Healthcare giant GlaxoSmithKline (GSK) has snapped up Sierra Oncology – a California-based, late-stage biopharmaceutical company focused on treatments for rare forms of cancer.
It will acquire the company for $55 per share in a cash deal, representing a total equity value of $1.9bn (£1.5bn).
This a premium of approximately 63 per cent on Sierra Oncology’s weighted average price over the past 30 trading days.
Sierra Oncology’s company’s board of directors has unanimously recommended that Sierra’s stockholders vote in favour of the approval of the merger.
Stockholders of Sierra Oncology – holding approximately 28 per cent of the company’s outstanding shares – have agreed to vote their shares in favour of approval of the merger.
The deal is expected to go through by the end of the third quarter in 2022.
The proposed acquisition aligns with GSK’s strategy of building a strong portfolio of new specialty medicines and vaccines.
GSK’s senior team has been facing mounting calls to shore up its drug pipeline since activist investors Elliott built up a significant stake in the company last year.
It has also antagonised investors with plans to cut dividends by 31 per cent, as it looks to clean up its balance sheet with cost-cutting across the business.
Rare cancer drug closes in on approval
One of Sierra Oncology’s key drugs is momelotinib, a treatment for fatal bone cancers such as myelofibrosis and secondary effects from the disease such as anaemia.
In January earlier this year, Sierra Oncology announced positive top-line results from its phase three trial, demonstrating that momelotinib achieved a statistically significant and clinically meaningful benefit on symptoms, splenic response, and anaemia.
If momelotinib is approved by regulatory authorities, GSK expects sales for momelotinib to begin in 2023, with significant growth potential and a positive benefit to the group’s adjusted operating margin in the medium term.
GSK’s chief commercial officer Luke Miels said: “Sierra Oncology complements our commercial and medical expertise in haematology. Momelotinib offers a differentiated treatment option that could address the significant unmet medical needs of myelofibrosis patients with anaemia, the major reason patients discontinue treatment. With this proposed acquisition, we have the opportunity to potentially bring meaningful new benefits to patients and further strengthen our portfolio of specialty medicines.”
The deal follows GSK’s announced plans to spin off its large consumer healthcare business, which includes brands such as Sensodyne toothpaste and Advil painkillers in July.
This is the biggest shake-up for the company in two decades.
The consumer arm, which will be chaired by the former Tesco boss Sir Dave Lewis, will be called Haleon when it lists on the London Stock Exchange in the summer.
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, was encouraged by the latest acquisition but remained sceptical of its overall strategy.
She explained: “GSK seems to be getting its ducks in a row ahead of the break up. Still, a dividend cut in the future and a number of asset sales ahead of the spin off don’t make for a promising long-term strategy. The ambitious growth targets for the future are predicated on successful trial results, but drugs fall at the final hurdle all too often. We’re pleased to see progress at GSK, but uncertainty is clouding the long-term investment case.”