Human Genome Sciences Inc (HGSI) Trimming Benlysta's EU Pricing-CHMP Decision Expected Soon $HGSI

Citibank anticipates the European CHMP will review GSK/HGSI's Benlysta's application for approval in lupus on either May 16-19 or June 20-23. Assuming a positive vote, actual approval should be within 60 days. While we expect approval, the risk/reward profile into this event is not favorable, in our view, as approval is widely expected. We view the upside potential for HGSI as being +$1 with approval and -$10 with rejection based on DCF value. Once approved, the launch will happen on a country-by-country basis upon securing reimbursement. Based on our analysis of the price on RA and MS drugs and Rituxan for lupus, we are trimming the annual price to $20k (-$2k/yr). There is a slight chance that mgt might even price the drug in the high teens to ensure that access is not a barrier. Due to an expected lower price, we are trimming our Benlysta sales ests, leading us to lower our TP for HGSI to $29 (-$1).

Factors to Consider — We view the RA and multiple sclerosis markets as the best comps for Benlysta. The prices of most lupus drugs are not appropriate since most approved drugs are generic. However, Rituxan for lupus (while not approved) is the one good comp. The treatment of lupus in Europe is concentrated at large academic centers. The main opportunities are Germany, Spain, France, and Italy. As the UK may question the drug's price vs benefit, securing reimbursement may take some time.

Pricing Considerations — Based on our research, we calculate that the avg annual price of MS and RA drugs is $20k-$21k/yr. Rituxan's price for lupus is ~$20k/yr. Generic CellCept has an annual cost of $6,412 (open note to see our European pricing assumptions).

Changes to Our Model — We are reducing our EU price to $20K/yr from $22k/yr. As a result, we are trimming our EU sales estimates to $15M (-$2M) and $156M (-$16M) and $300M (-$30M) in 2011-'13, respectively.

U.S. Launch Under Way — From our recent discussions with mgt, we sense that they are comfortable that consensus sales ests for Benlysta in 2011 have been sufficiently reduced. So HGSI should be able to meet/beat these estimates, in our view, but this might be more back-end weighted into H2:11. As per mgt, reimbursement for Benlysta is going well. Given that our doc checks noted that there is an initial backlog of patients who will be put on the drug quickly (as long as reimbursement will not be a barrier), there might be a good initial uptake. But the one key question that remains is how big this market will be long term.