Forward-Looking Information

This Quarterly Report on Form 10-Q and the information incorporated herein by reference includes statements that are, or may be deemed, "forward-looking statements." In some cases, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes," "estimates," "anticipates," "expects," "plans," "intends," "may," "could," "might," "will," "should," "approximately" or, in each case, their negative or other variations thereon or comparable terminology, although not all forward-looking statements contain these words. They appear in a number of places throughout this Quarterly Report on Form 10-Q and include statements regarding our intentions, beliefs, projections, outlook, analyses or current expectations concerning, among other things, our ongoing and planned preclinical studies and clinical trials, the timing of and our ability to make regulatory filings and obtain and maintain regulatory approvals for our product candidates, the degree of clinical utility of our products, particularly in specific patient populations, expectations regarding clinical trial data, our results of operations, financial condition, liquidity, prospects, growth and strategies, the industry in which we operate and the trends that may affect the industry or us.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics, and industry change and depend on the economic circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained herein.

Any forward-looking statements that we make in this Quarterly Report on Form 10-Q speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events.

You should also read carefully the factors described in the "Risk Factors" section of this Quarterly Report on Form 10-Q to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements. You are advised, however, to consult any further disclosures we make on related subjects in our other reports filed with the SEC and on our website.

Overview

We are a biopharmaceutical company focused on acquiring, developing and commercializing innovative anti-cancer agents in the United States, Europe and additional international markets. We target our development programs for the treatment of specific subsets of cancer populations, and seek to simultaneously develop, with partners, companion diagnostics that direct our product candidates to the patients that are most likely to benefit from their use. We are currently developing two product candidates for which we hold global marketing rights:
CO-1686, an orally available, small molecule epidermal growth factor receptor, or EGFR, covalent inhibitor that is in Phase I/II clinical development for the treatment of non-small cell lung cancer, or NSCLC, in patients with activating EGFR mutations, including the initial activating mutations, as well as the primary resistance mutation, T790M; and rucaparib, an orally available, small molecule poly (ADP-ribose) polymerase, or PARP, inhibitor being developed for various solid tumors that is currently in Phase I/II clinical trials. We have also entered into a drug discovery agreement for the discovery of a novel KIT inhibitor targeting resistance mutations for the treatment of GIST, a gastrointestinal cancer. If any clinical candidates are discovered, we would seek to pursue clinical development of such clinical candidates.

We were incorporated in Delaware in April 2009 and commenced operations in May 2009. To date, we have devoted substantially all of our resources to identifying and in-licensing product candidates, performing development activities with respect to those product candidates, and the general and administrative support of these operations. We have generated no revenues and, through September 30, 2012, have principally funded our operations using the $75.5 million of net proceeds from the sale of convertible preferred stock, the issuance of $35.0 million aggregate principal amount of convertible promissory notes, and $199.3 million of net proceeds from public offerings of our common stock completed in November 2011 and April 2012. The convertible preferred stock and outstanding principal amount of the convertible promissory notes and all accrued and unpaid interest converted into shares of our common stock immediately prior to the closing of our initial public offering in November 2011.

We have never been profitable and, as of September 30, 2012, we had an accumulated deficit of $163.4 million. We expect to incur significant and increasing losses for the foreseeable future as we advance our product candidates through clinical development to seek regulatory approval and, if approved, commercialize such product candidates. We will need additional financing to support our operating activities. We will seek to fund our operations through public or private equity or debt financings or other sources. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We expect that research and development expenses will increase as we continue the development of our product candidates and general and administrative costs will increase as we grow and operate as a public company. We will need to generate significant revenues to achieve profitability and we may never do so.

The financial information presented from April 20, 2009 (inception) to December 31, 2010 was based solely on the results of Clovis Oncology, Inc. Subsequent to January 1, 2011, the financial information is consolidated and includes the results of our wholly owned subsidiary in the United Kingdom. All intercompany transactions and balances are eliminated in this consolidation.

