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Heightened Interest Pharmacyclics & Cancer Drug Developers

Yesterday's excitement over Amgen's (NASDAQ:AMGN) $120-per-share bid for Onyx Pharmaceuticals sent virtually all oncology drug developers skyrocketing. Of particular interest were other similarly-sized developers like Pharmacyclics (NASDAQ: PCYC), who hold very attractive assets in their pipelines that may be the target of a big pharma acquisition. Although clinically-proven oncology drugs generally have huge premiums attached to them in any M&A deals, the high failure rate of "unproven" cancer drugs and the favorable reimbursement landscape makes oncology a particularly attractive therapeutic market.

Only a few years ago Pharmacyclics was another unproven, penny stock cancer drug developer that was targeting B-cell cancers through a novel mechanism of action. After the successful clinical development of the Bruton's Tyrosine Kinase (BTK) inhibitor Ibrutinib (PCI-32765), Pharmacylics continues to soar - multiplying investor wealth dozens of times over.

The real excitement over Pharmacylics came when Ibrutinib attracted the interest of Johnson & Johnson's (NYSE:JNJ) subsidiary Janssen, which partnered with Pharmacyclics under very generous terms. Wall Street analysts are now extremely optimistic on the drug's prospects, believing it to be the next (multi)billion dollar blockbuster B-cell cancer drug. Reflecting this huge revenue potential, Pharmacyclics has now become a multi-billion dollar biopharmaceutical company.

While more BTK inhibitors are now in development, Pharmacyclics and J&J will be years ahead due to recently granted breakthrough status for Ibrutinib (in Q1 2013). This will allow J&J/Pharmacyclics to submit an NDA for the drug for the CLL (Chronic Lymphocytic Leukemia) indication about a year earlier than initially expected, since they can use incomplete data from the CLL/SLL Phase III trial which is still undergoing the enrollment process.

Note that the virtually guaranteed FDA approval of Ibrutinib will trigger a generous $825 M milestone payment from Johnson & Johnson and is expected to generate hundreds of millions in milestone revenues after a possible market launch in late 2014 or 2015. Most of the intrinsic value of Ibrutinib has been mostly built into the $6.2 B valuation of PCYC, although there is still upside potential following the submission of the Ibrutinib NDA for CLL - expected to occur near the end of Q3 2013. Clinical trial data in Diffuse large B-Cell Lymphoma (DLBCL) patients may also be released in Q2 2014 (perhaps at ASCO 2014), which will help bolster Ibrutinib's valuation.

The market should reward PCYC with a bit of upside once the FDA approval is actually in hand, although there will be more potential in the clinical development of other pipeline compounds like Abexinostat HCL (PCI-24781) and PCI-27483 that are not partnered with Janssen. PCI-24781 in particular is scheduled to complete a Phase II safety study in combination with gemcitabine in pancreatic cancer patients this month. Data is expected in Q3 2013.

The company is also exploring the efficacy of BTK inhibition in autoimmune disease, although the market is unlikely to pay attention to this program until it reaches Phase II development. Investors should be mostly focused on continued expansion of Ibrutinib into the b-cell cancer indications mentioned earlier and on the developments that will lead to the initial market launch of Ibrutinib. Takeover speculation for Pharmacyclics may also be heightened following the attempted takeover by Onyx mentioned earlier.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: Heightened Interest In Pharmacyclics And Cancer Drug Developers