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Human Genome Sciences is partnered with Glaxo on their lupus drug Benlysta and has licensed a few other drugs to the pharma giant. The $13-per-share offer was flat-out rejected by Human Genome Sciences' board, but the board figured it should see if someone else is interested -- perhaps Glaxo at a higher price -- and is putting the company up for sale at the right price.
Glaxo is clearly in the best position to benefit from an acquisition of Human Genome Sciences; the pharma thinks it can achieve about $200 million of cost savings by 2015. And it's best able to value Human Genome Sciences since it has intimate knowledge of its drugs.
That doesn't mean that some pharma won't try and top Glaxo's bid. Eli Lilly (NYSE: LLY ) outbid Bristol-Myers Squibb (NYSE: BMY ) for its partner ImClone Systems. And Abbott Labs (NYSE: ABT ) rescued Facet Biotech from the low offer made by its partner Biogen Idec. In both those cases, after upping its first lowball bid, the partner didn't get in a bidding war with the third party, arguing that the partner knows the true value -- or at least thinks it does.
Will another pharma be interested in topping Glaxo? Anything's possible, but I wouldn't hold my breath; there has to be some opportunity for the acquirer to drive value. Human Genome Sciences co-markets Benlysta with Glaxo, so a suitor might think it can increase sales through better marketing. But part of Human Genome Sciences' value is tied up in phase 3 drugs darapladib and albiglutide that Glaxo has licensed, and there's no opportunity for a third party to derive value there because they're under full control of Glaxo. The best an acquirer can hope for is royalty and milestone payments, but valuing those is tough from the outside.
Glaxo raising its bid is a better bet, but it's hard to justify buying with Human Genome Sciences trading substantially above the $13 bid. How high might Glaxo go given Benlysta's relatively slow launch? And will the board be willing to accept it given that the stock was trading near $30 per share this time last year? Unless you can confidently answer those two questions -- I can't -- I don't see much reason to buy at this point.
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