FOOL PLATE SPECIAL: An Investment Opinion
Biotechs Human Genome Sciences and Genzyme General are taking advantage of current markets to finance growth. Human Genome Science's buy may give it a snazzy delivery technology for future drugs, while Genzyme grabs all rights to a drug with potential blockbuster revenues of $1 billion a year. Human Genome's purchase is consistent with its business strategy, but Genzyme may have changed course.
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Human Genome Sciences on course
The Principia acquisition fits Rule Breaker Portfolio candidate Human Genome Sciences like the two strands of the DNA double helix. The company believes that Principia has a technology that could solve problems delivering, stabilizing and maintaining biopharmaceuticals -- especially Human Genome's specialty protein drugs -- in the body.
Expanding the time a protein can survive and act will not only benefit patients but save money by reducing dosage frequency and side effects: Witness Amgen's development of NESP, a once-a-week version of its Epogen drug, today often injected two to three times a week. Because the problem is industry wide, Human Genome cannot only use the technology itself, but also sell it to other drug companies.
The Principia acquisition fits with Human Genome's strategy for spending its growing cash horde. Over the last year, the company has seized on the strength of its stock and the biotech market in general to make four offerings of convertible debt totaling $850 million. And last week it filed a $1 billion shelf registration, providing up to two years to take advantage of favorable market conditions to raise even more money. Because Human Genome currently has more than enough cash to fund its operations while its drug candidates work through the testing and approval pipeline, the purchase of Principia is likely just the first of several.
Genzyme General goes for the biogold
Genzyme believes it will score big time with GelTex's Renagel, an approved and patented drug that Genzyme and GelTex jointly market. Renagel treats hyperphosphotemia, or too much phosphorous, which can lead to brittle bones and calcification of the circulatory system in kidney dialysis patients. Genzyme's CEO says that Renagel is the most important advance in kidney disease treatment since Amgen's Epogen. According to Genzyme, Renagel's 1999 revenues of $19.5 million should double this year, and at least double again annually until hitting $500 million a year within five years, then expand to $1 billion in ten. Not bad.
This boosts the confidence of Genzyme stockholders, who are happy to own a profitable biotech company but haven't been as sure of its road-not-taken route to biotech heaven. Unlike its biotech siblings, Genzyme has sold products -- including niche drugs and non-drug products -- and stock instead of the more common path of relying on partnerships with the big pharmaceutical companies.
But now Genzyme looks more like a big pharma itself, buying all rights to a potential blockbuster drug that alone could hoist high the company's $685 million in trailing 12-month revenues. Add growth from the rest of the GelTex bounty -- the WelChor cholesterol drug, three products in clinical trials and three others to enter clinicals next year -- to Genzyme's non-Renagel business, and Genzyme investors have many reasons to smile.
These deals show solid management. In March, the red-hot biotech market collapsed from its peak upon the misunderstood Clinton-Blair announcement on gene patenting, and the ensuing Nasdaq correction drove biotech stock prices even lower. They have now marched back solidly, and Human Genome Sciences and Genzyme are reaping the benefits.
Your Turn:
Fools following these companies know the score. Join them on the Genzyme General discussion board and the Human Genome discussion board!
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