Anato­my of a long-de­layed biotech buy­out: With its stock price beat­en down, aban­doned by po­ten­tial bid­ders, Tesaro wound up in GSK’s ea­ger arms

When the board at Tesaro $TSRO first cheered on a move to sell the com­pa­ny on Feb­ru­ary 23rd, 2017, spurred by a nod from an in­ter­est­ed phar­ma play­er as their PARP drug Ze­ju­la closed in a near-cer­tain FDA ap­proval, the siz­zling-hot stock was sell­ing at more than $186 a share.

None of the com­pa­nies they con­tact­ed to try and spark an auc­tion, though, were in­ter­est­ed enough to make an of­fer. And by the time Tesaro’s board and CEO Lon­nie Moul­der got around to com­plet­ing a buy­out deal 21 months lat­er, they did it with a phar­ma gi­ant that wasn’t even on their orig­i­nal hit list — and came away with well un­der half of the share price they start­ed out with.

The blow-by-blow, spelled out in an SEC fil­ing on Fri­day, in­cludes plen­ty of lessons for any­one in­ter­est­ed in one day do­ing one of these deals — on ei­ther side of the ta­ble.

By the end of June 2017, se­ri­ous talks with 4 po­ten­tial bid­ders had stale­mat­ed, with the stock down to about $140. But things were about to get much worse for Tesaro.

A year af­ter they had ini­ti­at­ed the at­tempt­ed auc­tion, the board and Moul­der were forced to start to think in broad­er terms. Look­ing at their cash needs af­ter fail­ing to sell the busi­ness, they start­ed to put more op­tions on the ta­ble.

Per­haps a Big Phar­ma col­lab­o­ra­tion on Ze­ju­la would work? They want­ed to ex­plore a roy­al­ty deal. They could go the debt route, or come up with an ex­pense-shar­ing pact on the I/O side of the pipeline. There was even a pro­pos­al to set up a new com­pa­ny to gain Chi­nese rights to Ze­ju­la, which could then fund $100 mil­lion of I/O R&D costs.

Mary Lynne Hed­ley

None of that would hap­pen, but the dis­cus­sions did trig­ger an over­ture from Pres­i­dent Mary Lynne Hed­ley to an un­named phar­ma com­pa­ny about a po­ten­tial al­liance on Ze­ju­la. Talks be­gan. On April 3 of this year, a non-dis­clo­sure agree­ment was signed for the talks to con­tin­ue.

Par­ty A, though, wasn’t will­ing to talk the kind of mon­ey that Tesaro want­ed and walked 8 days lat­er. The stock was down to $52 and change. Tesaro ex­ecs pur­sued a roy­al­ty deal with a pri­vate eq­ui­ty group.

On May 1, Par­ty A and Tesaro ex­ecs were talk­ing again, though the fil­ing doesn’t say who ini­ti­at­ed that call. Who­ev­er did make the first over­ture, though, Tesaro was in an even weak­er po­si­tion.

Three weeks lat­er, on May 22, Street In­sid­er ran a sto­ry spec­u­lat­ing that the com­pa­ny was in buy­out talks with “a large phar­ma­ceu­ti­cal com­pa­ny” — the same day the pri­vate eq­ui­ty group sug­gest­ed they might be will­ing to buy Tesaro.

Noth­ing came of it, and Hed­ley went to an­oth­er phar­ma com­pa­ny to see about an al­liance on Ze­ju­la. This was Com­pa­ny X.

Hal Bar­ron

Fi­nal­ly, on June 10, Hed­ley took her deal-mak­ing op­er­a­tion one step fur­ther and reached out to Hal Bar­ron, the new R&D chief at Glax­o­SmithK­line. By that time it was ob­vi­ous that GSK was get­ting ready to dive back in­to on­col­o­gy in a big way.

The stock at Tesaro had fall­en to about $44. The re­al­i­ties of com­mer­cial­iz­ing Ze­ju­la were clear­ly not as ex­cit­ing for in­vestors as de­vel­op­ing the drug and reach­ing ap­proval. And it wasn’t near­ly as in­ter­est­ing to the board or top ex­ecs as find­ing a part­ner who could take the whole pipeline on to the next step.

