Human Genome Sciences, Inc. (NASDAQ:HGSI) has passed thesecond milestone of its agreement with SmithKline Beecham(NYSE:SBH) a year ahead of schedule, triggering a $12.5 millionpayment from SmithKline as part of the record-breaking $125 milliondeal the two companies signed in May 1992.To meet the conditions set by Philadelphia-based SmithKline, HumanGenome, of Rockville, Md., had to identify 45,000 unique humanexpressed sequence tags _ or half of all those believed to exist _ byMay 1995. William Haseltine, Human Genome's chief executiveofficer, said the company was able to meet this goal so early becauseof the automated gene sequencing capability at the company's disposal.In addition to the 50 gene sequencers owned by the company, HumanGenome also has exclusive access to the 30 owned by The Institute forGenomic Research, founded by Craig Venter, formerly with theNational Institute of Neurological Disorders and Stroke. Haseltine saidthis capability enables Human Genome to sequence about 1,500 genesand process almost half a million nucleotides a day.He said Human Genome is focusing on discovering, characterizing,and developing its own proteins, especially therapeutic proteins.Human Genome already has filed 25 patent applications with the U.S.Patent and Trademark Office. Some are for fully sequenced genes,others for partial sequences.Means to an End"Isolation and sequencing analysis is not an end in itself, but a meansto an end," Haseltine said. "Genes and the proteins they make can beused in a broad variety of drug discovery applications. We will licensethese rights to other companies to generate revenues, using SmithKlineBeecham as a model."Under its agreement with Human Genome, SmithKline is to receiveexclusive worldwide rights to therapeutic, vaccine and diagnosticproducts developed through their collaboration, and will pay royaltiesto Human Genome.Haseltine said the company plans to:- enter additional cooperative agreements with other companies;- enter research collaborations with academic institutions that allowthese institutions to use Human Genome's fully sequenced humangenes in return for licensing arrangements;- publish results of its research after filing patents to protect itstechnology.Matthew Murray, an associate analyst with New York-based AlexBrown, said Human Genome's achievement in reaching the milestoneearly confirms that it is the premier genome sequencing company interms of sheer sequencing speed, compared to its three main rivals.Mapping as an AlternativeHowever, he noted that the main goal of DNA sequencing is to findmedically relevant genes that result in a diagnostic or therapeuticproduct. Murray said an alternative to Human Genome's sequencingapproach that seeks to identify genes and then find out if they areuseful, is the "mapping" approach that focuses on finding only thosegenes that are relevant to a particular disease."I think it is going to be very difficult for the other three companies touse the same approach as Humane Genome. They are going to have touse the mapping approach. And it has yet to be shown which worksbetter. Both approaches have the same goal, and once you haveidentified the disease gene sequence you are both equal," Murraycommented.Murray also raised concerns about the ability of genome companies toacquire patents. He noted that the patent office, declaring an"interference," has denied some biotech companies patents when twosimilar discoveries have been made within six months of each other.He said it is also not clear what the patent office will require beforepatenting a gene sequence. "Will they require a partial sequence, acomplete sequence? How much of a sequence do they need? Once thatclarification comes, I think it will help all the genome companies,because Wall Street wants certainty," Murray said.SmithKline Beecham made its first payment to Human Genome lastyear, amounting to $50 million for concluding the transaction and anadditional $9 million for rights in Asia. An additional $12.5 millionwill be paid when the third milestone is reached.Last week, Human Genome reported its 1993 year-end results:revenues were $22 million and net income per share was 15 cents in itsfirst full year of operation.

-- Philippa Maister

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