Product License Agreements

CO-101

In November 2009, we entered into a license agreement with Clavis to develop and commercialize CO-101 in North America, Central America, South America and Europe. Under the terms of the license agreement, we made an up-front payment to Clavis in the amount $15.0 million, which was comprised of $13.1 million for development costs incurred prior to the execution of the agreement, which we recognized as acquired in-process research and development and $1.9 million for the prepayment of preclinical activities to be performed by Clavis. In November 2010, the license agreement was amended to expand the license territory to include Asia and other international markets. We paid Clavis $10.0 million for the territory expansion and recognized that payment as acquired in-process research and development expense. As part of the amendment to the license agreement, Clavis agreed to reimburse up to $3.0 million of our research and development costs for certain CO-101 development activities subject to our incurring such costs. We are responsible for all remaining development and commercialization costs of the compound and, if approved, Clavis will be entitled to receive royalties based on the volume of annual net sales achieved. We may be required to pay Clavis an aggregate of up to $115.0 million in development and regulatory milestone payments if certain clinical study objectives and regulatory filings, acceptances and approvals are achieved. In addition, we may be required to pay Clavis an aggregate of up to $445.0 million in sales milestone payments if certain annual sales targets are met for CO-101.

Subject to certain conditions set forth in the license agreement, Clavis may elect to co-develop and co-promote CO-101 in Europe. If Clavis were to make this election, it would be required to reimburse us for a portion of both past and future development costs. In addition, our milestone payment obligations described above would be reduced. Clavis would not be entitled to royalties on the net sales in Europe, but would instead share equally in the pretax profits or losses resulting from commercialization activities in Europe.

On November 12, 2012, the Company reported results from the on-going pivotal study of CO-101 versus gemcitabine in metastatic pancreatic cancer, which failed to demonstrate a difference in overall survival between the two study arms. Based on the results of the study, the Company has suspended development of CO-101, pending further evaluation of the data.

CO-1686

In May 2010, we entered into a worldwide license agreement with Avila to discover, develop and commercialize preclinical covalent inhibitors of mutant forms of EGFR. CO-1686 was identified as the lead inhibitor candidate developed by Avila under the license agreement. We are responsible for all preclinical, clinical, regulatory and other activities necessary to develop and commercialize CO-1686. We made an up-front payment of $2.0 million to Avila upon execution of the license agreement and an additional $4.0 million milestone payment in the first quarter of 2012 upon the acceptance by the U.S. Food and Drug Administration, or FDA, of our investigational new drug, or IND, application for CO-1686. We recognized both payments as acquired in-process research and development expense. We are obligated to pay Avila royalties on net sales of CO-1686, based on the volume of annual net sales achieved. Avila has the option to increase royalty rates by electing to reimburse a portion of our development expenses. This option must be exercised within a limited period of time of Avila's being notified by us of our intent to pursue regulatory approval of CO-1686 in the United States or the European Union as a first-line treatment. We may be required to pay Avila up to an aggregate of $115.0 million in additional development and regulatory milestone payments if certain clinical study objectives and regulatory filings, acceptances and approvals are achieved. In addition, we may be required to pay Avila up to an aggregate of $120.0 million in sales milestone payments if certain annual sales targets are achieved.

Rucaparib

In June 2011, we entered into a license agreement with Pfizer to acquire exclusive global development and commercialization rights to Pfizer's drug candidate PF-01367338, also known as rucaparib. This drug candidate is a small molecule PARP inhibitor which we are developing for the treatment of selected solid tumors. Pursuant to the terms of the license agreement, we made an up-front payment by issuing Pfizer $7.0 million principal amount of a 5% convertible promissory note due 2012, which was subsequently converted to common stock immediately prior to our initial public offering. We are responsible for all development and commercialization costs of rucaparib and, if approved, we will be required to pay Pfizer royalties on sales of the product. In addition, we may be required to pay Pfizer up to an aggregate of $259.0 million in milestone payments if certain development, regulatory and sales milestones are achieved.

In April 2012, the Company entered into a license agreement with AstraZeneca UK Limited to acquire exclusive rights associated with rucaparib under a family of patents and patent applications that claim methods of treating patients with PARP inhibitors in certain indications. The license enables the development and commercialization of rucaparib for the uses claimed by these patents. Pursuant to the terms of the license agreement, the Company made an up-front payment of $250,000 upon execution of the agreement, which was recognized as acquired in-process research and development expense. The Company may be required to pay up to an aggregate of $0.7 million in milestone payments if certain regulatory filings, acceptances and approvals are achieved. If approved, AstraZeneca will also receive royalties on any sales of rucaparib.

