Staff Writer

ZymoGenetics Inc. continued its transformation from a discovery engine to a development and sales organization, this time out-licensing its preclinical anti-IL21 antibody to former parent company Novo Nordisk A/S.

Copenhagen, Denmark-based Novo Nordisk already owned ex-North American rights to the compound. Under the new licensing deal, the big pharma picked up North American rights in exchange for a $24 million up-front payment and milestone payments of up to $157.5 million. Seattle-based ZymoGenetics will see some of those milestones fairly quickly: $1.5 million is due upon filing of the investigational new drug application, and another $8.5 million is tied to the initiation of clinical trials.

If early trials for autoimmune and inflammatory diseases pan out, ZymoGenetics has the option to pay a $10 million fee and 15 percent of the Phase III trial costs to up its royalty rate on U.S. sales from single to double digits. The biotech also would have the right to co-promote the drug.

Off-loading early stage programs while maintaining late-stage options is right in line with ZymoGenetics' new strategic direction.

The biotech was founded on a genomics platform that churned out protein therapeutics like Novolin (human insulin), NovoSeven (recombinant coagulation factor VII), Glucagen (recombinant glucagon) and others. Novo Nordisk acquired the fledgling company in 1988, spun it back out in 2000 and still holds 31 percent of its shares. (See BioWorld Today, Oct. 24, 2000.)

At the Piper Jaffray health care conference last week, ZymoGenetics CEO Douglas Williams explained that the old strategy of discovering and broadly out-licensing compounds often resulted in an economic return that "isn't as good as it could be."

To be sure, ZymoGenetics' revenue stream from its partners' marketed products has declined, bringing in about $6 million in recent years. The biotech also collects milestone payments from deals on products that have yet to reach the market - like Phase II/III lupus drug atacicept, which is partnered with Merck Serono SA - but those deals don't have profit-sharing options.

So when Williams took the helm early this year, he instituted a strategy of selective licensing and was "mindful of retaining an ownership stake" in licensed compounds. That strategy was immediately implemented through a $1.1 billion deal with Bristol-Myers Squibb Co. ZymoGenetics got $85 million up front for rights to its Phase I PEG-Interferon lambda product for hepatitis C, but the biotech is sharing in development and commercialization costs and retained a 40 percent profit share. (See BioWorld Today, Jan. 14, 2009.)

Thanks to the BMS deal, ZymoGenetics has no shortage of cash. The company ended the third quarter with $103.4 million in its coffers and has since collected another $70 million payment from BMS and now the $24 million from Novo Nordisk.

Yet Williams is keeping a close eye on ZymoGenetics' spending. He cut 32 percent of the staff and curtailed oncology research this spring, and last week he cut another 15 percent of the staff and axed immunology research efforts. (See BioWorld Today, May 1, 2009.)

ZymoGenetics spokeswoman Susan Specht explained that the cutbacks are part of the company's strategy to be "more focused on fewer things."

The cost-sharing hepatitis C deal with BMS is one area of focus and investment. Another is ZymoGenetics' commitment to file the IND for Novo Nordisk on the anti-IL21 antibody. Beyond that, ZymoGenetics owns worldwide rights to an anti-IL21 protein that is in Phase II for melanoma, and the company plans to invest in a randomized trial for the compound next.

And last but not least, ZymoGenetics markets Recothrom (recombinant thrombin), a topical plasma-free thrombin product that generated net sales of $8.5 million in the third quarter. While Specht acknowledged that the drug doesn't have blockbuster potential - the entire thrombin market is only worth $270 million - she said Recothrom is expected to break even next year and will then help provide funding to support other programs.

ZymoGenetics also isn't worried that cutting its discovery efforts will limit future growth. Specht said an anti-IL31 antibody for atopic dermatitis is primed for IND filing in 2011, and there are a number of products ZymoGenetics could pull off the shelf to advance after that.

Shares of ZymoGenetics (NASDAQ:ZGEN) gained 12 cents, to close at $7.28 on Tuesday.