Clovis dips as Tesaro reveals more details of its acquisition
- Shares in Clovis Oncology dipped as much as 14% Friday, which some analysts suspect was due to investor disappointment in the number of parties that offered to acquire one of its main rivals, Tesaro.
- Clovis and Tesaro are part of a small group of drugmakers with marketed PARP inhibitors. Earlier this month, GlaxoSmithKline on Dec. 3 announced it would purchase Tesaro for $75 a share, representing a 110% premium on the target's 30-day volume weighted average price and an overall deal value of $5.1 billion.
- Though a handful of parties expressed interest in pursuing strategic transactions, GSK was the only one to submit a formal takeover bid. Another large biopharmaceutical company, referred to as "Party A," did offer up to $2.34 billion to enter a co-development and co-promotion deal for Tesaro's PARP drug Zejula, but Tesaro determined that deal would undervalue its product.
PARP inhibitors like Zejula (niraparib) and Clovis' Rubraca (rucaparib) haven't seen huge sales since coming to market, yet pharmas and Wall Street contend the drug class holds untapped value.
Just last year, for instance, Merck & Co. agreed to pay up to $8.5 billion through a collaboration deal focused largely on testing the pharma's immuno-oncology blockbuster Keytruda (pembrolizumab) with AstraZeneca's PARP inhibitor Lynparza (olaparib).
The Tesaro acquisition, which came after about a year and a half-long review of strategic alternatives, underscores too that companies with an appetite for PARP drugs are willing to pay large sums to get their hands on them.
"Party A’s co-promote proposal and the initial interest from other potential acquirers indicates to us that there remains strategic interest in the economics surrounding a PARP; however deal size and scope remain key," Leerink analyst Andrew Berens wrote in a Dec. 14 note on Clovis.
While that interest may be good news for Clovis' valuation, investors may be wary that Tesaro saw only one takeover bid despite reaching out to at least a dozen parties about potential transactions. Clovis shares were down 4% to $20.76 apiece by Friday's market close and fell further to about $19 apiece in late Monday morning trading.
Clovis has another headwind moving forward, in that it now directly competes with multiple big pharmas. Lynparza, Zejula and Rubraca all carry ovarian cancer indications, yet the former two have recorded more revenue than Rubraca.
With a narrow pipeline, Clovis will likely face near-term pressure to ramp up Rubraca's performance. The biotech's looking to differentiate its drug by breaking into the market for metastatic castration-resistant prostate cancer patients, but that's an ongoing effort.
Still, Leerink's Berens sees there being significant interest in PARPs and Clovis.
"While investors may interpret the lack of additional take-out offers in the home stretch as suggesting there is no buyer for [Clovis], we caution that differences in the company’s profiles would likely draw different types of offers and partners, in our view," he wrote.
"Specifically, we believe that the [Tesaro] acquisition included significant economics for the [immuno-oncology] pipeline, and a more substantial commercial infrastructure, components that many large pharma and biotech companies may not see as incremental valuable."
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