Second-quarter fiscal 2010 results announced by Pharmacyclics

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Feb 12 2010

Pharmacyclics, Inc. (Nasdaq: PCYC) today reported financial results for its second fiscal quarter ended December 31, 2009.

Upon the completion of a drug supply agreement with Servier in the quarter ended December 31, 2009, the company began recognizing revenue under GAAP from its collaboration agreement with Servier, which was entered into in April 2009. Total revenue recognized under GAAP in our most recent quarter was $4.7 million, of which $2.7 million represents the pro-rata portion of revenue attributable to the period from April 2009 (i.e. the signing of the collaboration agreement) to September 30, 2009.

As of December 31, 2009, the company's cash, cash equivalents and marketable securities totaled $30.1 million compared to $16.3 million as of June 30, 2009.

Total operating expenses were $5.5 million in the second quarter of fiscal 2010, including $0.6 million of share-based compensation expense. This compares to $4.9 million in operating expenses for the second quarter of fiscal 2009, with share-based compensation expense of $0.6 million. The increase in operating expenses was primarily due to an increase in product development, manufacturing and research expenses.

Due to a change in the tax treaty between the US and France, we are anticipating to receive within this calendar year a full refund of the taxes of $0.55 million paid to the French Government in April of 2009 in association with the upfront licensing payment we received from Servier. The company therefore recorded a receivable for foreign income tax credit of $0.55 million in the second quarter of fiscal 2010. The receivable for the credit was recorded during the quarter as a result of the Protocol amending the Income Tax Treaty between the United States and France being enacted on December 23, 2009.

The GAAP net loss for the second quarter of fiscal 2010 was $218,000, or $0.00 per share, compared to a net loss of $4.8 million, or $0.19 per share, in the second quarter of fiscal 2009. For a non GAAP review of the quarter, please see the attached analysis on the last two pages of this press release.

Financial Guidance:

As of December 31, 2009, the company had $8.5 million of deferred revenue recorded on its balance sheet associated with the Servier agreements. It is currently expected that the $8.5 million in deferred revenue, for which the payments have already been received, will be recognized as revenue ratably between January 2010 and April 2011 (with a minimum of approximately $1.7 million per quarter).

Pharmacyclics projects total operating expenses, excluding share-based compensation of between $11.0 and $12.0 million for the remaining two quarters of fiscal year 2010, including general and administrative expenses of approximately $3.0 - $3.5 million. Including share-based compensation expense, Pharmacyclics projects total operating expenses of between $12.0 and $13.0 million for the remaining two quarters of fiscal year 2010, including general and administrative expenses of approximately $3.5 - $4.0 million. In the same time frame the company expects to receive from its collaboration partner Servier $1.0 million in research payments and approximately $0.8 million for the supply of products. The company anticipates ending its fiscal year at June 30, 2010 with a cash balance of above approximately $20.0 million.

Financial projections involve a high level of uncertainty due to, among other factors, the variability involved in predicting requirements of early state research programs and clinical trials, the potential for entering into partnering arrangements or strategic collaborations, the timing of U.S. Food and Drug Administration (FDA) decisions and share-based compensation expense.

Robert W. Duggan stated, "A great deal of progress has been accomplished over the past year and especially the past quarter. The team responsible for making this happen remains dedicated to moving each of our compounds through the human clinical phase in an efficient manner. As you can read elsewhere in this release, we are making a difference for the better and we look forward to expanding upon our excellent results in treating serious unmet medicinal needs."

