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Investors Flee Human Genome Sciences as Lupus Drug Sales Inch Higher

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After hitting the market with the first new treatment for lupus in a half century, the biotech struggles to convince more doctors to prescribe the medicine.

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Human Genome Sciences (HGSI) convinced a lot of investors that its drug Benlysta helps treat patients with the devastating autoimmune disease lupus. So why can't the company convince more doctors to prescribe the treatment?

That's a question investors keep asking. When will Human Genome and partner GlaxoSmithKline (GSK) kick-start sales of what seems like a highly promising product -- the first new drug for lupus in a half century? Each quarter, Human Genome reports slow and steady revenue growth for a drug that analysts believed would some day grow to more than $4 billion a year in sales. (See Human Genome Sciences Slowly Building a Blockbuster.)

A number of investors have given up waiting for signs of the drug's success. The stock, trading at $8.02 midday Tuesday, dropped more than 70% since winning US approval in March of last year.

Analysts are adjusting their sales estimates and, in some cases, lowering their ratings on the stock. Even some bulls agree that recent estimates of more than $200 million in Benlysta sales are too high. Fourth-quarter sales of the drug were $25.7 million, slightly below analyst estimates.

"The current run rate suggests a modest improvement on 2011," Leerink Swann analyst Joseph Schwartz says. He has a buy rating on the stock and a $22 price target.

A conference call with investors following a fourth-quarter earnings announcement late Monday failed to spark much enthusiasm for a breakout year. Some doctors are testing the drug on their patients but, so far, Benlysta is not being widely prescribed.

Human Genome's "management pointed out docs remain in 'trial mode,'" says Robert W. Baird analyst Christopher Raymond, who recommends buying the stock and has a $19 a share price target.

Yet few folks on Wall Street are actually calling the drug a bust. The problem is the sales effort is producing few results so far.

"Bottom line," says RBC Capital Markets analyst Michael Yee, "is that 2012 is still a year where docs appear to be in 'trial' mode for Benlysta and thus unlikely to materially and sustainably outperform expectations."

Yee has a hold rating on the stock and says analyst consensus sales estimates need to come down. The company hasn't provided its own sales forecast but its execs say they expect Human Genome to be profitable by 2014. The company lost $381 million, or $1.97 a share, in 2011. That was an even bigger deficit than 2010 when the company lost more than $233 million.

Though the comparisons to the problems experienced by cancer vaccine maker Dendreon (DNDN) are inevitable, Human Genome's challenges are considerably different. With other treatment options available for prostate cancer patients, it's unclear whether sales of Dendreon's Provenge are ever going to ramp up. (See Dendreon Shares Drop on Slowing Sales of Cancer Vaccine Provenge.) Lupus patients don't have the same number of options.

"Benlysta is on its way to playing a major role in improving the standard of care for (lupus) patients," Human Genome CEO H. Thomas Watkins told investors on Monday's call.

The question is when will sales results prove he's right?

Twitter: @brettchase

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No positions in stocks mentioned.
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