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

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Pascal Soriot, AstraZeneca CEO (AP Images)

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In­tro­duc­ing End­pointsF­DA+, our new pre­mi­um week­ly reg­u­la­to­ry news re­port led by Zachary Bren­nan

CRLs. 483s. CBER, CDER and RWE. For biopharma professionals, these acronyms command attention because of the fundamental role FDA plays in drug development. Now Endpoints is doubling down on regulatory coverage, and launching a weekly report focusing on developments out of White Oak, with analysis and insight into what it all means.

Coverage will be led by our new senior editor, Zachary Brennan. He joins Endpoints from POLITICO, where he covered pharma. Prior to that he was the managing editor for Regulatory Focus, a news publication from the Regulatory Affairs Professionals Society.