Drug Discovery Collaboration Agreement

In July 2012, the Company entered into a drug discovery collaboration agreement with Array BioPharma Inc. for the discovery of a novel KIT inhibitor targeting resistance mutations for the treatment of GIST, a gastrointestinal cancer. Under the terms of the agreement, the Company is responsible to fund all costs of the discovery program, as well as costs to develop and commercialize any clinical candidates discovered. If any clinical candidates are discovered and the Company seeks to pursue clinical development of such clinical candidates, the Company may be required to pay Array up to an aggregate of $192.0 million in milestone payments if certain development and regulatory objectives and annual net sales targets are achieved.

Financial Operations Overview

Revenue

To date, we have not generated any revenues. In the future, we may generate revenue from the sales of product candidates that are currently under development. Based on our current development plans, we do not expect to generate significant revenues for the foreseeable future. If we fail to complete the development of our product candidates and, together with our partners, companion diagnostics or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, will be adversely affected.

Research and Development Expenses

Research and development expenses consist of costs incurred for the development of our product candidates and companion diagnostics, which include:

• license fees and milestone payments related to the acquisition of in-licensed products, which are reported on our statements of operations as acquired in-process research and development;

• employee-related expenses, including salaries, benefits, travel and share-based compensation expense;

• the cost of acquiring, developing and manufacturing clinical trial materials;

• costs associated with preclinical activities and regulatory operations; and

• activities associated with the development of companion diagnostics for our product candidates.

Research and development costs are expensed as incurred. License fees and milestone payments related to in-licensed products and technology are expensed if it is determined that they have no alternative future use. Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or information provided to us by our vendors.

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later stage clinical trials. We plan to increase our research and development expenses for the foreseeable future as we seek to expand our clinical and companion diagnostic development activities for our CO-1686 and rucaparib product candidates and perform drug discovery activities for a novel KIT inhibitor targeting resistance mutations for the treatment of GIST.

The following table identifies research and development costs and acquired in-process research and development costs on a program-specific basis for our product candidates in-licensed through September 30, 2012, their companion diagnostics, and the KIT inhibitor drug discovery program. Personnel-related costs, depreciation and share-based compensation are not allocated to specific programs as they are deployed across multiple projects under development and, as such, are separately classified as personnel and other expenses in the table below.

                                                                                               Cumulative from
                                    Three Months Ended          Nine Months Ended         April 20, 2009 (Inception)
                                       September 30,              September 30,                to September 30,
                                     2012          2011         2012          2011                   2012
                                                                    (in thousands)
CO-101 Expenses
Acquired in-process R&D           $       -      $     -      $      -      $     -      $                     23,085
Research and development               4,774        6,244        16,119       15,417                           52,654

CO-101 Total                           4,774        6,244        16,119       15,417                           75,739
CO-1686 Expenses
Acquired in-process R&D                   -            -          4,000           -                             6,000
Research and development               2,350        1,738         4,678        4,532                           13,306

CO-1686 Total                          2,350        1,738         8,678        4,532                           19,306
Rucaparib Expenses
Acquired in-process R&D                   -            -            250        7,000                            7,250
Research and development               2,944        1,068         6,531        1,359                            9,392

Rucaparib Total                        2,944        1,068         6,781        8,359                           16,642
KIT Inhibitor Expenses
Acquired in-process R&D                   -            -             -            -                                -
Research and development                 812           -            812           -                               812

KIT Inhibitor Total                      812           -            812           -                               812
Personnel and other expenses           4,578        2,516        12,470        6,978                           29,257

Total                             $   15,458     $ 11,566     $  44,860     $ 35,286     $                    141,756

General and Administrative Expenses

General and administrative expenses consist principally of salaries and related costs for personnel in executive, finance, business development, legal, investor relations and information technology functions. Other general and administrative expenses include facility costs, communication expenses, corporate insurance, and professional fees for legal, consulting and accounting services.

Other Income and Expense

Other income expense, net is primarily comprised of foreign currency gains or losses. We hold cash balances at financial institutions denominated in currencies other than the U.S. dollar to fund research and development activities performed by various third-party vendors. The translation of these currencies into U.S. dollars results in foreign currency gains or losses, depending on the change in value of these currencies against the U.S. dollar.

Critical Accounting Policies and Significant Judgments and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and share-based compensation. We base our estimates on historical experience, known trends and events and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

For a description of our critical accounting policies, please see Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. There have not been any material changes to our critical accounting policies since December 31, 2011.

