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Human Genome Sciences


reports year-end financial results before the market opens Thursday, CEO Bill Haseltine will certainly spend time detailing the biotech company's scientific achievements.

But investors are probably more interested in what HGS hasn't done -- no drug approvals. In fact, it hasn't even come closeto pushing a drug into late-stage testing. And despite sitting on $1.7billion in cash and professing a willingness to spend it, HGS has beenconspicuously absent from the merger and acquisition game.

No wonder HGS' stock has slumped 65% from its 52-week high, reached lastJune, including 22% since the beginning of this year. The stock closedTuesday at $27.74 per share, after sinking to a 52-week low of $23.25 onFeb. 7.

Looking at it another way, investors valued HGS' genomics technology at $8.1 billion, net of cash, last summer. Today, that's been whittled down to $1.8 billion.

HGS is expected to lose 27 cents per share for the fourth quarter and 75cents per share for 2001 when it reports results Thursday morning, accordingto Thomson Financial/First Call.

HGS' biggest problem, observers say, is that the genomic companyhasn't yet made good on its genes-to-drugs story.

Remember genomics? The unraveling of the human genome was supposed tousher in a sort of renaissance of new drug discovery. Instead of blindlythrowing a new chemical compound against a wall of disease targets to seewhat sticks, HGS uses its proprietary technology and a treasure trove ofgenetic information to rapidly identify disease targets and the drugs tofight them. In other words, the drugmaker's blindfold has been taken off,and it's standing just inches from the dartboard.

Lots of Smoke, but No Fire

Despite these advantages, HGS still can't seem to hit the bull'seye. With biotech investors looking for real products and revenue, storystocks like HGS have been left out in the cold.

Jim Fiore, fund manager at the Greenwich, Conn.-based Life SciencesGroup, believes that genomics companies, while currently out of favor,could actually outperform the broader sector this year. But he's stayingaway from HGS because the company is not keeping up with its peers.

Fiore points to

Millennium Pharmaceuticals


, which like HGS hasn't had muchsuccess with its genomics program. But the company has

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acquired two companies --



Cor Therapeutics

-- to gain control of two approved drugs and otherlate-stage drug prospects.

"When I compare HGS to Millennium, their market values are roughly thesame, but clearly Millennium is doing much more to fulfill its mission,"he says. "HGS has a lot of early stage projects in its pipeline, but nobodycares." Fiore is long Millennium.

HGS has eight drug prospects in clinical trials, but only two are inmidstage testing and neither is considered a blockbuster. Even if thesetwo drugs prove safe and effective, approval wouldn't come before late 2004or early 2005.

But HGS supporters say the company is not being given enough credit forthe amount of research coming out of its laboratories. Robertson Stephensbiotech analyst Mike King calls HGS an "IND machine," referring to theregulatory process in which a biotech company receives FDA permission tomove an experimental drug into human testing.

"HGSI's most compelling assets remains the 20 advanced, pre-clinicalcandidates in development," King writes in a recent research note, where hereiterated his strong buy rating. "HGS remains steadfast in its commitmentto file an additional two to three INDs this year." King's firm doesn't have abanking relationship with HGS.

Late last month, HGS filed an IND with the FDA for LymphoRad, apossible new drug to treat various blood cancers. And last November, thecompany said it was starting early human testing for LymphoStat-B inpatients suffering from lupus.

"HGS has been unfairly beaten up," says Banc of America Securitiesanalyst Jim Reddoch. "The company is not getting credit for having one ofthe biggest drug pipelines out there. They just need to show data toinvestors so they can see that this pipeline has value."

Reddoch rates HGS a buy and his firm doesn't have a bankingrelationship with the company. His 12-month price target for HGS is $48 pershare, and by his thinking, HGS should be trading in the high-$30s rangenow, certainly not in the low $20s.

Money, but No Deals

HGS could also get grab some much-needed attention by throwing around abit of its $1.7 billion cash horde. CEO Haseltine has stated publicly hisinterest in acquiring a biotech company with a late-stage product,preferably a promising cancer drug. But HGS' slumping stock makes it harderto pull the trigger on any deal, analysts say, especially because the $16billion




deal and the aforementioned $2 billion Millennium-Cor merger has upped asking pricesacross the biotech sector.

HGS could also ink a lucrative drug development pact with a majorpharmaceutical company, which would help validate HGS' genomic research.But a deal like this has been expected for months, and so far, nothing's happened.

"What HGS is learning is that it's not how fast you can get drugs intothe clinic, but how fast you can get them out of the clinic," says MarkRatner, senior writer with

In Vivo

, a trade journal covering thegenomics industry. "HGS can talk about how great its early stage pipelinelooks, but people want proof that these are going to be real drugs."