The bandwagon for biotech Pharmacyclics Inc. (Nasdaq: PCYC) is picking up passengers at an increasing rate.
And I understand why – the stock has been absolutely on fire of late.
Shares of the Sunnyvale, Calif.-based oncology firm were one of three recommended in the April 2, 2012 special report "The Biotech Buyout Binge." It was certainly a worthwhile endeavor, given the following performances:
- Pharmacyclics (Nasdaq: PCYC): Shares of this company hit a new 52-week high yesterday (and their highest level in 12 years) on their way to a 4.1% gain for the day. They are now up about 183% from where we recommended them, and are close to becoming the second "triple" since we launched Private Briefing in the summer of 2011. More on this in a moment.
- Celldex Therapeutics Inc. (Nasdaq: CLDX): This stock, too, has continued its surge, and right now is up about 58%.
- Vical Inc. (Nasdaq: VICL): Although it's the laggard of the three at the moment – we're breakeven since the report came out – it did gain as much as 40% before falling back. But there have been promising developments of late, as well as insider buying. That's why we listed Vical in our "Seven Investments You Have to Make in 2013" special report.
And that brings us back to Pharmacyclics.
The clinical-stage biopharmaceutical player (which was also scheduled to report earnings last night) made news this week when Ibrutinib – its flagship drug – was the very first oncology drug to receive the new "Breakthrough Therapy Designation" from the U.S. Food and Drug Administration (FDA).
Pharmacyclics and Janssen Biotech Inc. – which in December 2011 agreed to co-develop and co-commercialize Ibrutinib – said the designation was granted for the oral drug's use in two ways. The first is for a mono-therapy in patients with relapsed or refractory mantle cell lymphoma (MCL). And the second was for patients with Waldenstrom's macroglobulinemia (WM) – a rare type of lymphoma for which no established standard of care or approved therapeutic exists.
Washington created the "Breakthrough" designation as a way of accelerating a select group of such drugs through the review process. The thinking here was that drugs like this – which treat a malady for which no other therapy exists, and which demonstrate substantial early stage promise – should be able to step around the traditional Phase I-to-III process and provide help by getting to market more quickly.
Once a company receives this designation, it will have much closer communication with the top FDA staffers, which should also accelerate potential approval times.
As Fierce Biotech reported this week, "Ibrutinib fits that bill nicely. The therapy blocks a key enzyme involved in the growth of cancer and helped control the cases of 68% of 116 patients–with a relatively improved safety profile among treatment-resistant patients."
But it's not just the drug and its promise that's been pushing Pharmacyclics' shares up so high, it's also the deal that the biotech struck with Janssen, a unit of Johnson & Johnson Inc. (NYSE: JNJ).
The deal is actually very favorable to Pharmacyclics, since it grabbed $150 million immediately, and was eligible for as much as $825 million in total milestone payments. In return, J&J gets half the global profits from the drug.
J&J/Janssen was willing to do such a deal because of Ibrutinib's revenue potential.
Drugs that address the same maladies generated roughly $6 billion in sales last year, including $3.8 billion for Revlimid,about $300 million for Thalomid and about $2 billion for Velcade, according to a report that I read this week.
Other blood-cancer treatments – such as Novartis AG's Gleevec/Glivec (Imatinib) – have global sales of probably $5 billion, which presents Pharmacyclics with a hefty potential market.
And because Ibrutinib boasts survival rates of as high as 96% (in elderly patients with chronic lymphocytic leukemia (CLL) after 26 weeks), the drug could grab sales of as much as $5 billion a year by 2015 if approved for CLL and other blood cancers, RBC Capital Markets analyst Michael Yee said in December.
Pharmacyclics and Johnson & Johnson expect to submit Ibrutinib for approval before the end of 2013.
Michael King, a managing director and senior biotechnology analyst at JMP Securities – and one of the sharper sell-siders with a biotech expertise – recently told The Life Sciences Report that he believes Pharmacyclics "will be a big winner over time."
King said Ibrutinib was "a seminal discovery" and said "it is clear, at least in my mind, that Ibrutinib is the Gleevec of CLL."
When we originally recommended Pharmacyclics to you, we said that a buyout by a larger company could end up being one of the catalysts that provided your payoff. Even though the company's market cap has now soared from $1 billion to $5.6 billion over the past year, a buyout is still a slight possibility, King says.
