“There is clear strategic and financial logic to this combination and HGS shareholders should have the opportunity to decide for themselves on the merits of the offer,” Glaxo said in a statement.
HGS issued a response on Wednesday asking its shareholders to hold off on a decision while the company reviews the hostile bid. Executives said they could take up to 10 business days from the time the tender offer is formally initiated to reply.
In the meantime, the company said it will continue to evaluate its strategic alternatives.
It was revealed April 19 that Glaxo had submitted an unsolicited bid for the company worth $2.59 billion. At the time, $13 per share represented an 81 percent premium over the stock’s closing price the previous day.
Shares of the company have since been trading higher and closed at $14.59 on Wednesday.
HGS executives rejected the April offer, saying it undervalued the company’s long-term financial prospects, including the money it stands to generate from sales of its flagship drug, Benlysta, which is designed to treat systemic lupus.
The company’s share price has fluctuated wildly in the past year. Shares fetched nearly $30 in April of last year, when the firm was still riding high on the Food and Drug Administration’s approval of Benlysta just a month earlier.
The price has dropped considerably since then, making the company a more attractive acquisition target, as sales of the drug have been slower than some financial analysts anticipated.
Glaxo is no stranger to HGS. The company emerged as one of HGS’s early financial backers in the early 1990s, pouring $125 million into the biotech for rights to its gene database and the products it would yield. The firms co-developed Benlysta and have partnered on other drugs to treat diabetes and cardiovascular disease.
“GSK continues to believe that now is the appropriate time in the evolution of the GSK/HGS relationship for the companies to combine and that GSK is uniquely positioned to deliver on the promises of Benlysta, albiglutide and darapladib,” the statement said.
Industry observers have long speculated that a merger is likely because the companies’ close relationship makes a deal advantageous from a strategic and financial perspective. Glaxo said in April it expects that an acquisition could save the firms $200 million by 2015 .
Eric Schmidt, a biotechnology analyst with Cowen and Co., said the threat of a hostile takeover could force HGS to the negotiating table, where the firms are likely to arrive at a purchase price amicably.
Schmidt expects that the final price tag could be modestly higher than Glaxo’s initial offer, but added that the industry’s perception of Benlysta and its true market potential has soured since last spring.
“There is a very good reason that the stock is down,” Schmidt said. “The markets are up over that period of time and the share decline very much reflects the marketplace’s view that this is a smaller drug than we thought it was.”