Here’s What Just Happened With AstraZeneca plc (ADR) (NYSE:AZN), TESARO Inc (NASDAQ:TSRO) and Clovis Oncology Inc (NASDAQ:CLVS)

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It’s been a big week for PARP inhibitors. AstraZeneca plc (ADR) (NYSE:AZN) just put out data from a phase 3 investigation of its lead PARP asset Lynparza, and the data came out as impressive. Data aside, however, the impact on AstraZeneca is just one part of the story. In the wake of its release, two other companies, namely TESARO Inc (NASDAQ:TSRO) and Clovis Oncology Inc (NASDAQ:CLVS), have also seen volume spikes and – in turn – some catalyst driven momentum. Perhaps counterintuitively, however, the action seen in both of these latter two companies comes in opposing directions.

Here is a look at what happened, what the data means, and why all of the companies involved are moving in the way, and to the degree, that they are doing.

Before we get into the numbers, let’s look at the drug. As mentioned, Lynparza is part of a family of drugs called PARP inhibitors. When cells replicate, a part of their DNA generally gets damaged. As such, and as part of the cell reproduction process, cells must have some degree of inbuilt mechanism to repair the DNA that gets damaged before the cell in question replicates again. This mechanism involves an enzyme called ADP ribose polymerase, or PARP. If the enzyme is inhibited (which as their name suggests, is the MOA of these types of drugs) then the DNA does not repair, and the cell does not replicate properly. This results in cell death, and – by proxy – the prevention of metastasis.

We won’t go into the numbers in too much detail, as they are pretty widely available on the back of the release. However, suffice to say, the addition of Lynparza to a host chemotherapy regimen staves off tumor progression or recurrence by up to two years. This slightly beats on the data that Tesaro has as underpinning an NDA that is currently with the FDA for its own version of this drug, called niraparib. That said, the trials in question were slightly different, so that makes direct comparison a little difficult.

This complication aside, however, markets have sold off on Tesaro on the back of the seeming suggestions that AstraZeneca’s drug can be more effective than that of Tesaro, or as effective, but slightly safer.

Tesaro has dipped, while AstraZeneca has gained a small amount of strength.

Clovis, is the interesting one here – the company has seen a gain in its market capitalization of more than 10%, and a spike in volume that suggests there is going to be further strength as it heads into the close of the week. In other words, we have one company (AstraZeneca) that has gained a small amount, one company (Clovis) that has gained a large amount and a third company (Tesaro) that has seen its market capitalization decline – all on the same news.

So what’s going on that explains this seemingly counterintuitive impact?

Well, it’s actually pretty simple, and it is all rooted in anticipation (or more specifically, misinterpretation).

Markets had assumed that Tesaro’s asset was the most promising (from an enterprise value perspective) of the three, and this assumption had driven an upside revaluation in the company over the last few weeks (and especially heading into the recent AstraZeneca release). This assumption also weighed heavily on Clovis, because markets assumed that the latter would have two superior competitors hitting the shelves near term. Now that the AstraZeneca asset has demonstrated a degree of interchangeability between all three assets with its latest release, market perception of enterprise value is rebalancing. Specifically, Clovis is strengthening towards the enterprise value of Tesaro, while Tesaro is weakening to take into account the likely competitive pressures AstraZeneca and Clovis in the target indication of ovarian cancer, as and when each of these drugs hits the shelves.

Basically, the AstraZeneca data has put the cat among the pigeons, and now it looks as though this potential blockbuster market is anyone’s game (whereas previously, it was assumed that Tesaro might have the upper hand).

Nothing is certain, of course.

Tesaro’s drug is yet to pick up approval, as is Lynparza in this specific indication, and there have been some safety concerns associated with niraparib that could weigh on the company’s prospects further.

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