4 Biotech Stocks Beyond Human Genome Sciences To Consider Now

| About: GlaxoSmithKline (GSK)

Buyout and takeover news usually rocks the market, and the potential changes concerning Human Genome Sciences (HGSI) and GlaxoSmithKline (NYSE:GSK) are no exception. Human Genome Sciences rejected the takeover bid, creating a bit of uncertainty for itself. The two companies have worked together in the past and actually have an ongoing relationship in regard to certain drugs. Some believe the offer was rejected because it was too low and Human Genome Sciences expects to get other offers. There is a chance another offer could be made, so many investors have not written off the possibility of a future merger between the two companies.

The offer was for $2.6 billion, or $13 per share. Glaxo believed the offer was fair, but Human Genome Sciences believes it is being undervalued. Experts believe Human Genome Sciences is worth as must as $20 per share and believe it would be possible for the company to get this amount, if it is willing to be patient and play hardball.

It seems that if there were ever going to be a buyout or merger involving Human Genome Sciences, it would certainly be with Glaxo. The company shares profits from its lupus drug Benlysta. The downside of Benlysta is it treats the symptoms of lupus, but it is not a cure for the disease. However, this creates repeat sales -- one of the best ways to boost the price of a company. Benlysta is not a big impact drug, but it is a steady earner, prompting long-haul investments. This affects the potential buyout in one simple way: It makes future prices predictable. Buyers are unlikely to offer a great deal more than what was offered by Glaxo because the earnings of Human Genome Sciences' main drug are predictable.

Anyone worried about steady earnings needs to calm down. The thing is, if steady, predictable earnings were a problem, nobody would be interested in merging with Human Genome Sciences or investing in the company in any way. If you are thinking about sinking money into the company, pay attention to what happens in the coming weeks concerning the merger. Glaxo's interest will tell you how much you should be interested in Human Genome Sciences.

One of the things Human Genome Sciences did was make the bid from Glaxo known. The company could have kept silent and rejected the offer quietly, but it made sure the market and everyone else paying attention knew what was going on. Some speculate this it to drum up attention and get other companies interested in a buyout. If people are talking and other companies know there is interest, there will likely be more interest. Sharing the buyout information was a strategic move on the part of Human Genome Sciences, and investors should be thrilled. The company has laid down the gauntlet and time will tell if it pays off, but I'm guessing it will. Even if no other company steps up to the plate, it was still a strong move and should make investors feel pretty good.

In addition to Benlysta, Human Genome Sciences makes an anthrax drug called Raxibacumab. Obviously, there is limited need for an anthrax treatment, but the company has a contract with the U.S. government to supply its stockpile. It has relatively little bearing on the company's value, but it does offer consistent earnings.

One of the things that had investors so concerned about Human Genome Sciences was the way stock prices have plummeted over the last year. It is now worth about one-quarter of what it was worth since 2010. The company's pipeline is just about empty, so it is virtually relying on Benlysta to do all of the heavy lifting. The two drugs that are getting some recognition are Darapladib and Albiglutide, both in Phase III trials. There is little expected from the FDA anytime soon. Though the pipeline is usually something I encourage investors to focus on, it can be dangerous if everything you have is riding on FDA approval, especially when you have nothing significant already out there.

Those who have low expectations for Human Genome Sciences cite its pipeline as well as its mediocre market presence as reasons for staying clear. In addition to only having the anthrax treatment and Benlysta, the drugs face a lot of competition. If you are only going to do two things, you need to do them well. You need to be the best and position yourself in a way that allows you to virtually ignore competition. Human Genome Sciences has not done this, and many experts believe its passive stance makes it a bad investment.

So, where do investors turn if Human Genome Sciences seems too big of a risk? Prices are currently around $15, so there are plenty of options both in the higher and lower ranges. Dendreon (NASDAQ:DNDN) is going for slightly more than $11 and continues to fight back and overcome the challenges its main drug, Provenge, has created. Provenge is considered expensive and tends to scare off some investors, but it is effective and continues to do very well in the industry.

Idenix (NASDAQ:IDIX) is another option for investors interested in companies around $10. It is best known for its development of telbivudine, a drug marketed under the names Sebivo and Tyzeka. Idenix has five drugs in its pipeline focused on treating hepatitis C. Two are in Phase II trials and three are in the preclinical stage. The Idenix pipeline also includes an HIV drug in late Phase II trials in its pipeline.

Vivus (NASDAQ:VVUS) is currently at just under $23, but is expected to steadily increase over the next decade. Its main product in the pipeline is Qnexa, the first weight-loss drug expected to receive approval from the FDA in more than a decade. Investors are expecting good news on Qnexa because of a positive report on the drug from an FDA panel back in February, but nobody is sure exactly when approval might be given.

Finally, I would give Spectrum Pharmaceuticals (NASDAQ:SPPI) consideration if you are interested in companies around $10 with a broad portfolio of drug treatments. Most are focused on oncology and urology, including Fusilev (intended for patients with advanced metastatic colorectal cancer and for high-dose methotrexate rescue therapy in osteosarcoma) and Zevalin (a proprietary biological drug for indolent non-Hodgkin's lymphoma).

In all honesty, I like Human Genome Sciences. Some might argue there are better options, but I still think the company is a good risk. The price is reasonable and, if you get in now, a $20-per-share buyout could create a tidy little profit. I would recommend buying Human Genome Sciences or holding on to it if you are in already.

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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