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Coverage Initiation: Pharmacyclics, Inc.
Value Line has initiated coverage of Pharmacyclics, Inc. (PCYC) in its flagship product, The Value Line Investment Survey. Pharmacyclics is a clinical-stage biopharmaceutical company focused on discovering and developing innovative small-molecule drugs for the treatment of cancer and immune mediated diseases. Headquartered in Sunnyvale, California, the company has about 415 employees.
In order to succeed in the highly competitive space, the company is focused on the following business strategies: First, and most obvious, is to create novel, patentable, and differentiated biopharmaceutical products. These drugs are meant to address large markets of unmet medical needs for the treatment of oncology and immune mediated diseases. Early emphasis on the right drug, patient, time, and dose has the potential to greatly expedite clinical development and reduce the time, cost, and risk of clinical programs. In order to help move the process along, Pharmacyclics works with outside vendors with expertise and capability in manufacturing and clinical development to more efficiently develop multiple product candidates. Lastly, a large clinical pipeline is targeted to improve the probability of success. The ability to achieve or sustain profitability in the future will depend on the company successfully completing products, obtaining regulatory approvals, manufacturing, and finally commercializing these offerings.
As of the end of June, the company has not generated any commercial revenue from sales of its drugs and does not anticipate the generation of any product commercial sales until it receives the necessary regulatory and marketing approvals to launch one of its products. This, of course, is hard to predict. It has, however, entered into various collaboration and license agreements for the development and commercialization of certain of its compounds. For the most part, these agreements have no fixed duration and provide for payments to the company as milestones are met. The most successful of which is with Janssen Biotech Inc. (a pharmaceutical subsidiary of Johnson & Johnson (JNJ – Free J&J Stock Report). Through June, $200 million in development milestones have been earned by Pharmacyclics, and the company may receive up to an additional $625 million in payments.
Nearly all of the company's resources have been dedicated to research and development, which, as mentioned, have failed to generate commercial revenue to this point. Nonetheless, Pharmacyclics will continue to allocate substantial funds to this area. These activities, together with the company's general and administrative expenses, are expected to continue to result in significant operating expenditures until the commercialization of its products, or partner collaborations, generate sufficient revenue to cover expenses. Thus, losses may well continue over the near term.
As of the end of June, Pharmacyclics had three candidates in clinical development and several molecules in preclinical developments. These include: an inhibitor of Bruton's tyrosine kinase (BTK) ibrutinib (in multiple Phase III studies in hematologic malignancies), a BTK inhibitor lead optimization program targeting anti-inflammatory and autoimmune indications, an inhibitor of Factor VIIa (in a Phase II clinical trial in pancreatic cancer), and a HDAC inhibitor, abexinostat (in Phase I and II clinical trials in solid tumors and hematological malignancies). Recently, Pharmacyclics received the official U.S. Food and Drug Administration (FDA) acceptance of its first New Drug Application (NDA) filing for ibrutinib. As a result, the action triggered another $75 million milestone payment from Janssen. In anticipation of obtaining regulatory approval for new drugs, Pharmacyclics has steadily built out its sales, marketing, and medical affair organizations over the past several months.
(For some background: “Phase I” means initial human clinical trials designed to establish the safety, dose tolerance, pharmacokinetics (i.e., absorption, metabolism, excretion) and pharmacodynamics (i.e. biological markers for activity) of a compound. “Phase II” means human clinical trials designed to establish safety, optimal dosage and preliminary activity of a compound in a patient population. “Phase III” means human clinical trials designed to establish the safety and efficacy of a compound. Phase III are the most important trials required by the FDA and are done to rigorously establish the clinical benefit and safety profile of a drug. Lastly, “preclinical” means the stage of drug development prior to human clinical trials in which a molecule is optimized for “drug like” properties and evaluated for efficacy, pharmacokinetics, pharmacodynamics, and safety.)
While recent developments augur well for Pharmacyclics, there are still many risks investors should be aware of. Common risks subject to pharmaceutical companies include those inherent in research, development, and commercialization, preclinical testing, clinical trials, uncertainty of regulatory and marketing approvals, uncertainty of market acceptance of its products, history of and expectation of future operating losses, reliance on collaborative partners, enforcement of patent and proprietary rights, and the need for future capital. Consequently, no assurances can be made that the company will generate revenues or achieve and sustain profitability in the future.
Subscribers interested in this biopharmaceutical company are advised to consult Value Line’s quarterly reports for Pharmacyclics, as well as any supplemental reports and relevant articles as important news items arise.
At the time of this article's writing, the author had a position in JNJ.