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Monday, November 25, 2019

by Ian Harvey

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Option Trade – Clovis Oncology Inc (NASDAQ: CLVS) Calls

Monday, November 25, 2019

** OPTION TRADE: Buy CLVS JAN 17 2020 8.000 CALLS at approximately $1.50.

Place a pre-determined sell at $3.00.

Also include a protective stop loss of $0.60.

Biotech company Clovis Oncology Inc (NASDAQ: CLVS) has been on an upward trek since it reported better-than-expected earnings in a release two weeks ago.  The stock closed right above lateral resistance, and the next target is the rising channel top near $9-9.25.

At the moment options on Clovis Oncology stock shows high levels of implied volatility, suggesting that investors in the underlying stocks are expecting a big move in one direction or the other. It could also mean there is an event coming up soon that may cause a big rally or a huge sell-off.

The Earnings Report.....

Clovis Oncologyincurred adjusted loss of $1.89 per share in the third quarter of 2019, narrower than the Consensus Estimate of a loss of $1.92 but wider than the year-ago loss of $1.71 per share. Adjusted loss excludes expense related to acquire in-process research and development, and a gain on extinguishment of debt. Including these items, the company had incurred a loss of $1.72 in this quarter.

Net revenues, entirely from Clovis’ only marketed drug, Rubraca, were up almost 65% year over year to $37.6 million in the quarter, beating the Consensus Estimate of $36.31 million. Sales were up 14% sequentially. The company had recorded total revenues of $22.8 million, entirely from Rubraca sales in the United States, in the year-ago quarter.

Moving Forward.....

Clovis raised the lower end of its full-year guidance for product revenues. The company expects Rubraca to generate sales in the range of $141 million to $147 million, compared with the previously provided range of $137 million to $147 million. The Consensus Estimate stands at $141.46 million.

Influencing Factors.....

Clovis is planning to file a supplemental new drug application (sNDA) later this year, seeking accelerated approval for label expansion of Rubraca in advanced prostate cancer based on data from the TRITON clinical study program.

In October, the company presented encouraging initial data from the phase II TRITON2 study evaluating Rubraca in metastatic castration resistant prostate cancer. The company expects to provide updated data from the study to the FDA later this month. A phase III TRITON3 study evaluating Rubraca in prostate cancer patients who have not received chemotherapy is currently enrolling patients.

The company has collaboration with Bristol-Myers BMY to develop Rubraca and pipeline candidate, lucitanib, in combination with the latter’s PD-L1 inhibitor, Opdivo, for several cancer indications.

An early-stage study has been planned by Bristol-Myers to evaluate multiple combinations of lucitanib with Opdivo in several oncology indications including stage IV non-small cell lung cancer. The study is expected to start by 2019-end.

Clovis has a preclinical research collaboration with Alkermes ALKS to evaluate the latter’s ALKS 4230 in combination with lucitanib as well as Rubraca.

Analyst’s thoughts…..

Clovis Oncology has been assigned a consensus recommendation of “Hold” from the seventeen ratings firms that are currently covering the company. Two equities research analysts have rated the stock with a sell recommendation, eight have issued a hold recommendation and seven have assigned a buy recommendation to the company. The average 1-year target price among brokers that have covered the stock in the last year is $20.10.

Summary…..

The drugmaker's shares have jumped by 31% over the last two weeks thanks to the growing optimism about Rubraca's future, as well as the company's ability to significantly curtail net losses over its latest quarter. The big-ticket item, if you will, is the potential for Rubraca to break into BRCA-mutant advanced prostate cancer, perhaps as soon as late 2020. 

Clovis' market cap currently stands at $425 million, but Rubraca's sales could climb into the $700 million range with a label expansion that includes advanced prostate cancer. As most cancer companies trade at no less than three times the peak sales of their flagship medicine, it's easy to see why Clovis' shares are starting to heat up.