Risk-Reward Balanced at HGSI

We are maintaining our Neutral recommendation on Human Genome Sciences Inc. (HGSI) with a target price of $28.00.

Human Genome, founded in 1992 and based in Rockville, Maryland, is a biopharmaceutical company. The US approval and launch of Benlysta earlier in the year for treating patients suffering from systemic lupus erythematosus (SLE) is a huge positive for Human Genome. The drug, which has blockbuster potential, has been co-developed with GlaxoSmithKline (GSK).

The approval of Benlysta by the US Food and Drug Administration (FDA) 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. We believe that the approval of this potentially blockbuster candidate will drive Human Genome to profitability.

The European approval of the drug remains on track with the European Medicines Agency’s Committee for Medicinal Products for Human Use (CHMP) recommending approval of Benlysta. In May 2011, the CHMP recommended approval of the drug in the European Union (EU) as an additional therapy in adults suffering from active autoantibody-positive SLE even after treatment with currently available medications. A final decision is expected in the second half of 2011.

The drug is also under review in Canada, Australia, Switzerland, Russia, Brazil, Israel, Columbia and the Philippines. We believe that the approval of Benlysta in additional territories would spur further top-line growth at Human Genome.

Even though Benlysta has hit the US market and signs of gaining approval in the EU are bright, Human Genome’s hepatitis C candidate, Zalbin (albinterferon alfa-2b) met a different fate. In October 2010, the FDA refused to approve the candidate at the current dosage and issued a complete response letter (CRL). Following the receipt of the CRL, Human Genome and partner Novartis (NVS) decided against continuing with the development of the candidate.

Moreover, in May 2009, the company submitted a Biologics License Application (BLA) to the FDA for ABthrax for treating inhalation anthrax. The agency issued a CRL to the company in November 2009. Currently, the company is working with the FDA to obtain approval for the candidate.

Even though the US approval and subsequent launch of the lupus drug has given a huge boost to Human Genome, we prefer to remain on the sidelines till visibility is obtained regarding Benlysta’s commercial potential. Consequently, we retain our ‘Neutral’ stance on the stock.

NOVARTIS AG-ADR (NVS): Free Stock Analysis Report

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