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.

mdRNA and RXi Coming Out with their RNAi Triggers (Part I)

In conference presentations this week, both mdRNA and RXi Pharmaceuticals finally lifted the veil of mystery shrouding the nature and performance of their claimed proprietary RNAi trigger designs. Independent of what they may mean in terms of IP, they are certainly worthy contributions to the science of RNAi triggers: the use of unlocked nucleic acids to increase the specificity of RNAi gene silencing (mdRNA), and the convergence of delivery and RNAi triggers through nucleic acid chemistry (RXi).

At the ‘RNAi and miRNA World Congress’, mdRNA presented data illustrating how selectively spiking siRNAs of the traditional Tuschl structure with a number of unlocked nucleic acid residues (usiRNAs) can reduce the level of off-targeting commonly provoked by ‘naked’ siRNAs. While similar strategies have been reported before and are broadly attempted in the industry, what differentiates mdRNA’s approach is that this particular nucleic acid analogue does not involve the addition of modifying chemical groups. Instead, in an unlocked nucleic acid the ribose ring is simply broken without making the residue any bulkier, but this is enough to significantly affect the interactions of the siRNA with its target mRNA and the Argonaute protein, the effector protein of the RNAi silencing pathway.

The simplest, and therefore widely practiced first step in reducing off-targeting is to modify the 5’ end of the passenger strand with a variety of chemistries. Because the 5’ end is important for the Argonaute protein to recognize and bind an RNA as the guide strand, half the off-targeting can be eliminated based on the sensitivity of this interaction to chemical alterations. It so happens that a UNA at the 5’ end of the passenger strand is similarly not tolerated…as has in effect recently also been shown in a publication by Sirna Therapeutics/Merck (Kenski et al., 2010). In the example provided by mdRNA at the conference, this meant a reduction in the number of genes that were changed in their expression by a factor of more than 2-fold (generally 2-3 fold) from ~390 to ~ 180, while on-target gene silencing activity was maintained at around 95% (data from RNA microarray experiments).

I should add, however, that additional usiRNA residues in the 3’ overhangs of both passenger and guide strands somewhat complicate determining the exact contribution of the passenger strand 5’ modification in reducing off-targeting. This is because it is known from structural studies that the position of the 3’ end of the guide strand relative to the Argonaute protein changes upon the transition from the microRNA-off-target (in the so called ‘PAZ pocket’) to the on-target cleavage (dislodged from the ‘PAZ pocket’) confirmations. 3’ ends that do not fit into the PAZ pocket may therefore change the ease with which the enzyme adopts either conformation and therefore affect the propensity of microRNA-like off-targeting. Structural studies with UNA residues at the 3’ end may be instructive here.

More interesting is mdRNA’s observation that when, on top of the above modifications, one normal base is replaced with its corresponding UNA analogue in the seed (= the first 2-8 nucleotides), the off-target activity is further reduced to about 35 genes that are changed by at least 2-fold, while again maintaining on-target efficacy. This was theorized to be due to the changes in guide RNA-target mRNA hybridization energies within the seed: the usiRNA lowered this energy sufficiently such that a microRNA-like interaction that is reliant on the seed becomes prohibitively weakened. However, the extended length of the guide RNA-target mRNA base-pairing compensates for the lost energy thus still allowing for Argonaute conformational change and on-target cleavage to ensue.

Previously described modifications have similarly been thought to function in reducing microRNA-like off-targeting by modulating seed energies. usiRNAs, however, could be a particularly attractive approach, because its small size should make it less likely to be detrimental to on-target activity. This, of course, would have to be shown with more examples, preferably in a peer-reviewed publication, and the Sirna Therapeutics paper has shown at least some limitations in where the UNA can be placed in the seed. Similarly, it remains to be demonstrated how much of the reduction in the off-target activity was due to eliminating microRNA-like interactions instead of a reduction in the innate immunostimulatory potential of these siRNAs as UNAs were also shown by mdRNA to mitigate such responses.

I believe this story shows how RNAi trigger design has matured to a point that RNAi Therapeutics truly lives up to its original promise of specificity which had temporarily (2003-6 period) been tarnished by the discovery of wide-spread microRNA-like off-targeting and the innate immunostimulatory potential of exogenously delivered synthetic siRNAs. It also demonstrates that at least on the level of RNAi trigger design mdRNA could certainly be a valuable partner to most in Big Pharma.

