When Human Genome Sciences ( HGSI) 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 close to pushing a drug into late-stage testing. And despite sitting on $1.7 billion in cash and professing a willingness to spend it, HGS has been conspicuously absent from the merger and acquisition game. No wonder HGS' stock has slumped 65% from its 52-week high, reached last June, including 22% since the beginning of this year. The stock closed Tuesday at $27.74 per share, after sinking to a 52-week low of $23.25 on Feb. 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 75 cents per share for 2001 when it reports results Thursday morning, according to Thomson Financial/First Call. HGS' biggest problem, observers say, is that the genomic company hasn't yet made good on its genes-to-drugs story. Remember genomics? The unraveling of the human genome was supposed to usher in a sort of renaissance of new drug discovery. Instead of blindly throwing a new chemical compound against a wall of disease targets to see what sticks, HGS uses its proprietary technology and a treasure trove of genetic information to rapidly identify disease targets and the drugs to fight them. In other words, the drugmaker's blindfold has been taken off, and it's standing just inches from the dartboard. acquired two companies -- Leukosite and Cor Therapeutics -- to gain control of two approved drugs and other late-stage drug prospects. "When I compare HGS to Millennium, their market values are roughly the same, 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 nobody cares." Fiore is long Millennium. HGS has eight drug prospects in clinical trials, but only two are in midstage testing and neither is considered a blockbuster. Even if these two drugs prove safe and effective, approval wouldn't come before late 2004 or early 2005. But HGS supporters say the company is not being given enough credit for the amount of research coming out of its laboratories. Robertson Stephens biotech analyst Mike King calls HGS an "IND machine," referring to the regulatory process in which a biotech company receives FDA permission to move an experimental drug into human testing. "HGSI's most compelling assets remains the 20 advanced, pre-clinical candidates in development," King writes in a recent research note, where he reiterated his strong buy rating. "HGS remains steadfast in its commitment to file an additional two to three INDs this year." King's firm doesn't have a banking relationship with HGS. Late last month, HGS filed an IND with the FDA for LymphoRad, a possible new drug to treat various blood cancers. And last November, the company said it was starting early human testing for LymphoStat-B in patients suffering from lupus. "HGS has been unfairly beaten up," says Banc of America Securities analyst Jim Reddoch. "The company is not getting credit for having one of the biggest drug pipelines out there. They just need to show data to investors so they can see that this pipeline has value." Reddoch rates HGS a buy and his firm doesn't have a banking relationship with the company. His 12-month price target for HGS is $48 per share, and by his thinking, HGS should be trading in the high-$30s range now, certainly not in the low $20s. deal and the aforementioned $2 billion Millennium-Cor merger has upped asking prices across the biotech sector. HGS could also ink a lucrative drug development pact with a major pharmaceutical 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 into the clinic, but how fast you can get them out of the clinic," says Mark Ratner, senior writer with In Vivo, a trade journal covering the genomics industry. "HGS can talk about how great its early stage pipeline looks, but people want proof that these are going to be real drugs."