Delivery versus Product Candidates? RNAi Therapeutics Business Development Strategies Need to Adapt

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.