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JPMorgan Healthcare Conference Highlights: Pharmacyclics, Inc.

Yesterday's start of the 2014 JPMorgan Healthcare Conference, arguably the most important health care conference of the year, brings together pharmaceutical, biotechnology, and medical device makers all under one roof.

Similar to the recently concluded Consumer Electronics Show in Las Vegas, this annual event gives health care companies a chance to demonstrate to investors and Wall Street what they've been doing and what's next. Because earnings guidance can be somewhat irrelevant for clinical-stage biotech and medical device companies, this event offers investors the opportunity to gain guidance from some 300 top companies in the industry.

Today, we'll take a closer look at Pharmacyclics' (NASDAQ: PCYC  ) presentation which featured a number of executive board members, including Chairman and CEO Bob Duggan.

Source: Pharmacyclics.

Pharmacyclics' transformative year
The past year was transformative in more than one way for Pharmacyclics, which received one of the earliest breakthrough therapy designations for Imbruvica (previously ibrutinib) in mantle cell lymphoma, or MCL, and chronic lymphocytic leukemia, or CLL. the year also saw Imbruvica receive an accelerated approval as a treatment for mantle cell lymphoma in patients who have had at least one prior therapy.

The data leading to Imbruvica's early approval was simply remarkable. Of the 111 participants given Imbruvica daily until disease progression of side effects became intolerable, 66% of patients exhibited cancer shrinkage or had their cancer disappear following treatment, with a median duration response of 17.5 months.

More than just a boost for Pharmacyclics, this was also big news for Johnson & Johnson (NYSE: JNJ  ) subsidiary Janssen Pharmaceutical which licenses Imbruvica from Pharmacyclics.

Now that we have a better understanding of where Pharmacyclics has been, let's look at some of the most important takeaways of where it's headed next, according to its executive team.

What Pharmacyclics had to say
Pharmacyclics' presentation was relatively short and focused on the approved indication of Imbruvica to treat MCL. The vast majority of time, however, was spent on a Q&A with Wall Street analysts. After reviewing Pharmacyclics' presentation, there were three key takeaways.

First, we don't know a lot more than we did the day before the presentation about the CLL indication. Pharmacyclics was asked no less than a half-dozen questions involving the potential for CLL approval, how the Food and Drug Administration views the opportunity for any expanded indications, and potential CLL labeling restrictions and treatment pricing. Essentially none of Wall Street's questions received answers, which isn't a big surprise given that the FDA has yet to issue its decision on the CLL indication. About the only thing we know is that Pharmacyclics' management team expects an FDA decision prior to its Feb. 28 PDUFA date.

Second, we're going to see plenty of opportunities for MCL sufferers to get their hands on Imbruvica. According to Pharmacyclics' market access group chief Matt Outten, a 30-day supply will cost patients $10,900. Because this price point may be on the scope of the average MCL patient, Pharmacyclics has set up three ways for patients to get their drug hands on this revolutionary treatment.

The first program, known as YOU&i Start, will allow MCL patients to receive a 30-day supply of the drug if their insurer takes five business days or longer to issue coverage for the drug.  YOU&i Start can be extended as long as two months. The second program is the YOU&i Access Instant Savings Program which will cap out-of-pocket monthly expenses for patients at $25 for those who can't afford the co-pays. This program can stay in effect for up to 12 months. Finally, the J&J Patient Assistance Foundation may offer Imbruvica to patients who are uninsured and making less than 600% of the federal poverty limit.

The third factor we walked away with was a better understanding of pricing and dosing for MCL. Each pill markets at $91.11, therefore MCL patient costs are $10,900 monthly while CLL could be extrapolated at $8,200 per month. Keep in mind that there are some 11,000-plus MCL patients in the U.S. compared to more than 100,000 patients with CLL (the most common form of adult leukemia), so the CLL indication could be enormously profitable for Pharmacyclics.

We were also privy to what I believe is fresh data on duration of treatment in the MCL trial, as noted by Jesse McGreivy, Pharmacyclics' chief medical officer. McGreivy said the median MCL treatment duration in trials is eight to nine months. Running the math, and assuming a fully paying customer, you could be looking at close to $100,000 in revenue per MCL patient. Considering that there are few available second-line MCL treatments, aside from Celgene's (NASDAQ: CELG  ) Revlimid and Takeda Pharmaceuticals' (NASDAQOTH: TKPYY  ) Velcade, this bodes well for Pharmacyclics' revenue-generating possibilities.

As a final "by the way," we also know there are no black box indications for Imbruvica in treating MCL.

Making sense of it all
Clearly 2013 was a pivotal year for Pharmacyclics, and this year looks just as promising. Based on last week's announcement that its Resonate study -- a phase 3 trial studying Imbruvica as a treatment for relapsed/refractory CLL and small lymphocytic leukemia -- stopped early due to statistically significant efficacy, per an independent data monitoring commitee, relative to GlaxoSmithKline's (NYSE: GSK  ) Arzerra, I would be somewhat stunned if Imbruvica wasn't approved to treat CLL prior to its Feb. 28 PDUFA date.  

We now also have a crude method of determining Imbruvica's revenue potential from its MCL indication. With somewhere between 11,000 and 15,000 cases of MCL in the U.S., Imbruvica's trial data would imply that it has a strong probability of garnering most of the market share. Celgene's Revlimid, which gained the MCL indication in June from the FDA, did deliver a comparably impressive 16.6 median duration of response, but it had a meager 26% overall response rate, or ORR, and saw 57% of patients experience at least one dose interruption due to adverse events. Takeda's Velcade, approved back in 2006, only had a median response duration of 9.3 months and an ORR of 31%.

Based on my personal assumption that Imbruvica takes 70% of MCL market share, it has the potential to bring in about $750 million-$900 million annually. Of course, Medicare reimbursements (which will likely account for a majority of patient payments, according to Outten) could be much lower, and this scenario doesn't account for any grant programs, but it's clear that Imbruvica is going to be a dominant force, which is great news for Pharmacyclics and Johnson & Johnson.

We also know that Pharmacyclics is going to target about 88% of all hematologists in this country with its sales team of roughly 125 people split between its sales force and that of partner Janssen. Perhaps the only figure I didn't hear which would have been nice is a discussion of peak Imbruvica sales potential. However, if this is my biggest gripe then I'd say Pharmacyclics has done a pretty good job of leading with its data in past presentation and press releases.

Looking ahead, I suspect it could be rough going for Pharmacyclics' stock, with the company valued at nearly $10 billion and most optimism already baked into its share price. While I'm amazed by how effective Imbruvica has been in trials to date, the company still needs to effectively launch this drug and face little new competition if it hopes to hit peak sales estimates of about $5 billion. If shares were to drop dramatically in 2014, however, it could make for an intriguing buying opportunity for biotech-savvy investors.

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Editor's Note: YOU&i Start and YOU&i Access were misspelled in a previous version of this article. The Fool regrets the error.

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