ZymoGenetics gives up R&D ghost to save cash

Analysis

In a move to conserve cash ZymoGenetics has thrown in the R&D towel for the most advanced product in its pipeline. The money conscious biotech announced yesterday that it was handing the development of anti-inflammatory drug, atacicept, to its partner Merck Serono.

In return for abdicating its financial responsibility for the product Zymo will give up the right to half the profits from sales of the drug in the US and instead receive double-digit royalties on world-wide sales and milestone payments. By saving what Kevin DeGeeter, an analyst at Oppenheimer, estimated would have been an unsustainable spend of $300m over the next five years on trials of atacicept, the company can now spend some of its cash on the promotion of Recothrom in the US, its treatment to control surgical bleed.

Shift in focus

It is a decision that some believe could not have come too soon. Despite getting approval in January, sales of the drug have been slow and the treatment has so far failed to make headway against King Pharmaceutical’s cow-based treatment, Thrombin-JMI. In June, sales of Recothrom were $440,000, significantly behind analysts’ forecasts of up to $750,000.

However, the drug’s European fortunes were given a boost earlier this week, when Bayer announced that it had filed for European approval for the drug, triggering a $5m payment to ZymoGenetics.

While this is positive it is likely to do little to allay fears that the slow US Recothrom sales are likely to mean the group will not hit analysts’ sales numbers for the full year. Archive forecasts show that this is a distinct possibility. Over the last 12 months sales 2012 sales forecasts have almost halved, falling from $472m to $241m in August.

But ZymoGenetics is not the only one that will be worrying about Recothrom sales. In June, the group announced a $100m funding agreement with Deerfield Management, giving it the opportunity to draw down the money in $25m tranches over 18 months in return for the investment group getting 2% cumulative royalties on Recothrom sales with a royalty cap of $45m.

Refinancing

While the repayment dates are far enough away for many current investors not to be concerned, the near term fear is that if Recothrom sales fail to pick up by the end of the year, the company, which had $117m of cash at the end of the second quarter, might still have to return to the market to fund itself even with the predicted lower R&D spend

So while ZymoGenetics, which is not forecast to be profitable before 2012, might have temporarily given itself some breathing space with its Merck move, worried investors might still see more financial manoeuvring from the company.

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