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Imbruvica, Pharmacyclics (PCYC) and Johnson and Johnson's (JNJ) drug was approved by the FDA to treat MCL (mantle-cell lymphoma) in November but not for CLL (chronic lymphocytic leukemia), which is a larger market.

This has made some investors nervous. Michael Yee of RBC Capital Markets speculates that the FDA is waiting for data from the ongoing Resonate trial in January which compares Imbruvica to Arzerra, a drug made by GlaxoSmithKline (GSK).

An FDA decision on Imbruvica's approval for previously treated CLL patients is expected by February 28, 2014, as stated by management on the November 7 Pharmacyclics conference call.

The delay is giving Gilead Sciences' (GILD) CLL candidate idelalisib time to catch up in the race. Idealisib's Phase 3 trial was recently stopped early for good performance.

Imbruvica

Imbruvica does not come cheap: it costs about $91 a pill, with four pills to be taken together once a day. On a yearly basis this comes to $130,000, an expensive drug in line with the trend of ever-increasing cancer drug prices.

According to Robert W. Duggan, CEO of Pharmacyclics, the reason for the high price is the small number of potential patients. His company and Johnson & Johnson had spent nearly $1 billion to bring Imbruvica to market. He also says that the drug for the CLL indication, when approved, will cost less because it requires fewer pills and has a larger patient base.

Mantle cell lymphoma accounts for only 6 percent of all cases of non-Hodgkin's lymphoma in the U.S., according to the FDA. There are approximately 5,600 new cases of MCL each year in the G7 countries (U.S., France, Germany, Italy, Spain, U.K., and Japan) and the number of current patients is about 23,000.

Imbruvica's approval for MCL was based on a Phase 2 study of 111 participants who were given 560 mg of the drug daily. Nearly 66 percent of the patients had their cancer shrink or disappear after treatment, including a complete response rate of 21 percent. The responses lasted a median of 17.5 months. An improvement in survival or disease-related symptoms has not yet been established.

Mantle cell lymphoma (MCL) is a rare and aggressive form of non-Hodgkin lymphoma. By the time MCL is diagnosed, it usually has already spread to the lymph nodes, bone marrow and other organs.

Imbruvica is the third drug approved for MCL; Velcade from J&J and Takeda was approved in 2006 and Revlimid from Celgene (CELG) in 2013. Imbruvica's side effects are milder than traditional cancer drugs which sometimes cause low red cell counts requiring blood transfusions.

Peak worldwide sales for the pill may reach $6.5 billion in 2026 if it is approved for more cancers, with $3 billion of that coming from the U.S., according to Michael Yee, an analyst with RBC Capital Markets.

Imbruvica works by inhibiting the BTK (Bruton's tyrosine kinase) enzyme. The BTK enzyme plays an important role in B-cell receptor signaling, which helps spreading B-cell malignancies such as CLL.

Idelalisib

In a Phase 3 trial, Gilead's idelalisib combined with Rituxan scored a 93 percent progression-free survival rate at 24 weeks, roughly double the results for Roche's (OTCQX:RHHBY) star drug alone.

The drug's overall response rate was 81 percent, substantially better than Rituxan's 13 percent and could have been one reason why the Data Monitoring Committee recommended to end the study early. Gilead will present details in December at the American Society of Hematology meeting.

Idelalisib inhibits the PI3K pathway which is hyperactive in CLL. The drug interferes with B-cell receptor signaling, it reduces the proliferation, homing and retention of malignant B cells. Idelalisib is developed both as a single agent and to work in combination with other drugs. Three Phase 3 trials are underway testing the drug in various combinations: with Arzerra from Glaxo and Genmab, with Rituxan, the trial that was just stopped and a combination of Rituxan and Treanda (from Teva (TEVA).

The 150 mg twice daily dose was found to be a plateau to dose exposure and nodal response and this dosage will be used in future trials. Elevated liver function tests, though not common, occurred more frequently in patients who received higher doses of the drug.

Leerink Swann's analyst Howard Liang thinks that doctors will consider Imbruvica and idelalisib essentially equal in efficacy but Imbruvica has an edge because of the heavy publicity surrounding it. This will change however once Gilead's drug becomes better known.

Competition

Rituxan successor, Gazyva from Roche won FDA approval to treat CLL in November, on the merits of strong overall survival results. Gazyva combined with chemotherapy, was superior to Rituxan in helping patients to live longer without the cancer getting worse.

