Human Genome Sciences, Inc. (HGSI) soared to new highs today. Its positive lupus study data, which the market was bracing for, did show that Benlysta met primary endpoints at the higher dosage level. The lower dosage level was not as effective, but the higher dosage is being treated as “good enough for greatness” when you consider that there have not been any real lupus approvals in decades.
There are various forms of lupus, but this is a chronic autoimmune disease that can damage any part of the body from skin to joints to organs and can last from weeks to months. The Lupus Foundation of America has an estimate that some 1.5 million in America alone may have lupus. With no new treatments having been approved in longer than a generation, it is of little surprise that some analysts confer the drug with immediate blockbuster status, with over $1 billion in annual sales.
GlaxoSmithkline (GSK) is the partner for Human Genome Sciences on Benlysta, and the companies are to split the profits derived from the drug sales. The companies now plan to file for marketing approval applications for BENLYSTA in the U.S., Europe and other regions in the first half of 2010. That still puts Human Genome as a cash burning company until at least mid-2010.
It is of little surprise that options traders had a binary event where they were looking for huge gains or huge losses in reaction to this new data released this morning. The minimum move expected in options closing bell prices on Friday was an expected 22% price change. The maximum expected, on a static basis, was 29%. At the close today, shares were up over 35% at $25.28
What will be interesting to see from here is whether or not Human Genome Sciences’ stock can continue its run. Things had ‘gone dark’ on the news front and a series of prior lackluster periods had at one point earlier this year, led the stock to under $1. But that was then. The lupus franchise alone, assuming there are no new major developments that aren’t known, will probably support its $3.4 billion market cap.
The question is what does HGSI have beyond its lupus franchise. The company has a anthrax treatment under FDA review. An FDA panel recently said it does suggest that the Anthrax treatment would be helpful in humans, but also noted that more study data is needed to determine if it will outperform antibiotics (CIPRO from Bayer is the traditional treatment for over 20 years).
Another late-stage (Phase III) study HGSI has is Zalbin for the treatment of hepatitis C, which also said to be coming along rather well. The company also has lung cancer trials for “HGS-ETR1” that has so far shown to be successful when used in combination with chemotherapy.
Another issue to consider is that the lupus drug Benlysta is also being tested in Phase I studies for other autoimmune diseases, and the hope is that it would be similar to Genetech’s Avastin, where one drug can treat multiple variances of diseases. It would seem that any political risk might not be forced upon a company that came up with a solid treatment for over 1 million Americans suffering a disease where no treatments have been released in years. J.P.Morgan gave this an unexpected upgrade last week to Overweight from Neutral.
Today’s news takes Human Genome Sciences back to highs not seen since 2002 when the company had a much different focus, as that was a post genome-mapping period. The last time HGSI was at $25 was in March, 2002. And this had been a $70 stock in 2001 and even above $100 on a split-adjusted basis in early 2000.
Biotech stocks that have made exponential moves always come with their own host of risks that are non-existent in traditional operating companies. But these risks are countered by giving investors the chance of investing in a company where revenues go from a few million to more than a billion. Human Genome Sciences may face hurdles ahead and it may not. But it seems that today’s news has taken away the notion that shares might return to next to worthless again.
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