Game of hardball wins Human Genome for Glaxo

In the end, there was no other likely outcome in the manoeuvring between GlaxoSmithKline and Human Genome Sciences. As tightly intertwined as Glaxo is in the Maryland group’s late-stage pipeline, no white knight could have possibly been prepared to offer more than the $3.6bn tender that clinched the acquisition.

A promising unencumbered candidate or two might have helped kindle a bidding war, but as it was Glaxo had only to add $1.25 to its original $13-per-share bid to force capitulation. At nearly double the $7.17 at which it traded before Glaxo announced its intent, the acquisition will make for a good payday for those investors who bought in following the disappointment of early Benlysta sales (HGS suffers the launch blues as Benlysta forecasts slump, September 22, 2011). Longer-term investors must be wondering if Human Genome’s one-dimensional business development strategy might have let them down.

Finding the value

Although many of the candidates in the Human Genome pipeline remain high-risk, it will not take much success for the Glaxo acquisition to pay off. Although its value has eroded with shrinking sales forecasts, the lupus drug Benlysta has a $4.8bn net present value today, with $2bn of it already accruing to Glaxo, according to EvaluatePharma data.

Acquisition obviously allows Glaxo to extract the full value of sales instead of sharing marketing responsibilities and profits. Indeed, some analysts have argued that the Human Genome share of marketing, which focused on academic medical centres, did not allow the partnership to take advantage of Glaxo’s relationships with key opinion leaders among lupus specialists and thus might have resulted in some disappointing uptake.

Any positive changes in Benlysta sales forecasts from a reinvigorated sales effort, should that be in the offing, will thus accrue fully to Glaxo.

Of Human Genome’s other phase III products – the inhalation anthrax treatment ABthrax, atherosclerosis drug Tyrisa and diabetes therapy albiglutide – the last two are licensed to Glaxo, with royalties and milestone payments due to the biotech. The first is being developed under contract with the US government, and in any case is a relatively small product by Glaxo's standards.

After completing phase III trials for albiglutide, Glaxo said it will submit an application to regulatory authorities in early 2013. The product will likely become the fifth or sixth GLP-1 to market, entering against Eli Lilly’s dulaglutide, and as such will be in a very competitive space; analysts have pencilled in sales of $450m in 2018 at this stage.

Speculative

The bigger mystery is Tyrisa. Two event-driven phase III trials with more than 25,000 enrolees in total are under way; analysts from RBC believe that the larger of the two has been allowed to continue following an interim review. EvaluatePharma’s consensus forecasts sales of $817m in 2018; however, most analysts see a low chance of success.

Thus a positive readout in either coronary disease or acute coronary syndrome would likely lead to more optimism about the sales outlook.

A win with Tyrisa would clearly make Glaxo look like a smart shopper, or at least a very lucky bettor. Equally, all it will take is continuing underperformance for Benlysta and setbacks for albiglutide or failure for Tyrisa to make the Human Genome takeover look ill-conceived.

With the exception of some Benlysta line extensions, other early-stage projects appear speculative, and could easily become candidates for licensing out on completion of a pipeline review – namely, the phase II cancer drugs HGS1036, a fibroblast growth factor antagonist, and mapatumumab, an antibody.

Still, given the involvement it has had so far with the development of Benlysta, albiglutide and Tyrisa, Glaxo should know as much about them as it does its fully owned assets. The price of acquiring Human Genome includes owning all the risk of failure.

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