Clovis Oncology: Like the Story, Not the Stock

BOULDER, Colo. (TheStreet) -- One of the biggest fibs told to investors by people selling research -- or seeking page views -- is the promise of great stock picks on a regular schedule. Developing a solid, differentiated opinion about a company or product takes lots of work. Professional investors spend all day (and sometimes, all night) combing through reams of obscure data, Wall Street research, and SEC filings searching for tidbits of information from which to construct a viable investment thesis. Most of the time, the market prices stocks more-or-less correctly and there isn't anything for an investor to do with all his research. Occasionally, aberrant perception yields a buying opportunity; really good investments are usually born from this dislocation, but the ebb and flow of such moments cannot be predicted.

Case in point: I started the week wanting to recommend Clovis Oncology (CLVS) as a long. I like the story a lot. The company has a very solid management team (the group that led Pharmion before its acquisition by Celgene (CELG)), a clever lead drug candidate, and is pursuing a clear unmet medical need in pancreatic cancer. Unfortunately, with a market capitalization of $530 million (up more than 80% since the IPO late last year) and limited data to support a novel biological thesis, Clovis feels a little too risky.

I also examined Celgene and Threshold Pharmaceuticals (THLD). Like Clovis, both companies are pursuing novel drugs for pancreatic cancer. I emerged with similarly mixed feelings. There doesn't seem to be any worthwhile pancreatic cancer-driven investment thesis for Celgene. For the risk tolerant investor, a small long position in Threshold seems reasonable but I'd need to get more comfortable with the downside risk before recommending a big investment.

Pancreatic cancer is a devastating disease with few options. It's relatively rare (roughly 43,000 new cases each year in the U.S. and a similar number in Europe), but most patients die within 12 months of diagnosis. Pancreatic cancer patients have few treatment options. Eli Lilly (LLY) received FDA approval for Gemzar in 1996 and the drug, now sold generically as gemcitabine, remains the standard of care. The only other new drug approved for pancreatic cancer in the past decade is Tarceva, developed by OSI Pharmaceuticals (now a part of Astellas) and the Genentech division of Roche (RHHBY).

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