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.
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.
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.
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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