As analysts weighed in on the unsolicited offer by GlaxoSmithKline plc (GSK) to purchase Human Genome Sciences Inc. (HGSI) for $13 per share in cash, or $2.6 billion, shares (NASDAQ:HGSI) of the biotech reached $14.61 before closing at $14.17 for a gain of 97.6 percent.

Volume was staggering, with more than 126 million shares changing hands.

Interest in the stock seemed pegged to analyst predictions that GSK is almost certain to sweeten the deal, which could also attract other suitors. ISI Group analyst Mark Schoenebaum was among those predicting GSK would raise its bid, possibly to the $15 to $20 range.

GSK officials expressed disappointment that the board of directors of Rockville, Md.-based HGSI rejected the offer, which represented an 81 percent premium to Wednesday's closing price of $7.17 but only a 58 percent premium to the 90-day trading average closing price of $8.23.

In May 2011, HGSI was trading as high as $30, but the stock has suffered following disappointing sales of lupus drug Benlysta (belimumab), partnered with GSK.

In a statement, Andrew Witty, CEO of London-based GSK, said the offer "reflects full and fair value for Human Genome Sciences and the synergies inherent in this combination. It also eliminates substantial execution risk for Human Genome Sciences shareholders and delivers immediate and certain value that is superior to what we believe Human Genome Sciences can reasonably expect to create as a standalone company."

GSK said combining the companies would achieve at least $200 million in cost synergies that would be fully realized by 2015, with the transaction earnings-accretive beginning next year. "We are disappointed that Human Genome Sciences has rejected our offer without discussion," Witty added, releasing a copy of a letter to HGSI CEO Thomas Watkins dated April 11 that asked for the company's response by April 19.

In the letter, Witty said the acquisition could be completed expeditiously "with no financing or due diligence condition," indicating GSK had retained Lazard and Morgan Stanley as financial advisors and Cleary Gottlieb Steen & Hamilton LLP and Wachtell, Lipton, Rosen & Katz as legal counsel "to move forward immediately."

Witty also voiced the "hope to work with you on a friendly basis" to complete the transaction, adding that GSK "would prefer to continue to engage in a confidential dialogue with you and your board."

GSK's stock (NYSE:GSK) rose modestly Thursday, gaining 32 cents to close at $46.69.

HGSI said it was exploring strategic options, including potential sale of the company, and retained Goldman, Sachs & Co. and Credit Suisse Securities (USA) LLC to assist in the process, with Skadden, Arps, Slate, Meagher & Flom LLP and DLA Piper LLP (US) serving as legal counsel.

HGSI did not respond to an interview request, and a spokeswoman at its public relations firm said the company had nothing to add to the sparse details in its press release. However, she labeled Witty's comments as "disingenuous."

The Ball's in GSK's Court

HGSI maintained it threw the ball back into GSK's court by inviting the pharma to participate in its strategic review and requesting additional information on investigational products in GSK's clinical pipeline to which the biotech has substantial financial rights, including darapladib, currently in Phase III development in cardiovascular disease, and albiglutide (Syncria), a once-weekly glucagon-like peptide-1 agonist currently in Phase III in Type II diabetes.

An investigational Lp-PLA2 inhibitor in chronic coronary heart disease, darapladib could be a cash cow for HGSI, said Schoenebaum, speaking from the European Association for the Study of the Liver's 2012 International Liver Conference in Barcelona, Spain. Darapladib could potentially be a multi-billion-dollar opportunity, he suggested.

Darapladib was discovered by GSK based on HGSI's technology, and HGSI is entitled to receive 10 percent royalties on worldwide sales if darapladib is commercialized, plus a 20 percent co-promotion option in North America and Europe.

As for albiglutide, in November 2011 GSK said top-line data from the first of eight Phase III studies of the once-weekly glucagon-like peptide-1 agonist failed to meet the primary endpoint of noninferiority to Victoza (liraglutide, Novo Nordisk A/S), though it did demonstrate a statistically significant reduction in HbA1c from baseline (p < 0.001). The 32-week, 841-patient study, designated Harmony 7, was designed to test albiglutide against once-daily GLP-1 Victoza in adults with Type II diabetes.

