HGSI Pipeline Bigger than Earnings - Analyst Blog

Human Genome Sciences, Inc. (HGSI) is expected to report fourth quarter as well as fiscal 2009 results shortly. We expect that the company will report a loss of 10 cents per share for the fourth quarter of 2009 and 4 cents for fiscal 2009. However, we believe that the earnings report is basically a non-event for the company and will have little or no impact on the stock price.

We feel that investors are more concerned about the progress of the company’s pipeline candidates, especially Benlysta. Human Genome boasts a robust pipeline with three late-stage candidates. Human Genome Sciences intends to seek approval for its potential blockbuster lupus drug candidate Benlysta during the second quarter of 2010 in the United States and Europe. We expect US approval in early 2011. If approved, we expect Benlysta to become a blockbuster for the company.
 
We remind investors that in Nov 2009, Benlysta, co-developed with GlaxoSmithKline plc (GSK), met the primary end-point in BLISS-76, a pivotal phase III study, through 52 weeks. BLISS-76 is the second phase III trial in seropositive patients with systemic lupus erythematosus (SLE). Positive results from the first trial, BLISS-52, were announced in 2009.

Benlysta is a human monoclonal antibody that specifically recognizes and inhibits the biological activity of B-lymphocytestimulator (BLyS). The positive data from the Bliss-76 study brings the company one step closer to being the first to have a new lupus drug approved in 50 years. Lupus affects about 1.5 million people in the United States and 5 million people worldwide.

Another interesting pipeline candidate at Human Genome is Zalbin (albinterferon alfa-2b) indicated for treating chronic hepatitis C patients. The candidate is under review both in the U.S. and Europe. Human Genome and co-developer Novartis (NVS) have selected Zalbin as the brand name for albinterferonalfa - 2b (formerly Albuferon) in the United States while Joulferon is the brand name in the rest of the world.

Management expects the U.S. Food and Drug Administration (FDA) to approve the drug in the second half of 2010. Hepatitis C, an inflammation of the liver caused by the hepatitis C virus, affects approximately 170 million people globally.

However, Human Genome received a setback recently when the US FDA delayed the approval of ABthrax, the company's candidate for anthrax treatment, asking for additional information on the candidate in response to the Biologics License Application (BLA) filed in May 2009. The company intends to provide the agency with the requested additional information shortly. Apart from these candidates, Human Genome has other candidates under various stages of development.

With such an interesting and diversified pipeline and two potential approvals by the end of 2010 we strongly believe that investor focus will remain on the fate of its late-stage candidates, especially the lupus drug, and not on the earnings report.

We have a Neutral outlook on Human Genome in the long-term, implying that we expect the company to perform in line with the overall U.S. equity market over the next six to twelve months. Our Neutral recommendation is supported by the lack of earnings estimates revisions over the last 30 days (in either direction) by the analysts following the stock for 2010. This implies lack of directional pressure on the stock in the coming quarters. We advise investors to retain the stock.
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