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Analysts lukewarm on GSK’s new cancer acquisition

Tesaro buy will leave GSK with weaker credit, says Moody’s analysts


GlaxoSmithKline’s $5.1bn takeover of Tesaro has led to a downgrade from credit rating agency Moody’s – even though it says the deal provides a “solid strengthening” of its cancer franchise.

Moody’s says it has changed GSK's outlook to negative as the company will deleverage – i.e. reduce its debt – more slowly than expected following the Tesaro acquisition, which it is funding with cash, and that will leave it with weaker credit “for a prolonged period of time” and put pressure on its cash flow over the next three years.

That assessment comes even though GSK has offset the purchase with the divestment of Horlicks and other consumer healthcare nutrition products to Unilever, which will bring in around £2.4bn (around $3.1bn) in net proceeds. There are plenty of industry observers suggesting GSK is paying too much for Tesaro as it tries to rebuild its oncology pipeline pretty much from scratch, particularly as it spent $13bn earlier this year to take full control of its consumer health joint venture with Novartis.

Moody’s is at least fairly positive one what the deal will deliver to GSK from a pipeline perspective, saying it make sense from a strategic point of view as gets an add-on research platform and additional commercial infrastructure.

That includes the marketed PARP inhibitor Zejula (niraparib) that it says is in a market with “very favourable growth prospects,” albeit with strong competition from AstraZeneca and Merck/MSD’s market-leading rival Lynparza (olaparib) and two further entrants – Clovis Oncology’s Rubraca (rucaparib) and Pfizer’s Talzenna (talazoparib).

GlobalData analyst Paul Jeng has a more negative assessment, suggesting that “given the absence of efficacy data to significantly distinguish Zejula from other PARP inhibitors, it is unclear whether GSK’s bet on Zejula will pay significant dividends unless clinical evidence justifies label expansion as first-line treatment for ovarian cancer.”

Paul Jeng

Paul Jeng

Last year, Zejula became the first PARP inhibitor approved as second-line maintenance treatment of ovarian cancer regardless of BRCA mutations, leading to suggestions that it had “unique potential to reach a broader range of patients” and so could mount a strong challenge to Lynparza, according to Jeng. Since then however Lynparza and Rubraca have both been approved for the same indication.

Tesaro has a trial ongoing to try to break into the first-line maintenance setting with Zejula, called PRIMA, that is enrolling patients regardless of BRCA status and according to the company is the only PARP inhibitor trial to do so. That makes it a little risky, but a positive readout next year could give GSK a leg-up in the first-line maintenance setting.

Lynparza’s presence is looming again, however, with first-line maintenance data of its own from the PAOLA-1 trial due in 2019.

“Although Zejula may eventually carve a lucrative niche through label expansion, it is possible that GSK may end up allocating significant resources on clinical development just to keep pace with a crowded field,” says Jeng.

He does feel there is potential to position Zejula as combination therapy with checkpoint inhibitors, including dostarlimab (TSR-042), Tesaro’s own anti-PD-1 monoclonal antibody, but overall thinks the pipeline after Zejula – which also includes early-stage LAG-3 and Tim-3 programmes – “does not considerably mitigate the risk of GSK’s move.”

6th December 2018


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