RNAi Therapeutics Portfolio Review: Preparing for Novartis

As I am about to do some traveling over the next couple of weeks and won’t be able to monitor the markets closely, part of my preparations included a review and slight adjustment of my portfolio so as to position it well for what are likely to be turbulent weeks in RNAi Therapeutics. With the $100M Novartis decision coming up, a lot of the dust in the RNAi Trigger landscape about to settle, and share prices of a number of RNAi Therapeutics companies tumbling to mind-numbing levels, the number of companies was further reduced to more fully capture the upside from impending deal activity.

Rosetta Genomics and Benitec were sold as these two companies in the portfolio are probably the least exposed to the Novartis decision. The money was used to buy shares of RXi Pharmaceuticals that I had previously sold during the suspicious run-up to a financing round earlier this year which was followed by a steep 80% drop in RXII. The drop was exacerbated by the relentless selling of RXi shares by CytRx, the company from which RXi had been spun out. It is difficult for me to rationalize how the former parent of RXi could sell down their remaining shares in RXi without apparently any regard for the effect this would have on RXII. The sale of $5.1M worth of shares alone was directly responsible for a ~30% drop in RXII. The primary responsibility for the amateurish disposition of shares, of course, goes to CytRx. On the other hand, a company that cares about shareholder value would want to help and ensure that major stakes are disposed of in an orderly manner. Shareholders will find little consolation in the CEO’s comment on the CytRx issue during the recent quarterly conference call which described these stock sales as potentially beneficial for shareholders in the long run!

At the same time, the current share price of $1.75, which gives the company a market cap of slightly above $30M provides an opportunity to speculate on the company’s new focus on the highly modified and sufficiently differentiated ‘self-delivering rxRNAs’ which I believe to be quite compatible with the dermal and ocular disease areas that the company said it would concentrate proprietary pipeline efforts on.

After a string of technology development agreements with small and large companies alike, near-term upside in RXII will have to come from the company’s ability to execute on the long promised Big Pharma deal that would provide validation for the company’s position in self-delivering siRNAs and add non-dilutive capital. In terms of knockdown potency, the sd-rxRNAs appear to be at least on par with Alnylam’s (5-year-old) cholesterol conjugates and based on their structure should also work around most, if not all of Alnylam’s IP. It is here where the exposure to Novartis should come from, especially now that it has become a powerhouse in the ocular disease area with the Alcon acquisition.

Such a deal would need to be accompanied by the nomination of a serious development candidate to support the notion that the company is finally getting close to the clinic. It is my opinion that there are viable business strategies centered around early-stage RNAi technology development, but that such strategies are not appropriate for companies with RXi’s expense structure.

In addition to seeing validation that RXi has real clinical drive now and the Big Pharma deal, further investments in RXi critically depend management being on the side of the investors rather than pleasing a number of other constituencies as appears to have been the case. The times that public biotech companies were able to treat (retail) shareholders simply as a source of cash to keep management and employees in good stead are over now. If the pain is not truly felt and shares and options continue to be awarded regardless of performance and all the while share prices are tumbling, then such companies have no place to exist. Sadly, I can only say of Tekmira where I have seen an example of a company believing in its technology and managing it in a way to maximize shareholder value. Truly priceless as one can also see from its share price performance over the last 2-3 years.

With that we have arrived at Tekmira and Silence Therapeutics as the two other companies that are most likely to react with large percentage moves from Novartis-related deal activity. I have written a lot about why Tekmira is my favorite RNAi Therapeutics company, so I will only reiterate here my belief here that due to its its critical position in delivery, Tekmira should be The ‘in play’ company over the next couple of months. At the same time, it has now built a nicely diversified proprietary development pipeline consisting of TKM-ApoB for the treatment of hypercholesterolemia, TKM-PLK1 for non-liver solid cancers, and TKM-Ebola in the infectious disease area. The development candidates should make it easier for the market to assign a value to Tekmira, particularly once it lists on the Nasdaq. Importantly, although 3 development candidates may seem like quite a bit for a company the size of Tekmira, the related clinical expenses should be manageable and not overwhelm the pre-clinical research efforts that are aimed at expanding the utility of LNP-siRNA delivery, an area where it is positioned to create significant further shareholder value.

Silence Therapeutics should be the company second best positioned after Tekmira to benefit from the Novartis decision. Through its partner Quark Pharmaceuticals, companies like Pfizer and Novartis have now partnered products based on Silence Therapeutics’ RNAi trigger technology. In addition to the development milestones that Silence stands to collect and thereby extend the cash runway possibly into 2012, I would be surprised if Pfizer and Novartis had not considered Silence Therapeutics a less expensive alternative to Alnylam. Patent issuances for the Atu-siRNA structure and the Zamore RNAi trigger design rules should help Silence make its case.

The impact of a Novartis option exercise on Alnylam’s share price is probably less certain. Because the market expects Novartis to exercise, this could limit the immediate upside, although I would certainly expect some increase in ALNY as it would remove lingering uncertainties and should be seen as a validation that Alnylam’s RNAi trigger position is not just slightly ahead of the competition. The exact extent of the upside, however, would likely depend on how much extra Alnylam can extract from providing Novartis with access to delivery. The Tuschl litigation in the US, and the Tuschl II and Kreutzer-Limmer patent exams in Europe also have to be closely watched as it will determine the extent to which Alnylam can control access to RNAi triggers. Fortunately, scientific progress reported at recent meetings suggests that despite the various legal battles Alnylam is fighting, there is actually some R&D happening, too. Long-term, this, and not trying to marginalize competitors at the cost of management attention, is really what will drive the value of ALNY.