Kevin Sin, Bar­ron’s right hand man on the deal­mak­ing front, got in­volved in the deal talks.  The talks con­tin­ued in­to the fall, with every­thing still on the ta­ble. 

Em­ma Walm­s­ley

Af­ter a meet­ing be­tween GSK CEO Em­ma Walm­s­ley and Moul­der, the phar­ma gi­ant made a bid of $66 a share on Oc­to­ber 24. This was the first hard-dol­lar buy­out of­fer in the ta­ble. Two days lat­er, Tesaro’s shares would end the day at $31.50.

Tesaro re­ject­ed the of­fer, which is stan­dard op­er­at­ing pro­ce­dure.

On Oc­to­ber 29, things heat­ed up, a lit­tle. Tesaro had start­ed a new at­tempt at get­ting an auc­tion go­ing, and Par­ty A agreed to a col­lab­o­ra­tion deal that was worth — up­front and mile­stones com­bined — $2.34 bil­lion. That was a boost from their orig­i­nal pact, all-in, for $1.79 bil­lion.

Three of the 7 com­pa­nies they asked for a bid said they weren’t in­ter­est­ed and GSK would be the on­ly ac­tu­al bid­der at the ta­ble.

It took a few more weeks for GSK to set­tle on a $75 price for Tesaro, a fig­ure that would cause the phar­ma gi­ant’s shares to be pared back 8% on the same day.

Tesaro end­ed up sell­ing to a com­pa­ny they ini­tial­ly pitched on a part­ner­ship, fail­ing to get any trac­tion on a buy­out by re­peat­ed­ly ask­ing for bids as its share price swooned to a frac­tion of its pre-ap­proval peak. So if you have to ask for an of­fer, don’t be too sur­prised if you’re left wait­ing — for too long.

Share­hold­ers at Clo­vis $CLVS got the mes­sage about the road ahead on PARP. To­day, as the deal ne­go­ti­a­tions were re­vealed at Tesaro, Clo­vis with its ri­val drug saw its stock drop close to 6%. Those shares are now trad­ing at less than half of their price post­ed when Rubra­ca was first ap­proved in late 2016.


Fea­tured im­age: Lon­nie Moul­der Tesaro

Vlad Coric (Biohaven)

In an­oth­er dis­ap­point­ment for in­vestors, FDA slaps down Bio­haven’s re­vised ver­sion of an old ALS drug

Biohaven is at risk of making a habit of disappointing its investors. 

Late Friday the biotech $BHVN reported that the FDA had rejected its application for riluzole, an old drug that they had made over into a sublingual formulation that dissolves under the tongue. According to Biohaven, the FDA had a problem with the active ingredient used in a bioequivalence study back in 2017, which they got from the Canadian drugmaker Apotex.

Chas­ing Roche's ag­ing block­buster fran­chise, Am­gen/Al­ler­gan roll out Avastin, Her­ceptin knock­offs at dis­count

Let the long battle for biosimilars in the cancer space begin.

Amgen has launched its Avastin and Herceptin copycats — licensed from the predecessors of Allergan — almost two years after the FDA had stamped its approval on Mvasi (bevacizumab-awwb) and three months after the Kanjinti OK (trastuzumab-anns). While the biotech had been fielding biosimilars in Europe, this marks their first foray in the US — and the first oncology biosimilars in the country.

Seer adds ex-FDA chief Mark Mc­Clel­lan to the board; Her­cules Cap­i­tal makes it of­fi­cial for new CEO Scott Bluestein

→ On the same day it announced a $17.5 million Series C, life sciences and health data company Seer unveiled that it had lured former FDA commissioner and ex-CMS administrator Mark McClellan on to its board. “Mark’s deep understanding of the health care ecosystem and visionary insights on policy reform will be crucial in informing our thinking as we work to bring our liquid biopsy and life sciences products to market,” said Seer chief and founder Omid Farokhzad in a statement.

Daniel O'Day

No­var­tis hands off 3 pre­clin­i­cal pro­grams to the an­tivi­ral R&D mas­ters at Gilead

Gilead CEO Daniel O’Day’s new task hunting up a CSO for the company isn’t stopping the industry’s dominant antiviral player from doing pipeline deals.

