When the pharmaceutical giant GlaxoSmithKline (NYSE:GSK) stepped up to the plate with a $13 a share offer for Human Genome Sciences (Nasdaq:HGSI), the subsequent rejection of the deal came as a bit of a surprise. Nevertheless, shares of HGSI are now trading more than 100% above where they were prior to the offer. Clearly, the market is anticipating a deal in the making, but even the $13 offer may be a bit rich.

SEE: Evaluating Pharmaceutical Companies.

Prime Time for a Takeover
The timing of GSK's offer could not be any better. The stock price of HGSI had declined 75% in the year leading up to the proposed offer. And the acquisition of Human Genome makes just as much sense today as it did a year ago given the strategic partnership the companies have formed in the development and marketing of the lupus drug, Benlysta.

Benlysta received FDA approval in the U.S. last spring and is already beginning to pay dividends. Human Genome recognized $25.7 million in revenue from the drug in Q4 versus $18.8 million in Q3. The approval was a breakthrough achievement as it was the first drug approved by FDA for lupus since it approved Plaquenil which is manufactured by Sanofi (NYSE:SNY).

SEE: Pharmaceutical Sector: Does the FDA Help or Harm?

On the Clock
Human Genome Sciences faces a couple of challenges in trying to extract a higher price. The company is currently in the red as it tries to boost sales of Benlysta and push other drug candidates through its pipeline. Human Genome also no longer has the revenue stream from its partnership agreement with Novartis (NYSE:NVS) on the development of a hepatitis drug Zalbin which it stopped in 2010.

Another issue for Human Genome Sciences is that another likely candidate to take over the company has yet to be publicly identified. GSK might sweeten its offer slightly to get the deal done, but it is not under the gun to do so at the moment.

The Bottom Line
Bloomberg has reported that the majority of Human Genome's top shareholders acquired their shares at a price higher than GSK's offer. Unfortunately though, GSK holds the hammer right now and the current offer is a huge premium to what the stock was trading at prior to the announcement. Unless other bidders emerge, Human Genome is not in a position to wring all that much more out of Glaxo.

SEE: Mergers and Acquisitions: Understanding Takeovers.

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At the time of writing, Billy Fisher did not own shares in any of the companies mentioned in this article.

Tickers in this Article: GSK, HGSI, SNY, NVS

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