‘Twas the week before JP Morgan and all through the house…OK you get the idea. Not much biotech news was stirring this week as everybody is prepping for the big industry confab next week in San Francisco. I’ll be reporting there as always.

—We rang in the New Year on the biotech desk with a story titled “The Immunex Alumni: Where are they now?” It’s been more than eight years since the Seattle biotech bellwether was bought by Amgen, so I thought it would be interesting to track down where a lot of the Immunoids went. I’m getting a lot of great comments in my inbox, and please keep them coming. The list has 306 names at last count, and if you or someone you know is an alumnus that would like to be included, just send me a note at ltimmerman@xconomy.com

—One of the most prominent Immunex alumni, Doug Williams, made some news this week when he took a new job as the executive vice president of R&D at Weston, MA-based Biogen Idec (NASDAQ: BIIB). This means Seattle biotech can subtract one of its few bankable CEO candidates, as Williams is headed off to the East Coast.

—AVI Biopharma (NASDAQ: AVII), the Bothell, WA-based developer of RNA-targeted therapies, said it has formed an alliance with the Karolinska Institute in Sweden to look for new drugs against extensively drug resistant forms of tuberculosis. Financial terms weren’t disclosed, but the two parties will split research costs.

—Seattle-based Omeros (NASDAQ: OMER) said it has obtained an exclusive license from the University of California to a number of new drug candidates for trauma-related and surgical bleeding. Terms weren’t disclosed.

—Genentech, the biotech giant in South San Francisco, has taken a license to a number of antibacterial drug candidates from AMRI, the pharmaceutical service firm. AMRI did much of the work on these novel compounds, derived from natural product sources, at its lab in Bothell, WA.

—Leroy Hood added another major prize to his trophy case this week. Hood took home the Russ Prize, a $500,000 bioengineering honor presented by the National Academy of Engineering. Hood won for his most famous series of inventions in high-speed gene sequencing, which laid a critical foundation for the Human Genome Project and the wave of faster/cheaper genome sequencing that came after.

—We have had a bunch of guest editorials flowing into the Xconomy Forum lately, on a number of tech-related themes, and from a number of writers in our 5-city network. Here are two from the past couple weeks that are of most interest to Seattle biotech readers. Sue Siegel, a partner with Mohr Davidow Ventures, offered her view on five things to watch for in the coming year of healthcare and life sciences. And Larry Corey, the new president of the Fred Hutchinson Cancer Research Center, provided his thoughts on how vaccines were the big innovation story he saw in 2010.

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Omeros (NASDAQ: OMER), the Seattle-based biotech company, said today it has obtained an exclusive license from the University of California to a series of new drug candidates for controlling traumatic bleeding and surgical bleeding. The compounds, which are known as antifibrinolytic agents, are supposed to be safer than Bayer’s aprotinin (Trasylol), which was withdrawn from the U.S. market in 2008. The Omeros drug candidates haven’t yet entered clinical trials.

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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 … Next Page »

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If ZymoGenetics is going to make its lone marketed product into a success, it will have to do it on its own. The Seattle-based biotech company said today that its partner, Germany-based Bayer, is walking away from its U.S. commercial rights to the drug for surgical bleeding.

ZymoGenetics (NASDAQ: ZGEN) said today it is getting back the full rights in the U.S. and every other country except Canada, under a restructured partnership with Bayer. The bigger company will quit co-promoting the drug everywhere except Canada, and it will no longer have to pay ZymoGenetics as much as $16 million in milestone payments for regulatory approvals around the world. ZymoGenetics will have to pay Bayer as much as $12 million in commissions over the next two years, about half of what it could have owed Bayer under the old agreement. The revised deal goes into effect on January 1.

ZymoGenetics struck the original alliance back in June 2007, when hopes were high for the commercial prospects of recombinant thrombin (Recothrom). ZymoGenetics and Bayer were gearing up then to take over the market for drugs that control excess surgical bleeding, which has been dominated in the U.S. by Bristol, TN-based King Pharmaceuticals. The established drug is derived from proteins in cow blood, while the ZymoGenetics product is made of genetically engineered human clotting proteins, which ZymoGenetics has argued is a safer, more reliable source. One analyst projected the drug would reach $308 million in U.S. sales in 2010 at the time the deal was struck with Bayer, but the drug has come nowhere near that kind of success. The ZymoGenetics treatment generated just $8.8 million in sales in 2008, and is projected to reach $28 million to $30 million in sales this year.

ZymoGenetics CEO Doug Williams

Still, ZymoGenetics isn’t ready to give up on the product.

“Why would we do that? It’s a real product with a growing revenue line,” says ZymoGenetics CEO Doug Williams. “Our view of Recothrom hasn’t changed. We feel the same way that we did at the product launch, which is that this will be the dominant product in terms of market share.”

