Here’s Why Many Smart Money Investors Are Bullish on Clovis Oncology

Clovis Oncology Inc (NASDAQ:CLVS) is a biopharmaceutical company focused on developing and commercializing anti-cancer agents. In this article, we examine Clovis Oncology Inc (CLVS)
in depth and take a closer look at hedge fund activity in the stock during the second quarter.

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Clovis Oncology Inc (CLVS)’s former lead drug was rociletinib, a mutant-selective inhibitor of epidermal growth factor receptors for the potential treatment of EGFR T790M+ lung cancer. On November 16, 2015, Clovis Oncology fell more than 65% after the company released disappointing data showing that the confirmed response rate in rociletinib for treatment of EGFR T790M+ lung cancer was lower than expected. Because of the events, the FDA’s Oncologic Drugs Advisory Committee voted 12 to 1 in mid April against accelerated approval for the drug, citing the need for additional phase 3 data before giving the drug a thumbs up. To cut its losses, Clovis Oncology announced plans to cut its workforce by 35% by the end of 2016 and basically ended its development efforts for the lung cancer indication for rociletinib. CLVS is still developing rociletinib for other smaller indications, however.

Although it has given up developing rociletinib for the EGFR T790M+ lung cancer indication, Clovis Oncology is making substantial progress advancing its now lead drug Rucaparib through the approval process. In June 2016, Clovis Oncology filed a NDA for Rucaparib for the treatment of patients with advanced ovarian cancer and the company is on track to file a MAA in Europe for the drug in Q4. The company is also actively preparing for the commercial launch of the drug at the time of potential approval.

Shares of Clovis Oncology have trended up strong since June in part due to increased optimism of a FDA approval for the ovarian cancer indication. Helping sentiment was the release of positive late-stage results of TESARO Inc (NASDAQ:TSRO)‘s niraparib, which is a PARP inhibitor like Rucaparib. Also helping shares was the FDA accepting the company’s NDA for rucaparib for the ovarian cancer indication for review on August 23. Because the FDA gave the NDA priority review status, the drug’s PDUFA date is February 23, 2017, or four months shorter than the typical process.

On the next page, we analyze valuation metrics and hedge fund activity in Clovis in the second quarter.

In terms of valuation, Kyle Bass’ Hayman Capital Management, a Clovis Oncology bull, has a base case price target of $45 and a bull case price target of $90 (See his thesis here). For his base case, Bass thinks the FDA will approve Clovis Oncology’s rucaparib for the treatment of 3L+BRCA+ ovarian cancer, which Bass estimates is alone worth $25-$30 per share. Bass also notes Clovis Oncology has substantial cash ($378.5 million in cash and cash equivalents at the end of Q2 2016), and he estimates that Clovis Oncology’ rociletinib is still worth $10-15 per share despite the bad news.

In short, Bass thinks the market isn’t giving Clovis Oncology credit for its potential and that Clovis Oncology will ultimately prove the bears wrong.

In terms of smart money activity, 21 funds tracked by us owned shares of Clovis Oncology Inc (NASDAQ:CLVS) at the end of June, down by three funds from the previous quarter.

Disclosure: none