Clovis should put itself up for sale, activist Armistice says

Even before GlaxoSmithKline laid out an eye-popping $5.1 billion to buy PARP drugmaker Tesaro earlier this month, analysts were speculating that PARP rival Clovis Oncology would be a prime acquisition target. One of the company’s largest investors apparently agrees with that analysis—and wants Clovis to raise its hand for a buyout.

Armistice Capital, which owns 9.8% of Clovis’ shares, is encouraging the company to pursue a sale, according to anonymous sources who spoke to Bloomberg. Steven Boyd, Armistice founder and chief investment officer, declined to comment in response to a request from FiercePharma. Clovis did not immediately respond to a request for comment.

Armistice did hint at its intention to take an activist stance towards Clovis in November, when it revealed in an SEC filing that it had paid $116.5 million to boost its ownership stake in the company to 5.15 million shares. In the filing, Armistice revealed it was considering a range of actions, including proposing management changes, nominating an alternate set of directors at Clovis’ 2019 annual meeting, or "recommending business development transactions including a sale," it said.

Clovis markets PARP inhibitor Rubraca for treating ovarian cancer, but it has struggled to gain traction against competitors like AstraZeneca and Merck's Lynparza. When Clovis reported Rubraca sales of $22.8 million in the third quarter—falling way short of the average analyst estimate of $31.3 million—the company’s stock lost a third of its value.

Clovis’ valuation has since rebounded a bit, but the revelation that a big stakeholder is still pushing for a sale is not so surprising. Clovis’ stock is currently trading at just over $19 a share, having plummeted from $66 at the start of the year. And Tesaro’s takeout price—a remarkable 62% premium over where it was trading when that deal was announced—shows just how much value the market is placing on PARP inhibitors right now.

What’s more, the prospects for Clovis in the red-hot PARP market may be improving. The company recently won breakthrough status from the FDA for the potential approval of Rubraca in prostate cancer. Clovis intends to file for that approval in the second half of 2019, and if it gets a sped-up nod thanks to the breakthrough designation, it could own the prostate cancer market at least for some amount of time.

That alone could push Rubraca sales to $580 million a year, Leerink analyst Andrew Berens predicted. It could also give the drug a 40% share of the PARP market by 2025, putting it ahead of Tesaro's Zejula (35% share) and Lynparza (15%), Berens added.

But Clovis’ status as a one-product company does make it vulnerable, particularly in light of the fact that the overall PARP market is growing more slowly than analysts had hoped it would. At a recent oncology conference, Tesaro's chief medical officer Marty Huber, M.D., said only half of women with ovarian cancer who could be helped by PARP drugs actually get them as maintenance therapy.

And Clovis CEO Patrick Mahaffy has acknowledged his company is having some trouble getting Rubraca off the ground. During a conference call with analysts after its last earnings report, Mahaffy reported that "a perceived lack of differentiation" among PARP inhibitors was proving to be a hurdle for Clovis.

Armistice Capital is far from the loudest or most aggressive activist investor in biopharma, but it does have some track record in the industry. For example, in 2015, it took a 5.4% stake of troubled Spectrum Pharmaceuticals and began pushing for management changes and a sale. It took a while, but Spectrum CEO Rajesh Shrotriya was ousted in late 2017 and the company reportedly put itself on the block in June of this year.