Tesaro and Clovis Oncology, Biotech takeout targets?

Gabelli Biotech Research Analyst Jing He discusses Tesaro, Inc. and Clovis Oncology.

Transcript:
Hi. My name is Jing He and I’m a biotech analyst at Gabelli. We recently initiated coverage on Tesaro and Clovis Oncology. Each has a PARP inhibitor approved in the past twelve months to treat ovarian cancer. Tesaro has 61 million shares out, closed at $114, equity market cap $6.9 billion, net cash $300 million and total enterprise value $6.6 billion. We initiated on Tesaro with a Buy recommendation and a 2018 PMV of 169 dollars per share. Tesaro’s lead drug, Zejula is a PARP inhibitor approved for broad use regardless of biomarker status. We believe Tesaro has the best PARP among three PARP inhibitors, and expect it to generate peak sales of $1.6 billon. It also has a pipeline that includes a PD-1 candidate.

Clovis has 47 million shares out, closed at $71.86, equity market cap $3.4 billion, net cash $400 million and total enterprise value $3 billion. We recommend to buy Clovis with a 2018 PMV of 115 dollars per share. Rubraca is its lead drug approved for patients with BRCA mutation but also demonstrated efficacy in non BRCA mut patients. We estimate peak sales to be $1.3 billion. PARP inhibitors also have potential to treat multiple tumor types such as breast and prostate cancers. Both companies have been speculated to be takeout targets, and we believe Sanofi, Celgene and Gilead may be interested. Merck recently acquired part of the commercial rights of Lynparza, a third PARP inhibitor developed by AstraZeneca. The deal valued the drug at 8 billion, reinforcing our belief in the scarcity value of the PARP class.



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