Gazyva's approval was based on a study of 356 participants in an open-label multicenter trial which compared Gazyva in combination with chlorambucil (a chemotherapy drug) to chlorambucil alone in patients with previously untreated CLL. The group that received Gazyva in combination with chlorambucil demonstrated a significant improvement in progression free survival: an average of 23 months compared with 11.1 months with chlorambucil alone.

Gazyva comes with a boxed warning about the possibility that the Hepatitis B virus could reactivate and it could cause PML (progressive multifocal leukoencephalopathy). PML is a rare brain disorder that damages the material which protects the nerves in the brain.

Another CLL drug, Arzerra from Glaxo and Genmab, originally approved in 2009, has received Breakthrough Therapy designation from the FDA that could allow it to be used in patients earlier in the disease cycle.

Markets

Current treatments for CLL offer patients a trade-off between toxicity and effectiveness, and in old age, toxicity is harder to take. The median age of patients at the time of the CLL diagnosis is 72 years. Therefore, the milder side effect profile of the newer drugs is significant.

Typically diagnosed through a routine blood test, CLL is characterized by a slow increase in B lymphocytes, causing cancer cells to spread through the blood and bone marrow as well as the lymph nodes, liver, and spleen. According to the National Cancer Institute, approximately 15,680 patients will be diagnosed with CLL in the U.S. and 4580 will die from the disease in 2013.

Currently, patients are often prescribed a combination of chemotherapy and immunotherapy, but the vast majority will relapse after initial treatment, and approximately 20 percent of the patients have a resistant disease that relapses within six months or does not respond to therapy at all.

Sales projections for the new drugs are optimistic.

Gilead: For idelalisib Thomson Pharma forecasts peak potential sales at around $500 million by 2017.

Using idelalisib in combination with Rituxan rather than to compete with it directly, was a clever idea from Gilead. Even though the drug will be the third of the next-generation drugs to the market, doctors may be more willing to add on to a well-known therapy than turning to an entirely new one.

J&J: Market research firm GlobalData projects that Imbruvica will have sales of $1.3 billion in 2018 and peak sales of more than $4 billion on the assumption that it gets approved for multiple indications.

As a comparison, Gleevec generated $3.5bn in peak sales in CML (chronic myelogenous leukemia) for Novartis (NVS). A Forbes report described Imbruvica as "the Gleevec of CLL", referring to the Novartis blockbuster that was initially approved for a rare form of leukemia and now approved for 11 indications.

But the CLL market is three times as big as the CML market, and Imbruvica is priced at a premium.

The bottom line at the moment is that while as a single agent Imbruvica appears to be more efficacious in CLL, the combination of idelalisib with Rituxan is viewed by many analysts as equivalent to Imbruvica.

Investors' summary

Gilead's revenues for the third quarter of 2013 increased 15 percent to $2.78 billion, from $2.43 billion for the third quarter of 2012.

Net income was $788.6 million, or $0.47 per diluted share compared to $675.5 million, or $0.43 per diluted share for the third quarter of 2012.

Gilead still gets the lion's share of its sales from HIV and AIDS medications.

Antiviral product sales increased 14 percent to $2.33 billion for the third quarter of 2013, up from $2.04 billion for the third quarter of 2012, reflecting sales growth of 19 percent in the U.S. and 6 percent in Europe. The increase demonstrates strong underlying demand for the new single tablet regimen products, Stribild and Complera.

For the first 9 months of the year Atripla's sales were $2.7 billion and Truvada sales were $2.3 billion.

At the end of September Gilead had $2.76 billion of cash and cash equivalents compared to $2.58 billion as of December 31, 2012. During the first nine months of 2013, Gilead generated $2.38 billion in operating cash flow.

Gilead expects 2013 product revenue in the range of $10.3- $10.4 billion.

The stock price ranged from $35.68 to $73.20 in the past 52 weeks, presently it is positioned above both the 200 and 50 days simple moving averages.

Gilead has the ambition to become a player in the cancer field. A good start of realizing that ambition would be the launch of its first drug, idelalisib, in 2014. It seems that the $375 million Gilead paid in 2011 to buy the drug's developer, Calistoga Pharmaceutical, was money well spent. The launch of idelalisib would put it on a collision course with Imbruvica.

Acceptance of idelalisib in the marketplace would go a long way to diversify Gilead's drug portfolio and establish its presence in the cancer arena, a most welcome development for Gilead's investors.

Source: Gilead Vs. Johnson & Johnson, Roche In Blood Cancer Showdown