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 2^nd-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.

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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