~~2017.~~2020.

On September 29, 2017, the compensation committee of our board of directors approved the ratification, or the Ratification, of certain grants of Restricted Stock Units, or the RSU Awards, under the Puma Biotechnology, Inc. 2011 Incentive Award Plan, as amended, pursuant to and in accordance with Section 204 of the General Corporation Law of the State of Delaware, or the General Corporation Law. The RSU Awards were made on May 1, 2017, May 8, 2017, May 22, 2017, May 30, 2017, June 12, 2017, June 19, 2017, June 26, 2017, July 17, 2017, July 24, 2017, July 31, 2017, August 7, 2017 and August 14, 2017 and involved the grant of 7,500, 11,250, 35,625, 3,750, 30,000, 30,000, 18,750, 24,375, 18,750, 15,000, 11,250 and 11,250 Restricted Stock Units, respectively. The compensation committee approved the Ratification of such RSU Awards after it determined that the RSU Awards may not have been duly authorized in accordance with Section 152 of the General Corporation Law. As none of the RSU Awards have vested, no shares of putative stock have been issued in respect of the RSU Awards. Any claim that the RSU Awards are void or voidable due to the foregoing failure of authorization, or that the Court of Chancery of the State of Delaware should declare in its discretion that the Ratification not be effective or be effective only on certain conditions, must be brought within 120 days from the later of the validation effective time and the giving of this notice (which is deemed given on the date that this Quarterly Report on Form 10-Q is filed with the Securities and Exchange Commission).

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Large accelerated filer	☒☐	Accelerated filer	☐☒

Non-accelerated filer	☐ ~~(Do not check if a smaller reporting company)~~	Smaller reporting company	☐

Emerging growth company	☐

		Page
PART I – FINANCIAL INFORMATION:		1
Item 1.	Financial Statements (Unaudited):	1
	Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019	1
	Condensed Consolidated Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019	2
	Condensed Consolidated Statements of Comprehensive ~~Loss~~Income (Loss) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019	3
	Condensed Consolidated ~~Statement~~Statements of Stockholders’ Equity for the ~~Nine~~Three and Six Months Ended ~~September~~June 30, ~~2017~~2020 and 2019	4
	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019	56
	Notes to the Unaudited Condensed Consolidated Financial Statements	67
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2030
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3142
Item 4.	Controls and Procedures	3142
PART II – OTHER INFORMATION:		43
Item 1.	Legal Proceedings	3343

Item 1A.	Risk Factors	3343
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5444
Item 3.	Defaults Upon Senior Securities	5444
Item 4.	Mine Safety Disclosures	5444
Item 5.	Other Information	5544
Item 6.	Exhibits	5645
Signatures		5746

Property and Equipment:	September 30, 2017			December 31, 2016
Leasehold improvements	$	3,878		$	3,878
Computer equipment		2,112			1,822
Telephone equipment		296			256
Furniture and fixtures		2,207			2,146
		8,493			8,102
Less: accumulated depreciation and amortization		(3,779	)		(2,949	)
Totals	$	4,714		$	5,153

Operating cash flows for operating leases (in thousands)	$	2,814
Right-of-use assets obtained in exchange for new operating lease liabilities		—
Weighted average remaining lease term (in years)		5.7
Weighted average discount rate		10.9	%

	Amount
2020 (remaining)	$	2,624
2021		5,365
2022		5,483
2023		5,631
2024		5,805
Thereafter		7,491
Total	$	32,399
Less: imputed interest		(8,388	)
Total lease liabilities	$	24,011

