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Last week, Jeff Fischer and Tom Jacobs interviewed Dr. William Haseltine, founder and CEO of Human Genome Sciences (Nasdaq: HGSI). We asked him about the company's database, the debate over the number of genes in the body, the company's drug pipeline, and even immortality. We learned much more than we asked (easy to do!). The following is an edited transcript (part one) of the interview.

Jeff Fischer: Dr. Haseltine, I listened to the conference call regarding the GlaxoSmithKline (NYSE: GSK) drug announcement. Let's start there. You stated that since your company raised $1.8 billion in 2000, you no longer need to re-sell your database. Old contracts expire in July on your gene and protein database, but you might not sell the information as you had previously intended. How will your company leverage all of that information before your patents expire in about 20 years?

Dr. Haseltine: First of all, I divide our company into what we must do to create value, and what would be good for us to do to create additional value. What we must do is develop our own drugs and bring them to market, and sell those drugs, because of all the activities we can engage in, that is by far the most profitable. It outweighs anything else we can do probably by a factor of 10 or more. The pharmaceutical industry for new drugs to treat major serious diseases is a very good business to be in. It is a difficult business, because it requires long-term investment and so much skill. But it is the best business to be in. That's what we must do. That's what we're focused on primarily.

And one thing I think we've done that's very important is to combine technology to create a vastly superior way to discover and develop drugs. We believe we are many times, to an order of magnitude, more productive than the industry, in coupling the desire to treat and cure a disease with bringing a drug to human clinical trials, and successfully negotiating the first clinical trials.

That's what we must do. That's what we're primarily focused on. And we are blessed that we can use almost all of our resources, whether it's funds raised from public markets or other sources, and focus it on that process: creating new protein and antibody drugs.

What we'd like to do is to continue to make sure that our technology is partnered with companies in such a way that we can benefit in the near term with some cash and in the long term by participating in the sales of new products that we either don't have the technology to develop or wouldn't in the normal course of events develop ourselves. The most valuable relationships are those that yield not royalties, not upfront payments, but participation in the sales of drug products. That is the relationship we have been able to forge with our primary human gene consortium partner, GlaxoSmithKline. We entered that agreement in 1993. They paid us $125 million, which was very helpful in our early years. Since that time, they have undertaken their own research at their own cost to identify and bring toward clinical trials many new drugs.

Last week, a first for the entire genomics industry was announced. Not the first drug to come to trials. HGS has brought the first, second, third, and fourth genomic-based protein drugs into clinical human trials. But the announcement was the first drug to enter human clinical trials from a partnership between a genomics company and a large pharmaceutical company, and it's the first time the large pharmaceutical company or any company has used human genomics to find a drug that will be administered in pill form, not injection form. This is a drug to treat coronary artery disease and other vascular diseases, and is based on our research. That is an important first.

What is our participation? We have a right not only to receive a substantial royalty -- 10% for sales in specific markets greater than $100 million (that is anytime sales exceed $100 million we have a 10% royalty). But if we choose to in North American and European markets we can co-promote the drug and receive an additional 20% of the sales if we account for 20% of the sales and marketing effort. So, we could draw down almost 30% of the sales of a drug in a market, and account for only 20% of the sales. That is remarkable. It allows us to participate in their progress. That is the type of relationship that we may forge with companies big and small as we go forward. We think that some of our big relationships may not only be with the big companies, but with other companies as well....

Our strategy is not described as a database strategy. We have materials. Genes. We have materials. Proteins. We have an extensive knowledge about what those genes and proteins do that have medical utility. We have an extensive patent estate which describes these inventions that we've made. We can't use them all. We don't need to generate substantial near-term income, because as you mentioned, over the last 18 months we've raised over $1.8 billion from the financial markets, and there is no deal that we can imagine that would allow us to do that again without giving up very substantial product rights.

So we think that we're now in a very strong position as we enter a period of non-exclusivity for our technology -- not just database technology, but genes, proteins, patents, and know-how. So that if we find the right partners, if we can construct deals that don't involve too many of our own scientists, because we have a rare luxury of using almost all our own efforts to develop our own drugs, we would be pleased to enter additional deals with established companies large and small, and new and emerging companies.

