Wednesday, November 17, 2010

Following Late-Stage Pipeline Setbacks, Roche Cuts In-House RNAi Research as Part of Large-Scale Corporate Restructuring

The writing has certainly been on the wall. First, in an August 2010 interview, Roche’s Head of Pharma Research and Early Development, Jean-Jaques Garaud, was a bit lukewarm about the maturity of RNAi Therapeutics. While acknowledging that ‘siRNA' was a 'hot field’, this Roche executive who assumed his current role in 2009 following the retirement of Jonathan Knowles, stated that RNAi Therapeutics was a ‘bit like science fiction right now’, but that within 2-5 years Roche should make progress in that direction. Then in September, a tight-lipped Roche informed development partner Tekmira that it won’t meet its earlier guidance of filing for an LNP-enabled RNAi Therapeutics IND before the end of the year.

Of course, 2-5 years in today’s pharma world, a world challenged by patent expirations, poor pipeline productivity, ailing healthcare systems, and an ultra-conservative FDA, equates to ‘not relevant to our bottom line’ and are considered an investment with expected negative returns. Roche in particular has been hit hard recently by setbacks in their late-stage pipeline, as well as several blows to their all-important Avastin franchise which now makes the Genentech acquisition look a bit pricey. This is in stark contrast to what appeared to be the healthiest pipeline in the industry in 2007 when it took a license to Alnylam’s RNAi Therapeutics IP and when it acquired RNAi delivery company Mirus Bio in 2008.

So as Roche struggles to meet earnings expectations for the coming quarters, it is maybe not that surprising that as it cuts costs where it can, its in-house ‘siRNA’ research in Kulmbach, Germany, and Madison, Wisconsin, have to go as part of the large-scale re-structuring of the Company announced today.

I have today returned from the RNAiAsia meeting in Singapore, and it was during this trip that I have been particularly struck by just how conservative Big Pharma has become again when it comes to new therapeutic modalities. Only 3 years ago Big Pharma seemed committed not to repeat its mistake of not having participated early on in the development of recombinant proteins and monoclonal antibodies and then pay a hefty premium for acquiring biologics companies later on in the game, yet today the same companies don’t even want to give the impression that they want to lead in the unchartered waters of RNAi Therapeutics. Potential and promise are just that, and it seems like that there is no way around the conclusion that proof-of-concept has to be provided by the smaller pure-play companies before Big Pharma (re-)commits in a big way.

In addition, despite some attempts to improve Big Pharma’s capacity to innovate by setting up pseudo-independent ‘Centers of Excellence’, Big Pharma seems to be fundamentally organizationally challenged in maturing cutting-edge technologies like RNAi Therapeutics as a result of inflexible bureaucracies and insufficient/inefficient communication between the relevant groups within sprawling organizations.

I do not want to deny that some of Roche’s RNAi expectations were probably disappointed, and not all of it is Roche's fault. I wonder how mature Roche considered dynamic polyconjugate delivery to be when it purchased Mirus for $125M, or what exactly it got from Alnylam in return for over $300M in 2007. Not to say that these were outrageously overvalued deals if put in the proper context, but Roche management, watching their peers pull back from RNAi Therapeutics, must feel a bit exposed now.

The full impact of Roche’s own pull-back from internal RNAi research on its RNAi Therapeutics partners Alnylam and Tekmira remains to be seen. After having spent north of $500M on RNAi Therapeutics, it is hard for me to imagine that Roche will write this investment off just like that.

It is possible that Tekmira and Alnylam get a shot at Roche’s RNAi assets, including the one candidate that seems pretty close to the clinic (Tekmira reported Roche revenues in the latest quarter of $0.7M, mainly for the development of this candidate). With Severin Schwan, Roche's CEO, stating that Roche may ‘spin off’ or ‘find a partner’ for its RNAi assets, one may even speculate as to whether Roche has plans to float its RNAi Therapeutics division on the stock exchange. These are strange times in RNAi Therapeutics and the pharmaceutical industry and stranger things have happened.

21 comments:

Anonymous said...

Dirk

It does remind one of the monoclonal antibody hype then death for 10 years before it rose again.

But for some time now I have believed the R&D at big pharma is awful and they are going to cut that to the bone and rely on outside inventors. The CSOs at all the big drug companies are in the cross hairs as the promises they made have yet to pan out.

Might be a good time to go to the device makers and leav tghe RNAi space to consolidate. ALNY is toast unless they can acquire TKM or other assets.

Anonymous said...

Dirk--How was RNAi Asia? Are *you* still convinced RNAi therapeuitcs are inevitable? I am amazed that 90% of the commentary I've read on the Roche decision makes the assumption that if Roche is doing what it's doing, it means there's NO future for RNAi therapeutics per Roche, and they should know. Sometimes they use the Novartis decision in conjunction with Roche in an attempt to make the "RNAi is dead" assertion stronger. Comments?

Anonymous said...

Over the last several years, we have witnessed the continued deterioration in Big Pharma (US and Europs) financial performance and a deterioration in future growth prospects. We all know the drivers, so I won't detail them.

