Coverage: GlaxoSmithKline is buying Tesaro for $5 billion

The cancer-focused biotech Tesaro is being acquired by pharmaceutical giant GlaxoSmithKline PLC for $5.1 billion.

Adam Feuerstein of STAT had the news:

The deal values Tesaro at $75 per share, or a 63 percent premium to Friday’s closing price.

Tesaro’s drug Zejula belongs to a class of cancer drugs called PARP inhibitors that work by blocking an enzyme that cancer cells use to repair damage in their DNA. PARP inhibitors are also believed to be active in ovarian and prostate cancers, and are being studied in combination with immunotherapy drugs.

Zejula sales are expected to be in range of $233 to $238 million this year, according to Tesaro.

The pace of M&A in biotech has been generally lackluster this year, so GSK buying Tesaro right before 2018 closes will likely spark renewed optimism for new deals to come in 2019. It should be noted, however, that biotech company valuations have come down. Tesaro shares were trading for $75 at the beginning of the year, so this GSK buyout only gets the stock to break even.

Allison DeAngelis of the Boston Business Journal reported that Tesaro has sought-after technology:

Tesaro is an oncology-focused biotech developing ADP ribose polymerase (PARP) inhibitors, a much sought-after technology in recent years that’s particularly effective for patients with the BRCA gene mutation, a marker for increased risk of breast and ovarian cancer.

The price is a 63 percent premium to Tesaro’s market value as of Friday’s close. As of 9:50 a.m. on Monday, Tesaro’s shares had skyrocketed by 59 percent to $73.52, a sign that investors expect the deal will likely be completed.

The 8-year-old biotech received its first FDA approval last year for a secondary ovarian cancer treatment called Zejula, and is currently has a dozen clinical trials underway testing expanded uses for Zejula and other drugs. Zejula has brought in $166 million in revenue during the first nine months of 2018, and GlaxoSmithKline  valued Tesaro’s assets at $711 million.

Denise Roland and Kimberly Chin of The Wall Street Journal reported that GSK needs to expand its oncology pipeline:

But in buying Zejula, Glaxo is entering a competitive arena.

AstraZeneca PLC’s Lynparza is the market leader, and a third PARP inhibitor from Boulder, Colo.-based biotech company Clovis Oncology is also jostling for market share. All three are also racing to test their PARP inhibitors in other cancer types.

Zejula’s sales have lagged behind rivals, with doctors and industry officials saying the treatment’s side-effect profile is worse than the other drugs.

These concerns have given would-be buyers of Tesaro pause in the past. The company unsuccessfully explored the possibility of a sale more than a year ago. Since then, before Monday’s announcement, its share price has fallen.