What happened

Shares of Clovis Oncology (NASDAQ:CLVS) fell over 13% today after the company reported it will pay $12 million to gain control of a preclinical asset from 3B Pharmaceuticals. The deal also includes a discovery program for up to three additional disease targets using the same approach: fibroblast activation protein alpha (FAP)-targeted radionuclide therapy. 

On the one hand, the deal shows that Clovis Oncology is looking to the future. The business has struggled to position its PARP inhibitor, Rubraca, to live up to the hype in a competitive field. On the other hand, Wall Street is having a difficult time seeing the logic in the deal with 3B Pharmaceuticals. Analysts have a point.

As of 11:53 a.m. EDT, the stock had settled to a 10.5% loss.

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Image source: Getty Images.

So what

SVB Leerink analyst Andrew Berens said the deal was "ill-timed" given the company's financial headwinds, according to Barron's. In the first half of 2019, Clovis Oncology reported an operating loss of $179 million and an operating cash outflow of $196 million. Those are staggering sums of money.

While investors can't necessarily fault the business for looking to the future, acquiring the rights to a preclinical asset does raise some eyebrows. Clovis Oncology doesn't expect to file an investigational new drug (IND) application for the first drug candidate until the second half of 2020. Even if the FAP-targeted radionuclide therapy or therapies deliver on their potential, they wouldn't be on the market before 2027, based on a typical drug development timeline. Simply put, Clovis Oncology may not have that much time.

Now what

It might be tempting to label Clovis Oncology a value stock given its precipitous fall in recent years, but there's really not a whole lot for individual investors to get excited about. The business is not sustainable on its current trajectory, and it doesn't appear that Rubraca will grow into the blockbuster drug (read: at least $1 billion in annual revenue) it was once expected to become. Simply put, the worst may be yet to come for this pharma stock.