PCYC
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PHARMACYCLICS: FINANCING RESEARCH AND DEVELOPMENT Case Analysis Report Introduction Pharmacyclics (PCYC) is a pharmaceutical company that manufactures and develops compounds that improve available treatments for cancer, atherosclerosis, and retinal diseases. During February 2000, the current CEO and president, Dr. Miller was considering a private placement of $60 million to finance PCYC’s research and development. In the current year, the company was developing its most promising oncology drug, Xcytrin which was in its third phase. Phase III of clinical trials was basically the most expensive phase in developing compounds since this is the final testing before the product becomes approved by Food and Drug Administration (FDA). The predicted drug’s probability of being approved was above 50% which could be taken as a good sign for the company as it would generate revenues in the coming years. Aside from the radiation and chemotherapy enhancer (Xcytrin), Pharmacyclics had developed other three drugs under its name: Lutrin, Antrin, and Optrin. These drugs including Xcytrin were still under the process of completion and upon approval of FDA. The company started in 1991 by Dr. Richard Miller and his then-patient, Dr. Jonathan Sessler. Initial funding was pooled from Miller’s personal money. Series of private financing were made through issuance of convertible preferred shares. In such business, high research and development costs were observed and to fully support business ventures and expansions, PCYC released an initial public offering in 1995. Afterwards, more rounds of financing through private placements were done to raise the company’s capital. In addition to this, the company completed two seasoned equity offerings (SEO) in 1998 and 1999. The funds accumulated in the latest offering were for PCYC’s research and development activities such as clinical trials of four in-house drugs. The series of funding was backed up by the company’s strategy in obtaining funds to meet any anticipated funding needs in each stage of the approval process. As a pharmaceutical company, its main line of business was focused on the treatment of tumors. However, in coming up with a safe and effective drug, it had to undergo FDA’s approval process. Before achieving the commendation of FDA, pharmaceutical companies would surely incur high costs due to the rigorous and lengthy approval process. Upon the discovery of the compound, it would go through various pre-clinical laboratory and animal testing, three phases of human testing, and the review of the said drug for approval. This being mentioned, developing a drug was undeniably costly and risky for the company since it held no assurance of passing each and every stage. But, the process was different for oncology drugs such as Xcytrin. FDA had a “fast- Cacatian, Amabelle | Pastolero, Mae Ann | Prado, Keziah Mace | Elijay, Joshua Christian 1 | Page
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Transcript of PCYC
PHARMACYCLICS: FINANCING RESEARCH AND DEVELOPMENTCase Analysis Report
IntroductionPharmacyclics (PCYC) is a pharmaceutical company that manufactures and develops compounds that improve available treatments for cancer, atherosclerosis, and retinal diseases. During February 2000, the current CEO and president, Dr. Miller was considering a private placement of $60 million to finance PCYCs research and development. In the current year, the company was developing its most promising oncology drug, Xcytrin which was in its third phase. Phase III of clinical trials was basically the most expensive phase in developing compounds since this is the final testing before the product becomes approved by Food and Drug Administration (FDA). The predicted drugs probability of being approved was above 50% which could be taken as a good sign for the company as it would generate revenues in the coming years. Aside from the radiation and chemotherapy enhancer (Xcytrin), Pharmacyclics had developed other three drugs under its name: Lutrin, Antrin, and Optrin. These drugs including Xcytrin were still under the process of completion and upon approval of FDA.
The company started in 1991 by Dr. Richard Miller and his then-patient, Dr. Jonathan Sessler. Initial funding was pooled from Millers personal money. Series of private financing were made through issuance of convertible preferred shares. In such business, high research and development costs were observed and to fully support business ventures and expansions, PCYC released an initial public offering in 1995. Afterwards, more rounds of financing through private placements were done to raise the companys capital. In addition to this, the company completed two seasoned equity offerings (SEO) in 1998 and 1999. The funds accumulated in the latest offering were for PCYCs research and development activities such as clinical trials of four in-house drugs. The series of funding was backed up by the companys strategy in obtaining funds to meet any anticipated funding needs in each stage of the approval process.
As a pharmaceutical company, its main line of business was focused on the treatment of tumors. However, in coming up with a safe and effective drug, it had to undergo FDAs approval process. Before achieving the commendation of FDA, pharmaceutical companies would surely incur high costs due to the rigorous and lengthy approval process. Upon the discovery of the compound, it would go through various pre-clinical laboratory and animal testing, three phases of human testing, and the review of the said drug for approval. This being mentioned, developing a drug was undeniably costly and risky for the company since it held no assurance of passing each and every stage. But, the process was different for oncology drugs such as Xcytrin. FDA had a fast-track approach for such products because of the nature of its treated illnesses such as cancer. In addition to this, the subjects short life expectancy made the process quicker and simpler for tumor-treating drugs.
Statement of the Problem
Dr. Miller is in face with two options regarding his decision about the $60 million private placement: to sell the equity or to wait until Xcytrin is FDA-approved drug. His decision may depend on the funding needs, in which the funding would lessen the huge costs for the completion of Xcytrins Phase III trial, and valuation, where the companys stock was at all-time high despite incorporating the probability of Xctrin failing the FDA approval process.Aside from the problem mentioned above, this predicament was also cited in the case:1. What would be the basis for CEO, Dr. Richard Miller, to decide whether to sell the $60million equity for financing the ongoing drug innovations research and development?
SWOT Analysis
Alternative Course of Actions
1. To sell the $60 million today
2. To wait until Xcytrin is FDA approved
Recommendation
Appendix
Idk if this can help sa quanti per nakita ko to, a probable basis:
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.
Cacatian, Amabelle | Pastolero, Mae Ann | Prado, Keziah Mace | Elijay, Joshua Christian 1 | Page
