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FEBRUARY 28, 2003

THE BIOTECH BEAT
By David Shook

HGS's Haseltine: "We're Batting .800"
A giant of the biotech industry says his company's genomic approach to developing drugs sets it apart from the pack


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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.

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