Search the web
Welcome, Guest
[Sign Out, My Account]

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
PCYC > SEC Filings for PCYC > Form 10-K on 26-Feb-2014All Recent SEC Filings

Show all filings for PHARMACYCLICS INC



Annual Report

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
In addition to historical information, this report contains predictions, estimates, assumptions and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results could differ materially from any future performance suggested in this report as a result of the risks, uncertainties and other factors described herein and elsewhere in this report, including those discussed in "Risk Factors." Company Overview
We are focused on developing and commercializing innovative small-molecule drugs for the treatment of cancer and immune mediated diseases. Our mission and goal is: To build a viable biopharmaceutical company that designs, develops and commercializes novel therapies intended to improve quality of life, increase duration of life and resolve serious unmet medical healthcare needs. To identify and control promising product candidates based on scientific development and administrational expertise, develop our products in a rapid, cost-efficient manner and to pursue commercialization and/or development partners when and where appropriate. We exist to make a difference for the better and these are important times to do just that.
On November 13, 2013, the U.S. Food and Drug Administration (FDA) approved IMBRUVICATM (ibrutinib, PCI-32765) under accelerated approval as a monotherapy for the treatment of patients with mantle cell lymphoma (MCL) who have received at least one prior therapy. On November 13, 2013, we commercially launched IMBRUVICATM in the United States. IMBRUVICATM is our first product to market and is one of the first treatments to receive FDA approval via the Breakthrough Therapy Designation pathway. On October 30, 2013, our collaboration partner Janssen Biotech, Inc. announced that it submitted a Marketing Authorization Application (MAA) to the European Medicines Agency (EMA) for the use of ibrutinib in the treatment of patients with chronic lymphocytic leukemia (CLL) and MCL. Subsequent to year-end, on February 12, 2014, the FDA approved IMBRUVICATM as a single agent for the treatment of patients with CLL who have received at least one prior therapy. The FDA approval for these indications was based on overall response rate (ORR). Improvements in survival or disease-related symptoms has not been established. IMBRUVICATM is the first once-daily, single-agent, oral kinase inhibitor for patients with MCL and CLL who in each case have received one prior therapy and is being jointly developed and commercialized by Pharmacyclics and Janssen Biotech, Inc. and its affiliates ("Janssen"), one of the Janssen Pharmaceutical companies of Johnson & Johnson.

In addition to IMBRUVICATM (ibrutinib), Pharmacyclics has three other product candidates in clinical development and several preclinical molecules in lead optimization. We are committed to high standards of ethics, scientific rigor, and operational efficiency as we move each of these programs toward potential commercialization.
In December 2011, we entered into a worldwide collaboration and license agreement ("Agreement") with Janssen, for the development and commercialization of ibrutinib, a novel, orally active, first-in-class BTK inhibitor which has been and continues to be developed for the treatment of hematological malignancies, including non-Hodgkin lymphoma (NHL), CLL and multiple myeloma (MM). Under the Agreement, we received our first significant revenue in the form of milestone payments during the year ended June 30, 2012. Together with our partner Janssen, Pharmacyclics is commercializing IMBRUVICATM in the United States.
In 2006, we acquired multiple small molecule drug candidates for the treatment of cancer and other diseases from Celera Genomics, an Applera Corporation business (now Celera Corporation - a subsidiary of Quest Diagnostics Incorporated), including technology and intellectual property relating to drugs that target histone deacetylase ("HDAC") enzymes (specific and multiple isoforms), a Factor VIIa inhibitor targeting a tumor signaling pathway involved in angiogenesis, tumor growth and metastases and B-cell associated tyrosine kinase inhibitors potentially useful for the treatment of lymphomas/leukemias, anti-inflammatory and autoimmune diseases. Marketed Product - IMBRUVICATM (ibrutinib) IMBRUVICATM is approved by the U.S. Food and Drug Administration as a single agent for the treatment of patients with MCL and CLL who in each case have received at least one prior therapy. The FDA approval for these indications was based on ORR. An improvement in survival or disease-related symptoms has not been established. IMBRUVICATM is a new agent that inhibits the function of Bruton's tyrosine kinase (BTK). BTK is a key signaling molecule of the B-cell receptor signaling complex that plays an important role in the survival of malignant B-cells. IMBRUVICATM blocks signals that stimulate malignant B-cells to grow and divide uncontrollably.
The following information can be found on the prescribing information for
The approval in MCL was based on the results of a multi-center, international, single-arm trial of 111 patients with previously treated mantle cell lymphoma. Tumor response was assessed according to the revised International Working Group (IWG) for NHL criteria. The efficacy results demonstrated a 65.8% overall response rate (95% Confidence Interval (CI): 56.2, 74.5); 17% of patients achieved a complete response and 49% of patients achieved a partial response. The median duration of response was 17.5 months (95% CI: 15.8, not reached). The approval in CLL was based on the results of a Phase Ib/II, open-label, multi-center, international, single-arm trial of 48 patients with relapsed or refractory CLL who received 420 mg of IMBRUVICATM daily. The primary endpoint was safety and a secondary endpoint was ORR, which was assessed by a modified version of the International Working Group on CLL (IWCLL) criteria by an Independent Review Committee. The efficacy results demonstrated a 58.3 percent ORR (95% confidence interval (CI) (%), 43.2, 72.4), all partial responses. The duration of response (DOR) ranged from 5.6 to 24.2+ months. The median DOR was not reached.
Our Pipeline
Our clinical development and product candidates are small-molecule enzyme inhibitors designed to target key biochemical pathways involved in human diseases with critical unmet needs. IMBRUVICATM, our first product to market, has been developed and commercialized for MCL and CLL patients, who in each case have received at least one prior therapy. IMBRUVICATM is currently being studied in multiple Phase I, II and III studies and continues to be developed for the treatment of other B-cell malignancies. In addition to IMBRUVICATM, we currently have three other product candidates in clinical development and several preclinical molecules in lead optimization; including a BTK inhibitor targeting anti-inflammatory and autoimmune indications entering the clinic with a Phase I study, an inhibitor of Factor VIIa (PCI-27483) and a HDAC inhibitor, abexinostat (formerly known as PCI-24781), currently in Phase I and II clinical trials in solid tumors and hematological malignancies. Our Drug Development Programs
We are pioneering the development of orally bioavailable inhibitors of BTK, a signaling protein that is critically important for the activity of B-cells (immune cells that can develop into antibody producing cells). B-cell lymphomas and leukemias, which are common blood cancers, result from mutations acquired during B-cell development that lead to uncontrolled B-cell proliferation. Also, when B-cells are overactive, the immune system can produce antibodies that begin to attack the body's own tissue, leading to autoimmune diseases. Both autoimmune diseases and B-cell malignancies are thought to be driven by

