ZymoGenetics Drug Sales Still Slumping After Full Year on Market

ZymoGenetics is still struggling to generate sales from its lone commercial product. The Seattle biotech company said today it had $4.5 million in sales of recombinant thrombin (Recothrom) for surgical bleeding in the first quarter, which is down slightly from $4.7 million in the previous quarter.

The trend can’t be encouraging, although ZymoGenetics (NASDAQ: ZGEN) suggested the raw numbers may be a bit misleading. That’s because the previous quarter’s product sales were inflated by about $800,000 worth of extra wholesale stockpiling that wasn’t actually sold to hospitals until the first quarter. When factoring out the inventory buildup, sales would have increased 36 percent in the quarter, the company said.

ZymoGenetics won FDA approval to market recombinant thrombin in January 2008, so it has now had more than a year of experience in the marketplace to encourage doctors and hospitals to start buying it. The drug, a genetically engineered copy of a human protein that helps with the normal blood clotting process, is made to compete against a rival from King Pharmaceuticals derived from cow blood, called Thrombin-JMI. The ZymoGenetics product is supposed to be superior, although doctors haven’t started switching en masse. The ZymoGenetics drug generated just $8.8 million in sales last year, and the company has predicted it will generate $25 million to $35 million this year. Thrombin-JMI had $255 million in sales a year ago.

With the first quarter off to a slow start, ZymoGenetics will have to boost sales significantly later this year to reach its goal. ZymoGenetics’ new president, Stephen Zaruby, formerly of Bayer, said everything about the drug—people who sell it, how it’s positioned in the marketplace, and how it’s priced, are subject to change. Still, the round of 161 job cuts announced last week—one-third of ZymoGenetics’ staff—was designed to cut R&D and other departments, while maintaining the company’s ability to market the drug.

“We recognized from the beginning that this was a process of medical education, and that it would take time,” said ZymoGenetics CEO Doug Williams, on a conference call with analysts. “We are beginning to make progress, and it will take continuing efforts to bear fruit.”

Specifically, Zaruby said he remains confident in the product, because of increasing hospital orders in the first quarter, and larger and more frequent orders from existing hospital customers. Pricing, however, is down, he said, as more customers are taking advantage of bulk-buying discounts the company implemented in October to become more competitive with Thrombin-JMI. By the second half of 2010, the product should generate positive cash flow that can be plowed into the rest of the business, Williams said.

As recombinant thrombin has struggled, ZymoGenetics has acted to boost revenues in other ways, while also reducing costs. The company signed a partnership in January with Bristol-Myers Squibb that has brought in $105 million in cash so far this year, and is expected to produce another $95 million for ZymoGenetics this year. That helped the company raise its cash reserves from $89.9 million heading into this year, to more than $152 million at the end of the first quarter, March 31.

The company has shown it wants to make that cash last longer than it would have in the past. ZymoGenetics says its recent job cuts, along with reduced spending on R&D programs, will save $30 million a year.

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