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ZymoGenetics Reaches End of Road in Seattle, Faces Uncertain Future, Potential Job Cuts

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for certain departments like biotech drug manufacturing to remain intact as part of Bristol. The Seattle facility is likely to remain open at least through 2011, Specht says.

Bristol’s desire for ZymoGenetics comes mainly from pegylated interferon lambda, an experimental drug designed to treat hepatitis C, a chronic liver infection. ZymoGenetics scientists developed this drug to have the anti-viral punch of one of the standard workhorse drugs for this disease, but without causing the nasty flu-like symptoms that many patients feel is worse than the disease itself. Hepatitis C is one of the booming fields of biotech research of the past couple years, as Cambridge, MA-based Vertex Pharmaceuticals and pharma giant Merck have blazed a trail with new compounds that greatly increase the effectiveness of older interferon regimens, which is triggering many of the estimated 6 million patients in the U.S. and Europe to seek treatment for this liver damaging disease.

The ZymoGenetics drug has only produced results from the first of three phases of clinical trials, but Bristol and Zymo have made some very aggressive bets that pegylated interferon lambda will someday replace pegylated interferon alpha drugs that have been on the market for years, like Roche’s Pegasys and Merck’s Pegintron.

Fron Mauer, the Bristol spokeswoman, said she couldn’t speculate when the new pegylated interferon lambda might reach the marketplace or how much it could generate for Bristol in sales. But the drug is clearly the main driver for the deal, particularly since Bristol has gotten to know it well since it agreed to pay as much as $1.1 billion to co-develop the drug with ZymoGenetics in January 2009. Bristol sees this drug as having potential to help fill some of the major gaps opening up in its pipeline, as it prepares to lose its patent protection for blockbusters like the anti-clotting agent clopidrogel (Plavix) and the anti-psychotic medication aripaprazole (Abilify). Those drugs are schedule to face competition from cheaper generics in 2012 and 2014, respectively, she says.

“Full ownership of pegylated interferon lambda is really the key for us,” Fron Mauer says. “It’s a novel interferon that has potential to be a backbone in a new standard of care for hepatitis C.”

As part of the takeover agreement, ZymoGenetics has agreed not to urge another suitor to come along with a higher bid. Still, that could technically happen if another pharma company sees a potential blockbuster drug in the making being offered at a bargain price today. Much will depend on the next few weeks, as shareholders mull over how much they like the Bristol offer, and whether they see any real alternative that might bring a higher return.

But right now, with 37 percent of the shares already tendered to Bristol and only 56 percent needed to clinch the deal, it looks like this deal is going to get done. And a lot of talented Seattle biotech pros could be hitting the unemployment line later this year.

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3 responses to “ZymoGenetics Reaches End of Road in Seattle, Faces Uncertain Future, Potential Job Cuts”

  1. I’m well aware most successful biotechs get purchased before they have a chance to grow, but this is a terrible deal. Bristol is paying a tiny 11% premium over Zymo’s 52-week high. RecoThrom is cash-flow positive at the end of this year. Assuming interferon-lambda is successful, which is a safe assumption otherwise partner Bristol wouldn’t be doing this deal, Zymo’s Board is accepting $200 million LESS in this buyout than they likely would have earned anyway in established milestone payments from the original deal. Not to mention 50% of NA profit and 15-28% ex-NA royalties or, for that matter, the rest of the pipeline and RecoThrom cash stream.

    I know, risk-adjusted NPV… blah, blah, blah.

    Fact of the matter is, Zymo’s Board sold shareholders and employees out. This is a terrible deal. With 66% of the needed shares already locked up, however, Bristol has it in the bag.

    A terrible ending for one of Seattle’s best biotechs.