What happened
Shares of Clovis Oncology (CLVS) fell nearly 42% last year, according to data provided by S&P Global Market Intelligence. It could have been much worse. The pharma stock was sitting at a year-to-date loss of 80% as late as October, but a rally helped to cut that in half. Despite the late recovery, the stock severely underperformed the S&P 500, which delivered a 28.8% gain in 2019.
The causes behind the plunge have roots in a narrative that should be familiar to investors by now. Rubraca, the company's only product, delivers underwhelming revenue in seemingly every quarter. The company's market valuation falls on the disappointing results, which then fuels speculation that Clovis Oncology is a buyout candidate and causes investors to temporarily rush back into the stock. Until the next quarterly update, anyway, when the cycle repeats.
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So what
The end-of-year rally for Clovis was a bit different from those following past quarterly plunges. Investors were a little more amped than usual following the sudden return of merger and acquisition (M&A) activity during the fourth quarter of 2019, or around the time third-quarter 2019 operating results were announced across the stock market.
Somewhat surprisingly, the stock has given up little ground following the recent surge, but volatility returned to the shares after preliminary full-year 2019 operating results were announced in early 2020. Investors can likely guess the reason.
Clovis Oncology expects to report full-year 2019 Rubraca sales of $142 million, which is in line with guidance but somewhat disappointing in terms of growth. The drug product generated $37.6 million in third-quarter 2019 revenue and, according to preliminary results, about $38.8 million in fourth-quarter 2019 revenue.
Supplementary approvals could inject a little growth into the franchise, but there's no denying that Rubraca has been the most disappointing drug in its class to date.
Now what
Clovis Oncology sports a market valuation of $550 million. Investors tend to disagree over whether that's low, high, or fair. Given the rate of cash burn, underwhelming market performance of its lone drug product, and promising performance of competing drugs in indications that Clovis hopes to expand into, it might be best to temper expectations for a buyout.
Simply put, the business needs to significantly curtail operating losses and score supplemental approvals for Rubraca before investors get too carried away.
