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Results may determine fate of Human Genome Sciences

Vandana Sinha Staff Reporter
Washington Business Journal

Fruition or failure: The test results on a hepatis drug could be the fruition of years of hard work or lead to the demise of Tom Watkins’ company.

Sometime this month, Rockville’s Human Genome Sciences Inc. will receive conclusive results from arguably its most crucial clinical trials of a hepatitis C drug, what analysts consider the 16-year-old company’s best shot at breaking into the commercial market.

Positive data would boost HGSI’s plan to apply by fall for federal approval to begin selling the drug, its first ever for pharmacy shelves.

But market insiders agree that a clinical trial failure would be disastrous for the 880-person company, which has piled up a $2 billion debt over its lifetime and, more dauntingly, has more than $400 million in debt coming due by 2012.

“Our view is that the trial should meet its primary endpoint,” said Edward Tenthoff, managing director of Piper Jaffray and Co., a research organization. But if the trial fails, which is a “long shot,” Tenthoff said, “the company would be in very serious trouble. The stock would be under severe pressure. At this point, the debt level is higher than the cash. We would see the stock basically fold.”

This is a test of nerves for HGSI at a time when, ironically, the company is basking in its biggest success so far. HGSI shipped its first product last month, an anthrax treatment called ABThrax to the Department of Health and Human Services, and is expecting $150 million in its first sales revenue from the contract this year.

“This is likely to be the year a lot of the painstaking work over many, many years comes to positive fruition for our company and our shareholders,” said HGSI’s chief executive officer, Tom Watkins, in a recent interview. “You know that the people around you are doing things right. While everything may not work out, you know you’re doing everything you can. And this company is doing everything it can to serve patients and get these opportunities out. Are we anxious? Sure. But we’re more excited.”

In this final stage of studies, HGSI need only prove that its hepatitis C drug, Albuferon, which is given every two weeks, works as effectively as its competitors’ drugs, which are all weekly doses.

While analysts see room for HGSI in an estimated $2.4 billion hepatitis C market, the field is still dominated by Roche and Schering-Plough Corp., pharmaceutical heavyweights that make HGSI look skeletal in comparison. HGSI also will have to study Albuferon’s compatibility with emerging antibiotics expected to revolutionize the hepatitis C drug market.

For now, the company argues it is halfway there, having reached its goal of showing Albuferon’s overall effectiveness in similar clinical trials late last year on two different, albeit easier-to-treat, strains of the debilitating disease.

However, HGSI has not escaped skepticism. After receiving reports last year of pulmonary problems with Albuferon, the company had to significantly lower the doses for clinical-trial patients in a high-profile setback that, in one day, chopped its stock price nearly in half. HGSI has been unable to return to its $10 levels since.

While some observers worried a lower dose would make Albuferon a weaker challenger to its rival drugs, others say they are closely watching the potential for harmful side effects in the upcoming trial data.

Despite HGSI’s enthusiastic lineup of existing late-stage products, most analysts still see Albuferon as the headliner. ABThrax is geared primarily to the government, and two drugs are licensed to other pharmaceutical companies, which are developing them.

HGSI’s other key drug candidate, a lupus treatment called LymphoStat-B, is undergoing advanced clinical trials whose results are due in July and November. But it does not inspire much confidence on Wall Street.

“Most people do not expect the lupus drug to work,” said Liisa Bayko, director and senior analyst with JMP Securities LLC, who believes Albuferon will get a passing grade but describes lupus as an inordinately difficult disease to treat.

“It’s a very high-risk program, frankly,” she said.

That only ups the ante for the Albuferon trials in a recession-weary investor community that dragged HGSI’s stock down below $2 by the first week of March.

“If this doesn’t work, you’ve got a company with two failed Phase 3 programs, and they’ve dumped a lot of money in it,” Bayko said. “It becomes a solvency issue.”