What happened

Shares of Clovis Oncology (CLVS) sank over 15% today after the pharmaceutical specialist reported second-quarter 2019 operating results. The company's lead drug product, Rubraca, continues to underperform expectations. Rubraca generated $33 million in revenue in Q2, which trailed the average expectation on Wall Street for revenue of $34.9 million. 

Meanwhile, expensive clinical trials pushed Clovis' quarterly net loss to $120 million, working out to a net loss of $2.27 per share. The average expectation on Wall Street was for a loss of $1.71 per share. The company pledged to significantly reduce cash burn in the second half of 2020, but there's a lot of ground to make up. 

As of 12:31 p.m. EDT, the stock had settled to a 11% loss.

A finger tracing a declining stock chart on a screen.

Image source: Getty Images.

So what

Today's news isn't so much that Clovis missed Wall Street expectations, as it can be difficult to predict net revenue for drug products. The real concerns are the continued slow pace of sales growth for Rubraca and the company's inability to reel in operating expenses. The business reported an operating loss of $178.7 million in the first half of 2019. That makes an otherwise impressive cash balance of $315 million appear to be hardly enough.

Clovis hopes a new financing agreement can help to extend its cash runway. In May, the company entered into a debt agreement with TPG Sixth Street Partners that will reimburse Clovis for up to $175 million in costs incurred for its Athena clinical trial evaluating Rubraca as a first-line maintenance treatment in advanced ovarian cancer. The company doesn't have to repay the financing until 2022, when the drug would launch if it proves successful. Of course, if the trial isn't successful or Rubraca doesn't deliver in the market, then the debt agreement could prove costly.

Management also said it was looking forward to potential new approvals and market launches for Rubraca in both the United States and Europe, but investors aren't so sure they'll deliver enough growth to reverse mounting losses. That dismal outlook is compounded by recent clinical results that lag behind those reported for competing drugs in the same drug class as Rubraca, which is a PARP inhibitor.

Now what

To be blunt, things aren't going well for Clovis Oncology. Shares have fallen nearly 80% in the past year. The company has been unable to reel in operating expenses and appears to have an underwhelming asset in the PARP inhibitor race. If ongoing clinical trials produce impressive results, then the stock could bounce back. But there are a number of red flags here that investors cannot ignore.