Sunday, January 12, 2014

Alnylam Acquires Merck’s RNAi Assets and Gets a $700M Investment from Genzyme

I have expected RNAi Therapeutics business development activities this January, but I have to admit that when these deals are actually announced it gives me an adrenaline rush each time.  For $175M plus some milestones and royalties, it was announced a few hours ago that Alnylam will acquire the RNAi assets from Merck.  Merck had just undergone a corporate re-organization that I had speculated could spell the end of Merck’s RNAi Therapeutics platform development efforts, especially since protein guy Roger Perlmutter replaced RNAi supporter Peter Kim as Merck’s head of R&D (Merck’s RNA(i) Therapeutics Unit on the Chopping Block).  That's how it sometimes works, no complex science, just tastes and egos.

In addition to cultural issues, the transaction also solves the problems that the bean counters in Big Pharma face when justifying investments in emerging technologies.  How e.g. do you take into account that much of the value of a platform technology could be outside of your core areas of therapeutic interest?  Who e.g. would have predicted that TTR amyloidosis and HBV would materialize as the two commercially most attractive near-term opportunities when Merck acquired Sirna Therapeutics in 2006?  As an added sweetener for the bean counters, the write-off will allow Merck to exceed financial guidance in one of the coming quarters.

The $175M price tag has two important implications.  Firstly, for a biotech company the size of Alnylam, putting that much into the acquisition of largely IP is a vote of high confidence in RNAi Therapeutics.  This is in sharp contrast to the days when Alnylam made deals with Roche and Takeda and must have felt as if they made out like bandits by selling IP of uncertain value given the questions around Alnylam’s access to delivery at the time.

Secondly, the $175M indicates that there was competitive bidding going on for the assets, most likely by other Big Pharma companies.  In fact, I had suggested to some of the other RNAi companies to take a look at the assets in the hope of another Roche-Arrowhead-like 'steal of the century'.  The fact that Alnylam won out is likely explained by Merck being the best strategic fit for Alnylam whereas other Big Pharmas may be better off in getting unfettered access to RNAi Therapeutics via the likes of Tekmira and Arrowhead Research as Merck's RNAi assets, by largely copying the efforts of others, always seemed to overlap with others (except for modification chemistry) 

So what will the $175M get Alnylam?  The most valuable aspect to Alnylam should be Merck’s development efforts in polyconjugate technology where Merck has been copying Arrowhead’s efforts.  Thus, instead of spending something like $1B, likely the current acquisition value of Arrowhead Research, it was able to get access to a similar technology for much less.  Although Merck also pursued liposomal delivery, since Alnylam already has access to Tekmira’s technology, the add-on value of Merck’s liposomes to Alnylam is more limited.  Finally in terms of technology, Merck has conducted a deep screening of nucleic acid modifications which can now be incorporated into Alnylam’s RNAi trigger discovery and conjugate development efforts.

Another important aspect to Alnylam will be safe-guarding the value of the Tuschl II IP.  Merck got uncontested access, including sublicensing rights, as part of a legal settlement between the two companies in 2011.  Tuschl II is still an important asset to Alnylam and in a worst-case scenario, Merck’s disposition of their RNAi assets would have meant giving away access to Tuschl II to various competitors.

Genzyme Buys into RNAi Therapeutics Big Time

The Merck technology acquisition will be funded by the $700M investment of Genzyme into new Alnylam stock at a 25% premium to current trading (~12% of the company) plus additional associated biotech goodies to come (correction: only $25M of Merck's $175M was in cash, $150M in shares).

I know that I am starting to come across like a know-it-all, but this transaction did not come all that surprising to me, too.  Importantly, 3-4 years ago Alnylam started to lease out significant lab space to Genzyme in Cambridge, Mass.  This seemed odd to me since Alnylam was not in the business of dressing up its financials by moonlighting as a landlord.  Surely, something more strategic was going on here. 

When a little more than a year ago, Genzyme took the Asian rights to ALN-TTR02, it seemed a bit of a downer.  In retrospect, however, it is apparent that Genzyme took that license as a starter before more validation of the technology in the form of phase II results with ALN-TTR02 and phase I results with ALN-TTRsc would trigger a more expansive deal like the one today.  Specifically, today's deal gives Genzyme Sanofi-Aventis limited commercialization rights to at least 3 additional Alnylam drug candidates in the orphan drug space.

And finally, attention Big Pharma bean counters, a lesson of that transaction is that all you need to do to financially justify investments in RNAi Therapeutics is to create a line item called ‘orphan drugs’ and account for RNAi Therapeutics under that label. 

Welcome to a new pharmaceutical world.


tufulipo said...

Congratulations Dirk. You've been spot-on in the anticipation of this... can we call it a paradigm shift?

BTW, I can never prove I'm not a robot. I can't read those crooked letters for shit.

Anonymous said...

Well done Dirk. You've been calm, collected and reasoned the whole way on picking this.

Enjoy the ride ahead on RNAi, you deserve it.

Well done to JM too. He stood firmly and was outspoken for ALNY, and RNAi, when Big Pharma CEO's turned their unwashed backs on RNAi for reasons that never result in greatness or advancement of human-kind.

Saving the best for last, well done tufulipo on cracking the crooked letter code.

Anonymous said...

What does this mean for Benitec?
A ALNY buyout for stock at $150m most likely.
Reminds me of the Cisco days.

Anonymous said...

Benitec is due to present at a Biotech Showcase on Friday according to a press release of theirs.
Strange they are not at the J.P. Morgan conference and find it necessary to ride their coat tails by holding a separate conference to sell their wares in the same city at the same time.
If some kind of cross licensing deal is done then Dirk, you will have to eat some humble pie.
Doubly strange is the time they are presenting is the same time as Regulus give or take thirty minutes.
I wonder if they are in the same room.

Anonymous said...

is this seriously a comment? the biotech showcase has been a paralell conference to JPM for the last 6 years - there are many, many crossover attendees between the two. i suggest that the last poster educate themselves a bit.

Anonymous said...

Regulus developing a one shot cure for HCV according to the JPM presentation.
Is Benitec RGLS with a mask on?

Anonymous said...

Differences on Benitec strategy aside, thanks for the great blog Dirk and the opportunity to all its insight. If Benitec prove you wrong I will afford to buy you a good bottle of Aussie red for your efforts on the blog.

Anonymous said...

Twelve months on, MRK go and put $100m in to Moderna for rights and equity.

mRNA clearly the new greenfields of RNAi.

Meanwhile, the short interest in RGLS has increased 25%.

Where is PFE in this space? Any opinion Dirk?

Perhaps the increase in short interest is the PFE fingerprint.

By Dirk Haussecker. All rights reserved.

Disclaimer: This blog is not intended for distribution to or use by any person or entity who is a citizen or resident of, or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject the author or any of his collaborators and contributors to any registration or licensing requirement within such jurisdiction. This blog expresses only my opinions, they may be flawed and are for entertainment purposes only. Opinions expressed are a direct result of information which may or may not be accurate, and I do not assume any responsibility for material errors or to provide updates should circumstances change. Opinions expressed in this blog may have been disseminated before to others. This blog should not be taken as investment, legal or tax advice. The investments referred to herein may not be suitable for you. Investments particularly in the field of RNAi Therapeutics and biotechnology carry a high risk of total loss. You, the reader must make your own investment decisions in consultation with your professional advisors in light of your specific circumstances. I reserve the right to buy, sell, or short any security including those that may or may not be discussed on my blog.