Tesaro Inc (TSRO): Is There More Upside for Tesaro Stock?

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tesaro - Tesaro Inc (TSRO): Is There More Upside for Tesaro Stock?

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Tesaro Inc (NASDAQ:TSRO) gave word last week that its lead ovarian cancer drug met its primary endpoint in a global pivotal trial, and TSRO stock shot up more than 50% as a result.

Tesaro Inc (TSRO)The data was a bit of a surprise to markets, hence the seemingly exorbitant response, but regardless of expectations, the recent gains could be the start of a longer term upswing for the company. Why? Oncology is always big, but there a few subsectors of the space that demand the spotlight.

One of these is ovarian cancer. Analysts put the global market at around $1.1 billion during 2015, which at first glance doesn’t look that great. Consider this, however: The same analysis forecasts a CAGR of 16% between 2015-20. With close to $2.4 billion set to be up for grabs annually by the close of the decade, then, any company that can get a candidate approved near-term has the potential to direct a large portion of this blockbuster market towards its own balance sheet.

The markets know this, of course, and that’s why Tesaro is up to the extent it currently is.

The question now is whether TSRO’s current capitalization warrants consideration as a potential entry point. A buy now comes at a 50% premium to a buy at the beginning of the week, but if there’s further upside on the cards, it’s a justifiable premium to bear.

Tesaro (TSRO): It All Comes Down to This Drug

Ask yourself this: Can Tesaro get its ovarian cancer drug approved in the U.S. and Europe based on the data its latest trial has generated? If the answer is yes, then there’s a good chance that today’s prices will look cheap this time next year.

To find an answer, we have to look at the numbers and interpret their implications.

First, let’s look at the drug in question. It’s called niraparib, and it’s part of a family of drugs called PARP inhibitors. Those close to the biotech space will already be familiar with this type of drug. For those that aren’t, it’s a pretty interesting subject.

Basically, when cells replicate, their DNA gets damaged. Each time this replication happens, thousands of what are called ‘nicks’ appear in the DNA, and if unaddressed, limit the DNA’s ability to instruct for further replication. A bunch of different types of enzyme help to repair these nicks, with one of the most important (especially in cancer cells) being poly ADP ribose polymerase, or PARP. PARP inhibitors (in this case, niraparib) seek to inhibit the reparative effects of PARP, and in doing so, stop the DNA from being able to translate effectively. This inhibition stops replication, and importantly, halts the rapid and uncontrolled proliferation of cancer cells — the defining characteristic we all know so well.

PARP inhibition has had a bit of an up-and-down past. Big names have failed in the space on numerous occasions, and this is why markets are seemingly surprised that Tesaro not only managed to come up with the goods, but did so convincingly.

The trial, called NOVA, had two separate arms — one involving patients that have what’s called a germaline BRCA mutation and one for patients that don’t. Both are important areas of ovarian cancer treatment, and PARP inhibition has had little success in either historically. Primary endpoint in both arms was an improved progression free survival (PFS) when compared to a control arm.

Here’s what happened.

In the gBRCAmut cohort, patients that took the drug had a PFS of 21 months, while the placebo arm in the same cohort demonstrated a PFS of just 5.5 months.

In the non-gBRCAmut cohort (specifically, a sub sector of these patients with HRD positive tumors), these numbers came in at 12.9 months and 3.8 months respectively. In the overall non-gBRCAmut cohort, active came in at 9.3 and control at 3.9 months.

It’s difficult to understate how significant these differences are. Ovarian cancer is notoriously deadly and extremely difficult to treat. That a PARP inhibitor can increase PFS by such a margin is a game-changer, assuming tolerance comes in on the right side of a risk benefit analysis.

This latter statement is what’s important.

There’s no question the drug has a positive clinical impact, so when it comes to an FDA review, we can consider that box ticked by the agency. What it will come down to is safety. Specifically, are the side effects of this PARP inhibitor worth accepting given the benefits it affords a patient? There have been some concerns with things like neutropenia and anemia when used in large doses and as a combination therapy, and these will likely play a part in the agency’s final say come PDUFA.

As things stand, we don’t have any phase III data specifically related to niraparib, other than the fact that it’s generally well-tolerated. TSRO intends to release more detailed numbers from the trial, however, and this should hit markets across the coming weeks. This data should clarify the tolerance side of things.

So, getting back to the original question, is there further upside?

The answer, in all likelihood, and based on the efficacy data alone, yes. We might see a correction near term, though, as speculative longs unwind. For the more conservative entry, it would be wise to wait until we get more clarification on tolerance.

As of this writing, Samuel Rae did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/07/tesaro-inc-tsro-niraparib/.

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