Since the beginnings of the RNAi Therapeutics industry, it
has been a mantra that platform/enabling technology licenses are the business
development way to go. Indeed, broad and financially attractive platform
deals by Alnylam and Sirna Therapeutics supported that notion.
The time has come, however, for companies focused on
developing RNAi enabling technologies to carefully reconsider their business development
strategies. The biggest warning sign is
that despite of the clear technological value of delivery, in my mind there has
not been a financially attractive transaction in this area for over 4 years now
despite the intense and also public focus on this bottleneck.
On the other hand, unlike you have carried a halo since
birth similar to Regulus and Moderna Therapeutics, it is product-specific deals
and attractive capital raisings based on interest in certain product candidates
(e.g. TTR amyloidosis) that gives you the most attractive cost of capital right
now. Also witness the ~1 billion dollar
market capitalizations of RNA Therapeutics companies Prosensa and Sarepta
Therapeutics where single ultra-orphan product candidates have captured the
imaginations of investors willing to pay up for a slice of the dream. Contrast this to anemic $100M and less market
capitalizations of companies with much stronger technology engines such as
Arrowhead Research and Tekmira.
Misled by Big Pharma
I have intensely followed the Tekmira story and how they
invested in developing SNALP and their derivatives for not just knockdown in
the liver, but cancer, respiratory disease and beyond. The apparent motivation has been that Big
Pharma companies are interested in respiratory disease and especially oncology,
so work on something this constituency, once believed to be the only source of capital, wants.
But is it really the right strategy to invest in something where you may get 50-60% knockdowns rather than genetically much safer 80% knockdowns and more in other tissues, all in the hope of maybe fetching low double-digit upfronts in the end?
Wouldn’t be the capital better invested exploiting what you already have and drive forward specific
development candidates for a few million dollars and which the public markets
may value in the hundreds of million dollars in the not-so-distant future?
Arrowhead e.g. recently decided to double its share count to raise $30-40M when it probably easily could have sold its then preclinical HepB program for that amount (see also blog entry yesterday on HepB area getting hot). It would have gotten even less for monetizing its DPC delivery technology. the key element in the HepB program. In the end, also as a shareholder, I agree that a 50% dilution, but retaining full control of this product was the far more attractive option.
My advice to these companies: don’t build your future on the notion that
Big Pharma makes rational decisions. Big
Pharma would rather pay $100M for a bundle of RNAi trigger and delivery (=product candidate) with some type of early clinical knockdown result than
$5M each to essentially get the same thing. And in
the end, you have to realize that not many companies in Big Pharma land, maybe
Merck, Novartis, Takeda, GSK and AstraZeneca, would consider a platform-type
RNAi Therapeutics deal these days in the first place.
So why try to please a handful of Big Pharma players which have proven
to be penny wise but pound foolish when it comes to RNAi Therapeutics?
In the end, I am still hopeful that the RNAissance will lead
to large technology transactions and acquisitions. I do
not believe, however, that most of the companies developing
enabling RNAi technologies will benefit from such deals. Instead, you are most likely better off focussing your
attention and capital where it can create the most promising and differentiated
product candidates.
The times have changed.
If Big Pharma wants a piece of RNAi Therapeutics, they have to pay up to
compete with the public markets.
8 comments:
Dirk,
Clearly there has been developments in delivery technologies. $tkmr enjoyed the position of being the 'gold standard.'
As an investor in $tkmr, I am questioning if their competitive advantage is now seriously at risk.
Your thoughts?
In terms of liver gene knockdown potency, Tekmira's SNALP still has to be considered leading. There are some limitations of the current technology for certain indications, but Tekmira still should have a range of attractive choices. The next target will be crucial. Please no alcohol dependence drug though! Our society cares little about what happens to those that have an alcohol problem. Orphan pediatric diseases are the way to go.
From reading your past posts, it seems like you know much about the RNAi technology, but very little about business development strategies. I'm sure you knew about SPRT, ISIS, and ALNY before anyone, but did not invest and watched their market caps increase exponentially. The companies that you were high on: ARWR, TKMR, and RXII have floundered. It leads me to believe that you are a contrarian indicator in this space. No way do I think ARWR sees $30 in 2 years, or even $6 for that matter (unless reverse split). You have no idea if ARC-520 is safe in humans, and trials will take more than 2 years to play out. There isn't even talk of IND filing with the US FDA in the 2 year plan, and that is where the money is.
To the poster above, the market is irrational, you can't put emphasis on where stocks trade now. For instance Alny is up on hype of its 5x 15 program, but we have to wait to see if it materializes. INFI ran up to $50 per share and quickly tanked down to $15 per share.
ARWR, TKMR, RXII all my trade low now but a few years from now their technology could be better off than Alnylam. Remember past performance = is not indicative of future results.
By the way despite RXII trading so low the self delivery technology is a breakthrough for RNAi. Dr. Frost sees it as he has invested millions of dollars. Also Bevasirinib which failed phase 3 back in 2007, can now be used again with RXII self delivery to increase efficacy.
ALNY hasn't moved up on the hype of 5x15. It has moved up on solid early human clinical data. 5x15 program has been around for couple of years but stock didn't do anything until solid human clinical data in TTR convinced the investors that it is for real.
>>There isn't even talk of IND filing with the US FDA in the 2 year plan, and that is where the money is.>> Totally uninformed opinion. The population in Asia is huge, including those with money for treatment. And what we're looking at here is fastest demonstration of efficacy within our cash runway. After that US market will take care of itself, as suitors queue up.
Tacere are due to commence their HCV product candidate's RNAi gene therapy clinical trial in September.
http://clinicaltrials.gov/ct2/show/NCT01899092?term=tacere&rank=1
Success here will clear pathway for their HBV product candidate which uses same viral vector, and would be a direct competitor to Arrowhead's.
Pure delivery still has a decent chance of out performing product companies. Do the math for ARWR $40M for a phase one add in the phase 2. what will be the major factor is what is the mkt like for the sector when they need to go back for money. Sectors and the general market are not hot forever. Also re TKMR the ALNY settlement is 9 mos old, partnering deals typically take 12 - 24 mos , fortuantely TKMR was a proven entity before the settlement.
TKMR bigger problem is their lead program is early, data is not obvious, nor is the end point = confusion. and the largest problem is market cap liquidty.
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