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Human Genome Takes A Big Step Forward
One small step for an FDA advisory panel, one leap forward for biotech company Human Genome Sciences (Nasdaq:HGSI).
IN PICTURES: 9 Simple Investing Ratios You Need To Know
Late Tuesday, an FDA advisory panel voted by the surprisingly wide margin of 13-2 to recommend approval of HGSI's Benlysta for the treatment of lupus. This drug, which top-tier pharmaceutical company GlaxoSmithKline (NYSE:GSK) has been developing under license from HGSI, would represent the first new lupus drug in more than 50 years - a potentially big step forward for the treatment of a disease that is life-altering (and life-threatening) but still not well-understood by doctors or scientists. (For more, see Measuring The Medicine Makers.)
A More Compassionate Panel?
Benlysta's progress toward approval was not smooth or worry-free for HGSI investors. The FDA spooked the market a bit a few days ago when the agency released its pre-panel meeting assessment of the lupus drug candidate. Although these reviews are supposed to be tough, critical, and generally negative, it did focus on what it called "mild" efficacy and the fact that the drug does not seem to benefit African Americans much at all.
Nevertheless, the panel seemed to acknowledge that mild efficacy is still efficacy and that the impact of the drug varied with each patient. In other words, it may be significantly effective for some patients, and the side-effects did not outweigh that potential benefit.
A New, Better HGSI
Clearly this is a major step for HGSI. While inconsistent/unpredictable efficacy will be a limiting factor on the drug's sales potential (if it does not work, people will not keep taking it), this could nevertheless be a blockbuster and book more than $1 billion in revenue per year. That is, of course, assuming that the FDA gives the final "yes". Although it is cliché, it is still true that a panel recommendation does not obligate or mandate FDA approval. (For more, see Stocks On Drugs: What It Takes To Get High.)
From its founding as a company that was going to focus on gene-based drug development, HGSI has morphed into a more typical biotech. While the company's Zalbin drug for hepatitis C does not appear to be viable, there is hope yet for an anthrax product as well as a promising early-stage cancer platform, and drugs for heart disease and diabetes the HGSI has licenses to GlaxoSmithKline. The cash flow from Benlysta will be a big help in terms of supporting these clinical trials and other preclinical programs.
The Landscape
FDA panel support for Benlysta could also be encouraging to other would-be players in lupus drugs. Biogen Idec (Nasdaq:BIIB) and Roche (OTC:RHHBY) had a relatively recent failure in this category, but Immunomedics (Nasdaq:IMMU), Emergent BioSolutions (NYSE:EBS) and Cephalon (Nasdaq:CEPH) may all fare better with their respective compounds (epratuzumab, SBI-087 and Lupuzor), with Immunomedics (and partner UCB (OTC:UCBJF)) likely up first after HGSI.
It is unlikely, though, that any of these drugs will be such breakaway successes that they will really curb HGSI's ability to benefit from Benlysta. Moreover, it is not as though there will not be existing competition for this drug - doctors currently use a variety of drugs (including chemotherapy agents) on an off-label basis to treat this disease. On top of that, who knows whether these drugs will show complimentary benefits and/or work in patient subsets that Benlysta does not adequately address.
The Bottom Line
Perhaps counter-intuitively, HGSI shares were indicated down the morning after the successful panel decision. Whether it is a "buy the rumor, sell the news" effect or concern about possible FDA delays and labeling requirements, it would nevertheless appear that there is still room for HGSI shares to run and that the current price really does not fully value the potential of a novel drug for a major disease.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: 9 Simple Investing Ratios You Need To Know
Late Tuesday, an FDA advisory panel voted by the surprisingly wide margin of 13-2 to recommend approval of HGSI's Benlysta for the treatment of lupus. This drug, which top-tier pharmaceutical company GlaxoSmithKline (NYSE:GSK) has been developing under license from HGSI, would represent the first new lupus drug in more than 50 years - a potentially big step forward for the treatment of a disease that is life-altering (and life-threatening) but still not well-understood by doctors or scientists. (For more, see Measuring The Medicine Makers.)
A More Compassionate Panel?
Benlysta's progress toward approval was not smooth or worry-free for HGSI investors. The FDA spooked the market a bit a few days ago when the agency released its pre-panel meeting assessment of the lupus drug candidate. Although these reviews are supposed to be tough, critical, and generally negative, it did focus on what it called "mild" efficacy and the fact that the drug does not seem to benefit African Americans much at all.
Nevertheless, the panel seemed to acknowledge that mild efficacy is still efficacy and that the impact of the drug varied with each patient. In other words, it may be significantly effective for some patients, and the side-effects did not outweigh that potential benefit.
A New, Better HGSI
Clearly this is a major step for HGSI. While inconsistent/unpredictable efficacy will be a limiting factor on the drug's sales potential (if it does not work, people will not keep taking it), this could nevertheless be a blockbuster and book more than $1 billion in revenue per year. That is, of course, assuming that the FDA gives the final "yes". Although it is cliché, it is still true that a panel recommendation does not obligate or mandate FDA approval. (For more, see Stocks On Drugs: What It Takes To Get High.)
From its founding as a company that was going to focus on gene-based drug development, HGSI has morphed into a more typical biotech. While the company's Zalbin drug for hepatitis C does not appear to be viable, there is hope yet for an anthrax product as well as a promising early-stage cancer platform, and drugs for heart disease and diabetes the HGSI has licenses to GlaxoSmithKline. The cash flow from Benlysta will be a big help in terms of supporting these clinical trials and other preclinical programs.
The Landscape
FDA panel support for Benlysta could also be encouraging to other would-be players in lupus drugs. Biogen Idec (Nasdaq:BIIB) and Roche (OTC:RHHBY) had a relatively recent failure in this category, but Immunomedics (Nasdaq:IMMU), Emergent BioSolutions (NYSE:EBS) and Cephalon (Nasdaq:CEPH) may all fare better with their respective compounds (epratuzumab, SBI-087 and Lupuzor), with Immunomedics (and partner UCB (OTC:UCBJF)) likely up first after HGSI.
It is unlikely, though, that any of these drugs will be such breakaway successes that they will really curb HGSI's ability to benefit from Benlysta. Moreover, it is not as though there will not be existing competition for this drug - doctors currently use a variety of drugs (including chemotherapy agents) on an off-label basis to treat this disease. On top of that, who knows whether these drugs will show complimentary benefits and/or work in patient subsets that Benlysta does not adequately address.
The Bottom Line
Perhaps counter-intuitively, HGSI shares were indicated down the morning after the successful panel decision. Whether it is a "buy the rumor, sell the news" effect or concern about possible FDA delays and labeling requirements, it would nevertheless appear that there is still room for HGSI shares to run and that the current price really does not fully value the potential of a novel drug for a major disease.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Stephen D. Simpson, CFA
Stephen D. Simpson, CFA, is a freelance financial writer, investor, and consultant. He has worked as an equity analyst for both sell-side and buy-side investment companies in both equities and fixed income. Stephen's consulting work has focused primarily upon the healthcare sector, while he has also written extensively for publication on topics pertaining to investments, security analysis, and healthcare. Simpson operates the Kratisto Investing blog, and can be reached there.
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