In the short run, however, Alnylam needs one or two more significant platform deals. This is because a relatively early-stage pipeline would make it difficult to get the market cap back above $1B. Alnylam should be well positioned to get them done eventually given that many in Big Pharma do not have the luxury to delay RNAi Therapeutics forever. Sanofi-Aventis, GSK, and Pfizer are potential candidates. Intriguingly, Sanofi-Aventis will apparently occupy the first floor of the building where Alnylam is headquartered in Cambridge, MA, which is even more so curious given that Sanofi-Aventis will likely become Alnylam’s immediate neighbor anyway given their attempt to take over Cambridge-based Genzyme.

But as time progresses even the Tuschls and Kreutzer-Limmers will show their age and will decrease in value. Similar to monoclonal antibodies, what will count is the scientific quality of such triggers which will be more narrowly defined than just by the length or the blunt-endedness of an RNAi trigger. Alnylam is naturally best positioned to continue and lead the field here, but there is no reason to be complacent, especially as delivery, more than triggers is increasingly driving value in synthetic siRNA Therapeutics.

ISIS Pharmaceuticals, the remaining portfolio component, is currently recovering from the sell-off that followed the release of the last set of phase III results of lead candidate mipomersen. I believe the market almost assumes that an increase in liver fat equals liver toxicity. My view is that while liver fat increases can cause toxicity, by far most people with such increases do not go on to develop fibrosis and other complications and the clinical relevance of such cases is debatable. Supporting this view, cases of Hy’s Law, indicating actual liver toxicity, have yet to emerge (admittedly patient numbers are still somewhat limited). So if no further negative surprises emerge from upcoming data presentations of mipomersen, the stock should be attractive in the short run. In the medium-term, it will be important that the initial filing in 2011 will not be limited to the homozygous FH population. If so, it may be difficult for ISIS to sustain any upward momentum.

In conclusion, the second half of 2010 should be a good time to be invested in RNAi Therapeutics. Similar to the dogs in this picture, what may look like a languishing field based on share price performance, it actually has regained quite a bit of its scientific bite now and could come alive again faster than you’d think.

RNAi Therapeutics Portfolio Review (June 2010)

It has been awhile since I last updated the RNAi Therapeutics Portfolio. The Portfolio was originally conceived to reflect the value the market places on RNAi Therapeutics. Following some criticism, however, that this is at the risk of being too much of an academic exercise, I have started earlier this year to make it more performance oriented, albeit at the cost of dropping some pure-play RNAi Therapeutics companies that are an important part of the ecosystem.

Since the last portfolio review there have been two notable movers in the portfolio: Tekmira which has more than doubled as the story of the company having become a key enabler of RNAi Therapeutics is finally seeping out into the broader market, catalyzed not insignificantly by the widely reported Ebola monkey treatment success, and on the other end of the spectrum Silence Therapeutics which has since halved in share price as it is struggling to build a new shareholder base with historical shareholders apparently leaving the company in droves following its merger with Intradigm at the beginning of this year.

The way Tekmira has created shareholder value is through intense focus on its core area of expertise: liposomal delivery of siRNAs. This is in contrast to companies like Alnylam, mdRNA, RXi, and Silence Therapeutics that have tried in the past to be the one-stop shop for RNAi Therapeutics by offering a variety of delivery modalities and therapeutic areas. Of course, some of the differences of business development strategies are to be expected as the various companies build from different patent positions and know-how. The point, however, that has become apparent is that, unless you are dealing with a patent portfolio of the caliber of Alnylam (and there are some qualifications to that), IP alone is not enough to attract meaningful partnership funding. Instead, for the majority of companies in the space it is at least as important to be able to convince potential partners, and increasingly also the investing public, that you have a reasonable strategy to actually develop commercially viable drugs.

Although it has taken one or two years longer than I had expected, Tekmira has arrived at this point. With Big Pharma starting to think about building their own RNAi Therapeutics pipeline and Novartis coming to a critical $100M Alnylam adoption license go/no-go decision later this year with no obvious access to advanced delivery technology, I would think that there is a good chance that the future of Tekmira Pharmaceuticals will be decided over the next year or so. With its highly efficient financial structure (part of the focus theme) and increased visibility/upcoming Nasdaq listing, both an acquisition or stand-alone structure should position the company well to continue and build shareholder value.

Judging by the share price performance following the Intradigm merger, Silence Therapeutics on the other hand seems to be wandering in no-man’s land. There is some evidence though that Silence could emulate Tekmira’s model in being a desirable enabler of RNAi Therapeutics. This view is based on the apparent utility of the Atuplex delivery system for knocking down genes in the vascular and possibly also lymphatic endothelia, including in monkeys, with implications for important therapeutic areas such as cancer and vascular disease. In addition, Silence has credibility in siRNA chemistry (some decent early science that has held up over the years) plus in target discovery and validation, its focus pre-RNAi.

While I have hopes that with the apparent strength of its scientific team, Silence could re-emerge as a leading RNAi Therapeutics enabler, especially should Tekmira have been spoken for, a few things would need to occur to earn my full confidence. First, the lipoplex-endothelial data ought to be replicated by a thrid party, ideally in a peer-reviewed format. Second, Silence’s claim to have solid delivery options besides Atuplex, for example peptide-based and lung delivery, needs to be substantiated with data. Otherwise, the stock market cannot place any real value on those technology that presumably consume precious resources. This is another way of saying that it is possible that Silence’s research spending is not as efficient as it could be. Its recent re-organization may well address some of that and extend the cash-runway beyond a year from now. Third, Silence needs to communicate a coherent RNAi trigger strategy. Silence in my opinion has become the victim of its own early success in developing the Atu-siRNA chemistry that has led them to vigorously hold on to it and may have prevented further innovation in siRNA chemistry and related fresh IP, but ended up with IP that has only a narrow scope and is at the risk of becoming out-dated in the foreseeable future. And lastly, Silence needs to build a new investor base. Many of the historical investors seem to have left the company with the old management, and while one of the selling-points of the merger was in increasing its exposure to the US, without a US listing it does not appear that this outflow can be compensated with investments from the US. With a market cap of less than US$30M and about a year of cash, nevertheless an interesting value.

