ZymoGenetics Hands Over Atacicept Rights to Partner, Merck KGaA

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ZymoGenetics doesn’t plan to undergo any layoffs of its 500 employees, and it now plans to shift a small number of people from the atacicept project to other opportunities in the pipeline, namely PEG-Interferon Lambda for the liver disease hepatitis C, Williams says.

Atacicept is meant to work unlike any other marketed drug. It is a genetically engineered protein that’s designed to block BLyS and April, a pair of proteins that stimulate the growth of B cells, which can create antibodies that go awry and attack healthy tissue. Across autoimmune diseases, atacicept is being tested in multiple trials for rheumatoid arthritis, systemic lupus, and multiple sclerosis. The earliest data from well-controlled trials is expected to be available in late 2009 or early 2010, Williams says.

That means the company could be waiting a long time, and spending a lot of its cash, during a bad biotech stock market before knowing what it really has. “We thought long and hard about this,” Williams says. “We feel very good about the decision because we can still capture a lot of the value,” he says. ZymoGenetics also will receive a higher-than-normal royalty rate because it stuck with the program as long as it did, and helped craft what it thinks is a winning clinical trial strategy.

Williams didn’t say how much ZymoGenetics has invested in atacicept to date, although he said it spent $19 million on it last year, and another $19 million in the first six months of this year, with bigger bills still to come as hundreds of patients enroll in trials.

ZymoGenetics originally entered the atacicept partnership with Serono, the world’s leading maker of fertility drugs, in 2001. Serono was acquired by Merck KGaA in September 2006. The companies will still work together on a research alliance, although it has been amended so that ZymoGenetics will now take control of another drug, IL-31 monoclonal antibody, while Merck Serono will have control over IL-17RC. Both treatments are for inflammatory diseases.

I didn’t get the sense that Williams, an Xconomist, feels he might be giving away the company jewels here. Lupus is a graveyard for drug development, where scientists are still working to agree on the best measurement for success, and no new therapy has been approved for 40 years. Genentech and Biogen Idec’s Rituxan, a hit drug for lymphoma and rheumatoid arthritis, failed in a large study against lupus earlier this year.

Rheumatoid arthritis is a huge market worth $10 billion a year, according to IMS Health, a market research firm. But it’s also fiercely competitive, led by Amgen’s Enbrel, Abbott Laboratories’ Humira and Johnson & Johnson’s Remicade. Multiple sclerosis is another tough field, with Biogen Idec and other companies firmly entrenched. Williams had some interesting reasoning about why the company now wants to shift its resources over to the PEG-Interferon Lambda program for hepatitis C, but that’s a story for another day.

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