Pharmacyclics, Part 2: How Much Revenue Could Ibrutinib Generate?

Feb.25.13 | About: Pharmacyclics, Inc. (PCYC)

<<Back to Part 1

Ibrutinib is the leading drug candidate and most promising product in the drug pipeline for Pharmacyclics (NASDAQ:PCYC). The company is currently conducting seven clinical trials on ibrutinib to expand the use of this drug candidate for CLL (chronic lymphocytic leukemia) and mantle cell lymphoma (MCL), both for refractory patients and as frontline therapy. In addition, the company is conducting clinical trials on other B cell cancers, including multiple myeloma, diffuse large B cell lymphoma, and follicular lymphoma. Below we discuss the probability of success and the timeline for FDA regulatory decision on these indications. The total revenues from ibrutinib sales for all B cell cancers are estimated to be $500M (2016), $1.22B (2017), $2.24B (2018), and $3.7B (2019). The revenue streams attributed by ibrutinib will have a significant impact on PCYC's valuation going forward.

Ibrutinib in CLL Market

Ibrutinib is a selective irreversible inhibitor of Btk, an important kinase in the B cell antigen receptor signaling pathway that controls B cell activation and migration. The company started Phase I/IIa clinical trials of ibrutinib on CLL patients in 2009 and has since obtained remarkable clinical outcomes for the drug. Ibrutinib is currently being tested in three Phase III clinical trials (see Table): RESONATE 1 is to investigate ibrutinib as a monotherapy for relapsed or refractory chronic lymphocytic leukemia patients; RESONATE 2 is to investigate ibrutinib as frontline therapy for newly diagnosed elderly CLL/SLL patients; and the HELIOS trial is to investigate ibrutinib in combination with bendamustine and rituximab in patients with relapsed or refractory CLL.

Click to enlarge

Based on the clinical data reported by the company over the course of its CLL trials, including the most recent updates reported in ASH meeting in December 2012, the efficacy and safety data for ibrutinib is very impressive. As a monotherapy, its 26-month progress free survival (PFS) probability is 75% for relapsed CLL and 96% for treatment naïve CLL patients. As a combination therapy (with oftatumumab or rituximab), its 26-month progress free survival probability is >90% for all CLL patients.

Based on the data, it is highly anticipated that its Phase III clinical data will meet their primary and secondary endpoints and that the drug will receive FDA approval sometime in 2015. In fact, the current stock price of PCYC ($90) essentially anticipates the approval of ibrutinib on at least one indication.

CLL is the most common type of blood cancer, with 130,000 cases in the United States, and with 16,000 new cases diagnosed each year. Although the current market for CLL is only $600 million due to ineffectiveness of chemotherapeutic drugs, it is anticipated that effective new therapies, such as rituximab and ibrutinib, will expand the market size for CLL in the future. Current therapy is priced at approximately $100,000 per year per patient. Therefore, the potential market for CLL is $13B in US alone and about $26B worldwide. Assuming ibrutinib grabs 30% market share at its peak sales, this translates to $7.8B global revenue per year. PCYC has partnered with Johnson & Johnson (NYSE:JNJ) to co-develop and commercialize the drug, in which both companies will share equally in any profits and losses. Therefore, PCYC could recognize ~$4.0B revenue at peak sale.

According to its timeline (see Table), the first CLL Phase III will finish enrollment by the end of 2013. It will then take an additional 1-1.5 years to gather patient data before an NDA filing. So, we predict that the company will file an NDA for refractory CLL indication in the first half of 2015 and receive FDA approval by the end of 2015. Therefore, the drug will be launched in 2016. PCYC and JNJ will also file for the use of ibrutinib in native CLL patients. In addition, they will file for regulatory approvals in the European Commission. These filings may occur in the second half of 2015 and receive approval in 2016.

Therefore, the company will start generating commercial revenue for ibrutinib in 2016. Our estimated revenue stream for the CLL indication alone is $400M (2016), $800M (2017), $1.44B (2018), and $2.3B (2019). We will use these numbers in PCYC's stock valuation.

