Wednesday, July 14, 2010

Tekmira Trading Halt: Time for Some Wild Speculations

As many of you will be aware by now, trading of Tekmira shares has been abruptly halted just 15 minutes before market close on Wednesday July 14, 2010. Certainly, this strongly indicates that an unexpected event has occurred, but will it be good or bad news?

As a biotech investor, I am prepared for more negative than positive surprises. Adverse events from clinical trials can be a source of unexpected bad news. What is encouraging though is that Tekmira is currently not actively dosing in the clinic, and there is no sign that any trials by partner Alnylam involving SNALP-RNAi formulations based on Tekmira’s technology have been put on clinical hold according to clinicaltrials.gov website. In the same vein, after-hours trading in ALNY has not been halted either. As an aside, it is surprising though that there were hardly any trades in ALNY after-hours since major news involving Tekmira should also move ALNY, but then again recent market activity suggests that important news does not affect valuations of RNAi Therapeutics companies anyway.

If there was any logic to biotech investing, my bet would be on a takeover bid by Big Pharma. As I have detailed here many times, Tekmira’s strategic value in RNAi Therapeutics cannot be underestimated. In fact, I am very relatively that we have not heard yet of for example Novartis or Pfizer. Pfizer though engaged in a prelimary collaboration with Tekmira 4 months ago, about enough time for Pfizer to test some SNALP formulations in-house. Moreover, the impressive Ebola data published in The Lancet may have gone a long way in speeding up the decision to secure access to SNALP siRNA delivery. If indeed it turns out to be a takeover bid, it may only be the start of a bidding contest.

So while Tekmira is probably better equipped than most to go it alone, the value of SNALP to Big Pharma is considerably higher than it is to Tekmira alone. Because of Tekmira’s ownership structure, I would consider $3/share to be the bare minimum for negotiations to start, and this would not even start to reflect the value of SNALP and Tekmira’s RNAi know-how to most in Big Pharma.

The acquisition of a pure-play RNAi Therapeutics company by Big Pharma should also benefit the entire sector. While only three years ago, I more often than not liked to criticize some of the wild claims made by a few companies in the space, the pendulum has swung fully into the opposite extreme, to a point where there are now a number of companies with attractive valuations.

Alnylam as the bellwether of the industry would naturally benefit from additional evidence that RNAi Therapeutics is important to Big Pharma more than ever. The mid-term downside risk should be quite limited and I would look out for any attractive entry points should the Tekmira news be initially interpreted as being hostile to Alnylam. One way or another, investments in RNAi Therapeutics will end up benefiting Alnylam. For the more speculatively inclined and depending on the Tekmira financials, mdRNA and especially Silence Therapeutics could be attractive here.

While Tekmira’s technology is considerably more de-risked, Silence Therapeutics now has decent IP, science, and a not insignificant clinical footprint all for the price of a little more than $20M and with probably about 12-18 months of cash runway (depending a bit on the AZ milestones and cost savings from the recent restructuring). For the bullish and nimble, Silence Therapeutics may also represent an opportunity to buy some shares of by-stander companies on the UK AIM stock exchange before Tekmira will break any news.

mdRNA has a management that seems to understand how to get a foot in the door of Big Pharma, and merger-partner Cequent’s technology being so differentiated (mechanism and sites of action plus attractive cost of goods) from the mainstream and already a candidate in the clinic that Big Pharma may be tempted to place a limited bet on trans-kingdom RNAi. Personally, I would prefer to first get more clarity on that company's strategy going forward.

But back to Tekmira. Keeping in mind that Tekmira may just as well announce bad news such that a fire has destroyed their brand-new SNALP manufacturing suite or that the CEO has broken his leg and will be incapacitated for the next critical 2-3 months, a takeover would only be the fruits of the hard labor and dedication its employees have put in, without much attendant hype (much of the SNALP hype you will find here), and without which I would not want to contemplate the current state of RNAi Therapeutics. I would also hope that the R&D activities in Vancouver would be maintained such that SNALP medicines can get to patients as fast as possible.

Pfizer, Novartis, Merck, Roche, GSK, or even Alnylam (with Novartis in tow)….could it be one of them?

PS: None of the above is to be taken as investment advice. Instead, consider it a Gedankenexperiment. Early-stage biotech takeovers by Big Pharma are actually quite rare events and most investors are convinced that it must be their company that’s next. See also disclaimer at the bottom of this page.

6 comments:

Anonymous said...

PS: Might it be a "trading advice", we can't trade now anyways!!! :-)
Guy.

Anonymous said...

I checked... the President is still alive, and the Offices have not burned down... yet!

Anonymous said...

No buy-out, yet... but looks like Tekmira just landed a $140 million contract with US DoD to advance RNAi therapeutic for Ebola virus through the clinic.

Anonymous said...

I saw the press release...One thought..The DOD has a penchant for going around the FDA..If something works they can facilitate its use without all the Phase II and III time trials...

Anonymous said...

Dirk,

Assuming that SNALP-EBOLA(?)actually makes it to the clinic in a Phase 1 trial... how do they get a patient population?

Dirk Haussecker said...

I believe the way to get it through the FDA is by the 'animal rule' where you provide evidence of efficacy (and safety) in at least 2 different animal species/models of the infection and then show that the drug is safe in humans. The trick appears to be to not only show that the efficacious dose in animals is safe in humans after allometric prediction of dose, but also to develop biomarkers predictive of efficacy. In the case of an Ebola RNAi drug my guess would be that it could involve circulating cells in the blood and how SNALP-RNAi affects them (off-targeting, viral challenge ex vivo etc).

A buy-out price should only be higher now.

By Dirk Haussecker. All rights reserved.

Disclaimer: This blog is not intended for distribution to or use by any person or entity who is a citizen or resident of, or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject the author or any of his collaborators and contributors to any registration or licensing requirement within such jurisdiction. This blog expresses only my opinions, they may be flawed and are for entertainment purposes only. Opinions expressed are a direct result of information which may or may not be accurate, and I do not assume any responsibility for material errors or to provide updates should circumstances change. Opinions expressed in this blog may have been disseminated before to others. This blog should not be taken as investment, legal or tax advice. The investments referred to herein may not be suitable for you. Investments particularly in the field of RNAi Therapeutics and biotechnology carry a high risk of total loss. You, the reader must make your own investment decisions in consultation with your professional advisors in light of your specific circumstances. I reserve the right to buy, sell, or short any security including those that may or may not be discussed on my blog.