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Slow drug sales could mean buyout of HGSI

by Adam Steinhauer  |  Published August 26, 2011 at 2:17 PM
DNAstrand227x128.jpgGiven concerns about Human Genome Sciences Inc.'s sales numbers for newly approved lupus treatment Benlysta, speculation is stirring that the Big Pharma partner on the drug, GlaxoSmithKline plc, could become an acquirer.

Citing "disappointing" July sales estimates for Benlysta from the Netherlands-based professional service firm Wolters Kluwer NV, Piper Jaffray & Co. analysts Ian Somaiya and Do Kim said that Rockville, Md.-based HGSI could be worth between $21 and $26 per share, or $4 billion to $5 billion, in an acquisition by Glaxo. The average takeout acquisition for biotech companies between 2006 and 2010 was 6.9 times sales, the analysts wrote in a note to investors. London-based Glaxo could get away with the $4 billion to $5 billion price tag, a 4 to 5 times sales multiple, because the partnership on Benlysta would prevent other competitive bids, the analysts argued.

Market penetration of Benlysta, which was approved for use in the U.S. in March and in Europe in July, may have been hindered by the same thing that slows sales of other biotech drugs: a costly price tag. Seattle-based Dendreon Corp., another perennial acquisition target, has faced lower sales than expected for its cancer drug, Provenge, which costs $93,000 for four to six weeks of treatment. Payer reimbursement classifications, and convincing doctors to buy into Provenge, have proved to be substantial hindrances for Dendreon.

If the sales shortage of Benlysta mean similar issues face HGSI, the biotech is in a better position than Dendreon, at least. Benlysta, costing $32,000 to $35,000 for a year of treatments, is a lower reimbursement risk, the analysts noted. While Somaiya and Kim lowered peak sales estimates for Benlysta to $2 billion from $3 billion, HGSI and its other assets could still be appealing to Glaxo at a $4 billion to $5 billion price.

"The slower adoption also implies greater risk to reaching those peak sales estimates and hence increases the discount rate GSK would use in their analysis of HGSI value," Somaiya told The Deal.

Other biotech companies face the risk of lower-than-estimated sales because of the cost of their drugs. Seattle Genetics Inc.'s stock took a hit Aug. 22 when it announced its recently approved blood cancer treatment, Adcetris, would cost around $100,000. Analysts believe investors were concerned Seattle Gentics would face problems similar to Dendreon.

It's not just Benlysta that could pique Glaxo's interest. It is partnered with HGSI on a type 2 diabetes drug, once-weekly Syncria, that's in Phase 3 trials. The Piper anlaysts estimate peak sales of Syncria at $750 million.

After Wolters Kluwer's July sales estimates came out Aug. 23, Seattle Genetics stock fell as low as $11.83, about 17% below what it was trading at the beginning of the week. It was beginning to recover midday Friday, trading at $12.61 per share. Wolters Kluwer put Benlysta's July sales at $4.9 million, basically flat with June.

Glaxo declined to comment.

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Tags: acquisition target | biotech | Dendreon Corp. | GlaxoSmithKline | Human Genome Sciences Inc.

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Adam Steinhauer

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