As the company with the dominant RNAi trigger IP, Alnylam’s business model is necessarily different from that of Tekmira. It is in Alnylam’s interest to stimulate the wide adoption of RNAi as a therapeutic modality which is the reason why the company has this relatively high burn rate which needs to be supported by equally lush licensing and collaboration revenues. While 2 years ago, $100M for Alnylam would have almost been yawned at, my expectation is that should Novartis pay that amount to Alnylam for the adoption license for which the decision is coming up soon, it would provide Alnylam with some nice cash worth at least another year and reawaken investor interest in the space…$100M is nothing to be laughed at. Equally important potential catalysts for both Alnylam and Tekmira will be the first clinical results for the ApoB and TTR candidates using 2^nd generation SNALP technology (likely early and late 2011 events, respectively). While there is every reason to believe that we should see decent knockdown with these formulations, nothing beats actual clinical data. With Novartis, data from the ApoB and TTR programs, first RNAi Therapeutics pipeline activities by Big Pharma, and clarity on the IP front (‘Tuschl Tussle’) all coming up, the 2-year-long and painful wait for Alnylam investors may finally be coming to an end.

In the DNA-directed RNAi space of the sector, Benitec still remains the only significant effort. Following a period of reorganization, including cleaning up its IP relationship with CSIRO and getting the fundamental Graham patent re-instated in a number of important constituencies (except, of course, in the US), the company has started to expand its pipeline efforts with recently forged relationships for lung cancer (University of New South Wales) and Hepatitis B viral infection (China-based Biomics). On top of that, additional data from its triple RNA therapeutic HIV candidate that has already entered the clinic can be expected. Underlining the transformational period for the company, Peter French, a trained scientist with significant experience in technology management, has yesterday been appointed as the new CEO. A probably important upcoming milestone will be an oral hearing at the USPTO in the re-exam of the fundamental Graham patent at the beginning of August. While IP is critical, it would also be nice to see the company conduct more of its own research in-house. In my opinion, a lot of ddRNAi Therapeutics value is just waiting to be uncovered, especially with gene therapy showing more and more promise in the clinic.

One of the companies in the small RNA biotech arena that has impressed scientifically, but failed to sustain investor interest is Rosetta Genomics. This is somewhat surprising since diagnostics is currently valued as a low-cost, low-risk, relatively large reward area in biotech, quite attractive for many in this economy, and Rosetta Genomics is a, if not the company in what should eventually be one of the molecular pillars in diagnostic: small RNAs. Rosetta Genomics may still suffer from the perception that its business strategy has never lived up to its scientific potential, and personally some of that distrust is deserved stemming from the atrocious recent financing. There is evidence, however, that this is changing such as expressed interest in finally developing companion and response diagnostics. Revenue from its first three microRNA diagnostic products may also mean less frequent financings and new types of investors.

[Important update: Rosetta released 1st quarter financial results in late May which I had missed as I was traveling then. Having now listened to the conference call and read the report and recent filings with the SEC, I was shocked to find out that Rosetta is in a serious legal dispute with its US partner for its first microRNA diagnostics products, Prometheus laboratories- possibly explaining the extremely anemic 1st quarter sales numbers. Potentially most damaging could be the following claim: '. In response, Prometheus has issued notices to Rosetta denying the allegations of breach and alleging that Rosetta made material misrepresentations in the Stock Purchase Agreement, dated April 10, 2009, between Rosetta and Prometheus and demanding rescission of the securities purchased by Prometheus under the Stock Purchase Agreement'. This is strong stuff, indeed, and I felt insulted by the CEO's casual remark that this issue had long been public knowledge. The company should know that not every retail investor is subscribing to SEC filing alerts and given the importance of this particular event, a timely press release would have been warranted.]

I am currently neutral on the last component in the Portfolio, ISIS Pharmaceuticals. This company has understood to sustain investor interest now for decades by staying on the cutting-edge of RNA Therapeutics research as it is still waiting for its first commercially significant drug approval. While over the years this has not made investors rich, there are much worse examples, and maybe one of these days they will hit the jackpot (the question, of course, is whether their proof-of-concept, then out-licensing strategy allows them to enjoy a jackpot at all...). The reason, however, why I am neutral at the moment, is that I have been slightly negatively surprised by some of the tolerability aspects of mipomersen that have surfaced without much fanfare in the literature, and I would rather wait for the two upcoming phase III study results announcements before considering adding to the position. It is always possible that the volatility triggered by these events could create interesting price points. On the other hand, the broad interest of ISIS in RNA Therapeutics combined with its very strong balance sheet gives the company considerable flexibility to capitalize on the genomics revolution.

Now to some of the companies not in the Portfolio. In the case of mdRNA, I'd still like to wait before the dust settles. The recent announcement that it has gained exclusive access to the use of UNAs (unlocked nucleic acids) for the use in diagnostics got me somewhat confused and raises concerns that mdRNA feels the need to be seen to be doing something instead of focusing on building clinical capabilities. On the other hand, unlike Silence Therapeutics which has been held back by its history, mdRNA is not shy to explore all opportunities that may exist in RNA-related therapeutics and diagnostics and then to opportunistically jump on a band-waggon as it passes by. This reminds me somewhat of Ribozyme Pharmaceuticals when it abruptly decided about 8 years ago to abandon ribozymes and leverage their oligo therapeutics expertise for the development of RNAi Therapeutics which eventually resulted in that company, subsequently known as Sirna Therapeutics, being sold to Merck for $1.1B. Of note, some of the key people from Sirna Therapeutics are now with mdRNA adding some credibility to that strategy.

