PHARMACYCLICS INC - FORM 10-Q

Attached files

file	filename
EX-31.1 - PHARMACYCLICS INC	ex311to10q07380_03312011.htm
EX-31.2 - PHARMACYCLICS INC	ex312to10q07380_03312011.htm
EX-32.1 - PHARMACYCLICS INC	ex321to10q07380_03312011.htm
EX-10.1 - PHARMACYCLICS INC	ex101to10q07380_03312011.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-26658

Pharmacyclics, Inc.

(Exact name of registrant as specified in its charter)

Delaware	94-3148201
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

995 E. Arques Avenue Sunnyvale, CA	94085-4521
(Address of principal executive offices)	(Zip Code)

(408) 774-0330

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer x

Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of May 4, 2011 there were 60,262,547 shares of the registrant's Common Stock, par value $0.0001 per share, outstanding.

Table of Contents

PHARMACYCLICS, INC.

Form 10-Q

Table of Contents

PART I	FINANCIAL INFORMATION	Page No.

Item 1.	Financial Statements (unaudited)	1

	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Cash Flows	3
	Notes To Condensed Consolidated Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18

Item 4.	Controls and Procedures	18

PART II.	OTHER INFORMATION	19

Item 1.	Legal Proceedings	19

Item 1A.	Risk Factors	19

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19

Item 3.	Defaults Upon Senior Securities	19

Item 4.	(Removed and Reserved)	19

Item 5.	Other Information	19

Item 6.	Exhibits	19

Signatures		20

Exhibits Index		21

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

PHARMACYCLICS, INC.

(a development stage enterprise)

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited; in thousands)

	March 31,			June 30,
	2011			2010
ASSETS
Current assets:
Cash and cash equivalents	$	4,705		$	51,199
Marketable securities		49,701			22,950
Accounts receivable		38			194
Prepaid expenses and other current assets		1,396			1,702
Total current assets		55,840			76,045
Property and equipment, net		896			459
Other assets		344			316
Total assets	$	57,080		$	76,820

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	5,181		$	2,856
Accrued liabilities		1,091			1,054
Deferred revenue		339			6,099
Total current liabilities		6,611			10,009
Deferred rent		264			50
Total liabilities		6,875			10,059


Stockholders' equity:
Preferred stock		-			-
Common stock		6			6
Additional paid-in capital		452,362			444,683
Accumulated other comprehensive loss		(2	)		(6	)
Deficit accumulated during development stage		(402,161	)		(377,922	)
Total stockholders' equity		50,205			66,761
Total liabilities and stockholders’ equity	$	57,080		$	76,820

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

PHARMACYCLICS, INC.

(a development stage enterprise)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited; in thousands, except per share data)

	Three Months Ended March 31,						Nine Months Ended March 31,						Period From Inception (April 19, 1991) through March 31,
	2011			2010			2011			2010			2011

Revenues:
License and milestone revenues	$	2,059		$	2,112		$	6,847		$	6,814		$	24,009
Contract and grant revenues		-			-			-			-			6,154
Total revenues		2,059			2,112			6,847			6,814			30,163
Operating expenses:
Research and development*		8,649			3,679			24,607			10,690			367,841
General and administrative*		2,692			1,577			6,619			4,875			98,795
Purchased in-process research and development		-			-			-			-			6,647
Total operating expenses		11,341			5,256			31,226			15,565			473,283
Loss from operations		(9,282	)		(3,144	)		(24,379	)		(8,751	)		(443,120	)
Interest and other income (expense), net		65			21			140			15			40,959
Loss before benefit from income taxes		(9,217	)		(3,123	)		(24,239	)		(8,736	)		(402,161	)
Benefit from income taxes		-			-			-			550			-
Net loss	$	(9,217	)	$	(3,123	)	$	(24,239	)	$	(8,186	)	$	(402,161	)

Basic and diluted net loss per share	$	(0.15	)	$	(0.06	)	$	(0.41	)	$	(0.17	)

Weighted average shares used to compute basic and diluted net loss per share		59,931			50,536			59,641			47,202


* includes non-cash share based compensation of the following:
Research and development	$	1,213		$	224		$	4,174		$	598		$	12,886
General and administrative		649			254			1,798			700			12,092

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

PHARMACYCLICS, INC.

(a development stage enterprise)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in thousands)

	Nine Months Ended March 31,						Period From Inception (April 19, 1991) through March 31,
	2011			2010			2011
Cash flows from operating activities:
Net loss	$	(24,239	)	$	(8,186	)	$	(402,161	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		202			175			15,721
Amortization of premium/discount on marketable securities, net		769			266			1,164
Amortization of debt discount		-			21			570
(Gain) loss on sale of marketable securities		(2	)		-			48
Purchased in-process research and development		-			-			4,500
Share-based compensation expense		5,972			1,298			24,978
Common stock issued in exchange for services provided		-			-			15
Write-down of fixed assets		-			-			370
Changes in assets and liabilities:
Accounts receivable		156			43			(38	)
Prepaid expenses and other assets		278			(1,055	)		(1,740	)
Accounts payable		2,325			736			5,181
Accrued liabilities		37			(142	)		1,091
Deferred revenue		(5,760	)		(4,230	)		339
Deferred rent		214			(13	)		264
Net cash used in operating activities		(20,048	)		(11,087	)		(349,698	)

Cash flows from investing activities:
Purchase of property and equipment		(639	)		(167	)		(13,229	)
Proceeds from sale of property and equipment		-			-			123
Purchase of marketable securities		(76,457	)		(29,411	)		(647,569	)
Proceeds from sales of marketable securities		9,665			-			95,599
Proceeds from maturities of marketable securities		39,278			8,695			501,055
Net cash used in investing activities		(28,153	)		(20,883	)		(64,021	)

Cash flows from financing activities:
Issuance of common stock, net of issuance costs		273			21,744			383,185
Exercise of stock options		1,434			1,161			9,520
Proceeds from related party notes payable		-			-			6,400
Proceeds from note payable		-			-			3,000
Issuance of convertible preferred stock, net of issuance costs		-			-			20,514
Payments under capital lease obligations		-			-			(3,881	)
Repayment of notes payable		-			(314	)		(314	)
Net cash provided by financing activities		1,707			22,591			418,424

(Decrease)/Increase in cash and cash equivalents		(46,494	)		(9,379	)		4,705
Cash and cash equivalents at beginning of period		51,199			14,534			-
Cash and cash equivalents at end of period	$	4,705		$	5,155		$	4,705

Supplemental disclosure of non-cash investing and financing activities:
Settlement of related party notes payable by issuance of common stock	$	-		$	6,086		$	6,086
Property and equipment acquired under capital lease obligations		-			-			3,881
Warrants issued		-			-			49
Conversion of notes payable and accrued interest into convertible preferred stock		-			-			3,051

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

PHARMACYCLICS, INC.

