GSK buys a small pharma company for lots of cash

[daveh]

GSK plans to acquire Tesaro details here:
www.investegate.co.uk/article.aspx?id=2 ... 2456J&fe=1

GSK is overpaying for an American a commercial-stage biopharmaceutical company, with a major marketed product, Zejula (niraparib), an oral poly ADP ribose polymerase (PARP) inhibitor currently approved for use in ovarian cancer.

GSK will acquire TESARO, an oncology-focused company based in Waltham, Massachusetts, for an aggregate cash consideration of approximately $5.1 billion (£4.0 billion). The proposed transaction will significantly strengthen GSK's pharmaceutical business, accelerating the build of GSK's pipeline and commercial capability in oncology.

The acquisition price of $75 per share in cash represents a 110% premium to TESARO's 30 day Volume Weighted Average Price of $35.67 and an aggregate consideration of approximately $5.1 billion (£4.0 billion) including the assumption of TESARO's net debt.

GSK expects the acquisition of TESARO and associated R&D and commercial investments will impact Adjusted EPS for the first two years by mid to high single digit percentages, reducing thereafter with the acquisition expected to start to be accretive to Adjusted EPS by 2022

So for the first two years the acquisition will be dilutive to GSK earnings, basically I feel they are wasting the money raised from Horlicks by overpaying for a drugs company.

[Horsey]

To me this looks like quite a good buy, pending further successes in combination trials with immuno-oncology therapies which would give a serious boost to sales numbers.

[Dod101]

GSK is overpaying for an American a commercial-stage biopharmaceutical company, with a major marketed product, Zejula (niraparib), an oral poly ADP ribose polymerase (PARP) inhibitor currently approved for use in ovarian cancer.

How do you they are overpaying? Have you got knowledge you would like to share?

Dod

[scrumpyjack]

Glad I sold out a while back. Their Mickie Mouse accounting ('Adjusted Earnings') is absurd and they have been going nowhere, or downhill, for years.

Only time will tell whether the acquisition will produce drugs that get approved and make profits to justify the price. All one can say is that they are payiing more than twice what Mr Market thinks the company is worth and if and when there are profits, the gross profit will be booked fully in EPS and the amortisation of the $5 billion will be excluded from 'Adjusted Earnings'

[daveh]

GSK is overpaying for an American a commercial-stage biopharmaceutical company, with a major marketed product, Zejula (niraparib), an oral poly ADP ribose polymerase (PARP) inhibitor currently approved for use in ovarian cancer.

How do you they are overpaying? Have you got knowledge you would like to share?

Dod

They are paying more than double what the market thought the company was worth on its own over the last 30 days. They have stated that it will be earnings dilutive for at least two years. It has a single drug on the market, so they are hoping that the pipeline is going to be good down the line. I just think a 110% premium is too high and were not talking small sums here.

[Dod101]

Thanks to Scrumpyjack and to daveh. I guess we have to trust them. I know absolutely nothing about the US pharma market so cannot judge whether they were apparently under priced or not prior to rich Uncle GSK coming along.

As for adjusted earnings, almost every company does that so that is nothing new.

Dod

[moorfield]

WTF. Share price -7% on that news ??

Edit: I should of course have written: Yield up +0.4%. !

[daveh]

WTF. Share price -7% on that news ??

Edit: I should of course have written: Yield up +0.4%. !

I guess I'm not the only one who thinks GSK are overpaying then.
I am a holder, but I won't be adding more at the moment as I am definitely worried they are not making good investment choices.

[scrumpyjack]

Thanks to Scrumpyjack and to daveh. I guess we have to trust them. I know absolutely nothing about the US pharma market so cannot judge whether they were apparently under priced or not prior to rich Uncle GSK coming along.

As for adjusted earnings, almost every company does that so that is nothing new.

Dod

When a company excludes things like writing off the costs of developing drugs and legal expenses, which for a Pharma co are normal expenses that arise every year, it really is a case of Cleverly Rigged Accounting Ploys.

They don't even try to call them Exceptional items ('cos they aren't!), but invent a whole new term 'Core' profits.

[Bouleversee]

Sounds like a bit of a Horlicks.

