Pharmacyclics Trick Proves to be Wise

Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

If you woke up on Monday morning and saw the headline news from Pharmacyclics (NASDAQ: PCYC) then you probably felt pretty good. However, aside from strong quarterly results were two pieces of information that caused selling pressure throughout the day.

Pharmacyclcs beat earnings expectations with $102.7 million in revenue and an EPS of $1.06. The company’s bottom line expectations have come under question, as investors have questioned the expectations. There were some reports of estimates being as low as $0.75 and others as high as $1.15. Therefore, investors began to suggest that its fall was due to the company missing bottom line projections.

The company is valued for perfection; therefore it is possible that investors were unsatisfied with the quarterly results. However, my guess is that more of its decline was due to a very quiet press release where the company announced discouraging data for ibrutinib and that employees would be unloading shares on November 7.

First, Ibrutinub, is the company’s lead candidate for multiple myeloma, but did not generate a statistically significant response in a number of patients. Therefore, its chances of earning an FDA approval diminish, and its efficiency will come into question.

Second, the company expects employees to exercise stock options and sell shares on November 7. The company did mention that its CEO does not plan to sell any of his shares, but did not provide too much detail on the remainder of its employees. According to Reuters, nearly 25% of the company is owned by insiders. Although much is held by the company’s CEO, the additional selling pressure on Wednesday could create significant losses.

Any one of these two announcements would have most likely caused a 10% loss in shares of this overvalued stock. Pharmacyclics did a great job at combining, and then hiding, the news so that much of Wall Street did not take notice. As a result, with disappointing data this isn’t a stock that I want to own right now. Then, when combined with the fact that insiders are selling (remember, they know more than you), this is definitely a stock that I want to avoid, and I suggest waiting for a better opportunity if bullish.  

If you are looking for an alternative to Pharmacyclics, then you might want to take a look at BioMarin Pharmaceuticals (NASDAQ: BMRN). These are two companies that traded in different directions on Monday, as BioMarin rallied 30% thanks to data from its most promising candidate GALNS. The drug treats a rare genetic disorder called Morquio A Syndrome. The company announced Phase 3 data that met the primary goal of the study. Therefore the Orphan Status drug will be seeking approval in Q1 2013, and if approved, could double the company's revenue.

At this time PCYC is just too expensive, has too many questions, and I don't see too much upside in the immediate future. The stock has had a good run with its 300% gain over the last year, but with better values in the industry it might be wise to explore other opportunities. 


BrianNichols has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend BioMarin Pharmaceutical. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.If you have questions about this post or the Fool’s blog network, click here for information.

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