(a development stage enterprise)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – The Company and Significant Accounting Policies

Description of the Company

We are a clinical-stage biopharmaceutical company focused on discovering and developing 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 commercializes novel therapies intended to improve quality of life, increase duration of life and resolve serious unmet medical healthcare needs; and to identify promising product candidates based on scientific development expertise, develop our products in a rapid, cost-efficient manner and pursue commercialization and/or development partners when and where appropriate.

Presently, we have four product candidates in clinical development and several preclinical molecules in lead optimization. To date, substantially all of our resources have been dedicated to the research and development of our products, and we have not generated any commercial revenues from the sale of our products. We do not anticipate the generation of any product commercial revenues until we receive the necessary regulatory and marketing approvals to launch one of our products.

We have incurred significant operating losses since our inception in 1991, and as of March 31, 2011, had an accumulated deficit of approximately $402,161,000. The process of developing and commercializing our products requires significant research and development, preclinical testing, clinical trials and manufacturing arrangements as well as regulatory and marketing approvals. These activities, together with our general and administrative expenses, are expected to result in significant operating losses until the commercialization of our products, or partner collaborations, generate sufficient revenues to cover our expenses. We expect that losses will fluctuate from quarter to quarter and that such fluctuations may be substantial. Our achieving profitability depends upon our ability to successfully complete the development of our products, obtain required regulatory approvals and successfully commercialize our products.

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Pharmacyclics, Inc. and our wholly-owned subsidiary, Pharmacyclics (Europe) Limited. There has been no significant financial activity to date related to the subsidiary. All intercompany accounts and transactions have been eliminated. The U.S. dollar is our functional currency for all of our consolidated operations.

The interim condensed consolidated financial statements have been prepared by us, without audit, in accordance with the instructions to Form 10-Q and, therefore, do not necessarily include all information and footnotes necessary for a fair statement of its financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States. The year end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States.

In the opinion of management, the unaudited financial information for the interim periods presented reflects all normal and recurring adjustments necessary for a fair statement of results of operations, financial position and cash flows. These condensed consolidated financial statements should be read in conjunction with the financial statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2010. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our financial statements and the accompanying notes. Actual results could differ from those estimates.

Table of Contents

Note 2 – Basic and Diluted Net Loss Per Share

Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted average number of common and potential common shares outstanding during the period. Potential common shares consist of shares issuable upon the exercise of stock options (using the treasury stock method). Options to purchase 8,418,820 and 7,044,416 shares of common stock were outstanding as of March 31, 2011 and 2010, respectively, but have been excluded from the computation of diluted net loss per share because their effect was anti-dilutive.

Note 3 – Share-Based Compensation

We grant options to purchase our common stock pursuant to our 2004 Equity Incentive Award Plan.

The components of share-based compensation recognized in our statements of operations for the three and nine months ended March 31, 2011 and 2010 and since inception are as follows:

	Three Months Ended March 31,				Nine Months Ended March 31,				Period From Inception (April 19, 1991) through March 31,
	2011		2010		2011		2010		2011
Research and development	$	1,213,000	$	224,000	$	4,174,000	$	598,000	$	12,886,000
General and administrative		649,000		254,000		1,798,000		700,000		12,092,000
Total share-based compensation	$	1,862,000	$	478,000	$	5,972,000	$	1,298,000	$	24,978,000

The following table summarizes our stock option activity for the nine months ended March 31, 2011:

	Number of Shares			Weighted Average Exercise Price
Balance at June 30, 2010		7,521,144		$	5.05
Options granted		1,264,951			6.46
Options exercised		(669,118	)		2.14
Options forfeited		(477,407	)		10.19
Balance at March 31, 2011		7,639,570			5.22

The accounting grant date for employee stock options with performance obligations is the date on which the performance goals have been defined and a mutual understanding of the terms has been reached. Generally options with performance obligations vest over a four year period, with the goals set and agreed upon each year. Therefore, the table above does not include 303,750 and 475,500 performance options granted in fiscal 2010 and 2009, respectively, for which the performance criteria had not been established as of March 31, 2011. Options granted include 95,000 performance options granted in prior periods which were converted to time-based vesting during the three months ended September 30, 2010. Excluding these converted options, the weighted average exercise price of options granted in the nine months ended March 31, 2011 was $6.92.

Employee Stock Purchase Plan. Sales under the Purchase Plan in the nine months ended March 31, 2011 and 2010 were 137,492 and 17,867 shares of common stock at an average price of $1.97 and $1.40, respectively. Shares available for future purchase under the Purchase Plan were 280,054 at March 31, 2011.

Table of Contents

Note 4 – Comprehensive Loss

Comprehensive loss includes net loss and unrealized gains (losses) on marketable securities that are excluded from the results of operations. Our comprehensive losses were as follows:

	Three Months Ended March 31,						Nine Months Ended March 31,
	2011			2010			2011			2010
Net loss	$	(9,217,000	)	$	(3,123,000	)	$	(24,239,000	)	$	(8,186,000	)
Change in net unrealized gain (losses) on available-for-sale securities		1,000			13,000			4,000			(6,000	)

Comprehensive loss	$	(9,216,000	)	$	(3,110,000	)	$	(24,235,000	)	$	(8,192,000	)

Note 5 – Fair Value Measurements and Marketable Securities

Our marketable securities are classified as “available-for-sale”. We include these investments in current assets and carry them at fair value. Unrealized gains and losses on available-for-sale securities are included in accumulated other income (loss). The amortized cost of debt securities is adjusted for the amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Gains and losses on securities sold are recorded based on the specific identification method and are included in interest expense and other income (expense), net in the statement of operations.