Bayer essentially walked away from the product after completing its own internal portfolio review, deciding to allocate money and people toward other projects, Williams says. The alliance means that ZymoGenetics’ 48-person U.S. sales force will pitch the drug on its own, and ZymoGenetics will look to hire another 10 sales reps, Williams says. ZymoGenetics will seek to keep all the U.S. to itself, but it will seek another partner who is willing to finish development and support commercialization of the product outside of North America, Williams says.

Williams noted in a statement that by going it alone, ZymoGenetics should have better efficiency with one sales organization. It also should lower the company’s sales expenses, ZymoGenetics says.

ZymoGenetics has sustained a couple more ups and downs with the product in recent weeks. The drug was shot down by European Union regulators, who said another clinical trial would need to be run before they could grant clearance to sell the product there. Canadian regulators took a different … Next Page »

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ZymoGenetics (NASDAQ: ZGEN), the Seattle-based biotech company, said today in a regulatory filing that its drug to control excess surgical bleeding has received approval from Canadian regulators. ZymoGenetics’ partner, Bayer AG, received clearance to start marketing recombinant thrombin (Recothrom), in Canada. ZymoGenetics, which first received approval of the drug in the U.S. in January 2008, will receive a $3.5 million payment in connection with the milestone.

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ZymoGenetics (NASDAQ: ZGEN), the Seattle-based developer of a treatment to stop excess surgical bleeding, said today that its partner has voluntarily withdrawn an application to market the product in Europe. Germany-based Bayer, who formed a collaboration with ZymoGenetics to market recombinant thrombin (Recothrom) in 2007, withdrew the European application after regulators there said another clinical trial would be necessary to win approval, according to a regulatory filing. The drug won FDA clearance in January 2008. The product has gotten off to a slow start in the U.S., where it is estimated to generate $28 million to $30 million in sales this year.

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ZymoGenetics started really playing hardball with King Pharmaceuticals in August, and now a high-and-tight fastball has come right back at the Seattle biotech company.

The projectile in question is a lawsuit filed on November 2 by Bristol, TN-based King in the U.S. District Court in Eastern Tennessee; the suit accuses ZymoGenetics of false advertising, unfair competition, and other violations of federal and Tennessee law. King went so far to ask a federal judge to impose three temporary restraining orders to stop ZymoGenetics (NASDAQ: ZGEN) from making certain claims comparing the two drugs—and it was successful for a couple of days until Zymo got the restrictions overturned on Friday.

The suit, it seems, is at least partly a response to a move made in the summer by ZymoGenetics, maker of a drug for surgical bleeding, to try to get King’s rival product pulled from the market. For those not following all of the two companies’ maneuvering, here’s a quick summary.

The incumbent product, Thrombin-JMI, is made by Bristol, TN-based King Pharmaceuticals (NYSE: KG) for surgeons to dab or spray onto an organ that’s bleeding too much during surgery. The King product has been around in hospitals since 1995, and generated $255 million in sales a year ago. Surgical bleeding drugs (called topical hemostats in the operating room) are used in an estimated 1 million surgeries a year in the U.S.

But ZymoGenetics, whose own drug was approved in January 2008, has been arguing for years that it can do a lot better. The King drug is derived from clotting proteins called thrombins in cow blood. Since that’s from a foreign source, the human immune system recognizes it as such, and can spark a reaction that can lead to severe bleeding and death, ZymoGenetics has argued.

The challenger in this niche market, ZymoGenetics developed what it considers a safer alternative, recombinant thrombin, a genetically engineered copy of the human thrombin protein. Because the new drug is a human, rather than cow, protein, it shouldn’t provoke as many immune reactions or dangerous bleeding episodes, ZymoGenetics has contended. But ZymoGenetics has struggled to convince doctors that they need to switch, and it has backed away from earlier attempts to charge premium prices. The company forecasts that it will generate $28 million to $30 million in sales of the drug this year.

Back in August, ZymoGenetics found another venue besides the marketplace in which to wage this fight—the FDA. The company gathered evidence of two cases in which physicians attributed patient deaths to bad reactions on its competitor’s drug, and 23 more cases of severe complications. That was some of the ammunition contained in a 31-page citizen’s petition the company filed with the FDA, in which ZymoGenetics asked the agency to pull the drug off the market for the sake of public health. “There are physicians using Thrombin-JMI without a clear understanding of its risks,” said ZymoGenetics CEO Doug Williams in an interview with Xconomy in August. “There are at least three better alternatives in the marketplace now.”

King, a company with a $2.7 billion market capitalization, didn’t comment at the time. But it obviously decided that when ZymoGenetics started playing hardball, it was time to follow suit.

