Human Genome Sciences, Inc.’s (HGSI) first quarter 2010 net loss of 26 cents per share was wider than the Zacks Consensus Estimate of a loss of 20 cents. The company earned 56 cents in the year-ago quarter.
We believe that the earnings report at Human Genome is a non-event. This is because investor focus is more on the company’s interesting and diversified pipeline. Consequently, our take is that the lowering of earnings estimates over the past 30 days by a majority of the analysts covering the stock has more to do with the recent pipeline setbacks at Human Genome rather than the earnings report.
Earnings Report Review
The loss suffered in the reported quarter was attributable to lower revenues primarily on account of a drop in sales of ABthrax (for the treatment of inhalation anthrax) to the U.S. Strategic National Stockpile.
Revenue in the reported quarter plummeted to $46.5 million as against $177.3 million in the year-ago quarter.
(Read our full coverage on this earnings report here: HGSI Loss Wider than Expected)
Agreement of Analysts
Looking at the estimates revision trends, it becomes clear that a majority of the analysts are in agreement about the weak fiscal 2010 outlook for Human Genome. The following table shows that 10 analysts have lowered estimates for fiscal 2010 and only 2 have moved in the opposite direction over the last 30 days.
Also, for fiscal 2011, 6 analysts have lowered estimates, while 4 have moved in the opposite direction. The significant number of downward estimate revisions for 2010 and 2011 indicate definite downward pressure on the performance of the stock in that time period.
We believe that the underlying reason behind the negative sentiment regarding Human Genome is the uncertainty surrounding its pipeline. Recently, the company’s potential blockbuster lupus drug candidate Benlysta did not prove to be more effective than placebo in the long-term. However, not withstanding the disappointing long-term data, the company still intends to seek marketing approval for Benlysta during the second quarter of 2010 in the United States and Europe.
Furthermore, the Marketing Authorization Application (MAA) for Zalbin for hepatitis C was recently withdrawn by partner Novartis (NVS). The withdrawal of the MAA was based on indications that the European regulatory authorities would ask for additional data, which the companies may be not be able to furnish in the time frame permissible under the European Centralized Procedure. The candidate is under review in the US (target date: October 4, 2010).
Additionally, the US Food and Drug Administration (FDA) did not approve ABthrax for anthrax treatment late last year. The agency has asked for additional data pertaining to the drug before it grants approval.
Magnitude of Estimate Revisions
Estimates for fiscal 2010 loss have increased by 11 cents over the last 30 days.
However, as we have stated earlier, investor focus will remain more on the status of Human Genome’s pipeline rather than the earnings report going forward.
Our Recommendation
Currently we have a Neutral outlook on Human Genome in the long-term, implying that it will perform in line with the overall U.S. equity market over the next six to twelve months. We advise investors to retain the stock over the time period.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/
Read the full analyst report on “HGSI”
Read the full analyst report on “NVS”
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