--Stock has quadrupled since Thanksgiving on promise of leukemia
treatment
--Drug shown to be at least three times as effective as current
options
--Treatment still at least three years from market
By Joan E. Solsman
Pharmacyclics Inc.'s (PCYC) leukemia treatment has proven to be
at least three times as effective as current options, a major
factor in the stock's fourfold surge since Thanksgiving, but one
significant hurdle remains: The company is unlikely to see any
meaningful sales for at least three years.
That's because the Sunnyvale, Calif., company still needs to
complete late-stage testing on the drug, ibrutinib. While many
expect success--the treatment already is drawing comparisons to one
of the most successful cancer drugs ever--some wonder if it's
premature to give Pharmacyclics a $3.6 billion valuation and price
the stock at 750 times future earnings, especially when the company
doesn't own all of the drug's rights and the product won't hit the
market until 2015 by analysts' estimates.
At such high valuation, "disappointments will inevitably emerge
during the course of clinical development," Bernstein Research
analyst Geoffrey C. Porges said. Pharmacyclics closed Friday at
$49.99.
The company is targeting ibrutinib for several blood-cell
cancers but, for now, is focusing its efforts on a blood and bone
marrow cancer known as chronic lymphocytic leukemia, or CLL. The
cancer causes certain abnormal white-blood cells to multiply out of
control, eventually crowding out healthy cells in the blood.
Ibrutinib attaches to an enzyme key to the development of the
abnormal cells and shuts off its activity.
"We feel this has a multibillion-dollar revenue potential,"
Chief Medical Officer Lori Kunkel said at a health-care conference
in January. In an email for this story, Ms. Kunkel called
ibrutinib's activity unprecedented.
Among CLL patients who have failed standard chemotherapy,
ibrutinib kept 88% alive without any cancer progression for a
median, so far, of almost 18 months in a mid-stage study.
By comparison, the most recently approved agent in CLL,
ofatumumab, has a progression-free-survival median of less than six
months. And while a 2006 study found an overall tumor response rate
of 58% at best with ofatumumab alone, 100% of the patients in a
preliminary Pharmacyclics trial responded to treatment of
ofatumumab and ibrutinib combined--and all were surviving with no
cancer progression at a median follow-up of almost 10 months.
"It's eye-popping efficacy," Rodman & Renshaw analyst
Michael King said.
In addition, ibrutinib has proven more durable than current
treatments. It is a daily pill that early data show can be taken
effectively for more than a year, and many analysts project can be
taken for several. On the other hand, the standard CLL regimen--a
combination chemotherapy and antibody therapy--is usually
administered over the course of about six months.
Ibrutinib's impressive results have reminded some of Novartis
AG's (NVS, NOVN.VX) blockbuster Gleevec, which was introduced in
2001 and quickly became the standard of care for people with
another type of leukemia. Gleevec showed how targeting an
underlying genetic defect could halt or delay progression of cancer
and keep a large proportion of patients in remission for years.
The drug had world-wide sales of $4.66 billion last year.
Before ibrutinib gets any sales, it must get regulatory
approval, which isn't seen until 2015 because the company has to
complete a late-stage trial, analysts say. In a larger trial, the
potential exists for unforeseen complications or weaker efficacy
readings, Rodman analyst Michael King cautioned.
But Brian Skorney, an analyst at Brean Murray, Carret & Co.,
said such risks are overshadowed by ibrutinib's unusually strong
results thus far. "The profile of the drug is so extraordinarily
better, that even if the profile becomes a lot worse, it's still a
major shift from what's out there," he said.
Notably absent is takeover speculation. Wedbush Securities Inc.
analyst Greg Wade said the company is closely held: Five
shareholders control half of it, including 20% by Chairman and
Chief Executive Robert W. Duggan, and management has been vocal it
wants Pharmacyclics to come into its own. The company's partnership
with Johnson & Johnson (JNJ) also deters other potential
suitors from making advances, he said.
Bernstein's Mr. Porges has raised concerns about the stock's
runup and questioned whether the company was worth the valuation.
The analyst noted that Pharmacyclics only holds about half the
value of its one real asset because of the J&J partnership.
He added that Pharmacyclics's $3.6 billion market capitalization
implies the drug is valued around $9 billion. Mr. Porges, though,
pegs peak global sales at about $2.8 billion.
Other biotech companies with similar market capitalization have
material advantages in comparison, Mr. Porges said. For example,
Medivation Inc. (MDVN) is a $3.48 billion company that has a
similar partnership on its prostate cancer drug but is only three
months away from approval.
In addition, other companies are pursuing drugs that target the
same enzyme, including developmental CLL drugs at Celgene Corp.
(CELG), and Gilead Sciences Inc. (GILD), which seems to be moving
faster with the studies of its GS-1101, Mr. Porges said.
"The market may not be big enough, soon enough, to support the
revenue implied by the stock's recent valuation," he said.
Write to Joan E. Solsman at joan.solsman@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires