GlaxoSmithKline Retains Friendly Approach, Despite Hostile HGS Bid

In confirming its unsolicited $2.60 billion offer for Human Genome Sciences (HGS), which was rejected, GlaxoSmithKline (GSK) commented that they still hope to push through the bid “on a friendly basis.”

The UK drugs manufacturer noted that the $13.00 per share offer represented an 81% premium to Human Genome Sciences’ stock price on April 18, and chief executive Sir Andrew Witty stated it “reflects full and fair value.”

The board at Human Genome Sciences, which developed the lupus drug Benlysta (belimumab) with GSK, holds a different opinion and has employed Goldman Sachs and Credit Suisse to explore “strategic alternatives… including, but not limited to, a potential sale of the company.” GlaxoSmithKline has been requested to partake in this process.

In a letter to his equivalent at Human Genome Sciences, Thomas Watkins, Sir Andrew pointed out that the firms have co-operated together for almost 20 years and commented that GlaxoSmithKline “greatly respect your history of innovation and what you have achieved.” However, he added, GSK “believe now is the appropriate time in the evolution of our relationship for our two companies to combine.”

In addition he noted that “GSK is uniquely positioned to deliver on the promises” of Benlysta, as well as the late-stage cardiovascular drug darapladib and albiglutide, currently in Phase III for the treatment of type 2 diabetes, all treatments that Human Genome Sciences has a stake in.  The GSK chief admitted that he was disappointed when the $13 offer was “rejected without discussion” but added that GSK plan to work with HGS “on a friendly basis to complete this transaction successfully and expeditiously.”

$200 Million In Cost Synergies

The GSK chief commented that “we also expect to achieve at least $200 million in cost synergies to be fully realised by 2015 and expect the transaction to be earnings-accretive beginning in 2013.”  He added that the proposal meets GSK’s “strict financial criteria for acquisitions.”

Onlookers are not sure whether the proposal seems reasonable or not given that HGS share price varies substantially and was in the $30 area a year ago.  However the launch of Benlysta, the first lupus drug to be approved in 50 years, has been disappointing.

Paul Chapman, partner at intellectual property specialists Marks & Clerk, noted that “this rather stark dismissal of GSK’s not inconsiderable offer goes to show just how highly biotech companies such as HGS value their portfolios and pipelines.”  He cited the Roche/Illumina saga where Roche decided to abandon their bid for the gene sequencing firm despite increasing their offer “to levels that it clearly thought generous.  Illumina simply wasn’t having any of it.  Nor, it seems, are HGS.”

He goes on to note that “major players in the pharmaceutical industries are in a bind, they need to rejuvenate pipelines and absorbing smaller, promising biotech firms is an attractive way of doing so.”  However, “the likes of HGS and Illumina are quite aware of the advantageous position they are in, and are playing their hand accordingly.”

Mark Clarke, an analyst at Deutsche Bank, noted that for GSK, the attraction in acquiring HGS would be removing its profit share and royalty obligations on Benlysta, albiglutide and darapladib.  He added that “whether such a deal ultimately would be EPS-accretive for GSK – and to what degree – would depend on the long term outlook for Benlysta (which has got off to a slow start) and the two partnered pipeline drugs, both of which have risks attached to them.”


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