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Pharmacyclics Inc. (NASDAQ:PCYC) hit a new 52-week high of $51.63 in intraday trading on Monday and closed at $51.53, +7.80% on 2,137,500 shares traded. Pharmacyclics Inc. is a clinical-stage biopharmaceutical company, which focuses on developing and commercializing innovative small-molecule drugs for the treatment of immune mediated diseases and cancer. Presently, PCYC has three product candidates in clinical development and several molecules in pre-clinical lead optimization. To date, nearly all of the company's resources have been dedicated to the research and development of its products, and has yet to generate any commercial revenues from the sale of its products. The company spends significant sums of money on research and development, pre-clinic testing and clinical trials, and is also subject to various regulatory and marketing approvals. The company has been showing losses over the last three financial years with no expectations of profitability until the successful development of its products and subsequent approvals. Below, we will discuss the factors that have led to the share price gains for PCYC.


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Research and development, and administrative expenses are rising YoY with revenues on the decline, and the same trend can be seen for its losses, which are currently following an upward trend. In search for answers, we turned towards the company's pipeline products, one of which is its drug ibrutinib (PCI-32765). Ibrutinib is an orally active selective irreversible inhibitor of Bruton's Tyrosine Kinase (BTK) that the company is developing for the treatment of patients with B-cell malignancies (lymphoma or leukemia). B-cell maturation is mediated by B-cell receptor (BCR) signal transduction and BTK is an essential part of the BCR signaling pathway. Recently, BTK has been demonstrated to affect a number of vital growth and survival processes in cancerous B-cells. Ibrutinib has shown serious efficacy against a variety of blood cancers, and two of its clinical studies are now in Phase II trials.

Trial results have confirmed the superiority of ibrutinib in treating B-cell cancers, including chronic lymphocytic leukemia (CLL), small lymphocytic lymphoma (SLL). A Phase I dose escalation study evaluating the safety and tolerability of single-agent ibrutinib has been completed in patients with relapsed B-cell malignancies. Results were impressive, with Ibrutinib demonstrating a favorable safety profile and an evidence of anti-tumor activity.

With Phase II trials ongoing and positive results coming out for ibrutnib, PCYC anticipates starting Phase III registration trials by the end of 2012. It is widely agreed that it is one of the most attractive drugs in development, given the robust clinical activity demonstrated in several hematologic malignancies as well as an equally impressive safety profile.

It seems like there is a lot of speculative buying going on in the company's stock. But the problem is that the stock has soared almost 420% over the last year based on its upcoming drugs. PCYC is now a $3.6 billion company, and at this point, even if the two furthest along clinical trials (chronic lymphatic leukemia and mantle cell lymphoma) are approved, that's still a year or more away, therefore it is very tough to justify that big a market cap. Moreover, so many investors have so much profit taking potential with this stock that one small stumble could lead to disaster for the stock. However, with more reports on the drug coming in, it seems that ibrutinib is a very promising drug and could lead to generating significant revenues for the company in the future. PCYC, in collaboration with Janssen, is planning to initiate the Phase 3 trials for its drug ibrutinib, and if the drug receives FDA approval, it could lead to a significant increase in its revenues as well as share gains.

We recommend that investors hedge the long position in PCYC by buying deep out of the money put options on PCYC.

Source: Pharmacyclics Inc.: A Stock Up 400% This Year, A $4 Billion Company