Dive Brief:

• Shares in Clovis Oncology dropped 16% Thursday following a second quarter earnings report that disappointed Wall Street analysts.
• Net revenue for Clovis' only marketed product, Rubraca, came in at $33 million for the three-month period, slightly below consensus estimates of $34.8 million. The U.S. market accounted for $32.7 million of the total, while $300,000 in European revenue was a "surprising disappointment" compared to last quarter, according to RBC Capital Markets analyst Kennen MacKay.
• RBC and fellow investment bank SVB Leerink each lowered their price targets for Clovis, while Guggenheim Securities downgraded the biotech from Buy to Neutral. SVB Leerink analyst Andrew Berens wrote in an Aug. 2 note that his price drop was mostly due to diminished prospects of Clovis getting acquired.

Dive Insight:

Clovis stock hit an all-time low Friday morning, trading at $8.35 apiece.

Berens cited several reasons for the "unprecedented levels" of investor pessimism. For one, the company had $316 million in cash, cash equivalents and marketable securities as of June 30, a sum that doesn't seem like it can cover increasing costs for long. During the second quarter, Clovis recorded a $93 million operating loss, spurred by year over year increases of 34% in R&D spend and 7% in selling, general and administrative expenses.

While company leadership expects R&D costs to flatten next year, there are also market challenges to contend with.

Rubraca (rucaparib) is a PARP inhibitor, a type of cancer drug that also includes AstraZeneca's Lynparza (olaparib), GlaxoSmithKline's Zejula (niraparib) and Pfizer's Talzenna (talazoparib).

Lynparza, Zejula and Rubraca have each notched approvals as second-line maintenance treatments for adults with recurrent epithelial ovarian, fallopian tube or primary peritoneal cancer who are in a complete or partial response to platinum-based chemotherapy. Yet breaking into that market hasn't been easy. Daniel Muehl, Clovis' chief financial officer, said Thursday that PARP inhibitor adoption in that setting is less than 50%.

Even so, AstraZeneca and GlaxoSmithKline have seen greater sales from their PARP inhibitors than Clovis has for Rubraca. The gap may continue to widen, as Lynparza in December secured an approval in the first-line maintenance setting for certain ovarian cancer patients. Zejula in June scored positive Phase 3 data in the first-line maintenance setting, while the Phase 3 ATHENA trial of Rubraca won't finish enrolling until mid-2020.

For the second quarter, Rubraca revenue also took a hit from geopolitical pressures.

Clovis leadership blamed the weak performance in Europe on Brexit preparations. As the company moved Rubraca out of the U.K. ahead of its planned March 29 exit from the European Union, it created inventory buildups elsewhere. Management expects the product movement to be a one-time event, and third quarter ex-U.S. Rubraca sales to be higher than in the second quarter.

"From now on, our shipments into our distributors in any European country will come from Dublin, which is a part of the EU. So we will not have this effect anymore," Muehl said.

Despite the headwinds, some investors have held out optimism that Clovis could be acquired, especially following GlaxoSmithKline's acquisition of Tesaro, which brought Zejula into the British drug giant's portfolio.

Yet those hopes appear to be diminishing, and may not come back until Clovis builds out the Rubraca franchise in either ovarian cancer, or tangential therapeutic areas like prostate cancer.

"While we maintain our Outperform rating, we acknowledge the pathway to ... appreciation is likely to be arduous, as many of the key catalysts are [greater than] 10 months out, and investor sentiment is unlikely to dramatically change absent the resurfacing of M&A speculation," SVB Lerrink's Berens wrote.