What happened
Shares of Tesaro, Inc. (NASDAQ: TSRO), an oncology-focused biopharma company, are rising again in response to hints of a possible acquisition in the near future. The stock shot up on Friday after Bloomberg reported the company was exploring a sale. The recent cancellation of an investor event is responsible for a 17.8% gain as of 3:28 p.m. EST on Tuesday.
So what
Get out your notebooks biotech executives: Flaking out on investor conferences shortly after news leaks that your company is exploring a sale is a great way to drive up your stock price. That's because companies in the middle of a major upheaval generally shouldn't meet with groups of investors until they're ready to discuss their plans in detail.
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Investors are thrilled with the idea of a buyout for Tesaro because its lead drug Zejula isn't performing as well as hoped for. Also, it isn't the only disappointment the company has delivered this year. Third-quarter sales of $63 million were much higher than the previous-year period, but sales to Europe that didn't start until last December and higher prices in the U.S. were responsible for the gain.
Tesaro has some tough competition from two drugs that work the same way as Zejula. AstraZeneca and Merck & Co. (MRK 2.93%) have partnered to market Lynparza, and Clovis Oncology markets Rubraca to the same group of ovarian cancer patients who want to delay disease progression following standard chemo. With fierce competition, there's a chance that a company with a larger salesforce could carry Zejula much further than Tesaro.
Now what
I would never suggest that Tesaro executives might cancel an event only to feed a baseless rumor they know will boost their share price. That said, I'll be surprised if any potential buyers actually step up to the plate.
Tesaro hasn't had trouble growing its share of the U.S. market for PARP inhibitors due to a lack of effort. Sales and administrative expenses in the third quarter reached $93.5 million, which seems like a lot for a company that only recorded $63.6 million in product revenue during the same period.
While a deep-pocketed player might be convinced it can do much better, investors should know that Tesaro originally licensed Zejula from Merck, and the big pharma is entitled to a royalty percentage in the low teens. There's a chance a deep-pocketed drugmaker will make a bad move, but I wouldn't bet on it.
