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Big moves in biotech today as a rebuffed takeout attempt led to an instant double, and one of the larger players in the space soared on great drug results.
First let's jump on Human Genome Sciences (Nasdaq: HGSI ) , which was up 100% this morning, making it an instant double on news of a buyout from GlaxoSmithKline (NYSE: GSK ) . Glaxo makes sense as an acquirer, since the two companies have a close relationship thanks to lupus drug Benlysta and pipeline products darapladib and albiglutide. What is surprising is the price Glaxo is offering -- $2.6 billion. More stunning is that HGS thought the offer was inadequate! Human Genome Sciences' management didn't just look a gift horse in the mouth; they sucker-punched it.
To date, Benlysta is a flop, registering a mere $25.7 million in sales last quarter. HGS isn't expecting to turn a profit until 2014 at the earliest. Because of these difficulties, HGS's shares were trading at just one quarter of their 52-week high, but not everything that's cheap is a bargain, and paying roughly 25 times annualized sales is cause for concern. Glaxo might be able to ramp sales by bringing Benlysta fully in house, but I wonder whether this is more about the two shared drugs in the pipeline than Benlysta or once-rejected anthrax treatment raxibacumab. Both darapladib and albiglutide are currently in phase 3 trials, and the markets for cardiovascular disease and type-2 diabetes are significantly larger than lupus. If these trials are going well, thae acquiring HGS would be a much more expensive proposition once the results are public.
Perfectly illustrating that point is Gilead (Nasdaq: GILD ) , which was up 15% today after disclosing results for its Hepatitis C drug GS-7977. While a 15% pop may pale against Human Genome Sciences' overnight double, Gilead's massive $40 billion market cap makes the actual dollar gain 2.5 times more impressive. Gilead has a lot riding on its Hep-C pipeline after its $11 billion purchase of Pharmasset, an attention-grabbing move that saw intensified interest after Bristol-Myers Squibb (NYSE: BMY ) bought Inhibitex at a 163% premium.
The results today came from a combination of GS-7977 and Bristol's daclatasvir, which showed a 93% cure rate, better than GS-7977 and ribavirin alone. This supports the theory that future Hep-C treatment will involve a cocktail approach, similar to the strategy Gilead pioneered with HIV treatment. Bristol is "very interested" in a team-up, while Gilead is playing hard to get, hoping one of its internal candidates can replace Bristol's contribution -- but at the end of the day, whatever tie-up generates the best results is going to be the one available for patients.
The current standard of care is Vertex's (Nasdaq: VRTX ) Incivek, and logic would dictate a negative reaction on concerns that Vertex's reign will be short-lived, but shares are up 3%. Vertex also reported results showing that Incivek completely cured a subset of patients with a specific genotype within 12 weeks. Those types of results could keep adoption of the next-gen drugs at bay, even if they are easier on patients to take. And if cocktails are the future, strong efficacy may get Vertex included in the mix.
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