TSRO Tesaro, Inc.

By Kimberly Chin 

GlaxoSmithKline PLC on Monday said it would buy cancer-focused drug company Tesaro Inc. for about $4.16 billion, positioning the health-care giant in a promising, but fiercely competitive, area of medicine.

Britain's Glaxo has agreed to pay $75 a share in cash for the Waltham, Mass.-based company, a premium of 61% on its closing price Friday. Including debt, the deal is valuated at $5.1 billion.

The acquisition hands Glaxo Tesaro's ovarian cancer drug Zejula, which went on sale in the U.S. and Europe last year. Zejula is one of a new class of drugs known as PARP inhibitors, which have increased survival rates for women with recurrent ovarian cancer. PARP inhibitors are also showing promise in other forms of cancer, such as lung, breast and prostate.

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 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.

Glaxo investors appeared cool on the deal Monday, with its shares falling almost 8%. Analysts expressed surprise at the deal, pointing to the apparent lack of overlap with Glaxo's existing cancer pipeline and Zejula's less favorable side-effect profile. Tesaro's stock soared nearly 59%.

Glaxo's Chief Scientific Officer Hal Barron said a clinical study that is due to publish results in the first half of next year could expand Zejula's use to women at an earlier stage of ovarian cancer, boosting sales.

Dr. Barron also pointed to a growing body of research suggesting that PARP inhibitors combined with other cancer drugs could prove powerful in treating a range of cancers that exhibit a particular genetic defect.

"This is just the tip of the iceberg," he said. "We'll start learning about cancers with these defects and how to treat them." He said Glaxo would test out Zejula in combination with drugs in its own cancer-drug pipeline as well as those under development at Tesaro.

Glaxo is doubling down on its prescription-pharmaceutical business under new Chief Executive Emma Walmsley, who has been trimming the company's research and development activities to focus on drugs that either work on the immune system or target diseases where a genetic driver can be identified.

Glaxo's focus was also apparent Monday with a separate deal to sell its nutrition business in India, including the Horlicks brand, to Unilever PLC.

The deal marks a return to selling cancer drugs for Glaxo, which unloaded its oncology portfolio to Novartis AG in 2014 as part of a $20 billion three-part transaction, while retaining its pipeline of early-stage oncology medicines. Dr. Barron said drugs such as Zejula fit with Glaxo's new strategy because they are based on a gene-level understanding of the disease.

Glaxo said that it doesn't expect the acquisition to add to earnings until 2022. That is in part because it will invest heavily in further research on Zejula, on its own and in combination with other drugs, and on selling the drug. The U.K.-based company reaffirmed its guidance for the fiscal year 2018, expecting adjusted per-share earnings growth to be between 8% and 10%.

The transaction is expected to be completed in the first quarter of 2019.

--Jonathan Rockoff contributed to this article.

Write to Kimberly Chin at kimberly.chin@wsj.com

(END) Dow Jones Newswires

December 03, 2018 11:40 ET (16:40 GMT)

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