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Pharmacyclics: Last Gasp for Bears?

05/14/2014 8:00 am EST


John McCamant

Editor, Medical Technology Stock Letter

The biotechnology stick has come come under selling pressure despite posting $56 million in Imbruvica sales, which were well above the $41 million consensus estimate, notes John McCamant, editor of The Medical Technology Stock Letter.

Pharmacyclics (PCYC) also issued initial ultra-conservative guidance for the rest of 2014—$80 million in Q2 and $295 million for the full year—numbers that, while still above consensus, most, if not all, have written off as too conservative.

It is a bit surprising to us to issue guidance this early in the launch, but management appears to want to put a true floor on predictions—and consecutively exceed them.

We are more confident than ever in Imbruvica's multi-billion potential, despite the stock's retreat. The drug is just out of the gate and gaining momentum.

Two important new items came out on the company's conference call. First, the autoimmune compound, of which we are excited about, is already in Phase I trials in rheumatoid arthritis. The company remains mum on further details. Data will be released by year-end.

We have done a lot of work on PCYC's efforts for autoimmune, so we believe we are more informed than most and hence more optimistic. Hence, while no attention is being paid, the data will be out within the next six to eight months.

Next, the company has seen signals in multiple myeloma at the 840mg dose. This is new news and not at all in forecasts.

Refractory MM is a major market, and any data supporting Imbruvica in this indication would be a big deal. Current expectations are non-existent.

Imbruvica will be a major player at ASCO; abstracts due May 14th online, then the conference from May 31 to June 3, with RESONATE, RESONATE17, and three-year durability, and more.

The bears/shorts are winning the battle right now. However, we believe the stock is completely oversold. In our view, this was the short's last gasp before the Imbruvica numbers really take off—and sales are large enough to get the major mutual and hedge funds to take long-term positions.

RESONATE data at ASCO, progress in multiple myeloma, and then autoimmune before year end, represent a strong set of catalysts for the stock. In our view, this was the short's last chance before the aforementioned positive news flow kicks into high gear.

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