Human Genome gets U.S. contract

Government to purchase 20,000 anthrax-drug doses

June 21, 2006|By TRICIA BISHOP | TRICIA BISHOP,SUN REPORTER

Human Genome Sciences announced yesterday its first major contract with the U.S. government for an experimental anthrax drug, more than four years after the bacterial infection terrorized the country. But Wall Street's initial reaction was tepid.

The federal government plans to purchase 20,000 doses of the Rockville biotech's treatment for $165.2 million, with delivery and 90 percent of the payment expected in 2008. When complete, the deal will give the 14-year-old company its first-ever product sales revenue.

While shares of Human Genome traded at more than double their normal volume, the stock price closed up by only 16 cents, or 1.6 percent, to $9.96.

Chief Executive Officer H. Thomas Watkins characterized the arrangement, which is contingent on the completion of certain clinical studies and receiving approval from the Food and Drug Administration, as "one more important step in the transformation of HGS."

The company has released a string of announcements recently highlighting its efforts to move from the discovery phase of drug development toward commercialization.

Two weeks ago, Human Genome announced a $507 million collaboration with Switzerland's Novartis to develop and commercialize its hepatitis C drug, Albuferon.

Yesterday, Human Genome reiterated intentions to move that drug, as well as a lupus treatment called LymphoStat B, into late-stage clinical trials this year. HGS also recently sold its headquarters, some land and a new manufacturing facility to put $380 million in its bank.

"As far as I'm concerned, they're doing exactly what they need to do," said Edward Tenthoff, an analyst with Piper Jaffray & Co. in New York. His firm has picked Human Genome as the top stock for the second half of the year, with a predicted target price of $18.

In October, the company announced that the government bought a small amount of the drug, called "ABthrax," to test and could eventually purchase up to 100,000 doses as part of its plan to stockpile medications needed during a public health emergency, including a terrorist attack and a flu outbreak.

Anthrax, a bacterium that releases lethal toxins in the body, killed five Americans in the fall of 2001 following the Sept. 11 terrorist attacks, sparking further panic among thousands, who were no longer sure it was safe to open their packages or fly.

Investors have been skeptical of such plans, unsure of the government's follow-through, Tenthoff said: "It's proven so hard to get money out of the government."

But he believes that is changing and points to the multibillion-dollar plan to prepare for a pandemic influenza outbreak and efforts to revamp bioterrorism legislation as proof. "It really seems to me that they're starting to get their act together."

Others were not so convinced.

Gilad Aharon, an analyst with Toronto-based Infinium Capital, said he expects the government to spread several small contracts such as Human Genome's around to various companies, and this is nothing to "get excited about."

Human Genome typically burns through about $60 million in cash per quarter, he said, and after expenses are accounted for, the $165 million "buys them another quarter and a half in cash."

Many small companies, including PharmAthene Inc. in Annapolis, are working on anthrax infection treatments and hoping to get their hands on federal money designated for such efforts.

Last year, the Department of Health and Human Services spent $122.7 million to buy 5 million doses of an anthrax vaccine made by Michigan's BioPort Corp. And the year before that, the department awarded VaxGen Inc. of California $876 million for 75 million doses of its anthrax vaccine.

"In reality, there are many competitors," said Aharon, who expects Human Genome's stock to stay in the $10 range over the next year.

Currently, there are only two approved anthrax treatments. Antibiotics can kill the bacteria, but not the deadly toxins after they've been released in the blood. And the vaccine takes weeks to produce immunity, requires multiple injections over 18 months and an annual booster shot.

ABthrax is thought to provide immediate immunity and work on the toxins that antibiotics miss.

"This important addition to the Strategic National Stockpile will provide physicians a way to neutralize the deadly toxin anthrax bacteria produces," said Gerald Parker, Health and Human Services acting assistant secretary for public health emergency preparedness, said in a statement. "We found that it is the toxin which accounted for the majority of anthrax-related deaths during the anthrax attacks of 2001."

Still, analysts Tenthoff and Aharon (neither of whom own Human Genome stock or work for firms that have investment relationships with the company) believe the deal is likely a one-time thing that will help Human Genome's bottom line, but might not provide much of a future foundation.

"They're still far away from significant cash flows," Aharon said. "I mean, this is a company that if all goes well for them, will become cash positive in the next decade, and there's nothing they can really do to accelerate the pace at this time. I will credit them that they're trying."

tricia.bishop@baltsun.com

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