Management assesses whether declines in the fair value of marketable securities are other than temporary. If the decline is judged to be other than temporary, the cost basis of the individual security is written down to fair value and the amount of the write down is included in the statement of operations. In determining whether a decline is other than temporary, management considers various factors including the length of time and the extent to which the market value has been less than cost, the financial condition and near-term prospects of the issuer and our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value. To date we have not recorded any impairment charges on marketable securities related to other-than-temporary declines in market value.

The fair value of our financial assets and liabilities is determined by using three levels of input which are defined as follows:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Our short-term investments primarily utilize broker quotes in markets with infrequent transactions for valuation of these securities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

We utilize the market approach to measure fair value for our financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

Table of Contents

The following table sets forth our financial assets (cash equivalents and marketable securities) at fair value on a recurring basis as of March 31, 2011 and June 30, 2010 (in thousands).

	Estimated Fair Value as of March 31, 2011		Basis of Fair Value Measurements
	Estimated Fair Value as of March 31, 2011		Level 1		Level 2		Level 3
Money market funds	$	3,588	$	3,588	$	-	$	-
Corporate bonds		10,789		-		10,789		-
Government agency securities		31,835		-		31,835		-
US agency securities*		8,077		-		8,077		-
Total cash equivalents and marketable securities	$	54,289	$	3,588	$	50,701	$	-

	Estimated Fair Value as of June 30, 2010		Basis of Fair Value Measurements
	Estimated Fair Value as of June 30, 2010		Level 1		Level 2		Level 3
Money market funds	$	50,432	$	50,432	$	-	$	-
Corporate bonds		8,003		-		8,003		-
Government agency securities		14,947		-		14,947		-
Total cash equivalents and marketable securities	$	73,382	$	50,432	$	22,950	$	-

*All US agency securities are FDIC Insured.

The following is a summary of our available-for-sale securities at March 31, 2011 and June 30, 2010 (in thousands).

As of March 31, 2011	Cost Basis		Unrealized Gain		Unrealized Loss			Estimated Fair Value
Money market funds	$	3,588	$	-	$	-		$	3,588
Corporate bonds		10,787		4		(2	)		10,789
Government agency securities		31,831		5		(1	)		31,835
US agency securities		8,085		-		(8	)		8,077
		54,291		9		(11	)		54,289
Less cash equivalents		4,588		-		-			4,588
Total marketable securities	$	49,703	$	9	$	(11	)	$	49,701

As of June 30, 2010	Cost Basis		Unrealized Gain		Unrealized Loss			Estimated Fair Value
Money market funds	$	50,432	$	-	$	-		$	50,432
Corporate bonds		8,019		-		(16	)		8,003
Government agency securities		14,937		10		-			14,947
		73,388		10		(16	)		73,382
Less cash equivalents		50,432		-		-			50,432
Total marketable securities	$	22,956	$	10	$	(16	)	$	22,950

Table of Contents

At March 31, 2011, our marketable securities had the following contractual maturities (in thousands):

	Amortized Cost		Estimated Fair Value
Less than one year	$	49,703	$	49,701
One year to two years		-		-
Total	$	49,703	$	49,701

Note 6 – Agreements

Collaboration and License Agreement with Les Laboratoires Servier. We are a party to a collaboration and license agreement with Les Laboratoires Servier ("Servier") to research, develop and commercialize PCI-24781, an orally active, novel, small molecule inhibitor of Pan HDAC enzymes. Under the terms of the agreement, 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 within the United States. In May 2009, Pharmacyclics received an upfront payment of $11,000,000 from Servier, less applicable withholding taxes of $550,000, for a net receipt of $10,450,000.

Under the agreement Pharmacyclics will also receive $4,000,000 from Servier for research collaboration over a twenty-four month period, paid in equal increments every six months, of which $3,000,000 has been received through March 31, 2011 and the remaining $1,000,000 was received in April 2011. Servier is solely responsible for conducting and paying for all development activities outside the United States. In addition, Pharmacyclics could also receive from Servier up to approximately $24,500,000 upon the achievement of certain future milestones up to and including commercialization, as well as royalty payments.

The collaboration and license agreement required us to enter into an agreement to supply drug product for Servier’s use in clinical trials. During the quarter ending December 31, 2009, the supply agreement, which is considered part of the arrangement, was completed and executed. Prior to the execution of the supply agreement, we did not meet the “evidence of an arrangement” criterion required for revenue recognition and therefore had deferred revenue recognition until the execution of the supply agreement. Accordingly upon the execution of the drug supply agreement with Servier in the three months ended December 31, 2009, we began recognizing revenue from our collaboration and license agreement. Total revenue recognized under the collaboration and license agreement in the three months ended March 31, 2011 and 2010 was $2,059,000 and $2,112,000, respectively. Total revenue recognized under the collaboration and license agreement in the nine months ended March 31, 2011 and 2010 was $6,847,000 and $6,814,000, respectively. The revenue recognized in the nine months ended March 31, 2010 included $1,211,000 of revenue attributable to the period from April 2009 (when the collaboration agreement was signed) to June 30, 2009, had the supply agreement been completed in April 2009.

Celera Corporation. In April 2006, we acquired multiple small molecule drug candidates for the treatment of cancer and other diseases from Celera Genomics, an Applera Corporation (now Celera Corporation) business. Future milestone payments under the agreement, as amended, could total as much as $97,000,000, although we currently cannot predict if or when any of the milestones will be achieved. Approximately two-thirds of the milestone payments relate to our HDAC Inhibitor program and approximately one-third relates to our Factor VIIa program. Approximately 90% of the potential future milestone payments would be paid to Celera after obtaining regulatory approval in various countries. There are no milestone payments related to our Btk program. In addition to the milestone payments, Celera will be entitled to royalty payments based on annual sales of drugs commercialized from our HDAC Inhibitor, Factor VIIa and certain Btk Inhibitor programs.

