ZymoGenetics Goes in for the Kill

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This one could get messy, Fools. At least both sides of this impending pharmaceutical battle have a drug designed to stop bleeding.

Yesterday, ZymoGenetics (Nasdaq: ZGEN  ) went on the offensive, asking the Food and Drug Administration to pull King Pharmaceuticals' (NYSE: KG  ) Thrombin-JMI off the market.

Thrombin-JMI is used to stop bleeding during surgeries. The protein product is isolated from cows, which can trigger antibody production in patients if their immune system recognizes the protein as foreign. Those antibodies could interfere with the coagulation process, leading to complications. ZymoGenetic's competing blood-clotting drug, Recothrom, is a human protein manufactured in a plant, so it generally doesn't have that issue.

King's product had sales of $96 million in the first half of the year, while Recothrom sales were a paltry $10.5 million. Johnson & Johnson (NYSE: JNJ  ) also has a thrombin, Evithrom, which is derived from human plasma, but the sales are a rounding error for the health-care giant, so it doesn't break them out individually.

If ZymoGenetics' drug is so much safer, why hasn't Recothrom become the king of the operating room? Because "safer" is relative.

ZymoGenetics says that it has found more than 25 published cases of antibodies causing issues with coagulation since 2000. That's really not very many, and while some would argue that one is too many, based on sales, it seems that doctors aren't that worried about it. I doubt the FDA will be, either.

ZymoGenetics was up nearly 7% on the news yesterday, and it has climbed higher today, but Fools should be careful here. Recothrom is ZymoGenetics' only product, but it'll never be a blockbuster, even if the FDA fulfills ZymoGenetics' wildest fantasies.

The company's future -- and therefore its stock price -- lie in the success or failure of its pipeline, including finding a partner for Interleukin-21, which has shown decent results when combined with Bayer's and Onyx Pharmaceuticals' (Nasdaq: ONXX  ) Nexavar, and its hepatitis C treatment, PEG-interferon lambda, on which it has partnered with Bristol-Myers Squibb (NYSE: BMY  ) .

Looking to score big from new technology? It only takes three years.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Johnson & Johnson is a selection of the Income Investor newsletter. The Fool has a disclosure policy.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 24, 2009, at 6:28 AM, ahrahr wrote:

    Brian Orelli, you are missing the point and not doing your DD.

    BTW, you are also the one that completely missed the DNDN story (you were bearish) and are still missing the HNSN vs. STXS story (you are a HNSN bull and STXS bear).

    DNDN's Provenge works and STXS is crushing HNSN. I wonder what your DD is.

    ZGEN today's (8/24/2009 - before market opens) market cap is 392.88M. If they grow Recothrom sales to 250M annually, plus another 250M ROW, you have a company that sells below turnover. That sales level is feasible within three years.

    Historically, recombinant products replace the (bovin, human, whatever) competition within three years. They are just much safer.

    If you multiply 500M x - say - 6, you have 3B. (CELG's - to name one - has a Price to Sales P/S of 9.93 today per yahoo key statistics page).

    This stock is a seven-bagger within three years on Recothrom sales alone.

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