Better Buy: Clovis Oncology vs. Sunesis Pharmaceuticals

Clovis Oncology and Sunesis Pharmaceuticals are facing pivotal catalysts for their experimental cancer drugs. Which company offers the better risk-to-reward ratio?

Jul 8, 2014 at 5:00PM

Oncology has long been one of the most active areas in pharmaceutical research, because new drugs tend to have high profit margins and long shelf lives and are often amenable to broad label expansions for a diversity of cancer types. 

Clovis Oncology (NASDAQ:CLVS) and Sunesis Pharmaceuticals (NASDAQ:SNSS) are two specialist cancer drugmakers with forthcoming catalysts that have been trending in opposite directions in terms of their share price. Given that these catalysts could send shares soaring or plummeting, let's consider which company offers the more compelling risk-to-reward ratio moving forward. 

CLVS Chart

CLVS data by YCharts

Clovis has three clinical candidates under development
Clovis offers investors three clinical candidates and companion diagnostic products in the cancer arena. While its most advanced candidate rucaparib for ovarian cancer has helped propel shares higher in recent years, investors have turned their attention primarily to its epidermal growth factor receptor, or EGFR, inhibitor called CO-1686 as a potential treatment for non-small cell lung cancer, or NSCLC. 

The reasons are twofold. First, Clovis licensed rucaparib from Pfizer (NYSE:PFE), putting it on the hook for up to $89 million in milestone payments if the drug continues to progress in clinical trials. Second, Clovis is aiming to submit a New Drug Application for CO-1686 based on mid-stage results by mid-2015. 

That said, CO-1686 has had its share of setbacks lately. Specifically, Clovis presented data at the American Society of Clinical Oncology earlier this year, showing that nearly 50% of patients receiving the drug exhibited elevated blood sugar levels. Experts are thus predicting that AstraZeneca's (NYSE:AZN) competing clinical candidate, AZD9291, will garner the lion's share of the NSCLC market space, if both are approved next year. These two events combined to send Clovis shares spiraling downwards by as much as 25% in a single day earlier this year. 

Sunesis' experimental treatment for acute myeloid leukemia looks promising
The little-known biopharma Sunesis is developing an experimental treatment for relapsed and refractory acute myeloid leukemia, or AML, known as vosaroxin (Qinprezo). Currently, there are few treatment options for this devastating disease and no standard of care exists within the U.S., showing the clear need for new treatment modalities. 

Vosaroxin is presently in a late-stage study called VALOR, which is projected to readout top-line data in either the third or fourth quarter of this year. Management previously announced that the majority of patient events have occurred within the trial, and the remaining survivors are likely to be those that survived long enough to receive allogenic stem cell transplants.

Looking ahead, Sunesis is gearing up for regulatory filings in both the U.S. and EU, showing their optimism that vosaroxin will meet its primary endpoints in the ongoing VALOR trial. While I applaud management's enthusiasm, investors are clearly pessimistic about the trial's pending results -- given that Sunesis sports a market cap of a mere $410 million, despite vosaroxin's potential to become a blockbuster for this indication.    

Foolish wrap-up
New cancer medicines tend to be enormous value propositions if successful for their developers. With that said, investors shouldn't let these theoretical revenue streams cloud their judgment. At the end of the day, the vast majority of clinical candidates indicated as cancer treatments fail at some point in their development. Keeping this in mind, Clovis and Sunesis are inherently risky clinical stage biopharmas. Even so, they both offer strong upside potential if key drugs within their pipelines can gain a regulatory approval.

Turning to our comparison, I think Sunesis offers investors the highest level of risk and reward going forward. Simply put, the VALOR trial will be a defining moment for the company and shares are likely to react accordingly. Moreover, vosaroxin wouldn't have any immediate competitors as a treatment for AML, whereas Clovis' CO-1686 is facing still competition from AstraZeneca's clinical candidate. 

Clovis does have a more fully developed pipeline that can better withstand clinical set backs or outright failures than Sunesis, however. That being said, I think a decent amount of the value of Clovis' clinical pipeline has already been baked into its market cap of $1.45 billion. Viewed this way, I have to give the edge, albeit slightly, to Sunesis as a more attractive investing vehicle in the speculative cancer drug space.  

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George Budwell owns shares of Sunesis Pharmaceuticals. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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