King challenged the ZymoGenetics citizen petition … Next Page »

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One of the key people who transformed ZymoGenetics from a basic research institute into a more balanced biotech company with both R and D, has set up shop in a rival startup just a few blocks away on Seattle’s Eastlake Avenue. If he plays his cards right, this little company will surpass his former employer, with what he hopes will be an even better treatment to control bleeding.

His name is Jan Öhrström (pronounced Yahn Oar-strum), and he’s the former chief medical officer of Seattle-based ZymoGenetics (NASDAQ: ZGEN), and now the chief operating officer of a company called ProFibrix. The newer company is headquartered in the Netherlands, and when it went looking to establish a U.S. presence a year ago, it hooked up with Öhrström to build that in Seattle. The company picked up some momentum in August when it raised $11 million in a Series B venture round, and it has some intriguing technology, so it was time to catch up with Öhrström over lunch to find out what’s up.

ProFibrix sees itself carving out a niche in the market for drugs and sealants that are used to stop excess bleeding, both in the surgical operating room and among paramedics—or on the military battlefield. The company is creating a dry powder that is ready to be used at a moment’s notice, can be sprinkled on a wound, remains stable at room temperature, and can be packaged in a spray or a bandage. It sees its potential edge in convenience when going up against standard treatments that need to be thawed, mixed with another solution, or kept in a fridge. If this new product can be proven effective in clinical trials, ProFibrix will tap into a couple different market segments worth about $600 million a year combined in the U.S.

“There’s no doubt about it, we can make significant inroads in the market,” Öhrström says.

Jan Ohrstrom

When we met over lunch near his home on Mercer Island, Öhrström was excited about getting ProFibrix set up in a new office on Eastlake, complete with all the usual mundane aspects of a startup—getting the lease signed, phones working, and the office furniture assembled (I could relate this part to when Greg and I got the Xconomy Seattle office up and running in June 2008.)

ZymoGenetics is well known for its blood coagulation expertise, although its Recothrom drug has gotten off to a slow start in sales. ProFibrix CEO Jaap Koopman, it turns out, had been cultivating a relationship with Öhrström for years, dating back to when Ohrstrom oversaw the development of recombinant thrombin (Recothrom). The vision was that if ProFibrix could get Ohrstrom on board—somebody … Next Page »

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We’re supposed to be oh-so-laid-back here in the Northwest, so the surprise of the week came when one of the local biotech mainstays showed it was willing to step up and punch a competitor in the nose.

—Seattle-based ZymoGenetics (NASDAQ: ZGEN) showed it was willing to ruffle some feathers in its quest to gain market share for its sole marketed product, recombinant thrombin (Recothrom) for surgical bleeding. The company asked the FDA to pull a competing product from Bristol, TN-based King Pharmaceuticals (NYSE: KG) off the market, citing two deaths attributed to the product.

—Targeted Genetics (NASDAQ: TGEN) only has enough cash to operate through this month, so these could be the final days for this 17-year veteran of the Seattle biotech scene. It never cured anything, but this company is leaving a legacy, with a generation of biotechies making an impact at other local companies. I’ve pulled together a list of 60 Targeted Genetics alumni at last count. If you know of someone I’ve overlooked, please add a comment at the bottom of the story or send me an e-mail at ltimmerman@xconomy.com.

—Seattle-based Omeros is preparing to make a renewed attempt at an IPO, possibly as soon as next month, according to this story we broke on Xconomy yesterday. The IPO market is expected to open up again in the middle of September, because institutional investors like the caliber of companies in the IPO queue, and the bargain prices, says Cascadia Capital CEO Michael Butler.

—Speaking of the IPO market, Kirkland, WA-based OVP Venture Partners sees IPO potential in one of the most flush members of its portfolio, Mountain View, CA-based Complete Genomics. This is the company that’s on a quest to introduce full human genome sequencing for as little as $5,000. OVP joined a syndicate this week that pumped in another $45 million to help the company get its commercial sequencing facility up to full capacity.

—Seattle Genetics has been saying it’s six months ahead of schedule in enrolling patients in the pivotal trial of its drug for Hodgkin’s disease, and this week the Bothell, WA-based company (NASDAQ: [[ticker:SGEN]) made it official. It completed enrollment in the trial, and expects results in the second half of 2010.

—Seattle-based Cell Therapeutics (NASDAQ: CTIC) said the FDA has agreed to review its application to market pixantrone for non-Hodgkin’s lymphoma. The company still hasn’t heard from the FDA on when the review should be completed, although it expects to be informed of the deadline by Sept. 4.

—AVI Biopharma, the developer of RNA-based drugs that moved its headquarters from Portland, OR to Bothell, WA, loaded up its balance sheet this week with more cash. The company (NASDAQ: AVII) ended up pulling in $34 million through selling common stock and warrants.

