HGS shareholders vow to challenge takeover by GSK

GlaxoSmithKline (GSK) reeled in its long-term drug development partner Human Genome Sciences, with an agreed takeover offer pitched at about $3bn (£1.9bn), though some HGS shareholders immediately said they would challenge the deal.

HGS directors were threatened with a class action lawsuit alleging they breached their duty to shareholders by accepting the GSK offer, which was upped to $14.25 a share – better than the $13 originally tabled. At that price, the deal is double the $7.17 HGS shares were fetching before GSK's bid was disclosed in April.

It has taken the UK drugs giant several months to land its prize, after a battle that began when the US firm rejected its initial offer of $2.6bn in April. As HGS began scrabbling for rival offers to trump GSK, the British company said that it would make its deal hostile.

In the end, the choice facing HGS management was not between GSK and other bidders but between GSK and going it alone.

No other suitors emerged, because of the high cost of unwinding HGS's deep existing relationship with GSK.

Sir Andrew Witty, GSK's chief executive, called it "a mutually beneficial agreement" and the next logical step in the long relationship between the two companies.

Annual cost savings could top $200m by 2015, GSK claimed.

The two companies began working together almost 20 years ago, when GSK paid $125m in 1993 to establish a research partnership.

HGS was one of the first biotech companies to emerge from the early 1990s push to map all of the genes in the human body.

GSK and HGS jointly sell a drug for lupus that they developed together, Benlysta, the first new treatment for the disease to have emerged in half a century.

The drug's sales have so far been sluggish, though analysts remain optimistic and there is also a pipeline of additional and potentially lucrative products.

These include drugs for diabetes and heart disease, in which GSK and HGS share a financial interest.

Thomas Watkins, chief executive of HGS, said that the company has had "a long and productive working relationship with GSK, and together we will be uniquely positioned to achieve the full potential of Benlysta and other products in our pipeline for the benefit of those battling serious disease around the world".

The law firm Levi & Korsinsky last night announced an investigation into potential breaches of fiduciary duty by HGS directors and into whether the company should have held out for a higher price.

The deal is the latest in a busy sector, as drug companies fight for new revenue as traditional moneyspinners come off patent protection.

Last month, Bristol-Myers Squibb said it would pay $5.3bn for diabetes drug maker Amylin.

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