Brainstorm Health: GSK Tesaro Deal, VR Medical Education, Bluebird Bio


Sy Mukherjee...

Hello, readers. I hope you had a wonderful weekend.

On Monday, GlaxoSmithKline CEO Emma Walmsley made yet another significant mark on her company’s future, placing a $5.1 billion bet to acquire the cancer-focused biotech Tesaro. Tesaro stock soared 60% on the news while GSK shares slid 8% in Monday afternoon trading.

The investor concerns are likely related to the hefty price Glaxo ponied up for the acquisition, which is worth more than double Tesaro’s previous 30 day average share price, according to JPMorgan analysts. But GSK R&D chief Hal Barron and Walmsley sounded a confident note on the acquisition, and particularly the access it will give Glaxo to class of cancer treatments called “PARP inhibitors” which have proven lucrative for other companies treating .

“We believe that PARP inhibitors will be a more important therapeutic class than is currently appreciated. PARP inhibitors have really transformed the course of the disease for women with ovarian cancer, particularly those with genetic mutations that prevent cells from repairing damage to DNA such as BRCA,” said Barron during a conference call with reporters.

Walmsley added that even more aggressive acquisitions may be on the horizon, a departure from her longtime predecessor Andrew Witty’s modus operandi.

“[T]his is an example of us executing on what we said we were going to do,” she said. “We are very focused on the execution of this deal, which is a tremendous pipeline opportunity for us, but we still will be open to other potential bolt-ons in business development, which will be those that accelerate the strategy that Hal laid out in July last year, whether that be early stage assets or platforms, whether that be acquisitions or, indeed, partnerships, and you should expect to see us continuing to focus on that, whilst ever being very disciplined around returns.”

Tesaro, in addition to its pipeline of experimental drugs, has a treatment called Zejula for ovarian cancer that’s already on the market. But Zejula hasn’t quite been able to make up for its later-to-market disadvantage compared to rivals such as AstraZeneca and Merck’s Lynparza and Clovis’ Rubraca.

It should be noted that GSK also announced a $3.8 billion sale of its Horlicks nutrition unit this week.

JPMorgan analysts sent mixed signals in a note on the acquisition, pointing out that it’s a positive step in Glaxo’s bid to finally grow its cancer and blockbuster drug portfolio, but will take several years to reap financial benefits.

“Though the deal strengthens GSK's oncology franchise/pipeline, the company are anticipating the deal to be dilutive to Adjusted EPS for the first two years (i.e. 2019/20), with accretion only seen from 2022,” wrote JPM.

The question is whether Barron and Walmsley’s bet that the market has room to grow--and subsequently lift all boats in the PARP sea--is correct.

Biopharma companies such as Gilead and Roche had also been rumored as potential Tesaro buyers before Monday’s sale.

Read on for the day’s news.

Sy Mukherjee
@the_sy_guy
sayak.mukherjee@fortune.com

DIGITAL HEALTH

An accredited continuing medical education course is using VR. Cedars-Sinai has launched what the renowned hospital says is the first ever continuing medical education course that's filmed in virtual reality. In conjunction with GIBLIB, the course aims to help surgeons gain accreditation in performing gastrointestinal surgery through the use of high-definition 4k (and 360 degree) virtual video. As we've previously reported, health care bigwigs such as former Cleveland Clinic CEO Dr. Toby Cosgrove have hailed VR's and augmented reality's potential in medical education by providing full immersive views of the body.

INDICATIONS

Bluebird shares sink on sickle cell data. Shares of Bluebird Bio sank 5 in Monday trading as investors appeared disappointed in the company's latest clinical trial results for a gene therapy meant to treat blood disorders like sickle cell disease and beta-thalassemia. Bluebird touted the results, alongside data for other experimental cell therapies for blood cancers, at the American Society of Hematology annual meeting; the shares may have fallen in part from concern over safety and side effects in a patient enrolled in Bluebird's gene therapy trial, although it's unclear whether the treatment itself was the cause of the adverse event.

THE BIG PICTURE

Number of uninsured children in U.S. on the rise. For the first time in a decade, and despite a largely booming economy, the number of uninsured children in the U.S. rose for the first time in almost ten years, according to a recent Georgetown University study. There 276,000 more children uninsured in 2017 compared to the previous year and the under-18 uninsurance rate spiked to 5%; between 2008 and 2016, that uninsurance rate had fallen steadily from 9.7% down to 4.7%. (CNN)

Trump administration releases massive regulatory health care overhaul recs. The Department of Health and Human Services (HHS) on Monday unveiled extensive proposals ostensibly meant to "restore choice and competition in the health care sector." It's a massive document (and I'll more to report on it once I've waded through the whole thing)--but proposals include expanding the pool of people allowed to provide primary care, expanding access to telehealth services, and, unsurprisingly, taking more whacks at the Affordable Care Act.

REQUIRED READING

Predictions for 2019: Fortune's Crystal Ball for the Year Ahead, by Fortune Staff

Need Proof That Companies Can Have Gender Diverse Boards? Look to France, by Claire Zillman

Wall Street Cheers Ceasefire in U.S.-China Trade War, by Chris Morris

Billionaire Investor Jim Breyer Warns of 'Nuclear Winter' for Crypto. Here's Why He Remains Unfazed, by Robert Hackett

[ceo_attribution author="Produced by Sy Mukherjee" email="sayak.mukherjee@fortune.com" twitter="the_sy_guy"]
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