Short Alnylam

Biotech shorts and event traders rejoice.  The Tekmira-Alnylam litigation is coming close to a jury trial.  This opens up a few interesting trading opportunities.

As evidenced alone by Alnylam’s delay and cost-intensifying tactics in both the main litigation with Tekmira and the VSP patent interference, Alnylam’s views its strong balance sheet and market capitalization (arguably partly built on the back of Tekmira) key advantages in their alleged attempt to misappropriate SNALP technology from Tekmira.  Why sweat the merits of a case when you think that you can financially outlast your opponent?

At the same time, following a number of positive clinical results, enabled by the contested technology no less, Alnylam the stock has soared over 200% in less than a year.  But as the big showdown with Tekmira approaches (at the end of October in front of a jury) the stock has become a near-perfect short. 

Here is why.

First of all, there seems to be little risk of a catalyst ahead of this key event which could significantly jolt the stock to the upside.  This is because the clinical results with the SNALP-based drug candidates have been reported (ALN-TTR01, ALN-TTR02, ALN-PCS02) and Alnylam will not be able, in light of the Tekmira litigation, close any meaningful product-based partnership, much less close a platform-based deal for any upfront that would move the needle of this billion dollar market cap company.    

The recent run-up in the stock, the early-stage pipeline plus the absence of catalysts make the stock an attractive short based on technicals alone.  A simple analyst downgrade which may come any day could easily knock down the stock by a double digit percentage.  The big short opportunity, however, lies in the increasing likelihood that Alnylam has no choice but to settle the legal matter as the judges in both cases are getting visibly annoyed by Alnylam’s tactical games.  For example in the VSP patent interference, Alnylam got reprimanded for filing motions belatedly and manipulating history by adding claims to an ex parte patent applications; or in the words of the  judge in the main litigation: ‘I conclude that the proposed motions are not only unlikely to eliminate any issues but they would at the same time be extremely costly for the parties to litigate and distract them from preparing for and focusing the issues for trial.'

In fact, I am surprised by how well the judges have picked up on Alnylam’s smugness with all of the important decisions in both cases so far going in Tekmira’s favor.  Note that I did not expect this for the VSP Interference where I had seen the situation more balanced before Alnylam and their lawyers bungled the case.  Unless the bitterness of the dispute has led Alnylam’s management to actually believe in their case, settling the matter ahead of the trial would seem a foregone conclusion.     

Lose, lose big; win, get your money back

A settlement, of course, is likely to be expensive to Alnylam and should pressure the stock as it should consume a good part of their $300M+ cash position.  Tekmira is asking for a billion dollar in compensation, a number that sounds outlandish at first glance, but maybe not so considering that Alnylam has earned over half a billion in non-dilutive partnership funding which would have been impossible without Tekmira’s technology.

Even assuming the best outcome for Alnylam, namely an outright win at the trial, this would be unlikely to have much of a positive effect on the stock at current valuations (~$18.6/share).  In fact, there may be a sell-on-the-news as this legal uncertainty disappears and the biotech analysts/stock market have largely disregarded the Tekmira litigation in their estimates.   

And if it comes to trial and Alnylam loses, well, this could get real ugly for the stock.  But again, I do not believe that Alnylam management and BoD wish to expose themselves to the inevitable shareholder class action lawsuits that would surely follow and therefore settle.

Tekmira Long as an Alternative

With a market cap of merely $30-40M and a potential, if not likely, multimillion dollar windfall, a Tekmira long would be the obvious trading alternative.  If they lose the trial and technology, it would likely destroy the company through endless rounds of dilutions at low share prices.  Consequently, unlike you are me and strongly believe in the merits of the case and have held the stock for close to four years now, I would not hold an outsized Tekmira long position relative to your personal wealth based on the simple mathematical rule that anything multiplied by zero equals zero.  The anemic trading volumes in the stock would also argue against taking a large position, although a slow accumulation strategy and strong trading volumes on the event may allow for that.

Addendum: It would seem that Alnylam management agrees with the above short thesis.  The company's CSO and CFO were quick to act by exercising options and selling the respective shares on the recent ALN-TTR02 data spike.  The CSO made around 350K in profits, the CFO around 100K.

Disclaimer: The above is my personal opinion only.  If you intend to trade stocks based on the account above, it is entirely at your own risk.

