HGS licenses experimental drug to Glaxo

Accord could bring Md. company $183 million

3rd-quarter loss reported

October 27, 2004|By William Patalon III | William Patalon III,SUN STAFF

Human Genome Sciences Inc. has licensed an experimental diabetes drug to industry giant GlaxoSmithKline PLC in a deal that could bring in as much as $183 million long-term for the Rockville-based biotechnology company.

Separately yesterday, Human Genome announced a third-quarter net loss of $62.2 million, or 48 cents a share, which was roughly in line with expectations. The company's shares climbed 26 cents, or about 2.7 percent, to close at $9.75.

For Human Genome, struggling to make the transition from selling genetic research to developing drugs based on that research, the licensing agreement could generate tens of millions in proceeds for a drug that, despite its promise, was years away from reaching the market, assuming HGS could have gotten it to market.

Also, any success by Glaxo with the drug could give a considerable boost to the drug's underlying technology, to which Human Genome kept the rights and which is central to several of the Maryland company's high-priority drug-development programs.

"It is a very good deal," said Craig A. Rosen, Human Genome's president and chief operating officer.

The deal with Glaxo, based in London, grants that company worldwide rights to develop and commercialize Albugon, which is yet to be tested in humans. In return, Human Genome receives an upfront fee and clinical development and milestone payments that could reach $183 million.

Glaxo also has the right to find and develop other applications for the drug, which could generate additional milestone payments for Human Genome, which will receive royalties on any sales of the drug.

Because Human Genome's strategy is to focus on treatment of such diseases as cancer, rheumatoid arthritis, lupus and hepatitis C, a diabetes drug was likely to "sit on the shelf" for a few years rather than be developed, Rosen said.

Albugon was created using Human Genome's proprietary albumin-fusion technology, a gene-based process for developing drugs tied to specific maladies.

The technology was highly heralded by Human Genome as recently as a few years ago, but the company more recently has not talked much about it, experts say. That a company of Glaxo's stature has found value in that technology and is willing to pay for it is a surprise, said Alexander A. Hittle, a biotechnology analyst with A.G. Edwards in St. Louis.

"From our standpoint, albumin-fusion seemed to have been consigned to the analysts' equivalent of the dead-letter office," said Hittle, who covers Human Genome. "It's nice to see that a company [as important as Glaxo] is prepared to possibly take this forward."

Just as positive, diabetes treatment is an area of specialization for Glaxo, Human Genome's Rosen said.

Rosen said Glaxo's willingness to license a drug based on albumin-fusion will serve as a vote of confidence in that technology, which is central to such other key Human Genome drug candidates as Albuferon, which targets the hepatitis C virus.

Hittle said Human Genome's third-quarter results were reasonably good, in that the company is doing a good job managing expenses. That's critical for a biotech company that remains largely in the development phase, he said.

"The issue for them every quarter is: `What did you spend?'" Hittle said. "This shows that they were basically in line with what we expected them to spend."

Human Genome lost $47.7 million, or 37 cents per share, in last year's third quarter. That included charges of $4 million for consolidating facilities and $1.8 million for costs related to the previously announced retirement of Chief Executive Officer William A. Haseltine.

Revenue in this year's third quarter was $717,000, down from $1.24 million in the third quarter of last year, the company said.

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