BioMarin $700M Acquistion of Prosensa Comes Down to Attraction of RNA Therapeutics

Earlier this week, the scientist in me was shocked by the ~$700M acquisition of Prosensa by orphan disease company BioMarin for its Duchenne Muscular Dystrophy splice modulation candidate drisapersen.  My initial surprise was due to drisapersen being a drug that had not long ago gloriously failed a pivotal phase III trial, not least due to a questionable therapeutic index.  All this is not very surprising since drisapersen is based on antiquated oligonucleotide chemistry (2’-O-methyl phosphorothioate).

After a moment of reflection though, I have come to take a more positive view of the deal as it is actually a very bullish sign of the interest by the wider pharmaceutical industry in RNA Therapeutics.   This is because BioMarin is taking the gamble here that it will be able to argue its way to approval by pointing towards drisapersen having shown evidence that it can positively influence the splicing of the disease-causing gene, dystrophin.  So even if your clinical evidence of efficacy is anecdotal at best, it is difficult to argue with the notion that such evidence in combination with being able to positively impact the root cause of a disease is not an important step in treating an orphan disease of very high unmet medical need.

It should be clear to everybody that if drisapersen can get marketing approval, other exon 51 splice skippers with superior chemistries (many of which are pushing forward in development) will eventually replace it as best-in-class.  I would be surprised if BioMarin did not see it the same way, but similar to Roche acquiring Intermune for $8.3B for its IPF drug which had marginal efficacy in a severe disease of high unmet need, the rationale seems to be that being first-to-market in such pioneer indications will allow you to build a strong franchises in those areas.

It will be interesting to see whether this strategy pans out and BioMarin can get accelerated approval in 2015-6 based on some seemingly positive phase IIresults in combination with the dystrophin biomarker evidence.

Regardless, the $700M valuation and ~60% premium of the offer to its stock price is a powerful reminder that part of the reason what makes RNA Therapeutics so compelling is that it often allows you to drill down to the root cause of a disease.  From a commercial perspective this is particularly valuable in an environment favoring drugs for severe orphan diseases.

ProQR Therapeutics- an RNA Therapeutics IPO to Be Enjoyed Responsibly

This week, a new RNA Therapeutics company went public: mRNA repair company ProQR Therapeutics.  This Dutch company from genetics hotbed Leiden sets out to cure severe diseases that are caused by small mutations by repairing the mutations at the messenger RNA level.  First on the list is a treatment for Cystic Fibrosis caused by the 508 deletion.

If Only Science Were Always That Way

The repair is thought to be mediated by the provision of at least two synthetic RNA oligonucleotides (CF4 and CF6 in the image above), a long, modified one (~30nt) with complementarity to the area around the mutation, and a shorter (~10nt), 5’ and 3’-phosphorylated, but otherwise unmodified one of the desired sequence.  Add this to living cells, and hocus-pocus, mutant mRNA is converted into good mRNA.

What makes the publication by Zamecnik et al. from 2004 on which PRO-010 for Cystic Fibrosis is based so amazing, is that by just wishing to repair an RNA and without knowledge of an mRNA repair pathway (note: I’ve considered myself an RNA molecular biologist for close to 10 years, but never came across even the notion of such a mechanism), they obtained the desired results wanted.  Unfortunately, this is not how science works—never. 

In fact, even they considered themselves somewhat lucky, as they had initially thought that the repair first required a third oligonucleotide which by acting via RNaseH mechanism would cleave the target mRNA so that it becomes more amenable to repair ligation reactions.  But when they tried it, it did not make a difference (I would have expected a knockdown), so they stuck with the 2 oligo approach.  Equally amusing was the fact that the phosphorylations were just added for good luck, without any investigation on whether they were useful or necessary.  But as they say, never change a winning team.

Molecular Mechanism Supported Only by Tricky PCR

Most bothersome to me was the fact that the claimed mRNA repair could only be supported after trying out a bunch of PCR amplification reactions, with some reactions suggesting that something might have occurred to the target mRNA. 

As anybody who’s ever work with PCR knows, a lot of strange products are generated during most PCR reactions, either in tiny amounts or less tiny amounts (the infamous PCR artefacts that make lab meetings a fun event).  A related problem is that no conclusions can be drawn from end-point PCRs as used in that seminal paper regarding the amount of these products.  This would have answered the question of whether the phenotypic changes that were reported could be explained by the x % of wild-type CFTR mRNA being generated.

At the minimum, the generation of wildtype CFTR mRNA should have been shown through a hybridization method, not PCR.

Biology’s Best-Kept Secret

As you might imagine, the ability to repair mRNAs with simple oligonucleotides would generate a lot of interest, the type of interest for example that the discovery of RNAi received.   In the case of RNAi, the seminal findings by Tuschl and colleagues that RNAi gene silencing worked in mammalian cells were instantly followed by an explosion of publications harnessing this technology.  Strangely, however, according to GoogleScholar, only 9 papers have cited the mRNA repair publication by Zamecnik et al.  This is explained by most scientists just shaking their heads on reading the publication and then move on, with the more gullible ones failing to reproduce the results.

Laughing All the Way to the Bank

I know that as a scientist I have to be open-minded, but as described above my BS-recognition system, is lighting up bright red.  I  am therefore upset that such science was able to raise $90M in the IPO, valuing ProQR Therapeutics at 300 million dollar- US, not Zimbabwean ones!  On the one hand, I should be glad that financial interest in orphan diseases and RNA Therapeutics is so big right now that this was even possible.  And if you invest according to relative valuations, you will probably do quite well in RNA Therapeutics (Regulus e.g. is worth around the same $300M).  On the other hand, I am always afraid about backlashes from the failures of such companies.  It is therefore important to remember that the qualities of RNA technologies differ vastly in quality from company to company.

