By Bhanvi Satija and Sabrina Valle
LONDON, June 11 (Reuters) – GSK’s record $10.6 billion deal for U.S. company Nuvalent will accelerate the British drugmaker’s rebuild of its cancer drug business as it seeks to fend off competition from bigger rivals AstraZeneca and Roche.
The takeover bid, codenamed Nashville, is GSK’s biggest acquisition to date and brings with it two lung cancer treatments that could be approved in the U.S. this year. The deal is expected to close in the third quarter.
It ties in with the plans of CEO Luke Miels, who took office at the start of the year, to expand the drugmaker’s presence in oncology, a business it left a decade ago in a more than $16 billion asset swap with Novartis.
The deal should also help to offset the impact of patent cliffs later this decade that are likely to dent sales of HIV drug dolutegravir. GSK’s total drug sales are estimated to be £34 billion ($45.53 billion) this year, analysts say.
The Nuvalent bid builds on previously smaller moves into oncology, including a $5.1 billion deal for Tesaro in 2018, a nearly $2 billion purchase of Sierra Oncology and multi-billion-dollar licensing deals.
“Our strategy has been a brick-by-brick building approach,” Miels told a group of journalists on Tuesday after the Nuvalent deal was announced.
‘A VERY LARGE BRICK’
James Eugene, analyst at GSK-shareholder Verso Investment Management, said Nuvalent was “a very large brick” in the overall rebuild.
Other investors agreed.
“The scale is obviously much larger than what GSK has done historically,” said Elena Meng, portfolio manager at Gabelli Funds, which holds U.S.-listed GSK depositary receipts, adding the oncology strategy itself was established.
“What’s new is the size of the commitment.”
A person close to the deal said that there had been competition for Nuvalent, which in part explained the 40% premium to the biotech’s closing price before the agreement was announced.
The company had been on the radar of large drugmakers for at least 18 months because it was one of only a few with late-stage oncology assets nearing approval, the person said, asking not to be named because they were not authorised to speak publicly on the issue.
REVERSING A STRATEGIC MISSTEP
Some investors said the return to oncology undid a strategic misstep under former CEO Andrew Witty when the company left the sector to focus on vaccines, respiratory drugs and consumer health.
The shift back began under Miels’ predecessor Emma Walmsley, who took the top role in 2017.
“It was definitely a mistake in 2015 to sell the oncology franchise,” Markus Manns, portfolio manager at GSK shareholder Union Investment, said.
He added the Nuvalent deal brought de-risked products that together should be able to achieve $3 billion to $4 billion peak sales, helping counter the HIV treatments’ loss of exclusivity. It would also help the company to hit its £40 billion sales target by 2031.
GSK does not expect to compete with Merck, AstraZeneca or Roche across all of oncology, but views it as a potential area of growth. The Nuvalent deal would add two late-stage drugs to its portfolio.
“A specialty business without an oncology component is not a complete proposition,” the drugmaker’s chief scientific officer Tony Wood told Reuters before the deal.
GSK now needs to show the lung cancer treatments, which target ROS1- and ALK-positive mutations, can compete with more-established rival drugs from U.S. drugmaker Pfizer and Switzerland’s Roche, as well as proving their tolerability.
Analysts at Barclays said the acquisition made sense, but cautioned that neither asset appeared to have “mega blockbuster” status.
GSK expects that small patient groups could become sizeable opportunities if the therapies keep younger, active patients on treatment for years with fewer side effects than existing medicines.
Ketan Patel, fund manager at London-based family investment office Whitefriars, said that while the Nuvalent deal was an important step, GSK needs to do more deals to truly compete in the oncology space.
“GSK is playing catchup,” he said, referring to Roche and Merck’s leads in the space.
“I think they are way behind and unlikely to catch up to those names, and will in all probability have to pay up to play in the same arena.”
($1 = 0.7468 pounds)
(Reporting by Bhanvi Satija and Maggie Fick in London and Sabrina Valle in New York; Editing by Adam Jourdan and Barbara Lewis)
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