Monday, July 28, 2008

RNAi Therapeutics delivery: not a zero-sum game

Shares of Tekmira briefly fell last week below 80c, a ~20% decline, following Roche’s purchase of fellow RNAi Therapeutics delivery company Mirus Bio. Initially, I did not draw a connection. If a reaction at all, then I would have expected the $125M price-tag to point out the value attached by the industry to promising RNAi delivery technologies in general, which “should have” resulted in a share price increase for Tekmira.

To my surprise, however, it then transpired that the Roche acquisition had been interpreted by some as a vote for DPC and against SNALP RNAi delivery, leading some to sell in a panic. This blog will briefly outline why, unlike is the case in the battle for core RNAi trigger IP, RNAi Therapeutics delivery is not a zero-sum game with room for more than just a handful of technology platforms.

As is becoming more evident by the day, RNAi Therapeutics offers the opportunity to address a very wide range of diseases. As all disease has a genetic element, regulating gene expression should always be able to modify or even correct a disease. To do this, however, one has to be able to knock down the desired genes in various different organs, tissues, and cell types. If there was a universal RNAi delivery technology, it would have to be able to physically contact every cell in the body, yet only knock down genes in the disease-related subset of cells.

Based on the limited publicly avaibable data, Mirus’ DPC technology actually promises to come close to that dream. It is very small in size (~20nm) and therefore satisfies at least one of the pre-requisites of achieving a broad biodistribution. Moreover, it has been shown to be capable of differentiating between the different cell types within an organ, in this case the liver, depending on which sugar had been added- all in the absence of apparent toxicity! It will clearly be exciting to learn more about the delivery profile of DPCs. Nevertheless, I doubt that DPC will necessarily be the delivery system of choice for every indication.

This is because the choice of a delivery system is not only determined by the ability to knock down a gene in a given cell, but also by factors such as overall maturity of the technology, safety as determined by the dose required to achieve such gene knockdown, the biodistribution and cell type-specific gene knockdown on a systemic level, as well as by cost, route of administration, and stability of the formulation.

Consider for example an RNAi Therapeutics against the kinesin spindle protein (KSP) that is being developed by Alnylam as a treatment for liver cancer. Although directly interfering with cell division by down-regulating KSP is seen as a very promising anti-cancer strategy, anti-KSP small molecule programs have indicated considerable dose-limiting toxicities that appear to be target specific. This, however, should not come as that much of a surprise since interfering with spindle function would be predicted to affect normally proliferating cells as well, particularly those of the hematopoietic system. Well, this dilemma is not new at all to the cancer field, and often the benefits outweigh the side-effects, but this example illustrates the value of a delivery technology such as SNALP-RNAi that can be tuned to deliver around 95% of the injected dose to the liver, including hepatic tumor tissue.

Certainly, Roche may elect DPC delivery over SNALP delivery (note: Roche has access to both) for some liver indications, but that type of competition has actually only decreased with Mirus Bio out of play. This is because all the other two dozen or so pharmaceutical companies equally interested in RNAi Therapeutics, will now have access to one less viable delivery technology. The incentive to gain access to the still fairly accessible RNAi delivery platforms with clinical potential has therefore never been greater. Roche, of course, enjoys the luxury of being able to choose between two technologies that, maybe in an effort to avoid the appearance of favoritism, it has valued essentially identically based on their $5M equity investment in Tekmira at $2.4 per share(Tekmira now has 51.6M shares outstanding).

Bottom line, due to the ever growing attraction of RNAi Therapeutics, any company, and that goes beyond Tekmira-SNALP, with clinically relevant RNAi delivery technology and a good IP package to protect it can rest assured that they own a very hot commodity.

RNAi Therapeutics portfolio update: With Roche’s validation of the value attributed to clinically relevant RNAi delivery technologies and with increased clinical visibility, I have slightly increased my position in Tekmira while paring back on the overweight ALNY position. In another attempt to capitalize on the idiosyncracies of the stock market, I have converted the RXi Pharmaceutical holdings back into CytRx shares (CytRx owns about 50% of RXi, but none of that is reflected in CytRx’s market cap) and added some more at the cost of largely cashing out of RNAi trigger competitor Silence Therapeutics (a token $1 investment is maintained to monitor stock performance).

Disclosure: Long Tekmira, Alnylam, Targeted Genetics, Oxford Biomedica.


