Shares of Human Genome Sciences Inc. fell as much as 23 percent during trading yesterday after a Florida-based investment bank recommended that investors sell or short the stock on concerns that the company's cash is dwindling.
The stock recovered much of the lost ground by day's end as the drug developer and other Wall Street analysts dismissed Sterling Financial Investment Group's analysis as flawed.
"They have made some serious factual errors in their report," Steven C. Mayer, Human Genome's chief financial officer, said late yesterday.
Mayer said he spent much of the day on the phone assuring investors that the company's cash and investments - $1.6 billion as of June 30 - are plentiful.
Shares of the Rockville-based company lost $1.70, or 12.5 percent, to close at $11.94. About 15.2 million shares changed hands, about six times the stock's average daily trading volume of 2.5 million shares over the past six months.
Sterling Financial Investment Group said in a report issued yesterday that Human Genome "will have to raise additional funds in the near term to meet cash needs and debt repayment." Sterling said the company could have available cash of $275 million to $300 million by year's end if an accounting rules change forces it to put an off-balance sheet lease arrangement on its books.
Mayer said the company has disclosed the off-balance sheet lease obligation and the possibility of accounting rules changes in its previous filings with the Securities and Exchange Commission.
Even if the rules changed, forcing the lease obligation onto Human Genome's balance sheet, it would have no impact on the amount of cash the company must set aside as collateral for the lease, Mayer said. He said the amount would remain $150 million, not balloon to $541 million as Sterling suggested.
"We have no debt repayment obligations until 2007," Mayer said.
Steven C. Kirsch, Sterling's director of research, declined to comment. But A.G. Edwards & Sons analyst Alexander A. Hittle said his analysis shows that, "with easily foreseeable financial moves, [Human Genome Sciences] has enough money to last into 2006."
ThinkEquity Partners analyst Edward A. Tenthoff said Human Genome will spend about $200 million this year and $250 million next year. But he said the company is likely to supplement its cash - and reduce its expenses - by licensing one or two of its drugs in development to a pharmaceutical company in exchange for upfront cash and future payments.