Market Analysis: Pharmacyclics Sale Good Idea if Buyer Understands Imbruvica Potential, Says Analyst

Published: Feb 27, 2015

February 26, 2015
By Riley McDermid, Breaking News Sr. Editor

News that the Bay Area’s Pharmacyclics might be shopping itself to bidders that include Johnson & Johnson and Novartis AG are not totally out of left field as long as any potential buyer takes into account the long term prospects of the company’s cancer drug Imbruvica, said Sanford Bernstein analyst Geoffrey Porges on Thursday.

It is estimated that Pharmacyclics could sell for $17 to $18 billion. So far, PCYC's stock was up 17% ($32) as of close of trading Wednesday, and is up 80 percent year to date ($98). Porges said that until recently, the basis for this outperformance “had been unclear, because the operating outlook for their principal asset (50 percent of the value of Imbruvica) “has not changed materially” in that period.

“It is now clear that this outperformance has partly been driven by media reports about the possibility of an acquisition - friendly or otherwise,” said Porges, who said two questions remain: “What an acquirer would have to believe to justify the valuations reported in the media yesterday, and what an investor would have to believe to continue to hold the stock after its impressive move.”

Porges wrote in a note to investors that based on current biotech price-to-sales multiples, Sanford Bernstein estimates that Imbruvica would need to achieve approximately $5bn in 2019 global product sales in order to warrant the $17 billion to 18 billion buyout price “mooted in the press, after accounting for likely synergies to an acquirer as well as a modest control premium.”

“This is above our current expectations for the product, but is not out of line with recent consensus forecasts. In other words, the potential prices reported yesterday are not ridiculous if you believe current long term consensus revenue forecasts,” said Porges.

He said this is also similar or ahead of the growth trajectory achieved by Celgene Corporation 's Revlimid, now on track to delivery $5.8 billion in sales in its 10th year on the market. He estimated that get to that level of revenue, a buyer would need to have conviction that “Imbruvica will actually become another Revlimid.” That would require the drug to become a major cancer brand, with sustained 20 to 30 percent revenue growth and “a revenue trajectory headed towards Revlimid's current” $5.8 billion in expected sales after 10 years and future expected $8 to $9 billion in revenue.

Porges said that while this is “not out of the question,” Imbruvica's initial experience has been closer to Revlimid's early uptake, although it is clear it will be a dominant drug in Chronic Lymphocytic Leukemia, Mantle Cell Lymphoma and Waldenstrom Macroglobulinemia,” he said.

“Our sense, however, is that it is still early to say confidently that Imbruvica will achieve this trajectory (and plenty of promising launches have slowed well short of Revlimid's remarkable performance). Like Imbruvica, Revlimid has long held out the promise of significant sales beyond its initial core MDS and MM indications, and now, 10 years later those incremental indications have yet to materialize,” said Porges.

Porges warned that just like Imbruvica, Revlimid “was cloaked in clouds of mystery” about its mechanism, and “sought to position itself as a jack-of-all-trades for many cancer diseases.” In addition, Revlimid has been thwarted in other indications such as prostate cancer, “but drugs with more specific and targeted activity in those other diseases, and we expect such drugs to cap Imbruvica's potential as well (outside CLL and subsets of NHL).”

BioSpace Temperature Poll
Analyst Mark Schoenebaum, a biotech and pharmaceuticals analyst and medical doctor for ISI Group Evercore, has been running a Best Hair in Biopharma contest for several months now. So far, the candidates are Bristol-Myers Squibb Company's John Elicker, ReceptosChief Executive Officer Faheem Hasnain, Celgene's Vice President of Investor Relations Patrick Flanigan and Acorda Therapeutics' Ron Cohen.

We want to know what our BioSpace community thinks: Who do you believe actually has the Best Hair in BioPharma?

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