The remaining seven studies are ongoing and are testing albiglutide as a monotherapy and as add-on therapy compared to placebo and/or active comparators.

Benlysta, approved by the FDA in March 2011, has continued to disappoint. The recombinant, fully human, IgG1λ monoclonal antibody is delivered via intravenous infusion for patients with active, autoantibody-positive systemic lupus erythematosus on standard therapy, including corticosteroids, antimalarials, immunosuppressives and nonsteroidal anti-inflammatory drugs.

The drug is accounting for approximately $11 million in sales per month, far below analyst expectations, leading to revenue shortfalls and sinking stock values at HGSI. (See BioWorld Today, March 11, 2011, July 25, 2011, and Oct. 27, 2011.)

In February, the company reported fourth-quarter 2011 revenues of $45.5 million, with $25.7 million coming from sales of Benlysta. Net loss for the quarter totaled $81 million, or 41 cents per share. HGSI's full-year 2011 revenues were $131 million, with sales of Benlysta totaling $52.3 million. The net loss for 2011 totaled $381.1 million, or $1.97 per share. As of Dec. 31, 2011, HGS had about $881.4 million in cash and investments.

A Long Engagement

The relationship between HGSI and GSK dates back to 1993, when GSK was SmithKline Beecham plc. Three years later, the companies amended an original $125 million agreement to include a co-development option for GSK. Benlysta, developed as Lymphostat-B, represented the second product GSK optioned. (See BioWorld Today, Jan. 9, 1995, and July 8, 2005.)

Whether the companies will see eye to eye on an appropriate valuation and move forward amicably remains to be seen.

Leerink Swann's Joseph P. Schwartz observed in a research update that GSK chose a starting bid above the weighted average strike price for most of HGSI's senior management's stock options, which range from $10.40 for Watkins to $13.63 for Barry Labinger, executive vice president and chief commercial officer.

"The stock was in the twenties for much of the prior two years, so it may be tough to convince shareholders that this is adequate," Schwartz wrote. "However, without an acceleration in Benlysta sales HGSI may have to take what it can get without being too aggressive. Unless multiple other bidders step in, we believe HGSI may have to settle for a high teens valuation. This would leave money on the table for GSK or one more bidder but the market appears uncomfortable projecting blockbuster sales for Benlysta at this juncture."

J.P. Morgan's Cory Kasimov predicted GSK will "ultimately win out," calling the relationship "a marriage that investors have been hoping for for a long time, although expectations had come down with Benlysta's painfully slow launch."

Although other pharmas may take a look, "in the end, however, we anticipate that GSK will prove to be the best fit and will acquire the company somewhere north of its initial offer," Kasimov added.

Deutsche Bank analyst Navdeep Singh commented on an additional piece of chatter in the wake of the proposed deal, noting that Anthera Pharmaceuticals Inc. could benefit from GSK's bid. The Hayward, Calif.-based biotech also has the lupus drug blisibimod, a BlyS inhibitor in the Phase IIb PEARL-SC study. (See BioWorld Today, Sept. 22, 2010.)

Anthera has its entire future hitched to blisibimod after a Phase III trial of varespladib, an sPLA2 inhibitor for stable acute coronary syndrome, was halted last month for futility. Anthera licensed the compound from Eli Lilly and Co. and Shionogi & Co. Ltd. in 2006. (See BioWorld Today, Sept. 22, 2010, and March 13, 2012.)

"Today's bid could highlight that large cap pharma views the lupus space as a larger opportunity than the Street thinks," Singh wrote in a company alert. "We view today's bid as a positive for Anthera since it owns 100 percent rights to B-mod for lupus (HGSI owned 50 percent of Benlysta)."

Phase II data, due in the second quarter, represent the next major catalyst for Anthera, he said, adding, "If data are positive, today's news has increased our confidence in a potential partnership or takeout of Anthera for B-mod."

Shares of Anthera (NASDAQ:ANTH) gained 11 cents Thursday, closing at $2.08.