BUSINESSWEEK ONLINE : JUNE 12, 2000 ISSUE
COVER STORY

William Haseltine on Human Genome Science's Plan
"Our model is to become just like Amgen, only with a deeper pipeline"

Human Genome Sciences, based in Rockville, Md., is one of the first biotechnology companies to use new, cutting-edge genomics technologies to develop novel drugs. Only eight years old, the company has three drugs in seven different clinical trials. In addition to making and marketing its own drugs, the company has partnered with large pharmaceutical companies to lend its research expertise to their scientific problems. Major partners include SmithKline Beecham, Merck, and Schering-Plough. In a recent interview with Business Week Science Editor Ellen Licking, Chief Executive Officer William A. Haseltine discusses Human Genome Science's business model and the future of "regenerative medicine." Here are edited excerpts of their conversation:

Q: What is Human Genome Science's mission?
A:
Our fundamental business is to develop cures for disease using new gene-based medicines and to manufacture and sell those gene medicines to patients. Making and selling drugs, whether the drug is made from tree bark or is a gene product, is one of the oldest businesses in the world. It's also a highly successful business, because you can sell products at very high margin that are protected by government-supported monopolies, also known as patents. Furthermore, the products are ones that people really need.

Q: What kinds of products are you developing?
A:
They are not "me-too" drugs. We can not only make new pharmaceutical products -- we can make better ones that are comprised of human genes, human proteins, and human antibodies. The concept is to use the body's own substances to regenerate what is damaged by disease, injured by trauma, and eventually worn by age. One gene makes one protein which is one drug which is one market. The primary market for these "regenerative medicines" is our aging population. The market for these products is the broadest possible -- it's everyone who ages.

Q: How do you go about finding your novel medicines?
A:
We weren't interested in all 100,000 genes in the genome. We were interested in a specific class of genes that code for proteins that are secreted from individual cells and circulate in the body. These molecules tell cells what to do -- for instance, to grow or to die. They are probably going to be the most medically useful compounds.

We automated ways to measure levels of these proteins in various tissues. We sequenced both the gene and the protein it encodes. Then, we designed highly automated cell-based assays to figure out what the proteins actually do. We have now collected data for over 10,000 genes [and their corresponding proteins]. One of our most promising targets is involved in stimulating immune function.

Q: Will your strategy improve the efficiency of drug development?
A:
Yes. Our goal is to use genomics to generate 100 human leads that are active in cell-based experiments. From that we will choose 10 leads and test them in animal models. We plan to generate two new drug compounds a year, and will develop at least two of them in-house. So, with just a small budget -- $100 million annually -- we'll deliver four potential therapies a year. That's much greater efficiency than other pharmaceutical companies.


Q: Please explain your business plan and financing strategy.
A:
Most people misinterpret our business plan and assume that since we sell our technical expertise to pharma that we're a service company. Instead, we invented a new financial strategy for funding our company through the lean years until we grew into a stand-alone entity.

Our model for success is Amgen. Fifteen years ago, Amgen started from nothing, but was able to find, develop, and market two major drugs, called Epogen and Neupogen, on its own. To this day, no biotech company has done better than Amgen. Our model is to become just like Amgen, only with a deeper pipeline. Think what would happen if Amgen had a systematic method for discovering its drugs. It would be one of the largest pharmaceuticals in existence. Well, that's our goal.

Q: And your financing strategy?
A:
Timelines in biotech are very long -- it's a major structural problem for the industry. We knew this when we started, so we conceived of a 15-year plan back in 1992 that's a new financial strategy for funding a biotech company. When we started, we decided not to pursue nonexclusive contracts with pharmaceutical companies. I feared we would become just a commodity business.

Yes, that strategy would have raised a lot of money up front, but the value down the road wouldn't have been as great.

So we chose an exclusive arrangement with SmithKline Beecham that gave us $125 million up front, plus 10% of royalties from drug sales, and the right to co-develop a product in 20% of the market. That gives us a total return of 30% just for collaborating with SKB. We quickly saturated SmithKline's ability to handle targets and have since expanded our web of alliances to include Merck, Takeda, and others. This has allowed us to raise $300 million to cover research costs. The result: Our balance sheet is cash-neutral.



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