Giving potential protein and antibody therapeutics a better chance of reaching the market, ZymoGenetics Inc. has partnered with Serono SA in a deal worth $81 million up front to ZymoGenetics.
The research, development and commercialization agreement with Geneva- based Serono has three parts. The first part gives Serono access to a portfolio of ZymoGenetics' genes and proteins, as well as the rights to license an unlimited number of the proteins over the next five years. The second part permits Serono to license up to 12 products that come out of ZymoGenetics' internal core research projects. And the third part involves a licensing agreement that grants Serono exclusive worldwide rights to develop and commercialize products based on fibroblast growth factor 18 (FGF-18) and interleukin-22 receptor (IL-22R), and rights to co-develop products based on interleukin-31 (IL-31).
"By combining forces with Serono's excellent researchers, we can, in effect, increase the overall research spending on these programs without increasing our own research spending, and therefore, bring more products to the market," said Bruce Carter, ZymoGenetics' president and CEO.
As for the first two parts of the agreement, ZymoGenetics retains an option to co-develop and co-commercialize in the U.S. products selected by Serono. Serono's rights to exclusively license proteins outside the U.S. are subordinate to a separate agreement ZymoGenetics has with Novo Nordisk A/S, of Bagsvaerd, Denmark.
Seattle-based ZymoGenetics will receive a $20 million up-front payment for Serono's rights to license proteins over the next five years, as well as a $50 million equity investment. For every protein licensed or co-developed by Serono, it also will receive up-front fees and potential milestone payments related to development progress, regulatory submissions and approvals. For the three licensed products, ZymoGenetics would receive initial fees of $11.25 million and milestone payments that could make the total value of the licenses more than $100 million. If ZymoGenetics co-funds development of any products, the two parties would equally share co-commercialization profits in the U.S. ZymoGenetics would receive double-digit royalties on product sales outside the U.S., as well as on sales within the U.S. when it elects not to co-develop the products.
"I think it's fair to say that this alliance will give us more than 40 percent of the worldwide profits for each drug that we commercialize," Carter said in a conference call Wednesday.
The agreement will close following government clearances. Carter noted that while pharmaceutical companies struggle with a therapeutic deficit, ZymoGenetics has the opposite problem of having plenty of potential therapies but not enough money to move them forward.
"We would like to keep our burn rate at a manageable level, and this has led us to this agreement with Serono," he said.
Serono will fund a significant portion of the development costs, allowing ZymoGenetics to advance products that otherwise would have sat on the shelf.
"For each protein they co-fund, they will pay more than half of the research costs," said Jim Johnson, the company's chief financial officer. "They will pay the majority of the development costs for any product that is co-developed, and 100 percent of the development costs for any product that is licensed."
The license agreements that are part of the larger collaboration give Serono worldwide exclusive rights to FGF-18 and IL-22R, which might help repair cartilage damaged by osteoarthritis or physical injury, and might help treat psoriasis, respectively. Serono also gains co-development and co-commercialization rights in the U.S. for IL-31, which might be useful in treating conditions such as asthma, psoriasis and inflammatory bowel disease.
FGF-18 is instrumental in skeletal development and appears to be a trophic factor for the cells, or chondrocytes, that produce cartilage of the joint surfaces. The receptor subunit IL-22R-alpha helps in the signaling of pro-inflammatory cytokines IL-20 and IL-22, which have shown elevated expression in psoriatic lesions, transgenic mice phenotypes, genetic association data and animal pharmacology. And early data suggest that IL-31 might affect cellular infiltration and inflammation. Its expression is increased significantly in inflammatory bowel disease, asthma and psoriasis, and it might play a role in the development of atopic dermatitis.
It's not the first time ZymoGenetics and Serono have come together. They formed an alliance in 2001 that resulted in the development of TACI-Ig. In August, the companies began a Phase Ib trial of the product in 60 rheumatoid arthritis patients in Europe and Australia, in addition to an ongoing Phase Ib study in lupus patients. They have completed a Phase I study in healthy volunteers of TACI-Ig, which is a soluble fusion protein that links the extracellular portion of the TACI receptor to the Fc portion of human immunoglobulin. (See BioWorld Today, Sept. 5, 2001.)
Novo spun out ZymoGenetics in October 2000, and the companies entered a licensing option deal the following month. Early in 2003, they signed an agreement for the preclinical development of IL-21 worth up to $11 million, and in the spring of this year, Novo licensed IL-20 for $4 million plus milestones and royalties. Finally, in July, Novo gained exclusive development rights outside North America to patents that cover interleukin-31, as well as interleukin-28A, interleukin-29, both of which have shown potential in providing immunity to viral infection. (See BioWorld Today, Jan. 10, 2003; March 17, 2004; and July 7, 2004.)
Johnson reiterated ZymoGenetics' guidance for 2004, saying the company expects at least a 12 percent increase in total revenues and at least a 20 percent increase in net income. It expects to have more than $300 million in cash at the end of the year, thanks to the agreement with Serono, Carter said.
"The injection of cash from the up-front licensing fee and share purchase extends our cash one further year," he said.
ZymoGenetics' stock (NASDAQ:ZGEN) rose 97 cents on Wednesday, to close at $17.76, while Serono's stock (NYSE:SRA) dropped 4 cents, to close at $16.01.