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Human Genome rejects GlaxoSmithKline’s $2.59B bid

The decision by Rockville-based biotech drugmaker Human Genome Sciences Inc. to reject an unsolicited $2.59 billion takeover bid Thursday may increase the eventual sale price of the company, analysts said.

The question is by how much.

“For the most part, we think it’s a fair offer,” said Lauren Migliore, an equity analyst with Chicago-based Morningstar. “The premium of just over 80 percent is in line with most previous acquisitions of Human Genome’s size.”

Still, the rejection could cause a swing of $1 or $2 per share, she said.

Morningstar estimates the fair value price of Human Genome’s shares at $9. GlaxoSmithKline PLC, the British pharmaceutical giant that spent nearly two decades helping the smaller company bring its first drug to market, offered $13 per share, which is an 81 percent premium to Human Genome’s closing price on Wednesday of $7.17 per share.

Human Genome currently has about 199.1 million outstanding shares, according to FactSet.

Human Genome said Thursday that the offer undervalues the company and that it would explore other options, which could include a potential sale of the company. It invited GlaxoSmithKline to participate in its exploratory process.

“If it’s a publicly traded company, the offer will have an immediate impact on the stock prices,” said Bill Wiley, a principal with Towson-based mergers and acquisitions firm, Wiley & Associates Inc.

Shares of Human Genome nearly doubled Thursday, rising $7 to close at $14.17, while GlaxoSmithKline’s U.S. stock added 32 cents to close at $46.69.

“[Human Genome’s] pretty much in the driver’s seat right now,” Wiley said.

Glaxo and Human Genome Sciences currently split sales of the injectable biotech drug Benlysta, which made headlines last year as the first new drug approved for lupus in 50 years. Sales have been underwhelming since the drug launched in March 2011, with monthly revenue averaging $11 million.

Still, some analysts believe the drug could eventually grow into a billion-dollar blockbuster due to its large market and price tag. More than 200,000 U.S. lupus patients could benefit from the drug, which costs $35,000 per year.

“The sales trajectory of the drug was much lower than we had originally expected,” Migliore said, adding that Benlysta’s approximately $52 million in sales last year falls well below the expected sales of more than $1 billion.

Human Genome operated at a $381 million loss last year but Migliore said it is expected to be profitable in 2014.

When the drug failed to perform as expected, Morningstar lowered its fair value price of Human Genome’s shares from $27 to $9, she said.

“But we do think that the drug will eventually be a blockbuster,” she said, adding that Glaxo is the most logical acquirer of Human Genome because “the companies have a very established partnership.”

In addition to Benlysta, the companies are partnering on two other experimental drugs.

Glaxo CEO Andrew Witty said he was disappointed with the offer’s rejection.

“We believe there is clear strategic and financial logic to this combination for both companies and our respective shareholders — and that now is the appropriate time in the evolution of our relationship for our two companies to combine,” Witty said in a statement.

Glaxo said a combination of the two companies would help the company save $200 million in expenses by 2015.

Analysts have speculated for months that Glaxo might try to buy its partner.

Human Genome Sciences was founded in 1992 by Harvard professor William Haseltine. The company created a stir in scientific and investment circles with plans to develop treatments based on identifying and sequencing thousands of human genes. None of the company’s early experiments panned out.