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After Surging More Than 100% Last Week, Is Corvus Pharmaceuticals (CRVS) Still a Buy?

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Corvus Pharmaceuticals (CRVS) is a medium-stage clinical biotechnology company that concentrates on developing novel immuno-oncology therapies. The company’s lead product candidate is Mupadolimab (CPI-006), an anti-CD73 monoclonal antibody that is being developed to treat HPV+ head and neck cancer, as well as other cancers caused by viruses. Corvus Pharmaceuticals also has two Phase 1b/2 assets and three early-stage candidates.

On September 17th, CRVS rallied significantly after AstraZeneca (AZN) announced, “the COAST Phase II trial showed oleclumab, an anti-CD73 monoclonal antibody, or monalizumab, an anti-NKG2A monoclonal antibody, in combination with Imfinzi (durvalumab) improved progression-free survival and objective response rate compared to Imfinzi alone in patients with unresectable, Stage III non-small cell lung cancer who had not progressed after concurrent chemoradiation therapy.”

CRVS has a CD73 asset in its pipeline as well, which caused shares to surge to a new 52-week high of $9.54.

Recent Developments 

On September 22nd, Corvus Pharmaceuticals provided an update on Mupadolimab trials in oncology and infectious disease. CPI-006 showed promising results in the COVID-19 study, improving primary and key secondary endpoints. Also, the company enrolls patients with head and neck cancers and lung cancer for the Mupadolimab Phase 1b/2 study. The company plans to deliver trial updates in November. It could serve as a possible catalyst for the stock price if the company reports positive trial data.  

Recent Financial Results

Corvus is currently bringing in no revenues, which is typical for a clinical-stage biotech company while they spend substantial amounts of money on research and development (R&D) and general and administrative expenses (G&A).

As of June 30th, 2021, R&D expenses for Corvus Pharmaceuticals registered at $9.1 million compared to $7.86 million in a year-ago period. The 15.7% year-over-year R&D increase is related to the development of Mupadolimab, including clinical trial expenses, manufacturing costs, as well as unallocated employee and overhead costs.  

CRVS’ G&A expenses stood 25% lower at $2.18 million. The decrease was related to a reduction in professional service costs and employee-related compensation.

Cash used to run the company’s operations during the second quarter was roughly $21.4 million. As of June 30, 2021, the company reported a solid balance sheet with approximately $66.5 million in cash and marketable securities. I expect the company will continue to spend significant amounts on R&D and G&A related to its clinical trials. However, I would expect the cash on hand to be sufficient for at least by the year-end.

How much volatility are options traders expecting for the stock? 

Taking a look at the October 15th, 2021 option chain, we can define the expected price movement utilizing the long straddle options strategy. Hence, my calculations imply that CRVS’ stock could rise or fall by about 33% by the October expirations from the $7.50 strike price. So, we can see that the options market expects significant volatility in the stock. That aside, let’s take a closer look at the calls/puts ratio as well. In Corvus’ case, the number of open calls at the $7.50 strike price outweighs the open puts by around 2.2x. However, the puts at the $5.00 strike price outweigh the call options about 2 to 1, with 9,218 open puts to 4,841 open calls.

Bearish options trades placed on CRVS stock 

The open interest levels for October 15th, 2021, $7.50 puts increased on Wednesday. According to barchart.com, the open contracts rose by 3,554 to about 4,021 contracts. It’s a moderate, bearish bet as the open interest represents a total dollar value of about $490,452. For the buyer of the $7.50 puts to earn a profit, the stock would need to plunge to around $6.12, implying approximately a 13% downside from CRVS’ Thursday closing price.

Conclusion 

Given the promising data coming out about CRVS’ pipeline product I am bullish and would open a position as a means to try and catch a stock with possible positive catalysts on the horizon. However, this would be a speculative position with a high risk, high reward profile.

Therefore, investors with more risk sensitivity compared to others may want to stay away from this trade until the company is more established.

Oleksandr Pylypenko

Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.

Oleksandr focuses his trade strategy around “special situations” (such as catalysts, potential acquisitions, or spin-offs) and how to make money from those catalysts, as direct stock purchases, combined with option-based approaches for risk minimization.

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