By Jim Shrine

BASEL, Switzerland - A company that might have been among the elite biotechnology firms today had it not been picked off by Novo Nordisk A/S 12 years ago is regaining its independence, or at least most of it.

The Danish pharmaceutical company said it will initiate a private placement of shares in its wholly owned ZymoGenetics Inc. subsidiary in the second half of the year as long as market conditions are acceptable. Seattle-based ZymoGenetics is a genomics company that uses bioinformatics technologies to develop protein therapeutics. Five products it invented are registering about $1.5 billion in annual sales.

After making a presentation Thursday at the Allicense 2000 conference here, ZymoGenetics President and CEO Bruce Carter said specifics haven't been determined on the stake the parent company will keep, "but the idea is that it will be done in such a way that Novo no longer has control."

"ZGI has one of the largest collections in the world of intellectual property in the area of protein therapeutics," Carter said. "We have created a lot of value. Now we have to extract that value, which will lie in therapeutics in a wide range of therapy areas.

"Novo Nordisk has a narrow therapeutic focus, primarily in diabetes, and for many ZGI products Novo may not be the best home. By reducing the Novo stake in ZGI and giving it its independence, ZGI has the flexibility to better commercialize these proteins, either by itself or in collaborations."

Novo Nordisk, of Bagsvaerd, Denmark, also will gain flexibility, Carter said, since the move will reduce its research and development costs, money that could go toward purchasing drug candidates in the area of diabetes or other complementary areas. Novo Nordisk also will have an option to license ZGI protein therapeutics outside North America and plans to take two seats on ZGI's nine-person board of directors. Lehman Brothers is advising the companies in the transaction.

Carter, who will leave his post as chief science officer at Novo, said there was much discussion on whether to go the private placement route or spin off as a public company from the start. The private route was taken to give ZymoGenetics time to further develop its products, which are in the preclinical stage in the areas of stroke, certain autoimmune diseases and cartilage repair.

"The independence will provide the appropriate motivation and incentives for a West Coast biotech company," Carter said.

ZymoGenetics was founded in 1981 by professors at the universities of Washington and British Columbia.

In 1988, following a cooperative venture in the area of insulin, Novo Nordisk purchased the company for about $30 million in cash.

The company's portfolio of approved products being sold by Novo Nordisk includes Novolin (human insulin); NovoSeven, a Factor VIIa product used to control bleeding in hemophiliacs; and Glucagon, used for severe hypoglycemia and as a diagnostic aid. It also developed a platelet-derived growth factor for non-healing diabetic ulcers, which is sold by Johnson & Johnson, and a tissue plasminogen activator sold in Japan by a Japanese partner. Amgen Inc. and Kirin Brewery Co. Ltd. are developing a thrombopoietin product developed by ZGI.

ZGI itself has neither attracted nor sought much publicity in recent years. But last week it had a paper published in Nature on a soluble human tumor necrosis factor receptor that eased symptoms and increased survival in a mouse model of systemic lupus erythematosus, and could have utility in a number of autoimmune diseases. (See BioWorld Today, April 27, 2000, p. 1.)

Carter told the Allicense 2000 audience Thursday that his company, from 1993 through August 1998 (the last time data are publicly available), had filed first more patent applications on potential protein therapeutics than any company except Human Genome Sciences Inc. Genentech Inc. and Genetics Institute Inc. were third and fourth, respectively. Since 1996, ZGI has filed first the most often, followed by Genentech and HGS.

He said ZGI has about 500 patent applications filed, and of the relatively small percentage of competing applications he knows about, his company filed first about 50 percent of the time.

The company starts with the gene sequences and then does the biology - rather than the more traditional reverse direction of starting with a protein's biological function - so researchers never know into which therapeutic areas the search will lead. That means the company has to be opportunistic, Carter said, and supports the decision to spin from the disease-focused parent company.

Protein therapeutics positively affect, or stimulate, biological processes rather than inhibiting them. They also have an advantage over small-molecule therapeutics in the exclusivity they provide, as demonstrated by Amgen Inc.'s Epogen and Neupogen, as well as a string of high-selling products such as interferons, GM-CSF and human growth hormone.

ZymoGenetics was one of the first subscribers to the Incyte Genomics Inc. database and uses that along with its own and public databases to search for gene sequence homology and structural motifs, cloning only those that contain plausible protein therapeutics, Carter said.

"This is a competitive field," he said. "There is a race on - and it's to the patent office."

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