GlaxoSmithKline Bids for Human Genome Sciences

In what has to be one of the more interesting moves of the week, GlaxoSmithKline

has launched an unsolicited $2.6 billion bid for longtime research partner Human Genome Sciences

. Apparently, GSK has faith in some of the new drugs being developed by HGSI although, according to Human Genome Sciences, they don't have enough faith as it said in a statement that the bid "does not reflect the value inherent in HGS." Glaxo bid $13 per share in cash and, despite the sentiment from HGSI, that bid does display confidence in its experimental drugs for diabetes and cardiovascular disease. While it has yet to be determined how this offer will affect the working relationship (one would imagine that it would be a little awkward for a while), GSK is continuing to conduct clinical trials on the compound. It hopes to disclose data on the diabetes drug this coming summer. HGSI has hired Goldman Sachs to advise on the sale or strategic alternatives. GSK has been invited to participate in this process. For its part, Glaxo has said that it will issue a statement shortly. On Thursday, JP Morgan released a research report stating that HGSI has rejected a hostile cash offer from GSK. At the offer price it sees the acquisition of HGSI as making sense, with elimination of payaways on Benlysta making the transaction worthwhile. However unless GSK can achieve all of the synergies by 2013 (unlikely)/ or GSK taking control of Benlysta commercialization leads to an acceleration in Benlysta growth (or GSK calculating accretion versus the low interest rate they receive on cash), JP Morgan doesn't see the transaction being Core EPS accretive until at least 2014, as it expects HGSI to still have negative EBIT of c. $110m in 2013. Piper Jaffray said that HGS' board has authorized the company to evaluate the company's strategic alternatives, including the potential sale of the company. Piper believes a deal between HGS and GSK will eventually occur. It believes the final transaction will likely include a premium to GSK's current bid but expect that premium to be modest as we believe alternative bidders are unlikely to emerge given the existing partnership between the two companies.