Let me just start with the fact that I saw that Stanley Druckenmiller’s protege, Zachary Schreiber, filed an SEC 13-G joint acquisition form and looked and saw that 7.7% of Clovis Oncology was just purchased by Schreiber’s hedge fund, PointState Capital. Assuming I read that form correctly, it looks like he also bought another 5.2% via a second investment fund, Steel Mill Partners LP. I was caught off-guard and wanted to dig into why anyone would buy CLVS shares.
(Correction: A kind reader’s suggestion prompted me to take another look at the PointState’s filings. The total shares they have is equal to 7.7% of Clovis, with 5.2% of Clovis shares held via Steel Mill Partners (and PointState is the managing entity).)
The following should be the link to this 13-G filing, just made the other day, November 19, 2015.
http://www.sec.gov/Archives/edgar/data/1509842/000095014215002460/0000950142-15-002460-index.htm
Many of you know of Zachary Schreiber as the man who made 1 Billion USD dollars this year from shorting oil, and as a protege of Druckenmiller and also formerly of the Bass family office. Druckenmiller thinks Schreiber will become a superstar investor over the next 15 years. So I guess we’ll be reading a Jack Schwager interview of him sometime between now and 2030. Right now PointState Capital has about 3.5 billion dollars under management.
All of you already know Clovis Oncology shares were hammered after the FDA issued a request for more information a cancer drug under development called Rociletnib. Clovis had screwed up: There was a problem with non-disclosure of the data it apparently knew about during its Nov. 5 conference call. They used a mix of confirmed and unconfirmed drug response data and then they also reported that drug efficacy was lower than initially publicized. Right now the market assumes AstraZeneca will win with its now approved (as of Nov. 13) drug Tagrisso, which apparently has a better reported response rate.
You would think it’s game over for Clovis BUT seeing the Schreiber buys seems so strange and I wanted to take a look.
I mean yes, many hedgies have been burned by in all kinds of trades, and we won’t get into that. This was not a case of doubling down however and marathon conference call discussions. It looks like PointState had maybe 50,000 shares before the implosion and now recently bought 7.7% (or 2.95M shares) + 5.2% (1.996M shares)= 12.9% of Clovis as of Nov.19. Am I crazy in assuming this just happened and 140 about 80M USD or so was spent for shares that traded for 560 320M or so just a few days before?
Why is this drug a big deal? After reviewing the American Cancer Society, the company site and other sources, I am just beginning to see the big sad picture: (Please accept my apologies as I get a handle on this material)
There are about 1.35+ million new cases of lung cancer a year and 85 to 90% of them are “non-small cell lung cancer” (“NSCLC”).
There is a subset of these cancers that Rociletnib is meant to target: Epidermal Growth Factor Receptor (or “EGFR”) mutation. (About 10 to 15% in Caucasian and 30 to 35% of East Asian of the NSCLC cases are from this EGFR mutation.) There are drugs that are used for this mutation but the problem is that THEN about 60% of those treated also get a follow-on resistance problem with a secondary mutation that may follow. Rociletnib is meant to for this problem.
After some awful math, I estimate about 250,000 or so new cases annually. Please accept my apologies, this is unnerving to put down into raw estimates about how many people will get a certain kind of cancer per year. We begin to get the idea now why this the market was willing to pay 120+ per share for Rociletnib plus two other drugs, Rucaparib (meant for Ovarian Cancer) and Lucitanib (breast and a different kind of lung cancer).
The FDA apparently gave Clovis “breakthrough status” for Rociletnib and Rucaparib. “Breakthrough status” means that “the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints…” The definition of “breakthrough status” is as follows: http://www.fda.gov/RegulatoryInformation/Legislation/SignificantAmendmentstotheFDCAct/FDASIA/ucm329491.htm
The drug being tested for ovarian cancer, Rucaparib, was in Phase 2, and the results seem encouraging:
http://phx.corporate-ir.net/phoenix.zhtml?c=247187&p=irol-newsArticle&ID=2054581
The FDA, in it’s approval of AstraZeneca’s Tagrisso, provided the official scary stats about lung cancer in the U.S.: “Lung cancer is the leading cause of cancer death in the United States, with an estimated 221,200 new diagnoses and 158,040 deaths in 2015, according to the National Cancer Institute. The most common type of lung cancer, NSCLC occurs when cancer cells form in the tissues of the lung.”
http://clovisoncology.com/products-companion-diagnostics/rociletinib/
To sum up:
(1) Schreiber, an up-and-coming successful and smart hedgie, has bought almost 13% of Clovis Oncology, after it imploded. That’s assuming I read that 13-G correctly.
(2) Clovis has a drug they screwed up on providing data on, which may or may not have been fraud. I’m leaning towards incompetence and not outright lying. It may or may not be good as AstraZeneca’s version. However, the problem with this type of cancer is drug resistance and so Rociletnib could still be very important even if other drugs are available.
