Should You Believe Tesaro's Hype?

A new license for promising technology from AnaptysBio could eventually help increase the number of drugs in Tesaro's (TSRO) pipeline.

Mar 17, 2014 at 2:30PM

Tesaro's (NASDAQ:TSRO) CEO Lonnie Moulder is likely unfazed by the company's eye popping volatility over the past few months. Moulder has a long history of navigating the inherent booms and busts common in emerging biotech. Luckily for Moulder's investors, Moulder has often found himself on the winning side of that equation.

Prior to co-founding Tesaro in 2010, Moulder was the President and CEO of Abraxis Biosciences, the company that developed potential blockbuster cancer drug Abraxane, and was sold to Celgene for $3 billion in 2010. In addition to orchestrating Celgene's acquisition of Abraxis, Moulder also previously served as President and CEO of MGI Pharma, a company that developed oncology products that was sold to Japan's Eisai for nearly $4 billion in 2007.

At Tesaro, Moulder is trying to duplicate his prior successes by in-licensing oncology compounds, like Opko's (NYSE:OPK) rolapitant, and technology, such as his recent deal with AnaptysBio.

TSRO Chart

TSRO data by YCharts

A new deal sparks new hope
Tesaro recently licensed intellectual property from the privately held AnaptysBio that may help the company develop oncology immunotherapies. AnaptysBio has previously licensed its approach to Celgene, Gilead, Merck, Novartis, and Roche.

The deal gives Tesaro the right to further develop oncology antibody drugs developed using AnaptysBio's SHM-XEL platform. That platform mimics the process of creating antibodies in vitro, allowing for the rapid creation of antibodies that can be designed to alter the immune system.

Novartis is already exploring the use of SHM-XEL in oncology, and Celgene is using SHM-XEL to develop both cancer and inflammation therapies. 

In Tesaro's case, the antibodies covered by the deal block cancer's ability to co-opt immune cell receptors including PD-1, TIM-3 and LAG-3, reducing the immune system's ability to find and destroy cancer cells. The companies think the SHM-XEL approach may be able to modulate signaling ligands to restore the body's ability to fight cancer.

In exchange for the use of AnaptysBio's technology, Tesaro is handing over $17 million up front and paying for all the development costs associated with potential candidates. Tesaro could also end up paying AnaptysBio up to $108 million in milestone payments per program, as well as single digit royalties if any of these candidates is ever commercialized. However, that could be years away given all the antibody candidates remain in the pre-clinical stage.

A good time to bulk up its pipeline
Tesaro's in-licensing announcement comes after its shares fell sharply following news in December that its most advanced clinical compound, rolapitant, failed to achieve secondary endpoints in a key phase 3 trial.

However, the anti-nausea compound did meet its primary endpoint for reducing vomiting, and Tesaro still expects to file for FDA approval this year.  If rolapitant wins FDA approval, Opko, which owns a 10% stake in Tesaro, stands to receive double-digit royalties on sales.

Those potential sales may be smaller due to failing the secondary endpoint given that disappointment may open the door for a competing anti-nausea therapy from Insys (NASDAQ:INSY)Insys is developing an oral version of its generic Marinol capsules, a compound that is derived from THC, the psychoactive compound found in marijuana. The capsules are currently marketed as treatments for both chemotherapy and HIV patients. Insys expects to file for approval of its oral formulation this year.

Fool-worthy final thoughts
The agreement with AnaptysBio reinvigorates speculators enthusiasm in Tesaro. It gives the company potential pre-clinical opportunities that could eventually help fill its clinical pipeline. Although Tesaro may end up with its first commercial product in 2015, it doesn't have any sales yet. That means it will have to pay to develop these antibodies out of cash.

That should accelerate an already high cash burn rate tied to clinical trials of rolapitant and niraparib, a potential therapy for platinum sensitive ovarian cancer and BRCA gene mutated breast cancer.

Fortunately, Tesaro is debt free and exited last quarter with $130 million in cash on its books. It added another $94 million thanks to a secondary stock offering in February. However, since the company reported a $94 million loss in 2013, investors should approach this speculative play cautiously, at least until there's more insight into potential sales for rolapitant.

Invest In The Next Wave of Healthcare Innovation
The Economist compares this disruptive invention to the steam engine and the printing press. Business Insider says it's "the next trillion dollar industry." And the technology  behind is poised to set off one of the most remarkable health care revolutions in decades. The Motley Fool's exclusive research presentation dives into this technology's true potential, and it's ability to make life-changing medical solutions never thought possible.  To learn how you can invest in this unbelievable new technology, click here now to see our free report.

 

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd also owns Gundalow Advisors, LLC. Gundalow's clients do not have positions in the companies mentioned.

The Motley Fool recommends Celgene. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers