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Pharmacyclics (NASDAQ:PCYC) is ending the year with a bang. In the biggest phase II deal of 2011, the California company signed rights to its blood-cancer drug PCI-32765 to Johnson & Johnson (NYSE:JNJ) for a huge $150m upfront, a deal that executives say will secure sufficient funding to take the Bruton’s tyrosine kinase (Btk) inhibitor to market without tapping investors.

The global pact could represent a big win in the long term as well, as it entitles Pharmacyclics to half the profits generated by the partnership. Shares, however, were down 12% to $12.89 in early trading Friday. After more than doubling in price this year and with the anticipated licensing deal completed, major catalysts are now more than a year away, while any hope of a trade sale has been erased (Trial success opening doors for Pharmacyclics, June 15, 2011).

Big deal

Displaying a particularly well honed talent for hyperbole, even for a biotech chief executive, Pharmacyclic's Robert Duggan described PCI-32765 a “gift from God” on a conference call Thursday. The drug has arguably delivered in a style befitting a deity: $150m upfront, with another $825m in unspecified development, regulatory and approval milestones. No sales milestones are included because of the profit share, meaning the bio-dollars are comparatively front-loaded when compared to many licensing deals (Pharmacyclics strikes most lucrative single-product deal of 2011, December 9, 2011).

J&J will cover 60% of development costs, all commercial costs outside the US and contribute to US commercialisation - pretty impressive deal terms from Pharmacyclics' perspective given the 50-50 global profit share. So far, the compound is most advanced in chronic lymphocytic leukaemia (CLL), small lymphocytic lymphoma (SLL), mantle cell lymphoma (MCL) and diffuse large B-cell lymphoma (DLBCL), where phase II trials are underway or complete.

It is reporting data on all three at the American Society of Hematology meeting next week, and observers in particular are excited about phase I/IIb data in CLL and SLL (ASH Preview - Novel drug classes facing important tests, December 7, 2011). Announcement of the deal is bound to raise interest around the candidate.

While Pharmacyclics is still on the hook for significant costs, Mr Duggan told investors that the timing and value of the milestones means the company may even be able to maintain a cash balance above $100m throughout the programme without diluting shareholders. At the end of September, the company had $108m in the bank. He did not, however, rule out investor dilution to pay for earlier stage products such as factor VIIa inhibitor PCI-27483.
Should ‘765 gain FDA aproval, commercial resources will be needed. The deal calls for Pharmacyclics to take the lead in US marketing in consultation with J&J, a commitment that would require it to build out a significant sales and marketing capacity.


Other than Pharmacyclics and J&J, other people who will be excited about the deal are researchers working on other Btk inhibitors. The positive data Pharmacyclics is reporting at ASH plus a deal with big pharma helps validate the target.

Still, there is little competition on the horizon for the two new partners, which likely helps explain the favourable deal terms Pharmacyclics extracted.

Avila Therapeutics started a phase I trial last year of its candidate, AVL-292, in healthy volunteers and in September this year said it was advancing a phase Ib study to a second dose cohort, in patients with B cell cancer malignancies. Playing a critical role in the signalling and proliferation of B cells, inhibition of the Bruton’s tyrosine kinase holds significant potential to treat B cell-related haematological cancers such as non-Hodgkin lymphoma and chronic lymphocytic leukaemia, as well as autoimmune diseases such as rheumatoid arthritis.

AVL-292 is a covalent drug designed by the company’s novel platform technology that helped attract substantial investor funds a couple of years ago; this deal could give the company a boost in fundraising efforts that may well be ongoing (EP Vantage Interview - Avila's covalent drugs looking highly attractive, September 25, 2009)

Meanwhile Pharmascience announced in July that it would invest in a pre-clinical programme targeting BTK, acquired through the purchase of Aegera a few months previously.