	September 30, 2017			December 31, 2016 (Note 1)
ASSETS
Current assets:
Cash and cash equivalents	$	79,717		$	194,494
Marketable securities		26,620			34,982
Accounts receivable, net		3,890			—
Inventory		89			—
Prepaid expenses and other, current		9,281			6,998
Total current assets		119,597			236,474
Property and equipment, net		4,714			5,153
Prepaid expenses and other, long-term		3,851			6,846
Intangible assets, net		49,379			—
Restricted cash		4,317			4,317
Total assets	$	181,858		$	252,790
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	17,644		$	20,035
Accrued expenses		79,608			17,426
Total current liabilities		97,252			37,461
Deferred rent		5,438			5,505
Total liabilities		102,690			42,966
Commitments and contingencies (Note 8)
Stockholders' equity:
Common stock - $.0001 par value; 100,000,000 shares authorized; 37,384,975 shares issued and outstanding at September 30, 2017 and 36,826,010 issued and outstanding at December 31, 2016		4			4
Additional paid-in capital		1,109,212			1,006,344
Receivable from exercise of stock options		(5,653	)		—
Accumulated other comprehensive loss		(7	)		(13	)
Accumulated deficit		(1,024,388	)		(796,511	)
Total stockholders' equity		79,168			209,824
Total liabilities and stockholders' equity	$	181,858		$	252,790

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2017			2016			2017			2016
Product Revenue, net	$	6,077		$	—		$	6,077		$	—
Operating costs and expenses:
Cost of sales	$	1,526		$	—		$	1,526		$	—
Selling, general and administrative		32,489			14,022			75,819			37,326
Research and development		49,502			51,977			157,556			166,400
Total operating expense		83,517			65,999			234,901			203,726
Loss from operations		(77,440	)		(65,999	)		(228,824	)		(203,726	)
Other (expenses) income:
Interest income		305			214			1,035			756
Other (expenses) income		(45	)		4			(88	)		(380	)
Total other (expenses) income		260			218			947			376
Net loss	$	(77,180	)	$	(65,781	)	$	(227,877	)	$	(203,350	)
Net loss applicable to common stock	$	(77,180	)	$	(65,781	)	$	(227,877	)	$	(203,350	)
Net loss per common share—basic and diluted	$	(2.07	)	$	(2.02	)	$	(6.15	)	$	(6.26	)
Weighted-average common shares outstanding—basic and diluted		37,214,002			32,497,168			37,046,765			32,489,584

	For the Nine Months Ended
	2017			2016
Operating activities:
Net loss	$	(227,877	)	$	(203,350	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,451			565
Built-out allowance received from landlord		—			2,997
Stock-based compensation		83,213			87,990
Disposal of leasehold improvements		—			368
Changes in operating assets and liabilities:
Accounts receivable, net		(3,890	)		—
Inventory		(89	)		—
Other receivables		—			(1,179	)
Prepaid expenses and other		712			2,832
Intangible assets, net					—
Accounts payable		(2,496	)		3,075
Accrued expenses		12,182			2,082
Accrual of deferred rent		(67	)		3,891
Net cash used in operating activities		(136,861	)		(100,729	)
Investing activities:
Purchase of property and equipment		(286	)		(3,730	)
Restricted cash		—			(3	)
Expenditures for leasehold improvements		—			(2,997	)
Purchase of available-for-sale securities		(79,728	)		(81,794	)
Sale/maturity of available-for-sale securities		88,096			209,874
Net cash provided by investing activities		8,082			121,350
Financing activities:
Net proceeds from the exercise of options		14,002			351
Net cash provided by financing activities		14,002			351
Net (decrease) increase in cash and cash equivalents		(114,777	)		20,972
Cash and cash equivalents, beginning of period		194,494			31,569
Cash and cash equivalents, end of period	$	79,717		$	52,541

Supplemental disclosures of non-cash investing and financing activities:
Property and equipment purchases in accounts payable	$	105		$	—
Licensor fee due in accrued expenses	$	50,000		$	—
Receivables related to stock option exercises	$	5,653		$	—

Level 2:
~~Level 2:~~		Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.

Level 3:
~~Level 3:~~		Valuations derived from valuation techniques in which one or more significant inputs are unobservable.

