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Including Full Exercise of the Underwriters’ Option to Purchase Additional Notes
TESARO, Inc. (Nasdaq:TSRO) announced today the closing of its previously announced underwritten public offering of $201.25 million aggregate principal amount of its 3.00% convertible senior notes due 2021, including the notes issued pursuant to the full exercise of the underwriters’ option to purchase up to $26.25 million aggregate principal amount of additional notes on the same terms and conditions. As a result, aggregate net proceeds to TESARO, after deducting the underwriting discount and estimated offering expenses payable by TESARO, will be approximately $194.71 million.
The notes will bear interest at a rate of 3.00% per annum, payable semi-annually on April 1 and October 1, beginning from April 1, 2015, and will be convertible into cash, shares of TESARO’s common stock or a combination of cash and shares of TESARO’s common stock, at TESARO’s election. The notes will mature on October 1, 2021, unless earlier converted or repurchased in accordance with their terms.
Prior to the close of business on the business day immediately preceding April 1, 2021, the notes will be convertible only upon the occurrence of certain events and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date.
The initial conversion price of the notes is approximately $35.13 per share of common stock at an initial conversion rate of 28.4627 shares of TESARO’s common stock per $1,000 principal amount of notes, which represents a premium of approximately 35% over $26.025 per share, the last reported sale price of TESARO’s common stock on September 23, 2014.
Citigroup and Deutsche Bank Securities acted as joint book-running managers for the offering, with Leerink Partners, Baird and BMO Capital Markets acting as co-managers.
TESARO used approximately $20.83 million of the net proceeds from the offering to fund the payment of the cost of capped call transactions, as described below. TESARO expects to use the remaining net proceeds to fund commercialization activities for rolapitant (oral formulation), clinical trials for rolapitant (intravenous formulation), niraparib and TESARO’s other product candidates, to carry out TESARO’s immuno-oncology platform strategy, and for working capital and general corporate purposes.
TESARO may also use a portion of the proceeds to in-license or acquire, as the case may be, product candidates, technologies, compounds, other assets or complementary businesses, though TESARO has no current understandings, agreements or commitments to do so.
In connection with the pricing of the notes and upon exercise of the underwriters’ option to purchase additional notes, TESARO entered into capped call transactions with Citibank, N.A. and Deutsche Bank AG, London Branch.
The capped call transactions are expected generally to reduce the potential dilution and/or offset the cash payments TESARO is required to make in excess of the principal amount upon conversion of the notes in the event that the market price of TESARO’s common stock is greater than the floor price of the capped call transactions, which will initially correspond to the initial conversion price of the notes, with such reduction and/or offset being subject to a cap based on a cap price of approximately $45.54, subject to adjustment, which represents a premium of approximately 75% over the last reported sale price of TESARO’s common stock on September 23, 2014.
TESARO has been advised that in connection with establishing their initial hedges of the capped call transaction, the option counterparties or their respective affiliates have entered into, or expect to enter into various derivative transactions with respect to TESARO’s common stock in privately negotiated transactions and/or have purchased, or expect to purchase shares of TESARO’s common stock in open market transactions. This activity may have increased, or could increase (or reduce the size of any decrease in), the market price of the common stock or the notes at that time. In addition, TESARO has been advised that the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to the common stock and/or purchasing or selling shares of common stock or other securities of TESARO in secondary market transactions prior to the maturity of the notes (and are likely to do so during any conversion period related to a conversion of notes).
This activity could also cause or avoid an increase or a decrease in the market price of the common stock or the notes, which could affect the ability of holders of the notes to convert the notes and, to the extent the activity occurs during any conversion period related to a conversion of notes, it could affect the amount and value of the consideration that holders of the notes will receive upon conversion of the notes.
