Will This Biotech's Roller-Coaster Ride Ever End?

Clovis Oncology (NASDAQ: CLVS  ) has taken its shareholders on a wild roller-coaster ride over the past year. Last November, Clovis' former lead drug candidate -- the pancreatic cancer drug CO-101 -- failed, causing shares to plummet from $21.49 to $12.50. However, the stock rose over the next few months on hopes that its new non-small-cell lung cancer, or NSCLC treatment, CO-1686, would succeed.

Anticipation bubbled up, until the beginning of June, when Clovis announced positive phase 1 results for the drug, causing shares to more than double from $36.58 on May 31 to $74.59 on June 3.

CLVS Chart

Source: YCharts.

Clovis tried to cash in on that positive announcement by selling 3.3 million new shares of stock worth $240 million, diluting its existing shareholders. Apparently taking a hint from Amgen's $10.4 billion takeover of Onyx Pharmaceuticals in August, Clovis hired Credit Suisse to explore a possible sale of the company in September.

Suddenly, Clovis' future looked murky. Why did it follow up positive trial data with a share offering and a bid to sell itself? That unanswered question caused considerable volatility in the stock, which culminated in a 9.5% drop at the end of September when the company announced that it hadn't found any buyers.

After that rough ride, which likely burned bulls and bears alike, investors are probably wondering if it's finally time to get off the roller coaster known as Clovis.

Where's all the money going?
To date, Clovis has not reported any revenue, since it does not have any marketed products. However, we can take a look at its R&D expenses, last quarter, to see what it's been spending its money on.

Drug

Indication

R&D Expenses  -- First Half of 2013

Change (YOY)

Percentage of Total Expenses

Status

CO-101

Pancreatic cancer

$342,000

(94%)

2%

Discontinued

CO-1686

NSCLC

$3.74 million

184%

24%

Phase 1/2

Rucaparib

Ovarian/breast/
pancreatic cancers

$4.67 million

145%

30%

Phase 1/2

cKIT inhibitor

stomach cancer

$1.14 million

N/A (new)

7%

Pre-clinical

Sources: Clovis Oncology quarterly report, company website, author's calculations.

We can see that after Clovis discontinued CO-101, it poured that money straight into CO-1686 and Rucaparib. However, both drugs face some challenges.

Treating drug-resistant, mutated cancer cells
CO-1686 is an NSCLC treatment that Clovis hopes will stand out from other treatments with its ability to treat the T790M mutation -- in which mutated cells become resistant to the two leading treatments on the market: Roche's (NASDAQOTH: RHHBY  ) Tarceva and Iressa from AstraZeneca (NYSE: AZN  ) and Teva Pharmaceutical  (NYSE: TEVA  ) .

Tarceva and Iressa are first-generation epidermal growth factor receptor, or EGFR, tyrosine kinase inhibitors. The overexpression of tyrosine kinase can lead to uncontrolled cell division and proliferation, causing various forms of cancer. However, 60% of NSCLC patients with resistance to these drugs develop the T790M mutation and other "second site" mutations.

So far, Clovis' progress with CO-1686 has been encouraging. Its phase 1 study showed that three out of four patients with the T790M mutation reported partial tumor shrinkage. More detailed results from the trial are expected at the end of this month.

If successfully approved, Credit Suisse believes that CO-1686 could generate $1.2 billion in annual peak sales.

Can Clovis stay in the lead?
Although Clovis seems to be in the lead, in regards to treating the T790M mutation, it is not the only competitor on the field. Roche and AstraZeneca are not sitting idly by as newer drugs like CO-1686 threaten their lead in NSCLC treatments. Roche's Tarceva has been combined with other targeted therapies during clinical trials in an effort to improve its performance against the T790M mutation.

AstraZeneca is currently working on AZ9291, a new NSCLC treatment that is being developed to treat EGFR mutations such as T790M. Meanwhile, Boehringer Ingelheim has developed an approved second-generation EGFR inhibitor that showed promising results during a phase 3 trial in treating EGFR mutations.

All of these competing treatments could immediately threaten Clovis if they demonstrate the ability to treat the T790M mutation.

Will Clovis' BRCA drug be a game-changer?
Clovis' second best hope is rucaparib, its treatment for solid tumors. At the end of September, Clovis announced that patients with BRCA-mutant ovarian, breast, and pancreatic cancers had shown positive responses to the drug. Like the T790M mutation, BRCA mutations are rare, affecting 5% to 10% of women with breast cancer and 15% of women with ovarian cancer.

The most common treatment for BRCA mutation cancers is the use of estrogen blockers such as Teva's Tamoxifen. However, estrogen blockers can increase the risk of blood clots and cause uterine cancer.

Rucaparib was the most successful at treating BRCA-mutant ovarian cancer, in which it showed a disease control rate of 100% at 12 weeks and 63% at 24 weeks. Therefore, if Rucaparib is approved, it could be one of the first viable targeted treatments for the rare mutation.

The Foolish takeaway
So in the end, that's all Clovis is -- a clinical stage company, with its future pinned on two very specific treatments for two tough-to-treat mutations. Clovis should not be confused with Onyx Pharmaceuticals, which has revenue coming from three products -- Kyprolis, Nexavar, and Stivarga -- prior to its acquisition by Amgen.

However, with a market cap of $1.5 billion, Clovis doesn't look terribly expensive if CO-1686 and rucaparib are approved. At the very least, their success could attract larger marketing partners, which the company will definitely need to launch its drugs.

For smaller investors, however, this is one wild ride that could continue for a while, considering that neither CO-1686 or rucaparib are near late-stage trials yet. Therefore, it might be safer to get off Clovis' roller coaster and wait for the company to post more concrete results regarding its two lead drug candidates.

Two innovative biotechs changing cancer treatment
The best way to play the biotech space is to find companies that shun the status quo and instead discover revolutionary, groundbreaking technologies. In The Motley Fool's brand-new FREE report "2 Game-Changing Biotechs Revolutionizing the Way We Treat Cancer," find out about a new technology that big pharma is endorsing through partnerships, and the two companies that are set to profit from this emerging drug class. Click here to get your copy today.


Read/Post Comments (1) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 18, 2013, at 11:03 AM, Hope4GoodFuture wrote:

    After following the lead up hype and complete brushing off (IMO) of the complete failure that was their CO-101 trial, I feel this management team of CLVS is good at hype but no so good at research. Details, details. How could they have designed a trial- on which many patients cashed in their last hopes for life- on low hENT / high hENT "research" that turned out to be irrelevant and useless. They sat in the penalty box for this for about a month, then poof, their stock is worth more than it was before this dismal failure. Do investors have such short memories or is this all a fix manufactured by large funds that want the price to go higher so they can sneak out before the trial results are reported or, in the case of the PARP inhibitor, the drug has to be marketed and sold in the face of stiff competition that has a head start? This is among the most egregious examples of biotech over hyping.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2687008, ~/Articles/ArticleHandler.aspx, 11/28/2014 9:43:53 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement