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.
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).
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.
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.
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.
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.
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.