ZymoGenetics Picks Up Some of Human Genome Sciences’ Mojo With Lupus Drug

7/21/09Follow @xconomy

ZymoGenetics watched in obscurity from the sidelines yesterday as one of its main competitors rocked the biotech world. Yet Zymo cheered every minute like this was a gift from heaven.

Say what? The big news came before markets opened yesterday when Rockville, MD-based Human Genome Sciences (NASDAQ: HGSI)—once an overhyped darling of the genome bubble of 2000—saw its stock quadruple on record trading volume when it reported the first major clinical trial success with a new drug for lupus. If this result can be confimed in a second study, HGS will have the first new drug in more than four decades for this inflammatory disease that affects an estimated 1.5 million to 2 million people in the U.S.

The reason the news also boosted Seattle-based ZymoGenetics (NASDAQ: ZGEN) is because the rivals share a research focus. HGS just produced the first convincing proof that doctors can successfully treat lupus by blocking a specific inflammatory protein known as BLyS (pronounced bliss). ZymoGenetics scientist Jane Gross, whom I profiled for the The Seattle Times in 2004, staked a claim in the 1990s to excess production of this particular protein and a number of diseases in which the immune system goes haywire and starts attacking healthy tissue. By 2001, ZymoGenetics had formed a deal with Merck Serono to develop a genetically engineered protein drug, called atacicept (uh-tack-ee-cept) that would interfere with BlyS as well as another inflammatory protein called APRIL, which Human Genome Sciences’ drug isn’t designed to block.

Many investors have forgotten ZymoGenetics’ connection to atacicept and its BLyS target because the Seattle biotech handed over majority ownership of the drug candidate to Merck Serono last September when it started running low on cash. But Zymo still has plenty of skin in the game. Even though it quit paying for the development costs, Zymo was able to retain a royalty rate in the “mid-to-high teens” (as a percentage of sales) if Merck Serono can turn atacicept into a marketed product.

That’s why when Human Genome Sciences roared, ZymoGenetics let out a healthy whoop as its shares soared 20 percent yesterday to close at $5.22.

“We still have an upside stake in that drug, without having to pay a nickel more to develop it,” says ZymoGenetics CEO Doug Williams. “Our view is that we actually have a better mousetrap. Some people forgot, but the smart money is recognizing it.”

Before getting too carried away and bidding up ZymoGenetics stock to the moon, … Next Page »

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