There’s nothing like a good old-fashioned bankruptcy warning to make a stock pop on a given day. Today, the latest speculative frenzy appears to be underway with Clovis Oncology (NASDAQ:CLVS). Shares of CLVS stock are currently up more than 30% in this afternoon’s session, following last week’s dire warning.
On Nov. 9, Clovis stock plunged from around $1 per share to as low as 23 cents per share. This came after the company said in a securities filing that it “will not have sufficient liquidity to maintain our operations beyond January 2023.” Accordingly, the company said that filing for bankruptcy was an “increasingly probable” outcome, as the company appears to be struggling to sell its Rubraca cancer drug.
Rubraca is a drug that’s been approved to treat ovarian cancer, a space that’s become increasingly competitive of late. Accordingly, the company reported that sales of Rubraca have declined year-over-year, falling 10% to levels that appear unsustainable for the company to continue as a going concern.
While Clovis has laid off more than 100 employees, its debt load appears to be untenable. The company reportedly missed a $1.9 million interest payment and could be on the brink of default. Thus, it’s unclear whether Clovis will make it.
Let’s dive into what’s causing investors to look the other way with CLVS stock right now.
Why Is CLVS Stock Surging Today?
Clovis is a company with a product that certainly warrants interest among many investors. The company’s Rubraca drug is a leading maintenance therapy used for those suffering from ovarian cancer. The company is one with a drug that could work, but more data are needed for this drug to gain official approval from the Food and Drug Administration (FDA).
Right now, it appears Clovis is stuck in a difficult place, with few prospects for revenue growth and a business model that’s unsustainable. Unless the company can raise money at favorable terms, it’s unclear whether Clovis will be around next year.
That said, speculators appear to be taking this significant decline as a way to bet the company will find its way through this mess. At these levels, CLVS stock looks more like a call option than an equity investment. Accordingly, if the company is able to defer its royalty payments or restructure its debt in the near term, a future approval could bring this company’s market capitalization back to pre-announcement levels.
It’s a risky bet, but it appears plenty of momentum traders and speculators are willing to play along. I’m not betting this rally can last, but CLVS stock is certainly one investors will want to keep an eye on from here.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
