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Tesaro: Quick Goodbye

Dec. 03, 2018 6:11 PM ETTesaro (TSRO), GSK18 Comments


  • Tesaro is being acquired by GSK in a +$5 billion deal.
  • Investors in the UK pharma giant do not like the move at all, as a result of the steep premium and the losses which will be incurred.
  • Unfortunately, the very fat premium (on a percentage basis) has not been steep enough to bail out my long-term upside calls.
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Tesaro (NASDAQ:TSRO) has been a promising biotechnology company, at least in my eyes, and now in the eyes of GlaxoSmithKline (NYSE:GSK) as well. The British major pharmaceutical company has reached a deal to acquire Tesaro at a $5.1 billion price tag.

Investors in Glaxo do not like the deal at all given the premium paid and the steep losses incurred, as well as financing costs incurred along the way. While investors in Tesaro have finally received some sort of a buyout/bailout, this was unfortunately not steep enough to bail out my long-term calls.

The Deal

GSK has reached a deal to acquire Tesaro for $75 per share in cash, a pretty impressive 110% premium compared to the average price seen over the past 30 days, although the price is far lower than a peak of nearly $200 in early 2017.

With the deal, GSK is acquiring Zejula, being approved in both the US and Europe to treat adult patients with recurrent ovarian cancer in response to platinum-based chemo, regardless of their biomarker status.

Apparently, GSK is a believer that Zejula might be approved for first-line maintenance treatment of ovarian cancer, creating a potentially a larger market opportunity of course, with trials already being underway under the PRIMA study, among others.

The different path of therapy, as Zejula is a so-called PARP inhibitor, gives GSK expertise which it potentially can use in other cancer types as well. Note that Zejula might potentially be used in the future for other sorts of cancer as well, either as monotherapy or as a combination treatment.

Of course, the $5.1 billion deal will not be accretive at first with revenues from Zejula totalling $166 million in the first three quarters of the year. In the long run, GSK expects nice accretion to adjusted earnings per share from 2022 onward, while dilution

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This article was written by

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Finding value that gets unlocked in M&A, IPOs and other corporate events
The writer is a long term value investor and M.Sc graduate in Financial Markets with over 10 years experience. Value can be found in both long and short ideas and uses options to enhance the risk-return profile of investment ideas. Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice.

Analyst’s Disclosure: I am/we are long TSRO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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