Seeking Alpha
Special situations, micro-cap, biotech, healthcare
Profile| Send Message| ()  

The recent doubling of shares of Clovis Oncology (CLVS) after the company's presentation at ASCO 2013 still leaves many biotech investors baffled at the market's new, intrinsic ~$1.9 B valuation of the company's early-stage oncology pipeline compounds CO-1686 and Rucaparib, although continuing analysis of the data seems to be supporting the new CLVS market cap quite nicely. After hitting a 52-week high of $86.29 per share in the height of the post-data rally, CLVS has settled comfortably above $70 per share.

In a previous note on Clovis, I briefly went over the company's history and the manner in which they were able to acquire their assets; specifically, the acquisition of CO-1686 through an interrupted partnership with Avila Therapeutics (due to Celgene's (CELG) acquisition) and the licensing deal which gave Clovis control of Pfizer's (PFE) old PARP inhibitor Rucaparib (aka PF-01367338). In this note, I will delve into the key details of the Phase I data presented for CO-1686 - the more impressive of the two drugs up to this point.

CO-1686 - A Covalent/Irreversible Epidermal Growth Factor Receptor [EGFR] Inhibitor for Non-Small Cell Lung Cancer [NSCLC]

A big problem that other EGFR inhibiting NSCLC drugs like Tarceva (erlotinib) and Erbitux (cetuximab) have is their vulnerability to particular mutations in cancer cells that can bypass their mechanism of action. In particular, a frequently seen mutation known as T790M is known to counteract EGFR inhibition in nearly two out of every three cases. Other, less common mutations like L858R and del19, cause similar disruptions.

What makes CO-1686 unique relative to its peers is the molecule's ability to inhibit EGFR in patients that have T790M, l858R, del19, and other drug-disabling mutations while avoiding inhibition of non-mutated (or wild type) EGFR. It was hard to believe that a NSCLC drug could be so well designed, although the Phase I data that Clovis presented at ASCO 2013 seemed to reinforce the notion that the drug works as intended.

In the trial, 42 total patients were enrolled, 24 entered the dose escalation phase of the study, and 6 reached the highest daily dose of the drug (1800 mg, twice daily). According to biopsies taken from the 42 patients, 74% were positive for the T790M mentioned earlier, implying that the efficacy results would be a good gauge of whether or not CO-1686 worked as well as it should in lung cancer patients with that mutation.

Patients saw none of the typical signs of EGFR inhibition-related toxicity - specifically rash and diarrhea - up to a 1800 mg daily dose of the compound (N=6) as mentioned. There was one possible exception in the 900 mg arm that included diarrhea and some other serious side effects, labeled as an instance of dose limiting toxicity [DLT]. Total adverse events (grade 3 or higher) were limited to 4 patients - including the DLT patient, and were explained to be unrelated to the administration of CO-1686. Total adverse events were seen in 62% of the population, although the most frequent of these were common symptoms like fatigue and nausea.

The notion that the drug is a particularly potent and irreversible inhibitor (by forming covalent bonds with its target receptor) is quite shocking from a bigger perspective, since these types of drugs are generally associated with very undesirable toxicity profiles which are discovered early on in Phase I development.

Perhaps more exciting from the presentation was direct proof (in a non-animal model) that the drug could cause RECIST-measured reduction in tumor size in patients that stopped responding to other EGFR inhibitors, and had biopsies to confirm the presence of the drug-disabling mutations mentioned earlier.

(click to enlarge)

Image Source: Poster #2524 ASCO 2013

As mentioned by the company numerous times, patients had not reached the maximum tolerated dose [MTD] at this point, which is why the company cannot provide a specific estimate on the optimal dose that it expects to use in the shift to Phase II trials. But overall, the takeaway that we have from the efficacy and safety data up to this point is that CO-1686 is everything it "promised to be" on paper. This is quite relieving to CLVS investors, since it is often the case that a drug's mechanism of action is disrupted in vivo (or "in the body").

We also saw solid measurements that established the pharmacokinetic profile of the drug. The dosing of the drug correlated quite well with the blood plasma concentration of the drug, and Clovis mentioned that there were no signs of accumulation of the compound in any of the dosage arms.

(click to enlarge)

Image Source: Poster #2524 ASCO 2013

Based on these data, we are expecting a rough threefold increase in the bioavailability of CO-1686 as the company switches from a capsule form of the compound to a hydrobromide salt (tablet) formulation. This is expected to amplify the tumor-shrinking effects that we saw in the dose escalation portion of the Phase I trial for each respective dosage arm, which bodes well for Phase II efficacy data - ceteris paribus.

The Takeaway

Clovis has presented some truly amazing data for the prospective NSCLC drug CO-1686 at ASCO 2013, which explains the magnitude of the recent CLVS rally. Despite the notion that the company is still an early-stage developer, the ASCO data and the hope that the company will see an accelerated approval process is likely to support the stock for quite some time.

(Original Post)

Source: Clovis / CO-1686: Value, Derived From Data, Supports The Valuation