(3) Clovis has two other drugs that were not mixed up in this request for more information, Rucaparib and Lucitanib. Rucaparib also has “breakthrough drug” status and the phase 2 results look encouraging.
(4) Although Clovis shares have been hammered they may in fact keep imploding since we are close to year end and everyone who got hurt may want to close this one out for 2015 and forget about it. Falling knife here.
(5) It will take time for this work out, assuming it works out at all, so there might be more time to buy shares as “call option” on Clovis’s possible validation.
(6) The overall markets are getting less and less risk-loving. It seems like we are riding herd on a handful of leaders, private companies aren’t as loved with these recent on the books markdowns. This means fewer willing willing buyers.
(7) Schreiber has 3.5 billion under management at PointState. This trade is amounts to less than 5% of fund assets at risk for PointState.
(8) This may in fact be like a lottery ticket to being invested in successful cancer drugs circa 2017/18.
Personally, I normally buy with price trends and this thing has cratered, which could have been a short BUT the way it broke meant it couldn’t have been shorted anyway. I suspect securities litigation law-firms are hard at work at the moment and I don’t blame them, considering how the data was handled and shared since it does look bad and not just a matter of incompetence. That said, I need to think about it, it does seem tempting but I’m not likely to risk more than 1/2 to 2% of equity and I still need to go over this one more time and determine the right time frame. I think more experienced traders will be able to come in and flip, but I don’t have the right set-up to do that.
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that is a truly great picture you used. well done.
Edward,
Super interesting, thanks for sharing and congrats on the well written article. I love this type of analysis. Please share if you find any more info. I will be following along.
Hi Matt, yes, you understand where I was coming from on that one, it had to be done. Thank you kindly billie, I was surprised by the filing and to assemble notes and post.
Very interesting.
Thoughts on catalysts and timeframes?
Hi Gray, my assumptions is at this stage that the market will need to hear more about the data supplied to FDA. The time frame will be protracted for a true “payoff”. In the interim, if and until institutional selling has exhausted itself, the market price could be hostage to sentiment and potentially factors including AstraZeneca’s success/failure with its now approved solution over the coming 6 to 18 months. (follow on data on rates of rejection due to secondary mutation is something for me to look into.) Within this window if clarity emerges and if it is favorable, you may see institutional “me too” participation emerge providing more liquidity. The next “big date” will be the other shoe dropping on the results of Clovis’ updated submissions to FDA. I am reviewing long dated call options as a method of controlling complete cost of risk with hopefully sufficiently attractive pricing, purchased at cash, to manage theta and any cost of possible failure is contained. All this said, assuming the pre-bad news market price at 100+ was even remotely valid, then the current and near term price, in the 20s/teens/whatever, may in fact offer a chance to assume speculative risk for the other 2 drugs under development plus with a “free call” on the drug which caused this whole price collapse. I hope I did not mangle this response.
if you scored a $1 billion dollar profit on a trade, does it really matter what you do with the money on the next trade?
Good question Matt, and it’s led me to wonder: Let’s invert the question in terms of time; Was what was going on before a $1 billion dollar profit that mattered? I’m guessing the answer is something like a yes, and I talked about it with a friend and we ended up talking about process and then the conversation veered towards our bucket lists of what we would do in lieu of trading. Have a great weekend.
Hey Edward,
I like what you have done here, but I am pretty sure that you have part of it wrong. The 13G filing that you link to does not indicate that there were some 12% of the shares outstanding purchased.
The total amount in the transaction was 2.95M shares.
The best way to read 13G’s and 13D’s is to look at the last “entry” area on line 11 for the total % of shares outstanding and line 9 for the number of shares that caused the filing.
The rest of your entry was very good — and these filings are made to be complicated. Insti’s do not want the job of knowing what they have to be easy.
Hi Brian, Great feedback and suggestion; Yes, I have been looking at the two entities in this “joint filing” and you as you see from my post, that was a question mark, which sounds dumb, but seeing two entities, Steel Mill and PointState, when I put this together had me in search of a footnote on these two entities; it seemed like there was an LP filing for 5.9%, as part of a GP’s total position of 7.7% but I as cautious, and hunted through SEC filing rules at 3am that evening. Thanks again for taking the time and being very kind about this calculation, please have a great week ahead.
Brian, a follow-up: I went through some of PointState’s other findings and yes, Steel Mill’s shares are counted within the total for PointState, which makes sense in retrospect (GPs, LPs, etc.) Thanks again.
Edward — I am not kind, I am a jerk. I see SEC statements all the time and this error is one that nearly everyone makes. Sometimes I have seen bloggers suggest that an entity bought more than 30% of a company (on a 5% min filing requirement).
The rest of the piece speaks for itself. Keep up the good work. Tell Fly that I endorse you. Of course that means nothing to him.