Human Genome Sciences‘ (NASDAQ:HGSI) response to GlaxoSmithKline‘s (NYSE:GSK) unsolicited $2.6 billion buyout offer is succinct and direct: It’s not enough.
The Maryland company, a longtime drug partner to GSK, disclosed today that the British pharma giant offered to buy the company for $13 per share. That price is an 81 percent premium to HGS’s $7.17 closing stock price on Wednesday. In a statement, HGS said that the company determined that GSK’s offer doesn’t reflect HGS’ value. In mid-morning trading, the company’s stock price has more than doubled amid speculation of a takeover.
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A GSK acquisition of its drug partner HGS has been rumored for years. The partnership’s most visible product is Benlysta, the lupus drug that became the first new lupus treatment in more than 50 years when it was approved by the U.S. Food and Drug Administration last year. Benlysta was discovered by HGS and GSK did not enter as a development partner on that product until 2006. But the companies have been drug partners since the early 1990s. It’s that relationship that led GSK to make the offer.
“Having worked together with Human Genome Sciences for nearly 20 years, we believe there is clear strategic and financial logic to this combination for both companies and our respective shareholders — and that now is the appropriate time in the evolution of our relationship for our two companies to combine,” GSK CEO Andrew Witty said in a statement.
HGS stock rose to as high as $29.47 per share last April following Benlysta’s approval. While the lupus treatment is projected to become a blockbuster drug, sales have been slower than expected due to a lag in reimbursement approval and uncertainty among doctors about who is an appropriate patient for the drug. HGS stock has taken a beating in the last year and at $13 per share, GSK would be getting a bargain compared to HGS’ value a year ago.
HGS said it has hired Goldman Sachs and Credit Suisse to help the company determine “strategic alternatives” that include but are not limited to a sale of the company. Given the lengthy relationship and the number of products that GSK and HGS are working on together, GSK is the logical buyer. And perhaps it will be the only bidder. Cowen & Co. analyst Eric Schmidt told Reuters that GSK was likely to ultimately buy the company.
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“The 81 percent 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,” Schmidt said. “I think it’s very likely to be sold to GSK at around $15 or so a share. 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.”
HGS said in its statement that there is no guarantee a sale will happen and it will not discuss those plans until a transaction has been approved.