In my next entry (link here), I will provide my thoughts about RXi Pharmaceutical’s ‘self-delivering rxRNAs’ for which, until now to the best of my knowledge, the company has created so much expectations without actually disclosing the chemical nature thereof.

mdRNA Wants to be Opportunistic, Does not Rule out Further Participation in Sector Consolidation

Yesterday, I had the opportunity to talk to the combined mdRNA management team about the maturity of their science, intellectual property, and corporate development objectives. This is a particularly fascinating topic for students of corporate strategy on the eve of their merger with trans-kingdom RNAi company Cequent Pharmaceuticals which combines two ends of the RNAi technology spectrum: chemistry-driven synthetic siRNA therapeutics with bacterially mediated RNAi.

In this context, it may not come as too much of a surprise that the company is positioning itself to further explore the various corners of the RNAi and also RNA Therapeutics space (e.g. antisense approaches such as for microRNA inhibition, a possibility also pointed out here in a comment by former CEO of Nastech/mdRNA Steven Quay) and take advantage of technologies that they come across and perform particularly well in their hands. For example, like myself and I believe an increasing number of other people in the sector, mdRNA agrees that DNA-directed RNAi could be very powerful for neurological applications and therefore be of interest.

I would add, however, that mdRNA’s ability to further participate in M&A activity is limited by their challenging financial situation and would always have to take place in a setting that, like was the case with Cequent, adds cash to its reserves. One scenario to get on top of that issue would be to achieve their goal of reaching one significant Big Pharma partnership around the middle of the year and then, depending on the share price reaction raise some additional capital on the public markets, although management was keen to stress that this of course would have to occur in the least dilutive fashion possible.

In general, I was a bit positively surprised by their down-to-earth assessment of the maturity of mdRNA’s technology, unlike the impression that I had got at times when often very similar press releases had been issued touting the company's progress. The company is now focusing their internal development pipeline on the bladder cancer program where it has reported potent gene knockdowns with intravesical administration of DiLa(2) liposomes. Systemic delivery programs, meanwhile, are not imminent and largely the domain of their 4 active early collaborative efforts.

When asked for the reason of this slight adjustment of pipeline prioritization, it became clear that the rational development of systemic (liposomal) delivery can be a challenge. While they have mastered DiLa(2)-mediated knockdown in rodents, non-human primates (NHPs) appear to be quite a bit more tricky. They were quick to add, however (rightly so, I believe), that claims by a number of other companies about knockdown in NHPs would often have to be taken with a grain of salt. In my mind, the difficulty in making rapid progress in expanding systemic liposome delivery to primates could be a price to pay when one is quite broadly oriented instead of focused on core technology strengths. On the other hand, compared to a number in Big Pharma they are still advanced in that regard and attractive enough as at least an early stage collaborator. Moreover, the bladder cancer program where they seem to have seen the most promise and on top of that the Cequent pipeline should keep the company more than occupied with clinical and near-clinical development programs.

As alluded to before, the reason why Big Pharma appears to be interested in working with mdRNA is because mdRNA, as an RNAi-focused company, may be able to provide their partner with general RNAi Therapeutics expertise. MdRNA may disagree with me here officially, but it has also been my view that, more than IP, it is this general platform know-how that may lend itself as a launch pad into RNAi Therapeutics for a Big Pharma entrant worth maybe $100-150M? A similar case could be made for Silence Therapeutics and RXi Pharmaceuticals.

Intellectual property, of course, was then also discussed, and, as you would have expected, mdRNA believes to have broad freedom-to-operate (FTO) in RNAi trigger, especially usiRNAs, and liposomal delivery. As evidence for this, they cited outside patent counsel that attested them to have such FTO, and a Roche that apparently did extensive due diligence before taking, what I believe to have been a UNA-focused license to RNAi triggers a year ago. Furthermore, there are a number of patent applications being prosecuted now that may see the light of day. It will probably remain an area of disagreement between myself and mdRNA that while it is possible to see such patents being issued, it is important to keep in mind that a patent still only gives you the power to exclude, but does not give you automatically FTO which is particularly relevant for more narrow patents, e.g. a patent that covers a double-stranded RNA containing at least one UNA, but that would still fall structurally under the more general Tuschl designs.