MC3 Authorship Discrepancies Increase Suspicions of Cover-Up

Last week was a tumultuous one in RNAi Therapeutics and in the relationship between Alnylam and Tekmira.  

On the positive side, results from the ALN-TTR02 phase I study revealed that highly potent knockdowns for liver-expressed genes are possible in Man.  Although solid knockdowns had been demonstrated before using the same delivery formulation for the hypercholesterolemia-related PCSK9 (ALN-PCS), the latest results demonstrate the most potent and prolonged knockdowns in RNAi Therapeutics history.  Thus, this should be reproducible for most liver-expressed genes as long as highly efficient RNAi triggers are selected, further substantiating the claim that RNAi trigger potency matters.

At the same time, the results once again brought into focus the hard-fought battle for this most valuable RNAi Therapeutics delivery asset: SNALP.  On the celebratory conference call, Alnylam’s management was more aggressive than ever in claiming that this ‘second-generation LNP’ technology was entirely theirs: ‘Proprietary!’  Of course, this makes little sense for the reason alone that the composition and formulation method of these particles clearly identify them as SNALPs which belong to Tekmira.  Just as a reminder, there is an important distinction between an exclusive license and owning something.

Not only does it reveal that Alnylam management is apparently unable to grasp this very basic concept of property rights, well captured by John Maraganore's statement 'you pay for it, you own it', Tekmira alleges that what enabled this improvement in liver gene knockdown potency over the ‘first-generation’ liposomal formulations and which is the basis for Alnylam’s ‘proprietary’ statement, namely the MC3 ionizable lipid, was stolen from them in a covert operation.  This operation apparently happened at the end of a series of actions to not only appropriate valuable SNALP technology on which Alnylam has come to essentially wholly rely upon (despite its recent attempts to claim that it employs four different delivery approaches), but also marginalize, and ultimately destroy Tekmira.

The reason why I strongly believe that Tekmira is not making up these shocking allegations, is not just based on the fact that Alnylam’s PR strategy has been so obviously aimed at wrestling away from Tekmira its reputation as THE liposomal RNAi delivery company (see the promotion of the clinically unfit lipidoids to a point where many observers believe that the clinically employed liposomal technology originated at MIT; Alnylam oligonucleotide chemists prominently listed on liposomal patents; or back-handed compliments in the context of ‘1^st-generation’ technology).  No, it is also because all of the evidence and accounts that I have gathered in my investigations were consistent with Alnylam having had little respect for Tekmira and thought their financial might and influence can be used to take full possession of SNALP technology and leave Tekmira in the dust. 

MC3 Origins

Probably the most telling of these acts concerns the origin of the MC3 lipid.  This lipid is an important component in ALN-PCS and ALN-TTR02 which have attracted so much attention recently, and which forms the basis for Alnylam’s ‘proprietary’ claim.  Briefly, Tekmira alleges that former employees of the company were hired by Alnylam (first as consultants, and then as employees at pseudo-independent Alnylam Canada, pardon me, AlCana) and were supposedly struck by genius essentially the moment they had left the company's premises (and apparently finished downloading the files) to come up with MC3, ownerhip of which was duly transferred to Alnylam.

Alnylam claims that MC3 was an ‘independent’ lipid and thus would fall under the scope of the Supplemental Agreement.  Based the above timelines alone, it seems that Alnylam management must have very low expectations for the IQ of the jury that they will be facing in late October.  Moreover, it is obvious that MC3 was part of a series of lipids that these employees had started work on as full Tekmira employees.  Note: although they may have been the rightful inventors of the MC series of lipids and may even hate their former employer for personal reasons, the fact remains that they did so when employed by Tekmira.  Consequently, the lipids and related trade secrets are not theirs.  Moreover, the key insight in the 2010KC2 Nature Biotechnology paper by the same authors (when employed by Tekmira) was that changing the length of the linker between the lipid headgroup and tails had a profound impact on performance.  Hence, developing new lipid scaffolds and then start testing series thereof with variable linker lengths was Tekmira's trade secret until then.  And that, of course, is what got them to discover MC3 (from the recent Jayaraman et al): 'In the second group, the dimethylamino moiety is maintained but the distance between the ester and the amine is varied from one to five methylene units to generate lipids with pKa values ranging from 4.17 to 7.16.'

