On Feb. 23, 2017, teased by a large pharma company, Tesaro’s board was excited about a potential sale: Its stock was flying high at nearly $190 per share as it neared FDA approval for the PARP inhibitor Zejula.

With its Tesaro buyout, GlaxoSmithKline CEO Emma Walmsley finally beefed up in oncology, one of the fields she tagged for growth about a year ago. For the small biotech, the sale marked the end of a longer and more arduous journey.

But fast forward to Dec. 3, 2018, and even a $75-per-share price for Tesaro sounded like too much for GSK investors. Tesaro was, after all, standing at just $46 the last trading day before GSK's $5.1 billion announcement.

What happened in between? Back-and-forth talks and rejections from multiple companies, the Waltham, Massachusetts-based company detailed in its deal proxy.

In the spring of 2017, Tesaro tapped Citi to contact "realistic potential acquirers" to explore their interest. By the end of June 2017, serious discussions with four companies ended with no deal. But that was just the beginning of the trouble ahead for Tesaro.

A year after its initial meetings, the board took a look at how much cash Tesaro would need to fund its long-term plans. By that time, Tesaro’s stock had already plummeted to around $60 a share, and it expected a sales gap after selling off its NK1 receptor antagonist Varubi, which in June went to TerSera Therapeutics for $40 million upfront.

The board figured Tesaro had several options. It could sign a codevelopment and copromotion deal with a bigger company. It could do a royalties deal to bring in cash. It could do a deal for rights outside the U.S. and Europe, or perhaps sell securities. 

It even thought about setting up a new company that would take I-O rights in China to fund more than $100 million in manufacturing and development costs; it had already signed Zai Lab for Zejula rights in the region and in exchange could license two discovery-stage I-O programs from the Chinese firm.

President Mary Lynne Hedley got down to work, and by late March had engaged in talks with an unnamed company—Party A in the documents—about a proposed marketing deal for Zejula. But on April 12, that prospect said it wasn’t willing to offer the kind of money Tesaro had hoped for.

Although the two went back to the table May 1, by that time, it was even more clear that Zejula sales weren't quite taking off: First-quarter revenues of $48.9 million were only $5.5 million above an already lackluster fourth-quarter performance, and Clovis Oncology's rival Rubruaca had just won approval for maintenance treatment of ovarian cancer.

Then, on May 22, Street Insider posted a story speculating M&A talks with a large pharma company. On the same day, a private equity firm Tesaro had contacted for financing help in exchange for future royalties got in touch with "preliminary interest" in a buyout.

Then in May, Hedley contacted another large biopharma company—its sixth on the list—for a potential alliance on Zejula.

Finally, on June 10, Tesaro got in touch with GSK through the British pharma’s chief scientific officer, Hal Barron. But things suddenly turned more serious and cozy with Party A, which floated the idea of a buyout but later dialed back to the original copromotion tune. Tesaro CEO Lonnie Moulder and Party A's CEO met for dinner in New York Aug. 15, when the other CEO assured an interest in a strategic transaction.

On Oct. 19, Party A submitted a nonbinding written proposal for a global collaboration on Zejula. The total offer—split between upfront and milestones—was $1.79 billion. Hedley told Party A that wasn't enough, and that prompted a $2.34 billion offer. Still, Tesaro immediately told Party A to go back and sweeten its proposal.

Meanwhile, Tesaro was still talking with GSK. Walmsley met with Moulder on Oct. 5 and "shared her perspective on [GSK’s] strategy and how [Tesaro] would fit within that strategy."

On Oct. 24, GSK’s first offer came in: $66 per share. Tesaro seized on the opportunity to shop itself around to seven other companies, but by Nov. 15, all but one said they wouldn't pursue a transaction.

Then Bloomberg’s story of a potential Tesaro sale emerged. GSK quickly upped its offer to $69, which Tesaro still thought was "inadequate" to warrant exclusive talks. The biotech suggested a price increase of 15% to 20%.

On Nov. 21, GSK made its $75 "best and final offer." That did the trick. Tesaro and GSK had their deal.

Investors obviously thought GSK overpaid, given the company’s shares slid by 8%, despite executives’ vision of a new and better future for Zejula.

Now, the question is whether GSK’s $5.1 billion will pay off? One key might lie beyond BRCA mutations, key to Zejula's market. The non-BRCA population is a much bigger and mostly untapped realm, Barron touted on a Dec. 3 briefing with reporters.

Clinical trials are already underway to assess Zejula in ovarian cancer patients with homologous recombination deficiency, of which Barron said as many as 50% showed evidence. It will also rest on Zejula’s performance in other cancer types such as lung, breast and prostate cancer.

By Angus Liu

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