Washington Editor

Human Genome Sciences Inc. could earn more than half a billion dollars per terms of a newly formed agreement with Novartis AG on Albuferon (albumin-interferon alpha 2b), a product expected to move into Phase III for chronic hepatitis C by the end of this year.

"This is a very important step forward in fulfilling the promise of transforming HGS from primarily a discovery-based company," President and CEO H. Thomas Watkins said in a conference call, "into the development- and commercialization-focused company that we are today and in the future."

News of the exclusive worldwide licensing arrangement, which covers all potential uses, was generally well accepted by the investment community. HGS' shares (NASDAQ:HGSI) gained 41 cents to $10.60 by the close of business Tuesday, having reached $11.12 earlier in the day.

Joseph Schwartz, an analyst with Leerink Swann & Co. in Boston, called the deal's terms "attractive" and said the collaboration was "pretty much in line" with other large drug development deals executed in recent months.

The Rockville, Md.-based company, which created the long-acting form of interferon alpha with its albumin fusion technology, is receiving $45 million in up-front money. Additional payments could total as much as $507.5 million for "balanced" clinical development and commercial milestones, Watkins said, including $47.5 million at the start of dosing in Phase III. Both companies will bear equal clinical development costs.

"We have struck the right deal with the right partner," Watkins said, noting the companies' shared vision for treating hepatitis C coupled with the worldwide reach of Novartis.

But Schwartz was less bullish, saying that Basel, Switzerland-based Novartis "doesn't seem to be the strongest hepatitis C partner yet." That's because its primary products in the space remain in development, particularly two other partnerships on oral antivirals: NM283, a hepatitis C virus polymerase inhibitor from Idenix Pharmaceuticals Inc., of Cambridge, Mass., and ANA975, a TLR7 agonist from Anadys Pharmaceuticals Inc., of San Diego. Adding an interferon "kind of rounds out their franchise" on potential hepatitis C treatments, he told BioWorld Today.

Analysts from ThinkEquity Partners LLC in San Francisco, Andrew McDonald and Brett Erkman, went a step further and said that Novartis should obtain protease inhibitors to more fully capture a share of the hepatitis C market. "We believe protease inhibitors are destined to be the backbone of future therapy," they wrote in a research note.

Should Albuferon receive regulatory clearance, the partners would share commercialization costs and responsibilities in the U.S. and split those profits evenly. The co-marketing aspect of the arrangement would allow HGS to take "a major step" toward achieving its goal of establishing an in-house commercial infrastructure, said Barry Labinger, the company's executive vice president and chief commercial officer. Novartis would be responsible for Albuferon's overseas commercialization, for which HGS would receive royalties of an undisclosed amount.

Such commercialization plans incorporate "the best of our aspirations and our partner's capabilities," Watkins said.

The analyst community expects premium pricing for the product. Schwartz, who forecast an FDA application in the middle of 2009, projected that Albuferon's total U.S. revenue would start at $123 million in 2010, followed by $510 million a year later and $699 million a year after that. McDonald and Erkman predicted as much as $1.1 billion by 2012.

HGS would receive half of those amounts, along with royalties that Schwartz "generously guessed" to be in the 25 percent range for sales abroad. "The rest of the world market is roughly the same size of the U.S. market," he noted. McDonald and Erkman set 20 percent as their royalty expectation.

HGS, which is in the final construction phase of a large-scale production facility, will have primary responsibility for Albuferon's bulk manufacturing. The product results from the genetic fusion of human albumin and interferon alpha 2b.

"We are very confident that Albuferon can become the best-in-class immunomodulator for the treatment of hepatitis C," Watkins said, noting that the product "can become the cornerstone of combination therapy."

Recombinant interferon alpha is approved for hepatitis B and C, as well as a range of cancers. Existing clinical data on Albuferon indicate that it could offer a "considerably improved dosing schedule" for treating chronic hepatitis C, Labinger said, because it remains in blood substantially longer than recombinant interferon alpha and pegylated interferon alpha, the current standard of care. Notably, Albuferon is dosed biweekly and has the potential for monthly administrations, Labinger added, compared to weekly dosing for pegylated interferons. In addition, Albuferon's efficacy and safety are at least comparable to pegylated interferons.

However, Schwartz cautioned that Albuferon has yet to demonstrate an improved effectiveness over existing interferons, and he added that monthly dosing proved "less viable" in Phase II than had been expected. That led some observers to believe that other prospective partners backed off. While not condemning Albuferon's potential, he nonetheless labeled it "just another interferon." The product also has the potential to treat a range of cancers.

Hepatitis C, the most common chronic blood-borne infection in the developed world, is found in an estimated 170 million people worldwide. Nearly 4 million people in the U.S. have it.