	June 30, 2020		December 31, 2019
Deposit for manufacturing costs	$	3,376	$	—
Other		50		323
Totals	$	3,426	$	323

	September 30, 2017			Estimated useful life	June 30, 2020			December 31, 2019
Acquired and in-licensed rights	$	50,000		13 Years	$	90,000		$	50,000
Less: accumulated amortization		(621	)			(11,852	)		(9,539	)
Total intangible asset, net	$	49,379			$	78,148		$	40,461

	June 30, 2020			Maturity Date
Long-term debt	$	100,000		June 1, 2024
Accretion of final interest payment		2,599
Less: deferred financing costs		(6,026	)
Total long-term debt, net	$	96,573

	2020			2019
Dividend yield		0.0	%		0.0	%
Expected volatility		102.7	%		99.9	%
Risk-free interest rate		1.0	%		2.5	%
Expected life in years		5.80			5.76

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Stock-based compensation:
Options -
Research and development, or R&D	$	15,825	$	20,258	$	54,062	$	66,376
Selling, general and administrative, or SG&A		5,817		6,802		18,371		18,852
Performance shares - R&D		—		68		—		139
Restricted stock units -
R&D		2,333		1,754		6,185		1,754
SG&A		2,513		869		4,595		869
Total stock-based compensation expense	$	26,488	$	29,751	$	83,213	$	87,990

				Weighted		Shares			Weighted Average Grant-Date Fair Value
				Average
				Grant-Date
Stock options	Shares			Fair Value
Nonvested shares at December 31, 2016		3,106,083		$	47.78
Nonvested shares at December 31, 2019							439,194			19.38
Granted		519,791			24.30		606,900			7.86
Vested/Issued		(1,020,243	)		61.53		(101,661	)		32.46
Forfeited		(272,399	)		30.28		-			-
Nonvested shares at September 30, 2017		2,333,232			35.31
Nonvested shares at June 30, 2020							944,433		$	10.57

Exhibit Number		Description

3.1		Second Amended and Restated Certificate of Incorporation of the Company, as filed with the Secretary of State of the State of Delaware on June 14, 2016 (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 15, 2016 and incorporated herein by reference)

3.2		~~Second~~Third Amended and Restated Bylaws of the Company (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on May ~~8, 2017~~28, 2019 and incorporated herein by reference)

~~31.1~~10.1		Amended Non-Employee Director Compensation Program (filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 7, 2020 and incorporated herein by reference)

10.2+*		Pfizer Letter Agreement dated June 8, 2020, by and between the Company and Pfizer Inc.

10.3+		Second Amendment to Amended and Restated Loan and Security Agreement, dated July 6, 2020, by and between the Company and Oxford Finance LLC, as collateral agent and Lender

10.4+*		Third Amendment to Amended and Restated Loan and Security Agreement, dated August 5, 2020, by and between the Company and Oxford Finance LLC, as collateral agent and Lender

31.1+		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the ~~registrant's~~registrant’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2017~~2020

~~31.2~~31.2+		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the ~~registrant's~~registrant’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2017~~2020

~~32.1~~32.1++		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~32.2~~32.2++		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~101.INS~~101.INS+		Inline XBRL Instance Document

~~101.SCH~~101.SCH+		Inline XBRL Taxonomy Extension Schema Document

~~101.CAL~~101.CAL+		Inline XBRL Taxonomy Extension Calculation Linkbase Document

~~101.DEF~~101.DEF+		Inline XBRL Taxonomy Extension Definition Linkbase Document

~~101.LAB~~101.LAB+		Inline XBRL Taxonomy Extension Label Linkbase Document

~~101.PRE~~101.PRE+		Inline XBRL Taxonomy Extension Linkbase Document

104+		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

+	~~Management contract or compensatory plan or arrangement~~	Filed herewith

++		Furnished herewith

*		Portions of this exhibit (indicated by asterisks) have been omitted pursuant to Regulation S-K, Item 601(b)(10). Such omitted information is not material and would likely cause competitive harm to the registrant if publicly disclosed.

	PUMA BIOTECHNOLOGY, INC.

Date: ~~November 9, 2017~~August 6, 2020	By:	/s/ Alan H. Auerbach
		Alan H. Auerbach
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: ~~November 9, 2017~~August 6, 2020	By:	/s/ ~~Charles R. Eyler~~Maximo F. Nougues
		~~Charles R. Eyler~~Maximo Nougues
		~~Senior Vice President, Finance and Administration and Treasurer~~Chief Financial Officer
		(Principal Financial and Accounting Officer)