ZymoGenetics cuts 80 jobs after new product's launch

Facing a tough stock market and Wall Street skepticism over the recent launch of its first commercial product, ZymoGenetics said Wednesday it is reining in spending by cutting 80 jobs.

The reduction, mostly in research and development, was made through attrition, layoffs and elimination of unfilled positions, the company said in a statement announcing its fourth-quarter results.

ZymoGenetics said its annual expenses will drop by about $14 million, but it will incur $2.5 million in severance and related costs.

The company has about 535 employees after the cuts, said a spokeswoman.

"These changes were obviously very hard," said Chief Executive Bruce Carter in a conference call with analysts.

The company made an "extensive review" of its business plan for the next five years and will refocus on a smaller number of proprietary programs, Carter said in the statement.

The cuts follow the January launch of Recothrom, ZymoGenetics' first independent product release — a triumph few biotech companies ever get to experience.

But that advance coincided with a general slump among biotech stocks provoked by fears of recession. At the same time, several analysts expressed uncertainty about Recothrom's ability to unseat competitors and about the potential of the company's other lines of research.

The company's stock is trading near a 52-week low, which makes it more difficult to raise new capital, always a priority for biotechs.

"They see overall market conditions are going to be tough," said David Miller, a Seattle-based analyst with Biotech Stock Research. "They're adjusting their cash burn accordingly."

The company spent about $189 million in 2007, and it has nearly $171 million of cash and cash equivalents in the bank. It is poised to earn some revenue from sales as well as research and distribution partnerships, including a $40 million milestone payment from Bayer HealthCare related to the regulatory approval of Recothrom.

ZymoGenetics' uncertainties underscore the difficulties of transitioning from a research-oriented company to one that lives off revenue from its marketed products.

Although the company declined to provide guidance on how Recothrom would do this year, its executives said they had completed the first sale four days after being approved.

Recothrom is a genetically engineered form of thrombin, a protein that helps stem surgical bleeding.

Thirty-seven hospitals have placed and received orders and at least one hospital has switched to Recothrom from a competing product, said Michael Dwyer, ZymoGenetics' senior vice president for sales and marketing.

The company's hints about the product suggest that "they're going to do just fine," Miller said.

The product could take a while to make an impact, but sales could reach $300 million in three to five years, said McAdams Wright Ragen analyst Paul Latta.

"It will be a couple of quarters before we really start to get a flavor," he said.

But Kevin DeGeeter, an analyst with investment bank Oppenheimer & Co, said in a recent research note that Recothrom sales would be lower than many analysts had previously forecast, as a competing product made of bovine blood was being marketed at significantly lower prices.

Also, the U.S. Food and Drug Administration still hasn't approved Recothrom in the most widely used spray-kit format for thrombin products, the research note said. That approval is expected in May.

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