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Inside Human Genome's
Earnings By Chris Coyle Last Friday, with little fanfare, Human Genome Sciences (NASDAQ: HGSI), an esteemed member of the StockChamp Portfolio, reported second quarter results for the quarter ending June 30, 2000. For the quarter, Human Genome reported revenues of $12.6 million, down from the $14.8 million reported the same quarter last year. This quarter's net loss was $9.0 million, or $0.16 a share, versus the net loss of $2.2 million, or $0.05 a share, reported in the second quarter of 1999. The company is pouring money into research & development, which I believe to be a very positive thing. R&D was up 46% to $21.7 million from the $14.9 million in the second quarter last year. This R&D investment is the major cause for HGS's net loss to quadruple during the quarter. This quarter was a big one in terms of new and expanding drug discoveries. Two of HGS's drug candidates, KGF-2 and BLyS were responsible for this. KGF-2 received positive Phase II results for its treatment of Chronic Venous Ulcers. Also, HGS initiated the third indication of KGF-2; this indication will initiate Phase II clinical testing on patients with active ulcerative colitis. Also during the quarter, the company announced the plans to initiate its fourth drug into human clinical trials, BLyS, for the treament of Common Variable Immunodeficiency. These new discoveries should make long-term Human Genome shareholders happy, making its drug pipeline ever so stronger. The company received 13 patents during the quarter, making the total number of U.S. patents rise to 137. The
Numbers Don't Matter...yet! However, it can and probably will take years for a HGS drug to make it to market, so current contract revenues with other drug companies will be its only source of revenue until then. There are so many problems facing a drug trying to reach market. Most never make it. It is possible some of Human Genome's drugs will fall short in clinical trials. With its collapse goes years of research, development, and testing as well as the millions of dollars spent to pay for it. WIth this in mind, there is one thing that we should look into; Human Genome's cash and debt. We need to know that the company has enough cash to continue its operations. In this quarter, the company reported cash, cash equivalents, and short-term investments at $853 million, while long-term debt was only $533 million. The huge increases in both cash and debt come from the two subordinate note offerings the company offered last year, adding $525 million to their coffers. So at least for the moment, the company as more than enough cash to sustain itself. That cash position does make me feel a little more comfortable. But, of course, no amount of cash in the world will help HGS if all of its drug candidates were to go down in flames (I apologize for getting all pessimistic all of a sudden. Let's not think about such a disasterous scenario!). Special
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