Clovis Oncology Inc (CLVS): Look Before You Leap (IBB & XBI)

On Wednesday, small cap cancer stock Clovis Oncology Inc (NASDAQ: CLVS) soared 16.68% after announcing a $200 million cancer deal plus the biotech has more than tripled since late 2011, meaning it might be time to take a closer look at what's driving the stock higher as well as look at the performance of biotech ETF benchmarks like iShares NASDAQ Biotechnology Index ETF (NASDAQ: IBB) and SPDR S&P Biotech ETF (NYSEARCA: XBI).

What is Clovis Oncology Inc?

Small cap Clovis Oncology is focused on acquiring, developing and commercializing cancer treatments in the United States, Europe and other international markets as its development programs are targeted at specific subsets of cancer. Clovis Oncology has three product candidates in its development pipeline: 1) CO-1686, currently in Phase I/II development for the treatment of non-small cell lung cancer (NSCLC); 2) rucaparib, currently in Phase II development for the treatment of platinum sensitive, relapsed ovarian cancer; 3) lucitanib, currently commencing Phase II development for the treatment of breast and lung cancers.

For benchmarking purposes, the iShares NASDAQ Biotechnology Index ETF tracks the Nasdaq Biotechnology Index through 119 holdings while the SPDR S&P Biotech ETF tracks the S&P Biotechnology Select Industry Index through 58 holdings.

What You Need to Know and Be Warned About Clovis Oncology Inc

On Tuesday after the market closed, Clovis Oncology announced it had acquired EOS (Ethical Oncology Science) S.p.A., a privately-held Italian biopharmaceutical company that owns the exclusive global (excluding China) development and commercialization rights for lucitanib, a drug in mid-stage clinical testing that is being studied as a treatment for breast cancer plus patients with other cancers (e.g. kidney and thyroid tumors) are said to also respond to treatment with it. Terms for the deal are as follows:

Pay an up-front payment of $200 million, which includes $190 million in Clovis common stock (3,713,731 shares) and $10 million in cash. Pay an additional $65 million in cash upon FDA approval of lucitanib. Receive €350 million (approximately $470 million) upon the achievement of development and commercial milestones pursuant to a license agreement with Servier (note: Clovis the rights to lucitanib in the US and Japan while Servier has the rights for all other countries). Receive royalties on sales of lucitanib in the Servier territories. Pay the EOS shareholders up to an additional €115 million in cash (approximately $155 million) upon the receipt by Clovis of certain of the milestone payments pursuant to the Servier license agreement.

Is the above a good deal for Clovis Oncology and for investors? On one hand, Clovis Oncology can expand its pipeline (which is still in its early stages), but lucitanib still needs to get FDA approval – which is never a slam dunk. Moreover, the deal does seem rather frontloaded (albeit its in the form of new shares rather than cash) with the risk being on Clovis Oncology and investors.

Investors should also remember that Clovis Oncology sank 41.8% in one day late last year while shares of development partner Clavis Pharma ASA (OSLO: CLAVIS) plunged more than 87% after the failure of CO-101 (CP-4126) to demonstrate any impact on survival in a pivotal Phase II trial in metastatic pancreatic cancer. All development on the drug stopped at that point in time.

In the case of CO-101, Clovis Oncology originally licensed US and European rights to CO-101 from Clavis in a deal worth up to $380 million, plus royalties, with the deal latter expanded to include Asia for another $205 million on the table. Luckily for the company and for investors, both deals were strongly back-end loaded with most of the available milestones tied to sales and only $25 million in two up-front payments being made to Clavis for the failed drug.

Then just last June, shares of Clovis Oncology more than doubled after the company reported positive data on its two early stage experimental treatments: CO-1686 in EGFR-mutant non-small cell lung cancer (NSCLC) and Rucaparib in a monotherapy study of solid tumors. Certainly the results are promising but again, it could turn out to be another bad bet at the roulette wheel for both the company and for investors.

