LONDON (Reuters) - Drugmaker GlaxoSmithKline (GSK.L) said on Wednesday its $2.6 billion (1.6 billion pounds) bid for long-time partner Human Genome Sciences HGSI.O was “full and fair” and it was the only obvious owner for the U.S. biotechnology firm.
After releasing disappointing first-quarter results, Britain’s biggest drugmaker insisted its $13 a share offer was generous and Chief Executive Andrew Witty played down the possibility of increasing the price.
“We absolutely believe that we are the compelling owner for this business,” he told reporters in a conference call.
“We have the rights and the operational control for the three main assets and we believe this is the right time to maximise value for both sets of shareholders.”
Although GSK’s offer represents an 81 percent premium to the U.S. firm’s pre-offer share price, it is still less than half last April’s peak and many Human Genome shareholders say they need more. Witty, however, said he did not subscribe to the view that deals always needed a sweetener.
Buying Human Genome would give GSK full ownership of lupus drug Benlysta, as well as an experimental diabetes drug and heart medicine called darapladib that some analysts think could rake in annual sales of $10 billion - if it works.
Witty revealed that an interim analysis of a clinical trial involving darapladib had been performed, which concluded testing should continue. But he said this did not change GSK’s view of what remained a high-risk project that will only produce definitive results in a couple of years.
Human Genome, for its part, is reviewing strategic options and has stressed that co-promotion and royalty deals under partnered programmes with GSK are fully transferable to a potential third-party acquirer.
Many analysts doubt a “white knight” will get involved, given the unique insight that GSK has into pipeline projects and the fact it can realise significant cost savings on the marketing of recently launched Benlysta.
GSK is emerging from a trough caused by patent expiries and collapsing sales of diabetes pill Avandia, which has been linked to heart risks.
But it struggled to grow in the first quarter, when revenue increased just 1 percent - less than expected - due to pressures on its business from government price cuts in Europe and some emerging markets, combined with tough year-ago comparisons.
Investors were disappointed by the results, which were flattered by the sale of U.S. rights to a bladder drug that added some 170 million pounds ($275 million) to turnover, and the shares fell 2.7 percent by 1330 GMT.
“A second consecutive quarterly miss, again driven by slower-than-expected sales growth, highlights our long-standing concern about the pace of GSK’s post (patent)-cliff return to growth,” Deutsche Bank analyst Mark Clark said in a note.
Tim Anderson of Bernstein took a more charitable view, arguing the weak first quarter did not signify a breakdown of longer-term growth prospects.
Witty reiterated that GSK was well on track to return to sales growth over the whole of 2012, after a difficult few years, with gradually improving margins. He also announced a 6 percent dividend hike and promised the return of 2.0-2.5 billion pounds in share buybacks in 2012.
Quarterly sales were 6.64 billion pounds, generating “core” earnings per share (EPS) up 5 percent at 27.3 pence.
Analysts, on average, had forecast sales of 6.83 billion pounds and core EPS of 29.1p, according to Thomson Reuters I/B/E/S Estimates. Core earnings exclude certain non-cash charges.
Witty has been diversifying the group to reduce reliance on “white pills in Western markets”, the part of the business most vulnerable to generic competition and price cuts imposed by cash-strapped governments.
It is now over the worst of its patent losses, although there is uncertainty about when top-selling lung drug Advair will face generic competition. Some analysts also question whether follow-on medicine Relovair can fill the gap, after it produced mixed results in clinical trials.
Editing by Chris Wickham and Greg Mahlich