GlaxoSmithKline: Worth Watching On Its Strong Pipeline

| About: GlaxoSmithKline (GSK)

GlaxoSmithKline (NYSE:GSK) still wants to buy Human Genome Sciences (HGSI), despite the fact that the smaller company seems less than keen on the idea.

Even though Human Genome Sciences has voted against the takeover bid and GlaxoSmithKline's attempts to replace its board, GlaxoSmithKline seems intent on pursuing the bid for the younger company at a price of $13 a share or $2.6 billion. Hardly any of the shares have been tended, causing GlaxoSmithKline to extend the unsolicited offer to acquire the remaining shares. However the pharmaceutical company has not upped its initial offer, so I wonder if the situation is likely to change significantly. The initial offer was set to expire last week. With the extension giving shareholders until the last business day of June to accept the offer, I do not feel that GlaxoSmithKline will get what it's looking for. If only 474,000 shares have been tendered so far, what does the company hope will change between now and the end of the month?

Human Genome Sciences has rejected GlaxoSmithKline's bid to purchase over and over again, yet the company continues to try and acquire it. GlaxoSmithKline is adamant that the price it is offering is a fair one. It says that the price is true reflection of what Human Genome Sciences is actually worth and that it is eliminating future problems that Human Genome Sciences may experience. In addition GlaxoSmithKline says that the intention to merge the two companies is merely a reflection of how valuable the key drugs are that the two companies have worked together to develop. Because the drugs are so successful and so important to both companies, it is equally important that the two companies combine to protect that interest. Or so GlaxoSmithKline claims.

Human Genome Sciences is equally adamant that it is worth more than what GlaxoSmithKline is offering and that the larger company is merely trying to pursue its own ends without taking the well being of Human Genome Sciences into account at a significant level. Human Genome Sciences is still in the process of exploring the various strategic alternatives that are open to it at present. GlaxoSmithKline apparently sees this as an attempt by Human Genome Sciences to undermine the process to the detriment of the shareholders. GlaxoSmithKline has also stated that it will seek shareholder approval to replace all 12 of the directors currently serving on the board of Human Genome Sciences with 12 independent directors. In fact several analysts think that the extension of the offer is merely a play to provide GlaxoSmithKline with enough time to make good on this replacement.

Human Genome Sciences has put a number of measures in place to thwart the hostile takeover bid that GlaxoSmithKline is trying to initiate. And you cannot really blame it. The company was not placed on the market and did not give any indication that it wanted to be acquired. GlaxoSmithKline's bid came out of nowhere and could be perceived as unfair by many. Among the measures that Human Genome Sciences has put in place is a "shareholder rights plan that would trigger if GlaxoSmithKline's stake in the firm rose above 15 per cent."

The situation is certainly getting messy and it may be time for GlaxoSmithKline to abandon the plan and focus on something of more immediate benefit to its shareholders. Certainly, it does not want to lose ground on its competitors, many of which are developing new drugs for the market.

Johnson & Johnson (NYSE:JNJ) may release a new drug for diabetes next year that approaches the problem of controlling blood sugar levels in patients suffering from the illness in an entirely new and innovative way. The drug will present a big threat to Merck's (NYSE:MRK) Januvia, currently the leading drug for diabetes. Although Johnson & Johnson's canagliflozin is not a cure for the disease it is a new approach to handling it which marks the company out as a leader in the realm of the pharmaceutical industry. This is another example of the innovations we have come to expect from Johnson & Johnson.

Abbott Labs (NYSE:ABT) may have finally found a way to claw its way back to success. The company has been working with Neurocrine Biosciences (NASDAQ:NBIX) on a treatment for endometriosis in women, and it seems that the drug, called elagonix, will be successful at treating the problem it is aimed at treating. Endometriosis is a growing problem that is very expensive for the country. An effective treatment will generate the company a huge amount of revenue. This will allow Abbott to get back into the game as a serious player.

Competitor Novartis (NYSE:NVS) recently conducted an extension study to assess the long-term effects of Gilenya on patients with multiple sclerosis. The findings were very positive and showed that the drug is not only effective at its primary aim, but that in some cases it is more effective than other drugs commonly prescribed for the treatment of the condition. Pharmaceutical companies that find solutions to serious conditions such as this one will be the leaders of tomorrow. Therefore Novartis is a company that bears close watching from stockholders and is a good option for someone looking to add to their portfolio.

GlaxoSmithKline has a number of drugs in its pipeline. For example, GlaxoSmithKline is making headway in the study aimed at discovering a treatment for diabetes. But despite that, it seems to me that it is over focused on the issue of acquiring Human Genome Sciences. This move is one that will most likely benefit the company significantly, however, so it may be in the company's best interests to continue pursuing that line of inquiry. For anyone with an interest in the stock, the situation bears close watching.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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