Credit Suisse Hikes TESARO Target Price to $122 On Robust Niraparib Data; Shares Up

Credit Suisse reiterated its Outperform rating on TESARO Inc (NASDAQ: TSRO) and raised its price target to $122 from $90 to reflect the potential M&A thesis. Excluding M&A, the discounted cash flow-based target remains at $90.

Waltham, Massachusetts-based TESARO has an approved product in Varubi (rolapitant) for the prevention of delayed nausea and vomiting associated with emetogenic chemotherapy. The company is also developing its Phase 3 asset, niraparib, a PARP inhibitor in ovarian and breast cancer indications.

Tesaro said it would file NDA and MAA for all patients with recurrent, platinum-sensitive ovarian cancer in the fourth quarter 2016.

Further, the brokerage said the recent ESMO conference shows Niraparib has broad effects across the second-line ovarian cancer population and expects the labeling to likewise be broad.

On the M&A front, the company has been cited in major press sources as a takeout target (Bloomberg, Investor Business Daily) given high demand for late stage oncology assets, especially in the PARP space due to its potential for activity across a range of tumors.

"Our M&A DCF valuations range from $122 to $157 by our model. We have also built models for other cancers like NSCLC, SCLC, prostate, and others where PARP might be impactful. We assume 0 percent POS for now but we conservatively see at least another $1 billion in sales from PARP expansion," analyst Alethia Young wrote in a note.

"For a large Pharma player who already has an oncology salesforce and large R&D infrastructure we could see SG&A synergies of 50–75 percent and R&D synergies of 15–30 percent. In our base case TSRO P&L we model a tax rate of 30 percent so there could be synergies here as well," Young added.

Young also sees further upside to valuation in the long-term from:

1. "PARP expansion in other platinum sensitive tumors."
2. "Potential HRD- sales in 1L as we expect the company will amend the protocol."
3. "Readouts in breast cancer PARP studies in '17."
4. "Immuno-oncology where we expect early data over 2017."

At the time of writing, shares of Tesaro had surged 22.58 percent on the day to $121.69 after setting a new 52-week high of $118.80.

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