What happened

Shares of Tesaro Inc. (NASDAQ:TSRO), an oncology-focused biotech, are falling after a fourth-quarter earnings report highlighted competitive pressure for its recently launched therapy, Zejula.

Analysts expecting $55 million in total fourth-quarter revenue were off by $7 million. The stock dipped 15.2% in early morning trading and was down 10.8% as of 11:34 a.m. EST on Wednesday.

So what 

When the Food and Drug Administration approved Zejula for women with recurrent ovarian cancer last March, it became the first specifically approved therapy for scores of patients initially treated and responding to standard chemo. Long treatment durations mean this is a highly coveted spot that Tesaro had to start sharing sooner than it had hoped.

Person with head in hand while looking at charts.

Image source: Getty Images.

This summer, the FDA expanded the label for AstraZeneca's (NYSE:AZN) Lynparza to include Zejula's target audience. From the third quarter to the fourth, U.S. Lynparza sales rose 46% to $54 million. Tesaro's drug bounded out of the gate last spring, but its fourth-quarter report is making investors nervous because Zejula sales climbed just 10% from the third quarter to the fourth.

Now what

Despite today's drop, Tesaro still sports a $2.95 billion market cap. Sales of Zejula and the company's post-chemo anti-nausea drug, Varubi, totaled just $121 million last year. That wasn't nearly enough to cover hefty operating expenses that led to a total loss of $496 million last year.

A possible expansion to the larger, first-line ovarian cancer setting could give Zejula another bump, but a pivotal study to test the drug in this setting won't finish enrollment until the second quarter. Lynparza is a few steps ahead of Zejula on this front as well. AstraZeneca anticipates Lynparza's pivotal first-line ovarian cancer trial to complete in the first half.