Human Genome Sciences Inc.’s (HGSI) third quarter 2010 loss of 22 cents per share was narrower than the Zacks Consensus Estimate of a loss of 36 cents and the year-ago loss of 32 cents. The narrower loss in the reported quarter was attributable to the massive jump in revenues recorded in the quarter.
Revenues in the reported quarter climbed 170.2% to $50.8 million in the reported quarter easily surpassing the Zacks Consensus Revenue Estimate of $31 million. The massive jump recorded in the quarter was attributable to the increase in revenues recognized due to the decision of Human Genome and partner Novartis (NVS) to terminate the development of Zalbin for treating hepatitis C.
The decision, which caused Human Genome to recognize the entire remaining deferred revenue under the deal during the quarter, followed the receipt of a complete response letter from the US Food and Drug Administration (FDA) earlier in the month. Human Genome recognized $36.1 million under the agreement in the reported quarter (up 305.6%).
Meanwhile, revenues recognized from the sale and delivery of ABthrax to the US Strategic National Stockpile came in at $7.3 million in the reported quarter. Revenues from manufacturing and development services other than ABthrax came in at $5.1 million.
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.
The company has already delivered multiple doses and recognized $7.3 million in the reported quarter under an order received in 2009 from the US government to sell 45,000 doses of ABthrax for the Strategic National Stockpile, to be delivered over a period of three years.
This order is in addition to the 20,000 doses delivered to the Stockpile earlier. Human Genome expects to receive approximately $142 million from the second award as deliveries are completed, inclusive of $51.7 million recognized to date.
Total costs and expenses in the third quarter of 2010 climbed approximately 41.9% to $80.6 million. Research and development expenses climbed 22.1% in the reported quarter to $42.5 million, as Human Genome advanced its pipeline significantly in the quarter.
General and administrative expenses also jumped 79.7% to $26.4 million in the reported quarter. The rise was mainly attributable to the costs incurred by Human Genome in preparation of the potential launch of lupus drug Benlysta, co-developed with GlaxoSmithKline Plc (GSK). The potential blockbuster drug will be reviewed on a priority basis by the FDA (target date: December 9, 2010).
Our Recommendation
Human Genome currently has a Zacks #3 Rank, which translates into a short-term Hold rating. We are also Neutral on the stock in the long term. The long-term stability offered by the potential approval of Benlysta is the main reason for our Neutral stance on the stock.
The stance indicates that the stock is expected to perform in line with the US equity market over the next 6+ months. We advise investors to remain invested over the time period.
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