Seeing your cornerstone product “fail spectacularly” and then your stock price climb more than 300 percent within eight months makes for an interesting year. But it’s nothing to get overly worked up about, according to Clovis Oncology CEO Patrick Mahaffy.
Clovis (NASDAQ: [[ticker:CLVS]]) is a biotech company based in Boulder, CO. The four-year-old company specializes in acquiring, developing, and commercializing cancer treatments.
Clovis has seen those lows and highs over the past year, and a few weeks ago Xconomy interviewed Mahaffy at a conference hosted by the Colorado BioScience Association.
The wild ride began last November, when Clovis announced that the drug it was developing to treat pancreatic cancer failed its clinical trials and was being discontinued. The price of Clovis shares dropped to $11.19 per share. In the weeks before the announcement, it was in the low $20s.
It was a clear setback, and Mahaffy does not try to spin it as anything else.
“You have the ability to fail spectacularly, and we failed. There’s nothing ambiguous about that, and the stock adjusted because of that, as it should have,” Mahaffy said.
But Clovis wasn’t down for long. In fact, within about eight months, its share price was flying higher than ever, hitting $86.29.
How did that happen? The answer is that while Clovis had high hopes for the pancreatic cancer drug, it had other products in its pipeline, and while they are in very early stages of development, they made investors quickly forget about the pancreatic cancer failure.
“Almost immediately investors started paying attention to the earlier stage compounds in our portfolio, and we delivered good data for both,” Mahaffy said.
The two drugs Mahaffy was referring to are a lung cancer drug known as CO-1686 and rucaparib, a treatment for ovarian cancer. Clovis reported the results of two trials in June at the American Society of Clinical Oncology conference.
The results were good enough that Clovis’ planned public stock offering was upsized from $170 million to $275 million.
“Six months after that failure, we’ve been able to raise $275 million to support the global development of these other two assets and give us the capital to go and add to the portfolio, which we hope to do,” Mahaffy said.
Clovis was able to do that without generating any revenue—and no expected source of revenue for at least two years.
Clovis stock has since come down from its peak and has spent much of October trading in the $50s. At the end of trading on Thursday, it was $52.79.
[It needs to be noted that a few days before my interview with Mahaffy, Bloomberg News published an article saying Clovis had hired JP Morgan Chase and Credit Suisse to consider its strategic options. One possibility was finding a buyer.
A subsequent article by Bloomberg said approaches to potential buyers had failed.
Clovis has not commented on Bloomberg’s reports, and Mahaffy made clear he could only discuss topics Clovis already has commented on in public.]
Mahaffy has seen this story before. He cofounded and was CEO of Pharmion, one of the biggest biotech success stories Colorado has seen. Summit, NJ-based Celgene (NASDAQ: [[ticker:CELG]]) bought Pharmion for $2.9 billion in 2007. He also ran Nexstar Pharmaceuticals, which Gilead Sciences (NASDAQ: [[ticker:GILD]]) bought for about $550 million in 1999.
“I get told all the time how great the outcome for Pharmion was, and I say thank you. Everyone remembers we sold it for $72 per share,” he said.
But that’s not the whole story.
“What I remember is when it went from $48 to $15, and it went down everyday. It was Chinese water torture. We were unpopular, and expectations were low for us, and frustrations were high, and I remember telling my assistant, ‘Look at the bright side, Cathy. We’re going down a dollar a day, so we only have 15 more days of this.’”
Stories of failures and rebounds like that are common in the biotech industry, Mahaffy said.
“I knew we were going to have failures. I didn’t know what they were going to be, but I would have guaranteed there would be failures,” he said. “What you do is build in an ability, both financially and in the temperament of your organization, to deal with it.”
And while CO-1686 and rucaparib look promising, there remains a long way to go before Clovis will know it has a winner. In the case of CO-1686, the drug drawing the most attention, Clovis is still trying to find the right dose.
The excitement around the lung cancer drug was driven by a test that found four of six patients with a particular mutation showed significant tumor shrinkage at a dose lower than what patients will receive in later trials.
The latest reports from Clovis about CO-1686 are that it has been reformulated into a hydrobromide salt tablet and is trying to establish the dose to be used in its Phase II efficacy trial by the end of the year.
If the trials go smoothly and are successful, Mahaffy said the FDA could approve CO-1686 by early 2016.
CO-1686 could treat about 30,000 cancer patients per year in the U.S. as a first-line treatment and an additional 15,000 patients as a second-line treatment, Mahaffy said, with a similar or larger market in both Europe and Asia.
When Clovis reported the results at ASCO, CO-1686 looked to be the only drug that could hit that market. But now there could be some competition. AstraZeneca in late September reported that a drug it is developing for breast cancer (AZ9291) had shown positive early results.
According to an analyst report from J.P. Morgan, the next big news from both Clovis and AstraZeneca is expected the last week in October at the World Conference on Lung Cancer.
The confluence of events mean the next few years should remain just as interesting for Clovis.
“It’s really fun and exciting and challenging,” Mahaffy said.
“It’s the game we’re in,” Mahaffy said. “To be in this industry, as an investor, as a developer, as an employee, requires risk tolerance.”
“You build a business knowing you’re going to have challenges, so the way you finance and the way you build your portfolio has to be cognizant of the fact you’re not going to be right all the time, your drug is not going to work every time. And what you’re seeing with us is a microcosm of the industry,” he said.
