Earlier this week at the EORTC meeting, Clovis provided an update on rociletinib (CO-1686) and rucaparib. Not only do the data prove that both drugs are highly efficacious in the relevant patient populations, they also provide key distinguishing factors (safety profile and patient selection) relatively to competing programs. The negative market reaction exemplifies the discrepancy between the progress Clovis is making and its stock behavior.
The stock is down ~20% in 2014 despite the fact Clovis is finishing the year with 3 high-quality oncology programs with clear routes to market and a differentiated value proposition. With the market ignoring the long-term potential for Clovis’ programs, the stock appears undervalued.
Safety overhang removed, no longer the underdog
Rociletinib is Clovis’ lead program, expected to reach the market in 1H16. The drug has impressive activity in lung cancer patients with a specific mutation (T790M) that confers resistance to first-generation EGFR inhibitors (Tarceva and Iressa). Clovis is in a tight race with AstraZeneca (AZN), as both companies are developing similar drugs intended for the same patient population (lung cancer with T790M mutation).
Both drugs are highly efficacious and are expected to reach the market by mid-2016. Consequently, both companies are trying to differentiate their drugs in order to optimally position them upon approval. Given the comparable efficacy (based on cross trial comparisons that are unreliable), focus now shifts to the safety/tolerability where the two drugs are quite distinguished.
At ASCO this June, both drugs were presented back-to-back, demonstrating phenomenal activity (60% response rate) in T790M+ patients. Preliminary progression-free survival was numerically better for rociletinib but AZD9291’s safety profile appeared superior. The primary safety issue with rociletinib was an increase in glucose blood levels (hyperglycemia) whereas AZD9291 frequently induced skin toxicities.
In other words, Clovis appeared to have a potentially more efficacious drug with an inferior safety profile. This pushed the sentiment in favor of AstraZeneca as investors feared that the hyperglycemia induced by rociletinib would not be manageable and lead physicians to prefer AZD9291.
Since then, updated results were presented for both drugs. On the efficacy front, the two drugs appear similar with median PFS of 10.4 and 9.6 months for rociletinib and AZD9291, respectively (Cross trial comparisons are unreliable and inaccurate but that’s what we have for now). Clovis may have had a slightly tougher patient population based on higher percentage of patients who had progressed immediately after Tarceva/Iressa and non-asian patients.
While AZD9291’s safety profile remained relatively unchanged, new data for rociletinib proved that the hyperglycemia concerns were overblown as it can be easily controlled with metformin, a common generic anti-diabetic drug (No patient from the relevant cohorts required insulin).
Although rociletinib’s efficacy does not appear better than that of AZD9291, the better than expected safety profile should allow Clovis to capture a significant market share in the T790M segment, estimated to represent a $1B opportunity.
If anything, Clovis now has a slight advantage in my opinion given the lack of skin toxicities. The initial patient population for both drugs will be patients who progress on 1st generation EGFR inhibitors (Tarceva, Iressa), which cause significant skin and GI toxicities. These toxicities are rarely life threatening but they are quite bothersome to patients and have a major impact on quality of life. When given a choice, I expect patients who were on Tarceva for 10 months to go with the drug that has no EGFR-related side effects at the “cost” of an asymptomatic side effect that is easily manageable with a commonly prescribed oral drug. Therefore, assuming the two drugs are equally efficacious, rociletinib should have a better market share (~60%).
Opportunity beyond T790M+
Clovis also presented intriguing data in patients with T790M-negative tumors, which were surprisingly positive with a response rate and PFS of 36% and 7.5 months, respectively. This is numerically better than AZD9291, which demonstrated a response rate and PFS of 22% and 2.7 months, respectively. This comparison is highly speculative given the small number of patients and potential misclassification of T790M+ tumors as T790M-, however, the difference can be explained by rociletinib’s effect on other EGFR mutations and/or IGF1R. It also bodes well for potential use of rociletinib as 1st line treatment although it is still unclear whether treating patients upfront instead of sequentially after Tarceva/Iressa leads to better outcomes.
Theoretically, approval in 1st line for rociletinib and/or AZD9291 could increase the opportunity to $2.5B depending on treatment duration (Tarceva and Iressa have combined annual sales of ~$2B). Preliminary results for AZD9291 in 1st line patients were somewhat disappointing with a response rate of “only” 63% vs. 70% that has been seen with Tarceva/Iressa. This casts a shadow on the value proposition of the new EGFR inhibitors as 1st line treatments although much more information is needed. Rociletinib’s activity in T790M- patients may imply better 1st line performance relatively to AZD9291 as most treatment-naïve patients do not have a meaningful level of T790M cells in their tumors.
