Sunday, January 13, 2008

Portfolio Review: RNA Therapeutics Deals Help Sector amid Recession Fears

It seems the markets decided to wait for the New Year for the cracks from the credit crunch to finally start spreading throughout the economy. Not surprisingly, stocks have taken a plunge amid eye-popping write-offs by the major investment and commercial banks. Fortunately, however, the RNAi Therapeutics sector was largely unharmed, partly supported by a strong pharma sector considered a safe harbor in economically difficult times, but largely because of the two remarkable deals involving RNA-based drugs.

One was for ISIS’ mipomersen for the treatment of hypercholesterolemia, which although an antisense and not an RNAi compound further highlighted interest in RNA-based therapeutics in general; the other was for Tacere’s AAV-shRNA TT-033 gene therapy for HCV and represented the first licensing of an DNA-directed RNAi Therapeutics program by Big Pharma (Pfizer). This happened the same week that I attended a presentation by a VP responsible for RNA therapeutic drug development for a major pharmaceutical company, who admitted that the pharmaceutical industry was a failing business model which may only be saved by technologies such as RNAi (stressing especially the potential cost and time savings). Clearly, RNAi Therapeutics is and will continue to be a hot commodity in 2008 and beyond.

Interestingly, while earlier RNA therapeutics deals tended to lift the entire sector, two companies that particularly live on partnering hopes failed to participate in the rally: Silence Therapeutics (-11.4%) and Nastech Pharmaceuticals (-4.5%). It seems that the lift in Alnylam’s share price (+8.8%) indicates that investors are starting to focus on the proven players with solid balance sheets at a time when biotechs may find it difficult to raise funds in the capital markets.

Portfolio Transactions:

Sells:

Benitec: I will take profits from Benitec by selling 1/3 after it exploded on the Tacere deal (Benitec retains significant stakes in TT-033 after it spun out Tacere). This will also avoid Benitec becoming too large a position. Moreover, the exclusive license award to the fundamental Fire-Mello patents to Oxford Biomedica this week for lentivirally-delivered expressed RNAi further may be interpreted as a negative development for Benitec’s IP position on DNA-directed RNAi, including its phase I program for HIV which makes use lentiviral RNAi technology. Still, Pfizer has now repeatedly shown interest in Benitec’s RNAi technology, and one has to wonder whether more deals are in store.

Nastech: The company announced this week, without giving an explanation, that Philip Ranker resigned as CFO. My motivation for including Nastech in the portfolio was based on hopes for a successful spin-out of RNAi Therapeutics subsidiary MDRNA. A delay in the mdRNA spin-out, however, may force Nastech to seek the capital markets for a secondary, thereby risking massive dilution at current price levels. Seeing the CFO go at this juncture forces me to reduce my position from 8.8% to 5% of my portfolio.

Buys:

Oxford Biomedica: Four years ago, Oxford Biomedica first piqued my interest when they presented impressive data on targeting SOD1 for the treatment of a form of amyotrophic lateral sclerosis (ALS; subsequently published in Nature Medicine in 2005: Ralph et al. Nature Medicine 11:429). Finishing up my D.Phil. in Oxford I even enquired whether they were looking for scientists working on RNAi gene therapy, but was told that they were pursuing this more as a tool, not a therapy. Clearly, with the new license, the Alnylam of lentiviral gene therapy technology is now officially part of the RNAi Therapeutics community. A broad clinical pipeline, a solid financial position following a high-profile deal last year with Sanofi-Aventis for the phase II/III cancer immunotherapy Trovax, their track record of scientific accomplishments and an unparalleled IP estate in lentivirus technology are worth 6% of my model portfolio.

ISIS Pharmaceuticals: The remaining cash from the sales of Nastech and Benitec will be invested in ISIS since I believe that the markets have not fairly valued the Genzyme transaction. In the long-run, it will not only help validate ISIS’ antisense chemistry in investors’ eyes, but also finally gives ISIS the financial strength to realize the full potential of their technology.

2 comments:

Anonymous said...

Dirk

I am a long suffering shareholder of Oxford Biomedica and have had great belief in their technology. I am thrilled to see someone with knowledge of this field has decided to invest in OXB.

OXB have been developing their lentivector technology for RNAi for a while, but have not really targeted any commercial targets for its use. They have outlicensed Lentivector for research but it is yet to show up in a specific RNAi product. Where do you see their RNAi IP making the most commercial impact?

Also, you are aware that their Parkinsons treatment, Prosavin, has just entered the clinic, what potential problems do you foresee with its first use in humans? What is the likelihood of complications arising from turning on dormant cancer genes or similar unexpected events? That was a bit Rumsfield, but maybe you can tell where I am coming from.

All the best

Martin in England

Dirk said...

Thank you for your comment. I think the whole British biotech market has been hit quite hard recently, and OXB's clinical success will determine your return as a shareholder in the end.

Before I give you any false answers, I would like to do some more research into OXB myself. Overall, however, my impression of their science has been generally very positive both through meetings presenations and peer-reviewed publications, and unlike many other biotechs, this is one where there is a real commercial drive. I have also noted a number of lentiviral vector licensing deals indicating their patent strength. One was with Sigma, which also included the distribution of lentiviral RNAi libraries. With the new exclusive Fire-Mello license, a major vote of confidence, they have pretty much sown up the IP in lentiviral RNAi, which is notable given that they had to fight Open Biosystems for infringement before: http://www.news-medical.net/?id=31781

By Dirk Haussecker. All rights reserved.

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