Bristol Courts ZymoGenetics to Capitalize on Potential Hepatitis C Blockbuster

Includes: BMY, ZGEN
by: The Burrill Report

By Michael Fitzhugh

Bristol-Myers Squibb (NYSE:BMY) has lodged an offer to buy ZymoGenetics (ZGEN), its partner on a promising mid-stage hepatitis C drug, for $885 million in cash, bringing to a lucrative close the co-development and co-marketing partnership the companies struck in January 2009.

“The acquisition of ZymoGenetics brings us full ownership of a promising investigational biologic that strengthens our very diversified hepatitis C portfolio,” says Bristol’s CEO, Lamberto Andreotti. “In addition, ZymoGenetics brings proven capabilities with therapeutic proteins and revenue from a marketed specialty surgical biologic,” he says.

The investigational biologic is a novel mid-stage antiviral for treating hepatitis C that has, so far, shown fewer side-effects than typical hepatitis C treatments. If approved, it could be “an important contributor” to Bristol’s future growth, the company says. ZymoGenetics has called it “a potential blockbuster” for the high-growth HCV market. Results from a new study of the drug will be presented at the American Association for the Study of Liver Diseases meeting later this year.

The surgical biologic is Recothrom, a compound that can help control bleeding in hospital settings, from which ZymoGenetics derived $11.9 million in the second quarter of 2010.

Bristol’s $9.75 per share offer could deliver ZymoGenetics shareholders an 84 percent premium on the pre-announcement value of the stock if the deal is approved. That brings the deal’s total value to $735 million net of cash acquired. Both company's boards and ZymoGenetics’ two biggest shareholders, Novo Nordisk (NYSE:NVO) and Warburg Pincus, have already approved the transaction.

The merger agreement contains a provision under which ZymoGenetics has agreed not to solicit any competing offers for the company.

Although the deal provides a happy ending for ZymoGenetics shareholders, it may prove to be less fortuitous for the company's employees, many of whom have endured a rocky road getting to this point. The Seattle company had to cut more than 200 jobs in 2009 as it reallocated resources, first away from cancer research and then to help advance Recothrom, its surgical bleeding drug and other drug candidates. The future for its remaining 320 employees isn’t promising either, as many face likely job cuts after the deal closes.