TESARO Shares Rally On Rumors Of Potential Acquisition Offer
Zacks Investment Research | Nov 20, 2018 08:58PM ET
Shares of TESARO, Inc. (NASDAQ:TSRO) rallied more than 15% on Tuesday on rumors that it may have received a buyout offer. According to a Bloomberg industry ’s decline of 6.2%.
Shares of the company have been declining owing to rising competition in the PARP inhibitor segment. TESARO’s marketed product portfolio consist of a single product, Zejula. It is a PARP inhibitor which is approved as maintenance treatment for ovarian cancer irrespective of BRCA mutation. Although the drug has seen strong uptake since its launch, the rising competition and the stagnating market share of PARP inhibitors in the ovarian cancer market is a concern. AstraZeneca (NYSE:AZN) and Merck’s (NYSE:MRK) Lynparza and Clovis Oncology’s (NASDAQ:CLVS) Rubraca compete with Zejula in the PARP inhibitor segment.
With these four companies duking it out for market share in the segment, all of them are trying to develop their respective drugs in additional indications. This increases the operating expenses for these companies, consequently hurting margins. However, we note that Lynparza is being developed by two of the large-cap pharmaceuticals companies which have a huge capital to continue clinical studies in several indications. Meanwhile, Clovis and TESARO have a single product in their marketed portfolio and depend on it for revenues. This is likely to impact their cash position significantly if the drugs cannot perform well. High cash burn and low revenues will continue to hurt these companies over the long haul.
We remind investors that AstraZeneca’s label expansion application for Lynparza in first-line maintenance treatment for advanced ovarian cancer, the largest ovarian cancer market, received priority review earlier this month. Although the other two companies are also developing their drugs in the first-line setting, they will fall behind Lynparza as their studies are expected to complete in 2019 or beyond. This is likely to make gaining market share in the first-line setting more competitive for these two drugs.
Moreover, Clovis and TESARO have to pay royalties on the sales of their drugs to Pfizer (NYSE:PFE) and Merck, respectively, under a license agreement. Any modification to these agreements can also hamper the prospect of these companies.
Consequently, a buyout offer from any large pharmaceutical company for TESARO will be a significant relief for its investors as they can sell their stake in the company at a higher price. Any buyout offer gives a premium to the current stock price as we have seen in several blockbuster deals concluded in 2018.
Any confirmed offer for TESARO is likely to boost buyout potential of Clovis which may fuel a rally in the latter’s stock price as well. Investors should remain focused on news on these two companies to see how things pan out.
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