What happened
Shares of rare-cancer company Sierra Oncology (SRRA) jumped by as much as 38% in premarket trading Wednesday morning. The drugmaker's stock is surging this morning in response to a $1.9 billion buyout agreement with U.K. pharma giant GlaxoSmithKline (GSK 1.60%).
Sierra's shareholders will reportedly receive $55 per share in cash, which represents a 39% premium relative to where Sierra's shares closed Tuesday afternoon. The transaction is expected to close in the third quarter of 2022.
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So what
Through this acquisition, GlaxoSmithKline will add Sierra's experimental bone marrow cancer drug momelotinib to its lineup. Momelotinib shocked industry insiders earlier this year by yielding overwhelmingly positive late-stage trial results for a rare form of bone marrow cancer known as myelofibrosis.
Sierra previously acquired the drug from Gilead Sciences (GILD 0.12%) for a paltry $3 million in 2018. Gilead decided to part with momelotinib after it failed to impress in a phase 3 trial back in 2016.
Prior to today's buyout news, Sierra was on track to file for the drug's approval with the Food and Drug Administration sometime in the current quarter. If approved, Wall Street thinks momelotinib could generate close to $1 billion in peak sales for its first indication.
Now what
Is this a good deal for GlaxoSmithKline? Blood cancer drugs tend to be exceptionally strong earners. Momelotinib, for its part, appears poised to continue this rich tradition. So yes, GlaxoSmithKline does appear to be getting a worthwhile asset at a fair price.