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Before it asked the FDA to yank a drug made by its chief competitor, King Pharmaceuticals, off the U.S. market, ZymoGenetics learned that physicians had attributed the deaths of two patients to bad reactions to the drug, says ZymoGenetics CEO Doug Williams.

I spoke with Williams this morning shortly after the Seattle biotech issued a statement saying that it has filed a formal citizen petition with the FDA, asking the agency to force Bristol, TN-based King to withdraw a rival treatment for surgical bleeding from the U.S. market. ZymoGenetics (NASDAQ: ZGEN) contends that King’s Thrombin-JMI product poses a risk of immune-system reactions that can lead to severe bleeding episodes, and even death.

ZymoGenetics has been trying to grab away King’s market share, primarily by arguing its drug is safer. The King product, which has been around for years, is the dominant drug used to control bleeding in an estimated 1 million surgeries a year in the U.S. It generated $255 million in U.S. revenues last year. But ZymoGenetics has sensed an opportunity to supplant King’s drug, because it is derived from cow’s blood, and therefore recognized as foreign by the immune system, which it says can lead to complications with repeated use. ZymoGenetics won FDA approval for its recombinant version of human thrombin, called Recothrom, in January 2008. Just as with insulin for diabetes, animal-derived products eventually lose in the marketplace when safer, genetically engineered human products come along to replace them, the company contends.

Yet ZymoGenetics it has struggled to capture much of the market for surgical bleeding drugs. It generated just $8.8 million in first-year sales—partly because physicians were unaware of the risks associated with the animal-derived product they had been using for many years, Williams says. Now the company hopes to change that, by asking the FDA to take a closer look at how to handle that risk from the cow-derived clotting agent.

“There are physicians using Thrombin-JMI without a clear understanding of its risks,” Williams says. “There are at least three better alternatives in the marketplace now, that don’t have the same risk profile.”

ZymoGenetics CEO Doug Williams

When reached by phone this morning, King Pharma’s vice president of investor relations, Jack Howarth, said the company has no comment.

The 31-page citizen petition, which I reviewed this morning, highlights 25 cases published by researchers that drew a link between cow-derived blood control treatments and bad immune-system reactions that led to severe complications, or death. One report by a physician to the FDA last October attributed a death to usage of Thrombin-JMI, and just this month, ZymoGenetics said it learned of a second case.

The prescribing information for Thrombin-JMI has carried the FDA’s strictest warning, called a “Black Box,” since 1996. It warns physicians of potentially dangerous immune reactions. But ZymoGenetics said few physicians seem aware of the risk, and keep using King’s product anyway. Now that ZymoGenetics’ genetically engineered version is on the market, along with two other products that use clotting proteins derived from human blood—Johnson & Johnson’s Evithrom and Baxter Healthcare’s Gelfoam Plus—there’s no longer any reason … Next Page »

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ZymoGenetics isn’t giving up on its sole marketed product, and it’s playing some hardball to fight for it. The Seattle biotech company said today it is asking the FDA to yank its top competitor’s drug off the market because, it contends, it’s not safe enough.

Thrombin-JMI, made by Bristol, TN-based King Pharmaceuticals (NYSE: KG), is derived from clotting proteins called thrombins in cow blood. Since that’s from a foreign source, the human immune system recognizes it as such, and can spark a reaction that can lead to severe bleeding and death, ZymoGenetics says. The company says it has found more than 25 published cases of patients who developed blood clotting disorders after they were given cow-derived thrombin products.

ZymoGenetics (NASDAQ: ZGEN) has a major dog in this fight, because its only marketed product—a genetically engineered copy of human thrombin—is a direct competitor to the King product. Both are approved by the FDA to control bleeding during surgery. Zymo won FDA approval to market its recombinant thrombin (Recothrom) in January 2008. Zymo has been arguing for years that its version of thrombin is less likely to spark an immune reaction than animal derived-ones, and that it’s therefore safer. But the argument hasn’t done much to sway doctors. The ZymoGenetics drug generated just $8.8 million in sales last year, and the company predicts it will generate $25 million to $35 million this year. Thrombin-JMI, the established player hospitals have used for years, had $255 million in sales a year ago.

Now, ZymoGenetics is clearly going on offense to get a bigger piece of the market. The drugs for bleeding products are used in an estimated 1 million surgeries a year in the U.S.

“Serious adverse events, including death, linked to bovine thrombin continue to be reported to the FDA,” said George Rodgers, a pathologist at the University of Utah, and medical director of the coagulation laboratory at Salt Lake City-based ARUP Laboratories, in a ZymoGenetics statement. “These adverse events are a serious, ongoing safety issue for patients undergoing surgery.”

ZymoGenetics CEO Doug Williams says the company remains committed to boosting sales of its drug in its second year on the market, as part of an overall strategy to reduce its cash spending rate and stabilize the company in a bad financing market. ZymoGenetics struggled in its first year to get hospitals to try the product, because many didn’t consider the bleeding drugs they use to be a problem, Zymo chairman Bruce Carter has said.

