Pharmacyclics Shares Surged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of drug developer Pharmacyclics (Nasdaq: PCYC  ) are soaring 15% after the company blew Wall Street's second-quarter estimates.

So what: In December, Pharmacyclics entered into a collaborative deal with Jaansen Pharmaceuticals, a subsidiary of Johnson & Johnson, which resulted in an upfront payment of $150 million and potential royalties of up to $1 billion. This payment resulted in Pharmacyclics recording $77.9 million in revenue and a profit of $0.82, excluding one-time items. Now compare this to Wall Street's expectations for just $2.9 million in revenue and a loss of $0.19, and you'll understand why the company is surging so much today.

Now what: Up until now, I have been brutally wrong with my underperform call on Pharmacyclics. The company has set up some very lucrative partnerships and has ample cash to conduct the 11 clinical trials currently under way. Still, with no trials past phase 2, I can't help but be skeptical of Pharmacyclics' $1.6 billion valuation. Until Pharmacyclics has an approved drug, there's simply no value left in the stock price.

Craving more input? Start by adding Pharmacyclics to your free and personalized watchlist so you can keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (5)

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  • Report this Comment On February 10, 2012, at 3:02 PM, valutrap wrote:

    "Until Pharmacyclics has an approved drug, there's simply no value left in the stock price."

    ...What about perceived value and potential revenue of the drug if it is approved. Unfortunately in risky investments like these, the lions share of the gains are made well before the drug hits the market. If PCYC's BTK inhibitor does hit the market, I wouldn't be surprised to see the valuation north of 6-8 billion the day it is approved.

  • Report this Comment On February 10, 2012, at 5:01 PM, malibusunsetter wrote:

    Watch for fast track of MCL indication. Remarkable article by someone who actually does DD.

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