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.
Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.