Q&A With Doug Williams: Reflecting on ZymoGenetics, Looking Ahead at Seattle Biotech

11/9/10Follow @xconomy

Yesterday, we broke the news here at Xconomy that ZymoGenetics CEO Doug Williams has left the company now that it has been taken over by Bristol-Myers Squibb. He is now officially scoping out his next gig. This is news, because he’s one of the few people that national life sciences VCs would back in a heartbeat around a new company with big-time potential.

There were a lot of things I wanted to cover during my phone interview on Sunday with Williams, 52. I asked him about the lessons he learned from his turbulent experience in a 22-month run as ZymoGenetics CEO, and what he really wants to do next. He was much more relaxed and candid than the last time I talked with him in September. That was a tense moment when the venerable biotech—which has long sought to be the Northwest’s biotech bellwether—stunned its employees, and many in the community, by saying it had agreed to be sold to New York-based pharma giant Bristol-Myers Squibb for $885 million. ZymoGenetics had essentially thrown in the towel on its dream to become the next great biotech company from the Northwest.

Here’s what Williams had to say about that decision and his future plans. The interview is edited for length and clarity as always.

Xconomy: What are you considering doing next?

Doug Williams: I’m looking at a number of different opportunities, both here in Seattle and more broadly. I’d obviously love to stay in Seattle. My girls are both native Washingtonians, and this is home for us, but I am looking at some things outside the Seattle area as well. I haven’t really made any decisions, other than to decide I’m not ready to hang up the cleats just yet.

X: You’re 52, now, right, so what’s the right analogy here? You still have some mileage left on the tires?

DW: I like to think so. 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. It’s a real gift to be able to work around a bunch of smart people and do things that are ultimately good, in the sense we develop important drugs.

X: Who else has left from the senior management team at Zymo, and might you work with them again in some other capacity?

Doug Williams

Doug Williams

DW: The only other one that I’m aware of who has left is Stephen Zaruby, who was the president. He and I both left at the same time. The remainder of the senior management team is still there. I’d love the opportunity to work with any or all of them again; we forged a pretty strong bond as a management team and enjoyed working with each other. I’m not sure what the long-term issues are with some of the senior managers—I’m sure some of them will be offered positions with Bristol. I don’t know if all of them will be.

X: Do you have any role in the decision-making process anymore in terms of what happens to the people and facilities at ZymoGenetics, or is this a clean break for you?

DW: I made a clean break. It was sort of a mutual decision on the part of Bristol and me that having the old CEO rattling around in the building didn’t make a whole lot of sense. I left on Day 1. I certainly left having given them my impressions on what they ought to do, and I hope they will take some of that advice. They see there is a lot of value in the site. They are just trying to get their arms around what’s there, what the programs are, and how to best utilize the talent.

X: Who from the local management team will be involved in those decisions?

DW: Jim Johnson (the former ZymoGenetics chief financial officer) is the leader of the integration team from the Zymo side, along with Lennie Ramos, the chief medical officer. The two of them have been point people on the whole integration process. They will be primary spokespeople. But it’s already a situation in which I understand a number of Bristol folks have come out after the deal closed and are talking with leaders of different parts of the organization here in Seattle.

X: Have you had a little time to think and reflect on your experience as CEO at ZymoGenetics? Are there some lessons learned there from these past couple years?

DW: Yes, I have. I’ll actually have a lot more time to think about it, because I leave (Monday) night for New Zealand, where I’ll be for two weeks to basically drive around the bottom of the South Island and do some thinking about my time at Zymo and what I want to do next.

I’ve certainly thought about my time at the helm, and a lot happened in a short span of time. From the time I came in there, we started right off with restructuring the company, knowing we really had to make some changes to the business model, given the way the markets were behaving, and given the perceptions of the company on Wall Street. We needed to continue to fund the organization, so we knew we had to make some changes. That’s where the management team really became a cohesive unit as we worked through all those difficult decisions we had to make in the 12 months that was 2009 and the first part of 2010. It was a tumultuous time. But I feel we did all the things we needed to do to create what was a healthy and viable company with a really solid pipeline. The reality is that all the steps we took to make the company viable and focused on its best assets were the things that arguably made us attractive as an acquisition target. When you create the strongest possible business, that also allowed Bristol to take a look at the company and decide that they liked what they saw. They liked the assets, and they knew us pretty well from the pegylated interferon lambda collaboration, so it made sense to acquire the whole company.

X: You made reference to the perception on Wall Street. And I’ve got to ask, given the disappointing Recothrom launch in 2008, was that a hole that you just felt you could never dig yourself out of, and that the Street would really never fairly reward ZymoGenetics shareholders for everything you did and tried to afterward?

DW: I think it was a situation a lot like the launch of Leukine, which disappointed people back in the Immunex days. We had to prove we could turn that product around. I think Stephen (Zaruby) and his team effectively did that. We would have been at break-even status at the end of this year, and starting to generate a profit on the franchise. The problem was, in a situation where you disappoint Wall Street, they basically put you in the penalty box until you prove you can get yourself out. I think we were close to that point with Recothrom, with nice healthy quarter over quarter sales increases, and getting to the point where it was starting to generate cash for the business which is ultimately always what it was intended to do.

