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Tesaro (TSRO) Up 45.5% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Tesaro (TSRO - Free Report) . Shares have added about 45.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Tesaro due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

TESARO’s Q3 Earnings Beat, Revenues Miss

TESARO incurred a loss of $2.49 per share in the third quarter of 2018, which was narrower than the Zacks Consensus Estimate of a loss of $2.62. The company had recorded a significantly lower loss of 47 cents in the year-ago period due to recognition of an upfront payment. Please note that the loss included a gain of $17.6 million related to divestiture of Varubi rights.

Total revenues, primarily from Zejula, were approximately $64.4 million in the quarter, up 12.6% sequentially. Revenues, however, missed the Zacks Consensus Estimate of $69.51 million. The company had recorded total revenues of $142.8 million in the year-ago quarter. TESARO had recorded an upfront payment of $100 million from Takeda in the year-ago period, which was missing this quarter.

Quarter in Detail

Product revenues during the quarter rose 52.3% year over year to $63.6 million. The significant increase was mainly driven by impressive growth in sales of Zejula, which increased almost 61% from the year-ago period to $63.2 million. Zejula’s sales were up 17.3% sequentially.

Importantly, the company registered more than 10,000 new patients on Zejula therapy since its launch. On its last quarter earnings call, the company stated that more than 6000 patients had been prescribed Zejula since launch. The drug showed strong uptake in Europe.

The company’s other marketed drug, Varubi, generated sales of $0.4 million in the quarter. In late June, TESARO entered into an agreement with TerSera Therapeutics to divest the U.S. and Canadian rights of the drug. During the third quarter, the company closed the deal and received an upfront payment of $35 million.

License, collaboration and other revenues were $0.8 million compared with $101 million in the year-ago period.

During the third quarter, research & development expenses increased 28.3% year over year to $94.2 million, primarily due to increased expenses for clinical studies on Zejula, TSR-042 and TSR-022. Selling, general and administrative (SG&A) expenses increased 11.3% year over year to $93.5 million, reflecting increased activities to support commercialization of Zejula in the United States as well as Europe.

TESARO ended the quarter with $476.8 million of cash and cash equivalents, down from $575.1 million on Jun 30, 2018.

2018 Outlook Raised

TESARO raised the lower end of its sales guidance for 2018, after lowering it significantly on the second-quarter earnings call. It now expects it to be in the range of $258 to $265 million compared with $250 to $265 million expected previously. Expectations for Zejula sales were also raised to the range of $233 to $238 million (previously $225 to $235). Sales of the drug in the fourth quarter are expected to be $67 to $72 million.

The company expects other revenues, including licensing and Varuby oral (in Europe) to be in the range of $25 to $27 million (previously $25 to $30 million).

The company maintained its cash and cash equivalents guidance at $400 million at year end.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 5.86% due to these changes.

VGM Scores

Currently, Tesaro has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Tesaro has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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