Human Genome to cut costs and sharpen focus

200 jobs will go, but analysts think firm is on right track

March 26, 2004|By William Patalon III | William Patalon III,SUN STAFF

The decision by Human Genome Sciences Inc. to sharpen its focus and slash costs - in part by cutting 200 jobs - is a move the Rockville-based biotechnology firm needed to make if it ever hopes to capitalize on a treasure trove of technology, analysts said.

Human Genome yesterday made official its plans to focus on only its most-promising technologies. Its aim is to accelerate a transformation from a drug-development outfit to a commercial entity capable of making and selling its drug discoveries on a mass - and profitable - scale.

The company will pursue these goals with a new leader. Founder William Haseltine, 59, is to retire as chairman and chief executive later this year after a successor is found.

The former Harvard University professor created the firm based on the premise that it is possible to combat serious human disease with drugs designed using the human genome - the human genetic map - as a guide.

"The thinking is that it's time to bring in someone with development expertise, someone from outside the company, probably someone from a major pharmaceutical or biotechnology company," said Michael King, an analyst and managing director who follows Human Genome for Banc of America Securities in New York.

Four years ago, a belief that human genomics could hasten the cure for many serious maladies propelled Human Genome's shares to a peak of $112.63. But investors became disenchanted as the company failed to commercialize a single drug, sending the stock into a long slide. Yesterday, Human Genome shares rose 86 cents, or 7.55 percent, to $12.25.

The company has encountered serious setbacks along the way. Last month, for instance, it ended development of Repifermin, a drug to treat mouth sores suffered by chemotherapy patients. Once viewed as one of the company's primary product candidates, Repifermin was found in clinical trials to be not much more effective than a placebo.

The company's new strategy calls for it to concentrate chiefly on immunology and infectious diseases, and oncology, said Jerry Parrott, vice president of corporate communications and public policy.

Human Genome assessed its capabilities and said, "OK, we've got to start making some choices," Parrott said. "Even if all the products we have in the pipeline had promise, we couldn't afford to keep all of them going. When they reach late-stage clinical trials, the costs go up [astronomically]."

Through next year, Human Genome is concentrating on clinical trials of five products in two key development areas. Among those are potential treatments for lupus, rheumatoid arthritis, solid-tumor cancer, hepatitis-C and HIV/AIDS.

The strategic choices the company is making play to its strengths and focus on illnesses for which few treatments exist, said Frank DiLorenzo, a biotechnology analyst with Standard & Poor's Equity Research Services. "I look at [this] in a positive way," DiLorenzo said. "There's got to be a point where you focus on your best, most-promising candidates."

The downside for its workers, however, is the elimination of jobs. As the company shifts away from being an "early stage" biotech firm, it must cut the jobs of the early-stage researchers who helped it get started. Employees in some support-staff positions will also be fired.

In all, about 200 employees, or one-fifth of the work force, will be cut, the company said. Notifications could begin next week. Affected employees will be offered severance packages and outplacement services.

"These are tough decisions because you're talking about, in many cases, the people who helped build the company," Parrott said. "But we think these are the right steps for us to take and the right time for us to take these steps."

The company intends the cuts to free up cash to finance long-term drug development. With about $1.3 billion in cash and securities on its balance sheet at the end of last year, Human Genome has enough money to operate for several years. That is sufficient time for some of the products in development to reach the market, should they succeed in clinical trials, the company and analysts said.

Human Genome lost more than $205 million in 2002, the most recent year for which figures are available. It had virtually no revenue. But with its capital at hand and other strengths, such as its partnership with British pharmaceutical giant GlaxoSmithKline, Human Genome is as well-positioned as any other biotech firm, analysts say.

Said Banc of America's King, "They have enough to keep going for 10 years."

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