ZGEN
recothrom sales came in a bit lighter than i expected at 9.2M. the company stated that Q4 tends to be lighter with less elective surgery during the holidays. looking back at thrombin-JMI sales Q4 does appear to be seasonally light. guidance is also solid at 48-54M for 2010 (and management has historically always struck me as conservative). also fwiw i personally know of one university hospital that dropped bovine thrombin in favor of recothrom just last month, so there are still active conversions and market share should continue to grow incrementally. on the pipeline lambda phase 2a has finished accruing ahead of schedule. the fact that the study accrued so fast IS notable given the plethora of hepatitis trials out there (recall idix had trouble recruting their POC trial for 184). what this tells me is that the opportunity to get a therapy with an interferon with minimal side effects is a huge selling point to patients (and docs). unfortunately they won't make it in time for a late breaker at EASL, and plan on releasing the full data set (minus SVR) at AASLD. they are guiding for beginning of phase 2b by midyear, so the data they have to date has to be solid. there is a small chance top line may be released prior to AASLD (for those with shorter investment time horizons). as for il-21, an abstract is already submitted to ASCO with final melanoma data including PFS and survival. the company plans to start a 2b 80 pt study in Q2, so they must be encouraged by the 2a data. However this should be taken with some grain of salt because they clearly weren't able to secure a partner for the kind of dollars they were hoping for based on the 2a data. we all know melanoma is a graveyard for drugs, but i give them credit for running a modest *randomized* (vs DTIC) 2b to maximize value and mitigate risk of a larger pivotal. it was also interesting to hear the potential market for il-31 in atopic dermatitis, something i had been wondering about. this candidate is still preeclinical, but a search of clinicaltrials.gov indicats lots of activity in this area, and now i know why - apparently there are about 5M patients not adequately addressed by current therapies (mainly topical steroids). lastly, notable for its absence was any mention from the outlicensed products. the biggest of these is atacicept. i'm sure there is a significant milestone attached to the start of a second phase 3, which we all know is needed for approval, but i have a funny feeling merck-serono will want hold off until both results from the first trial are available a year from now and belimumab is on the market to run a head to head (which would make sense commercially to differentiate the product) - so i don't think atacicept will be a 2010 news event (but will be a big potential driver in early 2011 - and like many of the outlicensed products - often overlooked by analysts
ZymoGenetics Reports Fourth Quarter and Year End 2009 Financial Results
February 11, 2010
- Revised Strategy Reduces Costs and Focuses Company on Key Corporate Assets - - Solid Year-End Cash Position Strengthened Further by January 2010 Stock Offering -
SEATTLE, Feb 11, 2010 (BUSINESS WIRE) -- ZymoGenetics, Inc. (NASDAQ:ZGEN) today reported its financial results for the fourth quarter and year ended December 31, 2009. For the fourth quarter, the company had net income of $13.6 million, or $0.19 per diluted share, compared to a net loss of $9.2 million, or $0.13 per share, for the same quarter in the prior year. For the full year 2009, the company reported a net loss of $43.0 million, or $0.62 per share, compared to a net loss of $116.2 million, or $1.69 per share, for the prior year. The profitable fourth quarter of 2009 resulted from the one-time recognition of $34.4 million of previously deferred revenue triggered by amendments to the RECOTHROM(R) Thrombin, topical (Recombinant)license and co-promotion agreements with Bayer. The decrease in the net loss for the full year was attributable to increased license and collaboration revenues from the PEG-Interferon lambda collaboration with Bristol-Myers Squibb; the recognition of deferred revenue resulting from the amendments to the Bayer agreements; increased RECOTHROM sales, which tripled versus the prior year; and reduced research and development expenses.
As of December 31, 2009, the company had $174.1 million of cash, cash equivalents and short-term investments. In addition, on January 12, 2010, the company issued and sold 16.1 million shares of its common stock in an underwritten public offering, which resulted in net proceeds to the company of $90.9 million.
"During 2009 we made significant changes to solidify our future and to maximize shareholder value by focusing on our most valuable assets where we have a significant ownership position. We significantly reduced our cost structure by aggressively restructuring the organization and solidified our cash position by entering into new collaborations," said Douglas E. Williams, Ph.D., Chief Executive Officer of ZymoGenetics. "RECOTHROM sales and market share are continuing to grow, and we expect RECOTHROM to become cash flow positive later this year. The clinical data generated and presented for PEG-Interferon lambda to date further validate the potential of this novel HCV product candidate. In addition, in IL-21 and IL-31 mAb, we have two novel product candidates intended to address unmet needs in large markets."
Financial Results
Revenues for the full year 2009 were $137.0 million compared to $74.0 million for the prior year. For fourth quarter of 2009, revenues were $62.1 million compared to $36.0 million for the fourth quarter of 2008. The annual and fourth quarter increases were primarily due to incremental revenue from the Bristol-Myers Squibb collaboration, deferred revenue recognized related to the Bayer amendments, and increased RECOTHROM revenue.
RECOTHROM net sales were $29.6 million for the full year 2009 and $10.6 million for the fourth quarter of 2009. The reported amounts include fourth quarter product sales to Bayer of $1.4 million to supply the launch in Canada following Canadian marketing approval in December 2009. Excluding sales to Bayer, fourth quarter net sales into the U.S. hospital distribution channel were $9.2 million. Fourth quarter market share, based on sales to hospitals, was estimated at approximately 17% of stand-alone thrombin sales, compared to approximately 7% in the fourth quarter of 2008.
