Tuesday, November 1, 2011

Human Genome Sciences Inc. Overview

Benlysta is the first new lupus drug to be FDA approved in over 50 years and one of the first drugs to derive from the human genome.  The human genome project in the 1990's didn't lead to much until now with Human Genome Sciences, Inc. (HGSI) and their lupus compound Benlysta.

Being first doesn't always equal success or fast growth.  During the summer two biotechs were severely punished one of them was HGSI the other Dendreon (DNDN).  Human Genome Sciences' stock price was steadily in the 20's for most of 2010-2011 until the summertime blues came and brought the stock down to trade at about half its value.  Dendreon with its first FDA-approved autologous cellular immunotherapy for the treatment of prostate cancer Provenge also took a slide during the first days of August from which it has not recovered.

The European debt crisis and the worry of a U.S. double dip recession made investors flee for their lives.  The scare made many rethink their strategies as they returned.  New technology is seen as risky and in a slowing economy and volatile market traders want out on these high risk securities.  Investors are not rushing to return to biotech companies in an environment where traditionally safe stocks have been trading violently.

Human Genome Sciences reported a net loss for the third quarter of 2011 of $88.4 million compared with a net loss of $40.9 million for the third quarter of 2010.  In February 2011 HGSI expected cash and investments at the end of 2011 to total about $650 million but has recently stated that they expect that number to drop to about $470 million.

HGSI is co-marketing Benlysta with GlaxoSmithKline (GSK) but the worries that the drug may not be as profitable in the next few years has brought down the stock's price.  The Glaxo buyout has been rumored since the drug was still in the clinical trial stages yet it has only been a rumor that has given the stock some brief upward movement. The stock is likely to stay highly volatile for the upcoming months. It is hard to justify a high price for a pharmaceutical like Benlysta when the value is based on future events that are set to happen years from now.  Some analysts have predicted that in 2019 HGSI is expected to reach sales worldwide of well over a billion.

The stock's low price makes the buyout not likely to happen any time soon.  The fact that the two companies are working on other projects to treat other diseases makes another buyer aside from GSK not likely.  If GSK does buy in the near term then that would give HGSI a nice rally and a good chance for traders to exit with a profit.

The number of accounts ordering Benlysta have increased, purchases of the lupus intravenous infusion has been steadily penetrating hospitals with very large lupus cohorts.  Benlysta has also received marketing authorization in Europe making it available in several European countries it is also available in Canada.  It also received approval for public fund reimbursement in Spain.

Pharmaceutical companies operating in the negative zone is common with the R&D and expenses to bring drugs to the market.  Yet once the blockbuster emerges sales are to make up for the weak income statements.  With HGSI Benlysta is the home run the only concern is that the sales may not be as strong and it will take longer to reach the break even point.  The longer the wait the more room for unexpected events to come about either good or bad.  HGSI is a day traders' stock with high volatility and fairly low volume.  For the long term trader the price may seem attractive but this may result in a very long and bumpy ride.

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