Even if rociletinib and/or AZD9291 are not competitive as 1st line treatments, there is always the option to combine them with approved EGFR inhibitors in order to cover a wide spectrum of EGFR mutations. The first generation inhibitors will inhibit the primary activating EGFR mutations (exon 19 deletions, L858R etc.) and the second generation inhibitors will block the emergence of T790M-mediated resistance. In this scenario, Clovis has a clear advantage since rociletinib has no EGFR-related toxicities and is likely to be more combinable.
Clovis is evaluating rociletinib vs. Tarceva in 1st line patients with EGFR mutations in a phase 2/3 trial. The initial portion of the trial is open-label and should have initial data in 2015 to inform a go/ no-go decision.
Rucaparib – Initial validation for the BRCAness hypothsis
Clovis presented phase II data for rucaparib (PARP inhibitor) in ovarian cancer. In contrast to other PARP programs which focus solely on BRCA+ tumors, Clovis is putting a lot of effort on identifying tumors that do not carry the BRCA mutation but are still sensitive to PARP inhibitors (aka BRCAness). Clovis is using a diagnostic test designed in collaboration with Foundation Medicine (FMI) to identify a BRCAness signature, by looking at various DNA repair genes other than BRCA.
At the EORTC meeting, Clovis presented preliminary validation for the “BRCAness” approach in patients whose tumors are not BRCA-mutated. The response rate in the BRCAness+ patients was 32% vs. 8% for BRCAness-. This implies there is a significant group of ovarian cancer patients who could benefit from PARP inhibitors, irrespective of BRCA mutation or platinum sensitivity.
Clovis’ strategy with rucaparib is a great example of how a company can differentiate its product via smart patient selection. Obviously, other companies are likely to adopt the BRCAness strategy down the road but Clovis should have a clear head start with the only PARP inhibitor initially approved for BRCA-like+ ovarian cancer (assuming phase III success). BRCA-like ovarian cancer represents a significant portion of ovarian cancer patients (42% in Clovis’ study), which should translate to a meaningful commercial opportunity.
It is still premature to assess the commercial opportunity in BRCA-like ovarian cancer but assuming prevalence of 20% of all ovarian cancer cases translates to 4500 patients in the US alone. In addition, the BRCAness signature may be applied to additional tumor types, which may significantly broaden utility of rucaparib and other PARP inhibitors.
Rucaparib’s data are also great news for Foundation Medicine, which will sell the companion diagnostic if rucaparib is approved. Foundation Medicine should also benefit from the overwhelming results Agios (AGIO) presented for its IDH-1 inhibitor (AG-120). Surprisingly, the market continues to ignore the tremendous potential represented by Agios’ IDH inhibitors and Clovis’ rucaparib to Foundation Medicine. As I recently discussed, the companion diagnostic angle represent a significant near-term upside that is not subject to reimbursement risks. Combined, these programs represent ~$100M in potential revenues in the US alone (assuming $3000 per patient), based on the incidence of AML and ovarian cancer. Expansion to other tumor types for these drugs could translate to a meaningful increase in FMI’s revenues as well.
Lucitanib – de-risked following Ultragenyx’s anti-FGF23 data
Although Clovis has not provided new data for lucitanib (dual FGFR/VEGFR), I still view it as a promising and undervalued drug. Preliminary data from EOS (which Clovis acquired in November 2013) suggests lucitanib has robust efficacy in breast cancer with FGF dysregulation. Importantly, such activity is not seen with competing FGFR inhibitors, likely due to lucitanib’s unique selectivity profile. Data from a breast cancer trial in the US are expected in 2015 and could validate the initial efficacy signal observed by EOS. It is unclear whether Servier (Clovis’ partner) will present updated results from an ongoing European trial in San-Antonio Breast Cancer symposium next month.
Recent data from Ultragenyx (RARE) for its FGF23 antibody further de-risks lucitanib as it alleviates concerns that lucitanib is not a true FGFR inhibitor given the lack of increase in phosphate levels observed with other FGFR inhibitors (If lucitanib does nit inhibit FGFR in patients, the signal observed to date may be a statistical artifact). Clovis’ explanation for this property relied on the fact that lucitanib does not inhibit FGFR4 whereas other FGFR inhibitors inhibit all FGFR isoforms (1-4). Ultragenyx’s data in a rare genetic disease (X-Linked Hypophosphatemia) clearly show that inhibition of FGF23 leads to increase in phosphate levels. Since FGF23 is known to signal also via FGFR4, this indirectly validates Clovis’ hypothesis.
Following the positive results for rociletinib and rucaparib, we are adding a second position in Clovis and a third position in Foundation Medicine. We are also initiating a position in Conatus (CNAT). We are selling all of our Ambit (AMBI) positions although in real life the right choice would be to hold the CVR. We are also selling one position in Genmab (GEN.CO) and a portion of our Morphosys (MOR.DE) holdings for a profit of 52% and 487%, respectively.
Portfolio holdings – November 23rd, 2014