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Clovis, Tesaro advance toward cancer drug label decision

August 9, 2017

Morgan Stanley said in a note Tuesday it would be buyers of Clovis Oncology Inc CLVS and TESARO Inc TSRO ahead of the Lynparza label decision.

AstraZeneca plc (ADR) AZN‘s Lynparza is a poly polymerase, or PARP, inhibitor indicated for use as a monotherapy in patients with suspected deleterious germline BRCA mutated advanced ovarian cancer, who have been treated with three or more prior lines of chemotherapy.

The treatment candidate was given priority review status by the FDA in March 2017, which would mean a PDUFA action date some time in the third quarter.

Analyst Andrew Berens feels both Clovis and Tesaro will benefit as the overhang lifts and a key optionality gate is opened. Lynparza is pitched against Clovis’ Rubraca and Tesaro’s Zejula.


Morgan Stanley sees the fundamental impact of the FDA granting a broad label for Lynparza in the third quarter on the stocks of Clovis and Tesaro as limited, even if AstraZeneca is given a broad label allowing usage outside of BRCA patients.

The firm said the most likely outcome would be a label that is limited to BRCA patients or caveated as having inferior data outside of BRCA.

Additionally, the firm believes the non-BRCA data from Study 19 is significantly inferior to that noted with Rubraca and Zejula. More importantly, the firm’s analysis suggested that the fundamental impact to the second-line maintenance setting is minimal relative to front-line maintenance setting.

Accordingly, the firm thinks there is little chance of the FDA granting a similarly broad label in this setting, given the design of AstraZeneca’s SOLO-1 trial, especially if the caveated label scenario plays out.

“Lastly, we believe that both stocks could benefit after this overhang is lifted, especially if investors perceive that a strategic optionality gate has been opened,” the firm added.

4 Scenarios Explored

The firm discussed the impact on Clovis and Tesaro under four scenarios:

    1. Unrestricted Label for Lynparza: The firm expects both Clovis and Tesaro to experience meaningful near-term pressure in this scenario, with shares of each likely to trade down about 5 percent. That said, the overhang on both stocks would be removed and accordingly, it expects buyers emerge amidst a more certain competitive landscape.
    2. Caveated Broad Label: Both companies would be pressured, with weakness of about 10 percent each, driven by increased competition in 2L maintenance, though less pressure than in the first broad label scenario. However, the firm sees a rebound from support, as investors realize that fundamental impact is limited.
    3. Narrow Label: With the probability of this scenario at 50 percent, the firm expects Clovis and Tesaro to see 15-percent upside from current levels, as investors realize broad PARP usage is likely to be a two-player market for the near and medium term.
    4. Material Approval Delay: The firm thinks this outcome has a 10-percent probability and if it materializes could lead to 20-percent upside in shares of both companies.

Morgan Stanley has an Overweight rating on the shares of Clovis and Tesaro, and it has a $93 price target for the shares of Clovis and $183 for Tesaro.


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