Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

One of the most fevered areas of M&A speculation in biotech just got a big splash of cold water.

AstraZeneca PLC's Lynparza is a PARP inhibitor, a type of cancer drug first approved by the FDA to treat ovarian cancer, with potential to treat other diseases. Clovis Oncology Inc. and Tesaro Inc. are both nipping at its heels with rival drugs and are near the top of every list of biotech buyout targets. 

AstraZeneca on Tuesday released promising late-stage data for patients in a lucrative part of the population Tesaro targets. The results suggest these drugs may eventually end up being relatively interchangeable. 

If so, then the fallout has only just begun for AstraZeneca's competitors. Tesaro's drug may still end up a blockbuster, but the chances for a truly massive deal have diminished.

Moving and Shaking
New drug data from AstraZeneca shook up the stocks of companies with similar medicines
Source: Bloomberg

Tesaro's shares have soared more than 300 percent since the summer of 2016 on a fever of excitement about promising results for its PARP inhibitor called niraparib. Helping drive the hype, Tesaro's drug has been effective in a broader population than many observers expected.

But AstraZeneca's new results compare favorably to Tesaro's in one group of patients. It's difficult to compare two sets of drug trials. At the very least, though, this suggests the differences between these drugs may not be all that large. 

It also suggests analyst estimates that Tesaro's drug will dominate the market and outsell Lynparza by $500 million in 2021 may need to come down. 

Smaller Slice
Analysts think that Tesaro will dominate the market for PARP inhibitors, but that assumption looks less and less certain
Source: Bloomberg

Lower estimates will make Tesaro's valuation look even more outlandish, given the damage to its buyout prospects. It's one thing to bet on a proven, best-in-class drug. It's quite another to spend billions on a medicine that may have multiple similar competitors. 

Tesaro's drug may yet prove to be special. Morgan Stanley analyst Andrew Berens argued in a note Wednesday morning the Astra results may not be as good as they seem. He also argued Tesaro's pursuit of broader patient populations will give it an advantage. Its shares rebounded on Wednesday. But without more evidence Tesaro's drug is differentiated enough from its rivals, an $8 billion market cap is hard to justify.

Clovis may be the biggest winner. Its PARP inhibitor Rubraca was approved in a small population late last year, and it's preparing to release new trial data later this year. Lynparza's success suggests Rubraca could also work in an expanded set of patients.   

Even after share-price gains over the past two days, Clovis's market cap is less than half of Tesaro's, due to worries its entry in this race might not measure up in expanded trials. Investors also remember the rather spectacular implosion of another of its cancer drugs last November. Broader PARP-inhibitor success could shorten investor memories and help close the gap with Tesaro.

Second Life
Clovis's market cap plunged after a prominent drug failure last year. But a second medicine's potential success is helping it close the gap with rival Tesaro
Source: Bloomberg

Potential buyers have been waiting to see how different these drugs are from each other before jumping into deals. Tesaro just got bad news on that front, meaning it will probably fetch a lower price. And it now has to wait to see if it gets more bad news from Clovis. 

Correction: Analysts estimate Tesaro's PARP inhibitor will outsell Lynparza by $500 million in 2021. Due to an editing error, an earlier version of this story incorrectly said the estimated difference was $500 billion.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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