Sunday, September 23, 2012

Syngenta Acquires RNAi Speciality Co. Devgen: Is RNAi History Repeating Itself?

An important factor ailing the pharmaceutical industry is that the managements of large companies are not equipped to independently evaluate the merits of innovative technology platforms.  Too far removed from the lowly laboring scientist, laser-focused on meeting next quarter’s numbers and increasingly with non-science backgrounds, this frequently leads to odd deal dynamics driven by herd behavior.  Needless to say, while the technologies may be deserving, much money is wasted not only by overpaying, but also by putting it to work in the wrong places setting the stage for investor backlash and lawsuits.   

We have seen this herd behavior in RNAi Therapeutics in 2006-8 culminating in Merck's $1.1B acqusition of Sirna Therapeutics and Roche's $300M+ non-exclusive platform license from Alnylam.  We now know that these companies grossly overpaid for the RNAi trigger IP and that they would soon panic realizing that they had not paid enough attention to RNAi delivery.

Those vested in the agricultural applications of RNAi gene silencing must similarly be feeling like in the land of milk and honey these days.  In fact, Alnylam’s reputation as a company that aggressively enforces what it believes (?) to be its intellectual property in RNAi triggers, has earned it a juicy $30M upfront from Big Ag Monsanto less than a month ago.  This came after a similar-sized deal for plant RNAi in May involving crop protection juggernaut Syngenta (the marriage of the plant businesses of Zeneca and Novartis) and Belgian plant RNAi specialty company deVGen.  What I did not understand about the Alnylam deal is why Monsanto would let its collaboration with Devgen expire in 2011 and instead decide to go for RNAi trigger IP.  Is Monsanto repeating here Big Pharma’s mistake of undervaluing enablement?

This week’s announcement that Syngenta in fact is now fully buying deVGen, of course, provides a good explanation for the Monsanto-Alnylam deal: Syngenta made deVGen an offer it could not refuse (over half a billion US dollars, representing a 68% premium over its market cap) and Monsanto was left scrambling for alternatives and found in Alnylam a very willing provider of IP ammunition in the fight for dominance in RNAi-based pest control. If history is any guide, one or both companies will likely regret their decision due to lack of enablement and lawsuits will fly in 3-5 years. 

Note: although deVGen is also engaged in seed business, especially rice, it's annual $50M revenue run-rate from this part of the business would unlikely warrant the $500M+ price tag

RNAi Therapeutics Poised for another Round of Deal Making

Although the clinical dataflow in RNAi Therapeutics has significantly improved the valuations of a number of RNAi Therapeutics companies and has also generated renewed interest in the technology among the wider pharmaceutical industry down to the VCs, we are still waiting for this important validating deal where a large pharmaceutical company will pony up a sizeable upfront (>$30M) in an RNAi Therapeutics deal.  My expectation is that such an event would spawn a number of further financially meaningful deals.  Being an eternal RNAi Therapeutics optimist, I hope that this time will be slightly different in that Big Pharma will have learned its lessons and technical enablement will feature prominently in this new round of deal making.

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By Dirk Haussecker. All rights reserved.

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