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Human Genome Sciences Awaits Bids Next Week


A report that Celgene may be interested in buying the company does little to move shares. Glaxo remains the most logical suitor.

MINYANVILLE ORIGINAL A report that Celgene (CELG) may be interested in buying Human Genome Sciences (HGSI) did little to excite investors in either company. And a combination would be a tough sell to Celgene shareholders.

Reuters reported late Friday that Celgene is considering a bid for Human Genome as a deadline approaches next week. Following an unsolicited takeover offer from GlaxoSmithKline (GSK) in April, Human Genome said it would seek potential suitors. Bids are due July 16. Human Genome rejected Glaxo's $13 per share cash offer saying it is too low. (See Human Genome Sciences Rejects GlaxoSmithKline's $2.6 Billion Takeover Offer.)

The merger that makes the most sense continues to be Glaxo and Human Genome -- albeit for a higher price than $13 per share. The companies are development partners and Glaxo would gain full rights to the lupus drug Benlysta if it takes over Human Genome.

In fact, that partnership with Glaxo is one of the reasons Human Genome isn't considered a hot takeover prospect. Benlysta sales have been slower than expected and a buyer of Human Genome would have to share profits with Glaxo. That makes a premium price hard to reckon with your shareholders. And bear in mind that Glaxo's offer is what drove the stock in the first place. Trading at a little more than $7 per share in April, Glaxo offered an 80% premium in a buyout.

Shares of Human Genome rose less than 1% to $13.73 in early afternoon trading Monday. The stock has traded close to $15 since the Glaxo offer on hopes that another bidder will drive up the price. Celgene rose less than 1% to $65.01. The shares are down 4% this year. Glaxo's American shares rose slightly to $46.43. The stock is up 2% this year.

Theoretically, Celgene can do a deal for Human Genome. It has a lot of cash -- almost $2.3 billion in cash and marketable investments, as of March 31. Celgene also could offer stock whereas UK-based Glaxo would use cash. Also, Celgene recently announced a setback when it said it would withdraw an application in Europe where it was trying to broaden cancer drug Revlimid's label.

Still, Celgene would have a hard time justifying to its investors that the deal would make strategic sense.

An informal survey of 155 investors by ISI Group analyst Mark Schoenebaum found that only 23% thought Human Genome made sense strategically for Celgene. And only 38% believed the report that Celgene was actually interested. (The analyst surveyed investors over the weekend and Monday morning following the Reuters story.)

"I do not think Celgene will bid," Schoenebaum says. "I feel very confident in that."

A Celgene spokesman didn't return a call seeking comment. Company representatives at Human Genome didn't respond to requests for comment. The timing of the Reuters story didn't have the feel of a well-orchestrated leak -- it was posted Friday night following the July 4 holiday. The story also said a second potential bidder was proposing a merger of equals. That bidder was not named.

Robert W. Baird analyst Christopher Raymond reported in May that Human Genome executives told him confidentiality agreements had been signed as part of the auction process, an indication of serious interest by other parties.

Whether Celgene is a serious party remains to be seen but there should be some answers for Human Genome investors coming soon. At this point, Glaxo doesn't need to up its price yet. The drug maker's tender offer to shareholders expires July 20.

Raymond believes Glaxo will be the buyer for a price north of $13 but less than $20.

Twitter: @brettchase

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