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ZymoGenetics reports increased net loss in Q2 FY07

US drug discovery company ZymoGenetics reports an increased net loss for Q2 FY07 after licensing agreements expire

US-based drug discovery company ZymoGenetics has reported a net loss for Q2 FY07 of USD 37.3m, or USD 0.55 per share, compared with a net loss of USD 30.0m or USD 0.45 per share in Q2 FY06.

The company attributed the increased loss to increased costs in preparation for the launch of the company's first product rThrombin, which should begin in October 2007. Revenues fell from USD 8.1m in Q2 FY06 to USD 4.2m in the present quarter due to reduced license fees and option revenues.

R&D spend for Q2 FY07 was USD 32m, compared with USD 31.4m for the equivalent quarter of 2006. ZymoGenetics says it will continue to incur significant rThrombin manufacturing costs in 2007, with most deliveries occurring in H2. Until FDA approval, the manufacturing costs will carry over to R&D.

ZymoGenetics ended the quarter with USD 197.3m in cash and investments. The reported amount excludes USD 30.0m of upfront cash due from Bayer under the recently completed license and collaboration agreement, which will be received in Q3 FY07.

In Q4 FY06, ZymoGenetics's six-year option and license agreement with Novo Nordisk expired. The tie up had added USD 1.9m in revenue in Q2 FY06, while USD 1.5m in license revenue from Novo Nordisk related to rFactor XIII was also missing from the present quarter.

In June 2007, ZymoGenetics announced a global collaboration with Bayer for development and commercialisation of rThrombin. Bayer will commercialise the drug in countries outside the US and will co-promote the product with ZymoGenetics in the US for three years.

Per the agreement, ZymoGenetics will receive a USD 30m upfront payment early in Q3 FY07 and USD 40m when rThrombin is approved in the US. The earnings will be recorded as deferred revenue and recognised as revenue over five years as the company meets its obligations under the related agreements.

Under an existing strategic alliance, ZymoGenetics and Merck Serono have entered into an agreement to co-develop Interleukin 17RC (IL-17RC), a novel soluble cytokine receptor, as a potential treatment for inflammatory diseases. Merck Serono will pay a majority share of R&D costs, have all rights outside the US and pay development milestones and royalties.

30th September 2008

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