In light of this, it is possible that Roche paid mdRNA to play in UNA-modified siRNAs, with UNA being a “modified nucleotide” [this is btw not how mdRNA wants to define it, but that’s the way I define it :)] with admittedly interesting biophysical characteristics that could lead to unanticipated beneficial effects for siRNA potency and specificity, some of which apparently is in the publication pipeline. Maybe it is because I am still too much of an academic at heart, but I still care for those publications as they are the best way to be scientifically credible in the eye of a potential suitor. If the patent examiner can be convinced of the beneficial properties of a UNA in an siRNA, just as Silence Therapeutics was able to convince at least two examiners about such properties for the Atu-siRNA modification pattern, then Alnylam may not be able to exploit UNAs without mdRNA’s permission, the loss of which to Alnylam would be debatable (there are a lot of other modifications to be explored). A similar difference in opinion between myself and the company applies to their liposomal formulations and the use of cationic/titratable lipids and possibly (not discussed) formulation methods, although some of this may be too premature to speculate on as we have yet to see the eventual formulations.

In summary, mdRNA is certainly not afraid of the challenges ahead as it hopes to leverage its proven adaptability to be an opportunistic RNA(i) Therapeutics investment vehicle. While some differences in opinion exist, I certainly wish them well and am quite hopeful for their FAP and bladder cancer clinical candidates, both as product opportunities per se and what RNAi Therapeutics can learn from them.

It is the first time that I publish such an interview on this blog and still need to learn how journalists manage to come up with all those quotes (are they recording their interviews, or reconstruct quotes from memory?). Instead, you were served with a highly ‘interpreted interview’ and I will be happy to provide space here for the company should they feel that I misrepresented their views.

mdRNA-Cequent, and the RNAi Therapeutics Consolidation Wave Keeps On Rolling

Only 3 months after the Silence-Intradigm merger, synthetic siRNA Therapeutics company mdRNA just announced that they would combine their RNAi Therapeutics assets with that of trans-kingdom RNAi company Cequent Pharmaceuticals. Unlike the Silence-Intradigm merger, however, this merger is less about synergy, more about complementing each others’ strengths, and by this make it successfully through a biotech climate that is only now starting to thaw for platform technologies like RNAi Therapeutics.

Technically an acquisition by mdRNA of Cequent, the transaction benefits mdRNA in that the access to Cequent's cash enable it to finance operations until the end of the year, possibly long enough to convince one or two of their early-stage Big Pharma collaborators to pay $10-20M in upfront payments each for a platform license. Equally important, the transaction transforms mdRNA into a clinical-stage company, with one trial start imminent and possibly 3 additional INDs by the middle of next year (an inflammatory bowel disease program by Cequent and two cancer programs by mdRNA) that should be considerably helped by Cequent’s proven expertise in moving innovative drug candidates into the clinic. This profile, with a stretch-goal of being ready to commercial in 2014 CEQ-508, Cequent’s clinical candidate for the prevention and treatment of colon cancer in familial adenomatous polyposis, or FAP, an orphan disease (reviewed here). This more mature profile may allow the combined company to reach new types of investors.

On the other hand, similar to Intradigm, this transaction provides Cequent’s VC investors with what in the current biotech climate can be considered a successful exit by valuing Cequent at $44M at the time of the announcement, although the present value should be somewhat less following huge volume trades earlier this week. This is also the result of the feat of being able to grow a healthy pipeline of drug candidates in just 4 years, one that is based on a rather unorthodox technology that uses bacteria as delivery agents for the RNAi trigger to sites such as the GI tract (the current focus), genitourinary tract, and skin.

The technology diversification provided by tkRNAi gives the New mdRNA a wider choice of development options. It would be good, however, to keep nourishing the molecular biology of tkRNAi as I believe that within a short period of time, through the wonders of bacterial genetics, significant technology improvements could be achieved. With up to 9 employees contributed by Cequent and about 50 by mdRNA, it remains to be seen to which degree this can be realized in the new company.

I believe both sides and their investors are well served by the outcome and it should be a case where the whole is greater than the sum of its parts. About 60 employees is also about the critical size to be attractive as a partner for Big Pharma with sufficient depth in the various disciplines (RNAi trigger, delivery, regulatory etc), but not too big for it to become too big a cash-burn burden. But this is no time for mdRNA to celebrate for too long. We’ll have to see what Michael French and the new team have up their sleeves next. Meanwhile, there is more potential for consolidation in RNA(i) Therapeutics and mdRNA-Cequent should not be the end of the story during this phase of the global and industry-specific economic cycle.