overactive signaling and activation of the B-cell antigen receptor ("BCR"), a process that is dependent on BTK.
We have developed IMBRUVICATM, which has been commercialized for MCL and CLL patients, who in each case have received at least one prior therapy, and has demonstrated clinical activity and tolerability in Phase I, II and III clinical trials in a variety of B-cell malignancies. Our development plan includes a variety of B-cell malignancies including: chronic lymphocytic leukemia (CLL) and small lymphocytic lymphoma (SLL), and a number of non-Hodgkin's lymphoma (NHL) subtypes. CLL/SLL, mantle cell lymphoma (MCL), follicular lymphoma (FL), diffuse large B-cell lymphoma (DLBCL), multiple myeloma (MM), Waldenstrom's macroglobulinemia (WM) and marginal zone lymphoma (MZL). We are currently using a multi-tier preclinical testing strategy to develop novel inhibitors of BTK for anti-inflammatory and autoimmune diseases.
IMBRUVICATM (ibrutinib) Worldwide Collaboration with Janssen In December 2011, we entered into the Agreement with Janssen for the development and commercialization of IMBRUVICATM, and certain compounds structurally related to IMBRUVICATM, for oncology and other indications, excluding all immune mediated diseases and inflammatory or conditions and all psychiatric or psychological diseases or conditions, in the U.S. and outside the U.S. Each company is leading development for specific indications as stipulated in a global development plan.
The collaboration provides Janssen with an exclusive license to exploit the underlying technology outside of the U.S. (the "License Territory") and co-exclusively with Pharmacyclics in the U.S.
The collaboration has no fixed duration or expiration date and provided for payments by Janssen to us of a $150,000,000 non-refundable upfront payment upon execution, as well as potential future milestone payments of up to $825,000,000 based upon continued development progress ($250,000,000), regulatory progress ($225,000,000) and approval of the product in both the U.S. and the License Territory ($350,000,000). As of December 31, 2013, $385,000,000 in milestone payments had been earned by the Company under the Agreement and the Company may receive up to an additional $440,000,000 in development, regulatory and approval milestone payments.
Subsequent to December 31, 2013, we announced that the FDA approved IMBRUVICATM as a single agent for the treatment of patients with CLL who have received at least one prior therapy. This approval of IMBRUVICATM in CLL triggered a $60,000,000 milestone payment to us under the Agreement (see Note 15 to the consolidated financial statements).
The Agreement includes a cost sharing arrangement for associated collaboration activities. Except in certain cases, in general Janssen is responsible for approximately 60% of collaboration development costs and we are responsible for the remaining 40% of collaboration development costs. In general, costs associated with commercialization will be included in determining pre-tax profit or pre-tax loss. The Agreement provides that pre-tax profits or pre-tax losses from the commercialization of any products resulting from the collaboration are shared 50% by us and 50% by Janssen.
The collaboration with Janssen provides us with an annual cap of our share of collaboration costs and pre-tax commercialization losses for each calendar year until the third profitable calendar quarter for the product, as determined in the Agreement. In the event that our share of aggregate development costs in any given calendar year, together with any other amounts that become due from us, plus our share of pre-tax loss (if any) for any calendar quarter in such calendar year, less our share of pre-tax profit (if any) for any calendar quarter in such calendar year, exceeds $50,000,000, then amounts that are in excess of $50,000,000 (the "Excess Amounts") are funded by Janssen. The total Excess Amounts plus interest may not exceed $225,000,000. Interest shall be accrued on the outstanding balance with interest calculated at the average annual European Interbank Offered Rate ("EURIBOR") for the EURO or average annual London Interbank Offered Rate ("LIBOR") for U.S. Dollars as reported in the Wall Street Journal, plus 2%, calculated on the number of days from the date on which our payment would be due to Janssen. The interest rate on outstanding Excess Amounts shall not exceed 5% per annum, and shall not in the aggregate exceed an outstanding balance of $25,000,000.
In the event the Excess Amounts reach a maximum of $225,000,000, we shall be responsible for our share of development costs, together with any other amounts that become due from us, plus our share of any pre-tax loss beyond such maximum. For all calendar quarters following the third profitable calendar quarter for the product, as determined in the Agreement, we can no longer add to Excess Amounts and shall be responsible for our own share of development costs along with our share of pre-tax losses incurred in such quarters. Janssen may recoup the Excess Amounts, together with interest from our share of pre-tax profits (if any) in subsequent calendar quarters until the Excess Amounts and applicable interest has been fully repaid.
The Company recognizes Excess Amounts as a reduction to costs and expenses as the Company's repayment of Excess Amounts to Janssen is contingent and would become payable only after the third profitable calendar quarter for the product.

