Clovis Deal Chatter Heats Up Again as Goldman Says Buy: Real M&A

Clovis Oncology Inc.’s takeover prospects are looking better now than when it explored a sale in 2013.

The cancer-drug developer failed to draw interest then as it was trading at a steep price for a company whose oncology treatments were still in early stages. Fast forward to today, and both Clovis’ lung and ovarian cancer therapies have been granted breakthrough status by the U.S. Food and Drug Administration. That should speed up the approval process.

Goldman Sachs Group Inc. analyst Terence Flynn this month boosted the odds of a takeover of $3.1 billion Clovis to at least 30 percent and recommended investors buy the stock. A transaction would add to what’s already a strong start for U.S. biotechnology deals this year, with activity poised to surpass 2014’s four-year high, data compiled by Bloomberg show.

“It’s fairly noteworthy that a small biotech gets breakthrough designation on two of their products,” Jon Loth, a money manager for Nuveen Asset Management’s Small Cap Growth Opportunities fund, which owns Clovis shares, said in a phone interview. These types of drug developers are appealing targets for larger rivals in the industry that are looking for growth potential, he said.

Scarcity Value

Clovis’ top drug rociletinib, which is being tested in lung cancer patients who have a mutation that causes their disease to become resistant to other treatments, is on track for approval by around year-end, according to Charles Duncan of Piper Jaffray Cos.

With the drug now further along in development, and few other cancer treatments available for buyers that aren’t already tied up in partnership with another drug company, a takeover is more likely, said Goldman’s Flynn. He estimates an M&A valuation of $179 a share -- almost double the current stock price. Potential buyers could include Roche Holding AG and Pfizer Inc., said Loth of Nuveen.

On Thursday, Clovis shares rose 6.1 percent to $90.25.

A representative for Boulder, Colorado-based Clovis said the company doesn’t comment on speculation, as did a representative for Basel, Switzerland-based Roche. A representative for New York-based Pfizer declined to comment.

Clovis plans to apply for approval of its ovarian drug candidate rucaparib by 2016, and it also has an experimental drug in development for breast cancer.

Pricey Purchases

A Clovis acquisition would add to a breakneck pace of acquisitions in the cancer-treatment area, fueled by innovative new therapies being developed by both big pharmaceutical companies and biotech startups. With everyone anxious for a piece of the action, prices have been pushed up accordingly.

Bristol-Myers Squibb Co. agreed in February to acquire closely-held Flexus Biosciences Inc. for up to $1.25 billion including milestone payments, even though Flexus didn’t yet have a drug in human clinical trials. AbbVie Inc. and Johnson & Johnson’s bidding war for Pharmacyclics Inc. drove up the price to $21 billion over a single product, Imbruvica.

A takeover of Clovis may still be a while out. Chief Executive Officer Patrick Mahaffy sold Pharmion Corp. to Celgene Corp. in 2008 for about $3 billion, but that company already had a product on the market. AstraZeneca Plc is developing a lung cancer drug that’s similar to Clovis’ rociletinib and the two are locked in a race to get approval. Buyers may wait for more information on how Clovis’ drug stacks up before making a move.

Clovis is set to present data at the American Society of Clinical Oncology conference in a month that may help further differentiate rociletinib from AstraZeneca’s treatment, said Brian Klein, a New York-based analyst at Stifel Financial Corp.

Sales Potential

Patients with EGFR mutations can develop another mutation that makes them no longer respond to treatments. It’s the resistance caused by that second mutation that Clovis and AstraZeneca are trying to treat. Both are also exploring use of the drug as a first treatment for patients with the EGFR mutation. Approval for that indication would expand the drug’s peak sales potential for Clovis to $2 billion, according to Goldman’s Flynn.

“We’ve seen a sufficient amount of data to whet the appetite but we really haven’t seen a large enough sample size to say ‘OK, you know what? This is definitely a consistent effect and this drug really appears to be working in this unmet need,’” Klein of Stifel said in a phone interview. “But management certainly has a history of selling a company at a time that is most beneficial for investors and I would say that they would probably pursue that route again.”

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