Stocks Fools Love
Human Genome Sciences, Inc.

By Jeff Fischer (TMF Jeff)
February 8, 2000

Trading at $142 1/16 as of February 7, 2000

Human Genome Sciences, Inc. (Nasdaq: HGSI) is discovering, identifying, and patenting human gene information in order to discover, develop, manufacture and market new gene and protein-based pharmaceuticals. The company is a leader in the quest to turn genomic knowledge into highly effective, disease-curing drugs. Human Genome Sciences (abbreviated as HGS) has been pursuing its mission "Toward Victory Over Disease" since 1992.

Following eight years of pioneering work on the human genome, HGS now has approximately 7,500 related U.S. patents filed (a small percentage have been granted so far), representing one of the largest patent portfolios in the biopharmaceutical and biotech industry. The potentially large value of these patents may begin to be discovered over the next five years, because more and more companies are expected to begin to create drugs based on genomic information. If HGS already has a patent on a certain gene's many potential uses, the company could receive royalties from any company that develops a related drug from the gene. HGS's patent portfolio is also a valuable asset, logically, in helping the company to develop its own drugs.

After nearly a decade of work, Human Genome Sciences is closer to bringing its first drug (or drugs) to the consumer market than ever before. Although drug development must be measured in years, not months, HGS's potential drugs (if successful) could be among the first genome-derived drugs brought to the market in the world.

Analysts at Needham & Company believe that "HGS has one of the most promising [drug product] pipelines as well as one of the most powerful drug-discovery programs in the industry." HGS calls its program the Functional Genomics Program, and it begins with gene discovery and extends all the way to human clinical trials of new gene and protein-based drugs. Human Genome Sciences's drug discovery program is greatly aided by the fact that the company has built one of the world's largest human genome databases, containing over three million sequences that represent, it is believed by management, a majority of human genes.

Rather than merely build a database of information, the company's scientists continually perform lab tests to determine the many potential uses of various genes and proteins, and then work to find the best potential solutions among them. This process could result in better and perhaps even more quickly approved drugs.

Three drugs are in clinical human trials for HGS, at least five other potential drugs are in preclinical studies (with more presumably on deck) and over a dozen new potential human gene and protein-based drugs are being evaluated at HGS prior to potential clinical tests. In developing drugs, Human Genome Sciences focuses on billion-dollar markets that aren't being served well or that don't have prominent competition. The three HGS-derived drugs currently in clinical trials are (in acronym first):

1. MPIF-1, or Myeloid Progenitor Inhibitory Factor-1 is a drug that has been shown to shield the blood-forming cells in human bone marrow by putting them in a "resting state." This, in turn, protects the cells from chemotherapy damage. Following chemotherapy, the cells can be "turned back on" and resume the important creation of blood cells. This drug could be absolutely vital in helping cancer patients survive. Phase II studies are now taking place on humans with MPIF-1. So far, studies have been favorable and well-tolerated.
   
   
2. KGF-2, or Keratinocyte Growth Factor-2, is a growth factor for the layer of cells that line the internal as well as external surfaces of the body. It can be sprayed onto chronic wounds and skin ulcers to hasten healing (quickly regenerating both epidermis and dermis, even in deep wounds), and therefore it could serve several large market needs. KGF-2 may also be used on cases such as mucositis, a side-effect of chemotherapy that occurs when delicate cells lining areas such as the throat are killed. Treated with KGF-2, the skin lining has shown to regenerate quickly. KGF-2 has been in phase II studies since February 1999, and could reportedly be approved for some indications as early as this year. KGF-2 recently began phase II clinical studies for mucositis, too.
   
   
3. gtVEGF-2, or Gene Therapy Vascular Endothelial Growth, is an equally promising (and heartening) solution with substantial potential. This protein is used to grow new blood vessels in the body. Therefore, it could be used to grow new blood vessels to treat a damaged heart, or to keep a damaged limb from being amputated, for example. gtVEGF-2 is undergoing several Pase I/II clinical programs, so far with very promising results. (This is a "natural" solution. If you introduce the correct body-grown agent -- a protein or gene -- to a damaged part of the body, that agent will instigate the formation of new blood vessels, in this case, and thereby can bring the area back to health.)
   

Human Genome Sciences, Inc., also has five product candidates in preclinical studies, and likely several others that are not yet disclosed to the public. One promising candidate is BLyS, a natural protein that stimulates the production of high levels of antibodies that protect the body from infection and disease. BLyS could go into clinical studies early this year (we may hear more about BLyS in March following a conference). For more information about product candidates, visit this page on the company's website.

One always hopes that health can win the war over disease, and Human Genome Sciences may have everything in place to help it win at least many battles over the years. However, the risks for investors are high. The company has low revenue numbers and is burning cash on research and development for new product candidates. HGS has enough cash (and probably enough means for more) to continue operations for several years, which is good, because the company won't likely be profitable until 2003 at the very earliest. And that assumes that most all things go well. Drug development is a complex, time consuming business.

Meanwhile, the company's other revenue streams (patent royalties and revenue derived by selling its database of genomic information) could prove lucrative, but will likely require a handful of years to really take off. This company isn't striving every day to grow revenue, right now, it is aiming toward a product. So, this story isn't a financial one yet. You can find HGS's financial data by clicking here.

You need to love science if you're going to love this company. You must also love uncertainty (thrive in it). And finally, hand-in-hand with uncertainty, you must love risk and see it as an opportunity. If any of these three things do not make your heart go pitter-patter, then this isn't an investment for you. But if these things get your heart racing, then consider researching Human Genome Sciences further. The company could represent a very healthy proposition for your investment career and, one day, for your health.

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Human Genome Sciences Company Information:
Trades on the Nasdaq under symbol HGSI
Website: www.hgsi.com

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A Stock to Love represents the opinion of one Fool and in no way should be taken as the opinion of either The Motley Fool, Inc., the company in question, or representative of anyone or anything else other than that specific Fool's thoughts.

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