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GlaxoSmithKline launches Human Genome offer

by Laura Board | Published May 9, 2012 at 9:23 AM

GlaxoSmithKline plc Wednesday, May 9, launched a hostile $2.59 billion offer for Human Genome Sciences Inc., saying it won't participate in a formal review process the target initiated after its unsolicited overture last month.

The U.K. company said it had decided not to participate in the review because it has no need to conduct due diligence or meet financing conditions; because it wants to demonstrate its commitment to the offer to the target's shareholder; and because the 20-day offer period, which comes four weeks after Glaxo's initial approach, gives Human Genome enough time to assess strategic alternatives.

Glaxo said it would still like to meet to discuss its offer with Human Genome management and would prefer a friendly transaction.

"GSK continues to believe it has made a full and fair offer which is in the interest of shareholders of both companies. The transaction is well aligned to GSK's long-term strategy of delivering sustainable growth, simplifying GSK's business model, enhancing R&D returns and deploying capital with discipline," it said. "For HGS shareholders, it provides immediate liquidity at a substantial premium while eliminating further exposure to the significant execution risk inherent in HGS achieving its future growth objectives."

Glaxo and Human Genome have been business partners since 1993, when the U.K. pharmaceutical giant paid $125 million to form a research partnership with Human Genome.

Bid speculation began in earnest last year when Benlysta -- the first new lupus drug to hit the market in more than 50 years and an expected blockbuster -- debuted in March to disappointing sales. That triggered a steady decline in Human Genome's stock, which traded between $25 and $30 during the first half of last year.

Benlysta pulled in just $52.3 million in sales in 2011 (a patient pays between $32,000 and $35,000 for a year's treatment) though Human Genome has said it expects revenue to increase as it launches the product in France, Italy and other European markets.

Glaxo's $13-per-share offer for the Rockville, Md., biotech represents an 81% premium to its undisturbed share price as of April 18, though the stock is now trading above Glaxo's offer and closed Tuesday at $14.62.

On a first-quarter conference call last month Human Genome CEO Thomas Watkins reiterated his rejection of the Glaxo offer and said that the future potential of Benlysta, as well as other late-stage products including Phase 3 cardiovascular drug darapladib, will prove that the market is currently underappreciating the company's potential.

In the first quarter, Human Genome had a $93.5 million net loss on $47.1 million in revenue, compared with a $131 million net loss on $26.6 million in revenue during the first quarter of 2011. Benlysta posted $31.2 million in net sales in the first quarter, up from $25.7 million during the fourth quarter of 2011.

Glaxo shares in London on Wednesday morning fell 17 pence to 1,407 pence, giving the company a market value of just under £71 billion ($114.6 billion). The U.K. group has been working to improve returns from its research and development activities and streamline its business. In April it sold a group of its over-the-counter products to Aspen Pharmacare Holdings Ltd. for £164 million in the third stage of a divestment process for OTC drugs.

The London company, led by CEO Andrew Witty, has said the purchase of Human Genome would generate at least $200 million in synergies by 2015 and boost its own earnings from 2013.

A Lazard team led by David Gluckman and Antonio Weiss; and Morgan Stanley's Clint Gartin and Susan Huang are advising GSK. A Cleary Gottlieb Steen & Hamilton LLP team including Victor Lewkow, Benet O'Reilly, Meredith Kotler and Kimberly Spoerri, and a Wachtell, Lipton, Rosen & Katz team led by Adam Emmerich and David Lam are providing legal counsel.

Marc Gerber and Michael Rogan are leading the Skadden, Arps, Slate, Meagher & Flom LLP team advising Human Genome.

--Ben Fidler contributed to this report.

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