Jeriaska said...

Could you explain the rationale behind investing CytRx rather than RXi, if I understand your portfolio update correctly, when it is the latter that is the pure play RNAi company?

Anonymous said...

& similarly, with your decision to take all but $1 out of Silence please?

Anonymous said...

"maybe in an effort to avoid the appearance of favoritism, it has valued essentially identically based on their $5M equity investment in Tekmira at $2.4 per share(Tekmira now has 51.6M shares outstanding"

Dirk, one could even argue that Roche has in fact valued TKM more than Mirus in light of the fact that, as opposed to Mirus, Roche's investment in TKM involved no control premium. We do not know how much Roche would have been willing to pay for TKM had it been able to gobble it up and shut out the competition (which it could not have done in TKM's case due to ALNY's control over who gets access to TKM's Semple and Wheeler patents).

Going back to the ALNY/Roche relationship discussion, I am looking forward to finding out if Roche grants access to Mirus' technology to ALNY and/or TKM. Perhaps we will lear more in the ALNY 2Q confcall.

Many thanks for this post. Very useful in better understanding the delivery space.


Derek said...

Responding to jeriaska, Cytrx currently owns 6268881 shares of RXi (you can read this in the SEC S-1 that was just filed earlier this month). This would make Cytrx's RXi holdings worth about $44MM at the currently traded price, which is almost exactly the market cap of Cytrx. Thus, the cash in Cytrx is not valued by investors at all.

The one big caveat here is that, if Cytrx has to sell RXi shares to raise cash, there is no way Cytrx would be able to unload their shares at the current market price -- they would probably have to sell at a discount in a private transaction. Thus, you should discount the value of these shares (10-30%). Further, Cytrx states (in their annual 10-K) that they may be forced to sell shares at some point to avoid inadvertently becoming an investment company. This forced sale would also be at a heavy discount. Sorry for the long comment!

ranak said...

I think that PhaseRx is another company with a competing DPC-type of technology. It remains to be seen if this kind of a technology is effective against organs other than liver and kidney. I am veering towards the SNALP-based technology for liver targeting as the industry standard, especially with new lipidoids being shown to have lower toxicity than the commercially available lipids used by Tekmira.

The other names in delivery tools are Calando and Intradigm that are trying to target tumors. Any positive news from either of these companies will show that cationic materials are indeed a way for targeting non-liver organs.

Another target organ with huge potential is the lung, and liposomal formulations may have a faster route towards approval. I am surprised that there has not been any focus on controlled release of siRNA for longer periods of gene knockdown. A lot of the targets that are under study require a sustained delivery of siRNA.

Anonymous said...

"largely cashing out of RNAi trigger competitor Silence Therapeutics (a token $1 investment is maintained to monitor stock performance)."

Not your best timing Dirk!

Silence got their US patent allowed today. I thought they might struggle a bit, but their last response to the examiner was impressive. Bodes well for them holding onto the EU patent against 'obviousness' based oppositions.

I gather a string of deals & IP developments are expected over the coming month, so should be interesting. Iain Ross appears to have been savvy in returning as CEO just as things take off again!...

Dirk Haussecker said...

Thanks for alerting us to that development that certainly appears to be a positive for Silence. I will respond to it in due course.

As to the timing of my sale- hey, if the shares increase by more than 50%, then I will value the holding as $2 and sell for a 100% profit.

Dirk Haussecker said...

Jeriaska- Derek has explained my rationale well for converting RXi back into CytRx stock. I remember similar distortions that occurred during the internet bubble 8 years ago that eventually corrected themselves.

As to my rationale for keeping $1 worth of Silence in the portfolio, it's just a way to track its performance. Silence, for better or worse and despite all the bad blood that has flown, definitely is a player to watch, and while I have doubts about their IP, I wish them well in their quest to develop drugs that help people.

Martin- it is pure speculation, but yes, I agree I could well imagine that Roche, Alnylam, Mirus, and Tekmira will coordinate efforts. Ultimately, it may make sense to unite DPC and SNALP into one focussed RNAi Therapeutics delivery company. Vancouver is definitely not a bad place to live in.

Dirk Haussecker said...

Ranak- Thanks for mentioning PhaseRx. It will be good to learn more about their technology in light of the considerable VC funding they have received.

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