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  • Matthew Herper

GSK Buys Tesaro For $5 Billion In Dramatic Bet On Cancer Genetics

GlaxoSmithKline announced this morning that it will buy Tesaro, the maker of the ovarian cancer drug Zejula, for $5.1 billion in cash in a dramatic bet that the London-based drug giant can see opportunities connected to the genetics of cancer drugs better than the stock market.

“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,” Emma Walmsley, Glaxo’s chief executive, said in a prepared statement.

The deal fits into a framework outlined in July by Hal Barron, the widely respected pharma veteran who took over as GSK’s head of R&D at the beginning of the year. He believes that genetics predict Zejula will prove more effective in a larger percentage of cancer patients than biotech observers expect. He also sees value in two experimental drugs Tesaro is testing that harness the immune system to attack cancer, an area that Barron has said will be of importance to GSK. It will also give Glaxo an oncology sales force and a toehold in Boston, which is a biotech hothouse.

But the London-based drug giant is paying a heady price, beyond what even some Tesaro bulls believe the company is worth. In a note to investors in November, a sell-side analyst at the investment bank Leerink told investors to buy the stock, but estimated that it would be fairly valued at about $3.3 billion, with the biggest impact to that value coming from a study using Zejula before other ovarian cancer drugs. Zejula generated $63 million in sales in the third quarter of 2018, but Leerink estimates that sales will eventually top $1 billion.

Drugs like Zejula, called PARP inhibitors, work by blocking a process that cells use to repair their DNA. In cancer cells that already have damage to DNA-repair mechanisms, this can be enough to dramatically slow tumor growth. Zejula is more effective in ovarian cancer patients whose cancer has mutations in a gene called BRCA.

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