By Sy Mukherjee
December 3, 2018

Hello, readers. I hope you had a wonderful weekend.

On Monday, GlaxoSmithKline CEO Emma Walmsley made yet another significant mark on her company’s future, placing a $5.1 billion bet to acquire the cancer-focused biotech Tesaro. Tesaro stock soared 60% on the news while GSK shares slid 8% in Monday afternoon trading.

The investor concerns are likely related to the hefty price Glaxo ponied up for the acquisition, which is worth more than double Tesaro’s previous 30 day average share price, according to JPMorgan analysts. But GSK R&D chief Hal Barron and Walmsley sounded a confident note on the acquisition, and particularly the access it will give Glaxo to class of cancer treatments called “PARP inhibitors” which have proven lucrative for other companies treating .

“We believe that PARP inhibitors will be a more important therapeutic class than is currently appreciated. PARP inhibitors have really transformed the course of the disease for women with ovarian cancer, particularly those with genetic mutations that prevent cells from repairing damage to DNA such as BRCA,” said Barron during a conference call with reporters.

Walmsley added that even more aggressive acquisitions may be on the horizon, a departure from her longtime predecessor Andrew Witty’s modus operandi.

“[T]his is an example of us executing on what we said we were going to do,” she said. “We are very focused on the execution of this deal, which is a tremendous pipeline opportunity for us, but we still will be open to other potential bolt-ons in business development, which will be those that accelerate the strategy that Hal laid out in July last year, whether that be early stage assets or platforms, whether that be acquisitions or, indeed, partnerships, and you should expect to see us continuing to focus on that, whilst ever being very disciplined around returns.”

Tesaro, in addition to its pipeline of experimental drugs, has a treatment called Zejula for ovarian cancer that’s already on the market. But Zejula hasn’t quite been able to make up for its later-to-market disadvantage compared to rivals such as AstraZeneca and Merck’s Lynparza and Clovis’ Rubraca.

It should be noted that GSK also announced a $3.8 billion sale of its Horlicks nutrition unit this week.

JPMorgan analysts sent mixed signals in a note on the acquisition, pointing out that it’s a positive step in Glaxo’s bid to finally grow its cancer and blockbuster drug portfolio, but will take several years to reap financial benefits.

“Though the deal strengthens GSK’s oncology franchise/pipeline, the company are anticipating the deal to be dilutive to Adjusted EPS for the first two years (i.e. 2019/20), with accretion only seen from 2022,” wrote JPM.

The question is whether Barron and Walmsley’s bet that the market has room to grow—and subsequently lift all boats in the PARP sea—is correct.

Biopharma companies such as Gilead and Roche had also been rumored as potential Tesaro buyers before Monday’s sale.

Read on for the day’s news.

Sy Mukherjee


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