In response, these same companies have implemented a number of strategies to address these including, but not limited to:
- In house, cost reduction and productivity improvement initiatives (e.g. layoffs, etc.)
- Outsourced R&D and contract manufacturing
- M&A
- Reduced R&D investment in early-stage drug development, with focus on advancing later-stage drugs
- etc.

All of these strategies, in part, focus on improving short-term performance at the expense (in some cases) of long-term sustained profitablity.

At first blush, this kind of strategy appears appealing in the short-term, however, even in the short-term there are real risks to this strategy. For example, one Big Pharma strategy is to allow biotech to bear the financial risk of developing a drug to, say, Phase 3... at which point the Big Pharma steps-in, aquires rights to the drug and/or purchases the biotech company at a very high-valuation (assuming a slam-dunk FDA approval) and sure enough, the final trail shows unnacceptable safety risks, less than required efficacy, or the cost just doesn't justify the benefits. Either way, the FDA denies the approval. The Big Pharma is left holding the bag, and because they haven't invested in a deep pipeline (nor have they developed the in-house expertise, they are in even worse shape now that they have spent all this money, and the investment is a TOTAL write-off (they don't even have the accumulated expertise)... this positive-feedback cycle continues, until they are forced to cut invesment and costs again to satisfy the short-term focus of the market.

Ya so what. We already know all this?

My point is as follows... perhaps there are countries (China) out there that take a longer-view of investment opportunities, and have buckets of cash to spend (recall they are worried about inflation)...? Perhaps, China steps in recognizing the long-term potential of RNAi, and makes a major investment in RNAi leading biotech companies? We have seen this before, as China now dominates entire global industries... why should pharma be imune?

Just a thought...

Anonymous said...

Hi Dirk,

The following questions are off-topic, but interesting nonetheless. In reference to Alnylam's latest job posting, are you at all surprised by their decision to develop siRNA directed towards CNS target(s)? In light of the recent Novartis decision and job cuts, what do you make of this news? Any ideas as to which targets they may pursue? I was under the impression that the delivery problem takes most non-liver targets off the table.

Great blog!

Anonymous said...

I guess the reason Alnylam now focusing the CNS target is Alnylam receives money from CHDI, which is HTT disease focusing company/organization

Anonymous said...

Dirk,
thanks for the report.
A simple question,
with all these evidence and Nobel Prize, Why the big pharma is still waiting ?

Dirk Haussecker said...

All great comments and the comment about China catching up and overtaking the conventional pharmaceutical nations is not far-fetched at all. It is pretty obvious that countries like China do not struggle with the same healthcare issues as the Western World, and in sharp contrast to the US and Europe, RNAi Therapeutics is rapidly expanding there. Biomics, Sirnaomics (I consider this a largely Chinese company), and others…watch out. I agree that there is a very real chance that the balance of power also in RNAi Therapeutics will shift.

Continued consolidation in RNAi Therapeutic is to be expected. I have been impressed by the caliber of scientists that were attracted to RNAi in the early years, and I believe scientific talent is key to all of this. Recent events in RNAi Therapeutics support the notion that top management in Big Pharma is often too removed from the science that they can make the right technology decisions. Lack of scientific insights leads to lack of conviction. Again, herd instinct explains a lot. A company like Alnylam has to be very clever now how aggressively it invests. The trick is to provide serious proof-of-concept and get a few more drug candidates into the clinic while scooping up some assets like the Roche leftovers on the cheap.

Anonymous said...

One would think that recent decisions from Novartis and Roche could act as a catalyst to force existing RNAi companies to merge.

Perhaps a deal would something like this. Tekmira and Alnylam merge (all stock deal). Subsequently, based on the combined value of the new entity, they issue a secondary offering and raise an addition $200 to $300 million providing a fully funded cash runway out to F2017 and beyond.

Dirk Haussecker said...

I’m very convinced that RNAi Therapeutics will become a therapeutic reality, and with that I do not mean sometimes in 15-20 years. It would be nice e.g. for ALN-RSV01 to repeat in phase IIb what it has apparently achieved in the first phase II studies in lung transplant patients. This could be a 2-year approval opportunity. ALN-VSP02 now at 1.5mg/kg, and starting to expect efficacy, maybe even some tumor regression as a single agent. After RNAiAsia, I am also more and more excited about PLK1 as a cancer target and look forward to results by Tekmira in their phase I study for TKM-PLK1. Ebola stockpiling might also not be too far away (5 year-ish), and who knows how Quark’s ‘stuff’ works out in the clinic or Silence’s Atu027. Then TTR and PCS…some of these will make it.

Roche….it’s sad, but maybe their timelines for a $500M investment are somewhat different from my own which considers current development as part of building a very broad class of new drugs. And then of course all the cost-cutting pressure.

The Alnylam CNS job posting…I agree with the other guest comment that this probably has a lot to do with the Huntington’s program that recently got significant funding from CHDI.