Results of Operations

Comparison of Three Months Ended September 30, 2012 and 2011:

The following table summarizes the results of our operations for the three
months ended September 30, 2012 and 2011:



                                        Three Months Ended
                                          September 30,
                                      2012             2011            Increase (Decrease)          Percent Change
                                                                    (in thousands)
Revenues                            $      -         $      -         $                  -
Operating Expenses:
Research and development               15,458           11,566                        3,892                    33.7 %
General and administrative              2,762            1,714                        1,048                    61.1 %
Acquired in-process research
and development                            -                -                            -                      0.0 %

Operating loss                        (18,220 )        (13,280 )                      4,940                    37.2 %
Other income (expense), net               (48 )           (555 )                       (507 )                  91.4 %

Loss before income taxes              (18,268 )        (13,835 )                      4,433                    32.0 %
Income taxes                               -                -                            -                      0.0 %

Net loss                            $ (18,268 )      $ (13,835 )      $               4,433                    32.0 %

Research and Development Expenses. The increase in research and development expenses for the three months ended September 30, 2012 compared to the three months ended September 30, 2011 was due to the growth in rucaparib and CO-1686 of $2.5 million associated with the expansion of clinical trials, drug formulation and manufacturing costs, and the development of companion diagnostics, as well as $0.8 million of development expenses associated with the initiation of the KIT drug discovery program in the third quarter of 2012. Additionally, $2.1 million of the increase was due primarily to an increase in our internal salaries, benefits and personnel related costs resulting from additional headcount hired to support the expanding development activities of our product candidates. CO-101 development expenses decreased $1.4 million in the third quarter of 2012 due primarily to reduced activities associated with the LEAP study.

General and Administrative Expenses. The increase in general and administrative expenses for the three months ended September 30, 2012 compared to the three months ended September 30, 2011 was primarily attributable to an increase in share-based compensation expense of $0.6 million due to the increase in value of the stock options granted in the third quarter of 2012. The increase was also due to personnel, professional services, facilities and information system costs associated with being a publicly traded company.

Other Income (Expense), Net. The decrease in other income (expense), net for the three months ended September 30, 2012 compared to the three months ended September 30, 2011 was due to interest expense and debt issuance costs related to convertible promissory notes outstanding in the third quarter of 2011 that were converted to common stock during our initial public offering in November 2011 and a reduction in foreign currency transaction losses due primarily to a change in the value of the Euro in relation to the U.S. Dollar.

Comparison of Nine Months Ended September 30, 2012 and 2011:

The following table summarizes the results of our operations for the nine months
ended September 30, 2012 and 2011:



                                       Nine Months Ended
                                         September 30,
                                     2012             2011            Increase (Decrease)          Percent Change
                                                                   (in thousands)
Revenues                           $      -         $      -         $                  -
Operating Expenses:
Research and development              40,610           28,286                       12,324                    43.6 %
General and administrative             7,867            4,824                        3,043                    63.1 %
Acquired in-process research
and development                        4,250            7,000                       (2,750 )                  39.3 %

Operating loss                       (52,727 )        (40,110 )                     12,617                    31.5 %
Other income (expense), net             (224 )           (552 )                       (328 )                  59.4 %

Loss before income taxes             (52,951 )        (40,662 )                     12,289                    30.2 %
Income taxes                              27               -                           (27 )                 100.0 %

Net loss                           $ (52,924 )      $ (40,662 )      $              12,262                    30.2 %

Research and Development Expenses. The increase in research and development expenses for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011 was due, in part, to the growth in rucaparib expenses of $5.2 million associated with the assumption of rucaparib development activities in June 2011. Research and development expenses also increased by $0.8 million due to KIT development expenses associated with the initiation of the drug discovery program in the third quarter of 2012, as well as by $0.6 million for CO-101 third party drug development activities associated with drug formulation and manufacturing costs and medical education activities. The remaining increase of $5.7 million was due primarily to an increase in our internal salaries, benefits and personnel related costs resulting from additional headcount hired to support the expanding development activities of our product candidates.

General and Administrative Expenses. The increase in general and administrative expenses for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011 was primarily attributable to increased personnel, professional services, facilities and information system costs associated with being a publicly traded company. Additionally, share-based compensation expense increased by $1.5 million due to the increase in value of the stock options granted in 2012.

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