Shares of Tesaro (TSRO) Already Discount Success in HRD - Leerink

Ahead of the pivotal readouts for Tesaro's (NASDAQ: TSRO) niraparib (PARP inhibitor) NOVA (2L maintenance) and QUADRA (4L treatment) trials in ovarian cancer expected in 2Q:16, Leerink Partners analyst, Seamus Fernandez, published a note highlighting the probability of success and share price appreciation. Success is highly likely in the germline BRCA mutated (gBRCAmut) cohort and he is optimistic that the drug will succeed in the homologous recombination deficiency (HRD) population, but the second component is higher risk and critical to share price appreciation. Based on his scenario analysis, the stock has significant upside if niraparib succeeds in both cohorts, but potential downside if it fails to hit in HRD.

TSRO plans to distinguish niraparib from its competitors through MYGN’s (MP) MyChoice HRD test, which is designed to identify patients with DNA-repair defects other than BRCA that will respond to PARP inhibition. The NOVA trial has two cohorts: gBRCAmut and non-gBRCAmut. Within the non-gBRCAmut cohort, a hierarchical analysis will look first at patients who test positive for HRD. If this is positive, the entire non-gBRCAmut cohort will be analyzed. Based on our analysis of clinical and preclinical data, we place an 85% probably of success (POS) on the trial succeeding in gBRCAmut patients and a 65% POS in HRD+/non-gBRCAmut patients.

3 Possible outcomes of the NOVA trial:

1) Bull Case: niraparib shows a positive PFS benefit in NOVA trial in both the gBRCAmut and HRD+/non-gBRCAmut cohorts, resulting in a $76/shr valuation

2) Base Case: niraparib is successful in the gBRCAmut cohort but not in HRD+ patients, producing a $35/shr valuation

3) Bear Case: niraparib fails to show a benefit in either population, driving the stock to $23/shr based only on the valuation of Varubi (rolapitant; approved for chemotherapy induced nausea and vomiting).

The firm maintained an Outperform rating but lowered its price target on Tesaro to $65.00 (from $69.00).

For an analyst ratings summary and ratings history on Tesaro click here. For more ratings news on Tesaro click here.

Shares of Tesaro closed at $45.20 yesterday.

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