HGS Hoping to Survive Final Test of Lupus Drug
Monday, June 29, 2009
In the high-stakes, high-risk, high-failure business of developing drugs, there are two events that test an executive's intestinal fortitude. One: The first time a drug is tried by a human. Is he still alive? Two: Getting results of final-stage testing. Please, let it have worked.
Around eight years ago, Human Genome Sciences survived the first event, when patients were first given the firm's experimental lupus treatment. Sometime in July, and many hundreds of millions of dollars later, they will gather in a hotel conference room to see how they endured the second crucial event -- final human testing results. David Stump, the firm's head of drug development, is hoping the first PowerPoint slide the biostatistician shows will say success.
"You work yourself into a zone of contemplation," Stump said. "It is one of those acquired skills you develop in this business. You have to make your peace with success and failure. If you can't make your peace with failure, then this isn't the business you should be in."
And plenty of people on Wall Street predict that the Rockville company will fail. Lupus, a complicated autoimmune disease in which the body attacks its organs, is known as the drug industry's black hole, where even the world's top scientists go to fail. There hasn't been a new lupus drug approved in 50 years. Not long ago, biotech behemoth Genentech stumbled with its own candidate.
"No one has any real conviction that HGS's drug is going to work," said Geoffrey Porges, a Sanford C. Bernstein analyst. "Nothing has really ever worked in lupus. It's a very difficult disease." In downgrading the stock recently, Lazard Capital Markets analyst Terence Flynn told investors, "We continue to believe that the probability that this drug succeeds is extremely low."
The difficulty in going after lupus is that the disease waxes and wanes, heightening the possibility of a placebo effect. Also, because many organs are involved, it is difficult to measure success because the disease is a moving target. In cancer, drug developers generally target stationary tumors with a laser focus. Treating lupus is like trying to corner a hyper cat.
In key mid-stage testing in 2005, HGS fell short of the goal line. But when executives took a closer look at the data, they saw that their drug, now called Benlysta, was successful in treating a subset of patients who had biologic indicators in their blood showing that the disease was active. Wall Street analysts generally dismiss such retrospective analysis.
"It's changing the rules of the race," Porges said. "We lost the marathon, but if it had been a half marathon, we would have won."
Nonetheless, in the final stage of testing, HGS, with the agreement of federal regulators, only enrolled that subset of patients in the study. Stump said that if what happened in the retrospective analysis of the earlier failed study repeats itself, "We will have very favorable results." But there is still room for doubt, he said: "The patient variability component is still there." Translation: The cat is always on the move.
HGS chief executive H. Thomas Watkins said Wall Street's reservations did not bother him. He pointed to recent positive results from an extension of the last study, which showed that for patients who stayed on the drug, after four years there was sustained improvement in the disease.
"The consensus out there may be that we shouldn't count on it working, but that doesn't change the prospect of it working," Watkins said. "Our chances of success are independent of what the market thinks." Later in the interview, he said, "It will succeed, it will succeed," almost like a mantra.
The stakes for HGS and lupus patients are enormous. For the company, it would be a significant validation of the founding principles of genomic medicine, but more importantly it would provide a much-needed source of revenue for a firm whose only product on the market is a treatment for anthrax. A lupus drug has the potential to become a billion-dollar drug. HGS is also working on a treatment for hepatitis C, though that drug has also been criticized by some analysts.
Hanging over HGS's head: About $400 million in convertible debt due in 2011 and 2012 if the company's shares don't trade for more than $15. HGS shares are currently trading for under $3. Analysts who are less negative about the company's prospects for success in lupus say a positive study result could send the shares over $20. "In our view, this could be a tremendous opportunity if the data is positive," Citigroup analyst Yaron Werber recently told investors.
Then there's the lupus patients, who haven't had a new drug in five decades and who currently take a combination of drugs with serious side effects. "The patients are very excited," said Sandra Raymond, president of the Lupus Foundation of America. "They have waited a long time, so this is a very exciting prospect. I believe we will have a new medication for lupus, and it will start with this drug."
Stump, the drug development chief hoping for that positive first PowerPoint slide, said: "Heaven knows these patients need something different." Everyone will know soon.