Disclosure: I have been an advisor for Cequent Pharmaceutical and will only discuss publicly available information. My views on mdRNA’s technologies and tkRNAi can be found by searching this blog with keywords like ‘mdRNA’; ‘Nastech’; ‘Cequent’; and ‘tkRNAi’.

While Alnylam Focuses Suit on Whitehead and UMass, a New Tuschl Loophole Approach Gains Traction

Not a day goes by in RNAi Therapeutics land without hearing the sounds from the RNAi trigger IP battle grounds. Today is no exception…

Wading through the court documents from the Alnylam-Max Planck suit on how the Whitehead prosecuted the Tuschl I (T-I) patent application (aka the 'Tuschl Tussle'), it struck me that while it was Whitehead, their hired patent counsel, and UMass that apparently conceived of the strategy of how to incorporate data from the T-II patent into T-I against the interests of Alnylam and Max Planck, the MIT seemed to merely go along unwittingly. As a result, MIT not only became a victim in that they were deprived of the benefits from the therapeutic agreement they were part of with Max Planck and the Whitehead, which to my knowledge anticipated equal sharing of the profits from therapeutic licenses derived from the combined T-I and T-II estate, but also because they ended up as defendants in the suit.

Perhaps realizing this, Alnylam announced today that it will leave the MIT off the hook in return that they will be bound by any ruling in favor of Alnylam/Max Planck. It could also help drive a wedge between the former co-defendants as the MIT will now feel less fearful about telling their side of the story which could turn out to be quite revelatory. The MIT should have every reason to be unhappy with the Whitehead and the way T-I was handled. The argument that Whitehead, and implicitly, the MIT, aided UMass for political reasons, thereby leaving therapeutic licensing money on the table, never really flew with me since a) institutions just don’t give away money like this, and b) I could never imagine a research institution of the stature of Whitehead as being nationalistic and therefore anti-Max Planck.

While the Tuschl Tussle is going on, there is another Tuschl loophole movement in the field that appears to be gaining some traction. It initially started with mdRNA’s claims that the mere inclusion of a single ‘funny-looking’ nucleotide into an siRNA, unlocked nucleic acids (UNAs), would help it get around the Tuschls. It long cited evidence by outside patent counsel that supposedly supported their belief that they had freedom-to-operate in the RNAi trigger space. The news that Quark Pharmaceuticals had just initiated dosing for their 5^th (!) clinical RNAi program for a neuroprotective agent of the eye, it reminded me of their similar claims about ‘proprietary siRNAs’. To find out about the nature of these claims, I looked up what potentially applicable patent applications they had filed, and came up with the following main claim:

"1. A compound having structure (IX) set forth below:

(IX) 5' (N)x - Z 3' (antisense strand)

3' Z'-(N')y- z" 5' (sense strand) wherein each of N and N' is a ribonucleotide which may be unmodified or modified, or an unconventional moiety; wherein each of (N)x and (N')y is an oligonucleotide in which each consecutive N or N' is joined to the next N or N' by a covalent bond; wherein Z and Z' may be present or absent, but if present is independently 1-5 consecutive nucleotides covalently attached at the 3' terminus of the strand in which it is present; wherein z" may be present or absent, but if present is a capping moiety covalently attached at the 5' terminus of (N')y; wherein x =18 to 27; wherein y =18 to 27; wherein (N)x comprises modified and unmodified ribonucleotides, each modified ribonucleotide having a 2'-O-methyl on its sugar, wherein N at the 3' terminus of (N)x is a modified ribonucleotide, (N)x comprises at least five alternating modified ribonucleotides beginning at the 3' end and at least nine modified ribonucleotides in total and each remaining N is an unmodified ribonucleotide; wherein in (N')y at least one unconventional moiety is present, which unconventional moiety may be an abasic ribose moiety, an abasic deoxyribose moiety, a modified or unmodified deoxyribonucleotide, a mirror nucleotide, and a nucleotide joined to an adjacent nucleotide by a 2 '-5' internucleotide phosphate bond; and wherein the sequence of (N)x is substantially complementary to the sequence of (N')y; and the sequence of (N')y is substantially identical to the sequence of an mRNA encoded by a target gene."

