GlaxoSmithKline's $5.1 Billion Tesaro Deal Spurs M&A Hopes

(Bloomberg) -- A little more than a month after a key index of biotechnology stocks suffered their worst session in more than seven years, GlaxoSmithKline Plc delivered some much-needed good news for the sector in the form of a $5.1 billion deal.

The drugmaker’s pact to pay $75 a share for cancer-focused Tesaro Inc., a more than 60 percent premium from its Friday close, is a positive for the sector and re-ignited investor hopes for deals in the space, according to analysts. SunTrust Robinson Humphrey’s Peter Lawson highlighted that the deal bodes well for peer Clovis Oncology Inc., which saw shares jump by the most intraday in nearly a year and a half.

Other drugmakers who may get a tailwind after the news include those with DNA damage- response-targeting drugs like Sierra Oncology Inc., or peers working in the immuno-oncology space, including MacroGenics Inc., Incyte Corp., Array BioPharma Inc., and Deciphera Pharmaceuticals Inc, Lawson noted.

The Nasdaq Biotechnology Index, the broadest gauge of the industry’s performance, remains off nearly 10 percent from a 52-week high in late August, as investors flee the risky sector amid stock market turbulence. The index gained as much as 2.3 percent in early trading, while the broader U.S. market rallied after the U.S. and China declared a truce in their trade war.

“The deal is an encouraging sign for the small-to-mid cap commercial oncology space, and we think should drive renewed interest in other commercial-stage oncology names,” RBC Capital Markets analyst Kennen MacKay wrote in a note to clients. Exelixis Inc., Puma Biotechnology Inc. and Seattle Genetics Inc. are among companies that could benefit, he noted.

Tesaro’s lone marketed drug, Zejula, is expected to generate $236 million in sales this year, before rising to more than $1 billion by 2023, analyst estimates compiled by Bloomberg show. The medicine operates in a similar fashion to Clovis’ Rubraca which analysts see bringing in $443 million in sales by 2022.

To contact the reporter on this story: Bailey Lipschultz in New York at blipschultz@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Steven Fromm, Morwenna Coniam

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