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 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?

Cacatian, Amabelle | Pastolero, Mae Ann | Prado, Keziah Mace | Elijay, Joshua
Christian
1 | Page

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
2 | Page