Why This Biotech Stock Is Bucking Biotech's Bloodbath

Clovis Oncology's late-stage cancer pipeline has investors thinking its shares are worth the risk.

Todd Campbell
Todd Campbell
Oct 8, 2015 at 7:20AM
Health Care

Source: Clovis Oncology.

Worry that regulators will pursue price controls on drugs and curb industry profit has led to a massive sell-off in biotech that has included more than a 17% drop in the Nasdaq Biotechnology ETF (NASDAQ:IBB) over the past three months.

Some stocks have fallen by less than the index, and others have sold off by more, but just about every biotech stock has tumbled; except Clovis Oncology (NASDAQ:CLVS).

Since July, Clovis Oncology's shares have gained a market-beating 10%. What makes it so special? Let's take a closer look.

CLVS 3 Month Total Returns (Daily) Chart

CLVS 3 Month Total Returns (Daily) data by YCharts

Advancing cancer treatment
Although cancer drugs have gotten increasingly expensive over the past few years and that's caused many clinical-stage cancer drug developers to tumble in recent weeks, investors appear to think Clovis Oncology's late-stage cancer drugs could sidestep payer pushback on pricing.

That thinking may be supported by results released by Clovis Oncology this past year showing that its medicines may effectively address the significant unmet need for new treatments for non-small-cell lung cancer, or NSCLC, and ovarian cancer.

Last month, Clovis Oncology's shares rocketed higher after the company presented data at an industry conference highlighting its lung cancer therapy rociletinib. Specifically, the company announced that the objective response rate for NSCLC patients with the T790M-mutation was 60% and that the disease control rate in those patients was 90%. That's an impressive enough showing that the FDA granted priority review designation for rociletinib's use in these heavily pre-treated patients at the end of September.

Rociletinib is already filed with the FDA for approval under a rolling submission, and based on the priority review decision, FDA regulators are expected to approve or deny rociletinib next March.

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In addition to rociletinib, the company is also developing rucaparib, an ovarian cancer therapy in mid- and late-stage trials. Rucaparib reduces the activity of PARP-1 and PARP-2 enzymes that repair damage to cells caused by anti-cancer medicines. By inhibiting PARP-1 and PARP-2, anti-cancer therapies appear to become more effective, especially in patients with BRCA gene mutations. 

Since 65% of patients responded to rucaparib therapy in phase 2 trials, the FDA awarded the drug breakthrough therapy designation in April for use in patients previously treated with at least two platinum containing therapies. If late-stage studies evaluating rucaparib's efficacy and safety offer up data next year that confirms its efficacy, then the company plans to file for FDA approval by the middle of next year.

Source: Clovis Oncology.

Tying it together
Clovis Oncology estimates that 85% of lung cancer cases are NSCLC and that up to 15% of Caucasians and 35% of East Asian patients have the genetic makeup that would make them amenable to rociletinib therapy. Because this patient pool typically relapses following current standards of care, and up to 60% of those relapsing patients develop resistance to those treatments because of the T790M mutation, hopes are high that rociletinib can be a game changer in treating this disease.

Similarly, rucaparib could significantly improve patient care if its trials succeed, because there are 22,000 ovarian cancer cases diagnosed in America annually and many of those cases can't be addressed by surgery. Since ovarian cancer remains the fifth leading cause of cancer-related death in women, there's a big need for new treatments like this one.

Overall, because Clovis Oncology's drugs target a specific patient population with a high unmet need, it appears investors think there's less risk that payers will object to potential pricing and therefore, since Clovis Oncology maintains 100% global rights to these compounds, the company could benefit significantly from any potential approval. In my opinion, that thinking is pretty sound; however, investors should remember that there's no guarantee that the FDA will greenlight rociletinib or that rucaparib's trials will pan out. And for that reason, Clovis Oncology is suitable only for investors willing to accept the risk of a failure.