It has taken a few months and some hand-wringing, but Human Genome Sciences (NASDAQ:HGSI) has agreed to a $3.6 billion offer from GlaxoSmithKline (NYSE:GSK) after a three-month stand-off courtship. It’s yet another example of the deal-making pharmaceuticals are engaged in to keep their drug development pipelines flowing, but there are also a few other ways to view this agreement.
The fifth largest global pharmaceutical deal for the year to date. You have to go a few rungs down the list of biggest deals for the year before you get to GSK’s proposal for HGS, according to data provided by Dealogic. There’s Bristol-Myers Squibb’s (NYSE:BMY) $7 billion acquisition offer for Amylin Pharmaceutical with its three diabetes drugs approved by the U.S. Food and Drug Administration. And there’s Watson Pharmaceuticals’ (NYSE:WPI) $5.9 billion agreement to buy Actavis, followed by the pharmacy benefit consolidation through SXC Health Solutions’ acquisition of Catalyst Health Solutions. And medical device company Hologic’s $3.9 billion offer for molecular diagnostics business Gen-Probe.
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A good fit. The two companies have been collaborating productively for nearly 20 years. As Human Genome Sciences CEO H. Thomas Watkins put it:
“After a thorough analysis of strategic alternatives, HGS has determined that a combination with GSK is the best course of action for our company and the best way to maximize value for our stockholders. HGS has had a long and productive working relationship with GSK, and together we will be uniquely positioned to achieve the full potential of Benlysta and other products in our pipeline for the benefit of those battling serious disease around the world.
According to biotechnolgy analysts at Baird’s equity desk, the focus of the deal now shifts to the lupus drug Benlysta, approved by the FDA last year, the first new treatment for the disease in 50 years that is part of the two companies long-running collaboration. They looked at positive developments and some of the risks involved:
“Most of HGSI’s near- and long-term growth depends on Benlysta’s rapid market penetration in lupus. Should Benlysta not live up to analyst expectations, sentiment on this name could meaningfully deteriorate.”
“Our recent Benlysta survey work shows continued growth in physician trial, patient-share gains, no managed-care impediments and patient-driven demand still on the come. While the Benlysta launch has had its share of challenges, based on this feedback we continue to believe that a strong foundation is developing for an inflection point in 2012.”
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In addition to Benlysta, GSK and HGS are also collaboration partners on a type 2 diabetes treatment, albiglutide, and a cardiovascular disease drug candidate, darapladib, both of which are in late-stage clinical trials.
Unsurprising. Although analysts called it, negotiations took a couple of dramatic turns such as when Rockville, Maryland-based Human Genome Sciences’ board voted to adopt a poison pill option to reduce the value of the biotechnology firm’s shares for a year, a tactic used by companies to make themselves less attractive to would-be suitors. And yet, no other companies showed up to challenge GSK, noted Erik Gordon, a law professor at University of Michigan Ann Arbor told Businessweek.
“That happens if you are a drug development company whose future is tied too closely to a bigger company with whom you have done licensing deals.”
A distraction. Although it’s a great piece of news for the British pharmaceutical giant, which has been contending with some troubling legal issues with the announcement earlier this month that it agreed to plead guilty and pay a $3 billion settlement to resolve its criminal and civil liability from the company’s unlawful promotion of certain prescription drugs, its failure to report certain safety data, and its civil liability for alleged false price reporting practices.
