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Shares of Clovis Oncology (CLVS) shot up more than 30% last week on news that the Food and Drug Administration had accepted a New Drug Application (or NDA) for accelerated approval of rucaparib, an ovarian cancer drug. Rucaparib's fast-track status will shorten the review clock from the usual 10 months to six months -- meaning an approval decision should come in February 2017.

Clovis's stock responded to news of the NDA acceptance with a big leap upward, but the company is still a very long way from drug approval. This suggests there could be another big leap ahead if approval actually comes. But there's another side of the story here: This stock has a history of extreme volatility, and there are several major red flags investors need to watch out for.

The good news first: Rucaparib's efficacy data is impressive

Rucaparib belongs to an emerging class of chemotherapy drugs called PARP inhibitors . Interestingly, PARP's appear to be rapidly gaining credibility and bankability in the world of big pharma. While Pfizer (PFE -1.24%) sold rucaparib to Clovis for a measly $7 million dollars back in 2011, the big pharma jumped back in the game with its acquisition of Medivation, whose portfolio includes an experimental breast cancer PARP inhibitor. While Pfizer can't be happy about its decision to off-load its former PARP drug right now, at least it held on to some rights and should get a mid-teen royalty if rucaparib is approved.

But will that happen? On the plus side, the clinical data on rucaparib is promising. The drug is designated for treatment of women with advanced, mutant (inclusive of both germline and somatic BRCA mutations ) ovarian cancer. At last month's American Society of Clinical Oncology (ASCO) meeting, Clovis presented updated results on its ARIEL2 study. While multiple criteria are being used and multiple studies ongoing,  the drug showed a 73% reduction in the risk of progression in one BRCA subgroup and a 38% reduction in risk of progression in another subgroup.

But there's also a negative side to this story -- and unfortunately, it may undermine the good results.

Clinical trial credibility an issue

Clovis lost a big chunk of its market valuation last year when it terminated development on its former lead drug rociletinib, which targeted non-small cell lung cancer (NSCLC) patients. Because NSCLC's overall survival rate at five years is so low, mid-stage trial results showing a 53% response rate led to the possibility the drug could be accepted for review under the FDA's accelerated pathway -- exactly the pathway rucaparib is now on.

Unfortunately, this didn't happen. Clovis later admitted that the actual response rate was far lower than initially reported, and the FDA advisory committee voted against approval for the drug. Knowing it was facing an almost impossible task to gain approval, Clovis announced it was ending rociletinib's development.

Biopharmaceutical companies terminate drug development programs every day; it's a well-known risk in the industry. The real problem with rociletinib was that Clovis had to revise data. As previously mentioned, the company admitted that instead of the 53% initially touted, the response rate was actually between 28% and 34%. Making it worse, around half of the patients taking the experimental drug experienced severe side effects.

Let's not mince matters. Clovis was forced to correct pivotal data on its previous cancer drug trials. At the very least, that means additional FDA scrutiny and sky-high skepticism about the reliability of the company's data on its more recent cancer drug rucaparib. This doesn't take anything away from rucaparib's promise, but it's something investors need to keep an eye on.

What's ahead?

Clovis's CEO Patrick Mahaffy said during the Q2 earnings call that "our U.S. commercial team is preparing for launch and will be ready to launch at the time of the potential approval." Mahaffy also indicated the company was planning on submitting rucaparib to European authorities for approval in the fourth quarter of this year.

Meanwhile, Clovis has entered into a clinical trial collaboration with Roche Holdings to evaluate the drug in a "cocktail combination" with Roche's immunotherapy atezolizumab. Two studies exploring rucaparib's activity as a solo agent against breast cancer are also either under way, or starting later this year, as well as one study on gastroesophageal cancer.

Clovis ended last quarter with $378.5 million in cash or cash equivalents, and reported a cash burn of $68 million for the second quarter and $151.7 million for the first six months of the year. That's a jump from the $57.2 million and $105.6 million, respectively, it spent during comparable periods a year ago, due to increased development activities for rucaparib. While the company looks to have enough to launch the drug, there's no margin of safety here if FDA approval is delayed.

In sum, I don't expect clear sailing for Clovis Oncology, but there's no doubt a new ovarian cancer treatment is badly needed. More than 22,000 women will be diagnosed with ovarian cancer in the U.S. this year. Of those women, 80% will have advanced cancer, and one in four will have the BRCA mutations that rucaparib seems particularly effective at treating. For their sake, I'm optimistic Clovis has learned the wisdom of under promising and over delivering, and this drug fulfills its promise.