Paying out for PARP

LONDON—The end of a year is usually a time to wind down and relax, but GlaxoSmithKline plc wrapped up 2018 instead by getting one more deal in under the wire—the acquisition of TESARO Inc. for an aggregate cash consideration of roughly $5.1 billion.

Per the merger agreement, an indirect GSK subsidiary will extend a tender offer for all issued and outstanding shares of TESARO common stock for $75 per share in cash upon completion of the offer. Pending the tender by TESARO shareholders of at least one share more than 50 percent of issued and outstanding shares, as well as satisfaction of regulatory approvals and customary closing conditions, the transaction will be completed in the first quarter of this year. Once the tender offer closes, any shares not tendered to the offer will be acquired through a second-step merger at the $75 per share price.

The $75 per share price tag represents a 110-percent premium over the latter’s 30-day volume weighted average of $35.67. GSK predicts the transaction will affect its adjusted earnings per share for the first two years by mid- to high single-digit percentages, but expects it will be accretive by 2022. The company is maintaining its guidance for full-year 2018 adjusted earnings per share growth at 8 to 10 percent at CER and expects no change to its dividend policy.

“The acquisition of TESARO will strengthen our pharmaceuticals business by accelerating the build of our oncology pipeline and commercial footprint, along with providing access to new scientific capabilities,” Emma Walmsley, CEO of GSK, said in a press release. “This combination will support our aim to deliver long-term sustainable growth and is consistent with our capital allocation priorities. We look forward to working with TESARO’s talented team to bring valuable new medicines to patients.”

Lonnie Moulder, CEO of TESARO, added: “This transaction marks the beginning of a new global partnership that will accelerate our oncology business and allow our mission of delivering transformative products to individuals living with cancer to endure. Our board and management team are very pleased to announce this transaction, and we are grateful to the management team at GSK for their tremendous vision and the opportunity to preserve and build upon the impact we have had in the cancer community to date.”

While no details were released as to the future of TESARO’s employees or facilities, a GSK press release noted that “GSK is in discussions with several key executives of TESARO to ensure their continued employment with the company.”

TESARO’s lead product is Zejula (niraparib), an oral poly-ADP ribose polymerase (PARP) inhibitor approved for the treatment of ovarian cancer. This drug class has been gaining popularity in ovarian and breast cancer for the benefit seen in women with and without germline mutations in a BRCA gene. Zejula has FDA and EMA approval for adult patients with recurrent ovarian cancer who are in response to platinum-based chemotherapy, regardless of BRCA mutation or biomarker status. The drug is also in clinical trials to evaluate it as a monotherapy and part of a combination regimen as a first-line maintenance treatment for ovarian cancer, with results expected in H1 2019.

Some of the other big names in this field at present are Clovis Oncology’s Rubraca and Pfizer’s Talzenna. Leerink Partners commented on the TESARO acquisition, saying “We see this long-awaited acquisition as validating for the PARP inhibitor class. We see shares of [Clovis Oncology], as the most prominent and advanced free-standing PARP, as likely to benefit from improved investor sentiment, particularly given the disparity between the [TESARO] acquisition price and [Clovis Oncology’s] current market capitalization of ~$1bn.”

George Budwell of The Motley Fool noted that Clovis shares likely rose after the Tesaro deal because “Investors appear to be betting that Clovis will be the next PARP developer to catch the eye of a deep-pocketed big pharma or blue-chip biotech.”

GSK’s shareholders weren’t wholly sold on the deal, as Budwell pointed out that shares dropped almost 8 percent on Dec. 3 when the news broke. And despite the promise of this drug class, given the return on investment of Zejula and Rubraca—which brought in $63 million and $22.8 million, respectively, for the third quarter of 2018—Budwell says that “Glaxo may have just grossly overpaid for Tesaro.”

“On the bright side, Zejula still has a shot at living up to these lofty sales projections over the long run,” Budwell continues. “This drug, after all, is presently in a host of clinical trials for other high-value indications, such as breast and prostate cancer. The downside, though, is that Clovis’ drug is also pursuing similar indications in its clinical program. So there’s a good chance that these two PARP inhibitors will end up competing for market share across many of the same indications. Glaxo, therefore, will need some luck going forward to ensure that this deal turns into a net positive for shareholders and not a costly misstep.”

Hal Barron, chief scientific officer and president of R&D at GSK, said: “Our strong belief is that PARP inhibitors are important medicines that have been under-appreciated in terms of the impact they can have on cancer patients. We are optimistic that Zejula will demonstrate benefit in patients with ovarian cancer beyond those who are BRCA-positive as front-line treatment. We are also very excited that through this transaction, we will have the opportunity to work with an outstanding Boston-based oncology group with deep clinical development expertise, and together we will explore Zejula’s efficacy beyond ovarian cancer into multiple tumor types to help many more patients.”