Further, Excess Amounts shall be reimbursable only from the Company's share of pre-tax profits (if any) after the third profitable calendar quarter for the product.
Following any regulatory approval in the U.S., Pharmacyclics recognizes product revenue and takes a lead role in U.S. commercial strategy development and both Pharmacyclics and Janssen share in commercialization activities. Under the Agreement, following any regulatory approval outside the United States, Janssen will recognize product revenue and lead and perform commercialization activities. The Agreement provides that pre-tax profits or pre-tax losses from the commercialization of any products resulting from the collaboration are shared 50% by us and 50% by Janssen.
Both parties have responsibilities for the development, manufacturing and marketing of products resulting from the Agreement. Janssen has the sole responsibility and exclusive rights to commercialize the products in the License Territory. The parties hold joint responsibility and co-exclusive rights to commercialize the products in the U.S., and Pharmacyclics will serve as the lead party in such effort. We continue to work with Janssen on protocols and the design, schedules and timing of trials. Development and commercialization activities under the collaboration are managed through a shared governance structure.
Tissue Factor (TF) up-regulation is associated with increased tumor invasiveness and progression, worsened prognosis and increased thromboembolism (VTE). Factor VII is an enzyme that becomes activated ("FVIIa") by binding to the cell surface protein tissue factor ("TF"), a protein found in the body that helps to trigger the process of blood clotting in response to injury. TF is over expressed in many cancers including gastric, breast, colon, lung, prostate, ovarian and pancreatic cancers. Activation of protease activated receptors by TF:FVIIa complex leads to increases in IL-8, VEGF and other invasiveness promoting factors. Our Factor VIIa inhibitor PCI-27483 is a novel first-in-human small molecule inhibitor that selectively targets FVIIa. As an inhibitor of FVIIa, PCI-27483 has two potential mechanisms of action: 1) inhibition of intracellular signaling involved in tumor growth and metastases and 2) inhibition of early coagulation processes associated with thromboembolism. Pharmacyclics is currently defining the next steps for the development of this agent.
ABEXINOSTAT (PCI-24781) PAN-HDAC INHIBITOR Histone deacetylases ("HDACs") are well-validated drug targets in a number of disease areas including cancer. These enzymes control several vital cellular processes, such as transcription, cell cycle progression, protein transport and degradation etc, and their activity is often dysregulated in cancer. Classically, the major function of these enzymes is controlling the expression of genes, i.e. whether genes are turned "on" or "off" via epigenetic mechanisms. In cancer, HDACs are often differentially expressed from normal cells, resulting in gene expression changes that favor a tumor's ability to multiply, to avoid apoptosis (i.e. programmed cell death) or to become resistant to chemotherapy. Treatment with HDAC inhibitors reverses these changes, resulting in cancer cell death in vitro (i.e. in cultured cells) and tumor growth inhibition in vivo (i.e. in animals) at non-toxic concentrations.
Abexinostat is an orally dosed, broad spectrum, hydroxamic acid-based small molecule HDAC inhibitor that has been evaluated in Phase I and II clinical trials for refractory solid tumors and lymphoma by Pharmacyclics and its ex-U.S. partner, Les Laboratoires Servier of Paris, France ("Servier"). Abexinostat has shown promising anti-tumor activity in vitro and in vivo (Buggy et al, Mol Cancer Ther 2006; 5: 1309-17).
Abexinostat treatment leads to synergistic efficacy in tumor cells in combination with many cancer therapeutics, such as bortezomib, as well as DNA-damaging agents such as radiation (Banuelos et al Clin Cancer Res 2007 13:6816-26) and chemotherapy agents such as doxorubicin (Lopez et al, Clin Cancer Res 2009 15:3472-83, Yang et al, Anticancer Res. 2011 31:1115-23). In lymphoma cells, abexinostat together with bortezomib greatly enhances proteasome and NF-ęB inhibition, increases oxidative stress, causes cell cycle arrest and results in increased cell death (Bhalla et al Clin Cancer Res 2009 15:3354-65). In solid tumor cells, we have shown that abexinostat inhibits DNA repair following damage by radiation or chemotheraputic agents, thereby enhancing the efficacy of these anti-cancer agents. The mechanism of the synergy may involve inhibition of the homologous recombination pathway, a major double-strand break ("DSB") repair pathway. In a study funded entirely by Pharmacyclics, we showed that abexinostat also effectively synergizes with inhibitors of single-strand break repair such as poly ADP ribose polymerase inhibitors (PARP is a protein important for repairing single-strand breaks in DNA) (Adimoolam et al 2007). Furthermore, abexinostat demonstrated highly synergistic growth inhibition of chemotherapy-resistant tumors in combination with chloroquine (an inhibitor of autophagy, a protective mechanism in cells under stress), particularly in certain subtypes of sarcoma (Lopez et al. Cancer Res 2010 71:185-96). In a model of epigenetic regulation of cancers, abexinostat showed synergistic cell death in glioblastoma cells when combined with a demethylase inhibitor (Singh et al 2011 13:894-903). Other recent preclinical publications have also demonstrated activity of abexinostat in a mouse model of gallbladder carcinoma (Kitamura et al J Hepatology 2012 57:84-91) and in combination with radiation on breast cancer stem cells (Al-Assar et al Cancer Biol & Ther 11: 1028-36, 2011).

