PCYC Beats on Earnings and Revs in Q3

Zacks Equity Research

Pharmacyclics Inc.’s (PCYC) third quarter 2013 earnings (including stock-based compensation expenses) of 55 cents per share beat the Zacks Consensus Estimate of 31 cents per share. However, earnings in the third quarter of 2013 were 46% below the year-ago figure. The year-over-year decline in earnings was primarily due to lower revenues.

Total revenue for the third quarter of 2013 decreased to $79.1 in the third quarter of 2013 from $102.7 million a year ago. Revenues during the quarter consisted of license and milestone revenues and collaborative service revenues. The year-over-year decline in revenues in the third quarter of 2013 was due to lower license and milestone revenues. Revenues were however above the Zacks Consensus Estimate of $68 million.

Revenues during the third quarter of 2013 included $75 million as milestone payments received by Pharmacyclics from partner Janssen Biotech, a Johnson & Johnson (JNJ) company. The milestone payment followed the acceptance of Pharmacyclics’ new drug application by the U.S. Food and Drug Administration for oncology candidate ibrutinib in Aug 2013. The FDA is reviewing the application on a priority basis (target date: Feb 28, 2014).

The company is looking to get ibrutinib approved for two oncology indications: previously treated mantle cell lymphoma and previously treated chronic lymphocytic leukemia /small lymphocytic lymphoma. The candidate is being developed to treat other cancer forms as well.

Pharmacyclics has received milestone payments of $275 million under its agreement with Janssen so far. Pharmacyclics is eligible to receive further payments up to $550 million under the agreement.

Pharmacyclics’ total operating expenses for the third quarter of 2013 climbed to $25.7 million from $23.9 million a year ago. Pharmacyclics expects to be profitable both in the final quarter of 2013 as well as for full year 2013.  Currently, the Zacks Consensus Estimate hints at a loss of 38 cents and 58 cents per share for the fourth quarter and full year 2013 respectively.

Our Take

At first glance, Pharmacyclics’ third quarter results look impressive with the company reporting higher-than-expected earnings as well as revenues. However, revenues do not include product sales in the absence of any marketed product at Pharmacyclics. The company has high hopes on ibrutinib. We expect investor focus to remain on the development of ibrutinib. The candidate is being developed for multiple oncology indications in collaboration with Janssen.

We are positive on the company’s collaboration with Janssen for ibrutinib. Janssen is a suitable partner for Pharmacyclics. Janssen’s strong global presence bodes well for the commercialization of ibrutinib, once it is approved. Successful development and commercialization of ibrutinib would bring in substantial revenues to Pharmacyclics.

Pharmacyclics carries a Zacks Rank #1 (Strong Buy). Companies such as Actelion Ltd. (ALIOF) and AMAG Pharmaceuticals, Inc. (AMAG) look equally attractive.

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