Via a citizen petition to the FDA, ZymoGenetics argues that the risks of treating people with the King product outweigh the benefits, and it should be pulled from the market. Physicians don’t have a readily available diagnostic test for when patients have developed antibodies to previous doses of the drug, and therefore don’t know when a follow-up treatment has the potential to cause a bleeding disorder, the company argues.

King Pharmaceuticals, when confronted in the past by ZymoGenetics’ arguments that its product isn’t safe enough, has generally dismissed them as exaggerations. I’ll add any comments here if the company responds to the latest salvo in the thrombin battle.

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ZymoGenetics, the Seattle-based biotech company, said today that it generated $6 million in second-quarter sales of recombinant thrombin (Recothrom). That performance is an improvement on the $4.5 million the company reported in the first quarter, and puts ZymoGenetics (NASDAQ: ZGEN) on pace to reach its 2009 sales forecast of $25 million to $35 million. The company trimmed its net loss to $27 million in the second quarter, and had $118.2 million in cash on the balance sheet at the end of June.

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Biotech is a volatile business, and this week hammered home that point. Seattle had layoffs at one important device company (Pathway Medical), a hiring boom at another (Dendreon), and a national report that had some humbling stats about the local life sciences scene.

—Dendreon is moving ahead fast to make the most of its good fortune with a new drug for prostate cancer. Xconomy broke the news that the Seattle-based biotech company (NASDAQ: DNDN) is going on a hiring binge (64 new job listings and counting) to do all the manufacturing, marketing, and logistics work it will need to turn Provenge into a hit drug. We also discovered in the company’s quarterly report that it is looking to raise more capital to do the job. That may be good for shareholders, although they may be less thrilled with SEC filings that show Dendreon executives sold a bunch of their stock after the good news came out.

—Pathway Medical Technologies, the Kirkland, WA-based maker of a device that clears out blockages in leg arteries, said it is eliminating 39 jobs, or about one-fifth of its workforce. The company made the moves because its product isn’t living up to the aggressive sales projections it laid out, and the company fell short of its goal of raising $55 million in venture capital for the launch (although it still pocketed a tidy $42.3 million, says CEO Paul Buckman).

—ZymoGenetics is continuing to brace itself for a long, hard downturn. The Seattle biotech company (NASDAQ: ZGEN) cut one-third of its staff last week, and followed that up by unloading eight drug candidates that were sitting on its shelf, handing them over to a startup called Seattle Life Sciences. Zymo also reported first-quarter financials, which showed its lone marketed product, recombinant thrombin (Recothrom), is still struggling to get momentum in the marketplace. The drug is still expected to reach its sales goal of $25 million to $35 million this year, CEO Doug Williams said.

—The traditional biotech business is “unsustainable” in the current downturn, accounting firm Ernst & Young declared in its annual report on the biotech industry, Beyond Borders. Digging deeper into the regional statistics, I found that some regional biotech clusters are holding up better under the pressure than others, and the numbers aren’t pretty for the Pacific Northwest.

—The same day of that grim report, Seattle biotech got a dose of some serious good news from Calistoga Pharmaceuticals. The developer of drugs for cancer and inflammation raised $30 million in a Series B venture round, which attracted all four investors that got the company going two years ago, including Seattle-based Frazier Healthcare Ventures.

—Even though the headlines say it’s nearly impossible, it’s still pretty easy to find scientific entrepreneurs pursuing biotech startup dreams around Seattle. One of these stories came out this week from Arrowsmith Technologies, a company with a novel idea for using antibodies to help improve treatment of brain cancer. Arrowsmith was founded by Jefferson Foote, a former scientist at the Fred Hutchinson Cancer Research Center.

—Acucela, the Bothell, WA based maker of drugs for macular degeneration, passed an early safety test with a drug for the “dry” form of this disease that causes blindness in millions of elderly people. I got the rundown on what this means to the company, and to the field of ophthalmology, from founder and CEO Ryo Kubota, before he presented data at a scientific meeting.

—AVI Biopharma, the Portland, OR-based maker of RNA-based drugs, said it won part of a $2.5 million defense contract to develop a treatment for Duchenne Muscular Dystrophy. The company (NASDAQ: AVII) is hoping to cultivate relationships with the military for years to come, as it is angling for a more lucrative defense contract to make drugs to combat Ebola and Marburg viruses.

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ZymoGenetics is still struggling to generate sales from its lone commercial product. The Seattle biotech company said today it had $4.5 million in sales of recombinant thrombin (Recothrom) for surgical bleeding in the first quarter, which is down slightly from $4.7 million in the previous quarter.

