Human Genome Sciences (HGSI)

Here’s another profitless biotech stock that appears on the doorstep of transforming itself into a profitable enterprise on the back of a drug with blockbuster potential. After years in the wilderness HGSI scored a tremendous success in July with release of Phase 3 results for their Lupus drug that they dub Benlysta. Some analysts project it as having sales potential of $2.5B a year.


There are risks here. The market priced huge success into the stock off release of these results and the price rocketed from below $3 a share to better than $20. Yet success of the drug, no less FDA approval, is not guaranteed. Benlysta might help as little as 8 – 14% of patients and is expected to cost between $20-30,000 a year. Further data due next month are expecting to clarify Benlysta’s prospects and whether or not the company will pursue FDA approval next year.

Since the news broke the stock has eased into a constructive looking base that is taking the form of a double bottom, given Friday’s undercut of the September lows.

IF (we capitalize purposely) the market reverses, we’d look to go long HGSI on a break out move. O’Neil teaches that the best entry on this type of formation is what he deems the Shake Out Plus 3. This allows for earlier entry than over the mid-point of the W, which is more traditional and often fraught with volatility.

Shakeout Plus 3 entry is $3 above the first low of the pattern on a $20 - $30 stock. For stocks out of this range he recommends using a price 13 – 14% above the first low. The move through this point should come on volume and presage a break out.


For HGSI that would suggest entry above the late September pivot highs around $19.40, which is an advantage over the traditional entry at $20.63.