Two-Year Battle Over Xcytrin Will Come to a Head Next Month

Pharmacyclics is releasing late-stage test results that should settle the controversy.
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Critics and supporters of

Pharmacyclics

(PCYC)

have been fighting a protracted battle over whether the biotech's cancer drug, Xcytrin, is a potential blockbuster or just junk science.

Finally, after two years, some definitive answers are about to be revealed.

Pharmacyclics will take the wraps off late-stage Xcytrin test results during the latter part of December. The stakes are high. The company believes Xcytrin improves the effect of radiation therapy used to help cancer patients. Simply put, the drug collects exclusively in tumor cells, disrupting their function and making them more sensitive to the lethal radiation.

The market potential is huge. At least half of the 1.3 million people diagnosed with cancer every year are treated with radiation. Bullish Wall Street analysts peg the drug's potential sales in the $500 million-plus range by 2007, just four years after a projected launch. Expanded use of Xcytrin could eventually turn the drug into a billion-dollar seller.

Xcytrin is being tested in patients dying from cancer that has metastasized, or spread, to their brain. It's the results from this test -- specifically, whether these patients live longer and have higher neurocognitive function after combining Xcytrin with radiation treatment -- that will be released in December. Positive results will provide an immediate boost to Pharmacyclics' stock, currently trading at about $21 a share, well off its all-time high of more than $80 a share, reached in the first quarter of 2000.

Junk Science?

The early months of 2000 are an important benchmark for the stock because this marked the start of fighting between longs and shorts. It was at this time that four outside academic research groups tried to duplicate the company's results in their own laboratories, with no success. Their individual negative findings -- that Xcytrin does not sensitize cancer cells to radiation -- were combined and published in the January 2000 issue of a prestigious cancer research journal.

Company executives and their supporters criticized the negative findings as flawed. But in July of that year, an article in

Barron's

publicized the scientific rift about Xcytrin in addition to raising other questions about the drug's viability. That's all that skeptics needed to give the stock a haircut, which has continued, with the requisite ups and downs, to this day.

Shorts still control 2.1 million shares of the company's 16.1 million outstanding shares, according to October short-interest statistics.

But all this controversy swirling around the scientific merits of Xcytrin didn't stop Pharmacyclics from moving ahead with its clinical trials, and that persistence might just pay off next month.

Check the Pudding

"Our Phase 3 clinical trial should provide the definitive information on the clinical utility of Xcytrin," says Pharmacyclics spokesman Jim Weiss. He doesn't believe the company's prospects have been hurt at all by the controversy because, at the end of the day, "doctors prescribe drugs based on the outcomes of clinical trials, not necessarily on laboratory research."

Company officials and its researchers presented a half-dozen papers on Xcytrin at last week's meeting of the American Society for Therapeutic Radiology and Oncology. There wasn't much new information presented, but the conference acted as a sort of table-setter for next month's release of the Phase 3 trial results.

J.P. Morgan analyst Corey Davis walked away from the meeting more confident than ever of Xcytrin's chances, based on hallway chats with some of the drug's investigators.

"Our investigator conversations were extremely positive and very suggestive -- yet we need to emphasize, far from conclusive -- of a survival benefit for Xcytrin," he wrote in a Nov. 9 research note that reiterated his buy rating on the stock. Davis' firm has performed underwriting for Pharmacyclics.

Proving that Xcytrin patients live longer -- or show a survival benefit -- is the best way to get any cancer drug approved by Food and Drug Administration regulators. In this case, Davis reckons that Xcytrin patients need to show a median survival time of five months, or just one month longer than the historical average, to meet this goal.

If that doesn't happen, company executives say that Xcytrin could still be approved if the drug improves patients' quality of life, measured by a battery of neurocognitive tests. But the odds of an approval decrease if a survival benefit is less clear.

Stay Tuned

But if Xcytrin supporters are looking forward to next month, so, too, are the drug's critics. Dr. Martin Brown, division director of radiation biology at Stanford University, and one of the authors of the January 2000 study, hasn't seen any evidence published since then that changes his belief that Xcytrin doesn't work.

But Brown, while a skeptic, does acknowledge that the debate will end soon.

"The proof of the pudding is the Phase 3 results, and they're about to come out. Xcytrin will be proved or disproved based on the clinical trial," he says.

So investors should stay tuned; the lengthy battle over Pharmacyclics is just starting to get interesting.