Recent and Upcoming Milestones and Program Updates

Bruton's Tyrosine Kinase Inhibitor, PCI-32765, the company's Btk Inhibitor, is currently in a Phase I trial in patients with relapsed or refractory surface immunoglobulin positive B-cell Non-Hodgkin's Lymphoma (including SLL/CLL). PCI-32765 is an orally active small molecule inhibitor of Bruton's tyrosine kinase (Btk). Btk plays a prominent role in B-cell lymphocyte maturation by mediating B-cell receptor (BCR) signal transduction. By inhibiting this signaling we are intending to induce apoptosis of these cancerous cells. The company presented interim trial results at the American Society of Hematology Meeting in December 2009. At the ASH poster presentation there were 16 patients evaluated for response of which 5 patients had a confirmed partial response (2 in mantle cell lymphoma, 2 in chronic lymphocytic leukemia, and 1 in follicular lymphoma). A partial response is defined as a 50% or greater decrease in the aggregate sum of the diameters of up to the 6 largest dominant masses with no increase in size of other nodes. In addition there were 3 patients with stable disease and 8 patients with progressive disease.
The first dose cohort consisted of 7 patients treated once daily with orally administered PCI-32765 at a dosage of 1.25 mg/kg. In this cohort, 2 partial responses were observed (1patient with mantle cell lymphoma and 1patient with follicular lymphoma). The second dose cohort consisted of 9 patients treated with our Btk Inhibitor, PCI-32765, at a dosage of 2.5 mg/kg/day. In this cohort 3 partial responses were observed (1 patient with mantle cell lymphoma and 2 patients with chronic lymphocytic leukemia (CLL/SLL)), and 2 patients had stable disease. The overall response rate (ORR), considering only partial and complete responses, was 31% for the first two dose cohorts.
Concurrent with the ASH Poster Presentation, the company announced in a press release the results of interim evaluations performed up to December 5, 2009 on 3 CLL/SLL patients in the third dose cohort. All three patients were determined to have a partial tumor response based on the interim analyses. The partial response rate at that point in CLL/SLL patients was 5 out of 6.
The company submitted further results of the trial in an abstract to be presented at the upcoming American Society for Clinical Oncology Meeting on June 2-6, 2010 in Chicago, IL. ASCO's regulations require us not to disclose information contained in this abstract prior to its publication. Adhering to this policy precludes the company from providing further updates from cohorts 3 through 5 on our Phase I clinical study with our Btk Inhibitor until the abstract is accepted for presentation and made public by ASCO.
The company anticipates enrolling 5 ascending-dose cohorts in the current Phase I study with PCI-32765. As per protocol, dose escalation will continue up to three levels above full Btk active-site occupancy, which occurred in dose cohort 2. The company anticipates an end-of-cycle 2 efficacy review for dose cohort 4 and safety review of dose cohort 5 by the time of the ASCO Annual Meeting. In the third quarter this year the company is planning to begin Phase II in Non-Hodgkin's Lymphoma.
Recently, the company met with key scientific and clinical advisors regarding chronic lymphocytic leukemia. Based on the input received from these advisors and our own internal data evaluation, the company is planning a Phase Ib trial with our Btk Inhibitor, PCI-32765, in approximately 24 CLL/SLL patients, to begin late second quarter of this year. Additionally, based on the current trial and the Phase Ib study, the company is planning to meet with the FDA to discuss our registration path for CLL late in the third calendar quarter.
Our preclinical research program is continuing to expand clinical indications for the Btk Inhibitor PCI-32765 outside of hematologic cancers and to support our ongoing clinical trials in lymphoma and CLL. In laboratory tests, we have shown that our Btk Inhibitor is a potent inhibitor of mast cell (and basophil) degranulation. Dr. Gerard Evans' lab at the University of California, San Francisco (UCSF) tested PCI-32765 in his mouse pancreatic model. In the model the Btk Inhibitor completely blocked mast cell degranulation which led to tumor regression and vascular collapse. This work will be presented at the 2010 American Association for Cancer Research (AACR) in Washington DC, April 17-20, 2010 as an oral presentation. With respect to research in lymphoma, the NCI has made valuable discoveries indicating that many types of lymphoma are driven by chronic active BCR signaling, a process dependent upon Btk activity. The NCI findings, which included results from experiments with Pharmacyclics' Btk Inhibitor, PCI-32765, were recently published in Nature Davis et al. (2010) Vol. 463, p 88-94. You can find the article on our website under the Investor & Media section: http://ir.pharmacyclics.com/presentations.cfm
Pharmacyclics is focusing on the preclinical optimization of a series of Btk inhibitors for autoimmune diseases. We are anticipating that the in-life phase of IND-enabling preclinical safety studies will be completed this year and are planning to file an IND in the first half of 2011. This program is currently being pursued with priority by our pre-clinical team.
