Clovis Oncology shares pulled back after the company revealed unfavorable news in connection with Rociletinib, an experimental cancer drug. After tanking by 70% in a single day, the stock bounced on Monday and rallied, although today, as of this writing, shares were down 1.72% at $27.35 per share.
Kyle Bass likes Clovis Oncology
Well-known investor Kyle Bass of Hayman Capital management thinks Wall Street’s reaction to the negative news isn’t warranted and was “overly punitive. He has set his base case at $45 per share and his bull case at $90 per share. A copy of his presentation materials on Clovis was posted on Harvest.
His base case assumes that the FDA approves another of Clovis’ drugs, Ruca, and possibly Rociletinib as well, sometimes next year, while his bull case depends on whether the drug maker can extend both of its drugs to more uses. The bull case also assumes that Clovis has both of the drugs plus another “high-value drug” in the phase 2 development stage.
What happened to Clovis Oncology?
Earlier this month, the Food and Drug Administration asked Clovis Oncology to submit more clinical data to demonstrate that Rociletinib is an effective cancer treatment. The pharmaceutical company did so, and now there are allegations that it made false or misleading statements about the clinical trials for the drug. Investors were apparently surprised that the data submitted by Clovis previously included both confirmed and unconfirmed results. The confirmed data indicated that the rate of response had fallen significantly compared to previous data submissions.
Further, it’s been said that Clovis made a mistake in the “optics” of those trials by using patients known to respond less favorably than the patients used by its competitor AstraZeneca. Another problem the company has had is that its chief financial officer resigned, although Bass and his firm note that this was for a truly personal reason because his wife passed away.
Why Kyle Bass thinks all isn’t lost for Clovis
Bass noted that Rociletinib can still be approved for its first indication, although there will be a delay. Further, he thinks the drug’s usage in that first indication could end up being higher than what the market expects because he believes doctors understand the difference in the study populations used by Clovis’ trials compared to the population used by AstraZeneca for the clinical trials of its competing drug Tagrisso.
The hedge fund chief thinks AstraZeneca actually “stacked the deck” in its favor with the patient population it enrolled by leaning heavily toward Asians, who are known to respond better to treatments for lung cancer. He believes the patient sample selected by Clovis is a better representation of the U.S. population, and as a result, he says it’s difficult to compare Rociletinib’s effectiveness with that of Tagrisso.
Further, he said the approval of Rociletinib may add an additional $15 per share to Clovis Oncology’s stock based on “conservative assumptions” of how much of the market the drug grabs and where sales peak.
He added that while investors have focused too much on the problems surrounding Rociletinib, they haven’t noticed how much potential value exists in Clovis’ other drug, Ruca.
See the full note here.