Note 7 – Income Taxes

In the year ended June 30, 2009, we recorded a $550,000 income tax provision as result of a withholding taxes paid on the $11.0 million upfront licensing payment received from Servier. In the quarter ended December 31, 2009, we recorded a $550,000 income tax receivable related to a tax credit resulting from a December 2009 tax treaty revision enacted between France and the United States that eliminates withholding taxes related to licensing agreements and provides that prior withholding taxes may be reclaimed.

We may from time to time be assessed interest or penalties by major tax jurisdictions, although there have been no such assessments historically. In the event we receive an assessment for interest and/or penalties, it would be classified in the financial statements as income tax expense. We currently have open tax years in major jurisdictions that remain open due to the taxing authorities’ ability to adjust operating loss carry forwards. We do not expect any material changes to our unrecognized tax benefits during the next twelve months.

Table of Contents

Note 8 – Therapeutic Discovery Project Tax Credit

During the quarter ended December 31, 2010, we were awarded a Therapeutic Discovery Project Tax Credit (“TDP”) under Section 48D of the Internal Revenue Code for each of our submitted programs (PCI-32765 Btk Inhibitor, PCI-24781 HDAC Inhibitor and PCI-27483 Factor VIIa Inhibitor). We received the maximum available pro rata government allocation under TDP, which totaled to $586,000 net of related expenses. This amount was credited in full against research and development expenses during the quarter ended December 31, 2010.

Note 9 – Facilities Lease

In January 2011, we entered into an amendment of the lease agreement for our current facility at 995 E. Arques Ave. (32,520 sq. ft), which extends the lease expiration to November 2017 and adds the 999 E. Arques Ave. building (32,256 sq. ft) to the agreement, also expiring November 2017. The amendment includes an abatement of the monthly rent of the current facility for the first 7 months, limited to $325,000, and a 12 month abatement for the added space, limited to $290,000. The amendment includes an option to extend the lease term for five years, an early termination fee of $20.00 per sq. ft and a relocation option.

We recognize rental expense on the facilities on a straight line basis over the lease term. Differences between the straight line rent expense and rent payments are classified as deferred rent liability on the balance sheet. Our future minimum lease payments at March 31, 2011 were as follows:

	Operating
	Lease
	Commitments
Less than 1 year		$	-
1-3 years			2,605
4-5 years			2,145
More than 5 years			1,609
Total		$	6,359

Note 10 – Subsequent Events

In April 2011, we received a $7,000,000 advance milestone payment for our histone deacetylase (HDAC) inhibitor, PCI-24781 from Les Laboratoires Servier ("Servier") based on the ex-US collaboration agreement signed in April of 2009. Over the past two years, Servier has engaged in several exploratory Phase I/II trials in solid tumors and hematologic malignancies. Upon receipt, we recorded the $7,000,000 milestone payment as deferred revenue and will record the revenue when the related milestone has been reached.

In April 2011, we received the fourth and final scheduled payment of $1,000,000 from our collaboration and license agreement with Servier.

Note 11 – Recent Accounting Pronouncements

In October 2009, the FASB issued two updates relating to revenue recognition. The first update eliminates the requirement that all undelivered elements in an arrangement with multiple deliverables have objective and reliable evidence of fair value before revenue can be recognized for items that have been delivered. The update also no longer allows use of the residual method when allocating consideration to deliverables. Instead, arrangement consideration is to be allocated to deliverables using the relative selling price method, applying a selling price hierarchy. Vendor specific objective evidence (VSOE) of selling price should be used if it exists. Otherwise, third party evidence (TPE) of selling price should be used. If neither VSOE nor TPE is available, the company’s best estimate of selling price should be used. The second update eliminates tangible products from the scope of software revenue recognition guidance when the tangible products contain software components and non-software components that function together to deliver the tangible products’ essential functionality. Both updates require expanded qualitative and quantitative disclosures and were effective for fiscal years beginning on or after June 15, 2010, with prospective application for new or materially modified arrangements or retrospective application permitted. Early adoption is permitted. The same transition method and period of adoption must be used for both updates. The adoption of these updates had no effect on our financial statements.

Table of Contents

In January 2010, the FASB issued ASU 2010-06, “Fair Value Measurements and Disclosures (ASC 820): Improving Disclosures about Fair Value Measurements.” This update will require (1) an entity to disclose separately the amounts of significant transfers in and out of Levels 1 and 2 fair value measurements and to describe the reasons for the transfers; and (2) information about purchases, sales, issuances and settlements to be presented separately (i.e., present the activity on a gross basis rather than net) in the reconciliation for fair value measurements using significant unobservable inputs (Level 3 inputs). This guidance clarifies existing disclosure requirements for the level of disaggregation used for classes of assets and liabilities measured at fair value and requires disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements using Level 2 and Level 3 inputs. The new disclosures and clarifications under this ASU are effective over a period of two fiscal years, for interim and annual reporting periods beginning after December 15, 2009 and after December 15, 2010. The adoption of this update had no effect on our financial statements.

In April 2010, the FASB issued ASU 2010-17, “Revenue Recognition-Milestone Method (ASC 605).” This update provides new guidance on the use of the milestone method of recognizing revenue for research and development arrangements under which consideration to be received by the vendor is contingent upon the achievement of certain milestones. The update provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. Additional disclosures describing the consideration arrangement and the entity’s accounting policy for recognition of such milestone payments are also required. The new guidance is effective for fiscal years, and interim periods within such fiscal years, beginning on or after June 15, 2010, with early adoption permitted. The guidance may be applied prospectively to milestones achieved during the period of adoption or retrospectively for all prior periods. The adoption of this guidance had no effect on our financial statements.

Table of Contents

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our interim financial statements and the related notes appearing at the beginning of this report. The interim financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended June 30, 2010 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 13, 2010.

The following discussion contains forward-looking statements that involve risks and uncertainties. These statements relate to future events, such as our future clinical and product development, financial performance and regulatory review of our product candidates. Our actual results could differ materially from any future performance suggested in this report as a result of various factors, including those discussed elsewhere in this report, in our Annual Report on Form 10-K for the fiscal year ended June 30, 2010 and in our other Securities and Exchange Commission reports and filings. All forward-looking statements are based on information currently available to Pharmacyclics; and we assume no obligation to update such forward-looking statements. Stockholders are cautioned not to place undue reliance on such statements.