Histone deacetylase Inhibitor, PCI-24781, is the company's orally-bioavailable HDAC Inhibitor that disrupts DNA repair and contributes to tumor cell death. In three Phase I clinical trials conducted in patients with hematologic or solid tumors, clinical response or control of tumor growth has been observed following single-agent therapy with our HDAC Inhibitor. Most recently, the company announced at the American Society for Hematology in December 2009 its Phase I trial results of the HDAC Inhibitor, PCI 24781, tested in heavily pretreated relapsed / refractory lymphoma patients. In a review of the clinical data at the end of the Phase I dose-escalation portion of the current lymphoma trial, we have found that our HDAC Inhibitor produced encouraging efficacy results with minimal toxicity when administered as a single agent. Among 16 lymphoma patients evaluated for disease control after the completion of at least 2 treatment cycles, we observed 1 complete response (follicular lymphoma), 4 partial responses (2 follicular lymphoma, 1 diffuse large B-cell lymphoma, 1 mantle cell lymphoma) and 6 patients with stable disease. Of the 4 follicular lymphoma patients evaluated in this trial, 3 had objective response and the fourth patient manifested stable disease.
Pharmacyclics' HDAC Inhibitor has demonstrated a good safety profile in over 80 patients treated so far, with the main dose-limiting toxicity being a rapidly reversible thrombocytopenia, which we believe is related to the pharmacologic mechanism of action. The magnitude of thrombocytopenia can be attenuated by modification of the treatment schedule. The Phase II portion of this trial has now begun in patients with follicular and mantle cell lymphoma. We plan to enroll 32 patients and will provide trial results in the first half of 2011.
Our HDAC Inhibitor, PCI-24781, has shown synergy with several approved cancer therapeutics. A Phase I/II trial in sarcoma patients has just begun and is co-sponsored by prominent investigators at Massachusetts General Hospital and Dana-Farber / Harvard Cancer Center. In this study Pharmacyclics' HDAC Inhibitor is being administered in combination with doxorubicin. We anticipate enrolling between 9 and 18 patients in the Phase I dose-escalation portion of the trial and with an additional 29 patients to be enrolled in the Phase II portion of the trial. We anticipate Phase II results in the first half of 2012.
The HDAC Inhibitor, PCI-24781, will also be clinically advanced by Servier, our collaboration partner. Servier acquired the exclusive right to develop and commercialize the Pan-HDAC inhibitor product worldwide except for the United States and will pay a royalty to Pharmacyclics on sales outside of the United States. Pharmacyclics will continue to own all rights to develop and commercialize within the United States and we will have access to the data produced by the Servier clinical program. Most recently we signed a supply agreement to provide Servier with 10 kg of the HDAC Inhibitor PCI 24781, sufficient to supply drugs for a multitude of Phase I and Phase II trials. We anticipate delivery of this 10 kg order within the next two months of 2010.
Histone deacetylase 8 Inhibitor, PCI-34051, is at the preclinical lead optimization stage. PCI-34051 is the current lead molecule. The company plans to conclude its lead optimization work by the end of calendar year 2010. Most recently a presentation for this molecule was accepted by the American Association for Cancer Research (AACR) and the company will present a poster on April 17-21, 2010 at the AACR annual meeting in Washington DC.
Factor VIIa Inhibitor, PCI-27483, is a potent and highly selective small molecule inhibitor of coagulation Factor VIIa. Factor VIIa is best known for its role in triggering the extrinsic pathway of blood coagulation following contact and complex formation with the cell surface glycoprotein Tissue Factor. Tissue Factor is overexpressed in pancreatic, gastric, colon and many other cancers of epithelial origin. FVIIa Inhibitor, PCI-27483, is currently being evaluated in a multicenter Phase I/II study in patients with locally advanced or metastatic pancreatic cancer. The first part of the study includes an intra-patient dose escalation in six patients. Each patient will receive 12 weeks of treatment with PCI-27483 in combination with gemcitabine. By the third quarter of this year, we plan to initiate the randomized Phase II portion of this study in which pancreatic cancer patients will receive 12 weeks of treatment with gemcitabine alone or gemcitabine plus PCI-27483.
Motexafin Gadolinium (MGd), PCI-0120, is currently being tested in two NCI sponsored Phase II studies. Both studies have survival as their endpoint and both are fully enrolled. One Phase II trial is a multi-center study evaluating MGd in combination with radiation in children with pontine (brain stem) gliomas. For the pediatric pontine glioma trial, Pharmacyclics is expecting results in the first half of this year. In the other Phase II study, MGd was tested in patients with newly diagnosed glioblastoma in combination with temazolamide and radiation. Pharmacyclics is expecting survival results in calendar 2011. The promulgation of study results are dependent upon updates from the NCI.