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A Lucky Drug Made Pharmacyclics' Robert Duggan A Billionaire. Will Long-Term Success Follow?

This article is more than 9 years old.

This story appears in the May 4, 2014 issue of Forbes. Subscribe

Robert Duggan was enjoying just your average Tampa vacation--a visit to the headquarters of the Church of Scientology, to which he's a major donor, and a double date with one of the world's top supermodels--when a board member at Pharmacyclics , a biotechnology company he had invested in, interrupted the party with some urgent news. The board was resigning en masse in favor of his slate of directors. Duggan, who had run a cookie company and pioneered startups in Ethernet and robotic surgery--but knew zilch about running a biotech firm--would take the helm.

That was in 2008. Six years later, improbably, Duggan is a billionaire. Duggan had made the investment in large part because of personal passion. Since his son had died from a brain cancer, "I knew more about brain tumors than the average guy walking down the street, because we had to look for support in handling his condition." But the brain cancer drug Xcytrin never made it to market. Duggan has nonetheless made Pharmacyclics work, buying shares when no one else would, funding it with $50 million of his own money and riding it all the way up.

There's always a good deal of luck involved in biotech. In Duggan's case, he had a sleeper in the pipeline: Imbruvica, which turned out to be a potent treatment for chronic lymphocytic leukemia, shrinking tumors in 58% of patients failed by all other drugs, and mantle cell lymphoma, a rarer disease. Johnson & Johnson inked a $975 million deal to copromote Imbruvica in 2011, beating out other Big Pharmas, and Pharmacyclics' stock has risen fortyfold since that fateful phone call, turning his stake into a $1.4 billion fortune.

Now Duggan says that he plans to use Imbruvica as the basis for creating a new successful drug company. Pharmacyclics already boasts 500 employees, and he says its other ?experimental drugs have promise, too. "This is the time to be in the business," he says. "You build a company up, and you have resources and an engine of capacity to execute, because of its vision, leadership and execution."

He talks of "the body harmonious," his idea that the body can be made to fix itself, and of "patient-friendly" medicine, a sense cemented at his robotic surgery company, Computer Motion, sold for $68 million in 2003, that treatments can be made safer--for instance, by using robots to do heart surgery.

It's a wonderful vision. But can a manager with no experience hunting for drugs build a drug company? Second acts in the biotech business are hard: 56% of the drug firms that received an FDA approval between 1950 and 2011 did so only once.

His track record for drug development is hardly convincing. When Duggan started buying up Pharmacyclics shares, his goal was to build Xcytrin, not bury it. In a 2008 tender offer, he said his goal was to "use all available means to encourage and to urge Pharmacyclics to pursue another trial." Pharmacyclics' then chief executive and founder, Richard Miller, had taken up the strategy of trying to shame the FDA into approving Xcytrin, a plan that was unlikely to work and was causing Pharmacyclics shares to sink.

But internally Miller's attention was already turning to Imbruvica, which he had bought from Celera Genomics, the company known as one of the first to sequence the human genome, for only $6.6 million in 2006 as part of a three-compound deal. He hired Celera scientists who understood the drug and says he was designing the first clinical trial to test the drug himself. When Duggan recommended a new slate of directors, Miller says, his board, fearing a proxy fight they couldn't win, made the call to Duggan and resigned. One board member tried to broach a reconciliation, but Miller says he wouldn't have returned, and Duggan says he wouldn't take him. Both men are bitter, but Miller is still an Imbruvica fan. "I actually think it could be the biggest-selling oncology drug," Miller says.

Once in command Duggan charged a nine-person committee with advising him on how to proceed with Xcytrin. The vote came back 9-0 that Xcytrin was done. Duggan still believes Xcytrin would have succeeded if Miller had run the right trials. It hardly matters. In December 2010 data showing how potent Imbruvica was were announced at a blood cancer meeting. Pharmacyclics' shares soared.

Now Wall Street is falling out of love. Pharmacyclics' shares are down 12% year-to-date, falling behind the iShares Nasdaq Biotechnology Index, which is down 2%. Duggan's efforts to build a medical team have hit bumps. For instance, he hired industry veteran Lori Kunkel to head drug development, calling her a "genius," but she left 19 months later, saying she'd done what she had set out to do by getting Imbruvica approved.

Investors have been unimpressed with prescriptions of Imbruvica so far, even though the drug looks likely to beat sell-side forecasts. Geoffrey Porges, an analyst at Sanford C. Bernstein with a record of picking the top for biotech stocks, has been cautioning investors on the stock. One problem: Another lymphoma drug, from Gilead, looks very similar. Jacqueline Barrientos, a professor at North Shore-Long Island Jewish hospital who worked on clinical trials of both drugs, says that their efficacy is similar, though Gilead's pill causes more diarrhea.

Kunkel, for one, has faith in Duggan. He "brought the company up to a different level," she says, adding that "Bob is a very ?astute businessman." And Imbruvica is a breakthrough drug and still has blockbuster potential--if it weathers further FDA approvals and extends patients' lives, increasing the size of its own market. But to get there it will take time, work--and more than a little luck. That's the thing about the drug business: Overnight success often means you're just getting started.