Wednesday, November 17, 2010

No Room for RNAi in Roche's Operational Excellence Plans

Tucked inside Roche's months-awaited announcement today containing details on its restructuring program (and the loss of 4,800 jobs, mostly in the US and mostly in pharma) is a nugget that will make RNAi-watchers gulp. Three years on from its landmark deal with Alnylam in the field of RNA interference, Roche is shutting down all of the discovery for which it paid so dearly.

That deal with Alnylam included $331 million in up-front payments and -- in addition to non-exclusive rights to Alnylam's IP in four therapeutic areas -- bought Alnylam's European research site in Kulmbach, Germany. Roche now says it will shutter Kulmbach and all its other RNAi work:

Following a comprehensive portfolio review, Roche will discontinue certain activities in research and early development. These include RNA interference research in Kulmbach, Germany, and in Nutley, New Jersey, and Madison, Wisconsin, in the US. In addition, plans also include reorganising certain internal functions to free up resources for upcoming phase II studies of new molecular entities. Approximately 600 positions will be affected.
Adding to Roche's woes, the 5% stake it took in Alnylam in 2007 -- at $21.50 per share (a 40% premium at the time) -- was subject to a three-year lockup and is now way under water. If there's RNA interference activity in Roche's future, it's hard to divine where. Roche CEO Severin Schwan was clear on a call this morning with investors: "We plan to exit ... our siRNA efforts," he said. Nobody pressed him further during the Q&A. Case closed.

The news comes on the heels of Novartis' decision in late September to not exercise an option that would have given it Roche-like access to Alnylam's platform for the relatively low sum of $100 million. Novartis remains committed to RNAi drug development, the companies noted at the time, and is pursuing RNAi therapies against what it calls its "full and final" list of 31 targets. But the Novartis news prompted Alnylam's own restructuring. The RNAi pioneer said it was laying off 25-30% of its workforce.

So where do these Swiss stances leave Alnylam -- not to mention other RNAi hopefuls including Roche's other partner Tekmira? Alnylam was ready with a response, expressing disappointment and surprise at Roche's decision. At the very least, these moves suggest that signing new blockbuster deals will be difficult. But it has never been clearer that Alnylam will no longer live or die based on its ability to sign monster non-exclusive platform deals: it's now a drug developer. The real risk is that Roche's decision, and to some extent Novartis', reflect a broader belief in a bleak clinical future for RNAi therapeutics. With human proof-of-concept data not too far away, we won't necessarily have to wait long for a glimpse.

Meanwhile, Alnylam's market cap languishes below $500 million, and the company announced earlier this month that its still-impressive cash pile was $372 million. That's historically low value ascribed to the company's IP, dealmaking potential, future milestones and royalties, and clinical pipeline.

The field of RNAi needs a win, and badly. Merck, the other big pharma to take a big leap into the space with its $1.1 billion acquisition of Sirna back in 2006, says astonishingly little about its therapeutic progress there (and siRNAs are absent from its pipeline chart). Now and then a rumor that someone's going to pony up money to buy the UK's Silence Therapeutics bubbles to the surface, and just as surely recedes again. RXi is committed to delivering for its investors a deal by the end of 2010. Time is running out on that promise. The next generation RNAi play Dicerna has demonstrated that it can pull in investors, but it has yet to enter the clinic with its dicer-substrate molecules.

RNAi may not succeed as a therapeutic modality. More likely, it just needs time to mature, to solve its delivery problems, to gain traction in the clinic. Whether or not any Big Pharma or investors are willing to wait for that remains to be seen.

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