Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares in Pharmacyclics, Inc (UNKNOWN:PCYC.DL) spiked higher by more than 17% earlier today following reports that the company may be for sale.
So what: Pharmacyclics markets the cancer drug Imbruvica, and Imbruvica's sales have been climbing rapidly since its launch as a treatment for chronic lymphocytic leukemia last February.
During the fourth quarter, sales of Imbruvica climbed from $142 million in the third quarter to $185 million. That lifted sales to $492 million for 2014 and prompted the company to release a bullish forecast in January that calls for Imbruvica to eclipse $1 billion in sales this year.
Pharmacyclics' optimism stems from Imbruvica already becoming the most widely prescribed second-line therapy for CLL, but sales could continue much higher over the coming years. The company has 13 ongoing phase 3 trials under way that could eventually expand its addressable patient population from roughly 40,000 people today to as many as 374,000 people.
If that happens, then Imbruvica's peak sales could be measured in the multibillion-dollar levels -- particularly given that its ramp-up so far puts it among the fastest-growing cancer drugs ever launched, outpacing billion-dollar therapies like Celgene Corp.'s Revlimid and Roche Holdings' Rituxan.
Now what: Whether or not Pharmacyclics will be bought is uncertain, but a logical suitor would be Johnson & Johnson. In 2011, J&J handed Pharmacyclics $150 million up front and agreed to another $975 million, plus royalties, to partner on Imbruvica. That appears to be money well spent, given the rapid market success of the drug.
It's certainly possible that J&J would love keeping all of Imbruvica's profit rather than having to split it with Pharmacylics -- especially if clinical studies that are evaluating Imbruvica as a treatment for various solid tumor cancers pan out.
It's also possible that other companies that are focused on cancer could be interested. Novartis has been mentioned in reports as possibly being interested, and an argument could be made that Celgene Corp or Gilead Sciences, both of which market blood cancer drugs like Imbruvica, could benefit from such a deal.
Regardless, investors shouldn't buy Pharmacyclics based on acquisition rumors. Instead, the reason to buy the company is because of Imbruvica's potential to be a cancer treatment game-changer.