GlaxoSmithKline to buy Sierra Oncology for £1.5bn to boost cancer drug pipeline

GlaxoSmithKline has reached an agreement to buy blood cancer specialist Sierra Oncology for £1.5bn as part of plans to strengthen its drug pipeline after pressure from activist investors.

The deal comes ahead of GSK’s spin-off of its consumer health division — which will be known as Haleon — in July, a change that will expose the rest of the business to more investor scrutiny.

Luke Miels, GSK’s chief commercial officer, said the acquisition complemented the company’s commercial and medical expertise in blood cancers.

Sierra is preparing to submit its momelotinib drug for regulatory approval later this year. Momelotinib is designed to treat patients with myelofibrosis, a rare form of bone marrow cancer, while also improving the symptoms of anaemia that the cancer causes. Anaemia affects a high proportion of myelofibrosis patients and is the primary reason patients discontinue treatment.

Miels said that the new drug would fit well into GSK’s business, because there is a “70 per cent overlap” with the physicians who already use its oncology drug Blenrep.

Emma Walmsley, GSK chief executive, has taken the company back into oncology after her predecessor dropped the treatment area, including spending £4bn on a deal for US biotech Tesaro that closed in early 2019.

“I think we are still very much in the foothills of oncology but what is striking is that these things can change very quickly,” Miels said, pointing to the rapid success of his former employer AstraZeneca.

Analysts have been predicting a boom in pharmaceutical industry mergers and acquisitions, as large companies seek to capitalise on falling valuations for biotech stocks.

But shares in Sierra have bucked the trend, soaring 81 per cent so far this year, after positive later-stage clinical trial data in January.

Miels said he preferred to look at “relatively advanced” assets like Sierra, which he said was “heavily derisked” because of its successful trial and demand from doctors whose only option for patients who cannot use other innovative oncology drugs, is a 1970s steroid.

The consumer health spin-off will give GSK more money to spend on deals and invest in research and development. It will receive a special dividend of about £7bn and retain a 20 per cent stake in the new company to sell down over time.

Walmsley has been under pressure over the group’s strategy from activist shareholders including US hedge fund Elliott Management, which have also questioned her lack of scientific background.

GSK said it expected Sierra to start contributing to sales in 2023, with “significant growth potential” after that.

Sierra shareholders will receive $55 a share, a premium of about 39 per cent to its closing price on Tuesday and a 63 per cent premium to its average price over the past 30 trading days. The deal is expected to close before or during the third quarter.

Sierra’s chief executive Stephen Dilly said the acquisition by GSK offered the “best opportunity” for the group to “realise its mission of delivering targeted therapies that treat rare forms of cancer”.

“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,” he said.