Human Genome lupus drug success is classic biotech

By Toni Clarke

BOSTON (Reuters) - Human Genome Sciences Inc said on Monday that its experimental lupus drug succeeded in a late-stage clinical trial, shocking many who had written the product off, and sending the stock up more than 200 percent.

The results showed patients who took the drug, Benlysta, demonstrated a statistically significant improvement in the symptoms of their disease compared with those taking a placebo.

"This is a classic binary event in biotech," said Ian Somaiya, an analyst at Thomas Weisel Partners. "You have a disease that's difficult to treat, nothing's ever worked and you have a unique scenario in that the trial was actually successful."

The outcome makes Human Genome the latest in a series of biotech companies to have caught investors flat-footed, reinforcing the volatile nature of a sector where success and failure depend largely on clinical trial data and on decisions by the U.S. Food and Drug Administration.

Sometimes, reading the FDA is like trying to read smoke signals. Earlier this year, the agency astounded Wall Street by approving Vanda Pharmaceuticals Inc's schizophrenia drug, pulling the company back from the brink of collapse after even its most bullish supporters had thrown in the towel.

A wrong-way bet on a single trial can leave investors impaled.

As of Friday, about 10 percent of Human Genome's publicly traded shares, or 13 million, had been sold short, meaning those investors were betting the trial would fail.

On the other hand, for those who held on, the rewards were spectacular.

As of March 31, when Human Genome's shares closed at 83 cents a share, the company's four biggest shareholders -- Taube Hodson Stonex Partners, Fidelity, Barclays Global Investors and T. Rowe Price -- held about 23 percent of the company's outstanding shares, according to SEC filings.

Those who held their shares through this morning's opening, generated a return of 1,200 percent.

"It really does take a healthcare specialist and devoted biotech investor to get involved in these names," said Thomas Weisel's Somaiya.

The odds of Human Genome's drug succeeding were, according to most analysts, low. Results from an earlier trial had been disappointing and other drugs, including Biogen Idec Inc and Roche Holding AG's Rituxan, and La Jolla Pharmaceutical Co's Riquent -- both failed in late-stage lupus trials.

Yet, results of Human Genome's 52-week trial -- the first of two requested by U.S. regulators -- showed 57.6 percent of patients taking a high dose of Benlysta experienced an improvement in their symptoms, compared with 43.6 percent who took a placebo.

"Benlysta could be the first true disease-modifying therapy for lupus patients -- a blockbuster opportunity," said Joseph Schwartz, an analyst at Leerink Swann.

Of patients who took a low dose of the drug, which is administered once a month by IV infusion, 51.7 percent showed improvement in their symptoms, a figure that was also statistically significant.