Biotech Dustbin Yields Winners

Genelabs Technologies (GNLB) and Panacos Pharmaceuticals (PANC) are two companies scarred by serious blow-ups in their respective drug development efforts.

But there's still life in the drug pipelines, and the stock valuations are low enough that investors should be giving both companies a second look.

Genelabs wasted a lot of time and money trying to develop Prestara to fight lupus. The drug was reviewed by the Food and Drug Administration in 2002, only to be turned away for lack of convincing data.

When Genelabs ran a new study in 2004 to give the FDA what it wanted, it failed. Genelabs went back to the FDA, but again the agency wanted new Prestara trials to be run.

You get the picture. The company was spinning its wheels and its stock was suffering. In December 2005, it was forced into a 1-for-5 reverse stock split just to retain its Nasdaq listing. Ugly.

Lost in the Prestara mess, however, is a robust program by Genelabs scientists to develop novel antiviral drugs to treat hepatitis C. This work has attracted two big partners -- Gilead Sciences (GILD) and Novartis(NVS) -- both of which are hoping that separate collaborations with Genelabs will result in new, highly potent hepatitis C compounds that can be brought into the clinic for human testing.

Yes, that's right -- neither of these partnerships has resulted in any drugs ready for human testing. Work is still being done in test tubes and on animals. Normally, I wouldn't get excited about preclinical research, but hepatitis C is a bit different, because it doesn't take too long to determine whether a drug is active or not.