A Star Is Born at ASCO 2012

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"This year's ASCO winners appear to have solid momentum that is allowing them to buck the 'sell ASCO' mantra."

Pharmacyclics Inc. stole the show at this year's ASCO with outstanding ibrutinib data, and the stock price has responded extremely well. We believe that down the road, when ibrutinib is a blockbuster cancer drug, ASCO 2012 will be remembered as the year "A Star Was Born."

This year's ASCO winners appear to have solid momentum that is allowing them to buck the "sell ASCO" mantra. Historically, some of the biggest moves in ASCO stocks have come during the period before the meeting, after the abstracts are released. The stocks then go into retreat as traders short ASCO stocks when the meeting finally begins. Our thesis is that short sellers got a little too confident coming into ASCO as the horrible market was depressing stocks across the board—despite solid fundamentals or pending catalysts.

For example, at last week's PCYC investor meeting, there were clearly shorts in the audience who were surprised at how good the ibrutinib data was. The 100% overall response rate (ORR) has sent the shorts scrambling, not to mention that the drug development candidate looks very safe. As we have been saying since the ASCO abstracts came out ibrutinib is the best-looking cancer drug in development. PCYC's stock was strong right up to Friday's close, with the most recent trigger being a new recommendation from Brean Murray, which initiated coverage with a very aggressive price target. We are glad to see a Wall Street analyst with a very aggressive target.

Last week's strength was a thing of beauty as the stock was up huge on normal volume as short sellers were scrambling to cover their positions throughout the week. We reported earlier in the week that there were a bunch of nervous short sellers at PCYC's ASCO investor conference, as they could not believe how good the data was. We also believe that the shorts thought they could easily cover their positions post-ASCO, as there usually is a pullback in the biotechs. However, sometimes the data trumps all the seasonal patterns, as PCYC's ibrutinib is now clearly the most exciting cancer drug candidate in development.

Additional data from ongoing single agent and combination ibrutinib clinical trials were presented at the ASCO meeting. Consistent with abstracts released last month, new data presented at the meeting indicate ibrutinib appears to have very impressive efficacy and safety in treatment-naïve elderly chronic lymphocyctic leukemia (CLL) patients. The observed 81% ORR and relatively clean safety profile matches up well against available regimens in this frail (and sizeable) CLL population. We believe PCYC will start a single-agent phase 3 ibrutinib trial in front-line elderly CLL by the end of 2012. We may not have to wait long to find out for sure as the company said it will have "material updates" to its ibrutinib development program at the upcoming European Hematology Association (EHA) meeting.

Our recent upgrade of PCYC has worked out better than we could have expected as a virtual "perfect storm" of events has propelled the stock to a new high. We will continue to evaluate the stock as there may be another attractive entry point in the near future. For now, sit back and enjoy a true biotech development success story.

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