CAPScall of the Week: Clovis Oncology

For years, satirical late-night TV host Stephen Colbert has been running a series on his show called "Better Know a District," which highlights one of the 435 U.S. congressional districts and its representative. While I am no Stephen Colbert, I am brutally inquisitive when it comes to the 5,000-plus listed companies on the U.S. stock exchanges.

That's why I've made it a weekly tradition to examine one seldom-followed company within the Motley Fool CAPS database, and make a CAPScall of outperform or underperform on that company.

For this week's round of "Better Know a Stock," I'm going to take a closer look at Clovis Oncology (NASDAQ: CLVS  ) .

What Clovis Oncology does
As Clovis' name would imply, there's no smoke-and-mirror tricks here regarding what it does: It's a biotechnology company engaged in researching anti-cancer compounds. It has three compounds currently in its pipeline: CO-1686 -- which is an oral phase I/II epidermal growth factor receptor, or EGFR, inhibitor for the treatment of non-small-cell lung cancer, or NSCLC -- that it's partnered with Roche (NASDAQOTH: RHHBY  ) in developing; Rucaparib -- which is a poly ADP-ribose polymerase, or PARP, inhibitor in phase I/II trials for ovarian and breast cancer; and a preclinical cKIT inhibitor for gastrointestinal stromal tumors that it's partnered with Array BioPharma on.  

In Clovis' most recently ended fourth quarter, it reported a loss of $21.1 million compared to a loss of just $14.9 million in the year-ago period as its total cash level rose modestly to $144.1 million from the $140.2 million it ended with in 2011.

Whom it competes against
This is one of those cases where I say there are a ton of competitors in NSCLC, but few that target the T790M mutation that CO-1686 is being developed to treat. In fact, there are no FDA-approved treatments to specifically target the mutation at the moment. However, that may change very shortly as Boehringer Ingelheim does have an experimental drug known as Afatinib under an accelerated FDA review for EGFR mutation-positive NSCLC. With Clovis still early in its development, Afatinib could have a chance to clean up before CO-1686 even gets to late-stage enrollment.

Something similar can be said for Clovis' competition in breast cancer with regard to PARP inhibitors. However, unlike with NSCLC, advancements in PARP inhibitors are still very slow, so a drug like Rucaparib that is still being studied in phase 1 trials has just as much chance of success as AbbVie's (NYSE: ABBV  ) Veliparib, which is being tested as a combination PARP inhibiting therapy in phase 1/2 trials.

The call
After carefully reviewing Clovis Oncology's prospects, I've decided to place a CAPScall of underperform on the company for a number of reasons.

The primary reason for my distaste of this recent run relates to its complete failure with CO-101 for metastatic pancreatic cancer. The results from the phase 1/2 trial were noted by CEO Patrick Mahaffy to be "even more ambiguous than we could have imagined," as CO-101 was shown to have no more effect on overall survival than Eli Lilly's (NYSE: LLY  ) Gemzar. Then, as if to run salt in the wounds, we learned just days apart that Celgene's (NASDAQ: CELG  ) Abraxane when combined with Lilly's Gemzar did extend median overall survival as compared to just taking Gemzar alone. CO-101 was a monumental failure that brought into question Clovis' ability to analyze a compound and also completely wiped out its most advanced drug.

Now, some of you might feel more confident with Clovis sporting two leading candidates in CO-1686 and Rucaparib. I'm not saying anything specifically against either drug candidate, but since it discontinuted CO-101 it's burned through more precious cash and it's added what I'd estimate is another six months to a year onto its timetable of when it'll have an FDA-approved drug on the market. Yet, in that time, the share price has practically doubled?! That makes somewhere between little and no sense to me!

Another factor that turns me off is Afatinib's gigantic head start in EGFR mutation-positive NSCLC. In trials, those patients receiving Afatinib demonstrated a marked improvement in progression-free survival to 11.1 months compared to just 6.9 months for the pemetrexed/cisplatin combination in the control arm. CO-1686 might be yesterday's news before it even becomes today's news!

With a steady cash burn and a shaky pipeline, Clovis appears destined to head lower.

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