Human Genome Sciences (NASDAQ:HGSI.DL)

CAPS Rating: No stars

The drug development company with three products advancing into late-stage clinical development: Albuferon(r) for chronic hepatitis C, LymphoStat-B(r) for systemic lupus erythematosus, and ABthraxtm for anthrax disease.


Player Avatar TSIF (99.96) Submitted: 4/19/2012 10:50:31 AM : Underperform Start Price: $14.55 HGSI.DL Score: +1.19

It's a bit "Foolish", Even for ME!, to be trolling for CAPs points on an arbitrage play with little upside for me, and I tried cancelling the downthumb after I did more research, but I was too late. I'll have to take the "ride".

GlaxoSmithCline's (NYSE:GSX) takeout offer of $2.6M or $13 per share for Human Genome Sciences was quickly rejected. Shorts, however, 30%, had no choice but to cover and speculators piled on. It's not unusual for a company to place a "lower" salvo over the bows, get rejected and come back another 10-15% higher, so I could end up eating this downthumb quickly. GlaxoSmithCline is already a heavy partner with Human Genome Sciences and profit sharing on two drugs they share revenue with and combinations of other overhead could be a good move for GlaxoSmithCline. It seems strange that as part of the rejection by Human Genome Sciences that they asked for more clarity on the revenue of the drugs they are partnered with...don't they already know?

While the offer was 80% above the current shareprice and the current bid range of $14.40 per share is over 100% higher, the offer is still only half of Human Genome Sciences 52 week high. The losses the last two quarters have depressed the share price into what was probably a bargain territory and GlaxoSmithCline's offer pretty much aserts that they feel the same.

This could pan out one of FOUR ways:
1. Glaxo decides NOT to up the offer and this fades, along with the about 30% of today's spike. Unlikely. I gain about 20-30 points on my downthumb.
2. Human Genome Sciences rethinks their rejection and accepts. Unlikely. I gain aobut 10 points on my downthumb.
3. Glaxo ups their offer. Likely. I net out down a few points
4. Another party comes onboard and we get a bidding war. Unlikely. I eat a bunch of points.

Of course "likely" and "unlikely" are my own opinion, and not worth much. I think a bidding war is unlikely due to the advantage Glaxo has on the current partnership and the SIZE of the offer. Few other company's can cover this and few much to gain except other, yet unproven drugs, in Human Genome Sciences pipeline.

Net likely vs unlikely, vs point spreads..... = Not worth the call here on CAPS. Might be worth an option spread, but I suspect premiums would preclude it.

Report this Post 2 Replies
Member Avatar TSIF (99.96) Submitted: 4/19/2012 10:52:36 AM
Recs: 0

Option 5:

This lingers longer than the seven day caps hold. Shorts cover, speculators doubt themselves. The S&P rises and I get out of this +6.
(Likely on the lingering, doubt over 7 days, unlikely the S&P goes up giving me an additional margin.)

Member Avatar sidiling (97.13) Submitted: 4/19/2012 11:29:01 AM
Recs: 0

awesome information. thumbs up.

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