GSK reorganization gains steam with Tesaro buyout, sale of Asia unit

The recent spate of cancer drugs securing FDA approval indicates that research and development in the area are progressing rapidly. So, it is natural that every pharmaceuticals company strives to get a share of that lucrative market. The decision by GlaxoSmithKline (GSK) this week to acquire an American cancer drug maker with a promising future is the right move by the British healthcare giant in its efforts to streamline operations.

The acquisition of Massachusetts-based drug maker Tesaro (TSRO) for $5.1 billion comes at a time when GSK’s pharmaceuticals segment is badly in need of attention. The primary attraction of the deal is Tesaro’s ovarian cancer drug Zejula, which will help GSK to compete effectively with its closest rival in Europe.

Zejula, which is already in the market, is rapidly catching up with the other leading formulations in the segment. Interestingly, the $75-per-share purchase price represents a 110% premium to Tesaro’s average stock price. The deal is part of new CEO Emma Walmsley’s strategy to revitalize GSK’s pharma division, which had lost much of its sheen under the previous chief executive.

The main attraction of the deal is Tesaro’s ovarian cancer drug Zejula, which will help GSK to compete effectively with its closest rival

In a separate transaction, GSK agreed to sell its health supplement brand Horlicks, which is quite popular in Asia, to Unilever (UN) for about $3.8 billion. Facing stiff competition from direct-to-consumer brands, Unilever has long been making aggressive moves to revive its weakening growth momentum.

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The deal covers GSK’s health food and drinks portfolio in the Asian market, primarily India and Bangladesh. It comes less than a month before Unilever’s long-term executive Alan Jope is slated to take charge as the new CEO. The consumer products giant aims to cash in on the changing customer taste, marked by the mass shift from junk food to healthier alternatives.

However, investors in GSK responded negatively to the deals and the stock fell about 8% in early trading Monday on the Nasdaq stock exchange. The stock had gained steadily over the past twelve months, after ending a downward spiral that began several years ago. Meanwhile, Tesaro shares surged around 58%, recovering from its multi-year lows.

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