Pharmacyclics, Inc. (NASDAQ: PCYC) is one of the best ways to play the hematology cancer drug market as its Ibrutinib is expected to transform the treatment of many blood cancers.
Pharmacyclics' lead drug Ibrutinib is under FDA review for second line chronic lymphocytic leukemia (CLL) and mantle cell lymphoma (MCL). It is in pivotal trials for many other indications.
The company is developing Ibrutinib along with Johnson and Johnson (NYSE:JNJ). Ibrutinib is a Bruton's Tyrosine Kinase (BTK) inhibitor, which leads to death of cancerous cells.
The compound is most advanced in CLL and MCL where it is under FDA review in second-line treatment of these patients (Relapsed Refractory or R/R).
Due to its promising activity in R/R CLL, R/R MCL, the FDA has granted "BreakThrough" designation to Ibrutinib in these three indications. Pharmacyclics and JNJ filed for accelerated approval in R/R CLL and R/R MCL in the second quarter of 2013 based on Phase II data, and the FDA's decision is expected by early'14. The potential PDUFA goal date in late February 2014.
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"Ibrutinib has an excellent safety profile and patients on the drug are staying on drug much longer than the street originally expected because patients are remaining progression free. Current consensus Ibrutinib sales are $6.4B, we see sales of at least $9B mainly because we think the street is modeling duration incorrectly," Deutsche Bank analyst Robyn Karnauskas wrote in a note to clients.
The key highlight of Ibrutinib activity is B-Cell cancers is its high efficacy combined with lack of immune-suppression which is the greatest draw-back of current chemo-immunotherapy treatments. In addition, the fact that Ibrutinib is a once a day oral therapy makes it a highly convenient treatment. There were about 850,000 prevalent cases of hematology malignancies in key markets ! and US accounts for 440,000.
The launch curve of Ibrutinib could look remarkably similar to Celgene's Revlimid as both are efficacious oral pills providing safety and dosing convenience over existing therapies. The incidence and treated prevalent patient population for Multiple Myeloma is very similar to CLL and MCL combined (about 70K treated in each).
"One key difference: we model more conservative off-label use with Ibrutinib vs. what we saw with Revlimid. In addition, the Ibrutinib launch price would likely be higher than Revlimid price at launch. We model Ibrutinib launch price at $8,000/month whereas Revlimid was launched at a monthly price tag of $6,000/month (2007)," Karnauskas said.
In the US hematology space, doctors tend to use drugs off label as well if there are some data to support such use, the drug is approved for later lines of therapies in a similar indication and appears safe to use in earlier lines..
Hematology space is full of such examples with Revlimid being the market leader in US multiple myeloma first line setting despite having no label for it. Similarly, a substantial portion of Biogen Idec's Rituxan is being used off-label. Rituxan off-label use was higher than on-label use in a survey published in 2010.
The National comprehensive cancer network (NCCN) develops guidelines for the cancer treatment and these guidelines are widely followed by oncologists and hematologists. NCCN could recommend anti-cancer drugs based on efficacy seen in early stage studies even before FDA approval. One recent example is the recommendation of Kyprolis use in earlier lines of therapy for multiple myeloma while the label only recommends its use in third line plus treatment.
"Speaking to the doctors the key highlight of Rituxan was that it was increasing the response rates of conventional chemotherapies without adding much to the toxicity profile of the combo. We believe Ibrutinib is similar/better in this regard as it has a better anti-cancer activity of its own! and it i! s an oral," Karnauskas noted.
In addition, Ibrutinib safety is being seen as benign by physicians, which would further encourage off label use. This would help gain at least 15 percent market share for Ibrutinib in front line settings of various pursued indications before Ibrutinib gets full approval.
Ibrutinibis is expected to follow in the footsteps of such blockbuster drugs as Celgene's (NASDAQ:CELG) Revlimid and Biogen Idec's (NASDAQ:BIIB) Rituxan. Celgene's market cap is $61 billion while Biogen Idec stands at $57 billion. Pharacyclics is valued at about $10 billion, indicating that there remains upside potential should its drug be approved.
Pharmacyclics is conducting numerous clinical trials in various indications. Every cancer meeting over the next couple of years could have incremental Ibrutinib data, which could prove to be a pivotal catalysts for the stock.
"Over the last year, data readouts in CLL and MCL have been stock moving events as the progression free survival (PFS) rates in these trials have continued to remain higher than the Street's original expectations," Karnauskas added.
For 2014, the Street expects the company to report earnings of 29 cents a share versus an estimated loss of 12 cents in 2013. Sales are projected to grow 75 percent in 2014 to $321.57 million from $183.62 million in 2013.
The Street is expecting the stock to go as high as $170, which amounts to 586 times its 2014 consensus estimate. PCYC shares already touched a 52-week high of $137.24 on Monday. The stock could see upside if high PFS rates from the upcoming study results continue to hold up.
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