Pharmacyclics Set to Glide Higher

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

Pharmacyclics (NASDAQ: PCYC) has been a good company to invest in, especially if you had bought shares back in 2009 when it traded around $1 per share. That's not to say it is too late, because this biotech company still has a lot of room to run higher. The reason for the continued run up will be the pipeline that continues to produce results. All of the candidates in the sector have shown great results to date, and will continue to do so as the pipeline progresses. 

Pharmacyclics doesn't currently have any FDA-approved drugs on the market, but the current share price is around $106 per share, and one analyst, Baird, currently has a price target of $120 per share. This price valuation is taking into consideration the future sales of Ibrutinib. Projected sales will be around $1.2 billion by the year 2018, which is why a long term hold on this stock will be worth it. 

Momentum that keeps going

The main reason for Pharmacyclics' run higher has been one of its main drugs, Ibrutinib. Ibrutinib is being used in many trials to target different types of B-cell malignancies. These types of malignancies include chronic Lymphocytic Leukemia, Mantle Cell Lymphoma, multiple Myeloma, and Diffuse Large B-cell Lymphoma. The company also has other trial candidates for pancreatic cancer and rheumatoid arthritis. As you can see, the pipeline is huge, but Ibrutinib is the key to the company.

Why focus on Ibrutinib? Quite simply, the company has run two phase 2 trials on Ibrutinib, both with good results. Also, a very important aspect of this company is that it doesn't have to run a phase 3 trial for Ibrutinib because Pharmacyclics has received "breakthrough therapy designation." This is a new rule by the FDA to get to new drugs for life threatening diseases on the market quicker. In light of this, both Johnson & Johnson (NYSE: JNJ), and Pharmacyclics have filed an NDA, or New Drug Application, with the FDA for Ibrutinib. Analysts predict that Ibrutinib could reach annual sales of $4 billion dollars. 

Acquisition in the making

Johnson & Johnson could possibly acquire Pharmacyclics because both companies are already partnered for the drug. Also, it could help Johnson & Johnson add to its very small pipeline of cancer drugs. For instance, the company only has Zytiga for prostate cancer, and adding a pipeline of more drug candidates that fight cancer might be a good idea. 

Zytiga has done well so far in the market, so much so that Johnson & Johnson had surprised analysts with a huge boost in revenue from Zytiga. The company stated that Zytiga had earned $344 million in the first quarter, which was well above analyst estimates. With this successful prostate cancer franchise, and a possible addition of Pharmacyclics, Johnson & Johnson should see some nice revenue numbers going forward. 

Johnson & Johnson trades with a P/E ratio of 20, which is good for a biotech stock. Also, the company is expected to have growth of 7.2% this year, and 6.63% in 2014. With this growth over the next few years, and a pipeline with emerging drugs like Zytiga, Johnson & Johnson will continue to be a long-term hold for years to come. 

Competitor in the way

As always in the biotech industry, when you have a drug candidate, it's always possible to have a competing drug. This competitor is Biogen Idec (NASDAQ: BIIB). Biogen Idec also has a drug that targets Chronic Lymphocytic Leukemia, known as RITUXAN. The only difference, though, is that RITUXAN is combined with Fludarabine and Cyclophosphamide to treat the disease. Also, RITUXAN is used to treat other conditions like non-hodgkins Lymphoma, and Rheumatoid Arthritis. 

Biogen Idec has earned around $3 billion from RITUXAN. The drug was partnered with Genetech, so only half of the revenue goes to Biogen Idec. Despite that, the company continues to make a lot of drugs that compete well on the market. Pharmacyclics will likely receive FDA approval, but it will have to deal with Biogen Idec in terms of sales for Ibrutinib. 

Biogen Idec has a higher P/E ratio of 34.3 compared to its peers in the industry, but the valuation is justified. The company is expected to have future growth of 19.50% in the next five years. This year alone, the company grew by 26.10%. A lot of the growth is attributed to its multi-billion dollar drugs like RITUXAN and Tysabri. The next blockbuster drug from the company is Tecfidera for the treatment of Multiple Sclerosis. Out of the gate, Tecfidera reached sales of $192 million. Over the coming years, the stock price is expected to rise to higher levels as the popularity of Tecfidera continues to reach the future marketplace. 

Final thought

Pharmacyclics has a big pipeline of drug candidates with the potential to earn billions of dollars. Despite the big run up, there is more room for the stock to run higher. The catalyst to take the share price higher in the coming year could be the early approval for Ibrutinib. Investors should consider this company from a long-term approach, as this stock could glide higher in the coming months. 

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Terry Chrisomalis has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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