ZymoGenetics Will Be Missed. How Seattle Biotech Can Recover and Thrive

9/21/10

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is currently functioning in this capacity as well. Their hiring surge in the past few years has been a tremendous boon for biotech employment and image in the region. Interestingly, the unconventional nature of Dendreon’s first “drug” Provenge (an individualized treatment for prostate cancer) has held potential acquirers at bay while they struggle to understand the business model and gauge its success. It has also goosed a renaissance in immunotherapy research in the biotechnology community.

I guess I look at the ZymoGenetics acquisition in the same way that people in Cleveland look at the loss of LeBron James to the Miami Heat. They spent years watching him develop his game to the highest level, only to see him depart just when they were hoping for greatness. Yes, it was his decision to leave, but would the fans be less upset if he had been traded to Miami for a second round draft choice just so the team could save payroll? Publicly traded biotechs are supposed to be acting in the best interests of their shareholders, but this may not align with the best interests of their employees or the greater public at large. To throw in one more sports analogy, the Green Bay Packers thrive in the smallest market of any team in professional sports. However, because the people in Green Bay actually own the team, they never have to worry about them leaving town for a bigger market. Could such a model work in biotech?

Carl is right when he says biotech is a risky business due to the possibility of being either shut down or acquired. It is not for the timid. However, I can envision a different scenario, not one of growth, acquisition, and reinvention, but of growth and expansion. PATH, Seattle BioMed, Seattle Children’s Hospital, and the Fred Hutchinson Cancer Research Center are all organizations that have grown tremendously in recent years. Seattle is now recognized as a world leader in global health as a result of the strong efforts of some of these groups along with significant funding from the Gates Foundation. Why not have as a goal doing the same thing here on the biotechnology side? In an Xconomy piece I wrote last year, I put forth two proposals for stimulating the local biotech industry. These were (1) the attraction of anchor tenant(s) to stabilize jobs, and (2) to establish a non-profit biopharmaceutical organization that could not be acquired. The response I received on these suggestions was uniformly positive. Focusing on the second proposal, take a look at organizations like the Aeras Global TB Vaccine Foundation in Rockville, MD, the Institute for One World Health in San Francisco, the Sabin Vaccine Institute in Washington, DC, and Cancer Research Technology Ltd. in the UK. Though they are structured differently and work in distinct areas, they are all focused on creating new treatments for diseases within an organizational structure that is meant to keep them independent. Not being publicly traded, they are not available to be sold, which, on the employment side of the ledger, is a tremendous advantage. Maybe we could create a similar type of institution here? This is something else that we can reflect on as the ZymoGenetics acquisition sorts itself out in the days and weeks ahead.

Stewart Lyman is Owner and Manager of Lyman BioPharma Consulting LLC in Seattle. He provides strategic advice to clients on their research programs, collaboration management issues, as well as preclinical data reviews. Follow @

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  • pugetmarco

    Excellent rebuttal from Stewart Lyman to Carl Weissman’s post re ZymoGenetics acquisition. Most of his points seem on target to me, but this one may be the crux:

    “Many of us who competed against ZymoGenetics over the years would acknowledge that they had assembled such a team. ZymoGenetics own website points out that products that they discovered or developed (and which are currently marketed by other companies) have combined yearly sales of over $3 billion.”

    Had ZymoGenetics’ management team done a more competent job over the years, it seems probable they would have retained some/more/most of these products for their own portfolio and then been able to a) fend off a BMY acquisition with robust product sales, b) partner as an equal, or c) been acquired with far more favorable terms.

    Unfortunately the rank and file employees (about whom Ted wrote in his response) bear the greatest brunt of poor decisions by management. This is not unique to our industry either – just consider Detroit as an example.

  • http://www.BiotechStockResearch.com David Miller

    Where to start…

    Read the company’s SEC filing SC-14D9 filed 9/15/2010 for an eye-opening description of this transaction. You don’t have to read all 100-something pages, the first 35 will suffice.

    ZGEN was 5 years from cash flow break even, less if you count likely interferon-lambda milestones. After subtracting cash on hand, the deal was a mere 11% above the 52-week high. RecoThrom was cash-flow positive by the end of this year. Q1-2011 would have returned important interferon-lambda Phase IIb data, which would almost certainly have been positive. Wall Street analysts were starting to wake up to the fact DAAs were not going to be a sole-source solution, warming to the idea of a better interferon for combination therapies.

    I have no idea what the Board was thinking. It’s clear from the SEC filing Warburg wanted to exit their shares as early as 2008, which would have hurt the stock price had they done so in the open market. ZGEN approached BMY to see if they wanted to buy Warburg’s shares, which is what started this whole mess.

    I know no investor who was uncomfortable with ZGEN’s fundamental progress. Most of our clients in the stock added here and there and thought of it as a core long-term holding. In the crazy world of dev-stage biotech investing in the public markets, this kind of patience is rare but (at least I thought until the deal was announced) deserved by this organization.

    I feel badly for the employees at Zymo. While this purchase has been described as the typical life cycle of biotechnology companies, this was something more. This was a failure of the Board to have faith in the direction of the company.

    That’s not easy for me to say. I consider a couple of the Board members friends. I’ve known management for nearly a decade as we started covering the company in 2002. Bruce Carter and Bruce Montgomery, in particular, have been influential both professionally and politically.

    I’m on record saying that watching Seattle’s small biotechs bought by other companies is no reason for hand wringing. It’s part of the a cycle in the pharmaceutical world. I’m also on record talking about the need for an anchor tenant — whether an operationally mature drug seller or significant drug manufacturing presence — as being useful for recruiting.

    This deal with ZGEN seems different, somehow. The feeling is not so much that one of our own made it to the natural exit point in the biotech business cycle, but more that one of our own was robbed from the crib.

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