The Impact of Glaxo's Divestment and Acquisition Plans

The $5 billion acquisition of Tesaro gives Glaxo solid entrenchment in the PARP oncology setting by gaining cancer drug Zejula; we view the deal as largely neutral to Glaxo's valuation. While the PARP class is competitive, as Astra, Clovis, and Pfizer all have approved drugs, we believe Zejula will still represent a key treatment option in the space. In particular, if the PRIMA study with Zejula in the broader ovarian cancer population is successful in late 2019, Zejula will be differentiated by being able to treat first-line patients beyond BRCA mutations. Based on the NOVA study, the drug looks effective in non-BRCA patients, which we expect will more than double the market potential for the drug. We model annual peak sales of the drug over $1 billion. Additionally, we don't model in Zejula sales in non-small-cell lung cancer, which could significantly expand the drug's potential.

On the divestment side, Glaxo sold consumer healthcare products (including Horlicks) to Unilever for GBP 3.1 billion, which looks like a solid sale price based on other consumer healthcare asset sales. The divestment of the noncore consumer assets should allow Glaxo more focus on other consumer products with strong brand power as well as assets in the drug and vaccine segments.

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