As the red highlight shows, the ‘proprietary’ claim of the Quark siRNAs rests on the sense/passenger strand similarly containing at least one ‘funny-looking’ nucleotide. I was disappointed, however, that the specifications did not explain why this should have any unique advantages. Since in addition to novelty (that's where they will likely try to focus their arguments on), a patent has to also fulfill the demands of non-obviousness and utility, I have my serious doubts that this and the usiRNA patent applications will stand up to closer scrutiny, and if they did get by any patent offices, Alnylam would ultimately challenge them. It suggests, however, that while patent protection for these RNAi triggers is unlikely, a number of players increasingly view this strategy as a way to at least gain independence from the Tuschls. The exact reasoning behind this is mysterious to me, since these modifications should already be explicitly covered by the Tuschls when they refer to 'nucleoside analogues' which usiRNAs are. And even if the Tuschls did not explicitly mention them, it would appear obvious that an siRNA is an siRNA whether it contains a limited number of ‘funny’ nucleotides or not.

As I said, I have yet to hear a convincing argument by the companies what their belief is based on. Just stating that they believe so is not enough to convince investors and potential partners. I am always willing to listen to such arguments.

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.

Has mdRNA Found a Way around Alnylam’s RNAi Trigger IP Wall?

mdRNA has to be The RNAi Therapeutics corporate success story of 2009. At the brink of bankruptcy at this time of last year after problems with their former nasal delivery business sent the company into a breathtaking tailspin, the new management, critically made up of former Sirna Therapeutics executives, was able to save the company by quickly cashing in on some non-core assets, attracting upfront payments of about $12M in two non-exclusive RNAi Therapeutics deals with RNAi heavy-weights Novartis and Roche, and an opportunistic financing shortly after final approval of a partnered legacy generic (calcitonin-salmon nasal spray for osteoporosis) caused an irrational spike in mdRNA’s share price. Although I perceive mdRNA’s lack of RNAi Therapeutics publications as a clear weakness, also in light of its history of later unsubstantiated scientific claims, these developments are signs that not only is the management apparently well connected, but that the company has been able to establish a quite decent RNAi Therapeutics drug development platform and with IP that cannot be dismissed out of hand. Since the Novartis deal on delivery involved not only IP, but also the transfer of liposomal formulation know-how, but the Roche deal on RNAi triggers appears to be an IP-only deal, I have looked more into mdRNA’s claim of having freedom-to operate with its ‘proprietary’ RNAi trigger designs. Out of fairness, I should add here that a lot of this change had been set in motion with the old management.

It has become a popular game in the RNAi Therapeutics industry to design ways around Alnylam’s dominant RNAi trigger patent portfolio. While corporate strategy is the driving force behind these supposedly proprietary designs, given that intellectual property is not always guided by the spirit of science and since new trigger designs might have unexpected beneficial properties for certain applications, it is prudent to pay attention when Roche is willing to pay mdRNA non-refundable $5.0M for a non-exclusive license to mdRNA’s RNAi trigger IP claims after having just paid more than $300M for much less of Alnylam’s RNAi trigger IP. Of course, one might also view this deal, which was also largely free of downstream obligations, as a move by Roche to cover all their bases- just in case.

At the time of that deal, mdRNA had three RNAi trigger designs in its stable: certain rights to City of Hope’s Dicer substrates, the three-stranded meroduplex siRNA design after which mdRNA takes its name, and unlocked nucleic-acid-modified siRNAs (usiRNAs). Subsequent to that deal it emerged from regulatory filings that, perhaps because Dicerna appears to own most of the Dicer-substrate IP, that mdRNA has dropped Dicer substrates from their portfolio. Furthermore, since Dicerna would probably have been quite happy to make a deal with Roche, it would appear that Dicer-substrates, although part of the deal, was not the main motivation for Roche. This leaves us with meroduplexes and usiRNAs.

If you assembled five PhDs in molecular biology for a weekend, presented them with the main claims of Tuschl I and II, and asked them to come up with RNAi trigger design-arounds, in principle the result may have looked similar to what mdRNA arrived at. That the various designs should also likely to be functional biologically, at least to a certain degree, is a testament to the robustness of the RNAi pathway when it comes to relatively short double-stranded RNAs, a realization that has only sunk in subsequent to the Tuschl publications, but that was already heralded by the findings of Kreutzer and Limmer.

