Human Genome’s $3.6 billion sale ‘disappointing,’ analyst says -- Gazette.Net


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This story was corrected on July 17, 2012. An explanation follows the story.

Stock analysts might call the planned $3.6 billion sale of Human Genome Sciences a “disappointment,” but Maryland’s biotech community is ready to embrace another global pharmaceutical giant coming into its fold.

After three months of holding out for a higher bid, the Rockville biotech entered into a definitive agreement with the U.K.’s GlaxoSmithKline on Monday to sell the company for $14.25 per share in cash or $3.6 billion in equity. The deal includes about $600 million in HGS cash and debt.

In April, Glaxo offered $2.6 billion for its longtime partner, or $13 per share. That price was an 81 percent premium on the stock’s previous closing price. The new offer is a 99 percent premium.

HGS initially rebuffed the Glaxo offer, saying it undervalued the company and instituting a “poison pill” to make it less attractive to unwanted buyers. Although some shareholders protested the strategy, a Montgomery County Circuit Court judge sided with HGS.

Glaxo continued its hostile takeover efforts, extending its offer directly to HGS stockholders and even lining up an alternate slate of board directors, according to news reports. HGS said it would entertain other offers, and set Monday as the deadline for suitors to submit bids.

HGS investors welcomed the deal on Monday, as its stock rose 4.6 percent on the news to $14.20.

But analysts were less than thrilled.

“It’s certainly disappointing,” said Brian Skorney, senior vice president of equity research for Brean Murray Carrett in New York. “It’s well off the company’s highs.”

Skorney has followed HGS since 2006. As recently as April 2011, HGS stock was trading at almost $30.

But that was just a month after the company received approval from the Food and Drug Administration to market a new lupus drug, Benlysta. Glaxo worked with HGS to develop and market the drug, the first new FDA-approved lupus drug in a half-century. Sales of the drug could hit $1.6 billion in 2015, according to an HGS regulatory filing.

But some physicians have been disappointed in Benlysta’s roll-out, said Carol Werther, senior biotechnology analyst at Summer Street Research in New York. She said HGS did not offer a clear indication of what people should expect for the roll-out, so many physicians expected a roll-out similar to those for arthritis treatments.

Glaxo “took advantage of the poor launch of Benlysta,” Werther said. “It’s hard to say this is a win-win for HGS.”

HGS and Glaxo also are developing treatments for cardiovascular disease and diabetes, which still are in clinical trials.

“Given the level of enthusiasm for Benlysta, management thought they could get a better outcome,” Skorney said, referring to how HGS’s strategy since April prompted Glaxo to raise its initial bid by only $1 billion.

Other analysts saw the sale as “completely expected,” Mark Schoenebaum of ISI Group in Boston said in an email.

“Virtually everyone expected a modest bump to get it done, which is exactly what happened,” he said.

Glaxo’s overt interest in HGS also might have scared off other potential bidders, Werther said.

‘Clear financial and strategic logic’

“After a thorough analysis of strategic alternatives, HGS has determined that a combination with [Glaxo] is the best course of action for our company and the best way to maximize value for our stockholders,” CEO H. Thomas Watkins of HGS said in a joint statement, adding the companies have had a “long and productive working relationship.”

For its part, Glaxo sees the deal as the natural next step in its 20-year relationship with HGS, Andrew Witty, CEO of the British drug-maker, said in a statement.

“We are pleased to have reached a mutually beneficial agreement with HGS on friendly terms and believe the combination of [Glaxo] and HGS represents clear financial and strategic logic for both companies and our respective shareholders,” Witty said.

Neither company would comment beyond the joint statement. No information was available on what the acquisition, if approved by shareholders, will mean for HGS’s operations or work force, or what Watkins’ new role, if any, would be. Watkins is a prominent figure in the biotech industry; last month, was named to a second one-year term as chairman of the global Biotechnology Industry Organization.

No timetable for a shareholder vote was announced.

Glaxo said it expects at least $200 million in cost synergies to be fully realized by 2015.

‘Thankful for HGS’Although analysts saw disappointment, Maryland biotech leaders saw opportunity.

“It’s too early to speculate on what it means, but with AstraZeneca’s acquisition of MedImmune, we saw the growth of MedImmune,” said Judith Britz, executive director of the Maryland Biotechnology Center in Baltimore.

She was referring to the British company’s purchase of the Gaithersburg biotech for $15.6 billion in 2007.

Other notable Montgomery County biotech acquisitions include the Netherlands’ Qiagen purchase of Gaithersburg’s Digene for $1.6 billion in 2007 and Amgen’s $1.16 billion acquisition of Micromet in Rockville this year.

“Maryland is supportive of [Glaxo’s] continued investment in the state,” Britz said. “We’re thankful for HGS for all the ways it has contributed to the life science community, especially in leadership.”

She added she hopes Glaxo sees Maryland as an environment committed to biotech, and said the state already is reaching out to Glaxo officials.

The sale proves Maryland’s strength in the biotech arena, said Douglas Doerfler, vice chairman of the Tech Council of Maryland and CEO of MaxCyte in Gaithersburg.

Glaxo “found HGS to be an attractive acquisition,” Doerfler said. “We’re still looking at AstraZeneca as something that helped stabilize the community.”

HGS’s ability to draw a partner such as Glaxo speaks “volumes” to what Maryland’s bioscience community is trying to do, Doerfler said.

“We want more of these,” he said. “A lot more of these.”

lrobbins@gazette.net

Explanation: The original story misstated the name of the Tech Council of Maryland.