ZymoGenetics Regains Full U.S. Rights to Recothrom as Bayer Walks Away

Xconomy Seattle — 

If ZymoGenetics is going to make its lone marketed product into a success, it will have to do it on its own. The Seattle-based biotech company said today that its partner, Germany-based Bayer, is walking away from its U.S. commercial rights to the drug for surgical bleeding.

ZymoGenetics (NASDAQ: ZGEN) said today it is getting back the full rights in the U.S. and every other country except Canada, under a restructured partnership with Bayer. The bigger company will quit co-promoting the drug everywhere except Canada, and it will no longer have to pay ZymoGenetics as much as $16 million in milestone payments for regulatory approvals around the world. ZymoGenetics will have to pay Bayer as much as $12 million in commissions over the next two years, about half of what it could have owed Bayer under the old agreement. The revised deal goes into effect on January 1.

ZymoGenetics struck the original alliance back in June 2007, when hopes were high for the commercial prospects of recombinant thrombin (Recothrom). ZymoGenetics and Bayer were gearing up then to take over the market for drugs that control excess surgical bleeding, which has been dominated in the U.S. by Bristol, TN-based King Pharmaceuticals. The established drug is derived from proteins in cow blood, while the ZymoGenetics product is made of genetically engineered human clotting proteins, which ZymoGenetics has argued is a safer, more reliable source. One analyst projected the drug would reach $308 million in U.S. sales in 2010 at the time the deal was struck with Bayer, but the drug has come nowhere near that kind of success. The ZymoGenetics treatment generated just $8.8 million in sales in 2008, and is projected to reach $28 million to $30 million in sales this year.

ZymoGenetics CEO Doug Williams

ZymoGenetics CEO Doug Williams

Still, ZymoGenetics isn’t ready to give up on the product.

“Why would we do that? It’s a real product with a growing revenue line,” says ZymoGenetics CEO Doug Williams. “Our view of Recothrom hasn’t changed. We feel the same way that we did at the product launch, which is that this will be the dominant product in terms of market share.”

Bayer essentially walked away from the product after completing its own internal portfolio review, deciding to allocate money and people toward other projects, Williams says. The alliance means that ZymoGenetics’ 48-person U.S. sales force will pitch the drug on its own, and ZymoGenetics will look to hire another 10 sales reps, Williams says. ZymoGenetics will seek to keep all the U.S. to itself, but it will seek another partner who is willing to finish development and support commercialization of the product outside of North America, Williams says.

Williams noted in a statement that by going it alone, ZymoGenetics should have better efficiency with one sales organization. It also should lower the company’s sales expenses, ZymoGenetics says.

ZymoGenetics has sustained a couple more ups and downs with the product in recent weeks. The drug was shot down by European Union regulators, who said another clinical trial would need to be run before they could grant clearance to sell the product there. Canadian regulators took a different view, and have approved the product for sale.

ZymoGenetics isn’t ready to offer its product sales forecast yet for 2010, although it plans to issue that guidance on its year-end conference call in February, Williams says. By the end of 2010, the product should start generating positive cash-flow for the business, he says.

To that end, Recothrom should start to help support the rest of ZymoGenetics’ pipeline. The company is now concentrating its resources on pegylated interferon lambda for hepatitis C; the IL-31 monoclonal antibody for inflammatory diseases of the skin; and IL-21 for cancer. ZymoGenetics is seeking to strike a partnership to develop the IL-21 drug candidate, similar to the one it did back in January with Bristol-Myers Squibb on the hepatitis C drug, which could be worth more than $1 billion over time.

Still, the slow sales of recombinant thrombin have taken a toll on ZymoGenetics as an organization. The company axed one-third of its workforce back in April, and eliminated another 15 percent of its workforce earlier this month as it got out of the business of discovering new immunology drugs. The company now has about 300 employees.