Healthcare Matters

Not long after agreeing to pay the DOJ the paltry sum of $3 billion  –the largest fine in US History— GlaxoSmithKline (GSK) ended speculation and has reached yet another $3 billion agreement. This time, to acquire its biotech partner, Human Genome Sciences, Inc. The deal comes after weekend talks in which Britain’s biggest drug maker agreed to raise its cash bid to $14.25 a share from $13.

The acquisition will secure GSK full rights to a recently launched drug for lupus, Benlysta, and other new medicines. In addition to gaining 100 percent of Benlysta to treat lupus, a disease affecting the immune system, GSK also gets full ownership of experimental medicines for diabetes and heart disease that are in late-stage development.

Despite bumping up its offer 10 percent and paying a 99 percent premium to the share price before its interest was made public, industry analysts said GSK got a good deal, largely because Human Genome’s shares have been depressed due to a weak launch for Benlysta. Said Carol Werther, an analyst at Summer Street Research: “Glaxo wanted to get this on the cheap and they were able to do it in the absence of other bidders.” “We still think Benlysta does have a chance to generate peak annual sales of above $1 billion,” said Lauren Migliore, an analyst at Morningstar. “Glaxo is ramping up the drug’s launch abroad and rheumatologists seem to be getting more comfortable using it.”

GSK expects to achieve cost savings of at least $200 million by 2015 and said the deal would boost its core earnings in 2013. Shares in GSK closed up 0.4 percent in London, while Human Genome gained 4.6 percent to $14.21 in afternoon trade in New York.

Biotechnology companies are in increasing demand as the world’s largest pharmaceutical manufacturers seek new products. Big Pharma is losing billions of dollars in revenue as older medicines face generic competition in the biggest wave of drug patent expirations in history.

The deal is the latest in a rapid succession of biotech acquisitions this year. Most recently, Bristol-Myers Squibb agreed to buy diabetes specialist Amylin Pharmaceuticals by sharing the $7 billion cost of the deal with AstraZeneca. Wall Street analysts cite a long list of potential takeover targets in biotech, including Onyx Pharmaceuticals, Biomarin Pharmaceuticals and Alexion Pharmaceuticals.

We recently ran a piece on GenoSpace, yet another US-based biotech firm that is accelerating the new drug discovery process by, among other things, leveraging IT/cloud computing in innovative ways. Although Big Pharma is the presumptive home for these wunderkind, several converging market conditions –conditions that are forcing Big Pharma to review how it commercializes its own products– might cause biotech to pause and reconsider. Given the decline in pharmaceutical sales force productivity, driven largely based on how their practices, access and ability to inform physicians has been tightened, at the very least, biotech might play a little harder to get.

—Tom Finn