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Belying the popular notion that oncology biotechs are lucrative investment options,Goldman Sachs is taking a bearish stance on Puma Biotechnology Inc (NASDAQ:PBYI) and Clovis Oncology Inc (NASDAQ:CLVS).
The Analyst
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Analyst Paul Choi downgraded Puma from Neutral to Sell and reduced the price target from $24 to $8.
The analyst reiterated a Sell rating on Clovis shares and lowered the price target from $13 to $3.
The Thesis
Smid-cap oncology biotech stocks, especially those with exposure to precision oncology and targeted therapy, have nearly doubled year-to-date, Choi said in a Tuesday note. (See his track record here.)
Yet Puma and Clovis have meaningfully underperformed, with investor expectations having worsened further, the analyst said.
Choi said he sees potential for further downside due to underappreciated company-specific and competitive risks.
See also: BioNTech IPO: What You Need To Know
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Puma Faces Headline Risk From Rival Breast Cancer Drug
Competitive data from Seattle Genetics, Inc. (NASDAQ:SGEN)'s tucatinib at the end of 2019 creates a challenging setup for Puma's Nerlyx, for which the next potential driver is likely to be in HER2+ metastatic breast cancer, the analyst said.
"We believe that even if tucatinib is not differentiated on efficacy, it may garner more market share on greater tolerability based on mCRC data shown at ESMO."
Goldman Sachs reduced its 2025 sales estimate for Puma by 25% on a lower expected uptake in the metastatic setting and slower international adoption of Nerlynx.
Diminished Top-Line Outlook, Investment Seen As Overhangs On Clovis
With respect to Clovis, Choi projects risk to longer-term consensus estimates that have baked in meaningful growth driven from Rubraca's use in prostate cancer and a frontline/combo use with PD-1s.
Following AstraZeneca plc (NYSE:AZN)- Merck & Co., Inc. (NYSE:MRK)'s Lynparza PROfound prostate and PAOLA-1/PRIMA first-line maintenance ovarian data, Goldman reduced its peak Rubraca sales estimate by 25% on lower expected share in prostate and ovarian.
"Given the diminished topline outlook and continuing investment in rucaparib label expansion, we see the high cash burn and convertible debt burden continuing to be overhangs on the stock," Choi said.
Price Action
Puma shares were tumbling 17.43% to $8.32 at the time of publication, while Clovis shares were down 9.14% at $3.27.
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.