ZymoGenetics’ New Boss Sees Parallels to Dark Days at Immunex
ZymoGenetics is enduring one of the ugliest stretches in its 28-year history. Now the Seattle-based biotech company is hoping that Doug Williams, an executive who lived through both the darkest days and finest moments at Immunex in the 1990s, will be able to engineer one more turnaround.
Williams, 50, took over as CEO of ZymoGenetics (NASDAQ: ZGEN) last week after Bruce Carter, one of the region’s biotech pioneers, retired. Williams inherits a company that has fallen short of investors’ expectations with its first marketed product, a treatment for surgical bleeding. And that’s not all. One of ZymoGenetics leading candidates in its pipeline, atacicept, failed in a clinical trial for lupus of the kidneys when it raised the risk of infections. The setbacks, combined with a bad overall market, wiped out 76 percent of the company’s value in the year.
When we spoke by phone on a snowy day before Christmas, Williams was keeping the faith, and I didn’t get the sense he was being Pollyannish or trying to pull some sleight of hand. He said he sees a historic parallel with ZymoGenetics of 2009 to the predicament Seattle-based Immunex faced with a hostile takeover bid from Wyeth in 1995. Immunex was then limping along after its first marketed product, GM-CSF (Leukine), was crushed by a competing drug from Amgen. In that vulnerable period, Wyeth brass met Immunex CEO Ed Fritzky at the Four Seasons hotel in downtown Seattle, and handed over an offer of $14.50 a share to buy the company, which was then trading at about $12. The Immunex directors were furious, swearing, wondering whether they could turn down what they saw as a low-ball offer.
That night, Williams, Immunex’s chief technology officer at the time, was lying in bed reading the still-confidential Phase II study report on the company’s drug for rheumatoid arthritis. The results showed etanercept (later named Enbrel) had an unprecedented effect on the disease. That gave Immunex the guts to refuse the offer and remain an independent company.
“ZymoGenetics now feels a little like Immunex did before Enbrel,” Williams says. “We have great scientists, a fabulous pipeline, and the market’s not recognizing it. It took time for things to fall into place, and for Enbrel to show it was real and that it would transform the company.”
The hidden gem at ZymoGenetics, Williams says, is pegylated interferon lambda, or IL-29. This experimental drug is made to treat hepatitis C, and bring all the viral killing power of standard interferon drugs, without the nasty flu-like side effects that force many people to quit taking their meds. Preliminary results released in November, from 18 patients, support the assertion, but the drug still has to pass much bigger and more rigorous studies before investors will start to believe this is really a blockbuster-in-the-making.
While ZymoGenetics trudges forward through the lean times, investors have to bank heavily on Williams’s word. Stephen Graham, the managing partner at Fenwick & West in Seattle, who represented Immunex during its turbulent days, said this about Williams: “As a businessman I would describe him as calm, thoughtful, insightful and unflappable. As a person, he’s low-key, respectful and personable. He’s a leader who seeks and respects the input of others.”
Williams is going to have his judgment tested early on as the ultimate boss of ZymoGenetics. He has already essentially made one big decision by bringing in a seasoned pharma hand from Bayer, Stephen Zaruby, to be the company’s president, with responsibility for boosting sales of recombinant thrombin for surgical bleeding. The drug is forecasted to generate only $7 million in sales in 2008, its first year on the market. This debacle has caused ZymoGenetics’ cash cushion to diminish to $81.1 million at the end of September, with an alarmingly-high quarterly net loss of $28.8 million. It has forced the company to scramble a bit to keep its finances in order. To do it, the company has gotten a line of credit from Deerfield Management it can tap for as much as $100 million. It has also sold off some land, settled a patent dispute, and even cancelled the company Christmas party.
ZymoGenetics, which had 530 employees at last count, still needs to make some more hard choices. When I asked Williams if that includes layoffs, he said he couldn’t rule it out. “I’d be lying if I didn’t say we’re looking at all options,” Williams says.
The goal will be to get ZymoGenetics back to its historic strong footing of maintaining at least two years of cash on hand to run the business, he says. The strategy won’t be all that different from other companies that have been hammered in the recession.
“All companies, and ZymoGenetics is no exception, have to be looking at where they’re spending their money, how much they’re spending, and which programs are likely to reach a value inflection point within a reasonable time frame,” he says.
One thing ZymoGenetics has in its quiver, which most biotechs don’t, is a product on the market with growth potential, Williams says. That said, the company has struggled to get hospitals to switch from the standard product, derived from cow blood, to the ZymoGenetics product, made through genetic engineering techniques. ZymoGenetics started out pricing its product at a premium, arguing that its alternative was safer, but it has since lowered its price to compete when hospital purchasing committees balked. When asked if this can be salvaged after getting off to a slow start, Williams said it can. He pointed to the example of Cubist Pharmaceuticals’ daptomycin (Cubicin) for severe bacterial infections, as a drug that started slow, and now exceeds $400 million in annual sales.
The other obvious way to bring in new cash would be from a partner on the hepatitis C program, who will be needed to run the large trials required for this huge market of 6 million patients in the U.S. and Europe. ZymoGenetics has gotten interest from a number of partners, Williams says.
When it comes down to making the big decision on that partnership, Williams will be largely on his own. Williams counts both Carter and Immunex co-founder Steve Gillis (now a managing director at Arch Venture Partners in Seattle) as his mentors. Both have been supportive, but have been careful not to tell him how to go about doing the job, Williams says.
Carter’s management style is clearly different, as he’s a gregarious Brit known for walking the halls in true Hewlett-Packard style, urging the troops to forge on, to do “more work” with tongue only partly in cheek. Williams said he doesn’t walk the halls as much as Carter, preferring to spend more time being “task-oriented” as he put it. But as a scientist by training, he has no trouble relating to those at the lab bench, and I’ve seen him build rapport with investors at conferences by answering their questions clearly and concisely.
Gillis, the co-founder of Immunex, was another famously charismatic scientist who fostered strong loyalty among the staff. He was also known for an irreverent brand of humor, which he once displayed by establishing the “Pons and Fleischmann Award” for dubious achievements in science, in a nod to the University of Utah scientists who dubiously claimed to discover cold fusion. The award was just one way to foster camaraderie and teamwork, while teasing each other about inevitable lab failures (and thereby encouraging people to push the edges, and not be afraid to fail).
“I’ve picked up tricks from both Steve and Bruce along the way,” Williams says.
One of those tips, even when the industry is collapsing around you, is to keep an eye on the long-range vision for the company, he says. The dream doesn’t involve being forced into a fire sale to a Big Pharma company when his company is in a vulnerable spot.
“In the next five to 10 years, I’d like to see ZymoGenetics become another Immunex,” Williams says. “We want to stay an independent company.”