Human Genome Sciences Inc.’s (HGSI) fourth quarter 2010 loss of $0.46 per share was wider than the Zacks Consensus Estimate of a loss of $0.39 and the year-ago adjusted loss of $0.12.

The wider loss in the reported quarter was attributable to lower revenues and higher expenses incurred on the potential blockbuster lupus candidate, Benlysta. Benlysta has been co-developed with GlaxoSmithKline (GSK).

Quarter in Details

Revenues in the reported quarter declined approximately 60% to $21.3 million, edging past the Zacks Consensus Estimate of $21 million. The sharp decline in the quarter was primarily attributable to the reduction in revenues under research and development collaborative agreements due to the decision to terminate the development of Zalbin for treating hepatitis C.

Zalbin was being developed in collaboration with Novartis (NVS). Revenues from research and development collaborative agreements plummeted to $549,000 in the reported quarter from $29.9 million a year ago as a result of the termination of the deal.

 A 25.4% decline in revenues from product sales also contributed to the lower revenues in the final quarter of 2010. Revenues recognized from the sale and delivery of inhalation anthrax treatment ABthrax to the US Strategic National Stockpile came in at $13.2 million in the reported quarter.

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 $7.5 million (up 40%).

Both general and administrative expenses (G&A) (up 98%) and research and development expenses (R&D) (up 6%) were on the upswing during the quarter. The massive jump in G&A expenses was attributable to the costs incurred by Human Genome in preparation of the potential launch of Benlysta.

The rise in R&D expenses was attributable to Human Genome’s efforts to develop its pipeline. Costs for manufacturing and development and product sales also increased significantly during the reported quarter.

Annual Results

For the full year 2010, Human Genome suffered a loss of $1.24 per share as against an adjusted loss of $0.24 in 2009. The higher loss incurred in 2010 was attributable to lower revenues. 2010 revenues declined 43% to $157.4 million, mainly due to lower revenues recognized from ABthrax sale to the US Strategic National Stockpile in 2010. The Zacks Consensus Estimate for 2010 indicated a loss of $1.17 per share on revenues of $157 million.

Our Take & Recommendation

We have a long-term Neutral stance on Human Genome. Human Genome and partner GlaxoSmithKline are leaving no stone unturned for the successful launch of Benlysta, assuming US approval (target date: March 10, 2011). Human Genome also expects the candidate to be approved in Europe during the course of the year. The approval of the lupus candidate should drive Human Genome towards profitability.

However, the excessive dependence on Benlysta concerns us. Moreover, the setback regarding, Zalbin, whose development was scrapped following the complete response letter issued by the Food and Drug Administration in 2010, is also concerning. If something similar happens to Benlysta then it would weigh heavily on the stock. These concerns justify the Zacks #4 Rank (Sell rating) carried by the company in the short run.

 

 

 
GLAXOSMITHKLINE (GSK): Free Stock Analysis Report
 
HUMAN GENOME (HGSI): Free Stock Analysis Report
 
NOVARTIS AG-ADR (NVS): Free Stock Analysis Report
 
Zacks Investment Research