ZymoGenetics, Inc. (ZGEN)

Q1 2010 Earnings Call

May 4, 2010 4:30 pm ET

Executives

Susan. Specht - Director, Corporate Communications

Doug Williams - CEO

Jim Johnson - CFO

Stephen Zaruby - President

Lennie Ramos - CMO

Analysts

John - Leerink Swann

Brian Abrahams - Oppenheimer and Company

David Miller - Biotech Stock Research

Ted Tenthoff - Piper Jaffray

Paul Latta - McAdams Wright Ragen

Jeremiah Shepard - Wedbush Inc

Presentation

Operator

Welcome to the ZymoGenetics First Quarter 2010 Financial Results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder this conference is being recorded. It is now my pleasure to introduce to your host Susan. Specht, Senior Director of Corporate Communications for ZymoGenetics. Thank you Ms. Specht, you may begin.

Susan Specht

Good afternoon everyone, welcome to our first quarter 2010 conference call. Before we begin I would like to remind you that we will be making forward-looking statements as part of our prepared remarks and in answering your questions. These statements are subject to many risks and uncertainties that could cause actual outcomes to be much different than we predict. Please look at our SEC filings, including the Form 10-K for more information.

Now, I will turn the call over to our CEO Doug Williams.

Doug Williams

Thank you Susan, and welcome to all of you on today’s call. I am joined today by Stephen Zaruby our President and Lennie Ramos our CMO as well as Jim Johnson, our CFO, who will review Q1 financial performance you.

Let me start with the corporate review and then Jim will summarize the financials and we will be available to answer your questions after that.

During 2009 we transformed the company focusing on four key programs with the greatest near and long-term potential to generate value for our shareholders. If you look back at our 2008 and 2009 financials and compare these years to our guidance for 2010 and now the first quarter the company looks very different.

Revenues were up substantially year-over-year, our costs have been progressively reduced and we believe our cash position after our successful equity offering in January provides us with sufficient capital to reach significant value-creating milestones for all of our programs. I would like to quickly recap progress during the quarter on our key assets.

On the RECOTHROM front net sales for the quarter was $9 million. This is doubling of Q1 sales for 2009. January in particular was a very weak month across the hemostat segment and RECOTHROM was no exception. That said, for the quarter actual hospital demand that it's units moving from the wholesaler inventory to hospital end user increased by 14% compared to the fourth quarter of 2009.

RECOTHROM market share in dollars continued to increase in Q1 to approximately 19% versus 17% in the prior quarter. Jim will discuss the factors that influence our reported net sales for the March 31st quarter, but demand in market share continued to grow and based on momentum we see in the market place, we are comfortable with our full year guidance of $48 million to $54 million of net sales.

Our Interferon Lambda program continues to move forward as described in our 8K filed today prior to this call. We are on track to start the blinded, controlled, Part B portion of the study mid-year.

As we have said previously this will be s dose finding Phase 2 study in approximately 600 patients and will provide a direct comparison of Lambda plus ribavirin with the labeled dose of PEGASYS plus ribavirin. This data will drive the dose selection for Phase 3 studies as well as future exploratory studies being contemplated.

An important aspect of the Phase 2 program is the inclusion of the Genotyping for IL28B polymorphisms to correlate the treatment response.

As part of the process for selecting doses for Part B of the study, we have recently have completed a preliminary assessment of data from the open label Part A portion of the Phase 2 program focusing on safety and four-week viral response, and I'd like to share with you an early glimpse of that data as was summarized in the Form 8-K.

Before I do that however, I want to point out that it's our intent to present the full results from the study at AASLD in the fall and for that reason, we're limiting our disclosures now at the top-line outcomes.

As I'll describe in more detail in a moment all four dose levels with 45 subjects divided among four-dose cohorts were safe and showed dose dependent antiviral activity. With respect to antiviral efficacy, we observe dose dependent effects on viral load at four weeks in genotypes 1-4 patients comparable to our Phase 2b observations. To remind you after four weeks of dosing in Phase 1b, we observed from 1.8 to 3.8 logs reduction of HCV RNA.

As we saw in Phase 1b, a number of patients achieved undetectable levels of viral RNA at four weeks. Our safety observations are based on a data cutoff in mid-April, when the medium duration of treatment for subjects was 10-weeks for genotype 1-4 and 18 weeks for genotype 2-3.

On the safety front, there were no new safety signals observed with longer periods of dosing in the four weeks in Phase 1b, and there were no dose limiting toxicities of any kind. A Safety Monitoring Committee determined that all doses met the safety criteria for inclusion in Part B of the study. The incidence of flu-like symptoms was consistent with our observations in Phase 1b and lambda had notable absence of effects on the blood cells.

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