Company Overview

Bruton’s Tyrosine Kinase (Btk) Inhibitor for oncology, PCI-32765 is an orally active small molecule inhibitor of Bruton’s tyrosine kinase (Btk) that is being developed by Pharmacyclics for the treatment of patients with B-cell lymphoma or leukemia. B-cell maturation is mediated by B-cell receptor (BCR) signal transduction and Btk is an essential part of the BCR signaling pathway. Btk has long been known to be important in the development of normal B-cells. More recently, Btk has been demonstrated to affect a number of vital growth and survival processes in cancerous B-cells. Data from two presentations at the 2010 American Society of Hematology (ASH) Annual Meeting highlighted these effects in chronic lymphocytic leukemia (CLL) cells, as PCI-32765 directly induced programmed cell death, and blocked the ability of CLL cells to migrate to and to adhere to lymph nodes, a protective environment where the tumors grow.

Updated clinical results of PCI-32765 in patients with B-cell malignancies were also reported at the 2010 ASH Annual Meeting. A multicenter U.S. Phase IA trial in relapsed or refractory B-cell non-Hodgkin’s lymphoma (NHL) or CLL was updated, with a total of 56 patients included in the report. In this trial, the overall response rate was 52% in evaluable patients, with the majority of patients with CLL and mantle cell lymphoma (MCL) responding, and responses observed in all diseases treated. With longer-term follow-up, PCI-32765 continued to be well tolerated, with a low rate of grade >3 adverse events and significant hematologic toxicities have been uncommon, and no suggestion of dose-toxicity relationship or cumulative toxicity.

Table of Contents

Also reported at ASH was a pooled analysis of patients with CLL or small lymphocytic lymphoma (SLL) treated on either the Phase IA trial or an ongoing Phase IB/II trial of single-agent PCI-32765. Patients with CLL from both trials exhibited a characteristic pattern of disease response, with rapid reduction in lymph node disease and a transient elevation of blood lymphocytes, likely reflecting the anti-adhesion mechanism of action and migration of tumor cells out of the lymph nodes. The rate of nodal response was 87%. The overall response (which requires reduction of blood lymphocytes to below 50% of baseline value) varied between the Phase IA cohort (median follow-up 8 months) and the Phase IB/II cohort (median follow-up 1.8 months) and was likely related to the pattern of blood lymphocyte response noted above. As with the overall Phase IA population, >Grade 3 adverse events were uncommon, as was significant myelosuppression (<5%).

As of April 2011, over 185 subjects have received at least 1 dose of PCI-32765 with the maximum duration of treatment of approximately 23 months.

Pharmacyclics has initiated a Phase II program that will enable potential registrational paths in CLL, MCL, and diffuse large B-cell lymphoma (DLBCL). We anticipate that this Phase II program should allow for Phase III enabling decisions in these indications based upon ongoing analysis of the data. The ongoing Phase II program currently includes the following studies:

PCYC-1104: A multicenter, phase II study of PCI-32765 in relapsed or refractory Bortezomib-exposed & Bortezomib-naïve mantle cell lymphoma. This study is currently enrolling patients.

PCYC-1106: A multicenter, open-label, Phase II safety and efficacy study of PCI 32765 in subjects with relapsed or refractory DLBCL. This study is designed to assess the activity of PCI-32765 in two genetically distinct subtypes of DLBCL, the activated B-cell (ABC) subtype and the germinal center (GC) subtype. This trial is in the start up phase in 15 US sites.

PCYC-1108: A Phase IB, multicenter, open-label, safety study of PCI-32765, in combination with intensive immune chemotherapy (FCR or BR)* in subjects with CLL or SLL lymphoma. This trial is activated in several US sites and is enrolling patients. *(FCR = fludarabine, cyclophospharmide and rituximab; BR = bundamustine and rituximab)

PCYC-1109: A phase IB/II safety study of PCI-32765 and ofatumumab in subjects with relapsed or refractory CLL or SLL. This is a single site trial and is currently enrolling patients.

Factor VIIa Inhibitor, PCI-27483 is a potent and selective first-in-human small molecule inhibitor of coagulation (clotting) Factor VIIa. PCI-27483 suppresses the active form of Factor VII (FVIIa) that arises from interaction with the cell surface membrane protein known as tissue factor (TF). The FVIIa:TF complex is found at elevated levels in cancers of the pancreas, stomach, colon and lung. The activity of this complex triggers a host of patho-physiologic processes that facilitate tumor blood vessel formation (angiogenesis), growth and metastases. In pancreatic cancer patients, elevated levels of the FVIIa:TF complex correlates with an increased propensity to develop thromboses, also known as blood clots. Studies in laboratory animals indicate that PCI-27483 inhibits the growth of tumors that express TF.

We have completed a Phase I testing of Factor VIIa Inhibitor PCI-27483 in healthy volunteers. In this study, PCI-27483 caused no adverse events, and we were able to establish the International Normalized Ratio (INR) as a pharmacodynamic marker for evaluation in clinical trials.

A multicenter Phase I/II of PCI-27483 in patients with locally advanced or metastatic pancreatic cancer that are either receiving or are planned to receive gemcitabine therapy is currently ongoing. The Phase I portion of the study, which evaluated safety and established the phase II dose of PCI-27483, has completed enrollment and interim results were reported at the 2011 GI Cancers Symposium on January 21, 2011. The Phase II portion of the study is enrolling and patients are being randomized into two groups to receive either gemcitabine alone or gemcitabine plus PCI-27483 (1.2 mg/kg twice daily). The objectives of this phase of the study are to: a) assess the safety of Pharmacyclics FVIIa Inhibitor PCI-27483 at pharmacologically active dose levels; b) to assess potential inhibition of tumor progression and c) obtain initial information of the effects on the incidence of thromboembolic events.

