GlaxoSmithKline (GSK) said today it agreed to acquire Tesaro for approximately $5.1 billion, in a deal the buyer said would “significantly” accelerate the development of its pipeline and commercial capability in oncology.

Headquartered in Waltham, MA, Tesaro markets the once-daily oral poly ADP ribose polymerase (PARP) inhibitor Zejula™ (niraparib). Zejula won FDA approval last year as a maintenance treatment for women with recurrent epithelial ovarian, fallopian tube, or primary peritoneal cancer who responded to platinum-based chemotherapy.

While Tesaro CEO Lonnie Moulder acknowledged earlier this year that the entire PARP inhibitor class has seen slower physician acceptance than expected, he expressed confidence that the cancer-fighting category would eventually bounce back.

That optimism is shared by GSK, which said in its announcement that it believes PARP inhibitors “offer significant opportunities for use in the treatment of multiple cancer types.”

In addition to ovarian cancer, GSK noted that Zejula is currently under study as a potential treatment in lung, breast, and prostate cancer, both as a monotherapy and in combination with other medicines, including with Tesaro’s anti-PD-1 antibody candidate dostarlimab (formerly TSR-042). GSK also cited the presence in Tesaro’s pipeline of several oncology candidates, including antibodies directed against PD-1, TIM-3, and LAG-3 targets.

“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. This combination will support our aim to deliver long-term sustainable growth and is consistent with our capital allocation priorities,” GSK CEO Emma Walmsley stated.

Hal Baron, M.D., GSK’s CSO and president, R&D, added: “Our strong belief is that PARP inhibitors are important medicines that have been underappreciated in terms of the impact they can have on cancer patients.”

Under Walmsley, who succeeded Sir Andrew Witty as of March 31, 2017, GSK has overhauled its R&D over the past year. Last year, GSK terminated more than 30 clinical and preclinical programs deemed by the company as “unlikely to generate sufficient returns.” GSK also appointed Dr. Barron, who previously served as president of R&D at Calico (California Life Sciences), a Google-backed company launched in 2013.

In July, the company announced a revamped R&D strategy that Dr. Barron said would emphasize “science related to immune system, as well as the use of human genetics and functional genomics to identify promising targets, while exploring other technologies that we think will be very, very helpful for that approach, which includes machine learning and other advanced analytics.”

With Tesaro, by contrast, “GSK is in discussions with several key executives to ensure their continued employment with the company.”

GEN Takeover Target

GSK’s planned acquisition ends months of speculation by Wall Street watchers that Tesaro was an attractive takeover target. Tesaro was included in “10 Takeover Targets” lists published by GEN in February  and in September of this year, making the most recent GEN list following an unconfirmed report by that Roche offered to acquire the company.

Takeover speculation was fueled in part by the expectation that Zejula’s sales will continue to rise in the coming years. Zejula revenues more than during the first three quarters of this year, to $165.989 million from $65.321 million in Q1–Q3 2017.

Another factor in speculation about a Tesaro takeover was its stock price, which fell in the 12 months ending February 21 as investors questioned Tesaro’s ability to compete as additional PARP inhibitors emerge—as well as slower-than-expected revenue growth; the company cut its revenue guidance in August to between $250 million and $265 million (from $310 million to $345 million), citing in part tempered expectations for the market penetration of PARP inhibitors.

But in reporting third-quarter results on November 1, Tesaro raised its revenue guidance slightly, to between $258 million and $265 million. The company cited initiatives to grow the use of Zejula for recurrent ovarian cancer and pursued development strategies focused on gynecologic and lung cancers, with the expectation of data readouts supporting additional indications for the PARP inhibitor and continued development of other cancer candidates.

At $75 per share, the acquisition price represents a 110% premium to Tesaro’s 30-day volume weighted average price of $35.67. The acquisition price includes assumption of Tesaro’s net debt.

GSK said it expects to fund the acquisition from cash resources and drawing under a new acquisition facility.

Tesaro’s board has already unanimously approved the company’s acquisition by GSK. An indirect subsidiary of GSK plans to commence a tender offer within the next 10 business days to acquire all issued and outstanding shares of Tesaro common stock. After closing of the tender offer, GSK will acquire any shares of Tesaro that are not tendered in the tender offer through a second-step merger under Delaware law at the tender offer price.

The deal is expected to complete in the first quarter of 2019, subject to satisfaction of customary closing conditions, including the tender by Tesaro stockholders of at least one share more than 50% of the issued and outstanding shares of the company, and regulatory approvals that include clearance by the U.S. Federal Trade Commission.

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