ZymoGenetics Reports Third Quarter 2009 Financial Results

http://www.businesswire.com/news/home/20091105005265/en

Increased revenues and reduced expenses drive substantial improvement in
quarterly net loss

RECOTHROM sales increase to $8.5 million compared to $1.8 million a year earlier

SEATTLE--(Business Wire)--
ZymoGenetics, Inc. (NASDAQ:ZGEN) today reported improved financial results for
the third quarter ended September 30, 2009. The company`s net loss for the
quarter declined substantially to $11.4 million, or $0.17 per share, from $28.8
million, or $0.42 per share, for the third quarter of 2008. Revenues for the
third quarter of 2009 increased by 131% compared to the third quarter of 2008 as
a result of increased sales of RECOTHROM® Thrombin, topical (Recombinant)and
higher collaboration and license revenues. Expenses for the third quarter of
2009 decreased by 20% from the third quarter of 2008 largely as a result of the
company`s cost reduction efforts.

"The company is making important strides, both financially and operationally,"
said Douglas E. Williams, Ph.D., Chief Executive Officer of ZymoGenetics.
"RECOTHROM sales trends continue to improve. We presented final Phase 1b
clinical trial results for PEG-Interferon lambda with positive results for
tolerability and antiviral activity, and the Phase 2 clinical trial is underway,
triggering a $70.0 million milestone payment from our partner Bristol-Myers
Squibb."

Financial Results

RECOTHROM net sales were $8.5 million for the third quarter of 2009 compared to
$1.8 million for the third quarter of 2008. The product continues to gain market
share and as of the end of the quarter, RECOTHROM had an estimated 15% share of
the U.S. topical thrombin market as of September 2009. In the third quarter of
2009, RECOTHROM hospital unit demand increased approximately 25% from the second
quarter of 2009.

Collaboration and license revenues were $18.5 million for the third quarter of
2009 compared to $8.5 million for the third quarter of 2008. The primary reason
for the increase was incremental revenues from the PEG-Interferon lambda
collaboration with Bristol-Myers Squibb. This increase was partially offset by
reduced revenues from our RECOTHROM collaboration with Bayer HealthCare.

Research and development expenses for the third quarter of 2009 were $21.3
million, a decrease of $8.9 million from the third quarter of 2008. The decrease
was primarily the result of the elimination of atacicept co-development
collaboration costs and overall reduced headcount in research and development.
These reductions were partially offset by increased costs related to the
PEG-Interferon lambda collaboration with Bristol-Myers Squibb.

Selling, general and administrative expenses were $13.7 million for the third
quarter of 2009 compared to $15.0 million in the third quarter of 2008. The
decrease primarily resulted from reduced personnel-related costs, stock
compensation and legal costs, partially offset by higher selling commissions
payable to Bayer resulting from increased RECOTHROM net sales.

Net other expense totaled $2.5 million for the third quarter of 2009 compared to
$5.3 million of net other income for the third quarter of 2008. In the third
quarter of 2008, the company recorded a $7.1 million gain related to the sale of
vacant land next to its corporate headquarters. The remainder of the difference
is largely due to interest expense on the $25.0 million outstanding under the
Deerfield Management debt facility, which was drawn in November 2008 and must be
repaid by June 2013.

As of September 30, 2009, the company had $103.4 million of cash, cash
equivalents and short-term investments. This amount does not include the $70.0
million milestone expected to be received this month from Bristol-Myers Squibb
related to the initiation of the PEG-Interferon lambda Phase 2 clinical trial.

Business Highlights

ZymoGenetics recent business highlights included the following.

PEG-Interferon lambda

Final Phase 1b results were presented at the American Association for the Study
of the Liver Diseases annual meeting on November 3, 2009. The dose-ranging
clinical trial evaluated PEG-Interferon lambda as a single agent and with
ribavirin in relapsed and treatment naïve patients with hepatitis C. The results
indicated that four week treatment with PEG-Interferon lambda and ribavirin was
well tolerated with significant antiviral activity at all dose levels tested.
The company is developing PEG-Interferon lambda in collaboration with
Bristol-Myers Squibb. On October 26, 2009, a Phase 2 study in treatment naïve
patients was initiated, triggering a $70.0 million milestone payment from
Bristol-Myers Squibb payable within 30 days.

RECOTHROM

RECOTHROM sales continued to increase in the third quarter. Hospital demand
increased by approximately 25% in the third quarter of 2009 compared to the
second quarter of 2009.

Interleukin-21 (IL-21)

In August 2009, the company completed enrollment in the Phase 2 study in
metastatic melanoma. The single-agent study is evaluating IL-21 in patients with
no prior systemic therapy for metastatic melanoma. The company continues to
anticipate progression-free survival and overall survival results to be
available in early 2010.

Conference Call and Webcast Information

ZymoGenetics Third Quarter 2009 Financial Results Conference Call will be held
on Thursday, November 5, 2009 at 4:30 p.m. Eastern Time and may be accessed at
www.zymogenetics.com or by dialing 877-407-0778 (International: 201-689-8565).
Participants should dial in to the call approximately 10 minutes prior to the
scheduled start time to register. A live audio webcast and slide presentation
can be accessed by going to: www.zymogenetics.com. The webcast will be archived
for 60 days.

