Pharmacyclics announces financial results for fourth quarter and FY 2009

Sep 18 2009

Pharmacyclics, Inc. (Nasdaq: PCYC) today reported financial results for its fourth quarter and fiscal year ended June 30, 2009. During the fourth quarter of fiscal 2009 Pharmacyclics incurred a GAAP net loss of $5.4 million, or $0.20 per share, compared to a net loss of $4.6 million, or $0.18 per share for the fourth quarter of fiscal 2008.

Total non-GAAP net loss for the quarter was $4.2 million in 2009 versus $4.2 million in 2008. The adjustments in the fourth quarter 2009 included share-based compensation expense of $0.4 million; non-cash expenses for interest expense of $0.3 million; and the non recurring French withholding tax payment of $0.6 million. The adjustments in the fourth quarter 2008 included share based compensation of $0.5 million.

Pharmacyclics also reported financial results for the fiscal year ended June 30, 2009. The GAAP net loss reported for the fiscal year ended June 30, 2009 was $23.5 million, or $0.88 per share. This compares to a net loss of $24.3 million, or $0.93 per share, for fiscal year 2008.

Total non-GAAP net loss for the fiscal year was $18.1 million versus $22.0 million for fiscal 2008, approximately 18% below the prior year. The adjustments for fiscal 2009 included a $1.0 million non-recurring payment to Celera Corporation in March 2009 associated with the Servier Collaboration Agreement; share-based compensation expense of $3.3 million, of which $1.8 million related to severance agreements; non-cash interest expense for a loan to an affiliate of Robert W. Duggan of $0.5 million which was recognized for GAAP purposes at higher rates than the actual paid out rate; and the non-recurring French Withholding tax payment of $0.6 million. The adjustments in 2008 included share-based compensation of $2.3 million.

As of September 1, 2009 the company had approximately $35.0 million in cash and cash equivalents and no long term debt. Additionally, during fiscal 2010 the company has the contracted right to perform research activities and to receive $1.0 million on October 1, 2009 and $1.0 million on April 1, 2010 from Servier and expects to receive $1.3 million in payments for drug shipments in the second half of fiscal 2010.

At June 30, 2009, the company had cash, cash equivalents and marketable securities totaling $16.3 million. This compares to $16.8 million in cash, cash equivalents and marketable securities as of June 30, 2008. Subsequent to June 30, 2009, the company raised, in the recent rights offering, $28.0 million, net of approximately $0.8 million in offering costs. Pharmacyclics' Chairman and CEO, Robert W. Duggan, participated in the offering to the approximate amount of $6.1 million; he was not permitted to oversubscribe. In August of 2009 the company's long term obligation with an affiliate of Robert W. Duggan of $6.4 million was retired.

During fiscal 2009 the company received a $6.4 million loan from an affiliate of its CEO & Chairman, Robert W. Duggan. The loan's stated interest rate was on average 2.5%. Due to the below market interest rate of the loan, the rate had to be adjusted under GAAP to a fair market rate which was accounted for as a loan discount. This discount was amortized to interest expense during fiscal 2009 resulting in non-cash interest expense of approximately $0.3 million in the fourth quarter and approximately $0.5 million for the fiscal year 2009. The accrued interest expense to be paid out, based on the stated rate, for the $6.4 million loan was approximately $0.1 million.

Fiscal 2010 Guidance

With our currently planned clinical trial programs the patient/trial related expenses are expected to increase by as much as $4.0 million year over year, from currently $3.5 to approximately $7.5 million. This assumes more than 100% increase in patient enrollment in our trials. Furthermore our toxicology & pharmacology expenses are expected to increase by approximately $1.3 million year over year, from currently $1.3 million to approximately $2.6 million. Drug manufacturing expenses for fiscal 2010 are planned to increase by approximately $1.0 million year over year, from currently $2.3 million to $3.3 million. The company's G&A expenses are anticipated to decrease by about 5-7% year over year, from currently $8.5 million to approximately $8.0 million. Pharmacyclics expects total operating expenses before share-based compensation to be between $23.0 to $25.0 million for fiscal 2010. The company anticipates share-based compensation expense to be about $1.5 - $2.0 million for the upcoming fiscal year versus $3.3 million in fiscal 2009.

Due to the deferral of the Servier payments and the anticipated recognition over a two year period, Pharmacyclics projects total revenue of between approximately $7.0 - $10.0 million in fiscal 2010. This amount includes the estimated amortization of the deferred Servier license payment, the amortized projected drug shipment to Servier and the amortized receipt of research payments from Servier.

Financial projections involve a high level of uncertainty due to, among other factors, the variability involved in predicting requirements of early stage 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.

