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Bad Romance: Glaxo's Brutal Courtship of Human Genome Sciences

Paris (1640) ( TheStreet) -- A few weeks ago, I wrote that Human Genome Sciences' (HGSI) shareholders should accept GlaxoSmithKline's (GSK - Get Report) $13 per share ($2.6 billion) takeout proposal, which seemed like a long-overdue life preserver for an exhausted swimmer. I still think the offer was reasonable, especially considering disappointing Benlysta sales in lupus -- a chronic, autoimmune disorder with few treatment options -- but Glaxo's aggressive tactics have surprised me. Where's the romance? Despite his knighthood, Glaxo CEO Sir Andrew Witty clearly hasn't been on a first date recently.

Since love is in the springtime air and it pains me to watch this awkward dance, I volunteer my services to Sir Andrew. (Ardent fans of Edmond Rostand's play Cyrano de Bergerac be warned: I am about to take a lot of artistic license for this reimagined version of the 1897 classic.)

CyraNate de Biotech

Let's set the scene. [Sir Andrew stands under Human Genome CEO Thomas Watkins' balcony, professing his interest in the company's assets. The coy refusal by Watkins and his Board elicits an ominous rebuttal from Sir Andrew, his face straining to project serene detachment.]

CyraNate: [Guides Sir Andrew by the arm.] My dear Sir Andrew, this is starting to get unseemly. We both know Human Genome wants you too. Yet she sees your fine clothes and knows you have deep pockets. (Despite a hefty debt load, Glaxo has nearly $10 billion in cash, abundant cash flow, and multiple financing options.) Let's try a gentler approach.

Sir Andrew: [Stammers with frustration.] But ... Human Genome has no other possible suitors! We have already lain down together in the woods! (Glaxo and Human Genome have collaborated for years and share ownership of Benlysta. Human Genome also licensed to Glaxo a majority stake in darapladib, an orally available lipoprotein-associated phospholipase A2, or Lp-PLA2, inhibitor in Phase 3 trials for the treatment of cardiovascular disease.)

[Increasingly agitated.] I offered to take her from unsteady circumstances to my fortress on the mountaintop! (Glaxo's offer was 81% above Human Genome's share price at the time.) Why does she spurn me?

CyraNate: You're right on all counts, but dreams of a brilliant future are difficult to relinquish for the realities of the present. (Darapladib could be a blockbuster if the pivotal studies work, since the cardiovascular market is so vast; Human Genome has a co-promote option and royalty rights with a net present value around $18 per share if sales reach $10 billion per year. Tantalizing, but my review suggests darapladib is unlikely to work; read the Epilogue for details.)

Sir Andrew: [Shouts towards balcony.] I shall have you eventually! I shall win over your investors, replace your Board with mine own candidates, and marry you by force! (Among other tactics, Glaxo is trying to oust Human Genome's entire Board of Directors.)

[Shaken by the bid -- which would mean losing his day job -- and fearing for the steadfastness of his beleaguered investors, Watkins sensibly decides he must convince Human Genome's biggest shareholders in person about the company's future. He brings with him this <a href="http://services.corporate-ir.net/SEC.Enhanced/SecCapsule.aspx?c=83257&amp;fid=8210429" rel="nofollow">somewhat unconvincing slide deck</a>.]

CyraNate: [Slaps head in exasperation.] Sir Andrew, Knight of the Boardroom Table! You have aggressively bid for Human Genome's shareholders, and might yet win the company by that route. (The tender offer expires this week. I'm guessing a slight majority of shareholders stand fast.) You clearly desire this company, and can afford to offer her a little more enticement. Don't let your stubbornness blind you.
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