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.