ZymoGenetics

It was a tough year for ZymoGenetics (ZGEN), one of my favorite companies. They didn’t meet sales expectations for surgical aid RecoThrom, running into a situation where hospital bean counters overruled science and patient safety (the analogy is to not bothering to fix the exploding Pinto).

Partner Merck Serono got too aggressive on treatment design on one of the drugs for leading pipeline candidate atacicept, and they had to close one of the pivotal trials for that drug in lupus. From there, things were steeply downhill.

2009 got off to a great start with a partnership deal for a pipeline drug my firm has been pounding the table about for a couple of years. Bristol Myers (BMY) paid $100 million in cash plus $95M in near-term, certain milestone cash plus a potential of another $800 million in regulatory and sales milestones for interferon lambda, a drug targeted initially at hepatitis C.

Interferon alpha is a standard of care in this disease, but the side effects are not pleasant. In too many cases, patients drop treatment because they can't handle the side effects. This not only increases the pool of people who can infect others, it increases the pool of people who will eventually need liver transplants.

Zymo’s interferon lambda is intended to be a replacement for interferon alpha. Quite promising Phase I results point to significant anti-viral activity and a very low side effect profile. The companies plan to start randomized Phase II trials mid year, triggering the $95M cash milestone.

The Hep C space has garnered a great deal of attention from investors. My feeling is interferon lambda is the best of the drugs out there from an investor standpoint. Vertex (VRTX) is certainly much better known in the space. Interferon lambda isn’t competitive with Vertex’s drugs or those from other big-pharma competitors in the same class as Vertex’s teleprevir. It would be part of a combination therapy containing teleprevir or similar drugs, replacing interferon alpha.

Some companies are working on reformulations of interferon alpha to cut the side effects. As with any drug, there are competitors. I believe Zymo’s drug will compare favorably.

Pfizer for Wyeth

The Wall Street Journal is reporting Pfizer (PFE) is shopping for Wyeth (WYE). For some perspective, type Pfizer and Wyeth into Google and you’ll get pages of similar rumors over the last few years.

This would be a shame. Wyeth is generally considered to be one of the pharma companies without its head up its arse. Pfizer isn't generally considered, these days, to be among that number: The company tumbled into disarray after the (predicted) collapse of their $1 billion torcetrapib development program.

This combination would be bad for the industry and bad for biotech. I also find it hard to believe the DOJ or their counterparts in Europe would approve the deal.

If the deal goes through, expect delays in programs at biotech companies partnered with Wyeth or Pfizer. It will take 6-9 month for the dust to settle in an acquisition in terms of product ranking decisions. During that time, little new investment or new trial launches will be approved by the combined entity. Like I said, the combination would be bad for biotech and would bias me towards thinking a bounce in the sector would be later than otherwise expected.

One note on Pfizer while I’m thinking about it… The failure of torcetrapib caused Pfizer to declare they were abandoning the cardiology market. This is like Ford saying they are abandoning the car market because the last Taurus was a bomb. Pfizer has the world’s best cardiology sales and medical force. The $1B they blew on the torcetrapib program is a rounding error on the money they’ve made from selling Lipitor.

But, in the knee-jerk world of big pharma, they’ll dismantle their world-beating cardiology sales force instead. Dumb.