One company that I feel has just made a good strategic decision is RXi Pharmaceuticals when it announced last week that it had chosen dermatology and ocular disease as their 2 therapeutic focus areas using their self-delivering rxRNA technology (sd-rxRNA) which represents a convergence between RNAi trigger and delivery. It is the right decision because I share their view that sd-rxRNAs should be most promising for these direct RNAi approaches (see recent blog entry on sd-rxRNAs) and that commitment might hopefully catalyze their efforts in coming anywhere close to the clinic. To me, this lack of drive towards the clinic has long been a major deterrent. It is now up to the company to actually follow up on its promise and earn back the confidence of the market, even more so after a Rosetta Genomics-style recent financing.

I have decided not to make any changes to the Portfolio at this time as I feel that the real pay-day for at least one of the larger positions in the portfolio may come within the next 12 months or so.

PS: Please read and understand the financial disclaimer at the bottom of this page.

RNAi Therapeutics Portfolio Update: Sell Targeted Genetics, Buy Benitec

As I intend to manage the RNAi Therapeutics portfolio more aggressively for performance rather than being more of a representation of the state of RNAi Therapeutics investments, I have decided to take advantage of yesterday’s strength of Targeted Genetics on news that it completed its asset sale to Genzyme. Despite exciting results from their ocular Leber’s Congenital Amaurosis program and what this may imply for the use of AAV in ocular RNAi Therapeutics, at this point there is too little evidence that RNAi Therapeutics will play an important role in the foreseeable future of Targeted Genetics to justify its place in the portfolio, especially in light of almost non-existent active research and development and talent outflow.

The proceeds will be re-invested in Benitec as there are signs that this company could emerge as the only proper surviving DNA-directed RNAi Therapeutics player. News from last week that Pfizer will continue to develop a HCV ddRNAi Therapeutics in which Benitec has a significant stake and a recent patent grant for an hairpin with a long loop are very encouraging.

Disclaimer: Investments in RNAi Therapeutics are highly risky and not suited for most people.The purpose of the blog and model portfolio is to convey a sense of the dynamics in the field and is NOT an endorsement for making related investments. I also have financial interests in some of the companies included in the portfolio. I do not, however, have short positions in any of those.

RNAi Therapeutics Portfolio Update: Silence Therapeutics (Buy)

Considering the recent merger between Silence Therapeutics and Intradigm (see here) and following the review with Tobias on Atu-027 and the technologies behind it, I have decided to use the proceeds from the recent sales of mdRNA and RXi Pharmaceuticals to purchase shares in Silence Therapeutics for the fantasy RNAi Therapeutics portfolio. At 13.5 pence, giving the company a market cap or slightly less than 40M UK pounds, there should be good upside if Silence’s management can succeed in the certainly demanding task of integrating the two companies while at the same time establish RNAi drug discovery partnerships- all within the one year cash runway that the latest financing gave them.

I have long been wary about the value of Silence Therapeutics’ technologies. Readers of this blog might still be familiar with the angry outburst in the comments section of this blog from what appeared to be a Silence employee (just speculating) about 1 ½ years ago. Having appreciated some of the good science behind Atu-027, I can understand the frustration. But good science does not always mean that IP claims are valid, and in the case of Silence, their credibility had suffered with their bold claims of having broad freedom-to-operate in the RNAi Therapeutics trigger arena.

In the end, Silence had to settle with significantly less than they hoped for and probably led investors to expect, namely patent protection for blunt siRNAs containing alternate 2’-O-methylations opposite of unmodified nucleotides and that are 15-23bp long (length could be subject to the Tuschl outcome; in a twist of irony, it would be an Alnylam-Max Planck victory that would be beneficial to Silence). Although this is a far cry from getting protection for a much wider range of modification patterns and types of modifications as it looked possible at one point, they should be able to live with the outcome because I was even surprised that they were granted these patents at all, apparently on the basis that these patterns unexpectedly allowed for siRNA stabilization without killing efficacy. Some reward from being an early mover characterizing the properties of modified siRNAs, with a lot of their reported findings actually standing up to the tests of time.

My gut feeling tells me that while Atu-siRNAs have their use for RNAi Therapeutics at present, the evolution in RNAi Therapeutics trigger design is likely to render them obsolete in 10 years’ time, with Atu-siRNAs DNA/claim language not being able to adapt to the changes. Also, an extensive head-to-head comparison between the selection process for Atu-siRNAs versus Tuschl-type siRNAs, similar to what Alnylam has been doing for Dicer-substrate versus Tuschl-type siRNAs, would be helpful in getting a better feel for Atu-siRNA’s real value. The literature would suggest that the efficiency should be considerably impaired because the modification options are so limited.

Intradigm’s contribution to RNAi trigger assets are certain 25bp siRNAs, slightly longer than both Tuschls and reminiscent of RXi’s/Invitrogen’s ‘Stealth’ siRNAs. It is, however, still a mystery to me what these look like exactly and why these should be patentable structures. Similarly, the the scope of their licensed Zamore rules for siRNA design are somewhat uncertain apart from the one that has issued, and there is generally the questions of how it should be possible to enforce design rule patents when they depend on thermodynamic features rather than distinct siRNA structural motifs.

More than RNAi triggers, and a slight departure from earlier days, the company now emphasizes their relatively diversified approach to siRNA delivery. This is understandable as their is no question that financial value should follow scientific need. Silence's delivery technologies include the lipoplex-siRNA system is used for their lead candidate Atu-027 and that was shown to render endothelial cells of blood vessels accessible to RNAi. Here as well, I have long been quite skeptical about the strength of the data, because relative to other systems their characterization, including formulation method, had been quite sketchy, and I don’t believe that all of this is because they want to keep these details as trade secrets. Nevertheless, the apparent tolerability and efficacy of lipoplex-siRNAs from rodents to monkeys is very encouraging and should get them onto the radar of potential Big Pharma partners. Beyond lipoplex-siRNAs, Silence now lists peptide-based, targeted delivery (HKP) and delivery to the lung. While HKPs look nice in theory, the literature was not able to convince me of their immediate clinical utility and seems to be a little bit behind the lipoplexes. And for the lung-related delivery, I have yet to see the data. I plan to provide should I be able to get meaningful answers to some of these questions.

