Shares in Glaxo Smith Kline dropped almost seven per cent today after the company said it will take over US cancer firm Tesaro.
At $75 per share, the UK’s biggest drugmaker is paying a 110 per cent premium for Tesaro’s stock.
The New York-listed company was up 59 per cent to $73.76 in pre-market trading, while GSK dropped as low as 1,511p in London.
The $5.1bn (£4bn) deal will see GSK add the Zejula drug, designed to treat ovarian cancer in patients.
The drug is part of a promising new class of medicines called Parp inhibitors, which will allow it to rival Astra Zeneca’s Lynparza.
It is especially effective in treating patients with a BRCA gene mutation, and is approved in the US and Europe to treat adults with recurrent ovarian cancer.
However, researchers hope to expand the drug’s use, finding other patients to treat with Zejula, including those who suffer from lung, breast and prostate cancer.
Results from these studies are expected in the second half of 2019, after the acquisition closes in the first quarter of the year.
Graham Doyle, an analyst at Liberum, said: “There is no doubt that GSK needs to bolster its pipeline but given the competition Tesaro faces with other Parp inhibitors and the relative lack of synergies with GSK's existing oncology pipeline we are not convinced that this is the best way to do so.”
The drug generates around $166m in revenues, GSK said.
GSK expects the acquisition to hit adjusted earnings per share by high single digit percentages in the first two years, and it will start contributing by 2022, the drugmaker said.
Chief executive Emma Walmsley said: “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.
“This combination will support our aim to deliver long-term sustainable growth and is consistent with our capital allocation priorities.
“We look forward to working with Tesaro’s talented team to bring valuable new medicines to patients.”