Both Tuschl I and II essentially claim double-stranded RNAs of 21-23 (T-I) or 18-24 (T-II) (contiguous?) NUCLEOTIDES in length. Besides size and overhangs which had been the main theater of the RNAi trigger IP war thus far, one might argue that an RNAi trigger that does contains a number of NON-nucleotides or in which the dsRNA is made up of three, and not two strands, does not literally violate the Tuschl claims.

I have long been puzzled why mdRNA would think that using unlocked nucleic acids (UNA) per se would be the solution, as I considered UNA just another nucleotide-modification alternative in the armamentarium of the siRNA synthetic chemist: UNAs are simply nucleic acids in which the C2-C3 bond has been disrupted (that is apparently also the process by which they are generated). But when the company’s CEO Michael French at the BMO Capital Markets Focus on Healthcare Conference made a point that it is the fact that UNAs supposedly are not nucleotides is indeed what underlies mdRNA’s interest in UNAs. A quick, non-representative survey among scientists that I know, however, was consistent with my initial assumption that UNAs clearly have to be considered ‘nucleotides’ as they look and behave like such. Moreover, there are numerous quotes by the inventor of UNA, Jesper Wengel of Denmark, and by the Danish company RiboTask from which mdRNA has exclusively licensed the UNAs for therapeutic applications that UNAs are modified nucleotides. The question therefore appears to boil down to whether potential partners first and then the patent offices can be convinced of that a ‘nucleotide’ that does not contain an intact ribose or deoxyribose strictly is a nucleotide no more. Although I am skeptical that any one nucleotide modification is sufficient to get around the Tuschl patents, I could imagine that the possibility alone of their literal interpretation could motivate others to come up with similar non-nucleotide siRNAs.

Aside from the IP considerations of usiRNAs, it is premature to judge the scientific value of this modification over others. The fact that ‘unlocking’ a nucleotide is a quite distinct modification should allow it to endow an siRNA with unique properties with respect to recognition by the RNAi machinery, target specificity, the potential to be recognized by innate immune receptors etc. What can be said based on the limited publication record (Bramsen et al., 2009: Large-scale screen....; Kenski et al., 2009: Analysis of acyclic nucleoside modifications...), UNAs like many other modifications are best tolerated in the passenger strand and can reduce off-targeting by the passenger-strand, whereas the use in the guide strand is much more position-dependent. Whether its judicious incorporation can indeed largely abrogate innate immune responses and/or allow for a better differentiation of on-target cleavage over microRNA-like off-targeting as claimed, remains to be seen and especially published (also because mdRNA/Nastech has a track record of making similar claims which tend to silently disappear over time). On the other hand, since Sirna Therapeutics (Merck) is evaluating UNA-modified siRNAs (Kenski et al., 2009), despite its access to Tuschl I, may be interpreted as a sign that there may indeed some unique scientific merit to usiRNAs, and mdRNA may derive value from controlling its use for RNA therapeutic applications.

Moving on to 3-stranded siRNAs, the other pillar of mdRNA’s RNAi trigger strategy, from an IP point one has to probably say that this stands a better chance of surviving Tuschl scrutiny with Tuschl II explicitly claiming double-stranded RNAs consisting of two strands. The double-strandedness of Tuschl I, however, could be more broadly interpreted in that a nick should not make a difference in determining the length of a double-stranded region. In this case, it will be interesting to find out how 3-stranded siRNAs with a gap instead of a nick would perform.

