Annual Reports
2008 Annual Report Shareholder Letter
Fellow Shareholders,
This letter is the first from me as the company's Chief Executive Officer. ZymoGenetics has passed through 2008 and entered 2009 as a very different organization from a year ago. Some of the events of 2008 were reasons to celebrate, such as the approval of our first product, RECOTHROM® Thrombin, topical (Recombinant). However, the year was for the most part unsatisfying, most certainly as judged by our share price performance. We are committed to unlocking the value in our company in 2009 and beyond through three key initiatives: making RECOTHROM a success in the marketplace, supporting PEG-Interferon lambda development with our partner Bristol-Myers Squibb, and significantly reducing our cash consumption to focus on a subset of our highest value opportunities. I'll expand on these three themes below.
Before we look forward to 2009, we should recognize the significant contributions of Bruce Carter. Bruce was with ZymoGenetics for over 20 years, starting as Vice President of Research before the acquisition by Novo Nordisk in 1988. It was his vision and drive that allowed ZymoGenetics to emerge as an independent company in 2000 and, as CEO, that launched ZymoGenetics into the public markets in 2002. Bruce worked tirelessly to create a great company and presided over the transition from research boutique to fully integrated commercial stage biopharmaceutical company. That's quite an accomplishment in seven years. Speaking personally, it has been a great pleasure to have Bruce as a colleague, friend and mentor, and I look forward to continuing to work with him in his role as non-executive Chairman.
Looking ahead to 2009, we have a lot of work to do to unlock the intrinsic value in ZymoGenetics. Our first priority is to make RECOTHROM a commercial success. During 2008, we received approvals for three separate product presentations and launched the product into the US market. Our partner Bayer Healthcare also took steps to gain approval for RECOTHROM in Europe by submitting a Marketing Authorization Application in August. Admittedly, the US launch has not proceeded to displace bovine thrombin as quickly as we had hoped. We took steps at the end of 2008 which we believe will provide greater sales momentum to build on in 2009. In addition, we recently announced the recruitment of a senior level executive, Stephen Zaruby, who has extensive hospital sales and marketing experience, to be our President and head up our RECOTHROM business. His mandate is simple: establish RECOTHROM as the leading topical surgical hemostat and identify additional product line extensions and licensing opportunities to leverage our commercial infrastructure.
Our second major strategic objective for creating value in 2009 got off to a great start on January 12 when we announced a collaboration with Bristol-Myers Squibb for development and commercialization of PEG-Interferon lambda. This agreement could bring in up to $1.1 billion in fees and milestones over the course of the agreement, but importantly it provided for $105 million in license fees we received in March 2009 and for $95 million in additional milestones expected later this year related to our planned initiation of Phase 2 testing. Furthermore, the transaction secures substantial late stage commercial value in this asset by providing the right for ZymoGenetics to receive 40% of the profits and co-promote the product in the US, along with double digit royalties for ex-US sales. This collaboration reflects the alignment in how both Bristol-Myers Squibb and ZymoGenetics see PEG-Interferon lambda: as a highly differentiated drug candidate which could become an integral component in the regimens used to treat Hepatitis C. Bristol-Myers Squibb is an ideal partner for ZymoGenetics, and we are committed to working together to bring this drug to patients as quickly as possible.
The third and final major objective for us during 2009 is to significantly strengthen the company's financial position. The PEG-Interferon lambda collaboration is the first step in this direction; however, we also plan to take steps to generate additional partnership revenue and to reduce cash consumption by reducing operating costs. We believe that our current cash reserves, anticipated growth in RECOTHROM revenues, new partnering revenue, and cost cutting measures should provide sufficient capital for us to fund our operations well into the future.
By pursuing these major objectives, we expect to increase our focus on creating value from our most promising product opportunities and, over time, build a valuable and profitable biopharmaceutical company.
Thank you for your support. We look forward to 2009 as a year of substantial progress for ZymoGenetics.
Doug E. Williams, Ph.D.
Chief Executive Officer
