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Analysts Don't See Human Genome Sciences Takeover On Horizon

By Val Brickates Kennedy Despite rampant speculation that GlaxoSmithKline PLC may be readying a lucrative bid for Human Genome Sciences, two biotech analysts said Wednesday that they don't see a takeover of HGS on the immediate horizon. A key obstacle, they said, is HGS's (HGSI) sinking stock price, which slid below $10 a share to close at $9.88 on Wednesday after the biotech group reported weaker-than-expected quarterly sales for its new lupus drug Benlysta. The drug, the first to be approved to treat the disease in more than 50 years, is co-marketed with Glaxo (GSK). Wednesday was a particularly ugly day for HGS shareholders as the stock plunged 22% on the lackluster sales report after gaining ground in recent days on rumors that Glaxo, long considered a potential acquirer, was readying a $25-a-share bid. But Wednesday's drop was just the latest setback for shareholders this year, as both investors and industry watchers began to worry that expectations for Benlysta had been set too high. After an impressive run last year, the stock is now down almost 60% year to date, losing nearly 20% in October alone. In comparison, the S&P 500 is up 1.5% this year, and up almost 13% for the month as of midday Thursday. According to Brean Murray analyst Brian Skorney, the swift sell-off was largely in reaction to Wednesday's news that the company now doesn't see reaching profitability until 2014. In April, it said it hope to turn the corner in 2013. "This is the main reason the stock is down," said Skorney of Wednesday's trading, adding that his firm has dropped the stock's rating to hold from buy, and has withdrawn its prior valuation of $20 a share. The selloff also further dims the prospect of a Glaxo buyout, said Skorney. "That buyout rumor is floated out there every three to six months," said Skorney. "The problem is an acquisition is a structural impossibility given how far the stock has fallen." Skorney said he believes the board of HGS, which many industry watchers still consider a rising star, would never agree to a deal based on the stock's current valuation. And Glaxo wouldn't be able to justify playing a massive premium under current market conditions. The only way for a deal would be for Glaxo to launch a hostile bid, Skorney said. Michael Yee, an analyst for RBC Capital, said that HGS was further hurt Wednesday by comments from Glaxo's chief executive that the U.K.-based pharmaceutical titan was pursuing a stock buyback program because it hadn't found any suitable takeover candidates. Yee agrees that HSG's board would be unlikely to entertain a bid at the stock's current valuation, especially as Benlysta still has the potential of becoming a blockbuster product. "There's no change in the long-term opportunity," said Yee, whose firm dropped its price target on Wednesday to $15 from $25 to reflect slower-than-expected Benlysta sales. He said he sees Benlysta achieving peak sales of $1.5 billion to $2 billion worldwide by 2019. "There's no rush for them [Glaxo] to buy HGS," Yee added. Glaxo's close relationship with HGS also makes it more difficult for other suitors to pursue a takeover. Under their partnership agreement, the companies split profits from Benlysta, which is expected to become HGS' main revenue driver. HGS is also co-developing two other compounds with Glaxo: darapladib, for the treatment of heart disease and albiglutide, for diabetes. Both are in late-stage testing. Because of this, said Skorney, any potential bidder would worry it would eventually be outbid by Glaxo. And conversely, any bidder would be suspicious if Glaxo, which has deep knowledge of HGS' programs, failed to make a credible bid. "Their relationship makes it difficult. These two companies are integrated on many levels," added Skorney. -Val Brickates Kennedy; 415-439-6400;

Stock News for Human Genome Sciences (HGSI)
08/03/201203:00:56GlaxoSmithKline Completes Acquisition of Human Genome Sciences
07/30/201209:06:49GlaxoSmithKline Gets 79% Tenders for Human Genome Sciences Offer
07/15/201219:10:13Glaxo Eyes Human Genome Sciences for $2.6 Billion
07/15/201215:49:18Sources Say GlaxoSmithKline in Talks to Acquire Human Genome...
07/11/201212:36:14Glaxo To File Experimental Diabetes Drug Albiglutide In Early...
07/10/201208:38:08Human Genome: FDA Sets Dec. 15 Action Date For Anthrax Treatment...
07/03/201217:08:09GlaxoSmithKline Readies Candidates to Replace Human Genome's...
06/29/201209:24:03Glaxo Keeps Pressure On Human Genome By Extending Offer To July...
06/29/201207:35:49GlaxoSmithKline Sets July 20 For Expiration Of Tender Offer To...
06/15/201210:42:11GSK Gets Renewed Invitation to Human Genome Sciences Strategic...
06/08/201209:10:55GlaxoSmithKline Extends HGS Offer To June 29
06/07/201211:43:24Glaxo Seen Likely to Extend Hostile Tender Offer for Human Genome
05/30/201211:58:59GlaxoSmithKline Is Said To Plan Effort To Replace Human Genome...
05/23/201209:12:46Glaxo Amends Offer To Address HGS Shareholder Rights Plan
05/17/201217:45:35ADR Report: Shares Lower As Euro-Zone Worries Loom
05/17/201213:54:16GlaxoSmithKline Offer To Acquire HGS Represents Full, Fair Value
05/17/201207:55:44Human Genome Adopts Poison Pill With 15% Trigger To Deter Glaxo
05/09/201209:33:24WSJ BLOG/Health: A.M. Vitals: GSK's Hostile Human Genome Bid;...
05/09/201205:02:12Glaxo Goes Direct To HGS Shareholders With Hostile Offer
05/09/201202:48:24GlaxoSmithKline To Launch $13/Share Tender Offer For To Buy HGS

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