Why GlaxoSmithKline (GSK) Is Buying Sierra Oncology (SRRA) For $1.9 Billion

By Amit Chowdhry ● Apr 13, 2022
  • GlaxoSmithKline plc (NYSE: GSK) announced it is buying Sierra Oncology, Inc (Nasdaq: SRRA) for $1.9 billion (£1.5 billion). These are the details.

GlaxoSmithKline plc (NYSE: GSK) and Sierra Oncology, Inc (Nasdaq: SRRA) announced that the companies have entered into an agreement under which GSK will acquire Sierra Oncology, a California-based, late-stage biopharmaceutical company focused on targeted therapies for the treatment of rare forms of cancer, for $55 per share of common stock in cash — which represents an approximate total equity value of $1.9 billion (£1.5 billion).

Myelofibrosis is a fatal cancer of the bone marrow impacting the normal production of blood cells. Anemia represents a high unmet medical need in patients with myelofibrosis. And at diagnosis, approximately 40% of patients are already anemic, and it is estimated that nearly all patients will eventually develop anemia. 

Patients treated with the most commonly used JAK inhibitor will often require transfusions, and more than 30% will discontinue treatment due to anemia. Anemia and transfusion dependence are strongly correlated with poor prognosis and decreased overall survival.

Momelotinib has a differentiated mode of action with inhibitory activity along key signaling pathways. And this activity may lead to beneficial treatment effects on anemia and reduce the need for transfusions while also treating symptoms. 

In January 2022, Sierra Oncology had announced positive topline results from the MOMENTUM phase III trial. And the study met all its primary and key secondary endpoints, demonstrating that momelotinib achieved a statistically significant and clinically meaningful benefit on symptoms, splenic response, and anemia.

Momelotinib complements GSK’s Blenrep (belantamab mafodotin), building on GSK’s commercial and medical expertise in hematology. And the proposed acquisition aligns with GSK’s strategy of building a strong portfolio of new specialty medicines and vaccines. 

If the transaction is completed and momelotinib is approved by regulatory authorities, GSK expects momelotinib will contribute to GSK’s growing specialty medicines business, with sales expected to begin in 2023, with significant growth potential and a positive benefit to the Group’s adjusted operating margin in the medium term.

Under the terms of the agreement, the acquisition will be effected through a one-step merger in which the shares of Sierra Oncology outstanding will be canceled and converted into the right to receive $55 per share in cash. Subject to customary conditions, including the approval of the merger by at least a majority of the issued and outstanding shares of Sierra Oncology, and the expiration or earlier termination of the waiting period. The deal is expected to close in the third quarter of 2022 or before.

The per-share price represents a premium of approximately 39% to Sierra Oncology’s closing stock price on April 12, 2022, and a premium of approximately 63% to Sierra’s volume-weighted average price (VWAP) over the last 30 trading days. And Sierra Oncology’s Board of Directors has unanimously recommended that Sierra’s stockholders vote in favor of the approval of the merger. Additionally, stockholders of Sierra Oncology holding approximately 28% of Sierra’s outstanding shares, have agreed to vote their shares in favor of approval of the merger.

GSK will account for the transaction as a business combination and expects it to be accretive to adjusted EPS in 2024, the expected first full year of momelotinib’s sales. And new GSK reaffirms its full-year 2022 guidance, the medium-term outlook for 2021-2026 of more than 5% sales and 10% adjusted operating profit CAGR* at CER**, and long-term sales ambition.

The value of the gross assets of Sierra Oncology to be acquired (as of December 31, 2021) is $109 million (£83 million at the rate of £1 = $1.312, being the 31 March 2022 spot rate). And the net losses of the business were $95 million for the 12 months ended December 31, 2021 (£70 million, at the rate of £1 = $1.38, being the average rate for the period).

KEY QUOTES:

“Sierra Oncology complements our commercial and medical expertise in hematology. Momelotinib offers a differentiated treatment option that could address the significant unmet medical needs of myelofibrosis patients with anemia, the major reason patients discontinue treatment. With this proposed acquisition, we have the opportunity to potentially bring meaningful new benefits to patients and further strengthen our portfolio of specialty medicines.”

— Luke Miels, Chief Commercial Officer, GSK

“Uniting with GSK creates the best opportunity for Sierra Oncology to realize its mission of delivering targeted therapies that treat rare forms of cancer while also delivering compelling and certain value for our stockholders. Now we have a partner with a global infrastructure and oncology expertise that enables us to deliver momelotinib to patients as quickly as possible and on a global scale.”

— Stephen Dilly, MBBS, PhD, President and Chief Executive Officer, Sierra Oncology