Human Genome Sciences rejects $2.59B buyout offer from GlaxoSmithKline


In this file photo, Human Genome Sciences' employees work on manufacturing the lupus drug, Benlysta, in Rockville, Md. (Jeffrey MacMillan/For The Washington Post)

Human Genome Sciences, the gene-hunter-turned-drugmaker, announced Thursday that it rejected a $2.6 billion buyout offer from GlaxoSmithKline but left open the possibility of eventually selling itself to the British drugmaker.

Despite the rebuff, the Rockville company’s stock soared Thursday as investors predicted that a sale would eventually take place. HGS’s stock price jumped nearly 100 percent, to close at $14.17, up $7 from the previous day.

If a deal is reached, HGS will join a handful of biotech companies lining the Interstate 270 corridor that have been bought by large pharmaceutical companies eager for access to new patents, research and drugs in development.

“Symbolically, Human Genome Sciences was the little engine that could, and now it looks like it’s going to get bought out,” said Stephen Fuller, director of the Center for Regional Analysis at George Mason University. “It’s a pattern that’s widespread here.”

HGS initially had high hopes for its business but fell short of expectations.

William Haseltine, an eccentric Harvard scientist who was chauffeured to HGS meetings, founded the firm in 1992 with millions of dollars in backing from venture capitalists antsy to cash in on what analysts describe as a “bubble” in genome science.

The company was one of the first to capi­tal­ize on the work of J. Craig Venter, a former National Institutes of Health scientist who left the government and formed a nonprofit institute that developed a key technology for sequencing long strands of human DNA.

HGS’s ultimate goal was to use that data to develop treatments — and maybe even cures — for some of the world’s most devastating diseases. Glaxo emerged as one of its early business partners, sinking $125 million into HGS for rights to its gene database and the products it would yield.

HGS went public soon after, raising $31 million. In its heyday, the company’s stock topped $200 a share.

But HGS never built a business consistent with its dreams.

The first drug it sold commercially — Benlysta — was approved by the government only last year. The product was the first new treatment for lupus in half a century, but sales failed to take off as quickly as the company or financial analysts had predicted. The drug’s net sales totaled $52.3 million last year, forcing the company to cut 150 jobs.

Before Benlysta was approved, the company’s biggest success was an inhalant designed to attack anthrax toxins in the body. Beyond the 45,000 doses HGS sold for government stockpiles, the drug did not have much of a market.


(The Washington Post/Source: Bloomberg)

“The history, you can argue, has been one of disappointment,” said Christopher Raymond, senior biotechnology analyst at Robert Baird. “It didn’t live up to expectations in terms of the number of drugs or the velocity of what was developed.”

The company posted a loss of $381 million last year, widening its $233 million loss in 2010. Its stock plummeted for most of the past year before recently steadying.

Against that backdrop, Glaxo’s bid is opportunistic , analysts said.

The unsolicited bid is “attractive” based on the company’s revenue but “not as attractive” relative to future cash flow, according to a research note by BMO Capital Markets. HGS is working with Glaxo to develop two new drugs — darapladib for cardiovascular disease and albiglutide for diabetes. If those drugs are approved and the lupus drug is more widely adopted, the company’s fortunes could change.

The company, now run by chief executive H. Thomas Watkins, said in a statement that Glaxo’s offer “does not reflect the value inherent” in the company. But HGS’s board “has authorized the exploration of strategic alternatives in the best interests of shareholders, including, but not limited to, a potential sale of the Company,” Watkins said.

In response, Glaxo chief executive Andrew Witty said in a statement that Glaxo was “disappointed that Human Genome Sciences has rejected our offer without discussion and are confident that our offer is in the best interest of shareholders of both companies.”

Witty said the proposed deal could yield a savings of $200 million by 2015 for the companies and create value for shareholders.

Buying HGS at a lower price makes sense for Glaxo because it would stand a better chance of profiting from HGS’s lupus drug even if it isn’t a blockbuster, said Echo He, senior biotechnology analyst at Maxim Group. Besides, Glaxo owns 50 percent of the drug, she said. “If another buyer comes in, that buyer may not be able to realize an economic gain at the level that Glaxo would,” she said.

Staff researcher Madonna A. Lebling contributed to this report.

Dina ElBoghdady covers housing policy for The Washington Post.
Steven Overly covers the business of technology, biotechnology and venture capital in the Washington region for The Washington Post and its weekly Capital Business publication. In that capacity, he has written about start-up struggles, investment trends and major drug discoveries.
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