Table of Contents

Histone Deacetylase (HDAC) Inhibitor, PCI-24781 is an orally-bioavailable histone deacetylase inhibitor that is currently in multiple clinical trials. Histone deacetylases are cellular enzymes whose functions include turning gene expression off and on. PCI-24781 targets histone deacetylase (HDAC) enzymes and inhibits their function. We have shown that PCI-24781 impacts the tumor cells by multiple mechanisms including a re-expression of tumor suppressor genes, disruption of DNA repair mechanisms, cell cycle inhibition and the generation of reactive oxygen species. Previous clinical trials have demonstrated that our HDAC Inhibitor PCI-24781 has favorable systemic elimination properties when dosed orally, and inhibits the target enzymes. Clinical response or control of tumor growth has been recorded in three single-agent clinical trials to date.

Pharmacyclics is currently conducting a Phase I trial in patients with advanced solid tumors, a Phase I/II trial in sarcoma patients (in combination with doxorubicin, an anti tumor agent) and a Phase I/II trial testing PCI-24781 in patients with relapsed or refractory NHL. Currently we are enrolling patients in the Phase II portion of this trial in patients with follicular lymphoma.

The HDAC Inhibitor PCI-24781 has demonstrated a good safety profile in over 100 patients treated so far, with the main dose-limiting toxicity observed being a rapidly reversible thrombocytopenia (a decrease in platelets, which are blood cells necessary for clotting). This effect is common among HDAC inhibitors and is considered a class effect (i.e. related to the pharmacologic mechanism of action). The duration and severity of the thrombocytopenia has been successfully managed using novel dose scheduling strategies that we have developed and tested in the clinic, and is reflected in the favorable safety profile observed in the Phase II patients.

In April 2009, we entered into a collaboration agreement with Les Laboratoires Servier ("Servier") pursuant to which Pharmacyclics granted to Servier an exclusive license for its pan-HDAC inhibitors, including PCI-24781, for territories throughout the world excluding the United States. Under the terms of the agreement, Servier acquired the exclusive right to develop and commercialize the pan-HDAC inhibitor product worldwide except for the United States and will pay milestone payments and on sales outside the US, a royalty to Pharmacyclics. Pharmacyclics will continue to own all rights to develop and commercialize within the United States. Servier currently has several ongoing Phase I and Phase I/II trials in lymphomas and solid tumors.

Motexafin Gadolinium (MGd, PCI-0120) is a radiation and chemotherapy sensitizing agent with a novel mechanism of action. MGd is designed to accumulate selectively in cancer cells. Once inside cancer cells, MGd in combination with radiation induces apoptosis (cell death) by disrupting the oxygen dependent pathways in a cell. MGd is also detectable by magnetic resonance imaging (MRI) and may allow for more precise tumor detection. The National Cancer Institute (NCI) is currently sponsoring a single arm Phase I/II multi-center study in newly diagnosed patients with glioblastoma multiform (a type of primary brain cancer). In this study, which completed enrollment in July 2009, MGd is being administered in combination with radiation therapy and temozolomide, a chemotherapy for brain cancers. Previous studies in malignant brain cancers have shown that the combination of MGd and temozolomide have no overlapping toxicities when used in combination.

We are subject to risks common to pharmaceutical companies developing products, including risks inherent in our research, development and commercialization efforts, preclinical testing, clinical trials, uncertainty of regulatory and marketing approvals, uncertainty of market acceptance of our products, history of and expectation of future operating losses, reliance on collaborative partners, enforcement of patent and proprietary rights, and the need for future capital. In order for a product to be commercialized, we must conduct preclinical tests and clinical trials, demonstrate efficacy and safety of our product candidates to the satisfaction of regulatory authorities, obtain marketing approval, enter into manufacturing, distribution and marketing arrangements, build a U.S. commercial capability, obtain market acceptance and, in many cases, obtain adequate coverage of and reimbursement for our products from government and private insurers. We cannot provide assurance that we will generate revenues or achieve and sustain profitability in the future.

Table of Contents

Results of Operations

Revenues

	Three Months Ended March 31,				Percent Change			Nine Months Ended March 31,				Percent Change
	2011		2010					2011		2010
License and milestone revenues	$	2,059,000	$	2,112,000		-3	%	$	6,847,000	$	6,814,000		0.5	%

We recorded $2,059,000 and $6,847,000 in revenue for the three and nine months ended March 31, 2011, respectively, associated with our collaboration and license agreement with Servier which was entered into in April 2009. Given that the deliverables under the collaboration agreement with Servier did not meet criteria in the accounting rules for separation (e.g., no separately identifiable fair value), the arrangement is being treated as a single unit of accounting for purposes of revenue recognition. We recognize the combined unit of accounting over the estimated period required to complete the research activities (two years), which coincides with the delivery period for all substantive obligations or “deliverables” associated with this agreement. Of the total revenue for the three and nine months ended March 31, 2011, $1,356,000 and $4,129,000, respectively, represent the amortization of the $11,000,000 upfront payment from Servier received in April 2009 and the remainder represents the pro-rata completion of services associated with research payments, our supply commitment and reimbursement of patent expenses.

The collaboration and license agreement required us to enter into an agreement to supply drug product for Servier’s use in clinical trials. As the supply agreement is considered part of the arrangement we deferred recognition of all revenue under the Servier collaboration agreement until the supply agreement was completed and executed. We completed the drug supply agreement with Servier and began recognizing revenue in the second quarter ended December 31, 2009. Of the $6,814,000 in revenue recognized for the nine months ended March 31, 2010, $1,211,000 represents the pro rata portion of revenue attributable to the period from April 2009 (i.e., the signing of the collaboration agreement) to June 30, 2009, had the supply agreement been completed in April 2009.

Research and Development

	Three Months Ended March 31,				Percent Change			Nine Months Ended March 31,				Percent Change
	2011		2010					2011		2010
Research and development expenses	$	8,649,000	$	3,679,000		135	%	$	24,607,000	$	10,690,000		130	%

The increase of 135% or $ 4,970,000 in research and development expenses for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010, was primarily due to a $1,650,000 increase in third-party clinical trial costs, a $1,110,000 increase in drug manufacturing charges related to our Btk program, a $989,000 increase in stock compensation expenses, a $464,000 increase in payroll and payroll-related costs due to increased personnel, a $448,000 increase in consulting and outside services, a $241,000 increase in toxicology and pharmacology charges related to our Btk program, and a $112,000 increase in lab supply costs, partially offset by a $238,000 decrease in drug manufacturing charges related to our HDAC and Factor VIIa programs.

