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GSK bolsters medicine chest with biotechnology buy

LONDON (Reuters) – GlaxoSmithKline chief executive Andrew Witty has an eye for a bargain. Despite paying a 99% premium for Human Genome Sciences, he is still getting the biotechnology company for less than half what it was worth 14 months ago.

In exchange for his $3 billion check, which GSK can pay out of existing cash resources, Witty gets full control of a clutch of new medicines finally starting to flow from the decoding of human DNA.

The two highest profile drugs, lupus treatment Benlysta (belimumab) and darapladib for heart disease, both have the potential to move the dial significantly for Britain’s biggest drugmaker, if they deliver on their promise.

For Witty, who has eschewed large-scale acquisitions in favor of smaller bolt-ons, the opportunity to buy Human Genome while the stock was down in the dumps was too good to miss.

He and his predecessors have certainly bided their time – GSK first began working with Human Genome in 1993 when the U.S. biotech firm was one of first to try and exploit the mapping of all the genes in the body.

The mission of the Rockville, Maryland-based company has been to isolate genes and identify their function to develop new drugs. Realizing that goal has proved a long haul.

Gaining 100% of Benlysta, the first new drug for the autoimmune disease lupus in 50 years, is GSK’s most obvious win as it will no longer have to give half the profit to its partner and can also cut costs by doing away with separate sales forces.

“Benlysta is going to be a big winner and GSK is going to make a lot of money from it,” said Mark Evans, a fund manager at Taube Hodson Stonex, a leading investor in Human Genome with a 5.5% stake.

Evans, also a holder of GSK, thinks Witty has got himself a great deal.

Benlysta first went on sale last year and analysts have said it launch has been slow – the main reason for the 75% fall in Human Genome’s share price prior to GSK’s initial takeover approach in April.

Despite the market’s pessimism, GSK has not changed its internal forecasts for the intravenous drug which sells for $35,000 a year in the United States.

GSK has always expected sales to ramp up gradually and, longer term, the medicine could get a fresh impetus with the development of a more convenient under-the-skin version. Benlysta also has potential to treat some other rare diseases.

Industry analysts, on average, expected Benlysta to have annual sales of $2.3 billion by 2016, according to Thomson Reuters Pharma. A year or so ago, the market expectation was $3-$4 billion.

WILD CARD

Darapladib is far more of a wild card. On paper, it is the biggest ticket item in the Human Genome pipeline, with up to $10 billion annual sales potential, according to Deutsche Bank.

But GSK – already in charge of developing the drug and which has a dominant economic interest of around 75% – will not find out if it actually works until it gets results of pivotal clinical trials in 2013 or 2014.

Many analysts have not yet entered sales forecasts for darapladib into their models. Their caution has been underlined by the failure of past experimental drugs from Pfizer and Roche that have tried to tackle heart disease in new ways.

A third Human Genome-derived drug, albiglutide, for type 2 diabetes, looks likely to make it to market by early 2014, after GSK – which is also in control of this project – said last week it would seek approval to market the drug from regulators early next year.

Albiglutide belongs to the same class of injectable GLP-1 medicines as Novo Nordisk’s Victoza and Amylin Pharmaceuticals’ Bydureon and Byetta.

Analyst forecasts point to modest annual sales for the newcomer of around $292 million by 2016, given the growing competition in the diabetes space.

Further back in development, Human Genome also has an experimental drug called rilapladib in mid-stage Phase II testing for Alzheimer’s disease, a notoriously difficult area of drug development.

Products rather than people are the main driver for this deal and, analysts believe, many staff at Human Genome will likely lose their jobs, though a number of respected scientists will probably be retained.

Human Genome had sales last year of $131 million, including $52.3 million from Benlysta and $52.5 million from deliveries of anthrax treatment raxibacumab to the U.S. Strategic National Stockpile. It made a net loss in 2011 of $381 million.