Bristol-Myers, Zymo deal shows interest in hep C remains high

Analysis

Bristol-Myers Squibb's initial $85m paid to secure rights to ZymoGenetics’ interferon is the second-largest upfront payment seen across all single-product phase I deals over the last three years, providing further evidence of the keen interest being shown in the hepatitis C field.

The total deal value could reach $1.1bn, and the chunky upfront cash is in line with other recent deals in the hepatitis C space (see table). Last week, another US biotech Anadys saw its shares more than double in value on encouraging phase I data from its hepatitis C candidate, which raised hopes for a sizeable partnering deal. The ZymoGenetics news shows that investors were right to get excited. (Anadys surges on early hepatitis C data, January 12, 2009)

An estimated 170 million people are infected with hepatitis C, many of whom are not adequately treated with the currently available drugs, interferon and ribavirin. The need for new products has spurred interest in the field, and the most promising late-stage candidates have been assigned significant valuations.

As a result, deals over hepatitis C candidates, even at an early stage, are being struck for big sums. Vertex’s deal with Johnson & Johnson over telaprevir, signed for an initial $165m, ranks as the biggest upfront payment for any phase II deal across the industry over the last three years. Based on consensus sales forecasts the product is now valued at $4.45bn, according to EvaluatePharma's NPV Analyzer.

Hepatitis C in-licensing deals, ranked on upfront payment
                 
Product Pharmacological Class Company Partner/Originator Deal Value Upfront Payment Status on Deal Date Current Phase Deal Date
VX-950 Hepatitis C protease inhibitor Johnson & Johnson Vertex Pharmaceuticals 545 165 Phase II Phase III Jun-06
PEG-IFN-lambda Interferon Bristol-Myers Squibb ZymoGenetics 1,110 85 Phase I Phase I Jan-09
ITMN-191 (R7227) Hepatitis NS3/4 protease inhibitor Roche InterMune/Array BioPharma 534 65 Pre-clinical Phase I Oct-06
Albuferon Interferon alpha Novartis Human Genome Sciences 553 45 Phase II Phase III Jun-06
GS 9450 Caspase inhibitor Gilead Sciences LG Life Sciences 202 20 Phase II Phase II Nov-07
NS5b Non-Nucleosides (GL60667) Hepatitis C polymerase inhibitor Novartis Genelabs Technologies 195 13 Research project Pre-clinical Jun-06
TMC435350 Hepatitis C protease inhibitor Johnson & Johnson Medivir 89 8 Pre-clinical Phase II Nov-04
Hepatitis C Research Project (Medivir) Hepatitis C polymerase inhibitor Johnson & Johnson Medivir 430 8 Research project Research project May-08
ACH-1095 Hepatitis C protease inhibitor Gilead Sciences Achillion Pharmaceuticals 110 5 Research project Pre-clinical Nov-04
SPC3649 miR-122 antisense GlaxoSmithKline Santaris Pharma 106 4 Pre-clinical Pre-clinical Dec-07

Under the deal with Bristol-Myers Squibb, Zymo will get $85m now and a further $20m later in the year. Development and regulatory milestones could bring in a further $430m, while progress in other indications could be worth $287m. Sales-based milestones are worth $285m. Both companies will share development costs in the US and Europe, with Zymo running the show until later on in phase II development. Zymo also has the option to co-promote in the US and share profits, if not, it will receive double digit royalties. Clearly, the back-end loaded deal reflects the early stage of the product, but also the potential seen.

The companies believe the product has the potential to be a more targeted interferon therapy, and therefore more effective. Called PEG-Interferon lambda, it mediates anti-viral activity through a receptor that is distinct from that used by the widely used Interferon alpha therapies, and is present on fewer cell types within the tissues of the body.

Welcome good news

For Zymo, the deal is welcome good news. Shares in the company lost 74% in 2008, closing the year at $3, not far off record lows, as investors responded to a very disappointing launch of tissue sealant product Recothrom. The company is currently guiding to sales this year of $7m, 12 months ago analysts were expecting $79m, according to archived forecasts from EvaluatePharma. (ZymoGenetics' Recothrom set to be one of the most disappointing new product launches of 2008, November 5, 2008.)

Compounding this disappointment, the group also announced in November the termination of a phase II/III trial for lead pipeline candidate atacicept in the treatment of systemic lupus erythematosus (SLE) patients with nephritis. The discovery that patients treated with atacicept in combination with immunosupressants were at increased risk of serious infection has raised serious questions about the future of the product.

With only a smattering of other pipeline projects, the deal with Bristol-Myers Squibb is a sign that despite the setbacks, Zymo still has its eye on the ball. Shares in the company surged 34% to $4.17 in early trade, still a long way off the $11 at which the stock opened 2007, but at least a move in the right direction.

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