Debt remains a burden to Clovis

Clovis is continuing to demonstrate why taking on debt is a bad idea for loss-making biotechs. It all started in 2014, when Clovis was worth six times more than today, and was on the cusp of becoming a lung cancer player through rociletinib: it raised a $287m convertible, and later topped this up by $300m. The idea was that, by the time the debt matured, Clovis’s shares would be sky high, and the amount of stock needed to repay it would be insignificant. Reality was somewhat different, as rociletinib was discontinued, the stock plummeted, and Clovis embarked on a different path. At the end of last year its gross debt stood at $645m, against a market cap of some $500m, and the company was increasingly occupied by renegotiating various obligations, becoming ever more beholden to its lenders by swapping debt with a 2.5% coupon for later-maturing securities paying out 4.5%; the latest such transaction took place yesterday. In January the group diluted existing shareholders in a debt for equity swap. However, at least Clovis has now managed to launch a drug, Rubraca; things could have been a lot worse.