At first sight, GlaxoSmithKline’s $13 a share offer for Human Genome Sciences (HGS) last week seemed a generous one – over 80% higher than the US company’s current share price. Moreover, HGS is loss-making and revenues have been declining for two years, suggesting it should be grateful for the bid from its research partner. Yet HGS has turned down the offer, which it says doesn’t reflect its true value. The company has now put itself up for sale to test that theory, and see whether it can get a higher offer out of GSK or anyone else.

There are some reasons to think that GSK is simply taking advantage of a downturn at HGS. Until recently, the US company’s share price was far higher, but it has tumbled sharply thanks largely to disappointing sales of its breakthrough drug Benlysta. In March 2011, Benlysta (belimumab) became the first new treatment for Lupus and other autoimmune illnesses to be approved by the FDA for 56 years. Though an estimated 5m people have Lupus worldwide, the treatment costs £35,000, a difficult price to justify when pharma budgets are so tight. As a result, initial predictions that the drug would bring in annual revenues of US$2.2bn have been rapidly downgraded. Its peak sales, in 2015 or thereabouts, now look likely to be around a third of that total.

Yet there are grounds for thinking that GSK has underestimated HGS’s value. The US company’s two late-stage pipeline drugs, for diabetes and cardiovascular disease, have potential in large, if crowded, markets if they get through final trials. Moreover, the synergies with GSK in particular are obvious, given their previous research work together,  offering a chance to reduce costs and maximise sales.

HGS may therefore talk GSK into offering more, though the precedent from Illumina’s failed attempt to bounce Switzerland’s Roche into upping its US$6.8bn bid is not encouraging. Moreover, if GSK (like Roche) in the end decides to walk away, then the UK company’s inside knowledge, as well as its 50% share in the Benlysta revenues, may make others wary of stepping in. So far that seems to be a risk HGS is prepared to take.

The EIU's Healthcare Briefing provides data and analysis for the world's most important healthcare and pharmaceuticals markets, along with five-year forecasts based on economic, political and demographic trends.

GlaxoSmithKline (GSK) has confirmed its plans, first announced in 2010, to create 1,000 jobs in the UK by investing in its research units, and building a new manufacturing plant. The company for the first time also revealed the plant’s location, in Ulverston in Cumbria. Locals there are delighted, with Cumbria County Council leader Eddie Martin saying it “is the best bit of news we’ve had for the Cumbrian economy in recent years”.

The government is also greeting the news as a triumph for yesterday’s business-centred budget - and it is. The patent box plan actually dates back to the previous Labour government and was always intended to kick in during 2013. But the coalition, after a consultation, has broadened its reach in order to increase the benefits to the pharma industry. Under the patent box, businesses will pay just 10% tax, rather than the 22% set in the current budget, on any profits arising from newly commercialised patents in the UK.

GSK has been lobbying for years for this new regime to be introduced to underpin its investment plans in the UK, while AstraZeneca has previously said that it will increase its investment in UK research into diabetes, cancer and respiratory disease in response to the plan. The lower tax should help to prevent the companies shifting spending towards new research bases in Asia, including China and India, as they try to refill their drug pipelines and keep a lid on spending. GSK’s revenues have been hit by patent expiries for drugs such as Valtrex and Advair, as well safety concerns over its diabetes drug Avandia.

But while industry has applauded the patent box, it has also drawn some criticism. The UK’s Institute for Fiscal Studies has said it will lead to a large reduction in UK tax receipts, is “poorly targeted at promoting research” and will “add complexity to the tax system”.  It also warns that the tax cut could well be copied by other countries, prompting pharma companies to shift their investment again. That, of course, is always a threat, but by committing to building a plant GSK has signalled that it is sticking to the UK for a good few years yet.

The EIU's Healthcare Briefing provides data and analysis for the world's most important healthcare and pharmaceuticals markets, along with five-year forecasts based on economic, political and demographic trends.

UK-based pharma company AstraZeneca has resorted to suing the US Food and Drug Administration in an effort to prevent it from approving generic competition to Seroquel, the company’s blockbuster anti-depressant, before December 2012. The core US patent for Seroquel IR expired in September last year, and its paediatric patent runs out this month, although Seroquel XR (the later version) still has protection till 2017. But AstraZeneca is arguing that important decisions have still not been made over warning labels on the generic versions of Seroquel IR, which need to mimic those on the original, while it still has data exclusivity rights stemming from the clinical trials it has conducted.

The decision to sue the FDA is certainly a gamble: AstraZeneca seems to have decided that the costs of the lawsuit are far lower than the losses it will incur when Seroquel’s patent expires. The drug generated sales of US$4.3bn worldwide last year, of which US$3.3bn was in the US. If AZ does succeed in its argument over labelling requirements and data exclusivity rights, then this might give it (and other companies) another way of extending protection for drugs that are coming off patent. AZ, which is one of the hardest-hit by the patent cliff, calculates that it lost almost US$2bn in revenue during 2011 as a result of generic competition.

Other companies have tried different tactics – Pfizer, for example, struck exclusivity deals with pharmacy benefits managers to protect sales of Lipitor after itsUSpatent expired late last year. But with the mood in theUSfirmly against attempts by patented drug-makers to block generic competition, the likelihood of AZ winning its case seems remote, raising the question of how much its lawsuit may damage its relationship with the FDA.

The EIU's Healthcare Briefing provides data and analysis for the world's most important healthcare and pharmaceuticals markets, along with five-year forecasts based on economic, political and demographic trends.