How ZymoGenetics Coulda Been a Contender: The Big Break That Came Too Late

1/25/11Follow @xconomy

ZymoGenetics, if it had stayed an independent company in Seattle, would be worth tens of millions of dollars more today than what it was in September when it agreed to be acquired by Bristol-Myers Squibb (NYSE: BMY).

Bristol clearly scored a big break with its new ZymoGenetics assets on December 21, about two months after it closed the books on its $885 million acquisition of the venerable Seattle biotech.

If it had still been an independent biotech, the value of ZymoGenetics would have soared that day when Cambridge, MA-based Vertex Pharmaceuticals announced that, essentially, it had failed to make ZymoGenetics’ lead drug candidate obsolete. On that day, Vertex (NASDAQ: VRTX) said it was unable to eradicate one of backbone components of hepatitis C therapy in a high profile clinical trial.

Vertex is blazing a new trail in the field with a potent new oral pill that generates unprecedented cure rates when given in combination with two standard treatments—pegylated interferon alpha and ribavirin. Vertex was hoping to raise the bar even higher, to find out if its lead molecule, telaprevir, could be combined into a new cocktail regimen that Vertex hoped would kick old-school interferon into the dustbin of history. Doctors and patients have been yearning for a way to get rid of interferon, which causes nasty flu-like symptoms that make patients feel awful for months, which discourages most patients from seeking treatment.

ZymoGenetics, knowing this well, had developed a genetically modified version of interferon, which it called pegylated interferon lambda. This new form of interferon was designed to kill the hepatitis C virus just like the older version of interferon, but without the flu-like side effects. Results from early clinical trials were so promising that ZymoGenetics was able to entice Bristol to sign a $1.1 billion partnership to co-develop the drug in January 2009.

Doug Williams

But many on Wall Street weren’t impressed. They had fallen head over heels for Vertex’s new molecule, insisting that ZymoGenetics and Bristol were wasting their time with a new type of interferon. Vertex, they said, was coming along with a cocktail approach of new oral pills that would get rid of interferon, meaning any improvement on old-school interferon would soon be irrelevant. While many doctors, and companies like Vertex still hope it will be possible to do this, the latest clinical trial failure makes it clear that interferon will be part of the standard treatment regimen for years. That means the drug Bristol acquired from ZymoGenetics has a chance to integrate itself into a new standard of care, at a moment when awareness has never been higher among an estimated 6 million U.S. and European patients with this liver-damaging condition.

Former ZymoGenetics CEO Doug Williams, who recently took a new job as head of R&D at Weston, MA-based Biogen Idec, acknowledged in a recent interview that the failure of Vertex’s combination trial would have been a positive event for ZymoGenetics and its pegylated interferon lambda program. He stopped short of saying that Wall Street would have perceived … Next Page »

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  • http://Twitter Sammy

    I agree… We had a major position on zymo and although we doubled our money. I expected this stock to be a 24 buck stock…they had 1 more terrific drug….happy for the double sad that it should have been 4 times

  • Adios Seattle

    Mr. William’s response is akin to George W’s answer when we went into the 2nd Gulf War knowing Iraq didn’t possess WMDs.

    Best of luck to Biogen, you’ve got a turkey in your hands.

    Excellent recovery from previously lame Zymo coverage, Xconomy. Lyman now has some company.

  • seattlite

    Small companies like Zymo should beware of billion dollar deals with big pharma.