West Coast Editor

In another move to get money and stay flexible, Human Genome Sciences Inc. signed a $425 million definitive agreement with BioMed Realty Trust Inc. related to the sale and leaseback of HGS' large-scale manufacturing facility, as well as a new lease for its headquarters office and laboratories facility.

The deals are expected to add about $380 million in net additional cash available for operations, including $220 million in new cash and $160 million in cash freed up by the headquarters lease.

Once wholly owned, the manufacturing facility in Rockville, Md., was finished last year and measures 290,000 sq. ft., while headquarters totals 635,000 sq. ft. and previously was the subject of a "synthetic" lease, under which it was not reported as an asset and payments were treated as operating expenses.

Under the synthetic lease, HGS last year had to keep $204 million in cash restricted, but the deal with San Diego-based BioMed calls for only $46 million to be kept restricted. BioMed will buy the manufacturing facility, headquarters (also in Rockville) and land for $425 million, and the $380 million in added cash is net of the restricted $46 million.

HGS will enter into 20-year leases, with options to renew, and with the right to repurchase each facility under certain circumstances. The initial rent hike, offset by increased interest income, amounts to about $20 million, and HGS is "exploring opportunities to offset" the amount, with guidance for investors expected as part of second-quarter financial results.

The deal "will help [the company] avoid a dilutive capital raise in the near term," wrote Christopher Raymond, analyst with Robert Baird & Co. in a research report, reiterating his "neutral" rating on the stock. He remains "unenthusiastic as to the prospects of Albuferon and LymphoStat-B."

HGS has Albuferon (albumin-interferon alpha 2b) in development for hepatitis C virus, and LymphoStat-B, a human monoclonal antibody to B-lymphocyte stimulator, in the works for lupus and rheumatoid arthritis.

"While Albuferon could very well capture a significant portion of the treatment-na ve interferon market if approved in the 2010 time frame, shifting treatment paradigms and patient populations could limit its eventual peak sales," Raymond wrote.

"With LymphoStat-B, we believe Phase III trial design in lupus will prove challenging, and if the drug is approved in RA, it will face formidable competition from numerous other drugs currently on the market," he added, urging investors to "remain on the sidelines with [HGS'] shares."

The company's stock (NASDAQ:HGSI) closed Wednesday at $10.80, down 16 cents.