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PropThink: Earnings Are Hardly the Focus of Pharmacyclics' Fiscal 1Q13 Financial Report

November 6, 2012 -

By Jake King
In one of Monday's notable volume abnormalities, shares of Pharmacyclics (NASDAQ:PCYC) have exchanged hands at more than five times average volume, and PCYC is down 11% following the company's fiscal 1Q13 earnings release. Pharmacyclics beat estimates on revenues, $102.7M vs. consensus of $100M, made possible by $100M in milestone payments from Janssen Biotech (of J&J [NYSE:JNJ]), but missed consensus EPS estimates. Earnings, however, hardly caused Monday's sell-off. The company communicated in a press release that its lead candidate, ibrutinib, did not generate a statistically significant response in a number of multiple myeloma patients, and the company expects employees to exercise stock options and sell shares on November 7. Both pieces of news are weighing on the stock.
In an initial cohort of multiple myeloma patients being treated with single-agent ibrutinib, a 420mg dose proved tolerable but did not produce defined objective responses, despite a small number of minor responses. The company plans to expand the trial to include 560mg and 840mg doses in combination with dexamethasone and will discontinue pursuit of the 420mg formulation. The expansion means not only added time and money, but raises some questions now that ibrutinib for multiple myeloma (MM) may become a combination treatment. Further concerning investors, the earnings release ended by noting that on November 7th a number of employees may exercise options and immediately sell; it's hard to blame them considering PCYC has gained almost 300% in the last 12 months. Of course, the press release notes the good-faith gesture of CEO Robert Duggan, who doesn't plan to sell any shares at this time.
While the changes to ibrutinib's multiple myeloma indication come as negative news, the indication is not currently PCYC's major value-driver. Multiple myeloma is still an early-stage program, and analysts are far more focused on the opportunities in chronic lymphocytic leukemia, lymphoma, and the company's broader pipeline. Shareholders are making an exit Monday in front of possible employee selling, but PCYC may bounce later this week if the sell-off fails to materialize or investors re-enter en masse post-weakness.
Pharmacyclics presents 8 posters and 10 oral presentations at the American Society of Hematology (ASH) Annual Meeting between December 8 and 11.
See this article in its original format here.
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