Pay up, Sanofi: Tesaro's PARP data give Medivation deal expectations a boost

Tesaro’s ($TSRO) good fortune may be Big Pharma’s bad luck. The biotech posted “overwhelmingly positive” data on its late-stage PARP inhibitor niraparib in ovarian cancer Wednesday, boosting hopes for Medivation’s pipeline med in that class. For the big-name drugmakers chasing a Medivation ($MDVN) acquisition, those higher hopes mean higher expectations for buyout bids.

Pfizer ($PFE), Amgen ($AMGN), AstraZeneca ($AZN) and Novartis ($NVS) are all said to be in the Medivation hunt, and with the biotech’s shares up 5%, the price already looks higher for anyone shopping the company. But it’s Sanofi’s hostile takeover attempt that’s most at risk, analysts said.

Sanofi ($SNY) is in the thick of a campaign to oust Medivation board members and replace them with its own deal-friendly slate. But the biotech has argued all along that Sanofi’s $52.50-per-share bid is far too low, considering growth in sales of its cancer med Xtandi and prospects for its pipeline meds, particularly that PARP inhibitor, talazoparib.

Tesaro’s shares closed at more than double its opening price Wednesday, and analysts quickly cited the niraparib data as an indicator of talazoparib’s own Phase III success. Talazoparib is under testing in patients with the BRCA gene mutation, and niraparib worked best in that patient group.

Suddenly, Sanofi’s bid looks lower than ever, and though the French drugmaker has made clear that it’s open to sweetening that offer, shareholder psychology could make its hostile efforts even more difficult to pull off. Sanofi’s battle for votes in the board election obviously depends on Medivation’s shareholders faith--or lack thereof--in the company’s own deal outlook, and its current leadership’s desire to hold out against Sanofi.

“[W]e view these data as incrementally de-risking for Medivation’s EMBRACA study of talazoparib in BRCA+ breast cancer, which is expected to read out early next year,” Barclays analyst Geoff Meacham said in a Thursday note to investors. “Additionally, Sanofi’s bid of $52.50 per share for Medivation only becomes further untenable in light of this data.”

Plus, the Tesaro data could heighten rival bidders’ interest in Medivation, Leerink Partners analyst Geoffrey Porges said in a Thursday note. Sanofi “will likely have to come back with a more favorable offer--especially as other players start to take a closer look at Medivation,” Porges wrote.

There is a wrinkle in the comparison with niraparib and talazoparib, however, as Porges points out; Medivation has argued that its med is the most potent PARP inhibitor, but that potency may come along with more serious side effects.

Still, the Tesaro data “further validates the PARP class as effective cancer agents, and given the comparison between talazoparib’s and niraparib’s relative efficiency, suggests that barring significant safety considerations, Medivation’s predicted upside for talazoparib may indeed be valid,” Porges wrote.

Barclays sees the PARP drug adding $8 per share to Medivaton’s shares, while Leerink estimates that it’s worth $9.

To help ease Medivation shareholders' fears of losing out on the biotech's true pipeline value, Sanofi may add a new piece to its offer. Bloomberg recently reported that the company is considering contingent value rights, which would allow for additional payouts to Medivation investors if the company's meds meet various approval and sales targets. 

AstraZeneca has the only currently marketed PARP inhibitor, Lynparza, which is approved to treat ovarian cancer. The U.K.-based drugmaker is testing the med in a variety of other cancers as well, and analysts see it reaching $2 billion in sales. Lynparza has a “breakthrough” designation from the FDA in prostate cancer, for instance. But last month, the drug fell short in another disease type that might have boosted its sales: gastric cancer.

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