When I first heard of the 3-stranded siRNAs in 2006, I thought that this was based on the observations by a number of labs at the time that the passenger strand of the siRNA is cleaved as part of RiSC activation and that the objective of 3-stranded siRNAs thus was to hi-jack the RNAi machinery downstream of the intact siRNA. However, looking at the history of the relevant patents, it appears that this was not the case, but was merely a coincidence. There is, however, an interesting twist to the story. RiboTask, which happens to also be mdRNA’s partner in usiRNas, filed for almost identical patent protection, but with a priority date that appears to be a couple of months ahead of mdRNA’s. In the case of RiboTask, which calls the 3-stranded siRNAs not meroduplexes but small internally segmented interfering RNAs/LNAs (sisiRNA/sisiLNA), I do not want to be as dismissive about their scientific motivation, as they address a major concern of 3-stranded siRNAs related to their potential instability. Since short segments of double-stranded RNAs should be relatively unstable, they demonstrated (Bramsen et al., 2009: Improved silencing properties using small internally segmented interfering RNAs) that it is possible to restore ‘duplex’ stability by modifying it with locked nucleic acids, the mirror-image of UNAs and curiously invented by the same people. Moreover, they show that while heavy modification of both strands renders most siRNAs inactive (with the exception of 2’F and 2’-O-methyl), converting such a modified siRNA into a 3-stranded siRNA often restores at least some of the knockdown activity (also quite interesting from an RNAi mechanism point of view). The ability to heavily modify an siRNA without losing activity may be particularly useful for applications where the siRNA is exposed to nucleolytic degradation such as for conjugate-siRNA approaches. From a scientific perspective, I should also mention that the 3-stranded siRNA design is a way to abolish passenger strand microRNA-type off-targeting, although this is no more a considerable challenge for RNAi Therapeutics. It should also be of interest to evaluate how nicked, and particularly gapped siRNAs are recognized by the various innate immune receptors. The above demonstrations may also help RiboTask and mdRNA in their way through the patent offices, particularly in the US and in light of the mentioned academic research that might have started before RiboTask’s work, and I am curious whether the usiRNA relationship between RiboTask and mdRNA will be extended also to sisiRNAs/meroduplex technology.

Since IP is subject to interpretation and therefore fraught with some uncertainty, it remains to be seen whether mdRNA can achieve certain freedom-to-operate in the RNAi trigger space. Although usiRNAs are the current focus of the company, keeping the meroduplex as an alternative design option open seems prudent. More broadly, RNAi Therapeutics in general can only gain from investments in evaluating new modifications and designs as unforeseen beneficial properties could emerge from this. Until then, however, it is unlikely that any Big Pharma would want to risk their RNAi Therapeutics future entirely on mdRNA’s RNAi triggers. This also explains why mdRNA sees more partnership potential in its RNAi delivery efforts, the currently more pressing need in RNAi Therapeutics and for which the financials should continue to grow. mdRNA urgently needs such a partnership since although the company had just averted bankruptcy, with cash running out over the next 3 months, the struggle to get out of the bankruptcy quicksand has not stopped. Based on management, while a number of early-stage technology evaluations are ongoing, no significant upfront payments from partnerships can be expected until the middle of next year by which time it hopes to have more non-human primate data to satisfy a more discriminating Big Pharma audience. Given the positive developments of the company over the last year and management’s track record, investor interest should be sufficient to support a PIPE within the next 30-45 days so that the company gets a shot at achieving its partnership goal. If one indeed wanted to make the gamble on mdRNA’s management, from an investment perspective, waiting until more is learnt about the terms of the financing may be prudent, unless valuations continue to fall much further.

Merging Antisense with RNAi Therapeutics to Create Fitter Companies

Yesterday’s long awaited data presentation on phase III results from ISIS Pharmaceutical’s lead antisense gene knockdown program was met by disappointment in the investor community: ISIS down over 15% on the day. While the exciting news is that the drug, mipomersen, looks like it is very close for approval for the severe, but very rare condition of homozygous familial hypercholesterolemia (hoFH) and importantly also possibly other forms of highly elevated LDL-cholesterol, part of the disappointment may be related to the long-term outlook on antisense for gene/mRNA knockdown: a 27% reduction in ApoB levels following 6 months of 200mg weekly injections with a safety profile (a number of cases of elevated liver enzymes, injection side reactions) that may be adequate for the severe cases of hypercholesterolemia, but not necessarily for less severe diseases. And this is for an organ, the liver, which has one of the best pharmacologies for antisense. Also, while a 27% knockdown may be therapeutic for a few targets, especially in metabolic disease, for most other targets it is insufficient.

Lack of high-quality gene knockdown opportunities would lead to an inefficient use of its capital that includes an enviable $600M+ cash pile and an equally remarkable cash-flow from their ‘satellite businesses’. Maybe partly because of this realization, but also of course because it believes that its IP is transferable to all areas it considers antisense, ISIS is not standing still and continues to innovate in areas such as RNAi Therapeutics and the promising gain-of-function antisense technologies of splice modulation and microRNA inhibition.

On the other side of the fence, RNAi Therapeutics is also facing a challenging investment environment. Capital is particularly difficult to raise for early-stage platform technologies. While some companies such as Alnylam, Tekmira, Sirna Therapeutics (historical example), and mdRNA are making good strides in establishing broad RNAi drug development platforms, this alone does not make up for lack of steady newsflow from mid- to late-stage clinical results that can support rich valuations in biotech. This is also not helped by some obvious mis-steps within the industry itself with the main sins being spending money on lawsuits and prematurely entering programs into the clinic, ironically not least in an attempt to keep investor interest levels high.

