If word from usually reliable Bloomberg is to be believed, the managements of GlaxoSmithKline (GSK) and Human Genome Sciences (HGSI) have seen reason and reached an agreement on a friendly transaction. While this deal is an unconfirmed rumor at the time of this writing, Glaxo has supposedly upped its offer by a little less than 10%, to $14 per share or $2.8 billion in cash.
Benlysta Can Still Work
Far and away the driving factor to Human Genome (and this deal) has been the feast-and-famine history of its lupus drug Benlysta. Widely hailed at the time of its approval and launch, Benlysta has proven thus far to be a substantial disappointment in terms of sales and market penetration.
There are some reasonable explanations for this disappointment that are inherent to the therapy. The drug does not work equally well for all patients, it's expensive, and patient comfort is an issue (as it requires IV infusion). It's also worth noting, though, that sales reps that I've spoken to from both sides suggest that factors not related to the drug may be interfering as well - some believe that Glaxo has not launched an especially strong or smart sales effort, while others believe that the co-promotion efforts of HGSI have interfered.
Whatever the case may be, I believe there is still hope and promise for Benlysta. By owning 100% of Benlysta, Glaxo may be able to craft a more cogent sales strategy for the drug. What's more, with double-digit quarter-on-quarter growth, it's not as though Benlysta has been a total disaster. It also does not hurt Benlysta's potential that Anthera (ANTH) reported disappointing data on potential rival blisibimod.
Other Products Could Sweeten The Pot
Human Genome is not a one-product story. The company is also developing Syncria (albiglutide) for type-2 diabetes and darapladib for atherosclerosis, and both are in late-stage studies.
Perhaps the recent high-value bid ($5.3 billion) for Amylin (AMLN) from Bristol-Myers (BMY) and AstraZeneca (AZN) has encouraged HGSI investors or management to see more value in albiglutide. While the clinical data seen thus far doesn't look all that compelling compared to Amylin's Bydureon or Novo Nordisk's (NVO) Victoza, I suppose there is still some potential here if Glaxo is willing to price it aggressively.
Darapladib is the bigger unknown. Atherosclerosis is a huge potential market, but so many drugs have stoked investor hopes only to dash them later. Good or bad, investors will know more soon as clinical data is due later this year. While I believe the partnering arrangement with Glaxo limited the per-share value to HGSI of darapladib to about $2 to $3, I do believe that strong data could make this a potential winner for Glaxo.
A Reasonable Deal For All Concerned
For Glaxo, this deal could help on multiple fronts. For starters, some buzz has been building that maybe Glaxo isn't the best partner for biotechs, given the disappointments of Benlysta and Horizant (which has caused considerable disagreements with partner XenoPort (XNPT). Second, maybe total ownership of Benlysta (as well as Syncria and darapladib, should they be approved) will better focus and/or incentivize Glaxo management to really make the most of these drugs.
Prior to this deal, I thought fair value on Human Genome lay somewhere between $12 and $16 per share depending upon what assumptions an investor was willing to make about Benlysta's eventual success (and the disappointment with blisibimod helped in that regard).
Accordingly, while Human Genome investors are not getting a steal (and may be disappointed that there appear to be no contingent value rights tied to darapladib), they're getting reasonable value in a situation where it was unlikely that major rivals were going to step up with competing bids [Celgene (CELG) was a rumored bidder]. Simply put, given the economics of HGSI's deals with Glaxo, it was going to be hard for a rival bidder to see the necessary returns to go much higher than Glaxo.