Alnylam Pharmaceuticals' strategy announcement on Jan. 7 was “a transformation,” CEO John Maraganore said in an interview at the J.P. Morgan Healthcare Conference, emphasizing that he has “never been more excited” about the prospects for his company.

His enthusiasm is also high for RNA interference, the technology Alnylam has pioneered and come to embody since its foundation in 2002.

But these are tough times for Alnylam, which has seen its largest partner abandon research in RNAi and its longest-term partner and largest shareholder opt out of an opportunity to more broadly license its technology.

“As a platform [company] there’s always an element of magic,” said Maraganore. “When you make the transition [to products] it’s almost like, ‘did the magic go away?’”

That Alnylam’s early-January announcement – the first time it has “crisply articulated to the outside world” a product-focused strategy – came on the heels of these twin disappointments is purely coincidence, said Maraganore. The new plan, dubbed 5 x15 because its main component is the promise of proof-of-concept data for five RNAi programs by 2015, clearly marks the company’s transition from platform- to product-play, a tricky adolescence for any biotech company. “As a platform [company] there’s always an element of magic,” said Maraganore. “When you make the transition [to products] it’s almost like, ‘did the magic go away?’”

A Partner Exits

Once upon a time the most pressing question the company had to answer about its dealmaking strategy was about the number of times it could non-exclusively license its RNAi technology before the value of the company’s IP began to suffer.

When Alnylam signed its landmark $331 million up-front 2007 deal with Roche – followed soon by a similarly rich deal with Takeda Pharmaceutical in 2008 – the company was a business development juggernaut, filling its coffers with up-front cash gained through monetizing its platform non-exclusively on an unprecedented scale (Also see "Alnylam Takes Platform Monetization to a Whole New and Non-Exclusive Level" - In Vivo, 1 July, 2007.).

But in mid-November, in a move that seemingly came from the top, Roche opted to cease all activity in RNAi, preferring to invest in other areas of technology, like next-generation antibodies and peptide therapeutics.

These days Alnylam might have more difficult questions to answer about its business development strategy – only nobody’s really asking. That’s because even as Roche weighs its options around divestiture of its RNAi license, technology and research sites, the future of Alnylam – and, more generally, the field of RNAi – is now tied solely to establishing clinical proof-of-concept for siRNA drugs, and eventually getting those drugs to market. Deals are nice, but data is much, much nicer.

Making matters more difficult for Alnylam, Roche’s decision to pull the plug on RNAi R&D came only weeks after Novartis AG passed over an option to expand its own deal with the biotech, effectively ending a groundbreaking 2005 pact, which has so far yielded 31 active programs (and one that has seen Novartis take a 13.4% stake in the company). Novartis, for a $100 million fee, could have transformed its access to Alnylam’s platform into something more Roche-like, but instead described its list of Alnylam-enabled RNAi candidates as “full and final.” It declined the option on a broader license and Alnylam opted to restructure, eliminating about 25% to 30% of its workforce.

The sheer abruptness of Roche’s about-face and the loss of additional non-dilutive funding from Novartis are unsettling, but most nettlesome is the implicit challenge to Alnylam’s partnership-dependent business model. The company has not signed any broad platform-access deals since its partnership with Takeda. The market, once enamored by the potential of Alnylam’s platform to attract new and deep-pocketed partners, now values the biotech essentially at cash.

These decisions by Roche and Novartis were a significant blow, and Alnylam hasn’t hid its disappointment even as it remains upbeat about its own long-term prospects.

“Roche spent well over $500 million in everything they tried to put together in RNAi, that’s the sad thing,” Maraganore said in a December interview. “They were only in it for three years – that’s nothing. They can’t even develop a single small molecule against a disease target in three years,” let alone build a whole new treatment paradigm, he said.

Gauging Future Interest

Roche could now try to recoup some of that monster investment. Since acquiring a license to the technology in 2007, Roche has likely pushed Alnylam’s platform forward via its internal efforts as well as its $125 million acquisition of RNAi delivery play Mirus Bio in 2008 and a 2009 alliance with the Canadian biotech Tekmira Pharmaceuticals.

