Catalyst for ZymoGenetics?

On Tuesday, after the market closed, biopharmaceutical company ZymoGenetics (Nasdaq: ZGEN) reported news that was good across the board: positive phase 3 trial results for its lead drug candidate, rhThrombin, used to control acute surgical bleeding.

The trial showed that rhThrombin was at least as effective as the cow-derived thrombin made by King Pharmaceuticals (NYSE: KG) that's on the market now. The upside, though, is that ZymoGenetics' product had a much lower rate of immunogenicity compared with King's Thrombin. That is, only 1.5% of patients who took ZymoGenetics' product developed antibodies to the drug, which can lead to serious bleeding complications, whereas 22% of patients in the trial developed antibodies to the King product.

We'll learn more about the trial results Sept. 17, when the company presents them at a medical conference. Based on the results shown thus far, I'd expect rhThrombin to win approval; ZymoGenetics plans to file a biologics license application with the Food and Drug Administration by the end of the year.

What sort of revenues could the ZymoGenetics product eventually achieve? King's product, Thrombin-JMI, is approved only in the U.S. yet had been growing sales quite rapidly until the company started experiencing manufacturing capacity constraints this year.

King	Thrombin-JMI sales	Year-over-year change
2006	$120*	9%
2005	$221	26%
2004	$175	24%

Sales in millions.
*Through first two quarters; change based on annualized growth.

I'd estimate the marketing opportunity for rhThrombin in Europe to be at least as big as it is in the U.S. market. Assuming European Union approval, the possible worldwide market for rhThrombin is at least $500 million annually, or more depending on how fast the market grows. ZymoGenetics has estimated the market potential for rhThrombin to be $420 million worldwide in 2009.

If rhThrombin is approved, ZymoGenetics plans on marketing it in the U.S. itself because that will require only a small sales force. The company has $310 million in cash on hand and burned through $56 million in the first half of this year. This should be enough cash to get through the approval process and launching rhThrombin in 2007. At this rate of cash burn, and with the costs involved in sales and marketing, the company will need to do some sort of financing, though.

ZymoGenetics is not just about rhThrombin, but all the company's other drugs are in early phase 1 trials and are years from any potential approval. How management navigates the FDA regulatory approval maze will influence the level of confidence in the products now in earlier stages of trials.

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Fool contributorBrian Lawlerdoes not own shares of any company mentioned in this article and welcomes your feedback. The Motley Fool has adisclosure policy.