Human Genome exploring options after rebuff of Glaxo

Tue Apr 24, 2012 7:19pm EDT

Signage is pictured on the company headquarters of GlaxoSmithKline in west London July 21, 2008. REUTERS/Toby Melville

Signage is pictured on the company headquarters of GlaxoSmithKline in west London July 21, 2008.

Credit: Reuters/Toby Melville

(Reuters) - Human Genome Sciences Inc HGSI.O, which rebuffed an unsolicited $2.6 billion takeover bid by British drugmaker GlaxoSmithKline (GSK.L), said on Tuesday it was reviewing strategic alternatives, including the sale of the company.

Human Genome said it would not comment on the process, but reiterated that Glaxo's $13 per share offer was not sufficient and failed to account for the inherent value of the company's pharmaceutical assets.

The company stressed that all of its rights, including its co-promotion and royalty deals under partnered programs with Glaxo, are fully transferable to a potential third-party acquirer.

Cowen and Co analyst Eric Schmidt said he expects Glaxo to come back with a higher offer of about $15 a share.

"I'm sure GSK didn't make its best offer first. I think they will go modestly higher," he said.

"If a third party emerges all bets are off," he said, but added that he believes that to be unlikely.

"They would be at a bit of a disadvantage knowing that GSK has insights into the (Human Genome) pipeline. It just doesn't seems like a comfortable situation for a third party to get involved with."

Human Genome and Glaxo have partnership deals on drugs in development as well as the new lupus drug Benlysta.

Despite the slow physician adoption and disappointing early sales of Benlysta, Human Genome said it remains "very confident of the blockbuster potential for Benlysta."

Chief Executive Thomas Watkins told analysts on a conference call that based on the number of diagnosed patients under a physician's care Benlysta represented a $7 billion opportunity in the United States alone.

While declining to comment on timing, Watkins said he expects the slow launch of Benlysta to shift to an increased rate of sales growth.

Human Genome said the Glaxo bid also failed to account for the future sales potential of the heart drug darapladib being developed by the British drugmaker using Human Genome technology and other drugs in its development pipeline.

Watkins called the heart drug "a blockbuster in the making" that had the potential to be a significant future revenue driver. Late stage data on the drug's ability to reduce heart attacks and strokes is expected sometime next year.

The company reported a larger-than-expected first-quarter loss on Tuesday, although it was significantly narrower than the year-ago quarter due to increased Benlysta sales and lower research and development spending.

Human Genome posted a net loss of $93.5 million, or 47 cents per share, compared with a loss of $131 million, or 69 cents, a year ago. Analysts on average expected a loss of 39 cents per share, according to Thomson Reuters I/B/E/S.

While R&D spending was down for the quarter other costs rose, including $15.7 million for commercial collaboration expenses, up from $3.1 million a year ago.

Revenue for the quarter rose to $47.1 million, edging past modest Wall Street expectations of $46.3 million.

Gross sales of Benlysta for the quarter were $35.6 million. After gross-to-net adjustments of $4.4 million, net sales of Benlysta totaled $31.2 million.

When Benlysta was approved last year to great fanfare it became the first new treatment for the debilitating disease in more than 50 years. But the drug has been slow to take off over reimbursement uncertainty and lack of physician familiarity with use of the new therapy.

Lupus is a disease in which the immune systems attacks healthy tissue.

The company said most rheumatologists tend undergo their own trial process with few patients over several months before becoming comfortable with wider Benlysta use.

The company has said it expects to reach profitability in 2014.

Human Genome shares slipped to $14.58 in after hours trading from a Nasdaq close at $14.64, an indication that shareholders believe Glaxo or some other company will eventually pay more than $13 a share.

(Reporting By Bill Berkrot; Editing by Phil Berlowitz, Carol Bishopric, M.D. Golan and Bernard Orr)

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