Buy, Sell, or Hold: Human Genome Sciences

You may have noticed stronger-than-normal volume over the past week from Human Genome Sciences (NAS: HGSI) . I attribute that to shareholders crawling out from the rock they were hiding under in 2011 and deciding that it's time to reevaluate their positions.

OK, all sarcasm aside, last year was a nightmare for shareholders. Human Genome Sciences dropped 69%, and what should have been a reason to celebrate - the approval of its lupus drug Benlysta - turned into the reason its stock performance was dismal.

Despite the terrible year, traders on both sides of the coin have reason to be excited about HGS in 2012. Let's take a look at some of the things that could make you want to buy, sell, or possibly hold Human Genome this year, and at the end I'll weigh in with my take.

Make no mistake about it, the potential of Benlysta and the possibility of a buyout from marketing partner GlaxoSmithKline (NYS: GSK) are the primary draws to Human Genome Sciences.

Benlysta, which in March became the first drug in 56 years approved by the FDA to treat systemic lupus, has no competitors. Having a monopoly on a specific condition comes with extremely high expectations and sales projections from HGS signal that they're headed in that direction. Wall Street estimates currently expect total revenue to more than double in 2012.

Because of its unique position in the lupus market, many have suggested that, with Glaxo's ailing pipeline, it may decide to purchase HGS outright -- and considering the nearly 70% tumble it took in 2011, that doesn't seem like a bad move. GlaxoSmithKline is slated to lose patent exclusivity on several drugs in 2012 -- including diabetes treatment Avandia -- and it clearly has the better cash position and sales history to manage Benlysta's future growth.

If we learned anything in 2011, it was that drug launches matter. HGS did a terrible job forecasting demand for Benlysta and has fallen victim to the waxing and waning nature of the disease.

Perhaps the most concerning factor was the pricing of its lupus drug. Benlysta will cost a user $35,000 over the course of a year and doctors have thus far been slow to prescribe the treatment. Much like Dendreon (NAS: DNDN) , which has caught flak over its choice to price its prostate cancer drug Provenge at $93,000 per patient, and has suffered a slow adoption rate because of reimbursement concerns for the sizable outlay. Human Genome Sciences may be either forced to deal with slower-than-expected growth or worse -- it may have to drop the price of their drug to a more reasonable level. At current prices, it's going to take years for HGS to turn a profit on Benlysta, so the prospects of even lower prices are downright scary.

If you were looking to hold HG here, you'd definitely be ignoring the company's money-losing ways and would instead be focused on better sales results. It's tough enough to get a drug approved in the first place, so just having a drug that has a monopoly on its disease is clearly worth something.

The verdict
I personally think it comes down to whether Glaxo steps up to the plate and buys HGS. I see the chances of this happening increasing, but I still don't feel it would happen in 2012. Human Genome Sciences' sales have tremendous growth potential right now, but the company is burning cash and losing money hand-over-fist while it attempts to work through its issues. For 2012, I see HGS treading water as it attempts to find its niche and reduce its expenses.

What's your take on Human Genome Sciences? Share your thoughts in the comments section below and consider adding Human Genome Sciences to your free and personalized watchlist so you can keep track of the latest news with the company.

At the time thisarticle was published Fool contributorSean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool owns shares of Dendreon.Motley Fool newsletter serviceshave recommended buying shares of GlaxoSmithKline. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policythat's always rated a buy.

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