In summary, having invested tens of millions over the last 6-10 years into RNAi trigger and delivery research and with the bench depth provided by the merger, Silence Therapeutics should be an interesting partnership play, with Atu-027 as an innovative approach to cancer treatment that can be showed off to investors and partners, and maybe some positive surprises from their interests in RNAi compounds being tested in the clinic by Quark Pharmaceuticals and Pfizer.

Disclaimer: Investments in RNAi Therapeutics are highly risky and not suited for most people.The purpose of the blog and model portfolio is to convey a sense of the dynamics in the field and is NOT an endorsement for making related investments. I also have financial interests in some of the companies included in the portfolio. I do not, however, have short positions in any of those.

Please read the important disclaimer at the bottom of the page.

RNAi Therapeutics Portfolio Update: mdRNA (Sell)

mdRNA announced today updates on results in mice for their liposomally delivered RNAi Therapeutics candidates for solid cancers. They also said to have entered into an "early collaborative effort with a major international pharmaceutical company". While not negative news for sure, both types of news items would appear to make the 75% run-up in shares this morning to be an over-reaction, especially given the one-month window it has to find additional funding. I will therefore take a trading profit at $1.71, and possibly look to re-enter the stock, maybe after an opportunistic financing following today's announcement.

Disclaimer: Investments in RNAi Therapeutics are highly risky and not suited for most people.The purpose of the blog and model portfolio is to convey a sense of the dynamics in the field and is NOT an endorsement for making related investments. I also have financial interests in some of the companies included in the portfolio. I do not, however, have short positions in any of those.

RNAi Therapeutics Portfolio Update: RXi Pharmaceuticals (Sell)

I have decided to sell all of RXi Pharmaceuticals in the RNAi Therapeutics model portfolio (for $4.49). This is partly an opportunistic move that comes after a remarkable meteoric ~200% run-up from its all-time low of $1.51 in the absence of a change in fundamentals (a recent overview can be found here), and a new CEO that needs to be able to learn as fast as the stock price has risen. I will keep the proceeds as cash for now, as I continue to research one particular company as a potential candidate for re-investing the proceeds. Stay tuned.

Disclaimer: Investments in RNAi Therapeutics are highly risky and not suited for most people. The purpose of the blog and model portfolio is to convey a sense of the dynamics in the field and is NOT an endorsement for making related investments. I also have financial interests in some of the companies included in the portfolio. I do not, however, have short positions in any of those.

RNAi Therapeutics 2010: The Year of the SNALP

While the broad markets have enjoyed a considerable rally since the lows earlier this year, with the S&P500 up more than 65% since March, shares in RNAi Therapeutics companies have only initially participated, but then reversed course. This is unfortunate since this does not make establishing a broad drug development platform any easier with no products on or close to the market. I want to be clear though that one cannot blame it all on a market that 'does not get it' or just bad luck: strategic mistakes have been made, false expectations raised to a point that the market, and this might include Big Pharma, is saying ‘show me credible non-human primate, or even better, human data before I believe you’.

On the other hand, chaos brings with it opportunities, especially for companies that can emerge from this confusion with pre-clinically well-validated technologies and unambiguous proof-of-concept data for therapeutically relevant gene knockdown in humans. A lot will therefore depend on whether a single delivery technology, SNALP, can achieve such results. Results from both SNALP-ApoB (Tekmira), expected at the end of Q1 2010, and ALN-TTR (Alnylam) later in the year, provide opportunities for demonstrating efficacy in relatively small patient populations. Safety, of course, will be equally important to watch.

There are other RNAi Therapeutics candidates in the clinic among which maybe Benitec’s HIV program may provide molecular indications of antiviral activity with the rHIV-shI-TAR-CCR5RZ triple RNA(i)Rx combo. Cancer-related clinical results will mostly focus on safety, although ALN-VSP02 results could go into more mechanistic depths. Quark Pharmaceuticals’ candidates, of course, are far ahead of the field- sometimes I ask whether possibly too far ahead in light of what we have learned about the uptake of naked siRNAs and innate immune stimulation. Beyond RNAi Therapeutics, progress with mipomersen, DMD exon-skipping, and miR-122 inhibition for the treatment of HCV could help return optimism to RNA therapeutics drug development in general.

Taken together, I believe that 2010 could indeed be remembered as the RNAi Therapeutics Year of the SNALP, although it is always possible that a MEGA-deal, possibly inspired by the ApoB-TTR results could divert some of the immediate attention. Some of you may remember that I called out 2008, also for reasons related to SNALP, as the RNAi Therapeutics Year of the Liver. I still believe that this would have been possible if the attention had been focused properly on the exciting development path of this technology for liver applications some of which are now entering the clinic, instead of the somewhat broader messages the market received and is now struggling to cope with. After SNALP, cancer is a strong runner-up, and may in fact drive some of the major business developments of 2010. 2011 or 2012 may be the RNAi Therapeutics Year of Cancer outright.

Given my obvious fondness for liposomal delivery and to stay on top of the exciting scientific developments in this area, e.g. targeted delivery, I am already looking very much forward to be attending the annual International Liposome Society meeting in London next week. All the while next door Cancer RNAi Therapeutics company Silence Therapeutics, which also works on somewhat related lipid-mediated siRNA delivery, should be discussing their merger at the General Meeting and is just one more reason to go.

