Human Genome Sciences, Inc (HGSI)

[chmcnfunds]

Re-initiating Credit Coverage on Human Genome Sciences
by Morningstar Credit Committee | 13 Mar 12

Note: This article is taken from Morningstar's U.S.-based Website, www.morningstar.com. All figures are in U.S. dollars.


After incorporating our new take on the slow demand associated with Human Genome Science's HGSI new lupus drug, Benlysta, we are re-initiating our credit rating for the firm at B-. The firm appears to need external financing within the next couple years, and our B- credit rating reflects our belief that the firm will be able to access additional funds by issuing new equity or debt before potentially running out of cash. We could also see some organizational changes; for example, the firm may restructure operations or agree to merge in order to stave off a liquidity crunch. A key merger candidate would be Benlysta's marketing partner, GlaxoSmithKline GSK . However, if demand for Benlysta remains slow and management doesn't act nimbly enough to refinance or reorganize, Human Genome could face bankruptcy with no cushion for debtholders within the next couple years. Therefore, investors should proceed with extreme caution. We will keep our B- credit rating for Human Genome on a very short leash.
The firm's financial position appears precarious. At the end of 2011, Human Genome held $801 million in unrestricted cash and marketable securities compared with $702 million in debt principal outstanding. However, the firm is still bleeding cash. We don't worry about the firm's ability to repay its 2012 convertible debt issue. However, beyond that, continued slow uptake of Benlysta could force Human Genome to need external financing. While we remain optimistic about the lupus drug, any way we slice it, Human Genome Sciences remains speculative, and its road to success or failure may be quite bumpy because it is paved with the prospects of only one product. In this case, we believe that drug's future remains promising. However, if the firm cannot cut its cash burn rate or access external financing sources, debtholders may be left holding worthless paper in a couple years.
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http://torontostar.morningstar.ca/globalhome/industry/news.asp?articleid=540536

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