The trend can’t be encouraging, although ZymoGenetics (NASDAQ: ZGEN) suggested the raw numbers may be a bit misleading. That’s because the previous quarter’s product sales were inflated by about $800,000 worth of extra wholesale stockpiling that wasn’t actually sold to hospitals until the first quarter. When factoring out the inventory buildup, sales would have increased 36 percent in the quarter, the company said.

ZymoGenetics won FDA approval to market recombinant thrombin in January 2008, so it has now had more than a year of experience in the marketplace to encourage doctors and hospitals to start buying it. The drug, a genetically engineered copy of a human protein that helps with the normal blood clotting process, is made to compete against a rival from King Pharmaceuticals derived from cow blood, called Thrombin-JMI. The ZymoGenetics product is supposed to be superior, although doctors haven’t started switching en masse. The ZymoGenetics drug generated just $8.8 million in sales last year, and the company has predicted it will generate $25 million to $35 million this year. Thrombin-JMI had $255 million in sales a year ago.

With the first quarter off to a slow start, ZymoGenetics will have to boost sales significantly later this year to reach its goal. ZymoGenetics’ new president, Stephen Zaruby, formerly of Bayer, said everything about the drug—people who sell it, how it’s positioned in the marketplace, and how it’s priced, are subject to change. Still, the round of 161 job cuts announced last week—one-third of ZymoGenetics’ staff—was designed to cut R&D and other departments, while maintaining the company’s ability to market the drug.

“We recognized from the beginning that this was a process of medical education, and that it would take time,” said ZymoGenetics CEO Doug Williams, on a conference call with analysts. “We are beginning to make progress, and it will take continuing efforts to bear fruit.”

Specifically, Zaruby said he remains confident in the product, because of increasing hospital orders in the first quarter, and larger and more frequent orders from existing hospital customers. Pricing, however, is down, he said, as more customers are taking advantage of bulk-buying discounts the company implemented in October to become more competitive with Thrombin-JMI. By the second half of 2010, the product should generate positive cash flow that can be plowed into the rest of the business, Williams said.

As recombinant thrombin has struggled, ZymoGenetics has acted to boost revenues in other ways, while also reducing costs. The company signed a partnership in January with Bristol-Myers Squibb that has brought in $105 million in cash so far this year, and is expected to produce another $95 million for ZymoGenetics this year. That helped the company raise its cash reserves from $89.9 million heading into this year, to more than $152 million at the end of the first quarter, March 31.

The company has shown it wants to make that cash last longer than it would have in the past. ZymoGenetics says its recent job cuts, along with reduced spending on R&D programs, will save $30 million a year.

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ZymoGenetics has taken action to slow down its financial bleeding. The Seattle biotech company (NASDAQ: ZGEN) said today in its quarterly earnings report that it finished the fourth-quarter with a much narrower-than-usual net loss of $9.2 million, and entered the new year with $89.9 million left in the bank.

ZymoGenetics, a company that has never been profitable, found itself in a bit of a cash squeeze in late 2008 after its first marketed product, recombinant thrombin for surgical bleeding, got off to a slower than expected start. The drug generated $4.7 million in U.S. sales in the fourth quarter, and $8.8 million for the full year after it won FDA approval in January 2008—far below the tens of millions that analysts had been expecting. The company now expects the product, marketed as Recothrom, to do $25 million to $35 million in sales in 2009.

The financial outlook for ZymoGenetics looks a bit brighter than it did a few months ago. The big difference is that the company expects to receive $200 million in cash this year from its new partner, Bristol-Myers Squibb, for the right to co-develop pegylated interferon lambda, a drug made to be less toxic for patients with hepatitis C. That’s making it possible for the company to plan only modest spending cuts on R&D. This year, ZymoGenetics expects to spend $115 million to $125 million on R&D, down from $126.7 million in 2008.

The company, led by new CEO Doug Williams, has a goal of building its cash reserves back up to at least a two-year operating cushion. ZymoGenetics didn’t say for certain in its statement if it’s getting to that threshold, but it does expect to close at least one more partnership this year, and finish 2009 with $120 million to $140 million in cash left on the books.

“Congratulations on a much improved year-end,” said Edward Tenthoff, an analyst with Piper Jaffray, on a conference call with ZymoGenetics management after the announcement.

Shares of ZymoGenetics climbed 10 percent in after-hours trading to $5.50 at 4:22 pm Eastern time.

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ZymoGenetics is enduring one of the ugliest stretches in its 28-year history. Now the Seattle-based biotech company is hoping that Doug Williams, an executive who lived through both the darkest days and finest moments at Immunex in the 1990s, will be able to engineer one more turnaround.

