ZymoGenetics Hands Over Atacicept Rights to Partner, Merck KGaA

Xconomy Seattle — 

ZymoGenetics is making a sacrifice to conserve cash. The Seattle biotech company (NASDAQ: ZGEN) said today it has agreed to hand over atacicept—its leading drug candidate for autoimmune diseases like lupus, rheumatoid arthritis, and multiple sclerosis—to its partner, Darmstadt, Germany-based Merck KGaA.

The move means that the German partner will now have to pay for all of the drug’s development costs, and, in return, it will get 100 percent of the worldwide commercial rights. ZymoGenetics stands to get milestone payments and royalties that will run into the “high teens” in terms of a percentage of Merck KGaA’s atacicept sales, if it becomes a marketed product, said ZymoGenetics president Doug Williams.

The move will allow ZymoGenetics to save more than $200 million in estimated development costs as atacicept (pronounced Uh-tack-EE-sept) advances through the final stages of clinical trials over the next several years, Williams says. But it also limits ZymoGenetics’ ability to reap the rewards from an experimental drug it discovered internally, which has potential to exceed $1 billion a year in sales, said David Miller, president of Biotech Stock Research, an independent equity research firm in Seattle.

“In a better investing environment, the company would have chosen to sell shares and hold on to a larger percentage of atacicept revenues, but these are the types of tough decisions that companies have to make when the stock market is this bad for biotech,” Miller says. Under the circumstances, he said the ZymoGenetics deal could turn out positive if it can get 17 to 18 percent of a billion-dollar revenue stream, without paying any more of the costs. “It’s nothing to sneeze at,” he says.

ZymoGenetics, as we have written, has gotten into a bit of a bind this year. Sales of its first marketed product, Recothrom for surgical bleeding, have gotten off to a slower start than expected. The company reported a net loss of $37 million in the second quarter and said it had $117 million left in the bank at the end of June.

Since investors can do the math pretty easily about how fast the cash horde is diminishing, many have been speculating ZymoGenetics would need to turn to investors to raise more equity capital. That has depressed the stock price to $8.43, where it closed yesterday, down 28 percent this year. Williams confirmed the company would have had to raise a lot of money to stay in the game with atacicept, and shifting the costs to Merck Serono will lift that burden. … Next Page »

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