GlaxoSmithKline Plc (GSK) agreed to buy Human Genome Sciences Inc. (HGSI:US) for $3 billion in cash, winning control of its U.S. partner on the Benlysta lupus therapy after a three-month takeover battle and two decades of collaboration.
Glaxo raised its bid 9.6 percent to $14.25 a share, almost twice the price of the stock on April 18, the last day of trading before public disclosure of Glaxo’s initial $13-a-share offer. Human Genome stockholders have until midnight New York time on July 27 to tender their shares, London-based Glaxo said in a statement today. Including debt and cash, the deal is valued at about $3.6 billion.
Drugmakers, facing generic competition in the U.S. and price cuts in Europe, have been acquiring companies to add new medicines. Buying Rockville, Maryland-based Human Genome gives Glaxo full control over marketing Benlysta, which won U.S. approval last year as the first new lupus drug in five decades. Glaxo and Human Genome are also collaborating on two experimental medicines that are in late-stage testing: albiglutide for diabetes and darapladib for heart disease.
The price increase to $14.25 “isn’t an excessive valuation,” Nick Turner, an analyst for Mirabaud Securities in London who has a buy recommendation on Glaxo shares, said in a telephone interview today. “GSK isn’t getting a hold of anything it didn’t already have, it already did have the bulk of the value of HGSI assets. But if Benlysta, darapladib and albiglutide develop into multi-billion-dollar drugs, the pay away for GSK could be significant.”
$200 Million Savings
The purchase will save at least $200 million by 2015, Glaxo said. The company still plans to buy back as much as 2.5 billion pounds ($3.9 billion) in shares this year. The stock rose 0.4 percent to 1,452 pence at the close of London trading, giving the U.K.’s largest drugmaker a market value of 72.5 billion pounds. Human Genome rose 4.5 percent to $14.19 at the close in New York.
Glaxo has won U.S. approval of more than 15 new drugs and vaccines in the U.S. since 2008, and last year won clearance for three new products, including Benlysta. The company is trying to rebuild its diabetes business after the Avandia drug was withdrawn from the market in Europe in 2010 and sales were limited in the U.S. because of an increased risk of heart attacks. The drugmaker sold the first HIV drug a quarter century ago and is also staging a comeback in that market.
20 Times Sales
Glaxo is paying about 20 times revenue for Human Genome, according to data compiled by Bloomberg. That compares with the median of 7.9 times sales in a survey of more than 50 similar biotechnology deals over the past five years, the data show.
“While this number is lower than the high-teens valuation we had hoped for, it is materially higher than the original bid,” Chris Raymond, an analyst with Robert W. Baird & Co., wrote in a note to clients today. “With the stock up 95 percent year-to-date, we think most long-term HGSI investors will likely call this a win.”
Glaxo’s strategy has been to acquire companies with which it already collaborates on medicines. The U.K.’s biggest drugmaker this year has agreed to pay 61 million pounds for the 80 percent share of Cellzome it didn’t own and increased its stake in Theravance Inc. (THRX:US), its partner on respiratory medicines.
“The combination of GSK and HGS represents clear financial and strategic logic for both companies and our respective shareholders,” Glaxo Chief Executive Officer Andrew Witty said in the statement.
Glaxo has stakes in more than 10 publicly traded companies, including DiaDexus Inc., which develops diagnostics for detecting heart attack and stroke risk, according to data compiled by Bloomberg. Glaxo also has stakes in an undisclosed number of closely held businesses.
The biggest deal in the industry announced so far this year is Bristol-Myers Squibb Co.’s $5.3 billion purchase of Amylin Pharmaceuticals Inc. (AMLN:US) At the same time, AstraZeneca Plc will pay New York-based Bristol $3.4 billion to help develop Amylin’s drug portfolio.
Glaxo and Human Genome share revenue and profits from Benlysta equally. Glaxo reported 15 million pounds ($23 million) of Benlysta sales in 2011, and 9 million pounds in the first quarter of this year. Human Genome has the right to receive royalties of 10 percent on sales of darapladib and 5 percent on sales of albiglutide.
No Bidding War
Human Genome rejected the bid in April partly out of concern for stockholders who bought shares at an average price that’s higher than the offer, two people with knowledge of the matter said at the time. All but three of the 25 largest shareholders acquired stock at a higher average price, said the people, who asked not to be named because the talks are private.
“Nobody showed up to start a bidding war,” said Erik Gordon, a professor of law and business at the University of Michigan in Ann Arbor, in an e-mail. “That happens if you are a drug development company whose future is tied too closely to a bigger company with whom you have done licensing deals.”
Lazard Ltd. (LAZ:US) and Morgan Stanley (MS:US) served as financial advisers for Glaxo, with Cleary Gottlieb Steen & Hamilton LLP and Wachtell Lipton Rosen & Katz providing legal counsel. Human Genome received financial advice from Goldman Sachs Group Inc. (GS:US) and Credit Suisse Group AG (CSGN), with Skadden Arps Slate Meagher & Flom LLP and DLA Piper LLP (US) acting as its legal advisers.
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