Why Clovis Oncology Inc. Shares Soared

Why Clovis Oncology Inc. Shares Soared

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Clovis Oncology , a clinical-stage biopharmaceutical company focused on developing cancer-fighting therapies, jumped as much as 12% after announcing the acquisition of privately held Italian biopharmaceutical company Ethical Oncology Science.

So what: Under the terms of the deal, Clovis is paying $200 million upfront for the acquisition of Ethical Oncology Science -- $10 million in cash, and $190 million in stock, which equates to 3.7 million shares. It'll also be on the hook for an additional $65 million if the Food and Drug Administration approves lucitanib, an experimental mid-stage breast cancer treatment that spurred Clovis to acquire Ethical Oncology Science. The deal gives Clovis the rights to lucitanib in the U.S. and Japan, with Ethical Oncology's previous partner, Laboratoires Servier, maintaining rights to the drug in all other countries. Clovis notes that much of the development costs for lucitanib are being covered by Servier, and it has the potential to earn an additional 350 million euro in development and sales milestones from Servier.

Now what: Obviously, the Street is pretty happy with Clovis taking the initiative to expand its puny pipeline, but I'm not going to be in that camp. Clovis' pipeline is still incredibly young, and it lost its previous lead drug, CO-101, a year ago to a failed mid-stage trial for pancreatic cancer. So what we really have today, the way I see it, is more early stage promises with little substance. Not surprisingly, I will be keeping my CAPScall of underperform on the company, and sticking to the sidelines until the company is able to get an experimental drug further along in the development process.

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The article Why Clovis Oncology Inc. Shares Soared originally appeared on Fool.com.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published