"This last year has been very meaningful for Pharmacyclics. We put in place a new board of directors, a new management team and a very accomplished and supportive advisory board. After reorganizing the focus of the company and aligning our clinical drug programs, we signed a very important partnership for the company in our fourth quarter with Servier, the largest private French Biotech firm, and received immediately $11.0 million with an additional $4.0 million in future research payments and $2.0 million in future product purchases. Together with these payments over the next two years and our most recent rights offering of $28.8 million and the equity raised during this spring of $1.4 million, the new team at Pharmacyclics is responsible for generating more than $45.0 million in new capital." said Robert W. Duggan, Chairman of the Board and Chief Executive Officer. "We now have the funds to progress our four clinical programs in a meaningful way and continue to advance these novel product candidates."

Recent and Upcoming Milestones and Program Updates

• Raised approximately net $28.0 million in a July 2009 rights offering. This financing gave all existing share holders the opportunity to participate in the company's fund raising. After retiring its loan obligation the rights offering provided net approximately $21.6 million in cash.
• Partnered PCI-24781, Pharmacyclics' oral HDAC inhibitor, with Servier, granting exclusive licensing for all ex-U.S. markets and providing the company with a royalty on future sales, plus $11.0 million in up front payments, $4.0 million in research payments during the next 24 months as well as potential milestone payments of $24.5 million. PCI -24781 is currently in a U.S. Phase I/II study in patients with Non-Hodgkin's lymphoma and continues to have a class leading safety profile. PCI-24781 was well tolerated in heavily pretreated patients with relapsed/refractory Non-Hodgkin's lymphoma, with promising clinical responses in the Phase I portion of the trial. Data will be presented at the December 2009 ASH meeting in New Orleans. Servier, Pharmacyclics' European partner, is in the process of arranging their EU trial program, including an initial Phase I and several different Phase II's.
• PCI-34051, Pharmacyclics' HDAC 8 Inhibitor, is currently in preclinical studies, and is planned to be developed as a unique treatment modality for autoimmune disorders. The company is anticipating further results and to conclude its preclinical work by calendar year 2010.
• PCI-0120, Motexafin Gadelinium (MGd) is currently tested in two NCI sponsored Phase II studies. Both have extended survival as their endpoint and both completed the patient enrollment. The aggregation of the study results are dependent upon the NCI. For its pediatric pontine glioma trial Pharmacyclics is expecting results in the first half of calendar 2010. The other Phase II study in which MGd was tested in patients with newly diagnosed glioblastoma in combination with temazolamide and radiation, Pharmacyclics is expecting survival results in calendar 2011.
• PCI-27483, a potent small molecule inhibitor of coagulation Factor VIIa, is projected to begin a multicenter Phase I/II study before the end of calendar 2009 in patients with locally advanced pancreatic cancer with gemcitabine therapy. The company has recently received FDA clearance to move ahead with this trial.
• 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). The trial design allows for six dosing cohorts. The enrollment is anticipated to be completed during Q2 of calendar 2010, with full trial results expected in the second half of calendar 2010. At this time, the Company does not believe that all six dosing cohorts will be necessary to conclude this Phase I study.
• An IND has been filed in August for PCI-32765 with the Allergy and Immunology Division, to allow Pharmacyclics to start a healthy volunteers study in patients with seasonal allergic rhinitis. Subject to FDA approval the company anticipates completing this study in the first half of calendar 2010.
• A series of BTK inhibitors are being further pre-clinically developed for autoimmune diseases. Pharmacyclics anticipates to have an optimized molecule for first in man clinical trials by year end of calendar 2010.

Conference Call and Webcast Details

The Company will hold a conference call today at 4:30 p.m. EDT to discuss fiscal 2009 year-end financial results and achievements and fiscal 2010 guidance. To participate in the conference call, please dial 866-642-7062 for domestic callers and 706-643-1591 for international callers and use the reference conference pass-code: 30472935. To access the live audio broadcast or the subsequent archived recording, log on tohttp://ir.pharmacyclics.com/events.cfm. The archived version of the webcast will be available on the company's website for one month.

Use of Non-GAAP Financial Measures

This press release contains non-GAAP financial measures, and includes operating and other expenses adjusted to exclude certain non-cash and non-recurring expenses. These measures are not in accordance with, or an alternative for generally accepted accounting principles, or GAAP, and may be different from non-GAAP financial measures used by other companies. Among the items included in GAAP presentations but excluded for purposes of determining non-GAAP financial measures that we present are: non-cash interest expense associated with the loan from an affiliate of Robert W. Duggan; employee related non-cash expenses; the withholding tax related to the Servier transaction and the non-recurring payment to Celera in accordance with the Servier transaction. We believe the presentation of non-GAAP financial measures provides useful information to management and investors regarding various financial and business trends relating to our financial condition and results of operations. When GAAP financial measures are viewed in conjunction with non-GAAP financial measures, investors are provided with a more meaningful understanding of our ongoing operating performance. In addition, these non-GAAP financial measures are among those indicators we use as a basis for evaluating operational performance, allocating resources and planning and forecasting future periods. Non-GAAP financial measures are not intended to be considered in isolation or as a substitute for GAAP financial measures. To the extent this release contains historical non-GAAP financial measures, we have also provided corresponding GAAP financial measures for comparative purposes.