HGS Rejects GSK's Acquisition Bid of USD13 per Share

Human Genome Sciences (HGS, US) announced yesterday (19 April) that it had received an unsolicited proposal from GlaxoSmithKline (GSK, UK) to acquire the firm at USD13 per share in cash, which would value the firm at USD2.60 billion. HGS has rejected the proposal, stating that it undervalued the US firm. This decision was reached after the company's board of directors consulted with independent financial and legal advisors to review GSK's offer. Furthermore, the company announced that it will be looking into other strategic alternatives, taking into account its shareholder's best interests. The sale of the company has not been excluded as a strategic alternative; for that purpose, HGS is retaining the services of Goldman Sachs & Co and Credit Suisse Securities; as well as Skadden, Arps, Slate, Meagher & Flom; and DLA Piper for legal advice.

According to the statement issued, HGS has invited GSK to participate in that process. It has also requested additional information on products that GSK is developing in collaboration with HGS. The co-developed products that are currently in GSK's clinical pipeline include darapladib (a treatment for cardiovascular disease), and albiglutide (a treatment for type 2 diabetes), both of which are undergoing Phase III development at the moment.

HGS further included in its statement that there is no guarantee that any transactions will take place, and the company will not discuss the status of the evaluation until a transaction is approved.

Outlook and Implications

Apart from the two drugs above that are already in the GSK pipeline, HGS and GSK have previously collaborated on the development of lupus drug Benlysta (belimumab). Benlysta, for which a co-development and commercialisation agreement was entered into by the companies in 2006, has already been granted marketing authorisation in the EU and has received approval from the US FDA (see United Kingdom: 15 July 2011: GSK's Lupus Drug Benlysta Wins EU Approval and United States: 10 March 2011 GSK's SLE Treatment Benlysta Wins FDA Green Light). With the current products in the pipeline, GSK will be hoping to receive further success. Darapladib, which is a treatment for cardiovascular diseases, is currently undergoing Phase III clinical trials. The Phase III trials were set to become the largest ever clinical study undertaken for a cardiovascular drug, indicating the high expectations that both HGS and GSK had from darapladib (see United States - United Kingdom: 11 December 2009: GSK Ends Oncology Collaboration with Cytokinetics, Second Phase III Trial for Darapladib Under Way). In addition, Phase II studies indicated that darapladib could potentially become an additional treatment option for the treatment of atherosclerosis (see United Kingdom: 5 April 2012: GSK Touts Darapladib in Atherosclerosis)

Albiglutide, which is also in Phase III trials, had recently shown top-line results in seven of its Phase III studies. By wanting to acquire HGS, GSK has indicated that it is expecting these drugs to be successful, as well as indicating interest in other potential compounds in development by HGS. The collaborations with HGS include agreements on milestone payments and royalties that GSK would have to make; for example, the success of albiglutide could result in a milestone payment of up to USD183 million (see United States: 26 July 2005: Human Genome Sciences Enjoys Q2 Revenue Spike). Through the acquisition of HGS, GSK would be able to mitigate these payments and focus on current products, while also gaining access to the other compounds in HGS's development to strengthen its drug portfolio.

By "inviting GSK into the process", HGS signals that an eventual acquisition by GSK remains a possibility, potentially depending on whether GSK were to increase its offer. Furthermore, the acquisition offer from GSK has indicated that that HGS may have interesting compounds in development. This could increase investors' and other companies' interest in HGS. The fact that an investment advisor and legal team have been immediately retained, meanwhile, indicates that even if HGS does accept an offer from GSK in the end, this will not be a short and quick takeover, and it would potentially involve a lot more financial outlay for GSK than the company has offered so far.