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, a little perspective is in order. ZymoGenetics and its partner halted a final-stage clinical trial of 200 patients who took atacicept for lupus of the kidneys back in October, because it appeared to raise a risk of severe infections when used in combination with another immune-suppressor. But that effect appeared to be isolated to that trial, Williams says, and the companies continued to run other clinical trials of atacicept for patients with rheumatoid arthritis, multiple sclerosis, and lupus that circulates through the body (systemic lupus erythematosis).

Why keep going? ZymoGenetics says the evidence from animal trials and early human studies suggests that blocking both BLyS and APRIL ought to produce a more potent shutdown of inflammation that lupus patients need, Williams says. That translates to the potential for lower doses, possibly less frequent doses, and therefore higher profit margins than its rival, Human Genome Sciences.

The big test of this hypothesis is an ongoing 510-patient study that compares two different doses of atacicept with a placebo. ZymoGenetics is increasingly hopeful that this trial, which is expected to run into 2011, will be a success. Zymo is bullish because it is enrolling similar types of patients as the trial from Human Genome Sciences (people with evidence of inflammation in the blood, and who are actively suffering flare-ups) and it is designed to measure the same clinical goal, or endpoint, as its rival. Many past trials have failed because of vagueness around how to measure the activity of the disease, and how to really classify people as sufferers of lupus, which is hard to diagnose. Full details on how Human Genome Sciences did it are expected to be presented this fall at the American College of Rheumatology meeting.

Most patients with lupus have traditionally been given more blunt, shotgun-style immune-suppressors, like corticosteroids, rather than a more targeted approach against a particular target, like Human Genome Sciences and ZymoGenetics/Merck Serono are using.

ZymoGenetics spent years talking up the potential of atacicept, before it was de-emphasized and farmed out last fall to Merck Serono. But yesterday, Williams reminded me that the company sees wide-ranging potential against inflammation for this drug, just as his former company, Immunex, once did for etancercept (Enbrel), which is now the world’s best-selling biotech drug with more than $7 billion in annual worldwide sales. That drug famously failed in its first major clinical trial for patients with severe sepsis, before it hit the jackpot in rheumatoid arthritis and branched out into other related autoimmune diseases. He’s hopeful history will repeat itself with atacicept.

“Like everything, it seems we have to fail a few times before we succeed,” Williams says.

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