ZymoGenetics Snags $1.1 Billion Partnership With Bristol-Myers For Hepatitis C Drug

Xconomy Seattle — 

Update with detail from regulatory filing at the end: ZymoGenetics has broken out of its slump with a home run. The Seattle-based biotech is announcing today it has signed a global partnership with drug giant Bristol-Myers Squibb, worth as much as $1.1 billion, to co-develop an experimental treatment for hepatitis C, a chronic liver infection that ails millions of people.

The deal will provide ZymoGenetics with an immediate infusion of $85 million in cash, and another $20 million license fee in 2009. ZymoGenetics (NASDAQ: ZGEN) also stands to gain $430 million in payments from Bristol if the medicine, pegylated interferon lambda, reaches certain goals in its development as a treatment for hepatitis C. ZymoGenetics could also pull in another $287 million if the drug reaches certain milestones as a treatment for other diseases, and $285 million more if the product reaches the marketplace and exceeds sales thresholds.

The deal represents a lifeline for ZymoGenetics, which has gotten itself into a predicament. The company lost 76 percent of its stock value in 2008 when its first marketed product failed to live up to its first-year expectations, and one of its leading drug candidates failed in a clinical trial. But on the back burner, in an earlier stage of development, the pegylated interferon lambda candidate showed an ability to kill the hepatitis C virus without causing the nasty flu-like symptoms that force many patients to quit taking standard meds, according to research presented at a medical meeting in November. Doug Williams, the company’s president and now CEO, swore throughout the fall that ZymoGenetics’ drug was a hidden gem. If it pans out in more rigorous studies, the opportunity will be big, with an estimated 3.2 million people in the U.S. infected with hepatitis C, and about 170 million worldwide.

The new partnership with Bristol-Myers is the biggest in ZymoGenetics’ 28-year history. It’s “incredibly important,” said company spokeswoman Susan Specht, in an email. Zymo’s Williams said in a statement that Bristol-Myers is an “ideal partner” and that “we share the vision that PEG-Interferon lambda could become an important part of treating patients with Hepatitis C.”

Under the deal, ZymoGenetics will be responsible for a significant portion of the costs for developing pegylated interferon lambda in early-stage clinical trials, and will pick up some of the bills for mid-stage studies, although it didn’t say specifically what percentage of the expenses. Bristol-Myers will be responsible for marketing the drug outside of the U.S., and it will give ZymoGenetics a “double-digit” percentage royalty on sales in those territories. In the U.S., ZymoGenetics will have the option to co-promote the drug with Bristol-Myers’ sales force, and split profits, although ZymoGenetics didn’t disclose the profit-split ratio. If ZymoGenetics decides to save its money and let Bristol-Myers do all the marketing by itself, Zymo would still get a piece of the pie, via royalties on U.S. sales that represent a “double-digit” percentage of sales.

ZymoGenetics plans to field detailed questions about the deal in a conference call with investors at 8:30 am Eastern time tomorrow. For now, Specht declined to answer many key questions sure to surface, like how the companies will divvy up development expenses, the percentage split of the profits ZymoGenetics stands to collect, or how large the clinical trial budget is expected to be to bring this drug to the marketplace. Some of the details will be disclosed in a regulatory filing, and ZymoGenetics chief financial officer Jim Johnson will be able to discuss how the deal will affect the company’s cash balance and spending rate, she said.

ZymoGenetics and Bristol-Myers Squibb apparently were able to bury the hatchet … Next Page »

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