The big biotech today snapped up 3 preclinical antiviral programs from pharma giant Novartis, with drugs promising to treat human rhinovirus, influenza and herpes viruses. We don’t know what the upfront is, but the back end has $291 million in milestones baked in.

Vas Narasimhan, AP Images

On a hot streak, No­var­tis ex­ecs run the odds on their two most im­por­tant PhI­II read­outs. Which is 0.01% more like­ly to suc­ceed?

Novartis CEO Vas Narasimhan is living in the sweet spot right now.

The numbers are running a bit better than expected, the pipeline — which he assembled as development chief — is performing and the stock popped more than 4% on Thursday as the executive team ran through their assessment of Q2 performance.

Year-to-date the stock is up 28%, so the investors will be beaming. Anyone looking for chinks in their armor — and there are plenty giving it a shot — right now focus on payer acceptance of their $2.1 million gene therapy Zolgensma, where it’s early days. And CAR-T continues to underperform, but Novartis doesn’t appear to be suffering from it.

So what could go wrong?

Actually, not much. But Tim Anderson at Wolfe pressed Narasimhan and his development chief John Tsai to pick which of two looming Phase III readouts with blockbuster implication had the better odds of success.

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Francesco De Rubertis

Medicxi is rolling out its biggest fund ever to back Eu­rope's top 'sci­en­tists with strange ideas'

Francesco De Rubertis built Medicxi to be the kind of biotech venture player he would have liked to have known back when he was a full time scientist.

“When I was a scientist 20 years ago I would have loved Medicxi,’ the co-founder tells me. It’s the kind of place run by and for investigators, what the Medicxi partner calls “scientists with strange ideas — a platform for the drug hunter and scientific entrepreneur. That’s what I wanted when I was a scientist.”

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Af­ter a decade, Vi­iV CSO John Pot­tage says it's time to step down — and he's hand­ing the job to long­time col­league Kim Smith

ViiV Healthcare has always been something unique in the global drug industry.

Owned by GlaxoSmithKline and Pfizer — with GSK in the lead as majority owner — it was created 10 years ago in a time of deep turmoil for the field as something independent of the pharma giants, but with access to lots of infrastructural support on demand. While R&D at the mother ship inside GSK was souring, a razor-focused ViiV provided a rare bright spot, challenging Gilead on a lucrative front in delivering new combinations that require fewer therapies with a more easily tolerated regimen.

They kept a massive number of people alive who would otherwise have been facing a death sentence. And they made money.

And throughout, John Pottage has been the chief scientific and chief medical officer.

Until now.

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H1 analy­sis: The high-stakes ta­ble in the biotech deals casi­no is pay­ing out some record-set­ting win­nings

For years the big trend among dealmakers at the major players has been centered on ratcheting down upfront payments in favor of bigger milestones. Better known as biobucks for some. But with the top 15 companies competing for the kind of “transformative” pacts that can whip up some excitement on Wall Street, with some big biotechs like Regeneron now weighing in as well, cash is king at the high stakes table.

We asked Chris Dokomajilar, the head of DealForma, to crunch the numbers for us, looking over the top 20 deals for the past decade and breaking it all down into the top alliances already created in 2019. Gilead has clearly tipped the scales in terms of the coin of the bio-realm, with its record-setting $5 billion upfront to tie up to Galapagos’ entire pipeline.

Dokomajilar notes:

We’re going to need a ‘three comma club’ for the deals with over $1 billion in total upfront cash and equity. The $100 million-plus club is getting crowded at 164 deals in the last decade with new deals being added towards the top of the chart. 2019 already has 14 deals with at least $100 million in upfront cash and equity for a total year-to-date of over $9 billion. That beats last year’s $8 billion and sets a record.

Add upfronts and equity payments and you get $11.5 billion for the year, just shy of last year’s record-setting $11.8 billion.

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Part club, part guide, part land­lord: Arie Bellde­grun is blue­print­ing a string of be­spoke biotech com­plex­es in glob­al boom­towns — start­ing with Boston

The biotech industry is getting a landlord, unlike anything it’s ever known before.

Inspired by his recent experiences scrounging for space in Boston and the Bay Area, master biotech builder, investor, and global dealmaker Arie Belldegrun has organized a new venture to build a new, 250,000 square foot biopharma building in Boston’s Seaport district — home to Vertex and a number of up-and-coming biotech players.

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