Pharmacyclics: Financing Research & Development

Posted: 10 Nov 2005 Last revised: 23 Mar 2013

See all articles by Richard S. Ruback

Richard S. Ruback

Harvard Business School

Malcolm P. Baker

Harvard Business School; National Bureau of Economic Research (NBER)

Aldo Sesia

Harvard Business School

Date Written: July 23, 2003

Abstract

SUBJECT AREAS: Biotechnology, Decision trees, Equity financing, R&D, Valuation

CASE SETTINGS: Sunnyvale, CA; Pharmaceutical industry; $1.3 million revenues; 2000

Pharmacyclics (NASDAQ: PCYC), a pharmaceutical company that manufactures products that will improve existing therapeutic treatments for cancer, arteriosclerosis, and retinal disease, was considering a $60 million private placement in February 2000. The company had more cash than ever before, but projections of R&D and marketing expenses were also unprecedented. PCYC's most promising oncology drug, a radiation enhancer called Xcytrin, was in Phase III clinical trials - the rigorous final phase before FDA approval for commercialization. Analysts gave the drug a slightly better than 50% chance of success. This case focuses on stage financing and a simple decision-tree evaluation. Students have the opportunity to consider the impact of past staged financing decisions on the ownership structure of the firm and to evaluate the current stock market price in light of analyst forecasts of the cash flow and the probability of success for each drug. These two analyses help inform the private placement decision.

Note: Teaching Note Available.

Suggested Citation

Ruback, Richard S. and Baker, Malcolm P. and Sesia, Aldo, Pharmacyclics: Financing Research & Development (July 23, 2003). HBS Publishing Case No.: 9-201-056; Teaching Note No.: 5-204-012, Available at SSRN: https://ssrn.com/abstract=845547

Richard S. Ruback (Contact Author)

Harvard Business School ( email )

Boston, MA 02163
United States
617-495-6422 (Phone)
617-496-8443 (Fax)

Malcolm P. Baker

Harvard Business School ( email )

Boston, MA 02163
United States
617-495-6566 (Phone)

HOME PAGE: http://www.people.hbs.edu/mbaker

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Aldo Sesia

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
617-496-2085 (Phone)

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