The best -- and worst -- thing about pharmaceutical stocks is how volatile they can be. Sharp increases and drops in value aren't uncommon, and Clovis Oncology (NASDAQ:CLVS) is an excellent example of just how quickly valuations in this industry can change.
During the month of November, this cancer treatment developer saw its stock price soar nearly 370%, and it has grown to a more than $600 million valuation along the way. It has since dipped in December, but it's still up 323% since the end of October.
Why has the stock taken off?
Clovis' stock received a big boost when the company released its quarterly results on Nov. 7. In the third quarter of fiscal 2019, the company beat analyst expectations for both sales and earnings, despite posting a per-share loss of $1.89 compared to a loss of $1.71 in the prior-year quarter.
Sales of $37.6 million rose 65% year over year for its Rubraca drug, which the U.S. Food and Drug Administration (FDA) previously approved for the treatment of ovarian cancer. Not only were sales up for the quarter and showing good growth, but Clovis also raised the lower end of its guidance for fiscal 2019, now expecting net product revenue to come in between $141 million and $147 million. Previously, in Q2, Clovis said it expected its full-year revenue to be between $137 million and $147 million.
A solid earnings beat plus an improvement in the guidance is always a recipe for a boost in the stock price. After the company released its results, the stock was up nearly 60% since the beginning of the month. Yet another catalyst would send Clovis even further up in value.
Rubraca gets the green light in multiple European countries
Less than a week after the company released its quarterly results, another big development sent its stock price higher. The Italian Medicines Agency announced that Rubraca would now be reimbursable in Italy and would be a treatment option for patients who relapsed from certain types of cancers, including ovarian, fallopian tube, and peritoneal.
According to the release, the drug "provided statistically significant improvement in progression-free survival versus placebo in all ovarian cancer patients studied." The Italian announcement came a month after England also approved the drug for coverage in its Cancer Drugs Fund, so patients are able to use Rubraca for the same types of cancers as in Italy.
And there's still more potential for the drug. Clovis President and CEO Patrick Mahaffy expects that in Q1 of 2020, France and Spain will also approve Rubraca. If that happens, it will open up even more growth opportunities for the company in the coming years.
There's a big need for an effective treatment option for ovarian, fallopian tube, and peritoneal cancers. In the U.S., the five-year survival rate from these types of cancers is 47%, but in Italy, it's only 39% and drops to 31% at the 10-year mark. There's a large fluctuation in survival rates from one region of the world to another.
In the U.S., more than 22,000 women are diagnosed with these cancers every year, while Italy has 5,000 new cases annually.
Is the stock a good buy at this price?
There's certainly a lot of reason for investors to be excited about Clovis given how much growth it may be able to generate as more countries approve Rubraca. Over the trailing 12 months, the company generated revenue of $134 million. In 2017, Clovis' sales were just $56 million. One concern, however, is that the company's net losses have remained above $340 million in each of the past four years, with no real progress made toward profitability.
Overall, there's a lot of potential for Clovis to continue building on its recent results. But investors should take note of some red flags, including its deep losses and the company burning through more than $336 million in cash from its operating activities over the past 12 months. Clovis only has $201 million in cash and cash equivalents on its books as of its most recent earnings report, and that could dry up in a hurry, leading to the company issuing more shares and ultimately more dilution for shareholders.
Ultimately, there's too much risk for investors to get involved at this stage. This pharma stock is highly volatile, and investors who buy shares of the company could end up on a wild roller-coaster ride. There are plenty of more steady options with similar growth prospects in the pharmaceutical industry.