Human Genome shares spike on GSK bid

The longtime partners may finally tie the knot.

By Melly Alazraki Apr 19, 2012 5:57PM

Image: Prescription medicine expenses © Don Farrall/Photodisc/Getty ImagesShares of Human Genome Sciences (HGSI) nearly doubled on Thursday after the biotech company announced it rejected an unsolicited $2.6 billion bid from a longtime partner, U.K. pharmaceutical company GlaxoSmithKline (GSK).

HGSI shares rose 98% Thursday to close at $14.17.


Human Genome said that its board, in consultation with independent advisers, has carefully reviewed the $13-a-share offer and "has determined that the offer does not reflect the value inherent in HGS." The company has retained Goldman Sachs and Credit Suisse to help it explore strategic alternatives. Glaxo is invited to participate, the company said.


GSK said the offer, which represents an 81% premium to Wednesday's closing price, would deliver Human Genome shareholders "immediate full value and certainty." GSK expects the acquisition to achieve "at least $200 million in cost synergies to be fully realized by 2015," and add to earnings already in 2013. No wonder CEO Andrew Witty was "disappointed" with the rejection.


The two companies have worked together for nearly 20 years, since 1993, partnering on the development and marketing of several gene-based drugs. Together, they worked on developing the first lupus drug approved by the FDA in 50 years -- Benlysta. GSK has an equal share in the profits.


If acquired, GSK would get its hands not only on the whole of Benlysta, but also on two other investigational drugs the companies are developing together: cardiovascular disease treatment darapladib and type 2 diabetes potential albiglutide.


Human Genome also wants more information on these drugs, which are in late-stage development, and to which it has substantial financial rights. The heart drug is expected to be a mega-blockbuster, with potential annual sales of $10 billion, according to Mark Clark, an analyst at Deutsche Bank, as Reuters reports. Such a payday GSK wouldn't want to share.


GSK has chosen the timing of its offer well. It could have approached Human Genome before, but it seems as if it waited for the stock to reach current lows after it was traded around $30 in 2010-2011. HGSI is down about 75% after Benlysta sales disappointed investors. Meanwhile, all those GSK-HGSI partnerships might also scare away other bidders.


It's certainly not an open-and-shut case, though. Some takeovers in the industry can have long and complicated courtships. The Sanofi-Aventis (SNY) acquisition of Genzyme took several attempts and was accompanied with colorful language on both sides. The current Illumina (ILMN)-Roche (RHHBY) affair seems to be shaping up the same, with Roche recently walking away from the offer -- or so it would like Illumina to believe.


While GSK and Witty look like they may have the upper hand at the moment, analysts still project a higher offer will come next. Cowen & Co analyst Eric Schmidt thinks a $15-a-share offer would do the trick, and Mark Schoenebaum, an analyst with ISI Group, predicted the deal would be done at $15 to $20 a share, according to DealBook. Baird, as Fox reported, predicts a $19 a share bid. And as Bloomberg explains, the offer is only 11 times this year's estimated sales, which is much lower than the average 20 times sales acquirers paid for biotech companies, implying an even higher bid than $20 a share.



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