PHARMACYCLICS Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Pharmacyclics Case Study Analysis

Alternate Course of Actions:

In their 2000 balance sheet, the company had cash and cash equivalents at $61,164,000. And since they value funding needs and valuation, the company should know the effects of costs in their balance sheet figures, which are shown in Appendix 1 of the document. If the company does not sell equity by the year 2000, their cash will be negative by the time of the approval decision of Xcytrin in the year 2002 because of extremeresearch and development, and Selling and administrative costs.
Proceed with the private placement now:

He might want to proceed with the placement now, because he can establish a fund for other drugs and it would help with the completion of Xcytrin. Since he has high hopes for the company being approved of the drugs by the FDA, the projections made will likely happen, whichwill be a good sign for the company because they will have their funds to support their expenses.

Proceed only after phase III (three) completion:

The approval decision is expected to come out in 2002 and cash flow will be better after the approval, because of the inflows from the projections the company made. The value of the firm at this point in time might be attractive for investors, and may serve as a catalyst for them to buy shares of Pharmacyclics. Appendix 5 shows the value of the company after the scenario that it is approved and rejected, since the drugs havea 50 - 50 chance of getting approval. The cash flow with the approval showed a positive NPV, because the inflows from the drugs affected the revenues so much. But unlike, when it gets approved the rejected scenario cause the NPV to be negative, which may prove to investors that it is not the right time to invest in this company, leading to the Pharmacists being in jeopardy.

The cash flow of the company under the approval scenario is greatly improved. They have positive cash flows and the value of the company is positive,which might be shown in Appendix 5 of the document. The Bottom line values of the income statement were improved to a level that it offset the loss incurred by the company from the year 2000.
The value of the firm is positive when the drugs are approved and negative when they are not. The company is worth 7,821,356thousand dollars when approved and (2,527,964) thousand dollars when not.

Recommendations:

Our team has come up with the following recommendations based on the alternative courses of action. Dr. Richard Miller can opt to sell the 60 million dollars of equity now, but should wait until Xcytrin finishes the FDA approval, or he could also sell the 60 million dollars on a staggered basis for the next 3 or 4 years. If the 60 million dollars of equity would be sold now, then they would not need to provide a cushion for funding the Phase III (three) Xcytrin trial. However, real options must also be taken into consideration, because these factors have the tendency to affect the valuation of the business investment greatly.

He can also choose to wait until the Phase III (three) clinical trial for Xcytrin is completed, because this could benefit them, since it helps Xcytrin to be more developed. The funds may also be used for the development of Antrin to carry this procedure forward, allowing it to progress towards becoming a potential revenue generator. PCYC should not proceed with the private placement now and wait for a few more years, before selling the 60 million dollars equity.Since it will provide the highest NPV among the alternatives shown, which would serve as an advantage for the company’s stakeholders.....................

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