RNAi Therapeutics Portfolio Update

As we approach the New Year, I decided to take a look at the RNAi Therapeutics portfolio and finally take out gene therapy company Oxford Biomedica. This is not because I have lost faith in gene therapeutics, recent clinical data strongly suggest otherwise and the ocular/neuro applications approach that Oxford Biomedica takes, also in partnership with Aventis, should make this one of the companies in the field to watch. Oxford Biomedica, however, has done too little in RNAi Therapeutics drug development to justify its place in the portfolio. I still wonder how ocular DNA-directed RNAi Therapeutics for example could be institutionalized- maybe as part of a more general gene therapy company such as Oxford Biomedica, or an eye-focussed RNAi Therapeutics company employing both synthetic and ddRNAi techniques. Maybe even packaged into a re-formulated Targeted Genetics, yet another company that provided clear gene therapy clinical efficacy data for a rare eye disease. Until more strategic clarity is provided, however, including their continued interest in RNAi Therapeutics or not, I decided to sell some of TGEN as well.

The proceeds from these sales were put into ISIS Pharmaceuticals whose shares I believe have been oversold in the wake of the somewhat lukewarm phase III homozygous FH mipomersen results. Considering previous clinical results obtained with mipo as well as the overall favorable lipid profile changes as a result of ApoB knockdown, chances are that the upcoming phase III results in the other severe hypercholesterolemic populations will look better and signal the start of the manic phase of the manic-depressive mipo story.

Otherwise the portfolio should be well exposed to the potentially major value creating force in RNAi Therapeutics 2010 with Tekmira now making up the largest position in the portfolio, largely the result of the relative weakness in ALNY (-40%). Silence Therapeutics should warrant a re-evaluation after they make public their merger partner. AVI Biopharma remains on the radar for their involvement splice modulation (DMD foremost) and other areas that could provide them with near-term revenue, especially if they should move closer with mdRNA which could make for an attractive combination. Just fresh from the press is also the announcement that ISIS Pharmaceuticals will play a more active role in splice modulation.

Run-Down of Companies in the RNAi Therapeutics Portfolio

Alnylam: As the bellwether of RNAi Therapeutics due to its IP position, maturing pipeline, strong balance sheet and a generally broad outlook on RNAi Therapeutics, a must for those (institutional) investors with significant funds to invest in the RNA Therapeutics space. Data from Alnylam’s Huntington’s Disease and RSV programs suggest that they have potential on their own, independent of how they contribute to the learning of RNAi for CNS and lung disorders in general. Surely, the hiring pattern of Big Pharma argues that the perception of RNAi as a therapeutic modality has not gone out of fashion there, immediately adding potential licensees to Alnylam’s leading RNAi trigger portfolio.

However, as it is delivery that potential licensees and investors are increasingly paying attention to and even cash-rich Big Pharma/Biotech will question whether it should spend $300M for an RNAi trigger license now that there have been a few decisions that did not go in Alnylam’s favor, I am not sure whether we will see a simple pre-packaged RNAi trigger platform deal. Rather, such IP access may be packaged with access to Alnylam’s know-how on the delivery, chemistry, and safety of RNAi Therapeutics, somewhat reminiscent of the Roche deal and the Kulmbach component. To set up such deals may take longer, but ultimately provide more value not only for the licensee, but also for Alnylam. Certainly, positive SNALP clinical data should prove as a catalyst for these negotiations and the stock.

Tekmira: If you did not know already, my favorite RNAi Therapeutics investment right now. Pioneered the, in my opinion, most advanced systemic RNAi delivery technology, SNALP, which renders the Canadian $50M market cap company fully exposed to the major value drivers in the space near- to mid-term. The well validated ability to deliver oligonucleotides to the liver with SNALP will make Tekmira not only an attractive collaborator and acquisition target in RNAi Therapeutics, but should offer it new business opportunities outside the traditional siRNA structure. This includes various forms of microRNA mimics and inhibitors, immunostimulatory oligonucleotides, and oligos for targets based on emerging non-coding RNA pathways or other knockdown mechanisms. Mir-122 inhibition with SNALP may be an interesting pharmacologic alternative to the naked LNA-anti-miR122 by Santaris now in late phase I studies. Demonstrating the utility of SNALP outside the liver, such as for solid cancers and cells of the immune system (maybe by using targeted delivery) could further increase the perceived value of this conservatively managed company. With about two years’ worth of burn in a relatively good financial position.

I should temper my enthusiasm, however, as there are no sure things in biotech and the first use of SNALP in Man may well yield some unpleasant surprises and could dramatically change the outlook for the company. Similarly, it needs to think ahead about how to access a broader investor audience outside of the Canadian market as its own pipeline is growing in size and capital demand. A good bet nevertheless.

Benitec: Faces an uphill battle with regards to their core DNA-directed RNAi patent, essentially pitting it against mighty Fire-Mello. However, as time progresses and the ’099 Graham patent not getting any younger, I’m starting to have doubts as to how important this patent will prove to be. Other patents assigned to Benitec, the HIV programs, and potentially the Biomic collaboration may prove to be of more immediate practical value to the company. What is needed, of course, is a re-capitalization of the company.

Targeted Genetics: This cat has 8 lives. I had been quite confused that after almost everything scientific and clinical was going in Targeted Genetics’ favor, the company was rapidly approaching bankruptcy. Society and the investment world are not always fair, which is a warning to those investing just according to scientific principles. Now, Genzyme has come to the rescue, but it remains to be seen how committed the company is to its RNAi pipeline. It would make sense for RNAi to be part of a company focusing on diseases of the eye (and CNS) for which AAV and lentiviral gene therapies currently have most promise (the eye as the liver of DNA-directed RNAi).

RXi Pharmaceuticals: Experienced management and scientific team, access to Tuschl I and preferential treatment by the state of Massachusetts, yet for some reason very little drive towards the clinic and financially challenged. Instead of a clinical pipeline, a pipeline of ‘interesting’ RNAi trigger and delivery approaches. I’m still not sure about what their rights to Tuschl I are that have recently been characterized as ‘limited’ in scope. This, however, and the Massachusetts/Mello connection are probably the biggest draws for the stock. Still, without being able to offer complementary practical know-how I would think Big Pharma is not too anxious to access RXi as a partner.

