HGS's Haseltine: "We're Batting .800"


By David Shook William Haseltine, a genomics industry pioneer and former AIDS and cancer researcher, has built Human Genome Sciences (HGSI) around developing drugs based on genetic clues extracted from the human genome. In contrast to most other modern medicines, which are chemicals, the investigational drugs his company has discovered are proteins and antibodies. Haseltine, HGS's CEO and founder, believes this genomics-based approach and the focus on proteins and antibodies will eventually catapult HGS to the top ranks of the biotech industry.

Investors, however, seem to view HGS as a money-losing laboratory -- and they expect it to remain one for the next several years. It has seven compounds in early-stage development (phase 1 human clinical trials) and one in middle-stage testing (phase 2), but all remain several years away from the market, assuming they pass the clinical trials. A HGS is burning through nearly $200 million a year on research and development.

Based in Rockville, Md., HGS had a net loss of $219.7 million ($1.71 per share) in 2002, compared to $117 million (92 cents per share) in 2001. The stock, trading around $6.50 a share as of Feb. 27, has fallen nearly 75% from its one-year high in the downtrodden biotech market.

Yet with almost $1 billion in cash net of debt, HGS can buy the time it needs to prove itself, Haseltine believes. BusinessWeek Online Reporter David Shook spoke to Haseltine on Feb. 25, during the Biotechnology Industry Organization conference in New York. Edited excerpts of their conversation follow:

Q: What about the eight drugs you have in clinical trials?

A: All eight are advancing quite nicely, and all of our drugs in development are for very large therapeutic markets. One drug -- Repifermin -- is finishing up its phase 2 (middle-stage) studies this year. Repifermin is a protein discovered by us that can be used as a treatment for chronic skin ulcers and cancer-therapy-induced mucositis.

Q: A ninth drug, Mirostipen for cancer, already failed in clinical trials, correct?

A: It wasn't as effective as we had hoped it would be.

Q: Is there evidence that your bottom-up, genomics-based approach to drug discovery is more effective in developing drugs than the chemically based approach that is more common in the industry?

A: We've had nine drugs in clinical trials, and eight are still active. That's a pretty good record. Of the drugs that have finished phase 1 trials, four of the five have met the objectives. That's much better than the 80% to 90% failure rate common in phase 1 clinical trials.

We're not batting a thousand, but we're batting .800. That's much better than the industry as a whole.

Q: How exactly can you develop drugs faster and with a higher degree of success?

A: We started back in 1995 with a set of full human genes to work from. [The human genome wasn't considered fully mapped until 2000.] Drug companies never had that as a resource. We said "O.K., here's a disease we want to treat, is there a gene or a human protein that will allow us to treat it?"

That was our first conceptual change in the discovery process. And it was made possible by new technology. The second conceptual change was to focus exclusively on protein- [and] antibody-based drugs. Once we have an idea that a gene may create a protein or may be a target for an antibody that may be useful for treating a disease, it takes only one or two years to get the compound into the clinic rather than the six to eight years that is typical for chemical drugs.

Keep in mind that it's hard to find chemicals that fit into the complex biology of the body, whereas proteins and antibodies are natural substances. That's probably why most chemicals fail in phase 1 -- you're trying to put a foreign substance into the body that essentially poisons it. For us, the challenge isn't usually about whether the drug is toxic, it's really a question of finding the right dose or targeting the drug in the right place in the body.

Q: You've recently turned your attention to bioterrorism?

A: Yes, we've initiated new programs in bio-defense. While we can't discuss these programs in detail, I can say they're advancing quite nicely. One advantage to doing research in biodefense is that you don't need to do the whole human clinical trials process to prove efficacy. If you're developing a drug against anthrax, for example, you only need to show the efficacy of the drug in animal models.

We've become active in working on drugs for anthrax and other biodefense agents. And the federal government's new Homeland Defense budget has a huge allocation for this area.

Q: Your company has $1.4 billion in cash and $500 million in debt, and a market capitalization of about $900 million. So your company is basically trading for the value of its cash. Is that reasonable to you, considering the perceived high risk of failure and the fact that investors won't know for several years whether you've developed any real drugs?

A: No, it isn't acceptable. I think our stock is trading this low due to very deep pessimism that affects all biotech stocks right now. And it's not reasonable. But it is what it is. We're not alone.

Q: Your company had a mere $3.6 million in revenues last year. Since you have no drugs on the market yet, are you looking at other ways to generate revenue?

A: Yes. We figure we can do that through technology-licensing deals, product-licensing deals, and contracts in the biodefense area.

Q: Your costs are still rising, correct?

A: The rate of increase in our costs has actually slowed dramatically. And this year we've said our costs will rise by no more than 10% over last year's, which is a considerable slowdown. We believe that we can contain our costs to a very slow rate of growth over the next several years. We already have the basic infrastructure in place.

Q: Because you're a former AIDS researcher, I'd like to ask you about the experimental AIDS vaccine that recently failed its clinical trials. Were you surprised that Vaxgen's vaccine flopped?

A: I knew in 1987 that [a] vaccine wouldn't work. Many scientists knew it.

Q: What about Merck's (MRK) experimental AIDS vaccine, which is in clinical trials?

A: That's a very different vaccine, [but] I think that one, too, is unlikely to work. The clinical results in monkeys haven't been promising.

Q: Why are you so pessimistic?

A: It's the nature of the HIV virus itself. Remember vaccines...don't prevent penetration of the virus into the body. They allow the body to react quickly to infection, and they eliminate it once the infection has begun. While that works for other viruses, that isn't good enough for HIV because once it gets into your body, the AIDS virus keeps changing.

Your body -- although it mounts a very effective immune response to the virus, stronger than anything I think we've seen against any organism -- doesn't mount a strong enough defense. So if the body can't clear the virus once it begins infection, then it's unlikely that a vaccine will ever stop it. This is a very unusual virus, and I think it will be nothing short of a miracle if you have a vaccine for it.

Q: If vaccines don't work, what's the solution for the AIDS epidemic?

A: You can't stop this epidemic with drugs alone. It's going to require [education] and a greater understanding from people about what the risks are and widespread use of condoms.

It's amazing, really. Many scientists, including myself, were predicting the current state of the AIDS epidemic 10 or 15 years ago, and nobody would believe us. By 2020, I still think we could see 1 billion infected if people don't change their behavior. No treatment will ever catch up with the infection process. That was clear back in 1985-86. And people just didn't want to believe it. The power of denial is amazing to see in action. Shook covers biotechnology issues for BusinessWeek Online. Follow The Biotech Beat every week, only on BusinessWeek Online


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