Genomics' Value Rise; HGS Deal Reprise

How far has genomics come?

The recent MedImmune/HGS H. Pylori deal with Pasteur Merieux Connaught and OraVax gives some sense. HGS' original July ‘95 deal with MedImmune for antibacterial vaccines and immunotherapeutics based on microbial sequences was one of three small-company, no-money-exchanged deals that HGS did in a period of a one year.

In addition to the MedIummune arrangement, HGS signed deals with Isis (for antisense uses of its genome work)and Genetic Therapy Inc. (to exploit gene therapy applications).

The deals were familial. Two of HGS's partners, GTI and Medimmune, were originally financed by HGS' own venture backer, HealthCare Investment Corp. and its general partner, the flamboyant, late Wallace Steinberg.

The familial connection was important: one reason for these deals was the necessity of demonstrating the exploitability of HGS resources. At the time, many observers felt that HGS' technology value was virtually tied up by SmithKline Beecham, which had bought nearly all therapeutic rights to HGS' human genome sequences in ‘93. The three deals with fellow biotechs served, in effect, partly as place-holders for deals to come.

HGS didn't have to wait long. The last few months of 1995 and all of 1996 saw an extraordinarily rapid rise in the value of genomics: HGS and SB were able to add in to their partnership Schering-Plough, Merck KGAA, and Synthelabo, all of whom paid big upfront fees for the privilege. Meanwhile, a host of other companies were buying into the human genome: in the last year, Millennium has sold huge deals to Lilly, Astra and Wyeth-Ayerst; Incyte signed up most of its current database subscribers. Big deals for microorganisms now include Genome Therapeutics' deals with Astra, Merck and Schering-Plough; Glaxo and SmithKline's innovative bacterial sequencing project; and HGS's own bacterial sequencing deals with Roche and Pharmacia & Upjohn.

The earlier, no-money deals began to look puny—and the resources these smaller companies could bring to bear on their broadly defined projects far too limited. Moreover, H. pylori, in the last two years, has become a far more interesting target, genomically speaking, for vaccine and therapeutics companies—witness Astra's $22 million H. pylori deal with Genome Therapeutics.

Given the new environment, HGS dealt a hand outside its original MedImmune deal. In that deal, MedImmune and HGS share product income 50-50 on the microbes they collaborate on, such as S. aureus; but MedImmune's rights to new microbial sequences were left vague. As a result, HGS was able to sell the project to a top vaccine company, Pasteur Merieux, which doeshave the required resources and, now, a greater understanding of the value of genomics. Payment includes license fees, milestones and royalties, of which, says HGS's Bill Haseltine, "it's safe to assume that MedImmune is not getting 50%."

MedImmune is still a winner: they get, in effect, a fee for stepping aside. As for the other two deals: HGS explicitly retained rights from the start to forge deals with pharmaceutical partners. The Isis deal will probably not be re-done anytime soon since Big Pharma has not embraced antisense to the degree small companies have.

Gene therapy, however, is now a large and small company phenomenon: Genetic Therapy was itself acquired by Sandoz in July 1995, about a year after their deal with HGS. That deal is still in force, but dormant, says Haseltine. This July Schering-Plough paid a license fee and promised royalties for non-exclusive rights to develop gene therapy products from HGS sequences. Haseltine says more partners are expected.