Summary

• Many institutional investors and sellside analysts hold tepid outlooks for Clovis Oncology

• One concern is slow PARP uptake within maintenance therapy for recurrent ovarian cancer, and limited Rubraca share gains within the PARP class

• The second concern is upcoming competitive threats that could further slow sales and impact Rubraca’s expansion into mCRPC and frontline ovarian cancer

• Bulls see eventual PARP class gains, which should drive Rubraca sales higher, and potentially the first positive pivotal trial for PARP+PD1 in first line maintenance of ovarian cancer

Street Tepid on Outlook for Clovis

Sentiment on Clovis Oncology across institutional investors and sellside analysts is largely tepid. While I do not have a strong personal opinion on the stock, I’ll outline the reasons behind the lack of support among institutional investors and sellside analysts, as well as the arguments I’m seeing put forth by the bulls.

The bears see slow uptake by PARP inhibitors more broadly in maintenance therapy of recurrent ovarian cancer, and further headwinds as competitor PARP inhibitors begin to enter the first line maintenance setting. Additionally, there are further competitive concerns within mCRPC and first line ovarian cancer - two indications that Clovis is looking to expand its key drug Rubraca into in the coming years.

More bullish investors believe that PARP inhibitors will eventually gain more traction in maintenance treatment of recurrent ovarian cancer over time, which should grow Rubraca sales in turn. Furthermore, they see a significant opportunity for Rubraca to leapfrog the competition with the first pivotal trial of a PARP + PD-1 in first line ovarian cancer, which has shown promising preclinical data.

Rubraca Slow to Gain Traction in Maintenance of Recurrent Ovarian Cancer

Rubraca is a poly ADP ribose polymerase (PARP) inhibitor approved for the use of maintenance treatment of adults with recurrent ovarian cancer. Initial expectations for this drug were fairly optimistic, with street estimates forecasting $406 million in 2019 revenue two years ago, according to consensus. However, today, 2019 revenue estimates have been revised down to just $144 million.

The reasons for slower-than-anticipated growth are twofold. First, PARP inhibitors as a class have been slow to gain traction within the maintenance therapy for recurrent ovarian cancer setting, where penetration rates remain below 50%. Investors expected penetration rates to gain traction more quickly, with the thought that the superior data would eventually win physicians over. This hasn't played out, to the confusion of some investors (including investors on the sidelines).

Second, Rubraca looks to be largely undifferentiated from the other two PARP inhibitors: GSK's Zejula, and AstraZeneca's Lynparza. Surveys among physicians have shown that most physicians see similar levels of efficacy across all three drugs, and perceive Lynparza to have the best safety profile. Rubraca's marketshare within the PARP class in the recurrent maintenance setting is currently estimated to be in the low 20s vs. earlier expectations of 30%+. 

There are reasons to believe that PARP inhibitors could eventually gain traction. Remember that the majority of the street has been somewhat surprised by the slow uptake of PARP inhibitors in the space thus far as the data shown by PARP inhibitors has been generally strong. We’ve already begun to see some signs of near-term momentum, with management noting PARP penetration growing "slowly and creepily" on the 2Q19 conference call. Rubraca has also shown signs of single digit share gains within the PARP class, which may be due to better safety data than Zejula. This isn't enormous, but it's something. And with expectations now much lower, this could provide upside to current consensus estimates.

But there's also upcoming headwinds as well, as competition in front line ovarian cancer is approaching. While Clovis is looking to expand Rubraca into this indication as well, the entry of numerous PARP inhibitors here could negatively impact second line sales further. 

Consider Near-Term Competitive Threats in First Line Ovarian Cancer

Clovis Oncology is examining Rubraca + BMY's Opdivo, as well as Rubraca monotherapy and Opdivo monotherapy in first line maintenance for ovarian cancer. This looks to be promising given that first line therapy would offer a larger opportunity than in recurrent maintenance.

However, as I've detailed in my prior GSK article, both AstraZeneca and GSK recently reported promising clinical trial data at European Society for Medical Oncology in this setting as well. GSK's Zejula looks more promising as its ph. 3 PRIMA trial showed statistically significant progression free survival (PFS) in monotherapy vs. placebo in all patient subgroups, including the HRD- patient population. This latter group is important as Lynparza surprisingly was not able to show efficacy in this group. Additionally, Zejula looks to potentially have better safety than Lynparza, as they had a lower rate of discontinuation (12% vs. 20%), although they did have higher grade 3+ side effects. Overall, while different, both Zejula and Lynparza showed promising data in the setting.

Meanwhile, Clovis's Rubraca looks to be several years behind competitors, as ph. 3 ATHENA is expected to finish enrolling in mid 2020, and is not likely to report initial results until potentially 2021. As a result, in the near-term, many institutional investors and sellside analysts are not as excited about the opportunity in first line ovarian cancer, and instead see heightened risk that competitors with earlier readouts could hurt sales in the maintenance of recurrent ovarian cancer.

On the positive side, Clovis Oncology is likely to be the first company to report pivotal data on a PARP + PD-1 combo, which could come in 2022. A PARP + PD-1 is thought to hold a lot of promise, as preclinical studies have shown strong anti-tumor activity. This area is a key focus of clinical development for all PARP competitors. Bulls see the combination of Opdivo and Rubraca providing potentially $2-3 billion in potential revenue if approved, but results remain a ways away.

Competition in Prostate Cancer Also Could Dampen Traction

Clovis Oncology remains on track to submit an sNDA for Rubraca in BRCA+ metastatic castration-resistant prostate cancer (mCRPC) patients by the end of 2019. This represents another indication expansion for the drug and is key to revenue growth prospects.

Again, as is the case in ovarian cancer, competition here looks strong. Particularly, Lynparza looks like it could be superior to all other treatments. AstraZeneca's ph. 3 PROfound trial showed Lynparza superiority to physician choice of Xtandi or Zytiga after failing one prior novel hormonal agent. Subgroup analysis showed that the majority of the benefit came from BRCA2 patients, with a more modest benefit from ATM mutations. However, the study design included both BRCA and ATM mutation patients into a single cohort, and therefore AstraZeneca could potentially receive a broader label (with BRCA+ and ATM+) than Rubraca, which is likely to just receive a BRCA+ label. In addition to the expanded label, Lynparza demonstrated a PFS improvement in a randomized ph. 3 trial vs. the standard of care, which should lead to better uptake and reimbursement, especially in Europe. Notably, this all compares to Clovis's ORR data from a single arm ph. 2 trial. With these considerations in mind, Lynparza is likely to see strong traction and will be difficult for Rubraca to compete against.

Both drugs should be submitted by year end with approval expected in 2020. Note that Zejula also showed promising data here as well (with a response rate among BRCA+ patients in line with Rubraca), but may potentially be third to market.

Conclusion

Competition is a clear investor concern for Clovis within their existing indication as well as in future indications. Lynparza and Zejula both have shown promising data in indications that Rubraca will be expanding into. Additionally, the PARP inhibitor class continues to struggle to gain commercial traction in Rubraca’s approved indication, which is slowing sales growth and profitability in the near-term.

While investors generally believe that Rubraca is a good drug, many have expressed a desire to wait until 1) Clovis can string together consecutive earnings results demonstrating sustained traction in the recurrent maintenance setting, and 2) more near-term clinical developments to get investors excited, as many developments remain in the early stages.