Britain’s GlaxoSmithKline sought to bolster its cancer business on Wednesday by agreeing a $1.9 billion deal to buy U.S. drug developer Sierra Oncology, the latest move to fend off pressure from activist shareholder Elliott.
GSK has been facing mounting calls to shore up its drug pipeline since Elliott built up a significant stake in the company last year.
The company is also pressing ahead with plans to spin off its large consumer healthcare business, which includes brands such as Sensodyne toothpaste and Advil painkillers, in July.
Shareholders in Sierra, a cancer drug developer, will receive $55 per share of common stock in cash, which is a 39% premium to the company’s closing price on Tuesday.
GSK’s shares were up 0.9% at 1043 GMT, while Sierra’s shares jumped 37% in U.S. premarket trading.
The deal’s price tag doesn’t look unreasonable given it is roughly three times consensus peak sales expectations of $630 million for Sierra’s lead experimental drug, momelotinib, J.P.Morgan analysts wrote in a note.
Momelotinib, which Sierra acquired from Gilead Sciences in 2018, is designed to treat anaemic patients with a type of bone marrow cancer called myelofibrosis. It is expected to be submitted for U.S. marketing approval this quarter.
Results from a late-stage trial in January showed the drug was successful in reducing disease symptoms and cut patients’ dependence on blood transfusions.
“We see the key risk around the acquisition as being commercial execution on the launch, given the number of competitors targeting the myelofibrosis space, and momelotinib’s mixed historical data, prior to the recent positive …. study results,” the analysts added.
The acquisition is expected to close in the third quarter and will complement Blenrep, GSK’s treatment for another form of blood cancer called multiple myeloma.
There’s about a 70% overlap in customer base between momelotinib, Blenrep and other haematology products, said Luke Miels, chief commercial officer at GSK.
GSK, whose oncology business last year accounted for about 2.8% of total pharmaceutical sales, recently suffered trial setbacks on two cancer compounds that were once touted as potential blockbusters.
Patent exclusivity on its HIV drug dolutegravir is also due to expire at the end of 2027, worth about 3 billion pounds ($3.9 billion) in annual sales.
Miels signalled GSK continues to have an appetite for deals like Sierra. “They could be anywhere ranging from cancer, anti-infectives, vaccines, renal, autoimmune,” he said.