The increase of 130% or $13,917,000 in research and development expenses for the nine months ended March 31, 2011, as compared to the nine months ended March 31, 2010, was primarily due to a $3,859,000 increase in third-party clinical trial costs, a $3,576,000 increase in stock compensation expenses, a $2,746,000 increase in drug manufacturing charges related to our Btk program, a $1,317,000 increase in payroll and payroll-related costs due to increased personnel, a $1,250,000 increase in toxicology and pharmacology charges related to our Btk program, a $1,143,000 increase in consulting and outside research and services and a $420,000 increase in lab supply costs, partially offset by a net $586,000 TDP (see Note 8) and a $152,000 decrease in drug manufacturing charges related to our Factor VIIa and HDAC programs.

Research and development costs are identified as either directly attributed to one of our research and development programs or as an indirect cost, with only direct costs being tracked by specific program. Direct costs consist of personnel costs directly associated with a program, preclinical study costs, clinical trial costs, and related clinical drug and device development and manufacturing costs, drug formulation costs, contract services and other research expenditures. Indirect costs consist of personnel costs not directly associated with a program, overhead and facility costs and other support service expenses. The following table summarizes our principal product development initiatives, including the related stages of development for each product, the direct costs attributable to each product and total indirect costs for each respective period. For a discussion of the risks and uncertainties associated with the timing and cost of completing a product development phase, see the Risk Factors discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2010. Prior to fiscal 1999, we did not track our research and development expenses by specific program and for this reason we cannot accurately estimate our total historical costs on a specific program basis.

Table of Contents

Direct costs by program and indirect costs are as follows:

			Related R&D Expenses Three Months Ended March 31,				Related R&D Expenses Nine Months Ended March 31,
Program	Description	Phase of Development	2011		2010		2011		2010
Btk Inhibitors	Cancer/autoimmune	Phase II	$	5,763,000	$	1,438,000	$	15,103,000	$	3,750,000
HDAC Inhibitors	Cancer/autoimmune	Phase I/II		492,000		872,000		1,738,000		2,142,000
Factor VIIa Inhibitor	Cancer	Phase II		586,000		321,000		1,418,000		1,416,000
MGd	Cancer	Phase II		15,000		59,000		51,000		140,000

Total direct costs				6,856,000		2,690,000		18,310,000		7,448,000
Indirect costs				1,793,000		989,000		6,297,000		3,242,000
Total research and development expenses			$	8,649,000	$	3,679,000	$	24,607,000	$	10,690,000

General and Administrative

	Three Months Ended March 31,				Percent Change			Nine Months Ended March 31,					Percent Change
	2011		2010					2011		2010
General and administrative expenses	$	2,692,000	$	1,577,000		71	%	$	6,619,000		$	4,875,000		36	%

General and administrative expenses increased by 71% or $1,115,000 in the three months ended March 31, 2011 compared with the three months ended March 31, 2010. This was primarily due to a $395,000 increase in stock compensation expenses, a $267,000 increase in legal expenses, a $151,000 increase in consultants and outside services, a $149,000 increase in outside accountant costs due to the timing of such services, and a $74,000 increase in payroll and related expenses.

The increase of 36% or $1,744,000 in general and administrative expenses for the nine months ended March 31, 2011, as compared to the nine months ended March 31, 2010, was primarily due to a $1,098,000 increase in stock compensation expenses, a $364,000 increase in legal expenses, a $138,000 increase in other professional services due to the timing of such services, and a $97,000 increase in payroll and related expenses.

Interest and Other, Income (Expense), Net

	Three Months Ended							Nine Months Ended
	March 31,				Percent			March 31,					Percent
	2011		2010		Change			2011		2010			Change
Interest and other income	$	65,000	$	21,000		210	%	$	140,000	$	58,000			141	%
Interest expense		-		-		-			-		(43,000	)		-
Interest and other income (expense), net	$	65,000	$	21,000		210	%	$	140,000	$	15,000			833	%

The increases of 210% or $44,000 in interest and other income (expense), net for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010, and 833% or $125,000 for the nine months ended March 31, 2011, as compared to the nine months ended March 31, 2010, were primarily due to higher average invested balances and the absence of $43,000 of interest expense associated with $6,400,000 in related party loans which were outstanding for part of the first quarter of fiscal 2010.

Table of Contents

Income Taxes:

In the year ended June 30, 2009, we recorded a $550,000 income tax provision as a result of withholding taxes paid on the $11.0 million upfront licensing payment received from Servier. In the quarter ended December 31, 2009, we recorded a $550,000 income tax receivable related to a tax credit resulting from a December 2009 tax treaty revision enacted between France and the United States that eliminates withholding taxes related to licensing agreements and provides that prior withholding taxes may be reclaimed.

Liquidity and Capital Resources

Our principal sources of working capital have been private and public equity financings and the proceeds from collaborative research and development agreements, as well as interest income.

As of March 31, 2011, we had approximately $54,406,000 in cash, cash equivalents and marketable securities.

Net cash used in operating activities of $20,048,000 during the nine months ended March 31, 2011 was $8,961,000 or 81% higher than the net cash used in operating activities during the nine months ended March 31, 2010. The increase is primarily due to a higher net loss after adjusting for share-based compensation expense and changes in accounts payable and deferred revenue in the current fiscal year to date.

Net cash used in investing activities of $28,153,000 and $20,883,000 in the nine months ended March 31, 2011 and 2010, respectively, consisted primarily of purchases of marketable securities, net of maturities and sales of marketable securities.

Net cash provided by financing activities of $1,707,000 for the nine months ended March 31, 2011 resulted from the exercise of stock options and sale of stock under our employee stock purchase plan. Net cash provided by financing activities of $22,591,000 for the nine months ended March 31, 2010 was primarily due to $21,720,000 in net proceeds from the sale of approximately 22.5 million shares of common stock in a Rights Offering completed in August 2009 and $1,161,000 in proceeds from stock option exercises.

