Human Genome Sciences Inc.’s (HGSI) first quarter 2011 loss (excluding facility-related exit credits) of $0.70 per share was wider than the Zacks Consensus Estimate of a loss of $0.51 and the year-ago adjusted loss of $0.30.
The wider loss in the reported quarter was attributable to lower revenues and higher expenses incurred towards the commercialization potential blockbuster lupus candidate, Benlysta.
Quarter in Details
Revenues in the reported quarter declined approximately 42.8% to $26.6 million. Revenues, however, surpassed the Zacks Consensus Estimate of $22 million.
The sharp year-over-year decline in revenues 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. Revenues from research and development collaborative agreements plummeted to $0.20 million in the reported quarter from $28.8 million a year ago as a result of the termination of the deal.
Revenues from product sales increased 4.2% to $14.1 million in the first quarter of 2011. Revenues recognized from the sale and delivery of inhalation anthrax treatment ABthrax to the US Strategic National Stockpile came in at $14.0 million in the reported quarter versus $13.5 million in the year ago 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 $11.3 million.
Both general and administrative expenses (G&A) (up 91%) and research and development expenses (R&D) (up 47%) were on the upswing during the quarter. The massive jump in G&A expenses was attributable to the costs incurred by Human Genome for the commercialization 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.
Our Take & Recommendation
We believe that the earnings report is a non-event for the company as investor focus will be more on the performance of Benlysta going forward. We remind investors that the US Food and Drug Administration (FDA) approved Benlysta in March 2011. The drug, which was co-developed with Glaxo SmithKline (GSK), has been launched in the US markets.
The approval of Benlysta for treating patients suffering from systemic lupus erythematosus (SLE) makes it the first new lupus drug to be cleared in more than 50 years. Lupus is a potentially fatal autoimmune disease that is extremely difficult to treat.
Benlysta is also under review in Europe with approval expected in the second half of 2011. The partners are making active preparations for the European launch, assuming approval.
Even though the US launch of Benlysta has given a huge boost to Human Genome, which should help drive the company to profitability, we prefer to remain on the sidelines till visibility is obtained regarding Benlysta’s performance in the market.
Consequently, we are Neutral on Human Genome in the long term. Our long-term stance is supported by the Zacks #3 Rank (short-term Hold’ rating) carried by the company.
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