Clear Leader in a Multibillion-Dollar Drug
■ We Are Initiating Coverage with an Outperform Rating and a $79 Target
Price: We believe that PCYC is the most derisked and investible pure play
in the emerging oral lymphoma/leukemia drug class with blockbuster
potential. The biggest remaining question is how large the could market be.
We believe that experience with Revlimid and Gleevec provide strong
evidence that worldwide markets likely exceed $5B, and ibrutinib is
positioned to be both first-in-class and best-in-class in key market segments.
■ Catalysts: There are no high-risk clinical events in 2013. Key updates of
Phase II data are expected at ASCO (June) and ASH (Dec). The latest
update had 96% of first-line CLL patients progression free at 26 months with
single-agent ibrutinib. With longer follow-up, we expect greater appreciation
of the market potential; longer duration equals greater sales opportunity.
■ Risks: We believe that clinical and regulatory risks are low. The primary
risks include (1) uncertain timing to a variety of market launches, and
(2) emerging competition from Gilead, Infinity, Celgene, and Roche. We
would buy on any volatility around these issues, as the we believe that time
to market is not the most critical variable, and new drugs will likely grow the
■ Valuation: Our $79 target price for PCYC is supported by a sales multiple
analysis and DCF model. Both are primarily driven off the nearly completely
derisked CLL indication. Long treatment duration is the primary driver in both
the first-line elderly and relapsed/refractory settings. We estimate 2020
ibrutinib worldwide sales of ~$3.5B.