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Here's Why Clovis Oncology Got Crushed Today

By Maxx Chatsko - Oct 31, 2018 at 12:59PM

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The biopharma reported struggles during the third quarter of 2018.

What happened

Shares of Clovis Oncology ( CLVS 1.81% ) lost over 29% today after the biopharma reported third-quarter 2018 operating results. Sales of its only commercialized drug, Rubraca, grew 35% compared to the year-ago period, but settled at just $22.8 million. That's far from its full potential as a second-line treatment in ovarian cancer. CEO Patrick Mahaffy admitted that growth has remained challenging, although he told investors the company is working on strategic initiatives to boost Rubraca's market share. 

Mr. Market isn't so sure. Then again, it's easy to be pessimistic about Clovis Oncology considering operating loss jumped to $89 million in the third quarter of 2018 and settled at $237 million in the first nine months of 2018.

As of 12:10 p.m. EDT, the stock had settled to a 28.7% loss. It's down over 80% since the beginning of 2018.

An investor holding his hand out flat and a bar chart showing losses hovering over it.

Image source: Getty Images.

So what

To say that Clovis Oncology stock has struggled this year would be putting it mildly. Does it really deserve a nearly 80% year-to-date haircut, though? Well, on the one hand, the company's market valuation is now roughly equal to its cash balance at the end of September. It also has promising clinical trials underway that could see Rubraca become a first-line treatment in prostate, breast, and ovarian cancer.

On the other hand, investors shouldn't take the business' staggering operating losses lightly. The nearly $600 million in cash on hand at the end of the third quarter will be consumed quickly given the current burn rate. Also, Wall Street analysts are right to be at least concerned with the ability of Rubraca to compete in additional indications. That's because it must compete with two other drugs in its class, Lynparza from AstraZeneca and Merck and Zejula from Tesaro. The former pair recently presented remarkable results from an early-stage study in ovarian cancer.

Now what

While it's possible that Mr. Market is getting a little too carried away with its punishment of Clovis Oncology stock, there's simply too much risk here for individual investors to overlook. Rubraca would have to earn significant market share in prostate cancer (the indication in which it has a development lead over competitors) just to reach breakeven operations -- and that wouldn't occur for many years. Meanwhile, if Lynparza continues to impress as it advances in ovarian cancer, then it seems likely to dominate that indication going forward, leaving little room for Rubraca.

Clovis Oncology needs to wrap up expensive late-stage clinical trials so it can reduce operating expenses, and have those deliver successful outcomes. That might be asking a lot.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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