Silence Therapeutics: Similar to RXi Pharmaceuticals, stands to greatly benefit depending on the messiness of the Tuschl patent outcomes where Silence’s ability to operate in the 21-23nucleotide space is at stake. Also reasonably successful in battling the patent that most likely imposes most constraints on the company, namely Kreutzer-Limmer. While nobody would doubt Alnylam’s freedom-to-operate (however questions have been raised as to the degree of being able to exclude), my fundamental question about Silence Therapeutics is whether what may be a patent work-around also makes for the best scientific approach. Their underlying patent application is based on quite limited data, so I have yet to be convinced of any real generally applicable scientific advantage of the Atu-RNAi design (nevermind, at least in terms of IP, my opinion does not matter much since the European and US patent offices appear to concur with Silence). Things have been looking up recently for the company and its Atu-027 program for advanced solid cancers has started phase I dosing. This program aims at silencing the PKN3 kinase in the endothelia of solid tumors which apparently inhibits metastatic spread through reduced lymphangiogenesis. An interesting approach towards RNAi cancer therapy and has been described in a detailed company publication late last year that provided reasonable support for bona fide in vivo gene knockdown using lipoplex delivery (Aleku et al., 2008). One interesting point I found in that publication was that in cynomolgous monkeys, the circulation time of the particles was greatly extended to what they found in rodents. This can only be a good thing for the prospect of lipid-based nanoparticles.

mdRNA: Together with Targeted Genetics, another unlikely survivor from the financial crisis coming from Seattle. Two deals with Big Pharma, one on delivery (Novartis), and one on siRNA structure (Roche), early this year contained enough upfront to give the company another couple of months to get itself on sounder footing. Similar to Silence Therapeutics, their main delivery approach consists of essentially the same chemistries as contained in SNALP and apparently lends itself to targeted delivery (which, however, is not a unique property of their technology). Also, I would be cautious about claims that putting UNA-modified nucleotides in the 3’ overhang of siRNAs would liberate them from claims in Tuschl II. UNA modifications appear to be a viable option for the siRNA modification toolbox, but I would be cautious in how far they are uniquely advantageous over other chemistries at last according to an excellent, comprehensive siRNA modification screen as published by Bramsen et al. this year. In any case, the fresh, and apparently well-connected management team can be congratulated for rescuing the company, and the scientific team for their skills in being able to rapidly adopt oligonucleotide modification and liposomal delivery skills at least to the degree that Big Pharma is curious enough to look under their hood. I would like to speculate that if RXi e.g. had built such practical skills in-house, we may have seen some deals that would not have been as dilutive as recent efforts to raise capital.

Rosetta Genomics: After having apparently staked their future on a blood-based test for colorectal cancer screening, it has reported that these plans have been slightly delayed due to technical issues. The poster on the colorectal cancer-related microRNAs in blood that had been presented previously certainly showed initial proof-of-concept for blood-based microRNA diagnostics, but more robust detection methods are needed in order to make such tests a commercial reality. It is debatable whether the one-shot strategy was a wise one, instead of churning out a series of tissue-based Dx albeit with a much smaller target market. If blockbuster products like a screening test for colorectal cancer were a primary business goal, then an alternative route may be to collaborate on Rx-Dx combinations which however are much onerous to develop than home-brew Dx and may require a partner like Roche. There may be a number of regulatory and health care reform issues that could affect the future prospects of being able to sell and get reimbursements for home-brew Dx. On a positive note, according to my literature, I have stumbled across enough references by Big Pharma on the potentially unique utilities of microRNA Dx that I believe the concept has well arrived in the minds of important constituencies for Rosetta. A pick-up in sales of their first products would also be welcome by investors. Due to a number of synergies, companies like Regulus may also be a good home for Rosetta Genomics.

ISIS Pharmaceuticals: There is certainly a flood of ISIS-related antisense in various stages of clinical development, some with interesting results indicating efficacy. Mipomersen meanwhile blazes the trail for ApoB as a target for hypercholesterolemia, and assuming it will confirm phase II results, I am curious about how much of the patient audience Genzyme is able to capture. This should also have implications for the financial potential of follow-on ApoB therapeutics. ISIS also was successful in monetizing their IP for ssRNAi with almost $21M (! a high number considering the stage of ssRNAi and other deals that Alnylam has done in the past) in upfront and near-term payments from Alnylam, while still being able to develop ssRNAi Therapeutics itself. OK, you know that I have some problems with how ISIS likes to interpret RNAi as an antisense technology, so please allow me this comment: if RNAi already was a single-stranded antisense technology, how is it then possible to claim ssRNAi as a separate technology without running afoul double-patenting rules? Anyway, I acknowledge that ISIS is on a good way of becoming a sustainable, profitable oligotherapeutics company and probably should be part of a diversified RNA Therapeutics portfolio.

Oxford Biomedica: Despite disappointing cancer vaccine results causing partner Sanofi-Aventis to give up on Trovax, Oxford Biomedica must have been able to impress Sanofi-Aventis with their core leniviral delivery technology (note: Trovax is not a lentiviral technology). Sanofi-Aventis thus seems to agree that lentiviral delivery has significant potential for applications of the CNS, including the eye. However, as I hear little about Oxford Biomedica using its IP and know-how in RNAi, I will consider replacing it with companies like Genesis R&D in my next portfolio update. There is certainly a lot of DNA-directed RNAi Therapeutics technology and IP looking for a well-funded home.