Abexinostat has been tested in several clinical trials in the U.S. by Pharmacyclics and globally by our partner Servier. In the U.S., Pharmacyclics has completed two Phase I studies using abexinostat as a single agent in patients with advanced solid tumors, a Phase I/II trial testing abexinostat single agent in patients with relapsed or refractory NHL and a Phase I trial in soft-tissue sarcoma patients (in combination with doxorubicin, an anti-tumor agent) co-sponsored by the Massachusetts General Hospital and Dana-Farber Cancer Institute. Results from this trial were presented at the annual meeting of the Connective Tissue Oncology Society in November 2012 in Prague, Czech Republic and updated at the AACR Annual Meeting in April 2013. A Phase II study was undertaken in relapsed/refractory FL and mantle-cell lymphoma (MCL). The results from this study were presented in poster at the 12th International Conference on Malignant Lymphoma ("IMCL") in Lugano, Switzerland (June 19-22, 2013). Pharmacyclics is currently defining the next steps for the development of this agent.
Our collaboration partner for ex-U.S. markets, Servier, has initiated a multitude of Phase I/II trials in Europe and Asia in lymphomas and solid tumors with abexinostat as single agent and in combination with other chemotherapeutic agents including cisplatin, liposomal doxorubicin and FOLFOX. Further analysis of these trials and any updates may be released by Servier.
In April 2009, we entered into a collaboration agreement with Servier, pursuant to which we granted Servier an exclusive license for our pan-HDAC inhibitors, including abexinostat, for territories throughout the world excluding the United States and its possessions. Under the terms of the agreement, Servier will pay us for reaching various development and regulatory milestones and a royalty on sales outside of the United States. We will continue to own all rights within the United States.
Change in Fiscal Year End
On November 14, 2012, the Board of Directors approved a change in the fiscal year end from June 30 to December 31, effective December 31, 2012. All references to "fiscal years", unless otherwise noted, refer to the twelve-month fiscal year, which prior to July 1, 2012, ended on June 30, and beginning on January 1, 2013, ends on December 31, of each year. Critical Accounting Policies, Estimates and Judgments This discussion and analysis of financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. On an on-going basis, we evaluate our estimates, including those related to revenue recognition and clinical trial accruals. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results, however, may differ significantly from these estimates under different assumptions or conditions and may adversely affect the financial statements. We believe the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our financial statements and accompanying notes.
Revenue Recognition
Product revenue, net is recognized in accordance with the FASB Accounting Standards Codification (ASC) 605, Revenue Recognition, when the following criteria have been met: (1) persuasive evidence of an arrangement exists,
(2) delivery has occurred or services have been rendered, (3) the price is fixed or determinable and (4) collectability is reasonably assured. Revenues are deferred for fees received before earned or until no further obligations exist. We exercise judgment in determining that collectability is reasonably assured or that services have been delivered in accordance with the arrangement. We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. We assess collectability based primarily on the customer's payment history and on the creditworthiness of the customer. Product Revenue, Net
Product revenue, net consists of U.S. sales of IMBRUVICATM and is recognized once all four revenue recognition criteria described above have been met. We sell IMBRUVICATM to specialty pharmacies ("SP") that sell to individual patients and specialty distributors ("SD") that sell to hospital pharmacies. We recognize revenue from sales of IMBRUVICATM when the product's title and risk of loss transfers to the customer. We determined that we have the ability to make reasonable estimates of product returns in order to recognize revenue at the time that title and risk of loss transfers to the customer based on the following factors: (1) we believe that we have sufficient insight into the distribution channel at the SP's and SD's in order to ascertain their inventory level and dispense data, (2) due to the price of our product and limited patient population, our SP and SD customers have not built up significant levels of inventory, nor do we expect they will do so for the foreseeable future, (3) inventory on hand at our SP customers was generally less than two weeks as of December 31, 2013, (4) there have been no

