Zacks_Analysts' Blog : Human Genome Downgraded - Analyst Blog

We are downgrading Human Genome Sciences Inc. (HGSI) to Underperform from Neutral following the disappointing third quarter 2011 results reported by the company. Our target price is $10.00.

The Rockville, Maryland-based company suffered a wider than-expected loss due to lower revenues. Revenues in the reported quarter plummeted 33% to $34.0 million. (Please read our detailed discussion on the earnings report: Weak Benlysta Sales Hurt Human Genome ).

The most alarming factor was the weak initial sales ramp of Human Genome’s potential blockbuster lupus drug, Benlysta. Management has pushed back its goal of becoming profitable to 2014. Benlysta has been co-developed by Human Genome with GlaxoSmithKline (GSK). Following the lackluster showing in the third quarter of 2011, we have increased our loss per share estimates for 2011 and 2012.

The lackluster showing by the company had a negative impact on its shares. We believe that if Benlysta, Human Genome’s sole marketed product, continues performing disappointingly, the stock price will plummet further.

We remind investors that Benlysta was launched in the US in March 2011. Benlysta has also been launched in Canada and several European nations including Germany, Austria, Denmark, Finland, Hungary, Norway and Sweden.

Apart from lukewarm Benlysta sales, the absence of payments pertaining to the deal with Novartis (NVS) for the development of hepatitis C candidate Zalbin also pulled down revenues in the third quarter of 2011. The development of the candidate was halted following the receipt of a complete response letter from the US Food and Drug Administration last year.

In view of these headwinds, we see little reason for investors to hold on to the stock at current levels.