Human Genome Risks Balanced

Human Genome Sciences, Inc. (HGSI - Analyst Report) is a biopharmaceutical company focused on discovering novel protein and antibody drugs through gene-based research and albumin fusion technology. The company has two candidates in late-stage development.

Albuferon is in phase III studies for hepatitis C and LymphoStat B is in phase III trials for lupus. Both candidates have potential to become blockbusters, while we see LymphoStat B is a higher risk program. We believe the risk/reward is balanced for HGSI at this point. Therefore, we maintain our Hold rating for HGS. Our six month price target is $7.5.

The HGS clinical development pipeline includes drugs to treat such diseases as hepatitis C, lupus, anthrax disease, cancer, rheumatoid arthritis and HIV/AIDS.

Given the company’s current drug development status, it is unlikely that the pipeline drugs (except anthrax drug ABthrax) would hit the market before 2009, even if the products make progress in clinical developments as expected. And until 2010 when the most promising Albuferon is introduced, HGSI will have to depend on partners like GlaxoSmithKline (GSK - Analyst Report) and Novartis to offset its substantial operating loss. This is a concern, as it limits sources of revenue and creates significant operating loss.

Even then, we believe Albuferon is likely to face stiff competition from Schering Plough’s (SGP) PEG-Intron and Roche’s Pegasys. It will also face competition from Vertex Pharma’s (VRTX - Snapshot Report) Telaprevir, a protease inhibitor under last stage development.

However, upside potential may come from the phase III data for Albuferon with superiority over Pegasys which may translate into initial rapid sales ramp. Downside risks may come from any failed phase III trial related to Albuferon and LymphoStat B.

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