ZymoGenetics' Recothrom set to be one of the most disappointing new product launches of 2008

Analysis

Despite reporting a narrower quarterly loss than analysts had estimated, shares in ZymoGenetics rose just 3% yesterday to $3.85, a mini-recovery from a record low of $2.69 last week, but still representing a 72% slump in value over the past 12 months.

Pivotal to the underwhelming response is likely to be a third consecutive quarter of disappointing sales for new thrombin product Recothrom; already significantly downgraded consensus had expected third-quarter sales of $4.4m but the company recorded sales of just $1.8m. With the company now guiding analysts to full-year sales of $7m, compared to prior consensus for $160m this year the drug is set to be one of the most disappointing new product launches in 2008.

Significant downgrades

ZymoGenetics and bullish analysts have consistently stressed that uptake of the tissue sealant product was always likely to be slow, due to nature of individual pharmacy and therapeutics (P&T) committees having to accept the use of Recothrom within hospital formularies, or surgical procedure guidelines.

As a result, analysts have already significantly downgraded forecasts for the product this year. Latest consensus forecasts from EvaluatePharma show around a 50% annual reduction in sales estimates compared to expectations just prior to the release of the first set of disappointing results in the first quarter.
 

Recothrom Archive Sales Forecasts
  WW annual sales ($m)
Archive date  2007  2008  2009  2010  2011  2012 
 Oct 2008  -  19  70  127  192  244
 Mar 2008  -  40  150  249  349  433
% change   -53% -53% -49% -45% -44%
             
 Jan 2007  19  160  256  309  361  413

Despite these massive downgrades it is therefore somewhat surprising that Recothrom sales continue to miss expectations. The question now for shareholders is the same as it has been all year; is the painfully slow uptake of the product just a blip that will eventually be overcome or does it raise more fundamental doubts about Recothrom’s long-term commercial potential? (Sluggish Recothrom sales acceptable or terminal for ZymoGenetics?,July 4, 2008)

Bowing to price cut pressure

One of the main criticisms from more bearish analysts has focused on the fact the company has so far been charging a 70% premium to the current market-leading thrombin agent, King Pharmaceuticals’ Thrombin-JMI, despite a lack of evidence to demonstrate a clear clinical benefit with Recothrom.

Given the slow uptake and in response to feedback that hospital budgets are subject to increasing constraints, the company bowed to the inevitable and introduced widespread price cuts for the product at the start of October. Company representatives admitted on yesterday’s conference call that they need to become a lot more aggressive on price and promotional activities to try and bolster sales as soon as possible.

Although the extent of the price cuts was not revealed, the suggestion is that they will be fairly dramatic in order to ensure a greater approval rate by P&T committees. As such, further downgrades to Recothrom sales seem likely.

Baxter to benefit

The main beneficiary from Recothrom’s problems appears to be Baxter International. At the beginning of the year, Recothrom was expected to become the dominant tissue sealant product by 2012. However, latest consensus forecasts now expect Baxter’s thrombin agents FloSeal and CoSeal to be the market leader, bolstered by the company’s pipeline coagulant TachoSil.
 

EphMRA code: B2F (Tissue Sealing Preparations) - top 10 products in 2014 WW annual sales ($m)
Rank  Product Company Pharmacological Class  Market status  2007  2014  CAGR (07 - 14) 
 1  FloSeal  Baxter International  Thrombin  Marketed  130  355  15%
 2  Recothrom   ZymoGenetics  Thrombin  Marketed  -  315  n/a
 3  TachoSil  Baxter International  Coagulant  Phase III  -  200  n/a
 4  Thrombin-JMI  King Pharmaceuticals  Thrombin  Marketed  267  178  (6%)
 5  Evithrom  Johnson & Johnson  Thrombin  Marketed  12  172  46%
 6   TachoComb  Nycomed  Coagulant  Marketed  88  127  5%
 7  Beriplast P  CSL  Coagulant  Marketed  99  82  (3%)
 8  Recothrom  Bayer AG  Thrombin  Marketed  -  52  n/a
 9  Bolheal  Astellas Pharma  Coagulant  Marketed  37  20  (9%)
 10  Emphysema collaboration     OMRIX Biopharmaceuticals     Coagulant  Phase II  -  9  n/a
Total tissue sealant market 633 1,509 13%

Atacicept pain adds to the gloom

Another key reason why ZymoGenetics touched a record low last week and had a muted response to yesterday’s results is down to the termination of a phase II/III trial for lead pipeline candidate atacicept in the treatment of systemic lupus erythematosus (SLE) patients with nephritis.

Initial results revealed that patients treated with atacicept in combination with immunosupressants were at increased risk of serious infection. With expectations that the drug could be filed as early as next year on the strength of the phase II/III data, these adverse events raise serious doubts as to the drug’s regulatory and commercial prospects. Even the most optimistic of analysts admit the drug’s launch will be delayed until 2014 at the earliest and many have questioned the chances of the product succeeding in follow-on indications such as rheumatoid arthritis and multiple sclerosis.

Having recently been applauded for handing over all developmental responsibilities for atacicept to Merck Serono - ZymoGenetics gives up R&D ghost to save cash, September 4, 2008 – it seems the company’s long run of bad luck and missed opportunities only gathers momentum.

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