Human Genome Sciences Rejects GlaxoSmithKline's $2.6 Billion Offer

Following GlaxoSmithKline’s (GSK) unsolicited $2.6-billion offer earlier this month for acquiring the biopharmaceutical company Human Genome Sciences (HGS), HGS announced late last week that its board of directors had unanimously determined that the offer of $13.00 per share undervalued HGS and issued a shareholder’s rights plan advising stockholders to reject the offer.

“The board believes that the offer is inadequate and undervalues HGS because it does not capture the inherent value in the company’s assets, operations and growth opportunities, including the significant upside potential represented by Benlysta and the company’s valuable pipeline,” said HGS in a May 17, 2012, press statement. HGS received FDA approval for Benlysta (belimumab), a drug to treat lupus, in March 2011. The drug, which was codeveloped and commercialized with HGS and GSK, posted 2011 revenues of $52.3 million.

In rejecting the bid, HGS stated that it believes Benlysta has substantial growth opportunities in the US market for systemic lupus erythematosus. HGS also noted that two other late-stage candidates, darapladib for reducing the risk of cardiovascular events, and albiglutide for treating Type II diabetes, have significant near-term potential.

In a separate statement, HGS announced adoption of a stockholder rights plan (i.e., “poison pill”) and declared a dividend of a one-share purchase right for each share of HGS’ common stock held as of May 29, 2012. The plan has a term of one year. HGS said it adopted the poison pill, which activates when a third party acquires 15% of HGS stock, to allow HGS to engage in its strategic review process and as a means to protect the long-term interests of the company’s stockholders. The rights plan will not prevent any offers or transactions that the board determines to be in the best interest of HGS and its stockholders.

GSK had first made its $2.6-billion bid for HGS in mid April and, earlier this month, reported it was proceeding with its tender offer despite despite having the bid rejected by HGS when it was first made. The tender offer and withdrawal rights are scheduled to expire on June 7, 2012, unless otherwise extended.

Despite HGS’s rejection of the offer and issuance of the poison pill, GSK reiterated that it was proceeding with its tender offer. “GSK believes its offer represents full and fair value and is in the best interests of both companies’ shareholders,” said GSK in a May 17, 2012, press release. GSK added that its offer incorporates the value of Benlysta, darapladib, albiglutide, and HGS’s pipeline and financial assets and reflects expected cost synergies of at least $200 million. GSK noted that it already owns the majority of the economics associated with albiglutide and darapladib and that this is the appropriate time in the evolution of the GSK/HGS relationship for the companies to combine.

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