Dirk Haussecker said...

I also like the idea of an all-stock Alnylam-Tekmira merger, not so sure though about raising capital on the stock market now. An acquisition of Tekmira by Alnylam with cash is off-the-table now for sure. Lots of synergies and a very nice pipeline for Alnylam to sport: RSV, VSP02, TTR1, PLK-1, then soon EBOLA, PCS...What are they waiting for?

Anonymous said...

Dirk

I examined a report from MS regarding the drug expirations over the next 3 years in the US and Europe. FOr instance, PFE loses Lipitor next year.How do you make up for a $14 Billion hit?

The Roche decision in my opinion is not so much about the RNAi science but the constant need for these big drug companies to add revenue..today! When PFE bought Wyeth that took a player out of the RNAi space and consolidated those activities at PFE. I imagine these things will continue. However, do you see bigger cuts in the in-house R&D budgets at all big pharma companies and increased outside funding?

For a while, RNAi will be a science that will be treading water. It is too inportant. That said, all RNAi efforts should be aimed at the easy targets like cancer and Ebola type infections that kill. The cholesterol space is a waste of time, an Merck recent success could be a harbinger of thngs to come.

voice of reason said...

Roche and the rest of big pharma were intoxicated by the idea of repeat doses using SIRNA and the fit with the old business model of treat don't cure , trouble is SIRNA is a fundamentally flawed approach which will never work save for a couple of applications. shRNA always works and has no real delivery issues, trouble is it effects a cure , no repeat business and at the end of the day these companies want profits first , cures last. Patients however want cures and at the end of the day pay for everything anyway , over time reality and common sense will prevail , but not until big Pharma feels enough pain to start thinking outside of the box. Roche blowing 400m on SIRNA is part of that painful learning process , as part of their review I suspect shRNA will be funded through external JVs.

Anonymous said...

Troublesome news from roche. However I leave it to experts the science is not flawed and it's a matter of when and not if the therapy will be a reality

Alny can save the day with good data

Sam

Anonymous said...

Dirk,

I agree with your comments and the original poster.

The Roche news, combined with other recent events (e.g. Novartis decision) may end up being the catalyst that brings Alnylam-Tekmira together - and now that Tekmira is fully compliant with US account and reporting standards as part of their recent NASDAQ listing - a merger could be executed very quickly and with little cost.

I also agree, that if this senario were to unfold, the most likely vehicle would be an all-stock merger.

Anonymous said...

I fear that Roche's abrupt exit from RNAi is a red flag for the near-term future of RNAi therapeutics and liposomal delivery in particular. They had signed up with Tekmira for at least 2 drug candidates and had an active collaboration with Alnylam on another target. If LNP-based delivery is making such great strides as Alnylam and Tekmira claim, why did Roche unceremoniously end their RNAi efforts? Why not simply scale them back? Roche's license from Alnylam included indications in metabolic disease and the liver - the sweet spot for LNP delivery. Did Roche see something in the lab that they didn't like? Until we get some solid, positive clinical data on LNP drug candidates, questions like that will dog the field.

Anonymous said...

Why do we think an ALNY-TKM merger makes sense for ALNY? By now it's clear that ALNY's main concern is getting clinical validation for any of it's current pipeline drugs -- not building its pipeline. Bringing TKM's pipeline into the fold both increases ALNY's risk exposure and cash burn rate. In addition, I'd argue that the merger actually doesn't create many revenue synergies that don't already exist (ALNY currently has access to LNP technology through a deal with TKM).

Anonymous said...

Cant agree more "voice of reason". A cure for the big pharma is definitely not what is on their agenda. HIV Hep C and B etc have revenue streams of billions of dollars each year, and thats year after year. Find a cure and your market has disappeared. Governments, people with the disease are more likely to benefit from RNAi, and where possible investment may eventually arise.

Dirk Haussecker said...

I disagree that the Roche decision necessarily is a reflection of their view on LNP-enabled siRNA delivery. LNP for Roche has been largely an external activity for which they did not really need in-house RNAi Rx capabilities. And I have yet to see confirmation that Roche is giving up on RNAi Rx altogether. They may believe that at this stage, RNAi Rx are more efficiently developed in pure-play companies like Tekmira, in which case their decision could even be interpreted as an endorsement of LNP/Tekmira. We'll have to wait how Roche will divest of their in-house RNAi Rx assets.

Anonymous said...

"They may believe that at this stage, RNAi Rx are more efficiently developed in pure-play companies like Tekmira, in which case their decision could even be interpreted as an endorsement of LNP/Tekmira. We'll have to wait how Roche will divest of their in-house RNAi Rx assets."

So is the Tekmira-Roche deal done?

Anonymous said...

Could Roche pulling out of RNAi be an underhanded takeover by Chemistry-driven people (and Antisense) as opposed to Biology-driven drug discovery (RNAi)?

Morten Lindow said...

Dirk,

What do you think the ramifications of the dip for RNAi Therapeutics has on the single stranded RNAseH based antisense approaches?

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