GlaxoSmithKline Plc (GSK) will begin a hostile $2.6 billion tender offer this week for Human Genome Sciences Inc. after the U.S. company, its partner on the Benlysta drug for lupus, rebuffed a takeover approach.
Glaxo will offer $13 a share in cash, or 81 percent more than Human Genome’s closing price on April 18, the London-based drugmaker said in a statement today. Rockville, Maryland-based Human Genome announced April 19 that Glaxo had offered to buy the company for that price. Human Genome today reiterated that the offer was too low and that it’s reviewing alternatives.
Glaxo, which is developing two other medicines with Human Genome, said it won’t participate in the review, in part because the U.K. company wants Human Genome shareholders to know that it’s committed to proceeding with the offer. It’s unlikely that another potential acquirer will bid for the company, said Rajesh Varma, who helps manage 5 billion euros ($6.6 billion) for Human Genome shareholder DNCA Finance SA in Paris.
“It will probably be a long, drawn-out story,” Varma said.
Glaxo’s bid is part of a wave of takeover activity in the pharmaceutical industry as drugmakers seek new products. Roche Holding AG (ROG) made a hostile offer for Illumina Inc. in January, and abandoned it last month. AstraZeneca Plc (AZN) agreed last month to buy Ardea Biosciences Inc. for $1.3 billion.
The Glaxo offer became public last month after Human Genome shares slid 76 percent from their 2011 peak. Sales growth for Benlysta, Human Genome’s first drug on the market, has disappointed investors, and the company may not become profitable for years.
“To take part in a strategic review of the target company is only going to result in the price going up,” said Savvas Neophytou, an analyst at Panmure Gordon in London. Glaxo “must have decided whatever they are offering is adequate and covered by the assets that are visible to them.” He has a hold rating on Glaxo shares.
Human Genome said today it will review the offer and make a recommendation to shareholders within 10 business days of when Glaxo begins it, according to a statement.
Human Genome fell less than 1 percent to $14.59 at 4 p.m. New York time. Glaxo fell less than 1 percent to 1,410 pence in London.
Glaxo, the U.K.’s biggest drugmaker, declined to comment beyond the statement, a spokeswoman said.
The offer by Glaxo values Human Genome at about 11 times estimated 2012 sales. Acquirers paid a median of 41 times sales for biotech companies in the past year, according to data compiled by Bloomberg on acquisitions of $100 million or more.
The four weeks that have passed since Glaxo made its offer on April 11, together with the 20 business days that the tender offer must remain open, gives Human Genome enough time to complete a review of its options, Glaxo said.
“Shareholders should have the opportunity to decide for themselves on the merits of the offer,” Glaxo said. The U.K. drugmaker prefers friendly negotiations, and is willing to meet with Human Genome at any time, Glaxo said.
Any other bidder would only receive half of the revenue from Benlysta sales that Human Genome receives, according to the company. The two share profits equally, and first-quarter sales were 9 million pounds ($14.5 million). Glaxo’s hostile bid may hurt efforts to boost Benlysta revenue, Barclays Capital analysts wrote in a note to investors.
“In the case of a failed tender by GSK, it is hard to imagine how these two partners can collaborate effectively in the future,” the analysts said. “More uncertainty awaits Benlysta in an already difficult launch.”
The companies also are collaborating on two experimental medicines that are in late-stage testing: albiglutide for diabetes and darapladib for hardening of the arteries. Glaxo Chief Executive Officer Andrew Witty said in February that albiglutide was “very, very promising.”
Glaxo has shared with Human Genome “limited additional clinical information” on the two drugs to reassure Human Genome that Glaxo wasn’t withholding any key information, according to today’s statement.
Human Genome has the right to receive 10 percent in royalties from sales of darapladib and 5 percent of sales in albiglutide.
Glaxo’s bid is “full and fair,” and allows Human Genome shareholders to sell immediately, without the risk that failure of the experimental drugs will hurt the stock price, the company said today. Buying Human Genome would give Glaxo all of the revenue from Benlysta, instead of the current 50-50 split.
Simplifying the relationship on Benlysta is the main reason Glaxo wants to make the purchase, Witty said last month.
Human Genome rejected the bid last month partly out of concern for stockholders who bought shares at an average price that’s higher than the offer, two people with knowledge of the matter said at the time. All but three of the 25 largest shareholders acquired stock at a higher average price, said the people, who asked not to be named because the talks are private.
Human Genome hired Goldman, Sachs & Co. and Credit Suisse Securities (USA) LLC as financial advisers and Skadden Arps Slate Meagher & Flom LLP and DLA Piper LLP as legal counsel, the company said last month.
Lazard Ltd. (LAZ) and Morgan Stanley (MS) are acting as financial advisers to Glaxo, and Cleary Gottlieb Steen & Hamilton and Wachtell, Lipton, Rosen & Katz are providing legal advice, Glaxo said in April.
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