Hope that a big drugmaker will bid to buy Tesaro (NASDAQ:TSRO) has sent this company's shares skyrocketing 40% this year. That's impressive, but there could be room to run higher. Why? Because Tesaro could be about to land its second FDA approval, and this next approval could be a biggie.
Been there, done that, and doing it again
Tesaro is run by Lonnie Moulder, an industry veteran with a history of biopharma M&A.
In the 2000s, Moulder was the CEO of MGI Pharma, a company that successfully commercialized the chemotherapy induced nausea and vomiting drug Aloxi. Moulder built Aloxi into a nine-figure top-seller before orchestrating a $3.9 billion deal to sell MGI Pharma to Eisai, a major Japanese drugmaker.
After MGI Pharma, Moulder spent a brief stint in the top spot at Abraxis Biosciences prior to founder Patrick Soon-Shiong selling it to Celgene for $2.9 billion in 2011. Moulder also served on the board of Cubist Pharmaceuticals, which was eventually bought by Merck & Co. for $9.5 billion in 2015.
Today, Moulder is attempting to catch lightning in a bottle again as CEO of Tesaro. At Tesaro, Moulder has successfully launched Varubi, an oral CINV drug he licensed from Opko Health, and he's successfully completed registration-ready clinical studies on an IV formulation of Varubi, and niraparip, a cancer drug.
Best in class?
If approved, the IV formulation of Varubi will open up it up to the lion's share of its addressable market, and that could be worth nine figures. That's a lot of money, but Varubi's peak sales potential may pale in comparison to niraparib.
Niraparib is a PARP-inhibitor that Moulder paid Merck & Co. the bargain basement price of $7 million for back in 2012. PARP-inhibitors limit a cancer cell's ability to repair damage due to cancer treatment, and this class of drug's appears quite effective in ovarian cancer, and potentially, in breast cancer.
So far, two other PARP-inhibitors have won FDA approval. The first is Lynparza, an AstraZeneca (NYSE:AZN) drug OK'd for use in heavily pre-treated ovarian cancer patients with BRCA mutations. The second is Rubraca, a Clovis Oncology (NASDAQ:CLVS) drug that got the FDA nod in December, and is also approved for use in heavily pre-treated BRCA positive patients.
Niraparib, however, could end up leap-frogging those two therapies. About 85% of ovarian cancer patients have their disease return following platinum-based chemotherapy, and unfortunately, the amount of time between relapses shrinks over time. While Lynparza and Rubraca are approved for use after three and two prior lines of chemotherapy,respectively, niraparib maintenance therapy extended time between relapses, suggesting it could get used ahead of Lynparza and Rubraca. Furthermore, niraparib delayed disease progression in both BRCA positive and BRCA negative patients, suggesting it could be used much more widely than these other two drugs. Overall, only 15% to 20% of the 22,280 new cases of ovarian cancer diagnosed in the U.S. annually are BRCA positive.
If the FDA green lights niraparib with a label that's more favorable than Lynparza and Rubraca, it could reshape patient treatment. And, since Lynparza and Rubraca both carry six figure annual price tags, niraparib's more widespread use could translate into hundreds of millions of dollars in annual sales for Tesaro.
Global spending on cancer treatment eclipses $100 billion annually, according to IMSHealth, and that's got big pharma eager to expand their exposure to the indication, both via internal R&D and M&A.
That eagerness is leading to big paydays for pure-play commercial-stage cancer drug companies like Tesaro. In 2014, AbbVie spent $21 billion to buy Pharmacyclics to share commercialization rights with Johnson & Johnson on Imbruvica, a fast-growing lymphoma and leukemia drug. And, in 2016, Pfizer spent $14 billion to share commercialization rights to the prostate-cancer drug Xtandi with Astellas.
Since Tesaro owns 100% of the global rights to niraparib, and niraparib could have billion dollar blockbuster potential, it wouldn't be out of the question for Tesaro to fetch a premium in a deal. Currently, the company boasts a market cap of $10 billion.
Ultimately, Tesaro's success depends on FDA approval of niraparib, and niraparib's ability to outflank other PARP inhibitors depends on its prescribing label. If the FDA balks, or the label isn't as good as hoped, then it could make Tesaro a little less appealing to a suitor. But given that there are already two PARP inhibitors on the market, and there's a big unmet need for new ovarian cancer treatments, I think this one has a good shot at a regulatory OK.