Share Performance: Clovis Oncology Inc vs. IBB and XBI

On Wednesday, small cap Clovis Oncology surged 16.68% to $54.56 (CLVS has a 52 week trading range of $11.67 to $86.29 a share) for a market cap of $1.65 billion plus the stock is up 241% since the start of the year and up 333.7% since November 2011. A quick look at Clovis Oncology's performance verses that of biotech ETF benchmarks iShares NASDAQ Biotechnology Index ETF and SPDR S&P Biotech ETF reveals the following chart:

As you can see, a small cap biotech like Clovis Oncology can both underperform as well as blow any biotech ETF benchmarks out of the water – if you pick the right ones.

Finally, here is a look at the latest technical charts for Clovis Oncology plus the iShares NASDAQ Biotechnology Index ETF and SPDR S&P Biotech ETF:

The Bottom Line. Obviously any investor not used to the roulette nature of small cap biotech stocks like cancer stock Clovis Oncology will want to stick with safer biotech ETF benchmarks such as the iShares NASDAQ Biotechnology Index ETF and SPDR S&P Biotech ETF. Nevertheless, those with a high tolerance for risk might still find some tempered gains to be had with Clovis Oncology. 

Tesla Motors Inc (TSLA): How Tesla Fares Against Upcoming Electric Cars

Electric cars are the new flavor of the season, and they are here to stay. The success of Tesla Motors, Inc. (NASDAQ: TSLA) gave the industry a much needed boost, and many automakers (small and large) are aiming to get a share of the market given the increased regulatory awareness over zero emissions.

From the investment perspective too, electric car companies are getting their due. Investors support for Tesla is a huge example as its stock price climbed 272 percent in the last two years.

Tesla's  Model S is being offered with two battery packs: a base model with a 60 kW·h battery which can deliver 230 miles (370 km) and an 85 kW·h battery which can deliver 300 miles (480 km). It is a premium sedan costing $71,000.

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In addition, Tesla will start selling the Model X crossover in 2014 with full-fledged sales expected in 2015. The company is working hard to get the design of the Model X right. The company expects to sell Model X in limited volumes at the end of next year, and then volume production would recur in 2015.

Since Model S is expensive, competitors are working on affordable affordable vehicles. Even, Tesla CEO Elon Musk hinted at $30,000 car arriving probably in 2016.

All leading automakers, including General Motors (NYSE: GM), Ford Motor Co. (NYSE: F) and Toyota (NYSE: TM), are working on their own electric vehicles. Here is a brief overview of upcoming electric cars that may challenge Tesla.

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GM already has an affordable all-electric car—the Chevy Spark—in its lineup, which features a range of 82 miles and costs about $28,000.

GM's Chevrolet Volt (plug-in hybrid) and Ford Focus Electric gives a mileage of 38 miles and 76 miles, respectively. Both these vehicles cost around $35k to $40k.

Meanwhile, Kia Motors has confirmed that a new all-electric version of the Kia Soul is scheduled to! go on sale in overseas markets during the second half of 2014. Equipped with a high-capacity 27 kWh lithium-ion polymer battery pack, the Soul EV will be able to drive more than 200 km on a single charge.

The all-new Mercedes-Benz B-Class Electric Drive could hit the markets next year. It claims an estimated range of around 115 miles (200 km). The maximum speed is electronically limited to 100 mph (160 km/h).

BMW i3 is expected come to the United States next year, and can travel 186 miles when equipped with an optional range extender. Sans this feature, the car will be able to travel about about 93 miles, on a single charge. The company has not yet revealed the price for the i3 or any of its options, but it is likely to be well under $42,000.

Automakers Nissan and Renault are trying to expand their EV line-up by investing more than $5 billion. The Renault-Nissan alliance has six electric vehicles on offer, including Nissan's Leaf and Renault's Zoe mass-market sub-compact cars.

Nissan Leaf comes with a range of 75 miles in the sub-$30,000 category. Toyota Prius plug-in hybrid costs around $32,000 and gives 11 miles in its electric run. Honda Fit comes for about $37,000 and provides a driving range of 82 miles.

The competition is interesting, but, the focus point is how these automakers will convince buyers and improve the uptake of electric cars. They could do that by providing vehicles with decent mileage at affordable prices. They should also prove the safety of their vehicles as even a 5-star rated car (Model S) in safety couldn't avoid fire risks.

From Tesla's point of view, it should release a sub-$30,000 vehicle to reach the mass market. The company boasts of a compelling technology coupled with R&D and marketing acumen.