December 21, 2009 Human Genome Sciences Inc. Benlysta Estimates Too Low Conclusion: We are initiating coverage of HGSI with an Overweight rating and $40 price target, as we see EPS potential of >$4.00 on Benlysta approval in lupus alone (no pipeline contribution). Benlysta is likely to be the first drug approved in lupus in 50 years, and we believe investors underestimate the drug’s pricing power, penetration across various lupus patients, peak sales ($4bn +), and margins. Key catalysts for the stock will be: 1) WW regulatory approvals (US potentially before YE 2010); 2) presentations of full data at the EULAR meeting in 2Q10; and 3) further physician discussions on the drug and its penetration. Key Debates: 1) What is the size of the global lupus market, as Benlysta is the first new drug launch in this indication (eligible patient population, penetration, pricing, etc.)? 2) Will Benlysta prove efficacious in indications beyond lupus? 3) Is there value deeper in the pipeline in albuferon, partnered drugs with GSK, or proprietary drugs? Our key insights: We believe that this first-in-class drug in a disease with high unmet need will garner greater pricing power than the market expects ($30,000/year +). Additionally, we have completed a 100 physician survey (treat ~20,000 US lupus patients). Key conclusions include: 1) physicians expect to treat patients across the spectrum of lupus severity, including the 30% of patients with mild disease (most investors expect only a portion of moderate and no mild patients); 2) Early penetration across all lupus patients could approach 25%+, suggesting $2.7bn in US sales (and physicians often underestimate penetration for novel drugs before launch); and 3) no steroid sparing claim on the FDA label could reduce penetration by 20%. Pipeline comes cheap: HGS has multiple partnered and proprietary assets, several targeting large diseases with significant potential long-term cash flows. There is little-to-nothing in the stock for them, representing a potential source of upside if positive data emerge.