Too bad for Alnylam that ‘rational’ appears in the title of that key Nature Biotechnology paper (Rational design of cationic lipids for siRNA delivery) as it will be Alnylam’s strategy at the trial to convince the jurors that successful lipid discovery is an extremely unlikely chance event, further hoping that the jurors won’t be able to make the distinction between unpredictability in terms of how many carbon atoms exactly would yield the most useful lipid and unpredictability in terms of which search strategy (Tekmira know-how) would likely yield such a lipid.

It is also curious that the research organizations of Tekmira and Protiva had been kept separate until in late 2008.  Supposedly, Alnylam demanded this as a precondition to blessing the Protiva-Tekmira merger so as to keep Merck from getting their hand on certain Old Tekmira’s technology.  Whether true or not, it likely also had the effect that not only Merck, but also Old Protiva were left in the dark on these trade secrets (although they belonged to the combined company).   This darkness was then allegedly exploited to get MC3 ownerhip transferred to Alnylam and to obtain a broad covenant not to sue from Tekmira that according to Alnylam’s interpretation would also absolve it from IP and trade secret theft.

MC3 Authorship Discrepancies

Over a year ago, when the lawsuit broke, it bothered me that in the MC3 patent application (now issued patent US8158601), the key ex-Tekmira employees which should have been the real inventors behind MC3 according to my logic described above, i.e. Madden, Hope, and Semple, were missing as listed inventors.  M. Hope, importantly, was the senior author of the KC2 Nature Biotech paper, which served as the blueprint for the MC series.  Instead, a slew of Alnylam oligonucleotide chemists are listed as if the synthesis of an extra carbon in the linker group here and there was an inventive contribution. Surely not.

This to me strongly smelled like part of the cover-up.  Read for yourself my speculations at the time:

'But looking at the (published) patent application, all these key people are actually missing as named inventors. I would identify these key scientists as Thomas Madden, Sean Semple, and Michael Hope and it would have been natural for Tekmira to have non-compete arrangements in place for these individuals. Importantly, these are also the senior authors on the KC2 Nature Biotech paper from January 2010, a lipid from which MC3 is derived (see also e.g. slide 28 in August 4, 2010, presentation by Alnylam at the International Liposome Research Days held in…Vancouver).

However, despite of Alnylam’s assertions that it was the fired Tekmira employees now working, for apparently legal purposes, at AlCana (but practically for Alnylam) that invented MC3, the published patent application only lists Alnylam employees (and maybe some consultants) as inventors and Alnylam as the applicant: Akinc, Dorkin, Qin, Cantley, Manoharan,Kallanthottathil, Narayanannair, Jayaraman; and (for US purposes only) Chen, Ansell. (the latter two being the two ex-Tekmira employees, but no mention of AlCana).

You would think that, as the inventors of KC2, the inventive contributions by Madden, Semple, and Hope would have played an important role in MC3, much more so than the number of trained oligonucleotide chemists from Alnylam listed as inventors on the application. Given that the Response admits that Alnylam hired the ex-Tekmira employees that would eventually form AlCana as consultants, it seems highly unlikely that Madden, Semple, and Hope played no role in the MC3 patent application.'

12 days ago then finally appeared the peer-reviewed publication concerning the discovery of MC3 (actually a long time after the 2009 patent application).  I could not believe my eyes when the list of authors indeed revealed Michael Hope as the senior author on the paper (highlighted in red along with Thomas Madden):

Muthusamy Jayaraman,* Steven M. Ansell, Barbara L. Mui, Ying K. Tam, Jianxin Chen, Xinyao Du, David Butler, Laxman Eltepu, Shigeo Matsuda, Jayaprakash K. Narayanannair, Kallanthottathil G. Rajeev, Ismail M. Hafez, Akin Akinc, Martin A. Maier, Mark A. Tracy, Pieter R. Cullis, Thomas D. Madden, Muthiah Manoharan, and Michael J. Hope*

For those unfamiliar with how authors are listed on papers in the biomedical sciences, the last author is the senior author with responsibility for the overall study.

