Reports are that Roche Holdings (NASDAQOTH:RHHBY) may be working on an acquisition of Tesaro; however, Roche and Tesaro have yet to confirm that they're in talks.
Conceivably, Roche (or one of its competitors) could find Tesaro an intriguing M&A target. Tesaro already markets the chemotherapy-induced nausea and vomiting drug Varubi and Zejula, an ovarian cancer drug that works by inhibiting poly (ADP-ribose) polymerase (PARP), a cell repair system.
Additionally, Tesaro's knee-deep in research that could expand Zejula's label to include patients with breast cancer, and it's developing a checkpoint inhibitor, TSR-042, that targets PD-1, a protein that cancer cells hijack to avoid detection by the immune system. PD-1 drugs have been among the biggest advances in cancer in recent memory; the two leading PD-1 inhibitors, Opdivo and Keytruda, generated combined sales of over $3 billion in the first quarter of 2018.
Tesaro is run by Lonnie Moulder, a CEO whose track record includes selling MGI Pharma to Eisai, a Japanese drugmaker, for $3.9 billion in 2007.
The company's share price has fallen significantly from its $190 peak in 2017, so it's anyone's guess if Moulder and the rest of Tesaro's board would be willing to accept an offer at a much lower price, especially since there's upcoming data in breast cancer research and for its PD-1 drug that could cause shares to rally.
Personally, I think this is a company that could be bought someday, but M&A is unpredictable, and it's usually not in investors' best interest to acquire stocks simply because rumors are percolating. Fortunately, Tesaro's prospects as a stand-alone company make it intriguing enough to consider regardless of rumors.
Revenue exited March at an over $200 million annualized clip, and Moulder's team is guiding for sales of between $310 to $345 million in 2018, up from $223 million in 2017. Assuming Tesaro can deliver on that goal, shares can be bought for less than eight times forward sales, which I don't think is an unreasonable valuation for a fast-growing biotech like this one.