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HGSI Cuts Loss on Benlysta Sales

Zacks Equity Research

Human Genome Sciences Inc.’s (:HGSI) first quarter 2012 loss of 47 cents per share was above the Zacks Consensus Estimate of a loss of 40 cents but lower than the year-ago loss of 69 cents. Loss in the quarter narrowed from the prior year, helped by higher revenues and lower research and development expenses.

Human Genome’s revenues in the reported quarter jumped 77.1% to $47.1 million, beating the Zacks Consensus Estimate of $46 million. Revenues were boosted by Benlysta.

The Quarter in Details

Benlysta, co-developed by Human Genome and GlaxoSmithKline (GSK), was launched in the US in March 2011 and is currently available in several countries. Benlysta net sales improved 21.4% sequentially to $31.2 million in the first quarter of 2012.

Human Genome has already started a phase III study of a subcutaneous formulation of Benlysta. The company also intends to start phase III studies for the vasculitis and lupus nephritis indications in the second half of 2012.

Revenues recognized from the sale and delivery of inhalation anthrax treatment, ABthrax, to the US Strategic National Stockpile were $6.1 million in the reported quarter as opposed to $14.0 million in the year ago period. Human Genome has a contract for delivering doses of ABthrax to the US Strategic National Stockpile, for use in the event of an emergency to treat inhalation anthrax.

Revenues from manufacturing and development services other than ABthrax came in at $9.1 million, down 19.5%.

Research & development (R&D) expenses for the reported quarter declined 53.2% to $39.6 million. On the other hand, selling general & administrative (SG&A) expenses climbed 14.7% to $40.3 million.

Our Recommendation

Currently, we have a Neutral recommendation on Human Genome, which carries a Zacks #3 Rank (short run ‘Hold’ rating). We are impressed by the current pipeline status but the slower-than-expected revenue growth of Benlysta keeps us concerned.

We remind investors that Human Genome recently turned down Glaxo’s offer to acquire the company for $13 per share. Human Genome believes that the offer price undervalued its potential. Notably, Glaxo and Human Genome are also co-developing several pipeline products like darapladib (phase III), albiglutide (phase III) and rilapladib (phase II) apart from Benlysta.

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