Last week's $400 million deal by Teva Pharmaceutical to buy CoGenesys Inc. will enrich CoGenesys insiders and create a great launching pad for the Rockville company's drugs. Some shareholders of Human Genome Sciences, however, wonder why they aren't getting more of the action.
Two years ago Human Genome's president and chief financial officer started CoGenesys by taking some of Human Genome's best scientists and ideas out the door. Now, in this edition of "Flip This Biotech," they and others who invested with them will walk away with most of the money. Human Genome will get just $52 million.
"We are certainly not happy that the people who are profiting most from this acquisition are not Human Genome Sciences shareholders," said T. Rowe Price biotech analyst Jay Markowitz. With a 7 percent stake, T. Rowe Price is Human Genome's fourth-biggest shareholder, and Markowitz thinks management should never have let go of CoGenesys.
Maryland's independent biotech flagship has stumbled again, giving away an important part of its future for far less than it's worth. Usually, corporate spinoffs are poorly performing units nobody else wants. HGS somehow got it backward. The company says the spinoff nurtured drugs it never would have developed on its own.
"We don't have one second thought about the decision we made with CoGenesys," said Human Genome spokesman Jerry Parrott. "The unanimous reaction internally was to be pleased for our former colleagues and delighted that we're going to get $50 million in cash."
Human Genome, which went public in 1993, has spent hundreds of millions on research and never sold one pill or injection to a patient. It has several drugs close to market - for lupus, hepatitis and anthrax - and decided two years ago to focus on them at the expense of earlier-stage research.
But company President Craig A. Rosen, wanted to do lab work and led the deal to shift early-stage projects to CoGenesys and separate it from Human Genome. He had been "bored" for three or four years, he told The Washington Post.
Human Genome wasn't willing to invest in the CoGenesys portfolio, officials said, and the spinoff enabled Human Genome to shed millions in payroll and real estate costs.
Human Genome might just as easily have shut the operation down and laid off dozens, suggests Steven C. Mayer, the CoGenesys CEO who was formerly Human Genome's finance chief.
