Human Genome Sciences Inc.’s (HGSI) third quarter 2011 loss of $0.45 per share was wider than the Zacks Consensus loss estimate by $0.06 and the year-ago loss by $0.23. The wider loss incurred by the biotechnology company was due to lower revenues. The disappointing performance had a negative impact on the company’s shares.
Quarter in Detail
Revenues in the reported quarter plummeted 33% to $34.0 million. Revenues fell short of the Zacks Consensus Estimate of $37 million. Disappointing sales of Human Genome’s potential blockbuster lupus drug Benlysta pulled down revenues during the reported quarter. Benlysta has been co-developed by Human Genome with GlaxoSmithKline (GSK).
Moreover, the absence of payments pertaining to the deal with Novartis (NVS) for the development of hepatitis C candidate Zalbin during the quarter also hurt revenues. The development of the candidate was halted last year. Revenues in the year-ago quarter included $36.1 million that was recognized as upfront and milestone payments relating to the agreement.
We remind investors that Benlysta was launched in the US in March this year. The drug has also hit the Canadian market. The lupus drug has been launched in several European nations, including Germany, Austria, Denmark, Finland, Hungary, Norway and Sweden, following the European Commission’s clearance in July this year.
However, the initial sales ramp of Benlysta, the first new lupus drug to be cleared in the US in more than 50 years, has been below expectations. During the third quarter of 2011, sales of the potential blockbuster drug came in at $18.8 million.
Apart from Benlysta sales, revenues from product sales also include revenues recognized by Human Genome pertaining to its sale of ABthrax to the US Strategic National Stockpile for treating inhalation anthrax. 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 recognized $12.0 million from the contract during the third quarter of 2011, up 64.4%.
Selling, general and administrative expenses (SG&A) jumped 37.4% to $42.2 million during the quarter. However, research and development (R&D) expenses were down 8.7% to $38.8 million during the third quarter of 2011.
2011 Guidance
Apart from releasing financial results, Human Genome also provided guidance for 2011. The company expects to end 2011 with cash and investments in the range of $440–$470 million as opposed to the previously guided range of $550–$650 million.
However, the company’s projections regarding the primary items of operating expenses, R&D and SG&A, remain unaltered. While 2011 R&D expenses are expected in the range of $180–$220 million, SG&A expenses are projected in the range of $150–$170 million.
Our Recommendation
We currently have a Neutral recommendation on Human Genome. The stock carries a Zacks #3 Rank (Hold rating) in the short run.
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