ZymoGenetics Retains a Buy Rec

Feb 14, 2009 (Zacks Investment Research via COMTEX) --
BMY | Quote | Chart | News | PowerRating -- Highlights include ZymoGenetics (ZGEN) and Bristol-Myers Squibb (BMY).ZymoGenetics: Buy on Strong Financial Position & Decent PipelineWe maintain our Buy rating on ZymoGenetics (ZGEN) shares and raised our price target to $7.50 based on better-than-expected 4th quarter of 2008 results and outlook for 2009.Better-Than-Expected 4Q08 Results & Strong Financial PositionZymoGenetics reported financial results for the 4th quarter on February 11, 2008. Revenue came in at $36.0 million, compared to our estimate of $12.3 million. The increase was primarily due to increased collaboration and license revenues and sales of RECOTHROM in the United States. Net loss per share was -$0.13, versus our estimate of -$0.48 in Q42008. For the full-year 2008, net loss per share was -$1.69, versus our estimate of -$2.04.Net Recothrom sales were $8.8 million for full-year 2008 and $4.7 million for Q42008, which exceeded our estimate of $6.6 million and $2.5 million, respectively. The rise in net sales of Recothrom in this quarter was primarily due to the adoption of a more competitive pricing structure in October 2008. Based on the resultant increased level of purchase commitments received, this momentum is expected to carry into 2009.The FDA approved ZymoGenetics' rhThrombin (Recothrom) for topical hemostasis in surgical procedures, and the company started to sell rhThrombin in 1Q08. Although rhThrombin faces competition from plasma derived thrombin products, rhThrombin has advantages over existing plasma derived thrombin. Therefore, rhThrombin will capture a fair market share in the thrombin market and will provide a significant boost to ZymoGenetics' top-line growth in the coming quarters. We believe sales of rhThrombin will continue to increase in the coming quarters.The company ended the year with $89.9 million of cash, cash equivalents and short-term investments. The cash position should strengthen further in 2009 primarily due to the amounts expected to be received from Bristol-Myers Squibb (BMY) under the recently announced PEG-Interferon lambda collaboration. The company expects to receive $105.0 million this quarter after completion of United States Federal Trade Commission review, and an additional $95.0 million in milestone payments will be due related to the start of phase II clinical testing for PEG-Interferon lambda, which is expected later this year.The company also has a funding arrangement with Deerfield Management that allows the company to borrow up to an additional $75.0 million through January 2010, with repayment of outstanding amounts in June 2013.Exclusive of any further borrowing, ZymoGenetics expects to end 2009 with cash and investments in the range of $120 to $140 million. Current cash balance can last through 2011 according to our model. Decent Pipeline and Lucrative DealsZymoGenetics has a robust pipeline targeting a variety of diseases such as cancer, autoimmune disorders and hepatitis C. We are impressed with the progress the company has made in the past a few quarters in terms of clinical advancement and business development. We are expecting more data in 2009.The company recently entered into a deal with BMS valued at over $1 billion. This is very positive to the company, not only providing funds but also validating the company's efforts in discovery and development.With an approved product and a robust pipeline, we think the risk associated with ZymoGenetics has been greatly reduced and current valuation is attractive. Therefore we maintain a Buy rating on the company's shares with a price target of $7.5.Read the full analyst report on ZGENRead the full analyst report on BMY

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