HGS Adopts Poison Pill to Hinder GSK Bid

Human Genome Sciences (HGS) on Thursday adopted a shareholder rights plan to confront GlaxoSmithKline’s hostile bid, and discharged the GSK’s $2.60 billion proposition as insufficient.

A week ago, GlaxoSmithKline (GSK) appealed directly to shareholders, after initially being rejected by HGS last month, with the $13-a-share proposition for GSK’s long-time partner and co-developer of the lupus drug Benlysta.

Human Genome Sciences has decided to adopt a poison pill, which can hinder hostile offers by providing other shareholders with the right to buy additional stock at a reduction if one shareholder buys 15% or above of the corporation’s stock. It is aimed at preventing proposals or transactions that the board decides are not in the best interest of the organisation’s shareholders.

The plan is effective for one year and will have a term of one year. Following GlaxoSmithKline’s initial approach, the US biotech hired Goldman Sachs and Credit Suisse to explore the different options, including a possible sale of the business.

GSK was asked to be involved in the process, but claimed that their participation is pointless as their offer is not conditioned on due diligence. However, in their latest rejection of GlaxoSmithKline’s offer, Human Genome Sciences noted that they are talking to “a number of other parties, including major pharmaceutical and biotechnology companies, regarding a potential transaction.”

Confidentiality agreements

HGS has also entered into confidentiality arrangements with some other pharmaceutical organisations, providing them a chance to engage in due diligence. The organisation also added that the rights plan “will not prevent any offers or transactions that the board determines to be in the best interest of HGS and its stockholders.”

Human Genome Sciences also accused GSK of timing their offer while their shares were trading at nearly a 52-week low and “to opportunistically capture for itself the significant upside opportunity for upcoming value-driving products,” markedly the late-stage cardiovascular drug darapladib and albiglutide, currently in Phase III for the treatment of type 2 diabetes.

In addition, despite disappointing sales, HGS believes Benlysta has “substantial growth opportunities,” and sees the initial US market for the medication to be 200,000 patients, “which translates to a market opportunity of approximately $7 billion.”

Since the initial offer, stock in HGS has almost doubled to $14.25 per share. HGS commented that they were still looking at their strategic options, which may result in the company being sold.

In response, the UK business added that they continue to “believe that now is the appropriate time in the evolution of the GSK/HGS relationship for the companies to combine” and that GSK are “uniquely positioned to deliver on the opportunity of the combination.” GSK noted that they will continue with their tender offer “and has clearly stated its preference to complete a transaction on a friendly basis in a timely fashion.” The offer will close on June 7th 2012.


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