Human Genome Sciences Inc.’s (HGSI) second quarter 2011 loss of $0.42 per share was wider the year-ago loss of $0.30. However, the loss incurred in the second quarter of 2011 was in line with the loss hinted at by the Zacks Consensus Estimate.
The wider year-over-year loss was attributable to lower revenues and higher expenses incurred towards the commercialization of potential blockbuster lupus drug, Benlysta. Benlysta has been co-developed by Human Genome with GlaxoSmithKline (GSK).
Quarter in Detail
Revenues in the reported quarter declined approximately 35.9% to $24.9 million. Revenues fell short of the Zacks Consensus Estimate of $28 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 of Human Genome and partner Novartis (NVS) to terminate the development of Zalbin for treating hepatitis C.
Revenues from research and development collaborative agreements plummeted to $0.21 million in the reported quarter from $20.3 million a year ago as a result of the termination of the deal. Revenues in the year ago quarter included $19.1 million that was recognized as upfront and milestone payments relating to the agreement.
Revenues from product sales increased 57% to $20.6 million in the second quarter of 2011. Revenues recognized from the sale and delivery of inhalation anthrax treatment ABthrax to the US Strategic National Stockpile came in at $12.9 million in the reported quarter versus $13.1 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.
Lupus drug Benlysta, which was launched in the US during the quarter, recorded sales of $7.8 million. The figure does not include the $1.2 million in factory sales already shipped but is yet to be delivered to the providers of healthcare. Benlysta has been performing impressively since hitting the US market.
The drug has been approved by the regulatory authorities of the European Union and Canada as well. The drug is expected to be launched in Canada in September this year
Selling, general and administrative expenses (SG&A) jumped 66% to $39.4 million during the quarter. The massive jump in SG&A expenses was attributable to the costs incurred by Human Genome for the commercialization of Benlysta. However, research and development (R&D) expenses were down 35% to $33.4 million during the second quarter of 2011.
Our View
We currently have a Neutral recommendation on Human Genome. The stock carries a Zacks #3 Rank (Hold rating) in the short run.
We believe that the launch of Benlysta in the US has given a huge boost to Human Genome, which should help drive the company to profitability. However, we prefer to remain on the sidelines till we gain more visibility on Benlysta’s commercial potential.
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