One of the complications for us is that the shareholder base who would have been interested in Recothrom was not necessarily the same shareholder base that was interested in the rest of the pipeline. That created some situations where we probably confused some investors, even though to us, it made perfect sense. We tried articulate the rationale, and while Recothrom didn’t necessarily “fit” with the rest of what we had, it was a great way to generate non-dilutive capital to really plow back into the parts of the business that were going to generate significant value. For some investors, that message resonated, and for others, it didn’t.

X: But when you look at pegylated interferon lambda, if I’m not mistaken, the interferon alpha that’s on the market now is a billion dollar product or close to it. The treatment of hepatitis C is only expected to boom when Vertex Pharmaceuticals and Merck get their new drugs out there, and interferon alpha is still an integral backbone of the standard of care. So, it’s certainly conceivable that pegylated interferon lambda could be a billion dollar product if it replaces the existing interferon, as it should, since it has fewer side effects. And yet, you sold the whole company for $885 million. Do you feel like you have to wonder, what might have been if you could have held on and stay independent?

DW: You always have that sense, where you wonder, ‘what if we made a different decision?’ Time will tell how that all turns out. From an investor perception standpoint, I think Wall Street has become incredibly conservative about what they are willing to stick their neck out for and say is going to become a big drug. It really requires you to have randomized Phase 2b data to get the value of a product opportunity. Fundamentally, what we were able to do by selling the company now was get that kind of value without any risk for the shareholders. As I’ve gone out after the deal was announced and done, and talked to our shareholders, that’s exactly how they looked at it. They were exceedingly happy with the way the deal came down, and the price we got. Essentially it was next year’s price with no risk.

In terms of lambda, I agree with your premise that it could be a very big drug. But we all have to recognize it is still in Phase 2b, and we haven’t seen the final data yet. And the big question, the one no one can answer at this point, is what will the ongoing role of interferons be in combination regimens. We’ve talked about what our perspective is, but that perspective is not completely accepted in the investor community. That’s where some of the discounting of the value of lambda has come from, in the Wall Street crowd. A lot of them believe what Vertex has been saying, which is that small molecules and ribavirin combination should be enough. I don’t believe that myself, but I don’t actually have the data yet to prove that wrong. All of these factors contribute to where the company was from a value perspective.

X: Going back to where I started, what are you going to do next? This was your first shot as a CEO, and purely from a financial perspective, the stock was a $3.22 when you got named the CEO, and you sold at $9.75. So there will be a lot of shareholders who are happy about that. What is your preference? Do you want to be a CEO at a small or mid-cap biotech, do you want to do a startup? What are the options you are mulling?

DW: You’ve hit the $64,000 question for me. The question is ‘do I want to do another role as CEO’ presumably at a smaller company, or do I want to go back to my roots and essentially manage a larger R&D portfolio? I don’t know the answer to that question yet. I’m looking at things that run the gamut from startup to companies that have raised a couple of rounds of financing and need a CEO, to some companies that have an existing CEO but need to do more deals and to get to the next level, they need somebody new, or bigger companies that need an R&D head. I’m casting my net as wide as I can, and looking at everything that people have stuck under my nose at this point. But I haven’t made any decisions, and am trying to sort through in my own head, in this next chapter, what do I want to do, and who do I want to do it with?

X: Are you getting a lot of lobbying from your friends in the community to stay in Seattle? I can imagine you are, because when I think about who the executives are in this town who can get the backing needed to start something, there’s you, and there aren’t a whole lot of other people like that. Are you hearing that kind of sentiment?

DW: I am. There’s a sense, you’re right, there aren’t a lot of people who have stuck it out as long as I have. I point to Bruce Montgomery, and Bruce Carter, and a handful of others here locally. Certainly Mitch (Dendreon CEO Mitchell Gold) and Clay (Seattle Genetics CEO Clay Siegall) have done great jobs, but us old warhorses, there aren’t many of us here, and I understand the desire to stay in the area.

I’ve got strong connections to the community. I have really strong connections to the Hutch (Fred Hutchinson Cancer Research Center) a place where I’m spending a fair bit of time during the off-season between jobs. That’s important to me. It all factors into my thinking about what to do next. And there’s my girls. Those things are swirling in my head now.

X: How old are they, are they in high school?

DW: One is a senior in high school, and one is a senior at Colgate. She’ll probably come back to Seattle after she’s finished. So yes, Seattle is home.

X: What’s your time frame, when you’d like to have made a decision?

DW: I’m guessing I’ll probably have made my decision shortly after Thanksgiving, and probably start up with whatever I do next after the first of the year.

X: So in the meantime, you’re going to do a little glass-blowing and a trip to New Zealand. What else?

DW: You got it right. I’m doing a little consulting, and I’m on some scientific advisory boards. I’m doing some fun stuff on the science. But yes, my trip to New Zealand is something I’m looking forward to, and I’ll do some adventurous things while I’m down there. I’m anxious to get there, it’s a great part of the world, and a great place to clear your head.

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