Merck and ZymoGenetics Restructure Partnership

Merck now has exclusive worldwide development and commercialization rights to atacicept, including in North America

DARMSTADT, Germany, September 3, 2008 - Merck KGaA announced today that its Merck Serono division and ZymoGenetics, Inc. (NASDAQ: ZGEN), Seattle, United States, have restructured their partnership.

With respect to the ongoing development of atacicept, an investigational drug for the treatment of various autoimmune diseases and B-cell malignancies, ZymoGenetics has exercised its contractual right to convert to a worldwide royalty license. By making this election, ZymoGenetics will no longer be responsible for funding development costs, and Merck will fund 100% of the program costs on a worldwide basis. In exchange, Merck will now have exclusive worldwide development and commercialization rights for atacicept, including in North America. Merck will make milestone payments to ZymoGenetics, as agreed in the initial contract between the two companies signed in 2001. ZymoGenetics will also be eligible to receive undisclosed royalties on worldwide net sales.
“This restructuring of our partnership with ZymoGenetics emphasizes the importance of atacicept and our commitment to the program,” said Vincent Aurentz, Executive Vice President Portfolio Management & Business Development at the Merck Serono division. “It also demonstrates the need to be flexible in managing successful partnerships to maximize their potential. Having the responsibility for development and exclusive commercialization rights for atacicept also in North America strengthens the overall strategic value of atacicept for Merck.”

“We believe that atacicept holds tremendous promise as a potential treatment for autoimmune diseases. The broad, parallel path of development in lupus, multiple sclerosis, and rheumatoid arthritis could result in the most rapid availability of this drug to patients around the globe. Converting to a royalty position on atacicept allows ZymoGenetics 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 E. Williams, Ph.D., President of ZymoGenetics.

The companies also revised their research alliance to achieve greater operational efficiencies. ZymoGenetics will now control the development and commercialization of IL-31mAb, and Merck will have the full responsibility for developing and commercializing IL-17RC. Both compounds are drug candidates for the treatment of inflammatory diseases. Future product candidates resulting from the companies’ activities under the research alliance will be exclusively licensed for development and commercialization to either ZymoGenetics or Merck.

About Atacicept
Merck is developing atacicept (formerly referred to as TACI-Ig) as a potential treatment of autoimmune diseases, such as systemic lupus erythematosus (SLE), lupus nephritis (LN), rheumatoid arthritis and multiple sclerosis, as well as B-cell malignancies. Atacicept, a recombinant fusion protein, contains the soluble TACI receptor that binds to the cytokines BLyS and APRIL. These cytokines are members of the tumor necrosis factor family that promote B-cell survival and autoantibody production associated with certain autoimmune diseases such as SLE. Current data indicates that levels of BLyS and/or APRIL are elevated in patients with rheumatoid arthritis, SLE, B-cell malignancies and multiple sclerosis. Atacicept has been shown in animal models to affect several stages of B-cell development and may inhibit the survival of cells responsible for making antibodies. The clinical development program for atacicept currently comprises Phase II/III studies in SLE and LN, Phase II studies in multiple sclerosis and rheumatoid arthritis, as well as Phase I studies in hematological malignancies.

About IL-17RC
The IL-17 family of cytokines generally mediates inflammatory effects and has six members, IL-17A through F. Expression of IL-17A and IL-17F, the most closely related molecules in this family, is up-regulated in joints of rheumatoid arthritis patients, inflamed lung tissue, brains and spinal cords of multiple sclerosis patients and inflammatory bowel disease. ZymoGenetics identified IL-17RC as the receptor for IL-17F and discovered that human IL-17RC binds IL-17A with high affinity. A soluble version of IL-17RC has been shown to neutralize pro-inflammatory properties of IL-17A and IL-17F in vitro and therefore may have beneficial therapeutic effects in patients suffering from autoimmune diseases. IL-17RC is being developed as a potential treatment for inflammatory diseases such as inflammatory bowel disease, rheumatoid arthritis and multiple sclerosis.

About IL-31mAb
IL-31 is a newly discovered T-cell cytokine that, when overexpressed in mice, results in pruritus and skin dermatitis resembling human atopic dermatitis (AD). Comparisons between skin from patients with AD and healthy skin show IL-31RA expression at higher levels on epidermal keratinocytes in AD samples. In addition, circulating CLA(+) T cells from patients with AD are capable of producing higher levels of IL-31 compared with CLA(+) T cells from healthy individuals. IL-31 expression is associated with CLA(+) T cells and could contribute to the development of AD-induced skin inflammation and pruritus. IL-31mAb is being developed as a potential treatment for AD and other diseases where itch response is involved.


 

Posted: September 2008


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