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It's not uncommon for biotechs to go quiet for long stretches of time, particularly when they are basically one-product companies with little incremental data on the way. In the case of YM Biosciences (YMI), though, shareholders have reason to be a little edgy about the lack of news. Not only has the company been cagey in discussing its plans for pivotal trials of its lead drug CYT387, but partnership discussions have supposedly been ongoing for most of the year so far. While I'm cautiously optimistic that YM Biosciences does have a real winner in myelofibrosis, it may well be hard for this stock to outperform without the seal of approval represented by a Big Pharma partner.

A Quick Review Of The Basics

I covered YM Biosciences and its lead drug CYT387 months ago, but a few points bear repeating. YM Biosciences is hoping to position CYT387 as a best-in-class oral JAK inhibitor for myelofibrosis (MF), one that actually reduces anemia and frees patients from dependence on blood transfusions. Thus far, relatively few patients have been given CYT387, but the data has been encouraging - showing a significant decrease in anemia versus rival Incyte's (NASDAQ:INCY) Jakafi.

Although the data has been promising, there are concerns. The company hasn't done a randomized study yet and there are real concerns whether YM Biosciences can get the sort of label it will need to differentiate itself from Jakafi - a drug that will have had ample time to establish itself in the market before CYT387 comes up for approval. What's more and admittedly much less quantifiable, this is not an especially well-liked management team and bears are clearly skeptical about the likelihood that they can identify and develop a quality drug.

Where's The Partner?

When I wrote on YM Biosciences back in March of this year (2012), there were already plenty of analysts claiming that the company was in active discussions with potential Big Pharma partners. Nothing has really changed in the meantime; every month or so another analyst writes about his or her belief that management is deep in discussions/negotiations with a partner.

Giving management the benefit of the doubt, you generally only get one shot at partnering a drug and its important to get it right. It's entirely possible that some partners want to have a deeper role in Phase 3 development and there could be hang-ups over US/ex-US rights, development cost responsibility, and follow-on indication rights.

What it all boils down to, though, is whether Big Pharma has faith in the data seen to date and the reproducibility of that data in pivotal studies. There haven't been as many surprises between Phase 3 and the Phase with JAK inhibitors as with other compounds, but the longer this drags on, the more worried investors are going to be.

What would a partnership look like? Based on what management has said publicly, it seems as though the focus has been on an OUS licensing agreement that leaves the company with U.S. rights. Looking at the Novartis (NYSE:NVS) - Incyte deal, the Sanofi (NYSE:SNY) acquisition of TargeGen, and the deal between Johnson & Johnson (NYSE:JNJ) and Pharmacyclics (NASDAQ:PCYC), I would think that YMI is holding out for $100 million upfront, hundreds of millions more in potential milestones, and double-digit royalties. Here too is another risk - there are plenty of institutional investors who are going to be less than thrilled with the idea of YM Biosciences launching and marketing the drug on its own in the U.S.

Does Incyte's Revision Change Anything?

The waters have been muddied a little more for YM Biosciences by Incyte's recent disappointment with Jakafi. Incyte recently revised sales expectations lower, with 2012 numbers going down about 15%. Disappointing initial launches don't always spell doom for a company (Amylin still got a solid premium from Bristol-Myers (NYSE:BMY)), but bears can take Incyte's challenges and ask how a company like YM Biosciences is going to succeed if they're struggling.

I'd argue that a differentiated label centered around anemia would be a major factor in YMI's favor, but the reality is that no drug sells itself and at least some of the YMI bull case is built around the idea that the MF market may in fact be larger than commonly thought - a case that Incyte's performance isn't helping.

Waiting For Details On P3

Although there was some expectation that pivotal studies on CYT387 would begin around mid-year, clearly that didn't happen. While I do think the Street won't like news that the company is starting Phase 3 studies without a partnership in hand, I think the Street would like a delay of the pivotal trial start into 2013 even less.

It's not just about the start date, though. I will be very curious to see how the company structures the study(ies) - and would expect two studies, and anemia/transfusion reduction as an endpoint (along with spleen volume reduction), but I don't think the studies necessarily have to be run head-to-head with Jakafi. I would also expect that investors and analysts will closely watch for any updates on enrollment once the process starts - while a Phase 3 study will probably last for six months, there are concerns that any such study will be slow to enroll because of the availability of Jakafi.

The Bottom Line

I don't own YM Bioscience shares, but this is one I'm strongly considering adding to my portfolio. I believe that YMI shares could be worth north of $4 if the anemia benefits of CYT387 hold up through pivotal studies, and that's an appealing risk-reward trade-off to me. At the same time, I admit that the stretched out partnership timeline is a concern, and potential investors need to realize that an overwhelming percentage of the company's value rests on just this one drug.

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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: The Wait Goes On At YM Biosciences