ZymoGenetics CEO Doug Williams Exits the Stage, Mulls Next Free Agent Move

11/8/10Follow @xconomy

Doug Williams, one of the few nationally prominent biotechnology executives in Seattle, has officially left his job as ZymoGenetics CEO now that the company’s $885 million takeover by Bristol-Myers Squibb has been completed, Xconomy has learned.

Both Williams and former ZymoGenetics president Stephen Zaruby have left the company after it was acquired last month by Bristol-Myers Squibb, according to Bristol spokeswoman Jennifer Fron Mauer. She didn’t say who else on the senior management team has left, or who is now in charge of Bristol’s new operation in Seattle. The New York-based pharma giant hasn’t yet decided what to do with the remaining Zymo employees, or its local facilities, she says.

Now that Williams, 52, is officially a free agent again, he will have his pick of various plum jobs. He has deep roots in Seattle going back to the 1980s, and has built up a big Rolodex and gained lots of executive experience at Immunex, Amgen, Seattle Genetics, and ZymoGenetics. Williams is obviously still young enough to run another mid-cap biotech company, start a new venture, or do something else. As his longtime friend and legal advisor Stephen Graham of Fenwick & West once said, Williams has a reputation as a “calm, thoughtful, insightful and unflappable” business leader.

“Doug is one of the key players in the Seattle market that has CEO experience and a solid scientific background,” says Bob Nelsen, managing director with Arch Venture Partners in Seattle. “He can do anything he wants, from CEO, startup, to VC. Hopefully he stays here! I would back him any day.”

When I spoke with Williams yesterday by phone, he confirmed he’s looking at a number of different job opportunities. “I’m not ready to hang up the cleats yet,” he says. “I sort of feel that after 20-plus years in the business, I’m starting to figure out some of the do’s and don’ts. I’m definitely not ready to stop. I enjoy working in this business.” [For the full interview with Williams, check Xconomy tomorrow.]

As with anybody who’s been around biotech for a long time, Williams has a track record with its share of ups and downs. He was the chief technology officer at Immunex when that company had its breakthrough success with etanercept (Enbrel), and he was there when the company failed to manufacture enough of the drug to meet demand and ultimately was acquired by Amgen for $10 billion. Williams was tapped to stay at Amgen to be the Seattle site head, partly because he was well-respected by the talented scientists there and it was his job to retain them, as I described in a profile for The Seattle Times in August 2002.

Williams didn’t stay very long at Amgen himself, resigning in September 2002, about three months after the Thousand Oaks, CA-based took control. He resurfaced at Seattle Genetics in July 2003 as chief scientific officer, and stayed there about a year, until he moved over to ZymoGenetics as chief scientific officer. There, he was groomed to eventually succeed CEO Bruce Carter. Williams finally got his first shot as a biotech CEO at ZymoGenetics, starting on January 1, 2009.

The big albatross he had to deal with at the time was the flop of ZymoGenetics’ first marketed product, recombinant thrombin (Recothrom). ZymoGenetics failed to live up to its own expectations, and Wall Street’s, when it started marketing this drug. That debacle in 2008—in which ZymoGenetics only generated about $8.8 million in sales in its first year compared with $255 million for its chief competitor—greatly damaged the company’s stock price, depleted its cash reserves, and damaged the company’s once-solid credibility on Wall Street.

When Carter announced his retirement in November 2008, he said he would be available for advice, but would get out of Williams’s way and let him run the show. “If you hire a lion, you shouldn’t roar yourself. Let the lion roar,” Carter said at the time. ZymoGenetics, which went public at $12 a share in January 2002, had fallen all the way to $3.22 on the day that Williams was named the incoming CEO.

Once he got his shot, you could say Williams roared, but that not very many people on Wall Street heard, or wanted to hear. In an exclusive interview with Xconomy that ran his first week as CEO, Williams said he saw parallels at ZymoGenetics to some of the darkest days at Immunex, when it was struggling to survive. Just one week later, ZymoGenetics had its biggest positive news story in years—when it announced a potential $1.1 billion partnership with Bristol-Myers Squibb. That alliance was set up to co-develop and co-market pegylated interferon lambda, an experimental drug for hepatitis C designed to kill the virus without the nasty side effects of the standard interferon used today.

From there, with ZymoGenetics stock trading in the low-to-mid single digits, Williams made some hard decisions. In April 2009, the company cut one-third of its workforce, or about 161 jobs. The company, which made its reputation as a scientific hothouse, dropped cancer research. With the stock in the tank, Zymo’s ability to raise money was weaker than ever before. The following month, ZymoGenetics divested a handful of drug candidates that it said it didn’t have the resources to develop anymore.

By August, Williams showed he was willing to play some real hardball against his chief competitor—Bristol, TN-based King Pharmaceuticals. ZymoGenetics asked the FDA to yank King’s surgical bleeding drug off the market for safety reasons after it said two patients died following adverse reactions to the drug. He threw some roundhouse punches in an interview with me at the time, while executives at King Pharma quietly seethed, hissing a “no comment” at me through the phone when I sought their side of the story.