Williams, 50, took over as CEO of ZymoGenetics (NASDAQ: ZGEN) last week after Bruce Carter, one of the region’s biotech pioneers, retired. Williams inherits a company that has fallen short of investors’ expectations with its first marketed product, a treatment for surgical bleeding. And that’s not all. One of ZymoGenetics leading candidates in its pipeline, atacicept, failed in a clinical trial for lupus of the kidneys when it raised the risk of infections. The setbacks, combined with a bad overall market, wiped out 76 percent of the company’s value in the year.

When we spoke by phone on a snowy day before Christmas, Williams was keeping the faith, and I didn’t get the sense he was being Pollyannish or trying to pull some sleight of hand. He said he sees a historic parallel with ZymoGenetics of 2009 to the predicament Seattle-based Immunex faced with a hostile takeover bid from Wyeth in 1995. Immunex was then limping along after its first marketed product, GM-CSF (Leukine), was crushed by a competing drug from Amgen. In that vulnerable period, Wyeth brass met Immunex CEO Ed Fritzky at the Four Seasons hotel in downtown Seattle, and handed over an offer of $14.50 a share to buy the company, which was then trading at about $12. The Immunex directors were furious, swearing, wondering whether they could turn down what they saw as a low-ball offer.

That night, Williams, Immunex’s chief technology officer at the time, was lying in bed reading the still-confidential Phase II study report on the company’s drug for rheumatoid arthritis. The results showed etanercept (later named Enbrel) had an unprecedented effect on the disease. That gave Immunex the guts to refuse the offer and remain an independent company.

“ZymoGenetics now feels a little like Immunex did before Enbrel,” Williams says. “We have great scientists, a fabulous pipeline, and the market’s not recognizing it. It took time for things to fall into place, and for Enbrel to show it was real and that it would transform the company.”

The hidden gem at ZymoGenetics, Williams says, is pegylated interferon lambda, or IL-29. This experimental drug is made to treat hepatitis C, and bring all the viral killing power of standard interferon drugs, without the nasty flu-like side effects that force many people to quit taking their meds. Preliminary results released in November, from 18 patients, support the assertion, but the drug still has to pass much bigger and more rigorous studies before investors will start to believe this is really a blockbuster-in-the-making.

While ZymoGenetics trudges forward through the lean times, investors have to bank heavily on Williams’s word. Stephen Graham, the managing partner at Fenwick & West in Seattle, who represented Immunex during its turbulent days, said this about Williams: … Next Page »

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Seattle-based ZymoGenetics (NASDAQ: ZGEN) said today that its sole marketed product was able to be safely given to patients with excess surgical bleeding, without provoking an immune system reaction. The study was of 205 patients who were at increased risk for having reactions against the standard product derived from cow blood, marketed by King Pharmaceuticals as Thrombin-JMI. The study found that none of the patients developed immune reactions against the ZymoGenetics drug, marketed as Recothrom, which is made differently, through genetically engineered copies of a human clotting protein. The product has gotten off to a lackluster start in its first year on the market, and is expected to generate $7 million in sales this year, the company has said.

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(Update: This story has been updated to add material from ZymoGenetics’ conference call with analysts, starting with the fourth paragraph.)

ZymoGenetics still hasn’t found a groove with its recombinant thrombin drug (Recothrom) for surgical bleeding. The Seattle biotech company said today it sold $1.8 million of the drug in the quarter ending Sept. 30.

Things are beginning to get ugly for this bellwether company of Northwest biotech. ZymoGenetics said it had $81 million in cash left at the end of September, after recording a net loss of $29 million in the quarter. The company points out that it can borrow as much as $100 million from Deerfield Management if it wants to, but paying back debt is never easy for a company running in the red. Even so, the company said it is planning to borrow the first $25 million chunk from Deerfield in the fourth quarter of this year.

The company was dealt a setback last month when its partner, Merck KGaA, halted a clinical trial of its atacicept drug candidate for lupus of the kidneys, which whacked 29 percent off of ZymoGenetics’ stock value in one day. The stock has recovered a bit after news yesterday that another candidate, peg-interferon lambda, was able to kill the hepatitis C virus without causing the flu-like symptoms of standard interferon drugs. This morning, ZymoGenetics was trading at $3.73 a share, down 68 percent so far this year.

There wasn’t a lot of sugarcoating on ZymoGenetics’ conference call, at least on the subject of recombinant thrombin. “Sales are still low, and our goal is, and must be,” to boost them, said CEO Bruce Carter, during his prepared remarks.

Through the end of September, 177 hospital purchasing committees had made decisions on the new ZymoGenetics product for surgical bleeding, with two-thirds deciding to at least add it as an option for their surgeons, and one-third rejecting it, Carter said. The company’s sales staff has been working to explain the risks of the standard cow-derived thrombin, to motivate more hospitals to switch. The company has also lowered the price, starting in early October, so that it won’t cost hospitals any more than the cow-derived standard, he says.

Lowering the price has generated positive feedback, Carter said. The company expects to record $3 million in fourth-quarter sales, bringing the total sales for the drug in its first year to $7 million, he said.

