LONDON/BOSTON GlaxoSmithKline Plc is to acquire its long-time partner Human Genome Sciences Inc for a sweetened offer of about $3 billion, ending on friendly terms a three-month hostile pursuit of the U.S. biotech company.
The purchase price excludes Human Genome's cash and debt. Including cash and debt, the deal values Human Genome at about $3.6 billion.
The deal comes after weekend talks in which Britain's biggest drugmaker agreed to raise its cash bid to $14.25 a share from $13. Human Genome rejected the original offer as inadequate. Reuters reported details of the agreement earlier on Monday.
"We had expected the offer would be increased modestly to save face on both sides," said Nicholas Bishop, an analyst at Cowen and Co.
The acquisition will secure GSK full rights to a recently launched drug for lupus, Benlysta, and other new medicines.
Biotechnology companies are in increasing demand as the world's largest pharmaceutical manufacturers seek new products. Big Pharma is losing billions of dollars in revenue as older medicines face generic competition in the biggest wave of drug patent expirations in history.
Wall Street analysts cite a long list of potential takeover targets in biotech, including Onyx Pharmaceuticals, Biomarin Pharmaceuticals and Alexion Pharmaceuticals.
In addition to gaining 100 percent of Benlysta to treat lupus, a disease affecting the immune system, GSK also gets full ownership of experimental medicines for diabetes and heart disease that are in late-stage development.
Despite bumping up its offer 10 percent and paying a 99 percent premium to the share price before its interest was made public, industry analysts said GSK got a good deal, largely because Human Genome's shares have been depressed due to a weak launch for Benlysta.
"I'm disappointed with the deal because I think Benlysta is actually going to be a good drug," said Carol Werther, an analyst at Summer Street Research. "Glaxo wanted to get this on the cheap and they were able to do it in the absence of other bidders."
The boards of both companies have approved the transaction, the companies said on Monday. Their statement did not specify what future Human Genome Chief Executive Thomas Watkins had within GSK.
GSK expects to achieve cost savings of at least $200 million by 2015 and said the deal would boost its core earnings in 2013. It continues to expect to repurchase up to 2.5 billion pounds ($3.9 billion) in shares in 2012.
"The transaction meets GSK's strict financial criteria for acquisitions, and we expect will deliver significant returns over the long term," GSK Chief Executive Andrew Witty said in a statement.
Navid Malik, an industry analyst at Cenkos Securities, said the deal was "nice to have" rather than a need-to-have for GSK, whose $112 billion market value dwarfs that of Human Genome.
Shares in GSK closed up 0.4 percent in London, while Human Genome gained 4.6 percent to $14.21 in afternoon trade in New York.
The deal is the latest in a rapid succession of biotech acquisitions this year. Most recently, Bristol-Myers Squibb agreed to buy diabetes specialist Amylin Pharmaceuticals by sharing the $7 billion cost of the deal with AstraZeneca.
Human Genome rejected GSK's $2.6 billion offer in April as too low and launched an auction process. It had come under pressure from investors to try to strike a deal with the British drugmaker in the absence of any alternative bids.
The U.S. company set itself a July 16 deadline for finding higher bids, but interest has been limited because GSK already has marketing rights to its drugs.
Biotech company Celgene at one stage was considering whether to bid and was conducting due diligence, according to a source familiar with the matter, but was deterred by negative analyst and investor reaction when news of those discussions broke.
Last year, Human Genome and GSK won approval for Benlysta, the first new treatment for lupus in 50 years. Sales of Benlysta have been slow to take off due to uncertainty over reimbursement and lack of physician familiarity with its use. Human Genome's shares fell from a high above $25 to a low of $6.51 in December
The drug's fortunes could be about to change, however.
"We still think Benlysta does have a chance to generate peak annual sales of above $1 billion," said Lauren Migliore, an analyst at Morningstar. "Glaxo is ramping up the drug's launch abroad and rheumatologists seem to be getting more comfortable using it."
GSK's initial offer prompted Human Genome to launch an auction with the help of Credit Suisse and Goldman Sachs. GSK was advised by Lazard and Morgan Stanley.
(Additional reporting by Soyoung Kim in New York; Editing by Jon Loades-Carter, Gunna Dickson and John Wallace)