product returns to-date since our launch of IMBRUVICATM on November 13, 2013 and
(5) we believe there is limited risk of return of inventory in the channel due to expiration, based on the shelf life of inventory in the channel. We recognize product revenue net of adjustments for customer credits, including estimated government rebates and charge-backs, returns, prompt payment discounts, patient assistance programs, and Medicare Part D coverage gap reimbursements. Each of the above adjustments are recorded at the time of revenue recognition, resulting in a reduction in product revenue, net and an increase in accrued expenses or a reduction in accounts receivable, net. The above adjustments require significant estimates, judgment and information obtained from external sources. If our estimates differ from actuals, we will record adjustments that would affect product revenue, net in the period of adjustment. The following table summarizes the provisions, and credits/payments, for these adjustments (in thousands):

Balance as of December 31, 2012           $     -
Provision related to current period sales   1,395
Credits/payments                             (189 )
Balance as of December 31, 2013           $ 1,206

Gross-to-net sales adjustments

We record an allowance for rebates including mandated discounts under the Medicaid Drug Rebate Program. The allowance for rebates is based upon contractual agreements or legal requirements with public sector benefit providers, including Medicaid. The allowance for rebates represents the estimated amounts owed to such public sector benefit providers, including Medicaid, based on the estimated rebate percentage of forecasted eligible Medicaid sales. The estimated rebate percentage is based on statutory discount rates and expected utilization. The forecasted eligible Medicaid sales represents those sales made by us that will ultimately be consumed by patients covered by Medicaid. To estimate the allowance for rebates, we use estimated patient mix information which is provided by our specialty pharmacy customers, as well as third party sources. Rebates are generally invoiced and paid in arrears. As such, the allowance for rebates consists of an estimate of the amount expected to be incurred for the current quarter's shipments to patients, plus an accrual balance for estimated unpaid rebates from prior periods. The allowance for rebates is recorded within Accrued liabilities in the consolidated balance sheets.
Charge-backs are discounts that result from the difference between the prices at which we sell IMBRUVICATM to direct customers and the sales price ultimately paid to wholesalers under fixed price contracts by third-party payers, including governmental agencies. These entities purchase products through wholesalers at a lower price pursuant to fixed price contracts and the wholesalers then charge us the difference between their acquisition cost and the lower program price. Charge-backs are recorded as a reduction to Accounts receivable, net in the consolidated balance sheets.
Product Returns . . .
  Add PCYC to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for PCYC - All Recent SEC Filings
Copyright © 2015 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.