This is way below what most analysts projected for the drug early in the year, and it is putting pressure on ZymoGenetics to find ways to conserve cash. The company did a layoff in early 2008, handed over development rights to atacicept to its partner Merck KGaA, sold land for more than $11 million, and settled a patent suit with Bristol-Myers Squibb for $21 million, said Jim Johnson, the company’s chief financial officer. ZymoGenetics is also in “active partnership discussions” on pegylated interferon lambda, which could bring more cash into the company, Johnson said.

Based on its cash conservation moves, and tapping the loan from Deerfield, ZymoGenetics expects to end the year with $75 million to $80 million, Johnson says. The company has historically tried to keep at least two years’ worth of cash on hand, Carter said, although it “relaxed” that policy early this year when it prepared to introduce recombinant thrombin to the market. The company expects to have cash resources to adequately fund the company now “into 2010,” Johnson said.

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ZymoGenetics may have a sleeper in its pipeline about to wake up. The Seattle biotech company is reporting today that its experimental drug, called peg-interferon lambda, was able to kill the hepatitis C virus at all three doses tested in a small clinical trial without the flu-like symptoms associated with standard interferon alpha drugs used against the disease.

The study enrolled 18 patients total, with three groups of six patients each, ZymoGenetics said today in a poster presentation at the American Association for the Study of Liver Diseases meeting in San Francisco. The study found the drug was well-tolerated in all patient groups, and no patients dropped out of the study because of side effects, the company said. There were no signs that the drug caused fevers or damage to blood cell counts, the company said.

ZymoGenetics (NASDAQ: ZGEN) has taken a beating in the market this year, after its first marketed product for surgical bleeding got off to a slow start, and another drug candidate failed in a clinical trial of lupus for the kidneys. It is pinning new hope on peg interferon lambda, as I wrote about in this feature story in September. The company is hopeful that the new version of interferon could someday replace the standard interferons, which are the backbone of hepatitis C therapy today, but cause flu-like symptoms, need to be taken for almost a year, and only cure patients a little more than one-third of the time. What’s more, the side effects are so bad that only a fraction of the estimated 3.2 million people infected in the U.S. seek treatment, so any way to get its virus-killing ability with fewer side effects could open up a large potential market.

“Peg-interferon lambda has become one of our company’s key assets,” said Nicole Onetto, ZymoGenetics’ chief medical officer, in a company statement. “Based on these early results, we’re encouraged by the potential for treating patients with hepatitis C.”

The ZymoGenetics drug showed anti-viral activity in all patient groups, with the best action in a low dose of 1.5 micrograms per kilogram of body weight, taken as a weekly injection under the skin. The most common side effects were mild fatigue and muscle pain, the company said. Based on the results, ZymoGenetics is speeding up the second part of the study, in which it tests peg-interferon lambda in combination with ribavirin, another anti-viral that is a standard drug given in combination with interferons.

ZymoGenetics has said it plans to seek a partner to co-develop peg-interferon lambda, and now it has more data backing up its hypothesis that this could offer a less-toxic alternative to the standard treatment. However, it could take until 2015 to bring this drug to market, according to analyst Kevin DeGeeter of Oppenheimer & Co., who rates the company “underperform.”

ZymoGenetics’ stock surged 18 percent today in advance of this presentation, so somebody out there must think this drug is going to be a winner. We’ll see whether ZymoGenetics can make the case that the drug is worthy of a lucrative partnership, or whether it will have to carry the ball further downfield before a big drugmaker is willing to start writing big checks to get a piece of the action.

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ZymoGenetics is going to try to crack the European pharmaceutical market. The Seattle biotech company (NASDAQ: ZGEN) said today that its partner, Bayer, has filed an application with the European Union to market Recothrom, a drug for excess surgical bleeding.

The filing means ZymoGenetics will collect a $5 million milestone payment from Bayer (NYSE: BAY). Bayer will be responsible for commercializing the product in Europe, and will pay ZymoGenetics milestone payments and royalties on product sales there.

The drug was cleared for sale in the U.S. in January, but has gotten off to a slow start in this country as hospital purchasing committees have taken a long time to meet and decide on surgical bleeding drugs.

One difference in Europe: Recothrom won’t have to directly face off with King Pharmaceuticals’ Thrombin-JMI, a long-established competitor in the U.S. that’s derived from cow blood. Doctors in Europe use pressure, or expensive fibrin sealants to stop bleeding, said ZymoGenetics spokeswoman Susan Specht, in an email.

Whatever happens with the application in Europe, investors’ eyes are going to be fixated on Recothrom’s quarterly sales numbers in the U.S. If the company doesn’t start grabbing market share from the cow-blood derived product soon, shareholders are going to be even less happy than they are now.

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