During the first quarter guru Kyle Bass (Trades, Portfolio) purchased 100,000 shares of Clovis Oncology Inc. (CLVS, Financial).
Clovis Oncology is a biopharmaceutical company that is headquartered in Boulder, Colorado. The company focuses on acquiring, developing and commercializing cancer treatments in the U.S., Europe and other international markets. The company's development programs are targeted at specific subsets of cancer, combining personalized medicine with companion diagnostics to direct therapeutics to those patients who are the most likely to benefit from them.
Clovis Oncology has a market cap of $594.22 million, an enterprise value of $428.92 million, a P/B ratio of 2.56 and a quick ratio of 6.27.
Clovis Oncology is also traded in Germany.
During the fourth quarter of 2015, Hayman Capital Management LP wrote a report about Clovis Oncology. The full report was originally posted by Canadian Value and can be accessed by clicking here.
The investment firm stated in the report that, while Clovis Oncology share prices had recently fallen, the firm remained optimistic about the biopharmaceutical company, stating that it was a good investment based upon the firm's analysis.
Clovis Oncology speculated that its drug Rucaparib (“Ruca”) would be FDA approved in 2016, and its approval would help the company reach its price target value of $45 per share, but the drug has not been fully approved by the FDA.
The FDA has, however, approved breakthrough therapy designation for Rucaparib as monotherapy treatment of advanced ovarian cancer in patients who have received at least two lines of prior platinum-containing therapy with BRCA-mutated tumors inclusive of both germline BRCA (gBRCA) and somatic BRCA (sBRCA) as of April 2015.
Hayman Capital was speculating that Rociletinib would be FDA approved in 2016; however an article on reuters.com on April 12 stated:
"An independent panel of experts advising the U.S. Food and Drug Administration recommended that Clovis Oncology Inc.'s lung cancer drug not be approved based on existing trial data.The panel voted 12-1 against giving the drug an accelerated approval and recommended the FDA wait for the results from an ongoing late-stage trial that compares the drug's effect to that of chemotherapy."
The advisory panel is recommending that the FDA wait for data from a phase 3 clinical trial before making a decision on Rociletinib. This is a setback for the company as there is no guarantee that rociletinib will receive FDA approval. In December, Clovis said the FDA was extending its review of rociletinib by three months to June 28.
According to the book "Softwar," a biography about the life of multibillionaire and Oracle (ORCL, Financial) co-founder Larry Ellison by Matthew Symonds. Ellison described in the book what Charlie Munger (Trades, Portfolio) calls the laws of human misjudgment when the FDA refuses to approve drugs that could potentially benefit the lives of thousands of people in need.
Ellison is quoted in the book, “The FDA and our legal system work hand in hand to virtually eliminate errors of commission; unfortunately, this leads to a dramatic increase in errors of omission. Here’s why: If a drug saves 1,000 lives for every one person it kills, the drug is not likely to be approved. You can’t get sued for not releasing a drug that would have saved a thousand people; you can and will get sued for releasing a drug that killed one person. It’s pretty bad math and worse ethics, if you ask me.”
The way the FDA currently operates drastically increases the variance of Rociletinib not being approved in the immediate future. A panel has already stopped its momentum by voting against its approval by a count of 12-1. If Rociletinib is not approved in the near future, there is a good chance that Clovis Oncology's stock price will continue to stagnate and decline in the future.
According to GuruFocus Clovis Oncology has a 2/10 Financial Strength rating with a 2/10 Profitability and Growth rating. The company also has an (-133.27 ROE%), a (-51.57% ROA%), and a ROC (Joel Greenblatt (Trades, Portfolio)) rating -9948.89%.
The company has also had decreases in EBITDA growth (-21.90%), operating income growth -21.50%, EPS without NRI growth -22% and free cash flow growth (-24.60%) over the previous five years. The company also has an Altman Z Score of -2.32, implying the possibility of bankruptcy in the next two years.
Clovis Oncology reminds me of SunEdison (SUNEQ, Financial) where investors are speculating that the company is going to be able to execute its business plan despite multiple negative signs and poor reported financial results.
Kyle Bass made a high variance, highly volatile investment in Clovis Oncology. The company has yet to be FDA approved for its lung cancer drug. The company also has poor financial results over the previous five years, which further decreases its chances of rising in value and share price in the future.
Bass was born in Miami in 1969 and raised in Dallas after he and his family relocated to the Lone Star State. After Bass graduated from high school he went on to Texas Christian University where he graduated with a B.A. in business administration in finance and real estate finance in 1992.
Upon graduation, Bass began his investment career working in the Dallas office of Bear Stearns, where he quickly rose through the ranks, becoming senior managing director at age 28. Bass then left to become the managing director in Legg Mason's Dallas office.
In December 2005, when Legg Mason sold the portion of the business where he worked, Bass left Legg Mason and started Hayman Capital Management LP to serve as the investment manager to a "global special situations" hedge fund he planned to launch. Shortly after launching the hedge fund in February 2006, Bass became convinced there was a residential real-estate bubble in the U.S. He was one of the few investors to successfully use the art of speculation to predict and benefit from the subprime mortgage crisis, bringing him fame and spotlight in the financial services industry.
Cheers to your investment success.
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