Human Genome Sciences' Pipeline

The investor relations department at Human Genome Sciences (Nasdaq: HGSI) tells us that the company could have six drugs in clinical trials by the end of 2001, up from three today (four if you count the trial that is on hold), and at least a few of these drugs could be in trials for more than one indication.

HGS is the first company to have four genomics-derived drugs move to clinical trials. New drugs that may go into clinical trials by the end of 2001 include a monoclonal protein, a therapeutic antibody, and a fusion protein that was obtained from the recent Principia acquisition. We don't have details on these drugs' indications (clinical uses), and it is "a horse race" to see which drug may make it to trials first.

The company discovered BLyS last year, and it already could be in two clinical trials by the end of 2001. HGS already initiated clinical trials of BLyS for patients suffering Common Variable Immunodeficiency (CVID), an immune system deficiency, and we'll see the preclinical data on BLyS during two different science conferences this fall.

BLyS could be very important. It stimulates the body's immune system into making antibodies, the body's "first line of defense" against disease. A second preclinical study uses BLyS as a cancer-targeting agent. Overall, the fact that this protein went from discovery to clinical trials so quickly is indicative of the potential speed behind genomics-based drug discovery and trial application.

In addition to new drugs, HGS may have another indication for the protein called Repifermin, or KGF-2. The new indication is diabetic ulcers. KGF-2 is already in three different Phase II (out of III) studies. It is indicated for venous ulcers (as The Washington Post reported in an uplifting story), mucositis (or sores in the mouth, throat, and gastrointestinal tract, associated with chemotherapy), and ulcerative colitis (inflammatory bowel disease).

An Investor's Timeframe and HGS
So, a great deal is happening at Human Genome Sciences. Within five years, the company's first drug could reach the market.

Until then, the company will be valued on the commercial viability of drugs in the pipeline, patents granted, and patents still pending. (Some analysts estimate that the company's patents could prove to be worth billions.) The fact that the company is reselling its protein database next year provides additional potential, as do drug royalty arrangements, but in-house drugs are the main show. And all drugs take time.

We mentioned the notion of 10X/5Y potential when we decided to purchase HGS. Patents or no patents, though, I don't believe that Human Genome Sciences' stock is likely to rise 10 times in value -- to more than $80 billion -- in just five years. However, I do see the potential for something close to that in seven to 10 years. If the company can get two drugs on the market by 2007, and both are blockbuster drugs (two big "ifs"), it may soon after become an $80 billion company -- an Amgen (Nasdaq: AMGN).

In the meantime, if you invest in the stock for a shorter time than five years, you likely have a better chance of losing money than you do of making any. The stock gives the company a $9 billion market cap (today -- it changes almost daily) based on a modest, but promising, pipeline and a large patent portfolio. The company's first drug will not be sold for at least four years under an ideal outcome. That gives the stock plenty of years to bounce around or decline. So, investors should be prepared to see the stock lose 50% before it gains another 100% from today's price, because that could reasonably happen.

We did not want to try to time our purchase, so we simply bought Human Genome Sciences because we plan to own it for a long, long time. We're ready for volatility. We do not hold any margin, or borrowed funds. We're prepared to watch the company, to cheer it on as it fights to cure disease, and to have our dollars grow when growth is justified. We didn't invest in a stock price, per se -- we invested in a company and its mission. If the company succeeds, the stock price will follow.

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