Still Neutral on Human Genome

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We are maintaining our Neutral recommendation on Human Genome Sciences Inc. (:HGSI) with a target price of $8.25.

Human Genome, founded in 1992 and based in Rockville, Maryland, is a biopharmaceutical company. The US launch of Benlysta in March 2011 for treating patients suffering from systemic lupus erythematosus (:SLE) was a huge positive for Human Genome.

The subsequent launch of the drug in Canada and several European nations, including Germany, Spain, Austria, Denmark, Finland, Hungary, Norway and Sweden is also encouraging. Benlysta, which has blockbuster potential, has been co-developed with GlaxoSmithKline (GSK). Benlysta is the first new lupus drug to be cleared in more than 50 years.

Sales of the drug are growing, albeit slowly. Net sales of Benlysta improved 36.7% sequentially to $25.7 million in the final quarter of 2011.

Human Genome is also developing Benlysta for other indications like vasculitis and active lupus nephritis. The company is also working on a subcutaneous formulation of Benlysta. Approval for additional indications would boost the company’s top line further.

However, we believe that Human Genome must develop additional products and not be solely dependent on Benlysta. Slower-than-expected sales of the drug would hurt the stock.

Moreover, we are also mindful of the pipeline setbacks suffered by Human Genome in the past.  The development of Human Genome/Novartis’ (NVS) hepatitis C candidate, Zalbin (albinterferon alfa-2b) was stopped in 2010 following a complete response letter (CRL) issued by the FDA. 

Moreover, in May 2009, Human Genome submitted a Biologics License Application (:BLA) to the FDA for another pipeline candidate ABthrax for treating inhalation anthrax. The agency issued a CRL to the company in November 2009. Currently, Human Genome is working with the FDA to obtain approval for the candidate. Similar setbacks would weigh heavily on the stock.

In view of these headwinds we believe that the stock is fairly valued at current levels with limited scope for upside. Hence we retain our Neutral stance on the stock.

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