But don't worry: Even without a buyout the Pharmacyclics payoff is likely to be very hefty – meaning the company will grow its market value to $8 billion or $10 billion, he said.
"I think the company could get there ($8 billion or $10 billion) on its own merits," Kent said. "But the only real buyer at the moment would be Johnson & Johnson … the company is in the collaboration because J&J's original offer to acquire Pharmacyclics was not acceptable to the board at the time. But that doesn't mean an acquisition won't happen. If Pharmacyclics comes up with a BTK inhibitor that is useful in immunology, then J&J has every incentive to buy it out because it would have yet another blockbuster opportunity that would go up against JAK (Janus kinase) inhibitors and the like. But for now, Pharmacyclics is probably not going anywhere" via a buyout.
But do the math. We recommended Pharmacyclics at $28.47. At $8 billion, you're talking about a stock price of $114.59. That's 43% higher than the stock is now, and would represent a total gain of 302% from where we first made our "Buy" call.
At $10 billion, the stock is at $143. That's 79% higher than it is now and would represent a total gain of 403%.
This underscores yet again why we like oncology stocks – especially hematology firms. And it also drives home our belief in insider buying as a bullish signal. (In the six months that preceded our original recommendation, insiders were net buyers of more than 1.34 million shares – representing about 2.47% of the company's total float of 54.25 million shares. At the time, that ranked as one of the biggest insider purchases of late for a company hitting new 52-week highs.)
Yen-Shorting Trade Update: One of our promises here at Money Map Press is to keep you ahead of the curve-and certainly ahead of Wall Street.
Frankly, this is what you pay us for, and we take very seriously our responsibility to deliver.
Here's another example of how we have.
The Wall Street Journal reported today that some of the country's biggest hedge-fund players have reaped billions in windfall profits by betting against the Japanese yen – capitalizing on the fact that the Asian heavyweight has to weaken its currency in order to save its economy.
Billionaire investor George Soros alone has made nearly $1 billion since November on wagers against the Japanese currency, which has skidded about 20% during the last four months.
And Soros isn't the only one. Investors say that David Einhorn's Greenlight Capital, Kyle Bass's Hayman Capital Management LP and Daniel Loeb's Third Point LLC have also made big money on the yen's decline.
Indeed, betting against the Japanese currency "has emerged as the hottest trade on Wall Street over the past three months," The Journal reported.
But here's the thing: Money Map Press Chief Investment Strategist Keith Fitz-Gerald was eight months ahead of the hedge-fund heavyweights in identifying this profit opportunity. In the Feb. 3, 2012 issue of Private Briefing, he told subscribers that the yen was headed for big fall – and he even recommended an ETF that would let them profit from his prediction.
The upshot: Keith's recommendation has so far reaped a 43% windfall – which is more than double the 20% yen decline the hedge-fund Johnny-come-latelies have been able to profit on.
And this isn't an empty claim.
In that issue of Private Briefing, Keith told readers that "we are more likely to see Godzilla walk out of Tokyo Bay than we are to witness a return to Japan's halcyon days" of the late "80s and early "90s.
Keith's recommendation: Short the yen.
The simplest way to do that, he said, was through the ProShares UltraShort Yen ETF (NYSE: YCS) – an ETF that's designed to rise in value as the currency declines.
And the 43% gain is just the start, Keith told me yesterday.
"And BP, the interesting thing is that this trend is really just getting started," Keith said. "Wait until the world has to face up to a 1930s-style currency war, which is the next big thing on my radar. Once that happens, you'll really see a drop in the yen."
Although Keith was the first to see it, his view is now the general consensus on Wall Street. As one pundit recently noted, it's going to take an "obscene" amount of stimulus for Japan to reach the inflation targets set by new Prime Minister Shinzo Abe.
This is "Abe-nomics" at work, a source inside the Soros firm told the newspaper.
There's no question that the 82-year-old Soros is an investing legend. In the 1990s, he made a fortune when he shorted the British pound sterling. And the Quantum Fund that he co-founded with Jim Rogers, another legend, in 1970 gained 4,200% over the next decade – while the Standard & Poor's 500 Index climbed about 50%.
But this time around, Keith was ahead of Wall Street's biggest players.
And thanks to him, so were you.
[Editor's Note: We recommend investors employ a 25% "trailing stop" on all holdings.]