Ibrutinib in the MCL Market

Ibrutinib is also being tested in two Phase III and one Phase II clinical trials on mantle cell lymphoma (MCL): the RAY trial is to investigate ibrutinib as a monotherapy for relapsed or refractory MCL patients who received at least one prior rituximab-containing chemotherapy regimen; the SHINE trial is to test ibrutinib plus bendamustine and rituximab in subjects with newly diagnosed MCL. The SPARK Phase II study investigates ibrutinib in patients with mantle cell lymphoma who progress after bortezomib therapy.

Based on the clinical data reported by the company on the MCL trials, including the most recent updates reported in ASH meeting in December 2012, the efficacy and safety data for ibrutinib are very impressive. As a monotherapy, it has a 68% overall response rate for all MCL patients. Among them, half of the treated patients had a complete response. Its median progress free survival is 13.9 months for all patients.

In addition, the FDA recently granted "breakthrough" status to ibrutinib for the MCL indication. The implication is that the FDA could expedite the approval of ibrutinib for the treatment of MCL with sufficient clinical data meeting the efficacy and safety guidelines. This may mean that the company may be able to either reduce the trial size or shorten the timeline for its Phase III programs.

According to the timeline (see Table), the MCL Phase III clinical trials will finish enrollment by Q2 2014. It will then take an additional year to gather patient data before an NDA filing. The 'breakthrough" status may enable FDA to grant expedited review of clinical data on a rolling basis. So, it is possible that PCYC and JNJ could file an NDA for MCL to both the FDA and the European Commission in the first half of 2015 and receive regulatory approvals in the second half of 2015. Therefore, the drug will be launched in 2016.

MCL is one of the rarest types of non-Hodgkin's lymphoma, with only about 15,000 patients presently in the U.S. However, there is no effective therapy for the disease. Therefore, there is a great unmet medical need. Assuming annual therapy costs at $100,000, the total potential market for MCL is approximately $1.5B in the U.S. and $3B worldwide. We estimate that the revenues for MCL indication could be ~$900M at peak sales if it represents 30% of market share. Again, the partnership with JNJ means that PCYC can recognize half ($450M) of the total revenues on its financial statements.

Our estimated revenue stream for the MCL indication is $100M (2016), $220M (2017), $440M (2018), and $792M (2019).

Ibrutinib in Other B-Cell Malignancy Markets

The company is also conducting three clinical trials on other B cell malignancies. One is a Phase II study of ibrutinib in subjects with relapsed or refractory multiple myeloma (MM). This trial assesses the safety and efficacy of ibrutinib as a single agent and in combination with dexamethasone in subjects with relapsed or relapsed MM. The other trial is a Phase II study investigating ibrutinib as a monotherapy in subjects with relapsed or refractory follicular lymphoma (FL). The third trial is a Phase Ib/II study to identify a safe and tolerable dose of ibrutinib in combination with R-CHOP in patients with newly diagnosed diffuse large B cell lymphoma (DLBCL).

The results of these trials will not be available until 2014. Based on preliminary data released in December 2012, the overall response rate for DLBCL is only 25%. Within the DLBCL subset, the activated B cell type (ABC) patients seemed to have better overall response rate of 41%. The patient samples for MM and FL were still too small to tell whether ibrutinib would be effective for these two indications.

If any of these trials yield positive outcomes, the company still needs to perform large scale Phase III clinical trials in order to receive regulatory approval for the indication. Therefore, the impact of these indications on PCYC's revenues will not materialize until after 2017. After factoring in a 50% probability of FDA approval and the market share ibrutinib is likely to take, our estimated revenue stream for these B cell indications is $200M (2017), $360M (2018), and $576M (2019).

Taken together, the total revenues from ibrutinib sales for all B cell cancers are estimated to be $500M (2016), $1.22B (2017), $2.24B (2018), and $3.7B (2019).

>>Go to Part 3

Disclosure: I am long PCYC, JNJ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.