Wednesday, November 4, 2009

Alnylam and Roche Renew Their Wedding Vows

When Alnylam essentially reminded us today Roche to be still interested in RNAi Therapeutics after having spent close to half a billion dollars on the technology, it caused a lot of anxiety in the RNAi Therapeutics investor community. The impression was that surely something must be wrong when the company chooses to issue such a PR just before it was about to host the company's Q3 09 conference call where everybody expected to get a no-nonsense update on management’s previous guidance, some considered it a promise, for 2 or more major deals by the end of the year. As an investor of Elan Pharmaceuticals, I am all too painfully aware that press releases right before or after conference calls/annual meetings to either soothe or avoid analysts’ wrath, respectively, never bode well.

Almost thankfully, what came then just confirmed that the timelines for the deals have been extended into 2010, rather than news of a clinical trial fiasco which I almost came to expect. ALN-VSP02 continues to enroll which is very good news for SNALP delivery for which I have high hopes for being the next major RNAi Therapeutics value driver, and the TTR program also using SNALP technology is on track for IND filing later this year (although the company does not plan to provide an update at the time of filing). As an armchair analyst, I have to say that this, whether pre-defined in the Roche agreement or not, very much came across as an attempt to deflect disappointment on the changed guidance, and that this was one of the occasions where a PR hurts more than it helps. Overall, I am glad, however, that Alnylam is not going to put itself in an adverse negotiating position, when it financially does not have to, and is going to announce ‘the right partnership at the right time‘. Silence Therapeutics and mdRNA for which we are still waiting to hear on deals e.g. do not share the same luxury.

On the positive side, what I hope today's turn of events signaled is a new emphasis on technology and product development rather than just IP monetization. The repeated mentioning of collaborating on specific disease areas by combining Alnylam’s RNAi platform expertise with Roche’s disease expertise is therefore positive. Also, the fact that the two companies will share access to their respective delivery technologies shows the commitment of Roche for its partner and RNAi Therapeutics. Just how much Alnylam had to pay for this in terms of being restricted of partnering programs at a later stage, however, remains to be seen. Ideally, Alnylam would build such capabilities in-house.

This was followed up in the call with more clarity on Alnylam’s lead program for RSV infection with a potential registration-type trial for RSV infection of lung transplant patients slated to start early next year (ALN-RSV01 now developed without Cubist, but with opt-in) following encouraging phase II data from a small trial earlier this year, and a second-generation, chemically modified ALN-RSV02 to be jointly developed with Cubist for the pediatric population both of which appear reasonable decisions from my perspective. Talk about successful chimp data at microRNA therapeutics spin-off Regulus for the anti-miR122 HCV infection program was also notable.

In a little bit more than two years, Roche has become a very strong force in RNAi Therapeutics rivaling the capabilities of Alnylam, and a company that has shown to have its own mind. It now has dedicated operations in Kulmbach, Germany, which used to represent half of Alnylam’s practical capabilities; Wisconsin, after snatching away Mirus for $125M and which should form a strong basis for their RNAi delivery efforts; and Nutley where it conveniently houses both centers for metabolic and oncology operations, coinciding with the areas where RNAi Therapeutics is poised to create most value near- to midterm, together with work on RNAi Therapeutics. It also had the luxury of exploring mdRNA’s RNAi IP after having paid Alnylam $300M for what appears to be essentially the same, and will be restless on other RNAi Therapeutics business development fronts as well. Importantly, it recently announced plans to move an RNAi Therapeutic candidate into the clinic in 2010.

I believe that it must be extremely challenging to navigate a potentially revolutionary technology for medicine such as RNAi Therapeutics through to fruition and reap the financial rewards along the way. Scientific progress over the last 8 years since the discovery of RNAi in mammals has been more than satisfactory with real drugs based on RNAi Therapeutics conceivable now. Just think back 4 years ago, when 50mg/kg cholesterol-siRNA conjugates in mice were considered the gold standard compared to today’s near microgram/kg SNALP, sometimes also referred to as LNPs; or the steep learning curve about siRNA-triggered immune stimulation, and only Alnylam out of the many contenders has managed to build a financially strong operation. Much of this clearly has to be attributed to management skills and a wise BOD. But shareholders tend to be a restless bunch, always afraid of a stumble that can wipe out all that’s been built and would like to be taken for adults. I believe today’s events leave a certain credibility gap which could be corrected by either removing the poison pill which I believe has served its purpose by now, or insider purchases of the stock. With the share price in the mid-17s, they might actually profit from the situation, too.

Correction (11-05-09): When re-listening to the conference call, I noticed that with respect to the chimp anti-miR122 HCV data Alnylam was not referring to work done by Regulus, but that of others, i.e. almost certainly Santaris/Stanford. After the recent emphasis on additional anti-miR122 patents issued to Regulus, I expect further tension arising as a result of Santaris' scientific leadership in the area, while Regulus appears to have the stronger IP.

Update-1 (11-05-09): February 2010 was mentioned in the conference call as the (presumably Tuschl II) trial date. This, and upcoming SNALP data, could be good reasons why deals have been delayed, in addition to the macroeconomic environment.


Anonymous said...


Speaking from experience I know getting big pharma to act is no easy task, especially now when mergers and cutbacks are headline news.

Additionally Biotech CEO are notorious for boasting. Humble is better.

Love you comment on less IP and more real clinical work.


Anonymous said...

Great article Dirk.

What's the poison pill you refer to?

Biotech management is IMO notorious for not buying shares - perhaps because many of them have so many options!

Dirk Haussecker said...

Essentially rules that make a ‘hostile’ takeover by another company virtually impossible, and otherwise largely serves to preserve the status quo of corporate governance. It just adds to the impression of a company that is satisfied with resting on its laurels. See also top of page 57 of the 2008 Annual Report:

Anonymous said...

Thanks Dirk
Yes, I was wondering what exactly the poison pill was.
I've read the provisions on p.57, but dont quite see how they'd be too potent in the event of an offer being made? (I may be wrong of course)

What's the link with the picture of some bone crypt??

Anonymous said...

Not a great location to renew your wedding vows. Not sure what that says about expectations for the marriage.

Dirk Haussecker said...

Somebody on the Investor Village stock discussion board for ALNY explained the specifics of the poison pill better than I ever could:

Oh, the link to the bone crypt? It’s probably that the Alnylam-Roche press release struck me as bizarre as this place that I recently visited with a fellow RNAi Therapeutics investor.

Anonymous said...

125m additional shares could work as a poison pill, thanks.

Oddly, it didnt seem to mention it in a recent report, but I may have missed it.

Bone crypt certainly looks bizarre - where is it?

Dirk Haussecker said...

The picture was taken at the Sedlec Ossuary in Kutna Hora, Czech Republic.

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