EDWARD TENTHOFF
SENIOR RESEARCH ANALYST
PIPER JAFFRAY

COMPANY: Human Genome Sciences Incorporated
TICKER: HGSI (Nasdaq)
PRICE: $10.63
52-WEEK RANGE: $7.63-$15.50
MARKET CAPITALIZATION: $1.4 billion

Edward Tenthoff is a principal research analyst of Piper Jaffray’s analyst team. He specializes in health care and drug discovery financial research. Mr. Tenthoff spoke with Katharine Herrup of The New York Sun about why this may be the prime time to invest in HGSI.

What does Human Genome Sciences do?

This is a company that is developing multiple leading drugs. They are focused on biotherapeutics. They develop autoimmune, anti-viral, and cancer drugs. They have developed a drug called Albuferon – it is for the treatment of Hepatitis C and it’s currently in a phase 2B clinical trial. There are three phases in total, phase 3 is the registration phase. HGSI’s next drug is LymphoStat-B. We expect it to advance into stage 3 trials this year and this is for the treatment of lupus, an autoimmune disease, which can cause, ultimately, organ failure and death because the immune system is attacking the body. There really have been no new drugs approved for decades now for lupus. Right now there is pretty much only steroid therapy to treat the disease. They also have a cancer drug called TRAIL and that should be going into phase 2 which is taken in combination with chemotherapy.

What other drug will Albuferon be competing with?

Albuferon will be primarily competing with Pegasys, which is a weekly injection sold by Roche. Albuferon, however, allows you to make an injection every other week or every month.

When do you expect these HGSI drugs to be on the market?

We expect Albuferon to be approved in 2010, and LymphoStat to be approved in 2009 or 2010.

So why do you like the stock?

All HGSI drugs are in development. I expect them to do a very significant partnership for Albuferon which will drive up the stock price.

Like anything else in investing, it is really a mitigation of risk and reward, and as these clinical programs advance the drugs become lower risk and move closer to the market and as a result you are able to create value by advancing these pipelines. You also are able to create value by partnering these drugs. HGSI will probably get a lot of money when they partner with a pharmaceutical company. We believe they will probably partner with Novartis, Glaxo-SmithKline, or Gilead.

Do you think the stock is undervalued?

I do, we think it is very under priced. We have a $20 price target and think within the next 12 months the price will be in the high teens.

Why do you like this sector of the drug industry?

Biotechnology is really where new innovation is taking place because it’s smaller and more nimble and in a lot of cases they have expertise in a particular kind of biology that they are able to focus on and develop drugs for.

What’s driving HGSI’s growth forward?

First and foremost I think it will be a partnership for Albuferon and there is a very good likelihood for positive phase 2B data in the fall, and I think HGSI can go into phase 3 for Lympho-Stat by the year-end.

Is it a good time to buy the stock?

Absolutely, in fact, it’s our top pick.

What are the risks?

Biotech is an even more risky area because they are still burning cash – they have not gotten the drugs approved yet and there’s no guarantee that they will get the drugs approved so there is a lot riding on these clinical programs.

So how confident do you feel about HGSI?

HGSI is really our top pick in biotech space in the drug discovery sector.

What separates HGSI from the rest of the biotech companies?

HGSI has had early access to genes in the human genome and has really focused on turning these gene discoveries into drugs. They also have $800 million in cash – and that is a lot of cash.