[Please note that the following is a run-down of my own impressions of companies in the portfolio and links are not necessarily provided for all major assertions. Please use the comments section if you believe that there are factual inaccuracies]

RNAi Therapeutics Portfolio: SNALP RNAi Phase I Data and RNAi Trigger IP Questions Likely to Move RNAi Stocks

As the threat of financial apocalypse seems to be behind us, thanks to what authorities can always be counted on in the wake of economic crises, namely printing money and thereby re-distributing wealth, it is time to re-visit the RNAi Therapeutics portfolio.

10 months ago, I would not have necessarily expected to see the likes of mdRNA and Targeted Genetics still in existence today. A number of companies such as RXi Pharmaceuticals, mdRNA, Targeted Genetics, Genesis R&D and others have thus taken advantage of the thawing financial markets and extended their runway by raising capital through secondaries and IP monetizations. Before I calculated the current values in the portfolio, I made a list of the companies and how I would have allocated funds if I were to start the portfolio from scratch, and it turned out that the values more or less corresponded.

The only transactions were selling CytRx and using half of the proceeds for purchasing back their pure-play daughter company RXi Pharmaceuticals, and, yes, Silence Therapeutics with the other half. The first transaction was merely because the anomaly, namely that the stake that CytRx had in RXi had been worth more on paper than CytRx itself, had disappeared. The purchase of Silence Therapeutics was done to take into account their improved IP position following decisions on Kreutzer-Limmer and Tuschl uncertainties in recent months. What I noticed is that, no matter what I think about the merit of the underlying science, I would not discount Silence Therapeutics’ ability to access potential collaborators, and some in Big Pharma may view Silence as a cheap entry-ticket into RNAi Therapeutics.

However, RNAi trigger IP is only one of the RNAi-intrinsic factors that I expect to move RNAi stocks in coming months. More importantly, I expect that, for better or worse, it is the phase I results from foremost Tekmira’s SNALP-ApoB, and then Alnylam’s ALN-VSP02 programs will heavily influence of how investors think about the near-to midterm prospects of RNAi Therapeutics. A positive surprise could come from late-stage preclinical data from the anti-miR122 candidates for the treatment of HCV infection as was alluded to in an interview with Regulus CEO Kleanthis Xanthopoulos, while prospering Santaris is moving ahead with their LNA-based miR-122 inhibitor into late phase I (a likely source of future patent issues).

In tomorrow’s post I will provide a brief run-down of the companies in the portfolio.

RNAi Therapeutics Model Portfolio

Before the biotech investment year kicks off tomorrow with the JP Morgan Healthcare Conference in San Francisco, I would like to initiate an RNAi Therapeutics model portfolio that should track the fortunes of publicly listed companies with significant stakes in RNAi Therapeutics and microRNA-related applications (excluding large pharmaceuticals). My subjective valuation of companies is the main determinant for their accorded weightings in the portfolio. Consequently, they do not necessarily reflect their relative technology/IP strengths. The selections, of course, are my opinion only and not meant as investment advice. Investments in the RNAi Therapeutics field are highly speculative and not suited for most investors. With that out of the way, some rules to keep me honest:

1) Initial balance: $10,000.

2) Initial purchases are made based on last Friday’s closing prices (January 4, 2008).

3) Currency fluctuations are not taken into account.

4) Sales/Purchases based on closing prices and are posted on the blog the same day.

5) Updated portfolio balance will be displayed at the beginning of each month.

Some comments on my selections:

Alnylam: The proven leader in RNAi Therapeutics. Human proof-of-concept data, new collaboration deals (including for Regulus), ability to file for new INDs, and the upcoming Novartis adoption license decision as potential value drivers. Main concerns: human proof-of-concept taken for granted by market and priced in and delays of systemic delivery programs.

Tekmira: Most speculative position in my portfolio. Timely advancement of SNALP-enabled RNAi development programs into the clinic should be well received and trigger a significant bounce in the stock. Strong Alnylam relationship with R&D essentially paid for by Alnylam. Main concerns: making SNALPs safe enough for clinic may take more time than anticipated, and protracted Protiva litigation.

ISIS Pharmaceuticals: Partnering of mipomersen (ApoB100 antisense) could be eye-opener for how much Big Pharma is willing to pay for novel RNA-based therapeutics. Growing revenue stream from IP (esp. from Alnylam, but also other companies based on RNA technology), diagnostics, and licensing out antisense programs. Should also benefit from Regulus deal. Main concern: Safety of mipomersen.

Benitec: Main DNA-directed RNAi player. Potentially lucrative, lean IP licensing model with some strategic investments in clinical programs. Main concerns: weak balance sheet and currently shaky patent estate; perception of DNA-directed RNAi versus siRNA-mediated RNAi.

Rosetta Genomics: Main publicly traded microRNA diagnostics player with potentially large, valuable microRNA target IP estate set to commercialize first microRNA diagnostics products and looking for partnering opportunity. Main concerns: issue of patenting microRNA sequences and pre-mature focus on microRNA therapeutics.

Nastech: Punished stock should recover if they can capitalize RNAi spin-out MDRNA on favourable terms. Strategy of patenting the steps of RNAi around the classical Tuschl siRNA design could attract partnering interest from Big Pharma. Main concerns: poor negotiation position with credibility problem and weak balance sheet; unvalidated IP.

Silence Therapeutics: So far productive RNAi Therapeutics engine and deal flow. Depending on the eventual scope of Kreutzer-Limmer I and ability to get their own patent applications granted, a takeover candidate by Big Pharma.

CytRx: Tuschl I play. Main concerns: delay of Tuschl I, getting their RNAi therapeutics R&D into gear and spinning out RXi.

Targeted Genetics: DNA-directed RNAi play with Sirna/Merck relationship. Leading AAV gene therapy company that should benefit from the fact that AAV is very promising for RNAi delivery to the liver, eye, and brain, with near-term clinical opportunities. Main concerns: perception of DNA-directed RNAi versus siRNA-mediated RNAi.