Source: Pharmacyclics

Peak sales forecasts for Pharmacyclics' (UNKNOWN:PCYC.DL) Imbruvica are estimated north of $3 billion, but investors had reason for pause last quarter when competitor Gilead Sciences (NASDAQ:GILD) launched Zydelig for the same indication.

However, Pharmacyclics third-quarter results suggest there's plenty of room for both drugs. Sales from Imbruvica, which was co-developed with Johnson & Johnson (NYSE:JNJ), rose 29% from the second quarter to hit $142 million.

Advancing care
Imbruvica is approved for use as a treatment for chronic lymphocytic leukemia, or CLL, and mantle cell lymphoma, or MCL. 
Both are tough-to-treat diseases that are typically diagnosed in seniors.

About 15,700 new cases of CLL are diagnosed annually in the U.S., and roughly 4,600 people die from the disease every year. Mantle cell lymphoma represents about 4,000 lymphoma cases annually, and until recently the median survival rate was just three years.

That means there is already significant need for new CLL and MCL therapies. Since the prevalence of these diseases is likely to grow over the coming years as 10,000 baby boomers on average turn 65 daily in the U.S., the FDA has responded by recently approving a number of drugs.

In 2013, the agency gave the go-ahead to Roche's (NASDAQOTH:RHHBY) Gazyva for CLL, and this year it approved Imbruvica and GlaxoSmithKline's (NYSE:GSK) Arzerra and Zydelig for the disease.

The FDA also approved Celgene's (NASDAQ:CELG) Revlimid for MCL last year, and in October it approved Millenium's Velcade for use in previously untreated MCL patients, which expanded Velcade's label beyond just those who had relapsed or failed to respond to other treatment.

Source: Pharmacyclics.

Coming out on top
In June, Pharmacyclics and J&J released study results showing that Imbruvica worked better than Arzerra in CLL patients. The phase 3 trial pit Imbruvica against Arzerra in both CLL and small lymphocytic lymphoma patients and found that Imbruvica patients not only enjoyed better progression-free survival, but also better overall survival than Arzerra patients.

Based on those results it's little wonder that while Imbruvica's sales jumped more than 20% from the second to third quarter, Arzerra's sales grew from just $20 million to $23 million. Imbruvica is also selling better than Roche's Gazyva, which generated sales of about $33 million through the first nine months of this year. And Imbruvica seems to be holding its own against Zydelig, too. Although Zydelig wasn't on the market for the entire third quarter (it won FDA go-ahead for use alongside Rituxan in July) its sales were just $5.8 million.

Coming down the pipe
Imbruvica's approval for CLL and MCL won't get it to the blockbuster sales projections heralded by some. For that to happen, Pharmacyclics and J&J will need to execute on current studies across additional indications.

Those studies include combination trials alongside products from Roche, Bristol-Myers Squibb (NYSE:BMY), and AstraZeneca (NYSE:AZN). Those trials include combining Imbruvica with Roche's Rituxan and Gazyva and studying it alongside the promising PD-1 therapies nivolumab and MEDI4736, which are being developed by Bristol-Myers and AstraZeneca, respectively. In total, Pharmacyclics is conducting 29 studies across 4,600 patients that may (eventually) expand the drug's addressable patient population.

Looking ahead
Gilead's Zydelig is an impressive drug in its own right, but Pharmacyclics should continue to enjoy an advantage in sales thanks to cheaper pricing and a friendlier safety profile.

Additionally, since Imbruvica notched European Union approval in October for use in CLL and MCL patients, its sales should accelerate as pricing is negotiated and it is launched in the 28 EU member countries.

Pharmacyclics financials should also continue to benefit from milestone payments paid by J&J. In the third quarter, Johnson & Johnson paid Pharmacyclics $60 million in such milestones, and J&J is on the hook to pay another $80 million this quarter thanks to the EU approval, Overall, Pharmacyclics could still earn up to $240 million in additional milestone payments under the two companies' agreement.

Considering that Pharmacyclics is teamed up with one of the globe's premier drug partners. It has a rock-solid balance sheet that includes $724 million in cash and no debt; and it offers a significant revenue growth opportunity thanks to its ongoing studies, this company could remain an attractive investment in the coming year.