Collaboration and license revenues were $106.1 million for the full year 2009 and $51.2 million for the fourth quarter of 2009, compared to $58.9 million and $29.9 million, respectively, for the same periods in 2008. The increases were primarily attributable to revenues from the PEG-Interferon lambda collaboration with Bristol-Myers Squibb, which became effective in March 2009, and the fourth quarter 2009 recognition of $34.4 million of previously deferred revenue resulting from the December 2009 amendments to the Bayer license and co-promotion agreements. These 2009 increases would have been larger if not for $21.0 million of fourth quarter 2008 revenue from an Ig fusion license granted to Bristol-Myers Squibb.
Cost of product sales decreased as a percentage of net sales for the full year and fourth quarter of 2009 primarily due to the $4.2 million reserve for obsolescence recorded in the fourth quarter of 2008. In addition, fourth quarter 2009 sales of RECOTHROM to Bayer, which have a low gross margin, impacted the cost of product sales percentage. In the fourth quarter of 2009, cost of product sales for U.S. sales was $2.2 million and the cost of product sales to Bayer was $1.3 million.
Research and development expenses for the full year 2009 decreased to $99.2 million, from $126.7 million in 2008, and for the fourth quarter of 2009, these expenses were $24.0 million compared to $24.2 million for the same quarter in the prior year. For the full year 2009, the decrease was primarily attributable to reduced salary and benefit costs resulting from the headcount reduction that occurred in April 2009 and reduced development costs resulting from the restructuring of the atacicept collaboration with Merck Serono in August 2008. For the fourth quarter of 2009, the decrease was primarily due to reduced salary and benefit costs, partially offset by severance costs associated with the headcount reduction that occurred in December 2009.
Selling, general and administrative expenses in 2009 were $62.2 million for the full year and $16.8 million for the fourth quarter, which compares to $60.2 million for the prior year and $14.6 million for the prior year fourth quarter. The primary factor driving the annual increase was incremental commissions paid to Bayer on U.S. sales of RECOTHROM, partially offset by reduced legal fees. For the fourth quarter of 2009, the increase was primarily due to higher commissions paid to Bayer and increased patent and legal fees.
Net other income (expense) in 2009 totaled $11.3 million of expense compared to $2.4 million of income for 2008. The income in 2008 resulted from a land sale that generated a $7.1 million gain. For the fourth quarter of 2009, the net expense was $4.2 million compared to $1.7 million for the fourth quarter of 2008. Besides the effect of the land sale, the primary drivers of increased net expense for both the year and the fourth quarter were reduced investment income due to lower invested balances and lower rates of return on those invested balances; increased interest expense associated with the Deerfield Management debt facility, under which $25.0 million was drawn down in November 2008; and a $1.6 million write down of asset-backed securities in the fourth quarter of 2009 due to deterioration in the underlying collateral.
Business Highlights
ZymoGenetics recent business highlights included the following:
Corporate Restructuring
In December 2009, the company completed its corporate restructuring effort, initiated in the second quarter of 2009, reducing headcount by 52 additional positions for an overall 42% reduction in workforce. In total, expenses will be reduced by a total of approximately $40 million per year. The company discontinued its immunology discovery research and will now focus on its most valuable commercial and development stage assets in which it has significant ownership positions.
PEG-Interferon lambda
The company presented Phase 1b final results for PEG-Interferon lambda in patients with hepatitis C in November 2009. Clinically significant antiviral activity was observed at all dose levels tested in both relapse and treatment naïve HCV patients. Minimal constitutional symptoms or hematologic effects were observed with PEG-Interferon lambda given as a single agent or in combination with ribavirin. In October 2009, in collaboration with partner Bristol-Myers Squibb, the company initiated a Phase 2 clinical trial in hepatitis C treatment-naïve patients.
RECOTHROM
RECOTHROM sales increased in the fourth quarter to $9.2 million, while hospital unit demand increased by approximately 18% compared to the third quarter of 2009. The company's estimated share of the stand-alone thrombin market was approximately 17% in the fourth quarter of 2009, up from approximately 14% in the previous quarter.
In December, the company announced that Bayer received approval to market RECOTHROM in Canada and that Bayer had voluntarily withdrawn the Marketing Authorization Application for RECOTHROM in Europe. The company restructured its RECOTHROM U.S. co-promotion and ex-U.S. license and collaboration agreements with Bayer Schering Pharma AG and Bayer HealthCare. Effective January 1, 2010, the company regained full promotion rights in the United States and all ex-U.S. rights except in Canada, where Bayer will market and sell the product.
Interleukin-21 mAb
In December 2009, the company licensed intellectual property rights to IL-21 antibodies outside North America to Novo Nordisk for an upfront payment of $24.0 million and $157.5 million in potential milestone payments. The company retained an option to fund a portion of Phase 3 clinical development costs in exchange for an increased royalty rate on U.S. sales and U.S. co-promotion rights.
Outlook for 2010
The company announced the following anticipated clinical and business objectives for 2010:
PEG-Interferon lambda:
•Complete enrollment of approximately 55 patients in Part A of the Phase 2 study in chronic Hepatitis C infection
•Present 4 week and 12 week results from Part A of the Phase 2 study
•Initiate Part B of the Phase 2 study in up to 600 patients
RECOTHROM:
•Continue to generate increasing market penetration from quarter to quarter
•Reach net sales level that will begin to generate positive net cash flow from commercial operations
IL-21:
•Begin a randomized study in approximately 80 first line metastatic melanoma patients
•Present final Phase 2a results in metastatic melanoma, including progression-free survival and overall survival data
IL-31 mAb
•Complete manufacturing to support Phase 1 testing
•Begin IND-enabling toxicology studies
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