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Just after Tuesday's FDA Recommendation for Human Genome Sciences' Lupus Therapy Benlysta, Citigroup and Bank of America downgraded the stock. Obviously, they mistakenly shorted the stocks and wanted to get their money back after guessing wrong on the FDA decision. The drug was recommended by a 13-2 vote. It is very similar to other cases in recent FDA Approvals, where the stock has actually has gone down on good news, not up.
Manipulating shorts cover their positions by making sure they got analysts on their side to downgrade a stock in case a Panel vote goes against them. Here is a perfect example of how Hedge Fund Shorts cover their positions:
Two downgrades Wednesday morning, one each from Citi and Bank of America/Merrill Lynch, reflected these new concerns and sent Human Genome shares down 7% to $23.98 in early trading.
An advisory panel convened by the U.S. Food and Drug Administration voted 13-2 Tuesday night to recommend Benlysta's approval as the first new lupus therapy in 50 years.
The large margin of victory represented in the vote count, however, belied the contentiousness of the panel's discussion over Benlysta's efficacy. Many of the panelists expressed concern that Benlysta provided only a marginal benefit for U.S. lupus patients and that some specific types of lupus patients -- African Americans or those with lupus that attacks the kidneys or the central nervous system -- were not helped by the drug at all.
Despite recommending Benlysta's approval, the FDA panel expressed support for a label that potentially restricts the drug's use to a smaller segment of U.S. lupus patients than Wall Street had expected.
"The label will likely have noticeable restrictions and thin efficacy is already drawing a mixed reception from rheumatologists. We are concerned about the long-term sales potential given (1) modest benefit, (2) poorer activity in U.S. pts than we originally expected, and (3) now more restricted label," wrote Citi biotech analyst Yaron Werber in note Wednesday in which he downgraded Human Genome to a hold from a buy.
Werber cut his peak sales estimate for Benlysta to $1.6 billion from $2.6 billion and as a result his Human Genome price target dropped to $30 from $35.
Similarly, Bank of America/Merrill Lynch downgraded Human Genome to underperform with a $24 price target.
Investors are also concerned that FDA and Human Genome may not be able to resolve the outstanding issues needed to complete the Benlysta review in time to meet the Dec. 9 approval decision date. This increases the likelihood that Benlysta's approval could be delayed 1-3 months.
ISI Group biotech analyst Mark Schoenebaum defended Human Genome Wednesday, calling concerns about a significant cut in Benlysta peak sales overblown. Even with a narrower label, Benlysta peak sales worldwide can still exceed $3 billion, he wrote in an email to clients Wednesday.
Human Genome downgraded over lupus drug potential
Nov. 17, 2010
SAN FRANCISCO (MarketWatch) — Two analysts downgraded Human Genome Sciences Wednesday after a U.S. Food and Drug Administration panel showed support for a lupus drug Human Genome is co-developing with GlaxoSmithKline PLC.
The key concern: Sales for the lupus drug called Benlysta may not be as big as previously thought, according to analysts at Citigroup and Bank of America who both downgraded Human Genome and cut their stock-price targets before the stock market opened.
By midmorning trades Wednesday, Human Genome (HGSI 23.93, -0.58, -2.37%) shares had already been on a rollercoaster ride as investors tried to digest the long range implications for the lupus drug called Benlysta. The stock fell 8% in opening trades but recovered all those losses later in the session.
By late morning, Human Genome was up 1% at $26.32.
Lupus is an inflammatory connective tissue disease. It occurs mostly in women and is characterized by fever, skin rash, and arthritis.
An FDA panel late Tuesday voted 13-2 to recommend the FDA approve Benlysta. A separate vote on the effectiveness of drug was 10-5.
In a research note, B. of. A. analyst Rachel McMinn said FDA panel feedback at Tuesday afternoon’s meeting “underscored concerns that Benlysta will have a smaller than expected role in lupus treatment.”
McMinn had previously assumed treatment using the lupus drug would run $40,000 per patient. She lowered that calculation to $35,000.
She cut Human Genome to “underperform” from “buy” and shaved her long-range price target to $24 a share, from $33.
Citigroup analyst Yaron Werber downgraded Human Genome to “hold” from “buy” and cut his price target to $30 a share, from $35.
He now expects Benlysta to reach global sales of $1.6 billion by 2015, down from a previous assumption of $2.6 billion