Why Tesaro Shares Were Clobbered

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Tesaro (NASDAQ: TSRO  ) , a clinical-stage biopharmaceutical company focused on developing therapies to treat cancer and cancer-related ailments, tumbled as much as 24% after results were reported for two late-stage trials involving rolapitant for the prevention of chemotherapy-induced nausea and vomiting, or CINV.

So what: Tesaro said in a press release that rolapitant did meet its primary end point in both trials of a complete response (no vomiting and no use of a rescue medication) in what's referred to as the delayed period (24 hours-120 hours after the initiation of chemotherapy). Unfortunately -- and the reason why the stock is being hammered today -- rolapitant failed to demonstrate statistical significance in any of its secondary end points. Tesaro's release notes, though, that it remains on track to file for a new drug application with the Food and Drug Administration by mid-2014.

Now what: Occasionally, secondary end points get brushed over in clinical studies, but in this case the secondary end points were important because they were the little factors that were expected to help separate rolapitant from Merck's (NYSE: MRK  ) Emend. Without any distinct benefit here, it's tough to see a scenario in which Tesaro's drug outshines Merck's. The other worry here is that while Tesaro does have $156.4 million in cash, the way it's been burning through that hoard for clinical studies means there's likely less than two years of viability left here without another cash raise. That could very well mean a dilutive offering to shareholders. A case can certainly be made for approval after today's data, but I'm still unconvinced how Tesaro will differentiate its CINV-prevention drug from the current standard of treatment.

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