By merging with antisense, both the pipeline maturity profile could be enhanced and resources spent more efficiently by avoiding the temptation of entering programs into the clinic prematurely and otherwise weeding out programs that serve to artificially fill pipelines. The latter point, of course, would also apply to the antisense company, and the antisense company would further benefit from gaining access to the most potent and therapeutically promising gene knockdown technology known, RNAi Therapeutics. As the intricate relationship between Alnylam and ISIS Pharmaceuticals or the acquisition of Coley as a launch pad for Pfizer’s RNAi Therapeutics ambitions demonstrate, the scientific barriers for such mergers should be relatively minor. One risk, however, that cannot be ignored, particularly for those companies that have been built for sale, is that by combining various drug development platforms, the new entity may become a less attractive candidate for a Big Pharma acquisition. When it comes to mere survival, however, a combination should be the lesser evil.

I will now briefly discuss three fantasy combinations, at least one of which I would speculate to see within the next year.

1) Alnylam Pharmaceuticals and ISIS Pharmaceuticals (probably not within the next year). Without a doubt the most influential and potent leaders in RNAi Therapeutics and antisense, respectively. Already highly entangled through their IP cross-licensing agreements and microRNA therapeutics spin-off Regulus, a combination would create an almost cash flow-positive dream team with over $1B in cash, blocking IP, unmatched expertise in nucleic acid chemistry, clinical pharmacology, and RNAi Therapeutics. First revenues from the sales of mipomersen and continued IP licensing revenues would support a solid pipeline consisting of mipomersen label extensions, RNAi Therapeutics opportunities for liver and solid cancers, full ownership of the miR-122 program for the treatment of HCV, and transitioning antisense towards splice modulation, microRNA inhibition (with Regulus), and possibly other gain-of-function antisense applications. As part of the re-organization, some programs could easily be sacrificed without punishment by the markets. John Maraganore would be the CEO of the combined company, allowing Stanley Crooke to follow his passion in the science of oligonucleotide therapeutics.

2) mdRNA and AVI Biopharma (how soon?). The transition of antisense for gene knockdown to gain-of-function applications is most noticeable in the case of AVI Biopharma. After many years of attempting gene knockdown with their steric-block morpholinos, the company finds success in applying its technology for the modulation of gene splicing. It is considered the closest competitor to Prosensa’s Duchenne Muscular Dystrophy exon skipping program which has only recently entered an attractive $25M upfront plus multimillion bio$$$ milestone and royalty deal with GSK after a series of high-profile publications on DMD-related exon skipping. The partnership potential of AVI’s DMD program then as well as its recent capital raising should provide the needed capital cushion for the combined company to invest in RNAi Therapeutics for gene knockdown and some new splice modulation opportunities. mdRNA, of course, is scheduled to run out of cash early next year and it would be a miracle if the two companies had not contemplated such a merger, particularly after AVI Biopharma moved in as mdRNA’s neighbor not too long along up from Oregon. With AVI’s cash reserve, the combined company may then find it easier to attract platform partners for mdRNA’s technology further bolstering the financials.

3) Silence Therapeutics and Archemix (not really an antisense company, but close enough). It is almost two months now that Silence announced to be in reverse merger talks. Since then, however, not a word except for so-so news on the results of opposition proceedings at the EPO related to their core patent. What Silence needs is cash (who doesn’t?), and what it can offer is a phase I cancer program, RNAi Therapeutics drug development expertise, and an siRNA structure that is not without use, although facing very serious patent challenges. What Archemix needs with its growing pipeline is access to public markets as evidenced by a previously failed reverse takeover attempt with cash-rich NitroMed, as does by the way Quark Pharmaceuticals which should also be counted as a possible Silence Therapeutics merger candidate. The fact that Silence Therapeutics has some aptamer in its blood line and the increased investment by Archemix into aptamer-mediated delivery of RNAi (Dicerna) and microRNA (miRagen) Therapeutics should help a combined company find a common language. Until any such deal is announced, however, Archemix would have to be prepared though that yet another potential partner will walk away from it last minute as Silence Therapeutics should also be receptive to other offers.

Which one is the most likely combination? Add your vote on the right.