Tom Jacobs: We've got a bunch of other questions.

Dr. Haseltine: Should I be shorter with my answers then? [Laughter.]

Tom: Well, that was an excellent overview.

Dr. Haseltine: Speaking to that, let me address a few of the changes since we once spoke about one year ago. First of all, we have a lot more money. We raised $1.8 billion. Secondly, we are now an antibody company as well as a therapeutic protein company. How did we get there? We purchased the technology from Cambridge Antibody Technology [with whom HGS collaborates]. We are building a R&D group, and we just completed the construction of a manufacturing plant to support our clinical trials of antibody drugs. We recently added another very important technology, that's what we call the albumin fusion technology.

This technology not only allows us to improve our own therapeutic proteins, it allows us to make new and improved versions of marketed drugs. These aren't generics, these are new and improved drugs. Examples will be Aranesp, the new drug Amgen (Nasdaq: AMGN) is making. So, this allows us to create new drugs for large existing markets. We've already got approval to begin testing a new and improved version of interferon alpha....

We hope to get permission to try our human growth hormone soon, and many others. So, we've broadened our portfolio of potential products from therapeutic proteins to antibodies to albumin fusion proteins of new and existing drugs. Now, that builds on our protein expertise and our manufacturing techniques. We will be breaking ground this summer on a 300,000 square foot facility to launch our products in North America. This will be suitable for the launch of proteins... and antibody drugs.

Tom: A couple of things come to mind when you talk about improved drugs. First, some of our readers will be aware of the fight between Amgen and Transkaryotic Therapies (Nasdaq: TKTX)...

Dr. Haseltine: You're worried about patent complications.

Tom: Right.

Dr. Haseltine: We've looked at that very carefully and under no circumstances would we begin to try to sell a drug that interferes with somebody's existing patent estate... however, many of these drugs have been on the market for a long time.

Tom: And they're coming off patent.

Dr. Haseltine: And they're coming off patent, right. Not only as entities, but as uses. The entities may have been known some time ago, and their uses were filed quite some time ago, when these were common proteins. These are proteins that began development in the late 1970s, early 1980s -- that's 20 years ago. So we believe that substantial markets will open up. Yes, we do pay attention to complex patents estates. To give you an idea: we were recently looking at a protein and we analyzed 1,132 patents. So we are paying a great deal of attention to all "use" patents, composition of matter patents, manufacturing patents, etc.

Tom: We spoke with [privately held] ZymoGenetics' CEO Bruce Carter recently, and he said that if you look at the universe of granted- and applied-for patents for therapeutic proteins, he would put you folks first as number one and [his company as] number two, with Genentech (NYSE: DNA) and Incyte (Nasdaq: INCY) following after that.

Dr. Haseltine: I think it's fair to put us number one. I haven't recently counted theirs. But we're number one by at least an order of magnitude, possibly two. So, there is a very large space between the number of genes which have been identified, individually sequenced, and we have set in motion a very systematic process. We're not just finding out what a gene is, but discovering what its biological function is related to specific medical utilities of interest.

Since 1995, as you know because you've said it before, we have focused on creating high-throughout methods of biological function discovery related to specific utility. And I think the major question that is being addressed by the academics and companies in general is how do you go from the knowledge of the existence of a gene to knowledge of what it does that has medical utility, and I believe we have created the first systematic way to do that. And we have demonstrated it works because we have products in clinical trials.

Tom: So, you're talking about your functional genomics capability?

Dr. Haseltine: Yes.

Tomorrow, in part two, we discuss the number of genes that we have -- is it 30,000 to 40,000, as Celera Genomics (NYSE: CRA) and the International Human Genome Sequencing Consortium argue, or over 100,000 as HGS argues? And, does it matter? Also, Dr. Haseltine names the biotech companies that he admires most, and discusses how our immortality could be possible.

Tom Jacobs (TMF Tom9) can be heard singing, "The DNA's connected to the RNA/The RNA's connected to the...." He owns shares of Celera Genomics and Human Genome Sciences. To see his stock holdings, view his profile. Jeff Fischer (TMF Jeff) can't sing. Of the stocks mentioned, he owns Genentech. The Motley Fool's disclosure policy sings like a bird.