Merck’s RNA(i) Therapeutics Unit on the Chopping Block

After more than 6 years of playing it safe and producing nothing tangible in terms of clinical development candidates, I fully expect that the time has come for Merck’s RNA(i) Therapeutics unit to be slashed.  This morning, Merck announced a company-wide cost-cutting re-org, as part of which it aims ‘to reduce its focus on platform technologies’.  Remember Roche 3 years ago? 

Similar to Roche, the immediate financial benefits of scrapping the unit not only come in the form of savings in R&D expenses, but also likely tax write-offs due to for example the $1.1B purchase of Sirna Therapeutics in 2006.  Expect the company to exceed analysts’ expectations for coming financial results.

However, the most important factor why I believe the unit's fate had been sealed was the departure of Peter Kim as the Head of Merck Research Laboratories.  It has been said that he had been a key backer of the unit, and with the biologics guy from Amgen, Roger Perlmutter, probably intent to erase Dr. Kim’s legacy…

It is hard for me to feel sorry about such an event.  Their RNAi science was probably the best among the Big Pharmas, but hiding behind the VIOXX experience forever while taking home monthly salaries was asking for trouble.  Meanwhile, the likelihood that Merck will partner with the real innovators in the space on specific product candidates has increased today. 

RNA Therapeutics Has Gone Mainstream

When Mad Money host Jim Cramer on CNBC singles out RNATherapeutics as a sector to invest in and notable Big Pharma RNA Therapeutics deals materialize on a regular basis, you know that the industry has become accepted as mainstream.  This acceptance and confidence are critical for the financial viability of the industry and shareholder profitability, as it determines the terms at which the cash-burning companies can raise capital to mature and launch their first drugs.  Alnylam’s recent fund raising is the best example of that, and while almost all of the investor attention has been on bellwether companies and cult stocks such as Alnylam, ISIS Pharmaceuticals, Sarepta, and Regulus, the increased scrutiny should also benefit some of the smaller technology leaders such as (my own holdings in the space) Tekmira and Arrowhead Research.

Market Doing Homework

Drug development is attractive to me also from an investment point of view because it is one of the few opportunities where scientific insights should provide you with an investment edge.  Financial market gurus such as Jim Cramer feel quite comfortable talking about automobiles, electronics, restaurant chains and most other sectors of the economy, but you can sense that they are more uncomfortable when it comes to explaining why a certain biotechnology is worth investing in.  The fact that Jim Cramer had done some homework for the show and did his best to explain the basic promise of RNA Therapeutics is not only laudable, it speaks to the fact that mainstream market participants can ill afford to ignore this geeky sector any more, especially if your performance is measured in terms of peer performance.  This is because RNA Therapeutics hit the sweet spot of drug development today, which is personalized medicine and orphan diseases.  There are very few sectors like it where a number of companies can be expected to experience rapid growth almost regardless of what the wider economy does (well, at least until the next big correction/disruption).   

Big is Beautiful

A downside of it being a technologically driven sector dealing with complex biology and where strong recurrent revenues in the form of drug sales are lacking, is that most market participants prefer to invest with companies having the largest market caps.  This, of course, is based on the wisdom that since I do not even pretend to understand the gory details of the technology, the fact that companies have leading market caps must mean that I am probably investing along with more expert and diligent investors.  Moreover, the vast majority of investors looking for potential opportunities in RNAi Therapeutics or RNaseH antisense e.g. will come across Alnylam and ISIS Pharmaceuticals first and essentially stop there.  In Germany, you would refer to such behavior as the devil always shi**ing on the biggest pile.

Another problem for the smaller companies in the sector is that even $0.5-1.8 billion market caps are still small for the larger funds.  The technologically potentially more interesting ‘second-tier’ RNAi Therapeutics companies with 20-40 times smaller market caps are usually not an option.  Working on increasing awareness with the next larger investor group is therefore an important market-facing activity for these companies ahead of potential scientific and clinical trial catalysts.  As illustrated by the recent analyst event, Arrowhead Research is doing that ahead of its chronic HepB program entering the clinic, and I would not be surprised if Tekmira had done the same ahead of the important TKM-PLK1 phase I data presentation at the imminently upcoming AACR meeting.

Is This Time Different?

Having lived through the ups and downs of the financial fortunes of RNAi Therapeutics, watching the increased interest in the sector evokes old memories.  In particular, are we in the middle of another 2006-8 type bubble?  In 2006-8, most of the value was ascribed to RNAi trigger IP while neglecting the importance of delivery and the poor quality of the product candidates at the time.  With the value of RNAi trigger IP and leading product candidates evaporating, there was no place to hide during one of the worst financial crises of modern times and the bubble had to burst.

This time, however, a clinical pipeline of much higher quality and sales visibilities, not just in RNAi Therapeutics, but RNA Therapeutics at large, provide better support to some of the increased valuations.  Today, unlike back then, there is no question that RNAi Therapeutics and RNaseH antisense for example can knock down genes in humans profoundly.  The pipeline includes numerous opportunities for validating events in the form of biomarkers ensuring a constant newsflow to keep up interest, confidence, and valuations.  In fact, it is not just the more mature pipeline, with mipomersen, the first RNA Therapeutic with commercial potential to speak of (I expect the ‘symptomatic’ homozygous FH population to grow miraculously), has recently been approved. 

This, of course, does not shield from significant downside to investors of companies like Sarepta or Alnylam if their lead candidates suffer setbacks.  If major platform or delivery-related toxicities emerge, the fallout ought to spread and Jim Cramer will tell his audience to sell, sell, sell.

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