Upcoming $100M Novartis Decision to Shake Up RNAi Therapeutics

As critical court rulings that could decide who will control the fundamental Tuschl patents are getting delayed at least into September, probably later than that (see the ‘RNAi litigation’ blog for the latest updates), the $100M question of whether Novartis will exercise their right to broadly adopt Alnylam’s fundamental RNAi trigger IP estate is likely to replace the RNAi litigation as the driving force in the RNAi Therapeutics deal dynamics in the near future.

Under the 2005 research collaboration and license agreement, Novartis paid Alnylam $10M in upfront cash in addition to a $58.5M equity investment in Alnylam's stock for the right to (exclusively) pick 30 therapeutic gene targets protected under Alnylam’s fundamental RNAi trigger IP as part of the research collaboration, and for the right of first offer to additional targets that Alnylam develops and wishes to partner. As I understand it, Novartis has until the end of the term of the research collaboration, probably October 12 2010, to pick their targets, and retains the right of first offer until 3 years thereafter (hold your breath if you expect new product-specific partnering before that).

In addition, Novartis also obtained the option to broadly adopt Alnylam’s fundamental RNAi trigger estate exercisable for an additional $100M. This non-exclusive license has been characterized by Alnylam to work similar to Alnylam’s platform relationships with Roche and Takeda. These licensing relationships provide the companies non-exclusive access to Alnylam’s fundamental RNAi trigger IP that will provide coverage until 2016-2025. One important difference, however, is that Novartis could use this IP in all therapeutic areas, not just a few select ones as in Takeda's and Roche's case. The other important difference, which I believe has the potential to fundamentally change the competitive landscape in RNAi Therapeutics, is that, unlike Roche and Takeda, the licenses do not provide Novartis access to crucial RNAi delivery technologies. Novartis has until the end of the research collaboration (October 2010) to decide on the option and think long and hard about their delivery strategy.

It would seem quite logical for Novartis to exercise the option. For one, Novartis is certainly ramping up their RNAi Therapeutics efforts based on the flurry of related job advertisements. Moreover, $100M would appear to be quite a bargain for such broad freedom to pick gene targets compared to what Takeda and Roche got. In fact, it would make Novartis the company with the most power in RNAi target picking. Lastly, Novartis has been consistently buying Alnylam shares in recent years to maintain their ownership at 13.4%. Such purchases have to be considered strategic.

But as I said, all this target selection power may not be worth that much without delivery. In fact, a long delay for Novartis in gaining access to say delivery to the liver and cancers (I’d love to have some insight into the targets that Novartis has picked thus far, but hepatitis C is a likely one and quite a few cancer-related targets, too), may quickly diminish the value of their initial 30 exclusive target picks as the patent clock is running down. So at some point Novartis has to think about entering the clinic and learn about the clinical aspects of RNAi Therapeutics development.

There are not that many delivery technologies that can provide clinically relevant delivery of synthetic siRNAs. As you will know, I consider SNALP technology as the most advanced at the moment. I would therefore expect Novartis to try and gain access to it. Last year, Novartis paid mdRNA roughly $7M basically to take a look at that company’s liposomal siRNA delivery technology. One way to interpret this was that Novartis wanted to evaluate (cheaper) alternatives to having to go through Alnylam and/or Tekmira in gaining access to liposomal siRNA delivery. One thing is for sure, Alnylam would likely make Novartis pay extra for a sub-license to SNALP-related Semple/Wheeler. Alternatively, Novartis may not like Alnylam’s terms and gain access to SNALP by buying Tekmira. What makes this even more attractive is that it would on top provide Novartis with another 7 target picks, which it could pick also after October 2010, and critical expertise on the use of SNALP. This is important because even if Alnylam gave Novartis access to the SNALP-related Semple/Wheeler IP, it, like Takeda and Roche before it, would still very likely require the co-operation of Tekmira to fully exploit SNALP technology. Such expertise would, of course, also benefit the overall RNAi delivery effort of Novartis.

With 37 targets protected by Alnylam’s RNAi trigger IP (note: the exact number would depend on how many targets Novartis will have chosen by October), one has got to wonder whether just buying Tekmira for $200M may be the better deal. 37 targets should be more than enough to keep them occupied into the early 2020’s. Or if Novartis was feeling real lucky and would like to become the dominant force in RNAi Therapeutics, it would spend $300M for the adoption license and Tekmira and look quite smart in comparison to Merck, Roche, and Takeda.

The above scenarios should, of course, give other Big Pharma companies cause for concern. Assuming for example that Pfizer agrees SNALP to be the most promising systemic RNAi delivery technology, it may not like the prospect of another important RNAi delivery technology disappearing from the market, just as it happened to them in 2008 when Roche bought Mirus Bio with which Pfizer had a siRNA delivery collaboration then.

Of course, if events unfolded like this, all other pure-play RNAi Therapeutics companies should also benefit. Alnylam Pharmaceuticals, mainly because it would confirm the interest by Big Pharma in RNAi Therapeutics, and pure-play companies like Silence Therapeutics, mdRNA, and RXi, because they would be viewed as moving up the acquisition queue.

PS: The above scenarios are based on a few assumptions, the most important of which probably being that an acquisition of Tekmira would also transfer the right to exploit SNALP technology for Tekmira’s 7 target picks (which are transferable) in the case of a Big Pharma which otherwise has not gained access to Alnylam IP, and in the case of Novartis, possibly for all its other target picks, too.