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Tuesday, June 19, 2007 - Page updated at 12:00 AM

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Bayer's cash, clout to boost new ZymoGenetics product

Seattle Times business reporter

ZymoGenetics


Founding date: 1981

Initial public offering date: 2002

Research focus: Therapeutic protein-based products to control surgical bleeding and to treat autoimmune diseases, types of cancer and hepatitis C.

Market capitalization as of Monday: $1.02 billion

Closing stock price Monday: $14.92, down 29 cents

Source: ZymoGenetics, Bloomberg

Seeking a fresh infusion of cash and global marketing expertise, ZymoGenetics cut a licensing deal with European pharmaceutical giant Bayer HealthCare to jointly deploy the Seattle biotechnology company's first expected product since it went public five years ago.

ZymoGenetics said the agreement it is announcing today will bring $30 million upfront from Bayer and $40 million after the federal approval of rThrombin, which helps control surgical bleeding.

The area's largest independent biotech firm expects the Food and Drug Administration to approve the product in October. Bayer could pay ZymoGenetics up to an additional $128 million over time in milestone payments, as well as royalties.

Bayer will wield its significant sales muscle to carve a foothold for rThrombin in the U.S. during a three-year period after the product's launch.

In return, the German behemoth will get up to a 20 percent take from all U.S. sales and up to $20 million in bonus payments during the three-year agreement, as well as reduced commissions for the following two years.

Bayer also gets the right to market rThrombin outside the U.S. indefinitely, paying ZymoGenetics up to 20 percent in royalties.

Bayer's clout will enable rThrombin, a coagulation protein used in surgical procedures, to make a splash in the U.S. shortly after its release, ZymoGenetics executives say.

"Launch is always a critical thing," said Douglas Williams, ZymoGenetics' chief scientific officer.

"Establishing yourself and gaining momentum quickly in the marketplace is really important," he said.

Zymo itself plans to hire 48 sales representatives during the summer, in anticipation of rThrombin's launch, Williams said. "We're going to move very quickly upon approval," he said.

A genetically engineered form of human thrombin, the product will compete against an existing bovine thrombin product that ZymoGenetics says can cause complications, and against another human blood-derived product under review.

The existing U.S. market for thrombin is about $250 million but could become "two or three times" as large, Williams said.

The alliance between Bayer and ZymoGenetics reflects how budding biotechnology companies, strong on research skills but short on cash and sales personnel, link up with Big Pharma to bring their discoveries to market.

Established drug companies help biotechs mass-produce and sell their innovations around the globe, and their interest helps validate the smaller companies in the eyes of investors.

Cash payments from pharmaceutical companies also strengthen biotechs' research budget without diluting stock.

The pharmaceutical giants were once known for taking most of a new drug's profits in exchange for their favors, but in recent years they have been offering biotechs sweeter deals, as they rely more on the nimbler upstarts to fill gaps in their research pipelines, said A.G. Edwards analyst Albert Rauch.

"The drug companies are pretty aggressively pursuing the products of biotech companies," he said. "They're probably not as successful at drug discovery as the biotechs are."

In addition to rThrombin, ZymoGenetics is developing three therapies to spur the body's immune system in fighting some autoimmune diseases, certain types of cancer and hepatitis C.

But it made a "conscious decision" to push the surgical bleeding-control protein through its pipeline ahead of other, more challenging developments to mitigate risk, said Williams.

Biotech startups burn through large amounts of cash from investors until their first creation hits the shelves, a process that can take years and often fails.

As of late March, ZymoGenetics' cash and short-term investments totaled about $224 million. In 2006, the company spent about $128 million in research.

Ángel González: 206-515-5644 or agonzalez@seattletimes.com

Copyright © 2007 The Seattle Times Company

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