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Former Biotech Darlings Tesaro, Clovis Pin Hopes on 2018 Rebound

  • Stocks have plunged on disappointing drug sales, lack of M&A
  • Analysts say new cancer studies could revive investor interest

Considered a year ago to be among the top takeover targets in biotech, Tesaro Inc. and Clovis Oncology Inc. have so far failed to live up to their hype on Wall Street.

Shares of Tesaro have fallen 71 percent since the U.S. Food and Drug Administration approved its ovarian cancer drug Zejula in March 2017. Clovis is down 32 percent over that time as its competing therapy has also struggled to meet sales estimates. Instead of the deals investors once expected, both companies have settled for less lucrative partnerships.

The second half of this year will be critical as Tesaro and Clovis aim to regain momentum by expanding use of their medicines, known as Parp inhibitors, to earlier stages of ovarian cancer and also in other tumors in combination with immunotherapy drugs. Analysts remain optimistic in the long-term prospects as most have stuck with buy ratings and there are no sell ratings on either stock.

“Each of them is trying to carve up the next disease area, the next tumor type,” said Bloomberg Intelligence senior biotechnology analyst Asthika Goonewardene. “The excitement should come if we see some legitimate combination data.”

Tesaro estimates that further trials of Zejula could broaden the market opportunity for ovarian cancer to $4 billion from $700 million to $800 million in the current approved indication. Analysts estimate the drug will bring in $254 million this year, rising to $941 million in 2021. Estimates for Clovis’s Rubraca are more muted at $143 million this year, rising to $723 million in 2021, according to data compiled by Bloomberg.

As the stocks have sank near the bottom of this year’s worst performers on the 193-member Nasdaq Biotechnology Index, short sellers have piled in. Short interest in Tesaro is near its highest ever at 32 percent of float, while Clovis short interest has climbed to 16 percent from 6 percent last July, according to IHS Markit Ltd.

Catalyst-Rich Year

In June, Tesaro is expected to issue more results from a mid-stage study of Zejula and Merck & Co.’s Keytruda in ovarian and breast cancer. Later in the year, investors will get a look at data from combination studies and Tesaro’s own immuno-oncology drugs in various tumors.

“It is our conviction that the story of TSRO revolves around IO combinations,” said Guggenheim analyst Tony Butler, in a note to clients. “The value given to TSRO’s IO portfolio is virtually non-existent and we would disagree with this common notion.”

Clovis is due to release initial results from a mid-stage prostate cancer study at a medical conference in October. The data will be closely watched, according to RBC analyst Kennen Mackay as “prostate cancer has potential to be one of the largest applicable markets” for Parp inhibitors.

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