Why Did Sierra Oncology Skyrocket on Wednesday?

Shares of Sierra Oncology, Inc (Nasdaq: SRRA) surged 38.5% on Wednesday on the news that it was being acquired by GlaxoSmithKline plc. (NYSE: GSK) in an all-cash deal worth $1.9 billion (£1.5 billion).

The deal is expected to close by the third quarter of 2021. Each share of Sierra has been priced at $55, which reflects a 39% premium to its closing price on April 12, 2022. The acquisition includes Sierra’s gross assets worth $109 million.

GSK expects the deal to be accretive to its adjusted EPS in 2024, which is projected to be the first full year of momelotinib’s sales. Momelotinib is a potent, selective and orally-bioavailable JAK1, JAK2 & ACVR1 inhibitor with a differentiated therapeutic profile in myelofibrosis (MF).

Based on the data from more than 820 patients with MF, momelotinib has been seen to improve constitutional symptoms and splenomegaly while also dealing with chronic anemia and transfusion dependency.

GSK sees momelotinib to be complementing its Blenrep. Upon completion of the acquisition and momelotinib’s regulatory approval, GSK expects a boost in its specialty medicines business.

Executive Comments

The Chief Commercial Officer at GSK, Luke Miels, said, “Sierra Oncology complements our commercial and medical expertise in haematology. …With this proposed acquisition, we have the opportunity to potentially bring meaningful new benefits to patients and further strengthen our portfolio of specialty medicines.”

“Uniting with GSK creates the best opportunity for Sierra Oncology to realise its mission of delivering targeted therapies that treat rare forms of cancer while also delivering compelling and certain value for our stockholders. Now we have a partner with a global infrastructure and oncology expertise that enables us to deliver momelotinib to patients as quickly as possible and on a global scale,” said, Stephen Dilly (MBBS, PhD), the President and CEO of Sierra.

Analyst’s Take

Following the news, H.C. Wainwright analyst Joseph Pantginis downgraded the rating on Sierra to Hold from Buy with a price target of $55 (0.5% upside potential from current levels).

Pantginis said, “We believe Sierra’s focus on execution and now commercial build-out will provide synergies with GSK’s global infrastructure and oncology portfolio.”

“We believe this is a fitting end for the momelotinib biotech run, which has seen a volatile history,” he added.

The rest of the Street is cautiously optimistic about the stock and has a Moderate Buy consensus rating based on two Buys and one Hold. Sierra’s average price target of $50 implies 8.7% downside potential to current levels.

Insider Trading Activity

Based on the recent corporate insider activity, sentiments seem to be Very Positive about the stock. This means that over the past quarter there has been an increase in insiders selling their shares of SRRA.

Bottom Line

Investors’ confidence in the stock was positively impacted by the acquisition news. Year-to-date, the stock is up almost 151%. Investors may want to indulge in the stock to reap benefits before it is acquired.

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