Can Pharmacyclics, Inc.'s Imbruvica Stay Ahead of Gilead Sciences, Inc.'s Idelalisib?

Things are looking pretty good lately for Pharmacyclics (NASDAQ: PCYC  ) . Its Imbruvica partnership, with Johnson & Johnson  (NYSE: JNJ  ) subsidiary Janssen, is racking up approvals. Analysts are predicting some impressive sales, and the market has noticed. The company's stock price has risen over 40% this year, while the broad market remained somewhat flat.

But, there's trouble on the horizon. Both Gilead Sciences (NASDAQ: GILD  ) , and Abbott Labs' pharmaceutical spin off, AbbVie  (NYSE: ABBV  ) are positioned to compete in the near future. Let's take a look at all three therapies, and see just how concerned Pharmacyclics investors should be.

Gaining steam
Pharmacyclics' agreement with Johnson & Johnson's subsidiary Janssen over the development and commercialization of Imbruvica triggered some substantial milestones recently. During the fourth quarter of 2013, Pharmacyclics recorded $123.6 million in revenue. Milestone payments from Janssen totaled $110.0 million for the quarter.

Royalties this year should quickly outpace the $13.6 million recorded during fourth quarter 2013. Pharmacyclics is entitled to 50% of Imbruvica's net sales. Imbruvica was approved about halfway through November last year, for the relatively uncommon indication of mantle cell lymphoma (MCL). On February 12, 2014, the FDA approved Imbruvica as a second line therapy for the far more common indication, chronic lymphocytic leukemia (CLL).

Destination blockbuster
In order to reach blockbuster status, or $1 billion in annual sales, Imbruvica might need another label expansion. MCL comprises about 5% of all non-Hodgkin's lymphomas, or roughly 3,500 new patients diagnosed annually in the US. The label expansion to CLL increased the drug's market more than fourfold with about 16,000 new cases per year.

At about $90 per pill, CLL treatment with Imbruvica is expected to run about $98,400 per year. MCL should cost a bit more, about $130,000 because it requires more pills. At these prices, Imbruvica would need to serve about 1,700 MCL and 8,000 CLL patients annually to achieve blockbuster status.

High expectations
The reason I'm so hung up on Imbruvica's chances of becoming a blockbuster is because the market has already priced it into Pharmacyclics' share price, and then some. Adding $500 million directly to the company's bottom line, on top of the $67 million it recorded in 2013 gives you a recent price-to-earnings ratio of around 20.

Imbruvica is approved as a single agent oral therapy, so patients unable to undergo chemotherapy will likely use it in the months ahead. Also, the number of existing patients that did not respond to previously available therapies should be large enough to support $1 billion annually in sales, for the near term. Going forward, the drug needs to expand into other markets and indications.

Trouble ahead
Unfortunately for Pharmacyclics, it isn't alone in this field. Gilead Sciences' idelalisib could begin putting pressure on Imbruvica before the end of the year. Like Pharmacyclics' therapy, Gilead's idelalisib inhibits the proliferation of B-cells, but through a different mechanism. It's currently under review for treatment of both refractory indolent non-Hodgkin's lymphoma (iNHL), and CLL. The FDA accepted the applications in September and December of last year, respectively. Idelalisib also won a breakthrough designation for CLL, which means it may compete with Imbruvica sooner rather than later.

So far, the chances of that approval look pretty good. Like Imbruvica, Gilead's therapy also resulted in the early halt of a late stage trial. Last October, an independent data monitoring committee recommended stopping a phase 3 study evaluating idelalisib in refractory CLL patients. Interim data showed that progression free survival was significantly higher for patients receiving idelalisib.

A third CLL treatment
While I think the prospect of idelalisib entering the market is enough reason to be concerned about Pharmacyclics' ability to maintain its valuation, AbbVie might have a candidate that could split the CLL market even further. This January the company began a phase 3 CLL study with next-generation Bcl-2 inhibitor ABT-199. Results from the trial should be ready early next year.

Too effective?
AbbVie's therapy might be too effective at destroying cancerous cells. During phase 2 trials, the death of a patient receiving ABT-199 due to tumor lysis syndrome (TLS) resulted in a temporary voluntary suspension of trials.

The condition, TLS, that resulted in a patient's death is not uncommon in some types of blood cancer treatments, and can even occur without treatment. The condition, associated with the breakdown of too many cells, results in a sudden elevation of calcium, uric acid, and various cellular components in the blood stream that can overload the kidneys and liver.

While any death in a clinical trial is taken very seriously, TLS should be preventable. If anything, this suggests the drug is highly effective. At the time of writing, the trials are back online, and I expect them to continue through completion.

Final Thoughts
Blood cancers in general are highly heterogeneous conditions, CLL included. I wouldn't be surprised if both of Imbruvica's competitors eventually win approval for the indication. And I wouldn't be surprised if a majority of patients are eventually treated with more than one of the above therapies, as they operate with different mechanisms. While I wouldn't be a buyer of Pharmacyclics at this price, I wouldn't let go in fear of competition either.

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Read/Post Comments (3) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 28, 2014, at 12:30 PM, zerocapital wrote:

    The author overlooks the fact that once on Imbruvica, you are on it forever, so Pharmacyclics revenue stream will contain revenue from newly diagnosed/newly prescribed as well as from previously diagnosed/continued users. Many current users have been on the treatment for over two years and look to continue indefinitely. Likewise, the diseases currently treated are prevalent in Europe and this too is not considered in the author's valuation. The competitors mentioned will surely take their share of revenue, but the pie is bigger than the author realizes.

  • Report this Comment On February 28, 2014, at 3:16 PM, Harvey99 wrote:

    To the Author,

    Could you comment on projected use of Imbruvica as a stand alone tablet vs. idelalisib in conjunction with injected Rituxan? As well as compare the published side effect profile of both regimens. Your article complete ignores both of these critical points in terms of physician and patient preference.

    Thank you and I look forward to your response.

  • Report this Comment On May 10, 2014, at 2:47 AM, Shaw211 wrote:

    It is far too early to tell if the chronic lymphocytic leukemia (CLL) and mantle cell lymphoma (MCL) patients that respond to ibrutinib will be "on it forever," especially at the 3 pills daily dosage. Everything from insurance approval to continued efficacy of the drug has yet to be determined. There has even been talk of it curing these cancers, especially MCL and in some cases, clinics are already taking patients with a complete response off the drug and monitoring their condition. So far, Ibrutinib hasn't achieved as high a response rate in its next big potential market, follicular lymphoma. Nevertheless, I expect it to gain approval for follicular but that would be at least 18 months away, even with breakthrough status. I can't see ibrutinib having much application in the most common lymphoma, diffuse large b-cell, or any other fast-growing cancer. Ibrutinib responds much slower than chemo and the patient might well be dead by the time it started shrinking the tumors. As for the European market, the price needs to come down significantly if they expect much sales within the next few years. In spite all of these negatives, I fully expect ibrutinib to surpass $2 billion in sales within the next 5 years and might well become a $5 billion drug if they can show a benefit when ibrutinib is added to chemo regimens, like rituximab.

    Harvey99, about the side effects: the most serious common side effect for ibrutinib and idelalisib is neutropenia. In the trials so far, there hasn't been a statistical difference between ibrutinib and idelalisib in the percentages of patients who have acquired a serious case of grade 3 or 4.

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