U.S. Markets closed

Earnings Beat at Pharmacyclics, Guidance Pulls Down Stock

Zacks Equity Research

Pharmacyclics, Inc.’s (PCYC) first quarter 2014 earnings (including stock-based compensation expenses) of 23 cents per share blew past the Zacks Consensus Estimate of 9 cents per share. Moreover, earnings in the first quarter of 2014 compared favorably to the year-ago loss of 73 cents. Results in the quarter were boosted by the massive jump in revenues due to the presence of oncology drug Imbruvica.

Total revenue in the first quarter of 2014 jumped to $119.4 million, well above the Zacks Consensus Estimate of $112 million. Revenues were a mere $2.8 million in the year-ago quarter. Revenues in the quarter included Imbruvica sales of $56.2 million. We remind investors that Imbruvica was approved by the U.S. Food and Drug Administration (:FDA) for treating mantle cell lymphoma (:MCL) patients in Nov 2013.

Accelerated FDA approval for treating chronic lymphocytic leukemia (CLL.TO) patients who have received at least one prior therapy for the disease was gained by Pharmacyclics in Feb 2014. Pharmacyclics has sought full approval for the indication from the FDA. Pharmacyclics recorded milestone payments of $60 million from partner Janssen (a Johnson & Johnson (JNJ) company) during the quarter.

Pharmacyclics’ net operating expenses (including stock-based compensation expenses) for the first quarter of 2014 climbed to $101.2 million from $55.8 million a year ago.

2014 Outlook Hurts Pharmacyclics

In spite of quarterly earnings and revenues coming in above expectations, shares of the company declined significantly following the earnings release. The downward movement was attributable to the net product revenue guidance for 2014. Net product revenue for 2014 is projected at $295 million, with an error margin of 5% on either side. The 2014 Zacks Consensus Estimate for total revenues currently stands at $421 million. Pharmacyclics projects net product revenues of $80 million, +/- 5% for the second quarter of 2014. The Zacks Consensus Estimate for total revenues for the second quarter currently stands at $78 million.

Our Take

We are not surprised by the comfortable revenue beat in the quarter, which led to the bottom line outperformance, as Imbruvica sales were present in the quarter unlike a year ago. This was the first full quarter at Pharmacyclics for Imbruvica as far as the MCL indication was concerned. Quarterly revenues included six weeks of Imbruvica sales for CLL. We are pleased by the sales of Imbruvica in the quarter. Sales of the drug should increase further in the coming quarters. The drug is being evaluated for other oncology indications as well.

Approval of Imbruvica for additional indications would increase the drug’s sales potential. Other interesting pipeline candidates at Pharmacyclics include PCI-27483 and abexinostat. Successful development and subsequent commercialization of these candidates would not only boost Pharmacyclics’ top line but also reduce its dependence on a single drug for growth.

Pharmacyclics carries a Zacks Rank #3 (Hold). Better-ranked stocks in the medical sector include Alexion Pharmaceuticals, Inc. (ALXN) and Gilead Sciences, Inc. (GILD). Both stocks carry a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on ALXN
Read the Full Research Report on GILD
Read the Full Research Report on JNJ
Read the Full Research Report on PCYC

Zacks Investment Research