Valeant Dreams Big; Cancer Drug News Lifts Pharmacyclics

Investor's Business Daily

Big-cap drug stocks Pharmacyclics, Valeant Pharmaceuticals and Celgene were all moving up Tuesday as the new year brought news that promised more expansion for all of them.

Pharmacyclics (PCYC) vaulted 20% to 125.90 after saying a clinical trial of Imbruvica would be halted because the drug had already met its goals. The trial compared survival rates in patients with refractory chronic lymphocytic leukemia (CLL) or small lymphocytic lymphoma who were treated with Imbruvica vs. those treated with current treatment ofatumumab, sold by GlaxoSmithKline (GSK) as Arzerra. The company said Imbruvica had a statistical improvement in progression-free survival and overall survival.

Investors expected the former, but the latter "was an incremental upside surprise," wrote analyst Michael Yee of RBC Capital Markets in an email to clients.

He added that it's unclear what this will do to Imbruvica's CLL approval date. The FDA OK'd the drug for mantle-cell lymphoma in November, but unexpectedly put off its CLL decision.

Yee noted that while Tuesday's news raises the odds of approval, it could also mean a three-month delay as Pharmacyclics and partner Johnson & Johnson (JNJ) submit the data to the FDA and the European Medicines Agency, which is also reviewing Imbruvica.

If it's approved for all indications as expected, analysts expect the drug to be pulling in about $3.8 billion a year by 2018.

Valeant Sets 2016 Target

Valeant (VRX), meanwhile, released preliminary Q4 results as well as 2014 guidance. Both were in line with consensus. CEO J. Michael Pearson affirmed Q4 guidance with sales of "greater than $2 billion," with EPS of $2.05 to $2.10. In Q4 2012, Valeant earned $1.32 a share on $1.5 billion in sales.

CFO Howard Schiller forecast 2014 EPS of $8.25-$8.75 on sales of $8.2 billion to $8.6 billion. Both would be roughly 40% gains.

But Pearson was far more ambitious a couple years farther out.

"We're introducing our sixth strategic initiative, which is to become one of the top five most valuable pharmaceutical companies as measured by market cap by the end of 2016," he said. "This equates to roughly $150 billion in market cap.

To give an idea of the scale of that project, Valeant's market cap was about $42 billion at Tuesday's close. Morningstar analyst David Krempa believes that's what made the stock jump 11% to 125.39, a new record high.

"While this goal isn't too surprising to us — CEO Mike Pearson had already stated in a letter to employees that his goal is to become the biggest health care company in the world — investors seemed pleased to see such an ambitious goal become one of the company's official targets, and to which management compensation is benchmarked," he wrote in a research note.

Krempa pointed out that this would require an even bigger merger than those Valeant has made in recent years, including 2013's $8.7 billion buy of contact-lens giant Bausch & Lomb.

Celgene's Double-Dose

Celgene (CELG) and junior biotech partner Epizyme (EPZM) rallied after the latter said leukemia patients in a phase one trial responded sufficiently to its drug EPZ-5676 to trigger a $25 million proof-of-concept milestone payment from Celgene. It's an epigenetic drug, like Celgene's soon-to-be-generic Vidaza, which targets genetically defined cancers. The FDA granted the EPZ-5676 orphan-drug designation in May, and it is under review for the same designation in the European Union.

The trial news was a "positive surprise," said Leerink Partners analyst Howard Liang.

"Although patient number is small and duration of response is still unclear, mechanistically, we believe that the responses in this difficult-to-treat patient population are consistent with the epigenetic approach and impressive preclinical data, and bode well for the expansion cohorts at higher doses," he wrote in his research note Tuesday.

Celgene's Abraxane also won a generally expected, but still strategically key, EU approval for treating meta static pancreatic cancer. This continues Celgene's strategy of seeking new approvals for the cancer fighter. Abraxane was only approved for breast cancer when Celgene acquired its creator, Abraxis BioScience, in 2010. In the U.S. and several other nations, Abraxane has also been OK'd for lung cancer.

Analysts project that Abraxane annual sales will nearly triple to about $1.84 billion a year by 2018.

Celgene shares rose 1% to 164.61, a day after falling 4% on an analyst downgrade. Epizyme spiked 76% to 35.99.

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