Sunday, September 23, 2007

Quo Vadis, Merck?

It is not often that an early-stage biotech company decides to terminate a collaboration agreement with Big Pharma and the investment community cheers it. But this is exactly what happened last week, after a brief bout of confusion, when Alnylam announced the termination of their partnership with Merck & Co. Inc. for the joint development of RNAi therapeutics, citing moves by Merck they deemed incompatible with Alnylam’s dominant IP in RNAi therapeutics.

Merck was an early entrant into the emerging RNAi therapeutics field, and acknowledged Alnylam’s fundamental technology and IP leadership when they signed a broad co-development deal in 2003. It was clear, however, that Merck’s ambition has always been to play a more prominent role in RNAi therapeutics, and has been instrumental in energising the effort through a number of initiatives such as their support for this year’s RNAi Therapeutics meeting in Keystone, an RNAi delivery challenge, and bringing leading bioinformatics to bear on addressing off-targeting through their Rosetta Inpharmatics subsidiary.

One year ago, Merck woke up the investment community by announcing the acquisition of Alnylam’s chief rival, Sirna Therapeutics, for a then whopping $1.1B. Following the millennium technology bubble and stalled progress with developing ribozyme therapeutics, Sirna transformed itself into an RNAi company by leveraging its existing RNA capabilities to rapidly screen many genes with numerous siRNAs and claim them in their patent applications as exclusive RNAi therapeutics targets. Based on this achievement, Sirna Therapeutics promoted itself as the leader in RNAi Therapeutics, although it has always been questionable whether such a brute-force approach would eventually stand up to the novel and non-obvious criteria required of a patent.

So why did Merck end up buying Sirna, not Alnylam which they chose to partner with in the first place? One can almost be certain that Merck approached Alnylam. However, unlike management at Sirna Therapeutics, schooled in the art of turning around flagging businesses and probably a little bit focussed on maximising short-term shareholder value, Alnylam always had full confidence in the strength of their IP position and the prospect for RNAi therapeutics and consequently put in place mechanisms that would make an unsolicited takeover almost impossible

Ironically, the events that followed the Sirna acquisition by Merck further underlined Alnylam’s dominant RNAi therapeutics IP position. It seems odd that for a company that touted itself as the leader, many of its former staff have now left the company, and it appears that except that Sirna’s proprietary development pipeline, except for its AMD program that it had licensed to Allergan, had been completely overhauled.

From Alnylam’s perspective, the advantage of terminating their partnership with Merck appears clear. As an early deal that largely benefited Alnylam in terms of credibility rather than financially, it was far less attractive compared to the more recent deals with Roche and Novartis (up to $120M compared billions in future milestones plus royalties), so that the freed up time, resources, and RNAi therapeutics targets (nine following an amended 2006 agreement in addition to Nogo for spinal cord injury) can now be focussed on more rewarding partnerships and in-house development programs. It also means that Alnylam would not be fostering a Merck increasingly positioning itself as a rival rather than partner by denying them access to their considerable know-how.

It also becomes more and more apparent that Merck is suffering from the consequences of having inherited Sirna’s aggressive business practices. As part of an ongoing dispute with the Canadian biotech company Protiva Biotherapeutics which accused Sirna of having misappropriated trade-secrets relating to liposomal RNAi delivery, a recent court order is likely to have adversely impacted Sirna’s systemic RNAi delivery efforts with potentially further financial liabilities down the road. In Europe, Sirna was also engaged in opposing Alnylam’s Kreutzer-Limmer patents relating to the use of short double-stranded RNAs for gene silencing in mammalian cells, the very same IP to which Merck gained access through their Alnylam collaboration. After the Sirna takeover, however, Merck appears to have made the crucial mistake of continuing to oppose those patents. I suspect, although I am not familiar with the details of the Merck-Alnylam agreement, that this alone should have given Alnylam the right to unilaterally terminate the type of relationship that Alnylam, in the wake of the Alnylam-Roche alliance, repeatedly said it would never pursue again.

To be sure, the value of Sirna may have been higher to Merck than to other pharmaceuticals since Sirna’s technical RNA capabilities should have nicely complemented Merck’s existing RNAi therapeutics development and bioinformatics initiatives. However, given the strength of Alnylam’s patent portfolio, the Tuschl and Kreutzer-Limmer series to name just two, it is difficult to imagine that Merck is really convinced that it has the freedom to bring RNAi therapeutics to market without a license from Alnylam. It will therefore be interesting to follow whether Merck will now pursue a late, but more costly licensing strategy, or whether it will respond to the new situation in unusual ways. In any case, I hope that the new rivalry between Alnylam and Merck will be a friendly albeit competitive one for the benefit of the entire field of RNAi therapeutics.


bio_al said...

excellent analysis.

NR_EYE said...

Do you suspect that the Merck/Sirna deal had something to do with Sirna's exclusive ownership of the Zamore miRNA patent from UMass?

Merck had everything else through their partnership with Alnylam. Manufacturing capability is nice to have, but that alone definitely not worth the premium that Merck paid.
Anyway, it is pure speculation on my part...

Dirk Haussecker said...

Alnylam has exclusive access to Tuschl I from MIT, the Whitehead Institute, and the Max-Planck Institutes. Only UMass decided to grant access to other companies as well. So Tuschl I should not have been an incentive for the Sirna/Merck deal, unlike Merck already plotted to go it alone after being spurnt by Alnylam (it can be safely assumed that they approached Alnylam first and then had to contend with second best).

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