Human Genome Sciences, Inc. (HGSI) 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 HGS at this point.
Since its inception, HGS has been incurring operating loss. In the first quarter of 2008, revenue came in at $12.3 million; net loss was $79.4 million or -$0.59 per share on an adjusted basis. We expect loss will continue in the coming years. Specifically, we expect net loss of $212 million in 2008, $191 million in 2009, and $180 million in 2010.
As of March 31, 2008, HGS had cash and investments of $591 million, of which $519 million is unrestricted and available for operations. Also, as of March 31, 2008, the company had long-term debt and capital lease of $755 million. We donât expect the company will become profitable before 2013, while rising operating cost will continue.
Therefore, we expect HGS will tap the financial market for further financing. Equity financing will dilute the shareholder base. We maintain our Hold rating for HGS shares with a revised six-month price target is $7.5.
With a current market cap of $845 million, we think HGS has a balanced risk/reward profile at this point. Based on our financial model, we arrive at our current price target of $7.5 by applying biotech industry average P/S ratio of 10x to our estimated revenue of $340 million in 2012, discounted at 30% for four years assuming outstanding shares of 155 million.
Read the full analyst report on HGSI.
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