HGS sets phase III lupus drug trials, posts wider loss


Human Genome Sciences Inc. outlined plans yesterday for taking its lupus drug LymphoStat-B into the final phase of clinical trials before year-end, putting it among a handful of so-called "genomics" drugs to reach that stage. If successful, the drug would be the first lupus treatment approved in 40 years.

It's "a critically important step in the evolution of HGS," Chief Executive Officer H. Thomas Watkins said during a conference call yesterday. The 14-year-old company has struggled for years to profit from genetic information, beginning as a research and discovery business and transitioning into drug development. However, it has yet to bring a treatment to market and still may not for several years.

Lupus is an autoimmune disease marked by inflammation and damage to joints, tendons and organs, including the heart and brain. Current treatments do little to alleviate the symptoms, so many in the medical community have placed high hopes on LymphoStat-B, which significantly reduced disease activity in earlier clinical trials.

Human Genome also reported second-quarter earnings yesterday that continue its loss trend. But the Rockville biotechnology company is in a much better cash position than it was last year, which will help pay for the costly phase III trials.

The company's stock closed up 6 cents to $9.78 on the Nasdaq.

Loss for the quarter that ended June 30 was $61.3 million, a 9 percent increase over the comparable quarter of 2005. New accounting rules meant HGS had to record $7.2 million as a stock-based compensation expense, which pushed up the quarterly loss. Revenue fell during the quarter to $2.2 million from $2.9 million in the second quarter of 2005.

But some analysts on the conference call focused less on the numbers and expressed optimism in other second-quarter activity.

The company has recently spun off a business that will work with intellectual property HGS wasn't interested in developing. It also doubled its available cash for operations to more than $700 million by selling and leasing back property. And it announced that the U.S. government plans to purchase 20,000 doses of its experimental anthrax treatment, though most of that revenue won't be recorded until 2008.

HGS has also formed lucrative partnerships with big pharmaceutical companies to develop its two lead compounds. LymphoStat-B is being helped along by GlaxoSmithKline. And Albuferon, a hepatitis C treatment expected to enter final clinical trials this year as well, is being co-developed by Novartis.

"They're delivering the goods," said Charles Duncan, a biotechnology analyst with JMP Securities in New York.

While Duncan believes there's "nothing kind of magic about genomically driven drugs," he acknowledges they got a lot of attention, particularly at the turn of the century. In the late 1990s, public and private institutions were racing one another to map the human genome, or DNA code, and investors were enthusiastically backing biotechnology businesses - including HGS - based on the hype. Many thought the information would revolutionize medicine.

"It certainly created expectations that could never be met with regard to timelines," said Duncan, who still believes the revolution is coming, just more slowly than some once thought.

In an interview yesterday, Watkins said HGS will deliver on the promise of genomics.

"People like to make broad comments, this hasn't worked, that hasn't worked. Perhaps one should think of the [genomics revolution] in a longer context," Watkins said in an interview yesterday.

LymphStat-B has its roots in the genome, having come from a discovery HGS scientists made and published in 1999. Watkins, however, no longer considers HGS a genomics company, instead preferring the label "drug development and commercialization."

Still, analysts are likely to lump it with others.

"The mere name of the company reeks of the science that we were built around," Watkins said.


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