Tesaro has been busy looking to sell itself. And now it's found itself a buyer in GlaxoSmithKline, which recently rejigged to refocus on cancer.
GSK is shelling out $5.1 billion to acquire the oncology specialist, whose centerpiece is the PARP inhibitor Zejula. That’s $75 a share, or a hefty 62% premium to Tesaro’s Friday closing price, which has risen significantly since rumor of a sale re-emerged mid-November.
The deal gives GSK the FDA-approved Zejula and three clinical oncology assets, and also beefs up GSK's operations in the field. Tesaro boasts “a U.S. and European commercial footprint in oncology, and [that] will strengthen our capabilities in clinical development, medical, and payer engagement,” said CEO Emma Walmsley on a Monday briefing with reporters.
Zejula has been tied up in fierce in-class competition with AstraZeneca’s first-to-market Lynparza and Clovis Oncology’s Rubraca, and soon will face Pfizer’s newly approved Talzenna. In the third quarter, as a second-line maintenance treatment for ovarian cancer, Zejula posted sales of $63 million. That was up from $54 million in Q2, but still trailing far behind the fast-growing Lynparza’s $438 million in the same period.
But as GSK R&D chief Hal Barron sees it, PARP inhibitors are “a more important therapeutic class than ... currently appreciated,” which could translate into a larger commercial opportunity for Zejula.
GSK is looking beyond BRCA mutations, a DNA repair defect that PARP inhibitors are known to tackle, and also beyond ovarian cancer. In fact, clinical trials are underway to assess Zejula in ovarian cancer patients with homologous recombination deficiency (HRD). While 15% of ovarian cancer patients expressed the BRCA mutations, as many as 50% show evidence of HRD, said Barron during the Monday briefing.
Other ongoing studies are evaluating Zejula in lung, breast and prostate cancer, both as a monotherapy and in combination with other medicines, including with Tesaro’s own anti-PD-1 antibody, dostarlimab.
“We are optimistic that Zejula will demonstrate benefit in patients with ovarian cancer beyond those who are BRCA-positive as front-line treatment,” said Barron in a statement.
To ensure that the expansion plan for Zejula pans out, GSK will need to identify the right patients and generate the right clinical data. Luckily, it already has signed a partnership with 23andMe to help optimize its pipeline by digging into genetic mechanisms.
Right after Walmsley took over the reins at the British drugmaker in 2017, she overhauled the company’s R&D and rolled out a plan that includes a refocus on oncology, two years after the company swapped away its marketed cancer drugs to Novartis.
After that deal, the company had no oncology sales team, and now, its most promising oncology candidate is a BCMA antibody drug dubbed GSK2857916, which entered phase 2 in multiple myeloma in July. In its recent World Preview 2018 report, life science intelligence firm Evaluate Pharma projected the drug could reach $1.37 billion in sales by 2024, making it one of the top five most valuable R&D projects.
The Tesaro buyout will obviously change that by adding commercial infrastructure and its trio of pipeline assets. The deal comes just a month after GSK’s head of oncology, Axel Hoos, told S&P Global Market Intelligence that GSK may pull out of R&D in its long-dominant respiratory business as Barron looks to funnel more resources into the more promising oncology field.
Backing away from respiratory would be a turnabout from Walmsley's 2017 restructuring plan, reflecting the franchise's recent decline. Despite strong growth from newer drugs Nucala and Trelegy, GSK’s overall respiratory sales were mainly flat in the third quarter, weighted down by its standby blockbuster Advair even before a generic to the behemoth med made its debut.
“Our respiratory franchise, for example, has been a driver for GSK R&D for a long time and we've been very successful with it … but it's also pretty flat. There is not much growth to be expected,” said Hoos.
GSK expects the Tesaro acquisition to cut into earnings per share by mid-to-high single digits over the first two years as it plows money into marketing and research, but “as the return from this investment builds and the growth opportunity for Zejula materializes,” the company sees the transaction to be accretive to EPS by 2022, said Walmsley.