Is GlaxoSmithKline Preparing to Make a Bid for HGSI?

Shares of Human Genome Sciences (NASDAQ:HGSI) continue to surge as there is speculation that Brentford, UK-based GlaxoSmithKline plc (NYSE:GSK), is preparing to make a $30-a-share offer for the biopharmaceutical, whose imminent products and profits  along with a promising pipeline have pushed the company’s stock price this week to a six-year high of $19.50 — more than five times its value a month ago.

If the rumors that GlaxoSmithKline is getting ready to make a bid for HGS are even remotely true – as suggested by a report in UK’s daily The Telegraph – it would reflect a significant premium over Human Genome’s current PPS of  mid$18, valuing the company at about $4.7 billion.

Just last month Wall Street took note of HGS as the company announced positive results from Benlysta, a drug for treatment of lupus – which is close to becoming the first new lupus therapy in 50 years.

According to Joe Schwartz, an analyst with Leerink Swann, (Leerink Swann is the firm that believes the biggest impediment to HGSI becoming the next big $20 bln+ cap biotech is a takeover of the company) Human Genome should see Benlysta’s peak sales hit nearly $3 billion a year once the drug is approved and on sale. HGS’ chief executive Thomas Watkins  is more cautious on his estimates, putting the U.S. market opportunity for lupus at $1 billion. Whatever the number, Human Genome’s top line stands to gain a big boost. Analysts expect the drug to log a quarter of a billion dollars in revenue this year. HGSI by the way will share Benlysta proceeds with 50-50 partner GlaxoSmithKline. Both companies partnered on the program back in 2006.

HGSI shares are currently trading up $2.32, or 13.80%, to a 52-wkh of $19.58 rtq. in Nasdaq composite trading.

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