For replay, please visit www.zymogenetics.com or use the following information:

* U.S. callers: 877-660-6853
* International callers: 201-612-7415

Replay passcode account #: 286

Conference ID #: 334609

About ZymoGenetics

ZymoGenetics is focused on the creation of novel protein drugs to improve
patient care and address unmet medical needs. The company`s strategy is to
discover, develop and commercialize its products independently, in collaboration
with partner companies or through out-licensing. ZymoGenetics developed and
markets RECOTHROM® Thrombin, topical (Recombinant), a synthetic version of a
human blood-clotting enzyme used to stop bleeding during surgery. The company is
developing a proprietary portfolio of immune-based product candidates.
PEG-Interferon lambda is a novel type-3 interferon in clinical development for
the treatment of chronic hepatitis C infection. Interleukin-21 is a novel
cytokine in clinical development for the treatment of metastatic melanoma and
renal cell carcinoma. Several other proprietary product candidates are in
preclinical development. In addition, ZymoGenetics has licensed rights to
multiple clinical and preclinical drug candidates being developed by other
companies. For further information, visit www.zymogenetics.com.

This press release contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements include,
but are not limited to, those related to the Company`s results of operations and
expenses, RECOTHROM sales and commercialization efforts, milestone payments in
connection with PEG-Interferon lambda development, the Company`s clinical
development programs and the timing and potential benefits thereof andthe
ability of ZymoGenetics to successfully partner with third parties to assist
with development and commercialization efforts.These forward-looking statements
are based on the current intent and expectations of the management of
ZymoGenetics. These statements are not guarantees of future performance and
involve risks and uncertainties that are difficult to predict and that could
cause actual results and the timing and outcome of events to differ materially
from those expressed in or implied by the forward-looking statements.These risks
include, but are not limited to, risks associated with the Company`s unproven
product sales and marketing, manufacturing and commercialization capabilities,
the risk that the Company is not able to establish, maintain or derive
anticipated benefits from strategic partnerships and collaborations,the risk
that the Company`s revenues generated are smaller than anticipated and that its
expenses and cash needs are greater than anticipated, the risk that the Company
is unable to advance its clinical programs and regulatory applications and
action at the rate it expects or at all, the risk that milestone payments under
partnering or collaboration agreements are not earned when expected or at all
and other risks detailed in the Company's Annual Report on Form 10-K for the
year ended December 31, 2008 and from time to time in other reports filed by
ZymoGenetics with the U.S. Securities and Exchange Commission. ZymoGenetics
undertakes no obligation to update any forward-looking or other statements in
this press release, whether as a result of new information, future events or
otherwise.

RECOTHROM® Thrombin, topical (Recombinant) is a registered trademark of
ZymoGenetics, Inc.

ZYMOGENETICS, INC.
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Revenues:
Product sales, net $ 8,492 $ 1,758 $ 18,999 $ 4,129
Royalties 420 1,598 1,036 4,832
Collaborations and licenses 18,544 8,520 54,838 29,009
Total revenues 27,456 11,876 74,873 37,970
Costs and expenses:
Costs of product sales 1,722 695 4,101 994
Research and development 21,349 30,216 75,223 102,524
Selling, general and administrative 13,658 15,038 45,398 45,620
Total costs and expenses 36,729 45,949 124,722 149,138
Loss from operations (9,273 ) (34,073 ) (49,849 ) (111,168 )
Other (expense) income, net (2,534 ) 5,283 (7,064 ) 4,103
Net loss before income tax benefit (11,807 ) (28,790 ) (56,913 ) (107,065 )
Income tax benefit 363 -- 363 --
Net loss $ (11,444 ) $ (28,790 ) $ (56,550 ) $ (107,065 )
Basic and diluted net loss per share $ (0.17 ) $ (0.42 ) $ (0.82 ) $ (1.56 )
Weighted-average number of shares used in
computing net loss per share 69,073 68,724 68,993 68,632

BALANCE SHEETS
(in thousands)
(unaudited)

September 30, December 31,
2009 2008

Cash, cash equivalents and short-term investments $ 103,366 $ 89,887
Inventory 57,081 28,241
Other current assets 12,089 14,828
Property and equipment, net 59,651 63,676
Deferred financing costs, net 5,541 6,726
Other assets 5,663 6,688

Total assets $ 243,391 $ 210,046

Current liabilities $ 113,138 $ 56,968
Lease obligations 66,918 67,366
Debt obligation 25,000 25,000
Collaboration obligation 26,900 ---
Other long-term liabilities 33,196 37,353
Shareholders` (deficit) equity (21,761 ) 23,359

Total liabilities and shareholders` equity $ 243,391 $ 210,046

Investor and Media Contact
ZymoGenetics, Inc.
Susan Specht
Director, Corporate Communications
206-442-6592

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