Why Pharmacyclics Inc. Shares Soared

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 Pharmacyclics (NASDAQ: PCYC  ) , a clinical-stage biopharmaceutical company focused on developing small-molecule drugs for the treatment of cancer and immune system diseases, jumped as much as 11% after Deutsche Bank and JPMorgan Chase initiated coverage on the company.

So what: According to Deutsche Bank's covering analyst, Robyn Karnauskas, Wall Street is underestimating the potential of Pharmacyclics, and Johnson & Johnson's (NYSE: JNJ  ) blood cancer drug ibrutinib, which is currently under review by the Food and Drug Administration as a new drug applicant. Karnauskas anticipates that ibrutinib will be a transformative drug in the cancer space, and forecasts peak sales of $9 billion, well ahead of the Street's consensus estimate. She placed a $170 price target on the company. JPMorgan, in contrast, didn't release its report to the public, but, according to Investors Business Daily, started coverage with an overweight rating and a $142 price target.

Now what: Absolutely nothing is a certainty in the biotech sector, but ibrutinib is about as close a lock to an FDA approval as you can get. Its results in treating mantle cell lymphoma and chronic lymphocytic leukemia delivered the highest overall response rates ever witnessed in clinical studies for these two diseases, at 68% and 71%, respectively. The sky is the limit for ibrutinib, but I remain concerned that investors have more than baked that optimism into Pharmcyclics' inflated share price.

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