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What: Shares of drug developer Pharmacyclics
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.
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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.