ZymoGenetics Cuts One-Third of Workforce To Hold Onto Cash

Xconomy Seattle — 

ZymoGenetics, the largest independent biotech company in Washington, said today it is cutting one-third of its workforce to conserve cash.

The Seattle biotech company (NASDAQ: ZGEN) said today it is eliminating 161 jobs, or 32 percent, of its staff, which will leave it with about 350 employees. The company said it is cutting costs broadly by getting rid of its cancer drug research capability, cutting manufacturing of drugs for clinical trials, and some product development and some support functions that it will now outsourced, said spokeswoman Susan Specht. The company will continue to concentrate resources on research and development of immunology drugs, a “core strength.”

“Given the financial markets, we had to make the cuts,” Specht says. “We don’t want to be dependent on the financial markets anymore.”

The moves are “better for shareholders,” but sad for the employees, she added.

ZymoGenetics will continue to invest in the sales and marketing of its lone marketed product, recombinant thrombin (Recothrom) for surgical bleeding. That drug got off to a slow start last year with just $8.8 million in sales in first-year sales, and it is forecasted to generate $25 million to $35 million this year. ZymoGenetics also hopes to bring in more money by forming partnerships with larger drugmakers, like the deal it struck in January potentially worth $1.1 billion with Bristol-Myers Squibb, to co-develop pegylated interferon lambda against hepatitis C.

The company hopes to form a partnership to co-develop one cancer drug it has in clinical trials, IL-21, in the second half of this year, or the first half of 2010, Specht says.

The company expects to save $11 million this year because of the cutbacks, and about $30 million annually in future years, Specht says.

ZymoGenetics has reversed its fortunes a bit this year with the signing of the partnership with Bristol-Myers Squibb, but the company’s stock is still down 60 percent from where it was a year ago, at a share price of $3.63, making it extremely difficult to raise new equity capital from investors. The company, which spun off from Novo Nordisk as an independent company in 2000, has never been profitable.

As I reported last month in this analysis of the cash balances of Seattle biotech companies, ZymoGenetics had $89.9 million in the bank by the beginning of the year, and entered the year expecting to spend $115 million to $125 million on R&D. The Bristol deal is supposed to bring in $200 million total for ZymoGenetics in 2009 to help pay the bills, but that wasn’t enough of a cushion for future years. CEO Doug Williams suggested in his presentation last month at Invest Northwest that cost cuts could be on the way.