Searching for a Cure-All

Human Genome Sciences' Future Rides on Success of New Treatments

Rockville-based Human Genome Sciences is still reeling from Wall Street's unexpected drubbing earlier this month in reaction to the biotech company's long-awaited study of a hepatitis C drug it is developing for a mass market.

The late-stage clinical trial showed that the drug, called Albuferon, requires hepatitis C patients to take injections only half as often as with a competing product used to treat the liver ailment. That's good news for patients, who would be subject to nasty flu-like side effects accompanying the injections much less often.

But the disappointing news was that the drug is effective in about one out of two patients tested -- a success rate that is no better than another hepatitis C treatment already on the market. The company, whose stock price plunged 67 percent, to 55 cents a share, with the news, is seeking to win back Wall Street with the forthcoming results from the trial of a drug it is developing for the auto-immune disease lupus.

"We're confident that should [Albuferon] be approved, we will have a successful product -- a leader in the treatment of hepatitis C," said H. Thomas Watkins, the company's president and chief executive.

But Jason Kolbert, managing director of health-care research at ThinkEquity in New York, said he was dismayed that many patients opted out of the study, an indication to him that they were dissatisfied with the treatment. "If more people are dropping out, that defeats the purpose, which is to have a more tolerable drug."

Kolbert said he is fearful the company may not get government approval for the drug and said that it would be disastrous given the firm's $400 million in convertible notes due within the next few years. If Human Genome Sciences does not market the drugs before the notes are due, he added, "we're worried that the company lacks cash flow to pay off that debt and that it could get into trouble."

The difficulties facing Human Genome Sciences are replicated throughout the pharmaceutical and biotech industries, which are under increasing pressure to garner huge profits from their drug treatments to recoup hundreds of millions of dollars in research and development costs. The process, which takes a dozen or more years, is becoming more competitive and more expensive. Moreover, analysts say the Obama administration's proposals to curb health-care costs -- including encouraging the use of generic drugs over expensive name-brands -- would make it more difficult for the companies to make money.

"Biopharmaceutical" companies, which develop their medicines by chemical or biological means, spend five times as much as their counterparts in other industries on research and development, according to the Congressional Budget Office. The cost, coupled with the economic downturn, has sparked widespread mergers and job cuts among drug companies.

In recent months, Roche completed its takeover of Genentech, an effort aimed at consolidating their cancer programs. Pfizer acquired Wyeth, becoming the nation's largest pharmaceutical company. Merck merged with Schering-Plough, a plan aimed at diversifying its operations and cutting costs by eliminating up to 16,000 jobs.

Human Genome Sciences was established in 1992, sparked by the international effort to identify all 20,000 genes in human DNA. Working in second-floor labs in a mirror-glass building in Rockville, scientists harvest cell cultures for use in drugs aimed at combating anthrax, hepatitis C, lupus, diabetes, cardiovascular disease and cancer.

Despite the debt, company officials say they believe their balance sheets are in good shape. The company sold its property and is leasing it back, a deal that generated $380 million. The company this year will earn $155 million from a contract with the federal government to produce an anthrax antidote and is looking to secure additional orders. And the company has the potential to earn hundreds of millions of dollars in royalties from GlaxoSmithKline once a cardiovascular drug it is developing based on Human Genome Sciences' technology goes to market.

Company officials say they will seek Food and Drug Administration approval for the hepatitis C drug this year and the lupus drug next year. Given the cold response the hepatitis C medication received from Wall Street, company officials say they recognize the need to wow critics with their lupus drug.

Lupus, largely diagnosed in young women, causes the immune system to attack bodily systems, such as the skin, kidneys, lungs and brain. Patients suffer from a variety of symptoms, including fatigue, rashes and renal disease.

Currently, there is no drug developed specifically for lupus. Doctors typically treat patients with chemotherapy and steroids, which have shown decidedly mixed results in controlling lupus. The treatments often have nasty side effects: weight gain, bone loss and infections.

The company's lupus drug, called LymphoStat-B, is designed to block the process in which the body produces antibodies that attack healthy cells. Early trials showed improvement in half the patients on the lupus drug compared with improvement in 30 percent of patients in the control group, officials said.

Terence C. Flynn, senior vice president for equity research and emerging biotechnology at Lazard Capital Markets, said the chances of the drug succeeding are small given recent failures of lupus drugs under development by Genentech and LaJolla Pharmaceuticals.

But Barry A. Labinger, Human Genome Sciences' executive vice president and chief commercial officer, disagreed.

"There's no good drug available for lupus," he said. "From a regulatory and a market standpoint, a drug that shows a good benefit for patients with lupus will be welcomed" by consumers.