I am still losing on some I bought for 2160 in Apr. '99. Not my best investment and thank you Agatha Christie. I doubt if "don't sell Glaxo" will be MY dying words. Is it known how well the drug works for ovarian cancer? If it extends life significantly or is curative, it could be a money spinner since I don't think there is another proven treatment but I shouldn't have thought Tesaro would want to sell at any price if that were the case. Let's hope the gamble on the purchase pays off better than my gamble on the shares and, more importantly, let's hope it saves lots of lives.

[monabri]

Tesaro.
Overvalued at $29 nevermind the stupidly stupid amount GSK paid.
Massive debt
Loss making
Would run out of funds ( cash run out) in just over a year and a bit.


What were GSK thinking ? I wonder if GSK fancy buying Interserve ?

I class this one in the category of WT..heck!

[richfool]

Is the purchase the reason why GSK has fallen by some 7.62% today? If so, the market seems to be taking a dim view of the purchase.

[Dod101]

It will be interesting to see what the papers have to say about this. I find it difficult to believe that GSK would simply offer a 110% premium without there being something else behind it. On the face of it that is an extraordinarily high premium. It does not though automatically mean that they are overpaying. I at least simply do not have enough info to come to any conclusion.

Dod

[tjh290633]

Is the purchase the reason why GSK has fallen by some 7.62% today? If so, the market seems to be taking a dim view of the purchase.

Looking at the share price graph for today, the decline began about the time of the RNS being posted, so one must assume so.

TJH

[Horsey]

It will be interesting to see what the papers have to say about this. I find it difficult to believe that GSK would simply offer a 110% premium without there being something else behind it. On the face of it that is an extraordinarily high premium. It does not though automatically mean that they are overpaying. I at least simply do not have enough info to come to any conclusion.

Dod

I suspect there was some kind of auction going on in the background, with GSK being "winners".

[Wasron]

Is the purchase the reason why GSK has fallen by some 7.62% today? If so, the market seems to be taking a dim view of the purchase.

Looking at the share price graph for today, the decline began about the time of the RNS being posted, so one must assume so.

TJH

If you look at the five year graph for Tesaro the purchase price is well below the share price in the second half of 2016 and most of 2017. It’s been on a gradual decline since Feb 2017 when it was $190. I don’t follow US pharma stocks and haven’t looked into the reasons for the decline, but if it was just that Tesaro didn’t have deep enough pockets to get the drug to market then the premium on its own shouldn’t be viewed so negatively. As a GSK holder I’m hoping this will generate several more billions in revenue than it’s costing.

Wasron

[Dod101]

From a study of the press, I see nothing to suggest that there is likely to be a big problem with GSK apparently 'overpaying'. There are a lot of people on these Boards who may be better employed with the likes of GSK so that they can warn the management of the folly of overpaying for smallish US drug companies. OTOH, it may be that the management of GSK know a bit more about the situation than I do.

Expressing one's opinion is fine; that is surely a function of the Boards but to express that opinion as though it is fact (see above) is misleading at the very least.

Dod

[idpickering]

From a study of the press, I see nothing to suggest that there is likely to be a big problem with GSK apparently 'overpaying'. There are a lot of people on these Boards who may be better employed with the likes of GSK so that they can warn the management of the folly of overpaying for smallish US drug companies. OTOH, it may be that the management of GSK know a bit more about the situation than I do.

Expressing one's opinion is fine; that is surely a function of the Boards but to express that opinion as though it is fact (see above) is misleading at the very least.

Dod

I agree totally with your post Dod. I’m all for letting the managers manage, and I’m sure they’re more qualified to do the job, and are more in the loop, than anyone here. Opinions are fine, but that is all they are. Have a rec sir.

Ian.

[Horsey]

That said Ian, this is probably the same group of senior managers that agreed to the purchase of Sirtris in 2008

Sirtris was closed 5 years after a $720m buyout - despite serious internal scientific opposition due to shoddy data.
https://blogs.sciencemag.org/pipeline/a ... ess_really

At least with this purchase comes a marketed product!

[idpickering]

That said Ian, this is probably the same group of senior managers that agreed to the purchase of Sirtris in 2008

Sirtris was closed 5 years after a $720m buyout - despite serious internal scientific opposition due to shoddy data.
https://blogs.sciencemag.org/pipeline/a ... ess_really

At least with this purchase comes a marketed product!

I hear you Horsey. I guess even senior managers are likely to be errorsome at times. Nothing’s certain in investing.

Ian.