I have only four possible explanations for this:

1)      Sheer stupidity/carelessness on the part of Alnylam and their lawyers- this would not be a first considering the VSP Interference history alone;

2)      This hypothesized cover-up had so many tracks to conceal that some of them would always make it through to the daylight;

3)      For scientists which see their future in the academic sciences, it is publish-or-perish and Michael Hope and Thomas Madden insisted being on the paper for this reason (note that also the academic Pieter Cullis from the University of British Columbia is on the paper, likewise absent on the patent);

4)      Alnylam knows that the evidence is such that the involvement of Hope and Madden will be revealed anyway, and trying to further conceal the fact would make it look even worse.  Now, they may claim that the omission of Madden and Hope was an honest mistake and they may file for a correction of inventorship on the patent (otherwise they risk the patent becoming invalid due to Inequitable Conduct).

Personally, I favor a combination of 1) and 2).  Alnylam and their lawyers have surprised me a number of times already with their carelessness, a carelessness that is possibly born out of arrogance.  This arrogance may very well be its downfall.  There are only three months to go until the trial and it looks like, despite of Alnylam's delay and cost-intensifying tactics, as if the jury will have it!

Next up: Judge in Tekmira-Alnylam case orders no more delays and why I believe Alnylam is a highly attractive short here...

Simply SNALP: RNAi TTR Knockdown Data Impress

Clearly, RNAi Therapeutics is back in fashion.  Well, almost.

Alnylam’s announcement of profound gene knockdown in the ALN-TTR02 phase I study for the treatment of TTR amyloidosis was greeted with an over 50% jump in the stock price on very high volume.  Various observers pointed out that this might have been an over-reaction given the early nature of the data.  On the other hand, considering that the over 80% peak knockdowns achieved with only a single dose of 0.15mg/kg are representative of a widely applicable delivery strategy, namely Tekmira’s SNALP technology, and considering that an accelerated approval path  should be possible for this orphan disease, determining the fair value of a SNALP-based company like Alnylam becomes difficult.

Yes, this was a study that enrolled just 17 subjects, healthy volunteers at that.  But it may be this that makes the tight variability in the pharmacodynamic response (=TTR knockdown) even more remarkable so: less than 5% relative standard deviations in the 0.15mg/kg and 0.30 mg/kg 3-person dose cohorts, the relevant groups for this analysis.  

When I had mentally listed the technical risks of SNALP-mediated delivery several years ago when I did my fundamental research on SNALP delivery, intersubject knockdown variability was one of the major ones.  However, given the present results and those from the recent hypercholesterolemia study (ALN-PCS02), I am much less concerned about this now, also in patient groups where liver health may be affected.

Moreover, the dose-related TTR knockdown in humans was essentially what has been seen in non-human primates.  Although a number of analysts were apparently puzzled by the importance of this observation, its value to a scientist is obvious: you can essentially eliminate the risk that an SNALP program fails in phase I due to lack of knockdown efficacy (and if you are one of those scientists that also dabble in the stock markets, you can start investing in the stock based on the monkey data that you’ll see presented at an informal presentation).   

The safety profile with ALN-TTR02 in this study was good.  There was one infusion reaction seen in other SNALP studies before and that was managed by slowing the infusion rate.  This was said to be possibly related to the pre-treatment with corticosteroids, and not the liposomal formulation itself.  In any case, while corticosteroids and other transient immune suppressions will not be an issue for the initial patient populations in diseases like TTR amyloidosis, Tekmira and Alnylam should start to try and wean themselves of it.  The improved, more predictive immune stimulation assays may form a sound scientific basis for this.

The reason for why the study was limited to 17 healthy volunteers was mostly due to competitive concerns.  In particular, the ISIS/GSK TTR antisense compound is said to skip phase II studies altogether and go straight into a pivotal phase III.  In data presented in May of 2011, this antisense compound was reported to effect a 44% mean TTR reduction at the 200mg/week dose level when given for four weeks, and 81% knockdown at 400mg which was the next higher dose tested.  400mg/week, however, is a dose that I believe is too high for chronic phosphorothioate oligonucleotide administration.  Although ALN-TTR02 should thus be 100- to 200-fold more potent on a weight basis than the antisense drug candidate, being the first-to-market is seen by some as an important factor for the commercial success in this orphan market, especially since these compounds work by the same mechanism of action.

