Human Genome rejects GSK’s bid

Human Genome Sciences has rejected an unsolicited bid worth around $2.6 billion from long-time partner GlaxoSmithKline (GSK), marking a new takeover battle in a drugs sector recently swept by M&A activity. The US pioneer of gene-based drug discovery, which sells a new drug for lupus with GSK, said the offer of $13 per share, made in a letter on April 11, did not reflect the value inherent in the company. It has hired Goldman Sachs and Credit Suisse to help explore strategic alternatives, including a possible sale. GSK has been invited to participate in that process. The Rockville, Maryland-based firm was formed 20 years ago with the mission to isolate genes and identify their function in order to develop new drugs. Over the years it has had a rollercoaster ride as hopes for its drugs have waxed and waned. GSK’s offer represents an 81 per cent premium to its closing stock price of $7.17 on Wednesday. However, that is still well below the $30 touched a year ago and investors are hoping for more, with the shares doubling to $14.20. Britain’s biggest drugmaker said the rebuff was disappointing as its offer would give investors “immediate and certain value” superior to what Human Genome could achieve as a standalone company. GSK chief executive Andrew Witty wrote to Human Genome boss Tom Watkins on April 11 setting out the proposal, saying he was prepared to commence a cash tender offer with no financing or due diligence condition. Buying Human Genome would give GSK full rights to partnered drugs, which include not only Benlysta -the first new drug for lupus in half a century -but also promising experimental drugs for heart disease and diabetes. Many drugmakers are seeking to do deals to bolster their pipelines, as older products go off patent, and GSK’s readiness to buy Human Genome is a sign of confidence in the drugs that the companies have been developing together. GSK also expects $200 million in cost synergies by 2015, with the acquisition boosting earnings from 2013. Cowen & Co analyst Eric Schmidt said GSK was likely to seal a deal in the end. “The 81 per cent premium versus yesterday’s close is a big number, and I’m sure GSK is likely to pay a little bit more to get the deal done. I think it’s very likely to be sold to GSK at around $15 or so a share,” Schmidt said. “I doubt anyone else will come in. It’s going to be hard for another company to pay that sort of a premium not having the inside scoop on Benlysta or on anything else these two companies are collaborating on.” Tim Anderson of Bernstein said outside interest in Human Genome’s drugs was possible but any other non-GSK acquirer would only get partial control, which could deter bidders. Barclays analysts also see no “white knight” counter-bidder on the horizon, even though the deals between GSK and Human Genome have no tricky change-of-control clauses. GSK has long been rumoured as a potential acquirer of Human Genome, since it has been in partnership with the firm since 1993 and is already collaborating on a number of medicines. Still, the decision to pull the trigger on a takeover attempt may surprise some investors because GSK management has tended not to buy out partners it is working with in the past.   Analysts said GSK clearly saw value beyond Benlysta. The two companies are also collaborating on a high-profile experimental heart drug called darapladib, which is in Phase III development, and albiglutide for diabetes, which could be filed for approval late this year or early in 2013. Mark Clark, an analyst at Deutsche Bank, said darapladib was the biggest ticket pipeline opportunity, with up to $10 billion annual sales potential, although researchers will not know if it actually works until key trial results in 2013 or 2014.