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If you're looking for a biotech to add high-flying gains to your portfolio, check out Tesaro Inc. (NASDAQ:TSRO). Tesaro could be headed for lift-off after rival Clovis Oncology (NASDAQ:CLVS) released troubling safety data on its competing cancer-fighting PARP inhibitor. That cedes Tesaro best-in-class status, meaning its experimental once-a-day ovarian cancer pill, niraparib, should be able to direct a large portion of that blockbuster market to the company's balance sheet.

How big is the market? Estimates vary, but the lowest I've seen indicates that ovarian-cancer meds should reach at least $1.9 billion by the close of this decade. That's a significant chunk of money, but what makes Tesaro exciting is that PARP inhibitors have applications far beyond that disease. In fact, this promising group could well be the next major class of therapeutics in oncology. 

While I'd wait for a pullback to jump in, here's how Tesaro's experimental meds and their broad opportunity could make this stock a long-term winner.

After Medivation buyout, Tesaro could be next on the M&A hit list

The potential of companies with PARP inhibitors already inspired the biggest M&A battle this year in biotech. I'm referring to the doozy of a bidding war that led to Pfizer's (NYSE:PFE) $14 billion acquisition of cancer biotech Medivation (NASDAQ:MDVN). While prostate cancer drug Xtandi was the main target, Pfizer was also hot to trot after Medivation's investigational PARP inhibitor, talazoprabib. In fact, Pfizer CEO Ian Read toutedtalazoparbib's potential as a significant reason for the deal. 

With Medivation buttoned up, acquirable companies with late-stage PARP inhibitors number just two -- Tesaro and Clovis. Tesaro's niralapib has a new drug application (NDA) planned for the fourth quarter of this year. That puts it further along the development pathway than talazoprabib, with Pfizer's new drug still enrolling in its phase 3 trial. Nipping at Tesaro's heels, Clovis Oncology's PARP-inhibiting med is in stage 3 clinical trials. 

What makes PARP inhibitors so important?  

PARP inhibitors have shown tremendous potential in ovarian, breast, and prostate cancers, particularly in those exhibiting BRCA1 or BRCA2 genetic mutations. BRCA mutations not only dramatically raise the risk of cancer, but they can also make tumors highly resistant to traditional treatment. But PARPs are not only effective with a subset of mutated cancers. They have broad applications, with some estimates putting the overall addressable PARP market at $20 billion a year, across all the indications. 

Adding a bit of credence to that mind-blowing number, clinical trial results released in June on Tesaro's niraparib were hugely exciting. Patients taking niraparib achieved 21 months of progression-free survival (PFS) in BRCA-mutated recurrent ovarian cancer and nine to 13 months in various categories of non-BRCA mutated ovarian cancers. Those kinds of results in a late-stage trial are a validation of the potency of this class of drugs, since improvement in cancer survival is often measured in a month or two. Comparatively, Tesaro's drug tripled PFS survival for these women, with the placebo group seeing only 5.5 months PFS in BRCA segment and 3.8 to 3.9 months in the non-BRCA group.    

So which Big Pharma might find Tesaro snackable?

Healthcare titan Johnson & Johnson (NYSE:JNJ) has been quiet of late when it comes to acquisitions. But J&J bought collaboration rights on Tesaro's PARP inhibitor a while back that focus on prostate cancer. With results in other applications showing so much promise, the Goliath of healthcare might well decide it wants to control the entire drug, as well as the company.

M&A interest could also come from the losers in the Medivation bidding war. That list includes not just Sanofi but also Gilead Sciences, Inc., which recently said it's looking for the right PARP inhibitor. Merck, Celgene, Amgen, and AstraZeneca are also possible bidders, as all these companies were rumored to be interested in buying Medivation at one point or another. 

But Tesaro isn't going to go cheap or easy. The biotech's market cap is already $5.9 billion, which is eye-poppingly hefty for a biotech with only one drug on the market -- rolapitant for chemo-induced nausea. That drug just finished its second quarter of commercialization, and it's doing well -- unit volume grew 30% sequentially. But chemo side-effect pills lack the pricing power and clinical importance required to reach blockbuster status. Its niraparib and the company's other investigational drugs will probably have it holding out for top dollar:

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Image source: Tesaro.

In terms of cash burn, despite a $35 million payout of licensing revenue from J&J on its prostate cancer agreement, Tesaro reported a net loss of $58.4 million last quarter. But that's not going to lead to any urgency on Tesaro's part to do a deal. Tesaro had cash and cash equivalents of approximately $320 million at the end of June. And it raised an additional $409 million in a follow-on offering one month later. That will get the biotech comfortably through launch on niraparib.

Could Clovis also be a target?

As I see it, Big Pharma may decide to pay up for Tesaro and its superior PARP inhibitor, or it might seek a discount with Clovis. Clovis suffered an implosion last year, losing 73% of its value in two days in November, after the FDA questioned the reliability of data on its PARP inhibitor targeting lung cancer, a program Clovis ended up shuttering. Since then, Clovis has been bouncing around, having recaptured 31% of its value on Aug. 23, when the FDA accepted Clovis' NDA for its new lead drug, rucaparib. But it dropped 14.5% just last week, based on recently released data showing that 63% of patients had a severe adverse event to that drug.

I can't count Clovis out as an acquisition target, but Tesaro looks like a much better long-term investment. M&A activity is always just the icing on the cake, and Tesaro doesn't need to be acquired to be a worthwhile stock. While Tesaro has been bid up on its ovarian-cancer hopes, what hasn't been accounted for yet in the stock price is the possible widespread potential of PARP inhibitors. Make no mistake: Tesaro is in the high-risk zone, with multiple hurdles ahead. But it's a potentially exciting stock and well worth investigating further. 

Cheryl Swanson owns shares of Johnson and Johnson. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool has the following options: short October 2016 $85 calls on Gilead Sciences. The Motley Fool recommends Johnson and Johnson. 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.