Seeking to reduce the rate at which it burns cash, ZymoGenetics is handing off the development and commercialization of one of its key compounds...

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Seeking to reduce the rate at which it burns cash, ZymoGenetics is handing off the development and commercialization of one of its key compounds to partner Merck Serono, the company is expected to announce today.

The compound, known as atacicept, is aimed at treating rheumatoid arthritis and other autoimmune diseases. Merck Serono will assume 100 percent of the program costs and carry out the ongoing trials, most of which are in midstage-development phase.

ZymoGenetics will continue to work on an atacicept trial for lupus nephritis for an undetermined amount of time, the company said. Merck Serono will refund the costs of that trial.

The changes underscore the juggling that publicly traded biotechnology companies face to stay alive as they burn through piles of cash in their quest for profitability. ZymoGenetics is the Seattle area’s second largest independent biotechnology company.

Although it hasn’t updated estimates of cash it plans to spend this year, the company will save “hundreds of millions” over the next few years by not funding the expensive clinical trials needed to bring atacicept to market, said spokeswoman Susan Specht.

The company spent $33 million in research and development during the second quarter.

At the same time the Seattle biotech will give up its right to half the profits from atacicept sales in North America. It will receive double-digit percentage royalties on global atacicept sales and payments from Merck Serono every time the product hits certain commercial or regulatory milestones.

The restructuring won’t affect ZymoGenetics’ work force, Specht said. About 10 to 12 people work on atacicept, she said.

ZymoGenetics had about $117 million in cash and investments at the end of the second quarter but had a net loss of $148 million in 2007. It needs money to help boost market share of Recothrom — its first commercial product, launched in January — and to further develop its clinical pipeline.

ZymoGenetics shares have fallen — they closed at $8.43 Tuesday — from a 52-week high of $15.23, making it difficult for the company to raise money through equity offerings. And Recothrom sales may face a longer than expected ramp-up, many analysts say. The genetically engineered form of thrombin is designed to control surgical bleeding

The company has found other ways to keep money rolling in. Earlier this summer, ZymoGenetics secured a $100 million line of credit, and the sale of some property last week netted $11.5 million.

On Tuesday, its partner Bayer HealthCare gave the company a milestone payment of $5 million after asking European medical regulators to approve Recothrom.

The restructuring of the Merck Serono partnership is geared toward keeping some of that money in ZymoGenetics’ pocket.

“Converting to a royalty position on atacicept allows us to avoid a major capital commitment, reduce expenses and preserve cash over the next several years, while securing the value of our atacicept asset,” said Douglas Williams, president of ZymoGenetics.

ZymoGenetics and Merck Serono also made changes to their alliance regarding two inflammatory-disease product candidates.

Merck Serono will control commercialization and development of a compound known IL-17RC; ZymoGenetics will have exclusive control of the other compound, known as IL-31 mAb.

Previously, the companies developed the compounds together.

Ángel González: 206-515-5644 or