Can This Biotech Soar Again?


Last year, Pharmacyclics shares gained a whopping 280%. That was enough to land the biotech a spot on The Motley Fool's list of top health-care stocks in 2012. How is 2013 looking so far? Shares have gained more than 30% year to date but have been anemic since early March.

Pharmacyclics announced its first-quarter results after the market closed. Will those results possibly help the stock to soar once again? Let's take a look.

The biotech reported a non-GAAP net loss during the first quarter of $28.3 million, or $0.40 per share. That compares to a non-GAAP net loss of $9.3 million, or $0.14 per share, in the same quarter of 2012. The average analysts' estimate called for a loss of $0.17 per share, so this was a miss for Pharmacyclics.

On a GAAP basis, the company announced a net loss for the quarter of $51.9 million, or $0.73 per share. This reflects a decline from a net loss of $12.8 million, or $0.19 per share, reported for the first quarter last year.

Revenue for first quarter totaled $2.8 million, up from $1.9 million reported in the same period of 2012. This revenue stemmed from services related to collaboration with Pharmacyclics' partner, Janssen, which is owned by Johnson & Johnson .

Pharmacyclics reported more than $511 million in cash, cash equivalents, and marketable securities as of March 31. This cash stockpile was bolstered during the first quarter from a sale of 2.2 million shares and should enable the company to move forward comfortably.

Looking ahead
Quite honestly, these financial results don't really mean a lot for Pharmacyclics right now. We can already predict with a high level of confidence that the second quarter will look much better. That's because Pharmacyclics received a $50 million milestone payment from Janssen on April 11.

Also, Janssen picks up any development costs of more than $50 million per year. Pharmacyclics reported research and development costs of $35.8 million during the first quarter, so its partner should absorb some of those costs in the second quarter. Pharmacyclics projects that it will be near breakeven for next quarter and for the full year.

The next major step for the biotech will be to submit its lead drug ibrutinib for regulatory approval in treating mantle cell lymphoma, or MCL. Pharmacyclics anticipates filing for MCL before the end of third quarter 2013.

Ibrutinib also received Breakthrough Therapy Designations from the U.S. Food and Drug Administration for two other indications: chronic lymphocytic leukemia and Waldenstrom's macroglobulinemia. Pharmacyclics and Janssen are in talks with the FDA on moving forward with these indications. We should know before year-end on timing for any regulatory approval submissions.

Regardless of the market reaction over first-quarter results, I think that Pharmacyclics is a biotech stock that deserves serious consideration by investors. The market potential for ibrutinib is huge -- assuming it ultimately gains approval. Some think the drug could eventually hit peak sales of at least $4 billion.

How accurate those peak sales projections will actually be depends in large part on the competition, though. Pharmacyclics benefited from AbbVie's bad news in February after the company suspended its development of leukemia drug ABT-199. However, AbbVie told FierceBiotech that it expects to move forward with the studies later this year and could yet be a rival for Pharmacyclics.

Celgene also seems likely to present a tough challenge should ibrutinib gain approval for MCL. Celgene should find out in June if its top drug Revlimid will be approved for MCL. There's no question in my mind about Celgene's capability to market Revlimid effectively for this new indication if the FDA gives a positive decision.

Competition is a good thing, though. I suspect that Pharmacyclics, with J&J's help, can hold its own. The days of 280% gains in a year are probably in the past, but this biotech stock could still see plenty of upward potential.

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Fool contributor Keith Speights has no position in any stocks mentioned. The Motley Fool recommends Celgene. It recommends and owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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