Glaxo (GSK) recently announced that the waiting period with respect to its tender offer for the acquisition of the outstanding shares of Human Genome Sciences, Inc. (:HGSI) has expired under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 (HSR Act).
Meanwhile, Human Genome’s board of directors continued to advise its stockholders against Glaxo’s tender offer.
Earlier, in April 2012, Glaxo had made an offer to acquire Human Genome for $13 per share in cash. However, Human Genome’s board had rejected the offer as they believed that the offer price undervalued the company. Glaxo went ahead and commenced a tender offer on May 10, 2012, which is set to expire on June 7, 2012.
If Glaxo succeeds in acquiring Human Genome, it would gain full control over Benlysta (approved for treating systemic lupus erythematosus). Glaxo will also gain control over late-stage candidates such as darapladib (cardiovascular disease) and albiglutide (type II diabetes).
Our Take
Benlysta has significant potential, being the first lupus drug to hit the market in more than 50 years. It was approved in the US in March 2011, while EU approval came in July 2011. However, the product has performed below expectations since launch. Glaxo recorded sales of $14 million in the first quarter of 2012.
The acquisition will raise the returns on research and development (R&D) expenses for Glaxo and lead to cost synergies of minimum $200 million by 2015. We believe this potential takeover would be accretive for the company from 2013.
Human Genome shareholders also stand to benefit from the acquisition, as the offer price represents an 81% premium over Human Genome’s closing share price on April 18, 2012.
We currently have a Neutral recommendation on Glaxo. The stock carries a Zacks #3 Rank (Hold rating) in the short run.
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