The value of SNALP delivery

Some readers of this blog may be tiring by now of reading me sing the praises of SNALP delivery technology and Tekmira.  Yes, I’m invested in the technology via my Tekmira shares.  In all fairness, however, it is the clinical data from the SNALP compounds, really starting last November with the ALN-TTR01 data (SNALP Works!) that are reviving the RNAi Therapeutics field: ALN-VSP, ALN-PCS, and ALN-TTR.  We have heard a lot about exciting new, revolutionary RNAi delivery technologies, often claiming to solve the putative problems with  SNALP technology.  However, in the end, it is SNALP that is set to unlock the first wave of RNAi Therapeutics value creation.

Even Arrowhead Research and Benitec which develop competing delivery and RNAi trigger technologies, respectively, admitted so much in congratulating Alnylam to the results.  Sadly, they missed the opportunity to also congratulate the real innovator behind SNALP technology, Tekmira.  It seems that since Alnylam is getting all the media attention, it was probably not a good PR strategy to do so.

RNAi delivery technologies are tough to develop and rare to find, but when they work, they open up a range of therapeutic opportunities.   

Preview: For my next post, I am planning to write something about last week’s MC3 paper and how it reveals that covering all the tracks is hopeless when a scheme is that elaborate (RE Tekmira-Alnylam litigation), and why Alnylam the stock may be a great short here. 

Detailed Genetic Modeling Triggers Change in Hemophilia RNAi Target Gene Selection: ALN-APC Out, ALN-AT3 In

This week, Alnylam presented data for its hemophilia program which aims at providing particularly those patients that have developed antibodies ('inhibitors') against the recombinant factor VIII and IX standard-of-care with a treatment alternative.  After ALN-TTR for TTR amyloidosis, this is the second of the two programs the company wants to focus its internal development resources on.  The presentation, however, showed that the timelines have been delayed due to a change in target gene selection.  So with an IND planned for this program in 2013, it thus appears that the original 5x15^TM, which stated that the company wanted to move 5 clinical candidates into late-stage development by 2015, is more and more turning into a ‘1 out of 5’- if all goes well.  What a difference 18 months can make!

Sarcasm aside, the reason for the change in target gene selection is due to modeling the impact of various degrees of gene knockdown on the desired biological outcome: a 50% knockdown of antithrombin (AT) goes much further in terms of thrombin generation (the biomarker used in the study) than a 50% knockdown of the target gene in ALN-APC, protein C.

The type of detailed genetic analysis behind this realization is actually a very important one that companies should think more about when selecting RNAi target genes.  All too often, target gene selection is based on classical black-and-white gene knockout genetics which can be misleading.  Indeed, the VEGF component in ALN-VSP02 may be one of those. 

In the presentation, Alnylam further emphasized that ALN-AT3 utilizes a conjugate-siRNA approach amenable to subcutaneous administration.  Although the hemophilia community is very familiar with the intravenous route of drug administration, the company essentially claims that this is ‘a highly preferred mode of administration in the setting of hemophilia’.  

Really?  In any case, adopting GalNac-siRNA conjugation as an alternative to the gold-standard SNALP delivery would also make strategic sense for Alnylam.  Alnylam has become overly dependent on Tekmira’s technology to the extent that it apparently/allegedly felt compelled to mis-appropriate the technology which is subject to a high-profile ongoing litigation.  Not a good position to be in when the supplier (and owner) of that technology could pull the plug any day.  

On the other hand, the scientific evidence, particularly the shallow dose response in non-human primates which suggest that antisense-type large amounts of drug would be needed (3-10mg/kg), suggest that just maybe GalNac conjugation is not ready yet for prime time.   . 

Obesity Drug Approval to Unlock Low-Hanging RNAi Therapeutics Opportunities

The FDA approval of weight-loss drug Lorcaserin (to be sold as BELVIQ) a week ago symbolizes a recent shift in the regulatory climate from an extremely conservative, risk-averse one (remember Vioxx and Avandia) to one that tries to better balance the safety concern with providing patients and physicians with new treatment options.  This is also good news for the field of RNAi Therapeutics as the technically lowest-hanging fruits happen to be for targeting genes in the liver, an organ rich in well-validated gene targets related to the metabolic and cardiovascular disease, the two therapeutic fields that arguably suffered the most from the risk-averseness as they had grown heavily reliant on biomarkers in favor of outcomes.  Of course, Tekmira’s SNALP delivery technology, already clinically validated for target gene knockdown in the liver (SNALP Works!), is first in line to benefit from the change, although companies like Merck, Arrowhead Research, and Silence Therapeutics are trying hard to replicate Tekmira’s success with similar and also differentiated approaches.

