Making The Call: Pharmacyclics FDA Drug Approval Before Year End

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SUNNYVALE, Calif. ( TheStreet) -- Pharmacyclics' ( PCYC) BTK inhibitor ibrutinib is an exceptionally effective drug for many B-cell cancers and will likely be approved and launched commercially well before most investors expect -- perhaps as early as the end of 2013.

An initial U.S. approval application for ibrutinib in relapsed/refractory mantle cell lymphoma (MCL) will be filed by the end of the third quarter, Pharmacyclics says. If FDA sticks to its typical eight-month review period, ibrutinib could be approved in the middle of 2014.

Ibrutinib, however, is not your typical cancer drug. FDA has already granted it three breakthrough therapy designations: relapsed/refractory MCL, Waldenstrom's Macroglobulinemia, and CLL/SLL for patients with deletion 17p. Ibrutinib will be the first breakthrough therapy to be reviewed by the FDA, so investors are watching closely to see what benefits (if any) Pharmacyclics receives for these designations.

Let's take a closer look at what the ibrutinib FDA review timeline might look like, and why I believe a December approval is possible:

We don't know the exact date Pharmacyclics and its partner Johnson & Johnson ( JNJ) will submit ibrutinib to FDA. I'm going to assume September 1, since it fits the "before the end of the third quarter" guidance given by the two companies. If FDA went about the ibrutinib review in the usual manner, the approval would be announced on May 1, 2014. I'd be shocked if FDA took this much time.

More recently, FDA has been reviewing cancer drugs with alacrity. Ariad Pharmaceuticals' leukemia drug Iclusig was approved on Dec. 14, 2012 -- more than three months earlier than expected. Onyx Pharmaceuticals' multiple myeloma drug Kyprolis was approved one week early on July 20, 2012.

If ibrutinib gets an Iclusig-like review, the approval would come in February 2014.

A five-month review period would be nice, faster than normal, but would it be a prize big enough to justify the hoopla around FDA's breakthrough therapy designation? FDA created this new designation to "expedite the development and review of drugs for serious or life-threatening conditions." A five-month review hardly seems expeditious enough.

Is it possible FDA would review and approve Pharmacyclics' ibrutinib in three months? It's certainly possible. A three-month review would put ibrutinib's approval in December (or even earlier if the drug is submitted to FDA in July or August.)

An ibrutinib approval in 2013 matters because analysts and investors will need to revise higher their revenue assumptions for 2014. When that happens, Pharmacyclics shares should also move higher.

The current consensus 2014 revenue estimate for Pharmacyclics is $175 million, consisting of milestone payments from J&J and actual ibrutinib sales. Breaking out ibrutinib sales estimates is a challenge right now.

For illustrative purposes, let's take a look at JMP Securities, which forecasts 2014 ibrutinib sales of $38.3 million and 2014 milestone revenue of $237.5 million. (Adding in collaboration revenues boosts total 2014 revenues to $284.2 million.) Importantly, JMP derives these numbers by assuming ibrutinib is launched commercially in the third quarter of 2014. If ibrutinib's launch actually takes place in the second quarter 2014, adding another $40-50 million in sales is not out of the question. Even better, if ibrutinib is approved in December and launched at the beginning of the first quarter 2014, JMP's sales forecast could be $100 million too light.

Pharmacylics' market value hovers around $6 billion today, so it's fair to say a lot of good news is already priced into the stock. That being said, the second half of 2013 and early 2014 will be a period of significant catalysts in the three mains areas of interest to biotech investors: more data from ongoing ibrutinib clinical trials, regulatory submission and approval and the commercial launch. Biotech investors tend to pay up for catalysts. Once it become clear how close Pharmacyclics is to major events and upward analyst revisions, the stock price will move higher.

Sobek is long Pharmacyclics.

David Sobek has been writing on biotech for a number of years through various outlets with a general focus on small cap oncology and antibiotics companies. He received his PhD in political science from Pennsylvnia State Univeristy in 2003 and a BA in international relations from The College of William and Mary in 1997.

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