Friday, September 24, 2010

Novartis Wake-Up Call for Alnylam

It is official now: Novartis will not exercise its $100M option to broadly license Alnylam’s RNAi trigger IP. This must come as a shock to Alnylam, about to lay off 25-30% of its workforce, which seemed to have taken the option exercise for granted. The news comes after failing to deliver on its promise last year to reach one or more platform deals. With all due respect for the management of Alnylam which has grown the company into the pre-eminent player in RNAi Therapeutics, this latest disappointment confirms that the company has somewhat lost touch with new RNAi Therapeutics realities and I can only hope that it will trigger a serious re-evaluation of the company’s attitude and strategy.

One of the new realities is that $100M is no chump change. $100M is for example twice as much as the market capitalizations of so-called 2nd-tier RNAi Therapeutics companies such as Silence Therapeutics, RXi Pharmaceuticals, and Marina Biotech, and about 50% more than the market cap of the leading RNAi delivery company Tekmira. I expect these companies to thus be first in line as Novartis should seek to use the $100M instead to strengthen their RNAi Therapeutics efforts by acquiring basic RNAi Therapeutics capabilities and delivery technologies.

I accordingly do not believe that the Novartis decision is an indication that it has lost interest in RNAi Therapeutics. For one, it seems that Novartis, after a few quiet years, has raced to fully exercise the target picks under the original agreement with Alnylam before the October 12 deadline, and has been busy hiring people for RNAi Therapeutics development this year. Moreover, they recently bought an option on an RNAi Therapeutics drug candidate from Quark.

One can thus argue that the 30+ targets should keep Novartis more than busy during the time that Alnylam’s potentially fundamental RNAi trigger IP can be considered most valuable, until ~2021. Paying another $100M would have been for the added flexibility of being able to go after new targets the company may develop an interest in, especially since target discovery is a fast evolving field. But why pay another $100M when buying Tekmira for example would give them a lot of that flexibility (5 Alnylam-protected target picks yet to be exercised) as well as secure the leading RNAi Therapeutics delivery technology. For their interests in direct RNAi applications, especially in the ocular disease area, $100M would also go a long way with gaining technology access to RXi Pharmaceuticals' self-delivering rxRNAs which should be of use there. And in terms of general RNAi Therapeutics capabilities, Silence Therapeutics should be quite attractive, and it is therefore also Novartis that is on top of my list of suitors for that company which not long ago announced that they are in talks about a potential takeover.

The Novartis decision, of course, also raises questions about Alnylam’s gate-keeping position in the RNAi trigger arena. With Kreutzer-Limmer embattled in Europe and seemingly having problems to gain traction in the US, Tuschl II thus far being limited to a method of siRNA formation by hybridization and about to be re-examined in Europe and subject to a major litigation in the US about the control of key mammalian and 3’ overhang data (for the latest developments, visit the 'RNAi Litigation' blog), and competitors, especially Silence Therapeutics and RXi Pharmaceuticals, adjusting to the emerging RNAi trigger IP landscape and coming out with reasonable workarounds, these questions are valid. And the more I see Alnylam shifting the focus on the ISIS patents as being gate-keeping to RNAi Therapeutics, the less faith I have in its IP position being gate-keeping.

One unknown is how much the uncertainties around Tuschl II, especially the litigation, played part in Novartis’ decision. If it indeed was critical and there is a paper trail to support that, then it may at least be a blessing for the Tuschl II litigation as the loss of $100M and much more in potential milestones can certainly be considered ‘irreparable harm’.

Alnylam, Alnylam…at least it has $300M+ left which should tide it over to a post-RNAi consolidation period when its deal-making clout should increase again. This, however, will not happen automatically and requires a change of tactics. Controlling access to the most advanced delivery technologies should be on top of the agenda. If I were Alnylam, I’d be looking to join forces with Roche or another potential platform partner to buy out Tekmira before Novartis does. Alternatively, I'd be looking to acquire $40M market cap Silence Therapeutics which I consider to be a major impediment for Alnylam to extract $300M+ for platform deals anytime soon. But given the timing of the Silence Therapeutics speculation and last night's news, it is possible that Novartis may already have lined up Silence Therapeutics.

To speculate on these important questions, please take part in the survey on the right hand column.

More background and thoughts on the Novartis decision can be found in the following blog entries:

1) Upcoming $100M Novartis Decision to Shake Up RNAi Therapeutics;

2) Is Novartis' Kidney RNAi Drug Deal Part of its Grand RNAi Therapeutics Strategy?;

3) RNAi Therapeutics Portfolio Review: Preparing for Novartis


9 comments:

Anonymous said...

Dirk,

Thank you for the blog post.

Clearly, the decision by Novartis is a negative for Alnylam.

A couple of extremely speculative thoughts:

1. Could Alnylam make a play for a take-out of Silence?

2. Could Alnylam make a play for the take-out of Tekmira?

3. Could Alnylam be forced to remove it's poison-pill provision?

Anonymous said...

Dirk,
this is an important moment in our field. In my view this decision marks the official end to ALNY's claim to gate-keeping RNAi trigger IP. Alternative structures have been tested in the lab and in the IP space and have demonstrated that there are ways around the original Tuschl structures which may even be biologically more attractive.
Sadly, it is also an unmistakable sign for the end of the (irrational?) exuberance we had long enjoyed in this field. The RNAi honeymoon period has been over for a while and a new optimism will require really good clinical results first. I predict that any RNAi companies emerging after this valley will have alternative RNAi trigger IP and innovative solutions for delivery, including non-lipid formulations and the ability to reach other organs than the liver.

Anonymous said...

Dear Dirk,

Thanks for the post,
I have a wild guess,
Alnylam's human trial progress
is too slow,
the patent got time limit, say 25years,
Big pharma worry the time is running out and finally Alnylam has to share the patents

Dirk Haussecker said...

I agree that the value of Alnylam's patents will go down over time, but also feel that, depending on the RNAi trigger structure, they would still be of relevance for first RNAi products developed by the likes of Roche, Novartis, Merck, Takeda, all of whom cannot afford to do nothing if they believe that RNAi has the potential to revolutionize drug development.

But yes, the more clinical activity, the better for Alnylam. If things get delayed by 2-3 years, then it would significantly impact the value of the patents that could be quite fundamental (some uncertainties there as you know). They now need to demonstrate positive clinical data and the value of the patents, across the industry, will instantly go up.

Anonymous said...

The September 26th comment by anon seems very accurate to me! And delivery is still a huge issue.
G.

Jerry said...

Part of my reason for investing in ALNY was its joint ownership of Regulus, a form of diversification, as I see it. As mentionned in a recent thread here, Regulus appears ready to spin off an IPO. Any conjecture on how this would affect ISIS and ALNY? Would they retain equity in the new public company or would the money raised buy out their interest (and raise cash for the JV investors)?

Anonymous said...

I guess the reason Novartis refuse to exercise 100M option is because Alalym spent too much resource on LNP. However, LNP got its limit,
Novartis worries the future of development of LNP, so do I.

Dirk Haussecker said...

Regulus IPO- I guess both Alnylam and ISIS, after Novartis and mipo delays, may have good use for cash raised through a Regulus IPO and the subsequent selling of shares (I very much doubt they'd be selling off everything and remain a strategic investor). Before Novartis' decision not to adopt, I had thought the apparent hiring of a person for the IPO by Regulus was a bit pre-mature (apparently at least 1.5 years before filing the first IND).

Anonymous said...

Alnylam is in real trouble, the Emperor has no clothes , I suspect they have to move on Benitec fast to salvage their position.

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