“There are physicians using [King's drug] without a clear understanding of its risks,” Williams said at the time. “There are at least three better alternatives in the marketplace now, that don’t have the same risk profile.”

The King drug never got withdrawn. One month later, ZymoGenetics suffered a couple of brutal clinical trial failures, when atacicept—the drug it once hoped would have Enbrel-like potential against autoimmune diseases—failed in a string of trials for rheumatoid arthritis and multiple sclerosis.

A home run in those trials could have re-ignited enthusiasm for ZymoGenetics, but as things stood, Williams’ options were limited. ZymoGenetics was still struggling to capture market share fast enough from King, and by December 2009, the company did a second round of layoffs, eliminating 52 jobs. As with cancer, the company decided to get out of the immunology research business, so it could put more resources into Recothrom marketing and development of drug candidates like pegylated interferon lambda.

That series of moves, which brought ZymoGenetics’ headcount down from about 530 to 320 employees—and which tightened its focus on a smaller group of drugs already in clinical trials— restored some degree of confidence among investors. But later in December 2009, Bayer walked away from its partnership with ZymoGenetics to market Recothrom.

This could have been interpreted as the death of the product, but Williams wouldn’t give up. He pitched this to investors as an opportunity for Zymo to control its own destiny with the drug, and keep the proceeds for itself. Driven by the new plan, and with an experienced commercial executive in Zaruby overseeing the Recothrom group, Williams was able to lead a $91 million financing for the company in January 2010.

While that deal provided some extra financial cushion, ZymoGenetics just couldn’t re-ignite the spark it once had. This past June, the company hoped to gin up some enthusiasm for an experimental immune-booster against melanoma, a deadly skin cancer, at the biggest cancer meeting of the year, the American Society of Clinical Oncology. The data was encouraging, showing it could shrink tumors in 23 percent of patients and keep the tumors from spreading for a median of more than four months. But that result looked like nothing compared to what Bristol-Myers presented from its own treatment, ipilimumab, which was the darling of the meeting, when it showed it could help patients on the drug live a median of about four months longer than others in a control group.

While ZymoGenetics continued to make progress, it had to consider the possibility that it would never be able to get fair value from investors. So on September 7, when ZymoGenetics stock was still languishing at $5.30 a share, the company announced it agreed to be acquired by Bristol-Myers for $9.75 a share, an 84 percent premium over the previous day’s closing price. The transaction valued ZymoGenetics at $885 million. Premiums that fat aren’t that common, so this was essentially a deal that shareholders were guaranteed to accept, and they did a month later. Williams didn’t make any promises to employees about how many jobs would be retained by the new owner.

“I’m going to advocate on behalf of the many talented workers we have here. I think Bristol sees a lot of value in the people that are here,” Williams said in an interview the day the takeover was announced, September 7.

Whatever Williams does next will clearly be influenced by hard decisions he made over the past couple years under pressure of having the ultimate responsibility at ZymoGenetics, and living with the consequences. Investors who bought into the ZymoGenetics IPO in 2002 had to be disappointed—given that the IPO price was $12. Then again, it’s undeniable that Williams presided over some positive returns for shareholders, since he was given the job when the stock was at $3.22 and he sold at $9.75. It’s clearly the kind of experience that venture capitalists, and Williams’ corporate peers around the country, do recognize.

“Doug could do many things,” says Alan Frazier, the managing partner for Frazier Healthcare Ventures, a Seattle investment firm with $1.8 billion under management. “Think about how many middle sized pharmas and big pharmas are building up their biological side of the house. The bigger companies would love to have an action oriented guy deep in research running that side of the house. I think, however, the most interest will be from biotech companies that need the experience of a guy like Doug. He has been a corporate exec at two relatively big, public biotech companies. He has been a director of several companies as well, providing him excellent perspective. There aren’t a ton of those kinds of people.”

Still, I have to wonder if the guy Bruce Carter called a “lion” feels he didn’t roar as loud as he could have at ZymoGenetics. David Miller, president of Biotech Stock Research in Seattle, figures that pegylated interferon lambda alone will be a $1 billion annual seller for Bristol-Myers as a treatment for hepatitis C—which makes an $885 million corporate takeover look like chump change.

It’s also clear that Bristol got more than just that one drug with blockbuster potential. It has the opportunity to combine its own drug, ipilimumab—which disables a biological mechanism tumors use to shield themselves from the immune system—with the IL-21 drug from ZymoGenetics which stimulates the immune system to fight tumors more aggressively. That could become a potent one-two combination treatment against melanoma, although significant clinical trials will have to be run to prove that.

Miller didn’t mince words in a recent post on Minyanville about what this deal means for Bristol. “They stole one here,” he wrote. “Mark my words.”

I’m sure Williams would never say anything like that in public, and I don’t know what he really thinks now about the sale of ZymoGenetics, in his heart of hearts. But I did ask him clearly when he took the top job in January 2009 about his hopes and dreams for ZymoGenetics over the coming decade. I asked him specifically about whether he would try to avoid a fire sale to a Big Pharma company, given his company was in such a vulnerable position at the time. Here’s what he said then:

“In the next five to 10 years, I’d like to see ZymoGenetics become another Immunex,” Williams said. “We want to stay an independent company.”

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