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Usually, confirmatory phase 3 trials don't cause 40% gains in a stock. Especially after the first one resulted in a crazy 500%-plus gain.

Then again, most drugs don't treat lupus.

There was still a lot of skepticism -- mine included -- going into today's data release for Human Genome Sciences' (Nasdaq: HGSI  ) lupus treatment, Benlysta. The drug passed its first phase 3 trial, which would normally give investors a lot of confidence that Benlysta would work in this trial, too. But that incremental addition in confidence doesn't bring you very high when your confidence in the drug started out so low; lupus is one tricky disease to treat.

Turns out the skeptics had nothing to worry about. In the second trial, Benlysta showed a statistically significant improvement in symptoms compared with the placebo. The results weren't quite as good as the first trial -- including missing three secondary goals at the highest dose -- but having two trials that passed their primary test should satisfy the regulators. It looks like Benlysta will be the first drug approved specifically to treat lupus in 50 years, succeeding where drugs from Biogen Idec (Nasdaq: BIIB  ) , Teva Pharmaceutical (Nasdaq: TEVA  ) , BioMarin Pharmaceutical (Nasdaq: BMRN  ) , and others have failed.

So is Human Genome worth buying now that the fear of failure has subsided? Unfortunately, the awesome biotech returns have passed. Much of the potential sales are already priced into the company, which now has a market cap of more than $3 billion.

Human Genome receives revenue for sporadic sales of its anthrax treatment and has a hepatitis C drug candidate, Zalbin, that's expected to hit regulators' desks this quarter. The lackluster trial results from Zalbin, which is partnered with Novartis (NYSE: NVS  ) , should be good enough to gain Zalbin marketing approval, but will make it difficult for the drug to compete against current offerings from Roche and Schering-Plough -- soon to be Merck (NYSE: MRK  ) .

That leaves most of the company's value tied up in Benlysta. Human Genome and marketing partner GlaxoSmithKline (NYSE: GSK  ) expect to file marketing applications in the first half of next year, which puts an approval about a year away.

Even if Benlysta is the blockbuster everyone expects it to be, that's an awfully long time to wait with so much of the revenue already priced in.

BioMarin Pharmaceutical is a Motley Fool Rule Breakers pick. The newsletter team is always on the hunt for hot drug stocks and other cutting-edge picks. See all of our latest discoveries with a free 30-day trial. 

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Novartis is a Global Gains selection. The Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 02, 2009, at 4:41 PM, LBShow wrote:

    ONCE again The Fools don't believe in this Company. Every article written by The Fools has had a negative slant. Thanks to your articles I've rode this Company frominitial buy 65 cents to close of today 25.28. Keep up the Good Work FOOLS!!!!! :)..

  • Report this Comment On November 03, 2009, at 8:26 AM, lgttch128 wrote:

    First, the revenue from Benlysta is not already priced in as Mr. Orelli suggests. And, the use of Benlysta to treat other autoimmune diseases is almost a certainty. This could easily take the revenue from Benlysta to the $7 billion range or higher. HGSI should be in the $50 a share range not $25. Compare HGSI to AMGN for example.

    Mr. Orelli underestimates the impact of Zalbin sales on HGSI. Experts are underestimating the number of patients who will gravitate to HGSI's bi-weekly injection as part of a cure regimen combined with Ribavarin and Telaprevir. In addition, there is a good chance that a three week interval between injections might be possible.

    The cancer drug in Phase II trials is wholly owned by HGSI, no partner to split revenues with for this drug and it is showing positive results in its application to lung cancer though the degree of impact is still undetermined.

    More importantly, their success' is validating HGSI's protocol for finding new drugs to treat many diseases and indicates that their pipeline may possess many more gushers and fewer dry holes than the traditional method of searching for new drugs. HGSI, if left alone and not taken over by someone, can become one of the great pharmaceutical companies of this century.

  • Report this Comment On November 03, 2009, at 2:17 PM, wbcm wrote:

    Your article proved once again. You are "genius". Do you know what you are writing about?

  • Report this Comment On November 04, 2009, at 6:34 PM, TMFBiologyFool wrote:

    Nothing is "almost a certainty" in drug development. $7 billion in sales? Maybe, many years from now, but HGSI still has to prove it'll work in other indication, which isn't a sure thing no matter how much investors want to believe.

    Congratulations to all the bulls. You're calculated risk paid off when the rest of us were to chicken to get in.


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