New Issue: Clovis Oncology (CLVS) $200 million Convertible Senior Notes

Clovis Oncology (CLVS) is a biotechnology company that develops drugs to target specific subsets of cancer.  Like many other biotech stocks, CLVS skyrocketed early in 2014, touching $80 in February before retracing to the current $48 level.  Despite the drop, Clovis maintains a healthy $1.6 billion market cap, which reflects its ownership of global rights of three compelling drug candidates.  To support development of its pipeline, Clovis is raising $200 million in convertible notes, at attractive terms for the company.  Clovis previously guided to a year-end 2014 cash balance of $200 million, which appears on target given the 2Q-end cash level of $273 million and a $30 million quarterly burn rate.  Extending the cash runway by another year and a half or so makes sense, given that Clovis’ most advanced molecule, rociletinib for non-small cell lung cancer (NSCLC), is likely two years away from approval.  Clovis also needs to fund potential milestones due to Celgene for rociletinib and Pfizer for another drug, rucaparib.

While rociletinib (also known as CO-1686) has shown compelling efficacy in a subset of NSCLC patients with the T790M mutation, there is also concern about toxicity in the form of hyperglycemia (high blood sugar).  Rucaparib, currently in Phase 3 for ovarian cancer and Phase 2 for pancreatic cancer, faces a highly competitive landscape in the PARP inhibitor space (the drugs inhibit an enzyme on which some tumors are dependent).  However, Clovis hopes that using biomarker data to identify the patients most likely to benefit from rucaparib will be a differentiator.  Clovis will report key data on both molecules in mid-November at the EORTC conference in Barcelona.  Because the data will be crucial to the medium-term outlook for Clovis, convertible investors need to be comfortable with what will be presented and the potential downside before loading up on this new deal.