Class Action Lawsuit Aims to Halt GSK Acquisition of Tesaro
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In December 2018, London’s GlaxoSmithKline announced plans to acquire Waltham, Mass.-based Tesaro for $5.1 billion. Yesterday, shareholders filed for a class action lawsuit against Tesaro in Delaware federal court, alleging that the merger is based on misleading financial analyses filed with the U.S. Securities and Exchange Commission (SEC).
The suit argues that a solicitation statement filed with the SEC on December 14, 2018, includes misleading earnings projections and omits some financial data.
The original acquisition agreement was on December 3, with GSK offering to buy all Tesaro outstanding common shares for $75 per share in cash. That offer will expire on January 14, 2019.
The complaint states in part: “The disclosure of projected financial information is material because it provides stockholders with a basis to project the future financial performance of a company and allows stockholders to better understand the financial analyses performed by the company’s financial advisor in support of its fairness opinion.”
Richard Scarantino, a named shareholder, also alleges that the valuation methods used by a banker to arrive at the figures should be transparent. The lawsuit hopes to stop the merger from going forward, or if it does go through, to rescind it and award damages to shareholders.
Alleged omitted line items include data used to determine earnings before interest and taxes, and all line items needed to inform unlevered free cash flow. “The SEC filing also fails to reflect a reconciliation of all generally accepted and nonaccepted accounting principles, and projected cash flows with regard to product level forecasts, according to the suit,” writes Law 360. “Also misleading and lacking key data to make informed conclusions, according to the suit, are Citi’s selected public companies analysis, its selected precedent transactions analysis and its discounted cash flow analysis, Scarantino said in the complaint.”
Tesaro’s Zejula is an oral, once-daily PARP inhibitor approved by the U.S. Food and Drug Administration (FDA) for maintenance treatment for ovarian cancer in 2017. It is also approved in Europe. It was the first PARP inhibitor approved by the FDA that doesn’t require BRCA mutation or other biomarker testing.
Hal Barron, head of R&D at GSK, indicated the company hopes the drug will show benefit in ovarian cancer patients beyond the BRCA mutation. It also plans to investigate the drug for other cancer types, including lung, breast and prostate cancer, both as a monotherapy and in combination with other drugs. That also includes in combination with Tesaro’s own anti-PD-1 checkpoint inhibitor, dostarlimab, formerly known as TSR-042.
Tesaro has other cancer drugs in its pipeline, including antibodies against PD-1, TIM-3 and LAG-3 targets.
In December, GSK chief executive officer Emma Walmsley stated, “The acquisition of Tesaro will strengthen our pharmaceuticals business by accelerating the build of our oncology pipeline and commercial footprint, along with providing access to new scientific capabilities. This combination will support our aim to deliver long-term sustainable growth and is consistent with our capital allocation priorities. We look forward to working with Tesaro’s talented team to bring valuable new medicines to patients.”
The $75 per share acquisition price represented a 110 percent premium to Tesaro’s 30-day Volume Weighted Average Price of $35.67. Zejula brought in $166 million for the nine-month period ending September 30, 2018. Tesaro’s market cap is currently $4.1 billion.