Health

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.

We're more than a year into a frenzy of M&A speculation about a new group of cancer drugs called PARP inhibitors, and there's been no big buyout payoff. 

But investors aren't jaded yet. An unverified rumor that Eli Lilly & Co. is considering buying PARP competitor Clovis Oncology Inc. was enough to send the purported target's shares up 10 percent on Monday. 

Even if this weren't a bedraggled and unconfirmed scrap of a rumor, the increasingly uncertain prospects of PARP inhibitors should cause skepticism. And if a deal does happen, the acquirer may come to regret it.

Another Spark
Deal speculation around Clovis Oncology has cooled lately, but even a dubious rumor is enough to heat it up again
Source: Bloomberg

The issue is crowding. There are now three PARPs on the market: Rubraca from Clovis, Zejula from Tesaro Inc., and Lynparza from AstraZeneca PLC and Merck & Co. Inc. And Pfizer Inc. and BeiGene Ltd. are working on getting their own entries to market.

As investors debate whether any of these medicines are superior to the others, the FDA appears to think they are largely substitutable. On August 17, the agency expanded the permitted use of Lynparza to a larger-than-expected population of ovarian cancer patients, cutting into Tesaro's share of that market.

This suggests monopolies in specific patient groups will likely be short-lived, meaning more competition for all of them. Any company making an acquisition in this area will be paying to enter an expensive dogfight. 

Convergence
Analysts increasingly concede that PARP inhibitors may all have a similar commercial destiny
Source: Bloomberg

Competitive markets require more marketing, and PARP competitors will likely try to match each other's research efforts trial-for-trial to prevent rivals from seizing sole control of specific treatment areas.

Merck's decision in July to partner with AstraZeneca on Lynparza, in a deal worth up to $8.5 billion, also complicates matters. Now the commercial and research muscle of two large pharma firms is behind the medicine, which was first to market and may have a more favorable side-effect profile than competitors.

PARP inhibitors are being tested widely in combination with a new generation of immune-boosting cancer drugs, and Merck owns Keytruda, that drug class's likely market leader in the near term.

There's still a chance a company could take the PARP M&A plunge, and Clovis is the most likely candidate for a buyout with its $3.72 billion market cap. It would cost less than rival Tesaro -- which sports a $6.4 billion market cap -- even if an acquirer pays a significant premium. And there's something to be said for scarcity value; there simply aren't many companies with recently approved cancer drugs available for purchase. 

But everything that's happened in the PARP space in recent months has arguably diminished the appeal of spending billions to acquire one of these companies, and there's little reason for a buyer to ignore that now.

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

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net