How High Can Pharmacyclics Fly?

Shares of Pharmacyclics (NAS: PCYC) hit a 52-week high yesterday. Let's take a look at how it got there and whether clear skies are still in the forecast.

How it got here
If you've been a Pharmacyclics shareholder since the market bottomed three years ago, you've done quite well. You would be hard-pressed to find a better performing stock out there with Pharmacyclics up more than 2,500% in the past three years.

The reason behind the huge move higher relates to its unique pipeline of drugs that could prove extremely lucrative if approved.

Headlining that pipeline is its first in class BTK-inhibitor, Ibrutinib, which is currently being tested in four various forms of cancer, specifically targeted at B-cell malignancies. In December, the company released the results of its phase 2 clinical study of 61 patients for chronic lymphocytic leukemia, and the results showed an impressive overall response rate (depending on dosage) of 67%-68% with minimal toxicity side effects. Investors are also anxiously awaiting phase 2 data results for the treatment of mantle cell lymphoma, which should be due out in the second half of this year. As of December, the trial had 95 participants.

Aiding Pharmacyclics' growing pipeline and multiple clinical trials is Johnson & Johnson (NYS: JNJ) subsidiary Janssen Pharmaceuticals, which forked over $150 million up front and offered just over $1 billion in milestone payments in order to be Pharmacyclics' collaborative partner on Ibrutinib.

How it stacks up
Let's see how Pharmacyclics stacks up next to its peers.

PCYC Chart

PCYC data by YCharts

Your eyes are not deceiving you; Pharmacyclics is really up more than 1,000% over the past five years while Cell Therapeutics (NAS: CTIC) has practically lost all of its value.



Price/Cash Flow

Forward P/E

5-Year Outstanding Share CAGR

Allos Therapeutics (NAS: ALTH) 2.713.6N/M14.0%
Cell Therapeutics16.7N/MN/M261.6%*

Sources: Morningstar and author's calculations. N/M = not meaningful, CAGR = compound annual growth rate, *Cell Therapeutics share CAGR done as a four-year calculation.

Trying to compare the financial metrics of three clinical-stage companies that aren't turning a profit seems rather fruitless, so let's take a different approach by quickly looking at the promise of each pipeline.

Cell Therapeutics, as mentioned above, has reverse-split its way to an accumulated deficit of $1.73 billion as of its latest quarter. With its lead drug pixantrone struggling to get past the FDA, it isn't surprising to see the company diluting shareholders to death, while it attempts to launch the drug in Europe.

Allos Therapeutics garnered the attention of Spectrum Pharmaceuticals (NAS: SPPI) , which agreed to buy Allos for $1.82 per share (with $0.11 in additional royalties possible) in April after its own drug failed in clinical trials. The move gives Spectrum access to Allos' T-cell lymphoma drug Folotyn, which recorded $50 million in sales last year.

Finally, there's Pharmacyclics, which now has a lot of cash to work with but has diluted shareholder wealth over the past five years with share issuances.

What's next
Now for the real question: What's next for Pharmacyclics? That answer is going to depend completely on whether Pharmacyclics CCL and MCL trials meet their goals and whether the Food and Drug Administration agrees with Pharmacyclics study results. With little competition, the pressure is completely on Pharmacyclics to perform.

Our very own CAPS community gives the company a dreaded one-star rating (out of five), with exactly 96 members expecting it to outperform, and another 96 expecting it to underperform. I wish I could say I was in the correct camp on this one, but I've made a CAPScall of underperform on Pharmacyclics, which has stung my CAPS portfolio to the tune of minus 146 points!

But I've come this far and I'm not ready to back down now. There are a lot of biotech companies out there that show incredible promise only to be shot down by weak phase 3 clinical results, an unfavorable FDA ruling, or stumble out of the gate after approval (also known as Dendreon syndrome). With no current FDA-approved drugs on the market, there are far more things that could go wrong with Pharmacyclics at a valuation of $2.3 billion than could go right and, as such, I remain decidedly bearish on the stock.

Pharmacyclics clearly has a pipeline that's trying to change lives. If you'd like the inside scoop on a stock our Motley Fool Rule Breakers team feels could offer the next revolutionary product, then click here for your free access to your latest report.

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At the time this article was published 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.The Motley Fool owns shares of Johnson & Johnson and Dendreon. Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position in Johnson & Johnson. 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.

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