Lorcaserin Symbolic

The approval path of Lorcaserin has been symbolic for the shift in the regulatory climate.  Despite meeting- in large clinical trials- the FDA’s very own guidelines for weight loss efficacy with what was one of the most benign safety profiles that I have seen, the agency, in briefing documents and Advisory Committee meetings alike seemed about to change the goal-post in the middle of the game by demanding greater degrees of weight loss which it was clear Lorcaserin, as a single agent, could never achieve.  To further justify the negative stance on Lorcaserin, theoretical safety concerns, particularly stemming from clinically irrelevant cases of breast cancer in rats were suddenly picked up on.  If you are a scientist, this scenario might sound familiar to you: if a reviewer of a scientific paper does not like your study or even you personally [on a personal note, the term ‘blogger’ is often used here in a derogative way], he/she will always come up with a reason to reject your study.  In other words, as in publishing, also in drug regulation, no matter how good, anything can be made to look bad if that's the motivation.  

To add insult to injury, Lorcaserin’s two main competitors, Qnexa from Vivus and Contrave from Orexigen, came up ahead of Lorcaserin at least from the AdCom meetings 1-2 years ago, despite these formulations being nothing more than the combination of two established ingredients, the type of life-cycle re-formulation strategy that has pushed the pharmaceutical industry and the healthcare system to the brink of financial viability.  

Thankfully, these events prompted a wide public outcry, including vocal, often ridiculed ‘retail’ shareholders which together with the recognition of the enormous unmet medical need (obesity) caused a remarkable turnaround in the regulatory fortunes of the drug climaxing in a broad label with the main restrictions being that Arena Pharmaceuticals and partner Eisai conduct a number of post-marketing cardiovascular outcome and safety studies- reasonable.  Such a preliminary approval process (witness also the Avastin-breast cancer controversy) that post-pones these studies to a post-marketing setting was also in recognition of the fact that demanding them pre-approval would be financially prohibitive for most small and medium-sized pharmaceutical companies. Moreover, the fact that the only new, single agent among the three weight loss contenders happens to be the first one approved, should be further encouragement for innovative drug developers.

What it means for RNAi Therapeutics

The acceptance of biomarkers such as weight loss, LDL-cholesterol, and glycated hemoglobin, together with postponing hard outcomes studies to the post-marketing setting are the two key ingredients that should greatly increase the attractiveness of harnessing the liver-targeting potential of RNAi Therapeutics to go after metabolic and cardiovascular disease opportunities.  What is more, what in the end may have tilted the agency’s opinion in favor of Lorcaserin (in addition to bowing to political pressure) was the fact that the drug not only promoted weight loss, but also provided clear benefits in terms of other biomarkers such as lowering blood sugar levels in diabetic patients. 

RNAi Therapeutics candidates should be particularly well positioned to take advantage of the regulators valuing the totality of the efficacy data rather than myopically focusing on single end-points that may have been met just marginally.  This is because RNAi Therapeutics have the unique potential to simultaneously go after multiple targets (multi-targeting).  At the risk of repeating myself, an RNAi Therapeutic that could reduce not only atherogenic lipids, but also hepatic fat and increase insulin sensitivity should be very welcome in such an environment.   

The experience with ISIS Pharmaceutical’s mipomersen for which an NDA has been submitted recently, however, also shows that while the emerging approach can speed up drug approval, it can also limit the initial market potential (here, the rare homozygous FH population) and costly outcomes trials may be necessary to address wider patient populations.  It can be argued that ISIS and partner Genzyme simply got unlucky as, unlike the European counterpart, the FDA will only accept LDL-cholesterol lowering as a sufficient end-point for the hoFH population; there should be other cases, however, where the first population in such a staged approval process will justify the investment in the drug development program already.    

In this environment, I look forward to TKM-ApoB and ALN-PCS02 being followed by more metabolic/cardiovascular RNAi Therapeutics candidates, particularly of the multi-targeting type, SNALP-delivered, multi-cassette ddRNAi or otherwise.  With the biomarker-based and staged approval approach, it should be possible again for even small companies like Tekmira to bring such programs into later-stage development on their own.