To put it in simplest terms, Pharmacyclics (PCYC) flipped its revenue switch to the “on” position. The biopharma company won the FDA’s approval for its cancer drug Imbruvica in the middle of November, shortly after the mantle cell lymphoma treatment was approved in Europe.
Those green lights prompted a total $110 million worth of milestone payments from its partner, Janssen — a subsidiary of Johnson & Johnson (JNJ). Most believe the FDA will approve the drug as a therapy for chronic lymphocytic lymphoma as well, and if that happens, the drug could produce annual sales as high as $9 billion, according to some analysts. Pharmacyclics’ cut is half the revenue generated.
It’s all wonderful news, so why would PCYC stock be a sell in the shadow of such an exciting announcement? Two reasons: Biotech stocks tend to suffer the most from the “buy the rumor, sell the news” phenomenon, and with Pharmacyclics shares up 127% year-to-date, there’s been plenty of buying before this news. The second reason to sell PCYC stock: While Imbruvica may well be a $9 billion blockbuster in the making, it’s not going to reach those sales levels right out of the gate. Investors have priced it as if thousands of patients are lining up at the company’s doors with checks in hand, but that’s not usually how drug sales go.
Disappointment could pull the rug out from underneath PCYC stock in a hurry.