Clovis Oncology (CLVS) Knocked Out By FDA Inquiry

The road to riches has quickly turned into a trail of despair for Clovis Oncology Inc. (CLVS), a formerly shining star among highly competitive biotechnology stocks.

Discrepancies concerning the effectiveness of rociletinib — an anti-lung cancer drug that is the core product at Clovis — led the Food and Drug Administration to request more clinical information regarding the overall therapy early Nov. 16. Immediately following the FDA’s statement, CLVS stock plummeted, shedding 73% of value within minutes of the opening bell on Wall Street.

Clovis Oncology’s severe fall from grace to start the week, coupled with its even more extreme volume levels — nearly 31 million shares compared to a three-month average of only 1.6 million — is in sharp contrast to the overall bullish sentiment that drove CLVS stock up to this point.

Before the events of the past few days, CLVS had gained nearly 700% in the markets since its initial public offering. It was also one of the key components of the benchmark iShares NASDAQ Biotechnology Index (IBB). Now, Clovis would be lucky to find an investor willing to touch its shares with a 50-foot pole.

The problem is a two-pronged one, and may continue to negatively pressure CLVS in the markets. Structurally, biotech stocks are inherently volatile due to the fact that their product lines must pass through rigorous testing for both safety and for efficacy — in other words, can a drug beat the placebo effect?

CLVS Stock Faces More Than Just Doubt

But the more pressing challenge for Clovis Oncology is competitive. Their rociletinib therapy was going head-to-head against pharma giant AstraZeneca plc (AZN), whose Tagrisso drug targets similar patients and recently won approval by the FDA. In addition, Clovis’ rociletinib drug scored a confirmed response rate of 34% in clinical trials — significantly lower than the company’s unconfirmed response rate of greater than 50% and inferior to AZN’s confirmed results for Tagrisso, according to Reuters.

Such overwhelming headwinds force Clovis into an unfavorable situation with regards to timing as well as a brand image perspective. With its principle rival in the lung cancer sphere seemingly out of commission, AZN stock has been rapidly climbing the markets, up 9% since the close of November 13.

As if to further reiterate an already emphatic point, several analysts have downgraded their forecasts for CLVS stock, with Mizuho in particular dropping its price target off a cliff — from $114 to $35.

CLVS stock, technical analysis
Source: Source: JYE Financial, unless otherwise indicated

Despite the onslaught of terribly bearish news, not all hope is lost for Clovis Oncology. The most obvious point is that the FDA’s inquiry, while a significant setback, does not mean an outright rejection of rociletinib.

From a scientific perspective, rociletinib has won high praise from oncologists because it provides a viable alternative to tumors that have grown resistance to frontline treatments. It isn’t unreasonable to believe that this workmanship will carry over into Clovis’ other cancer treatments, particularly for rucaparib, an ovarian cancer drug that is in late-stage trials and which has received encouraging response rates.

Perhaps the most important card that potential investors of Clovis Oncology carry is good old fashioned speculation. At its current price point below $30, CLVS stock has erased all of its gains for the past two-and-a-half years, reaching levels not seen since the spring of 2013.

That might be all that’s necessary for contrarians to jump onboard, as Clovis has already proved its worth in both the scientific and market performance arenas.

Patience, though, may be the best course of action. CLVS stock shattered through all conceivable technical support lines and is trading in a very precarious no-man’s-land. Though the response in the markets was harsh, investors clearly did not appreciate the wide discrepancy between Clovis’ advertised results for rociletinib against objective analysis.

The public relations hurdle along with the delays caused by the efficacy failure will likely pressure CLVS in the near-term before it returns to prominence.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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