BMS picks pearl from Emerald City

Acquisition of Seattle- based biotech ZymoGenetics strengthens hepatitis C program, virology portfolio

Amy Swinderman
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SEATTLE—Bristol-Myers Squibb Co. (BMS) recently made a nearly two-year-old collaboration with ZymoGenetics Inc. more permanent with a definitive agreement to acquire the company for $9.75 a share in cash, or an aggregate purchase price of approximately $885 million.

The transaction, worth approximately $735 million net of cash acquired, has been unanimously approved by both companies' boards of directors. Under the merger agreement, ZymoGenetics has agreed not to solicit any competing offers for the company. BMS will finance the acquisition from its existing cash resources. At press time, the transaction was expected to close by early October.

In early 2009, BMS and ZymoGenetics began collaborating on the development of Pegylated-Interferon Lambda, a novel type 3 interferon that was in Phase Ib development for the treatment of hepatitis C. Four- and 12-week results from a Phase IIa study will be presented at the American Association for the Study of Liver Diseases meeting later this year.

If approved, PEG-Interferon Lambda could be an important contributor to BMS' future growth. According to the World Health Organization, hepatitis C, a virus that infects the liver and is transmitted through direct contact with blood, infects an estimated 170 million people worldwide.

Jennifer Fron Mauer, director of BMS business communications, says the transaction "is a good example of targeted execution of our String of Pearls strategy," referring to an initiative that BMS launched in December 2007 to transform itself into a biopharmaceutical company by buying biotech drug compounds or companies in priority disease areas. This deal—the company's 11th "pearl"—boosts the company's portfolio in virology, oncology and immunoscience, Mauer says.

"As part of our biopharma strategy, we pursue innovative science, both internally and externally, that can accelerate the discovery and development of new medicines for serious diseases," she says. "This transaction is important to BMS because it builds on our long-standing commitment to virology." It also, she adds, "gives us full ownership of PEG-Interferon Lambda, currently in Phase IIb development for hepatitis C, increasing our flexibility in developing the compound as well as considering broader strategic collaborations of the BMS virology portfolio."

In addition, Mauer says, the acquisition gives BMS an FDA-approved, specialty surgical biologic, Recothrom, which is used as a topical hemostat to control moderate bleeding during surgical procedures; expands BMS' biologics capability and gives it access to seven early clinical and preclinical programs in oncology and immunoscience, including the cytokine IL-21 protein currently being tested in an open-label, Phase II clinical study as a potential immunotherapy treatment for metastatic melanoma; and potential milestone and royalty payments from seven partnered programs which are in various stages of clinical development with EMD Serono Inc., an affiliate of Merck KGaA, and Novo Nordisk. From 1988 to 2000, ZymoGenetics served as the primary U.S. discovery arm of Novo Nordisk, contributing to the development of several of Novo Nordisk's current products.

ZymoGenetics, which is headquartered in Seattle's historic Seattle City Light Steam Plant building, declined to comment on the acquisition. Shares of the biotech shot up 84 percent following the news.

"We can't comment beyond the public documents, so we're not offering interviews. We have a lot to do and are focused on the transaction," says Susan Specht, a spokeswoman for the company.

According to Mauer, no decisions have been made about ZymoGenetics' site in Seattle or where its 300-plus employees will reside.

"None can be made until after the deal closes," she says.

It appears that ZymoGenetics will be missed from the Seattle biotech scene. Several industry watchdogs in the Seattle area have taken to their blogs to lament the loss of one of the region's signature biotech firms.

"The parade of acquisitions frustrates those wishing that a big, long-term Seattle employer along the lines of Amazon, Starbucks or Microsoft will emerge from the ferment of life-science startups," writes Rami Grunbaum of the Seattle Times.

In particular, job loss is a concern to many, although as some bloggers have pointed out, ZymoGenetics already cut 162 employees, or one-third of its staff, last year in an effort to conserve cash and narrow its research efforts.

"A quick look at the WaBio website shows only about 33 job openings at local biotech companies, with about an equal number of jobs listed for academic and other institutions," writes Stewart Lyman, owner and manager of Lyman BioPharma Consulting LLC in Seattle via a blog on "Since 2002, when Amgen bought Immunex, there have been over 3,200 layoffs at local biotech companies (not including any upcoming layoffs at ZymoGenetics or Trubion), and I would wager that a lot of these folks were unable to find employment locally. Taking their skills elsewhere did not benefit us here in Seattle. The loss of ZymoGenetics may indeed lead to new companies being formed by those with an entrepreneurial spirit. However, it will take years (if ever) for these putative new companies to employ the number of individuals who typically are let go in these acquisitions."

However, Grunbaum also pointed out that M&A transactions involving Seattle-based companies is proof of a "healthy" industry, calling it part of "biotech's harsh life cycle." The region is still ranked third or fourth among U.S. biotech centers, and is a popular destination for start-up companies.

Meanwhile, Piper Jaffray reiterated its "neutral" rating of ZymoGenetics, and its analysts say they continue to expect more consolidation in the hepatitis C space "as big players build out their portfolios in a rapidly evolving treatment landscape."

Amy Swinderman

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