In April 2011, we received a $7,000,000 advance milestone payment and a $1,000,000 scheduled payment from our collaboration and license agreement with Servier, See Note 10 – Subsequent Events.

Please refer to Note 9 - Facilities Lease for our future contractual obligations as of March 31, 2011.

In April 2006, we acquired multiple small molecule drug candidates for the treatment of cancer and other diseases from Celera Genomics, an Applera Corporation (now Celera Corporation) business. Future milestone payments under the agreement, as amended, could total as much as $97,000,000, although we currently cannot predict if or when any of the milestones will be achieved. Approximately two-thirds of the milestone payments relate to our HDAC Inhibitor program and approximately one-third relates to our Factor VIIa program. Approximately 90% of the potential future milestone payments would be paid to Celera after obtaining regulatory approval in various countries. There are no milestone payments related to our Btk program. In addition to the milestone payments, Celera will be entitled to royalty payments based on annual sales of drugs commercialized from our HDAC Inhibitor, Factor VIIa and certain Btk Inhibitor programs.

Based upon the current status of our product development plans, we believe that our existing cash, cash equivalents and marketable securities will be adequate to satisfy our capital needs through at least the next twelve months. We expect research and development expenses, as a result of on-going and future clinical trials, to consume a large portion of our existing cash resources. Changes in our research and development plans or other changes affecting our operating expenses may affect actual future consumption of existing cash resources as well. In any event, due to our extensive drug programs we will need to raise substantial additional capital to fund our operations in the future. We may seek partnership collaborations to help fund the development of our product candidates. We also expect to raise additional funds through the public or private sale of securities, bank debt, partnership collaboration or otherwise. If we are unable to secure additional funds, whether through partnership collaborations or sale of our securities, we will have to delay, reduce the scope of or discontinue one or more of our product development programs. Our actual capital requirements will depend on many factors, including the following:

·	our ability to establish and the scope of any new collaborations;
·	the progress and success of clinical trials of our product candidates; and
·	the costs and timing of obtaining regulatory approvals.

Table of Contents

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. The factors described above will impact our future capital requirements and the adequacy of our available funds. If we are required to raise additional funds, we cannot be certain that such additional funding will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be highly dilutive, or otherwise disadvantageous, to existing stockholders and debt financing, if available, may involve restrictive covenants. Collaborative arrangements, if necessary to raise additional funds, may require us to relinquish rights to certain of our technologies, products or marketing territories. Our failure to raise capital when needed and on acceptable terms, would require us to reduce our operating expenses and would limit our ability to respond to competitive pressures or unanticipated requirements to develop our product candidates and to continue operations, any of which would have a material adverse effect on our business, financial condition and results of operation.

Off-Balance Sheet Arrangements

None.

Critical Accounting Policies, Estimates and Judgments

There have been no material changes in our critical accounting policies, estimates and judgments during the nine months ended March 31, 2011, compared with the disclosures in Part II, Item 7 of our Annual Report on Form 10-K for the year ended June 30, 2010.

Table of Contents

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Our exposure to interest rate risk relates primarily to our investment portfolio. Fixed rate securities may have their fair market value adversely impacted due to fluctuations in interest rates. Our future investment income may fall short of expectations and we may suffer losses in principal if we were forced to sell securities which have declined in market value due to changes in interest rates. The primary objective of our investment activities is to preserve principal while at the same time improving yields without significantly increasing risk. To achieve this objective, we invest in debt instruments of the U.S. Government and its agencies and high-quality corporate issuers, and, by policy, restrict our exposure to any single corporate issuer by imposing concentration limits. Assuming a hypothetical increase in interest rates of one percentage point and assuming an unintended and enforced sell of the existing securities in our portfolio prior to their maturity, the fair value of our total investment portfolio as of March 31, 2011 would have potentially declined by approximately $245,000.

Item 4.

Controls and Procedures

(a) Evaluation of disclosure controls and procedures: As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the third fiscal quarter of 2011, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our management, including our Principal Executive Officer and our Principal Financial Officer. Based upon that evaluation, our Principal Executive Officer and our Principal Financial Officer have concluded that our disclosure controls and procedures are adequate and effective to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in internal controls over financial reporting: There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

Table of Contents

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

The Company may be involved, from time to time, in legal proceedings and claims arising in the ordinary course of its business. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. The Company accrues amounts, to the extent they can be reasonably estimated, that it believes are adequate to address any liabilities related to legal proceedings and other loss contingencies that the Company believes will result in a probable loss. While there can be no assurances as to the ultimate outcome of any legal proceeding or other loss contingency involving the Company, management does not believe any pending matter will be resolved in a manner that would have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

Item 1A.

Risk Factors

There have been no material changes in the risk factors previously disclosed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2010.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Not Applicable.

Item 3.

Defaults Upon Senior Securities

Not Applicable.

Item 4.

(Removed and Reserved)

Item 5.

Other Information

Not Applicable.

Item 6.

Exhibits

		10.1	Sixth Amendment to Lease by and between the Company and Metropolitan Life Insurance Company, dated January 11, 2011
		31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
		31.2	Rule 13a-14(a)/15d-14(a) Certification of Vice President, Finance & Administration.
		32.1	Section 1350 Certifications of Chief Executive Officer and Vice President, Finance & Administration.

Table of Contents

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: May 9, 2011	Pharmacyclics, Inc.

	(Registrant)

	By:	/s/ ROBERT W. DUGGAN

	Robert W. Duggan

	Chairman of the Board and Chief Executive Officer (Principal Executive Officer)

Dated: May 9, 2011	By:	/s/ RAINER ERDTMANN

	Rainer M. Erdtmann

	Vice President, Finance & Administration and Secretary (Principal Financial and Accounting Officer)

Table of Contents

EXHIBITS INDEX

Exhibit Number	Description
10.1	Sixth Amendment to Lease by and between the Company and Metropolitan Life Insurance Company, dated January 11, 2011
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31.2	Rule 13a-14(a)/15d-14(a) Certification of Vice President, Finance & Administration.
32.1	Section 1350 Certifications of Chief Executive Officer and Vice President, Finance & Administration.

Attached files

Stock widget

Investing forum

PHARMACYCLICS INC Reports