Human Genome Sciences, Inc. (HGSI) reported fourth quarter 2009 net loss of $9.7 million or 6 cents per share, narrower than the Zacks Consensus Estimate of 9 cents and the year-ago loss of $61.9 million or 46 cents. The reduced net loss for the quarter was primarily attributable to increased revenues and lower operating expenses. 

Quarterly Results 

Revenue in the reported quarter jumped to $53.0 million from $12.9 million in the year-ago quarter. Revenue for the quarter included $27.6 million related to the global agreement with Novartis (NVS) for the development of Zalbin (formerly Albuferon) to treat Hepatitis C. 

Furthermore, revenue for the reported quarter also included $17.7 million recognized from the sales and delivery of ABthrax (raxibacumab) – the company’s candidate for anthrax treatment – to the U.S. Strategic National Stockpile, $5.3 million recognized from manufacturing and development services and $1.0 million from the agreement with GlaxoSmithKline Plc (GSK) for the development of lupus drug Benlysta. 

Total costs and expenses for the fourth quarter of 2009 decreased 16.2% year-over-year to $53.2 million. Research and development expenses for the reported quarter came in at $42.3 million as against $48.7 million in the year-ago quarter, down approximately 13%. General and administrative expenses for the reported quarter decreased approximately 30% to $19.3 million. 

Yearly Results
 
For full-year 2009, Human Genome suffered a loss of 25 cents per share (excluding special items) as against a loss of $2.22 in 2008. The Zacks Consensus Estimate for 2009 called for a loss of 3 cents. 

Annual revenue in 2009 jumped to $275.7 million from $48.4 million in 2008. Revenues included $180.2 million recognized from the sales and delivery of ABthrax to the U.S. Strategic National Stockpile, $54.2 million recognized from the agreement with Novartis for the development of Zalbin, $24.4 million from manufacturing and development services other than raxibacumab, and $4.7 million recognized from the agreement with Glaxo pertaining to Benlysta. 

Total costs and expenses for 2009 decreased 11.4% year-over-year to $269.6 million. Research and development expenses for the reported quarter came in at $173.7 million as against $243.3 million in the year-ago quarter, down approximately 28.6%. General and administrative expenses for the reported quarter increased marginally to $61.1 million from $60.9 million in 2008. 

The company had $1.2 billion in cash and investments as of Dec 31, 2009, of which $1.1 billion was unrestricted and available for operations. Furthermore, 2009 saw an increase in cash by $818.7 million primarily because of the public offerings of Human Genome common stock completed in Aug and Dec 2009. The company raised $812.9 million in net proceeds from the offerings. 

2010 – The Road Ahead

2010 is expected to be a fruitful year for Human Genome. The company expects two of its late-stage candidates to be approved in the year. Human Genome Sciences intends to seek approval for its potential blockbuster lupus drug candidate Benlysta during the second quarter of 2010 in the U.S. and Europe. Management expects the drug to be approved in the U.S. in the fourth quarter of 2010. If approved, we expect Benlysta to become a blockbuster for the company. 

Zalbin is another interesting pipeline candidate currently under review both in the U.S. as well as Europe. Management expects the U.S. Food and Drug Administration (FDA) to approve the drug in the fourth quarter of 2010. We believe that Zalbin could be a significant revenue earner for the company on approval. 

Another high potential candidate is ABthrax. Human Genome is under contract to deliver doses of ABthrax to the U.S. Strategic National Stockpile, which stores huge quantities of medicine and medical supplies to be used in national emergencies like a flu outbreak, terrorist attacks or earthquakes that are brutal enough to deplete local supplies. The company recognized approximately $180 million in revenue in 2009 from deliveries made to the Stockpile. Human Genome expects to deliver approximately 15,000 doses to the Stockpile in 2010. 

Our Recommendation 

We currently 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.
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