Either way, the license is assignable, and at least one large pharma has been in discussions about acquiring Roche’s RNAi assets, sources indicate. The Big Pharma could also assign those rights in smaller packages, working with VCs to create new RNAi-focused biotechs.

Maraganore nevertheless in December described Roche’s move as “near-termism.” It is “the unfortunate nature of the EPS growth treadmill that a company like Roche appropriately has to deal with," he adds "Roche is giving up a big part of the future to worry about tomorrow, and we think they’ll regret it.”

For its part, Roche declined to make executives available to discuss the company’s interest -- or lack thereof – in RNAi. The Swiss pharma “will continue to explore and observe the potential and progress of RNAi and other RNA based technologies as a therapeutic modality, but we will do so using external collaborations,” a spokesperson said. As for its RNAi assets, the company is indeed “evaluating creative ways to preserve the sites in a non-Roche environment.”

Merck Remains Bullish

Among large pharma, Roche’s investment in RNAi is second only to Merck’s, and, considering its big bet, the latter has been conspicuous in how little it says publicly about its progress with the technology.

In 2006, Merck spent $1.1 billion to acquire Sirna Therapeutics, then Alnylam’s largest rival and sparring partner in the sport of my-IP-is-better-than-your-IP (Also see "Merck Nabs Pole Position in RNAi With $1.1 Billion Sirna Buy" - In Vivo, 1 November, 2006.). Four years on, the only things you hear from Merck are “positive platitudes,” according to one RNAi watcher.

In itself, this isn’t either a rare sentiment or an awful condemnation, but one that reveals the exasperation of the rest of the RNAi world, which legitimately wants to know: “how’s it going?” It also shows a growing skepticism that the answer to that question is exceedingly positive. In the context of Roche’s decision, interest in Merck’s progress may be stronger than ever. For now Merck-watching RNAi-backers hope that no news is good news.

No RNAi drug candidate has yet appeared on Merck’s thrice-yearly updated published pipeline chart. But in an interview, Merck’s VP for RNA Therapeutics Alan Sachs, contended that Merck hasn’t fallen behind an internal timeline for delivering RNAi therapeutic candidates to the clinic, though he suggests smaller companies may have underestimated RNAi development timelines.

He further notes the benefits of applying RNAi technology broadly can best be leveraged by large companies like Merck – or presumably, like Roche – and emphasizes Merck’s ability to use RNAi technology in non-human primates to help guide R&D decisions.

The high value of Sirna to Merck “included the benefits of target validation and biomarker validation. We knew that the commercial product landscape was well beyond the three to five year time frame,” he claimed. Merck’s success has so far been “more of a research event, and you wouldn’t see us report that,” he said.

Delivery remains the single biggest RNAi hurdle – to the tissue, into the tissue, and then into the cytoplasm – but Sachs and others contend industry has made strides toward success with multiple technologies. “Alnylam has made extraordinary advances with their lipid nanoparticle,” he said, and Merck has seen “similar types of results” in that technology.

Polymer delivery technologies also continue to improve. “We see a lot of room for opportunity and a lot of promise in that space,” said Sachs, as well as in what Merck calls single chemical entity delivery, whereby a delivery molecule attached directly to siRNA confers both stability and targeted cytoplasmic delivery.

In short, Merck isn’t giving up. “Within Merck we’re constantly reviewing our pipeline and relative investment in various areas, but we remain committed to RNAi. Roche was in a position to do so as well and for whatever reason decided to invest their dollars elsewhere. It’s not right or wrong … whether others are scared off or not, it is what it is,” he said.

Losing A Technology Champion

Roche let Alnylam know it was abandoning RNAi R&D after the U.S. markets closed on Nov. 16, the day before its official announcement.

“We had no idea they would do this because of the progress they had made,” said Maraganore. Roche’s overall restructuring, on the other hand, was well telegraphed. The “Operational Excellence” initiative that sees Roche bailing on RNAi work is part of a larger, company-wide transition first alluded to over the summer that will save the Swiss pharma $2.6 billion in annual expenses by 2012 and reduce headcount by nearly 5,000 (Also see "Roche Announces Internal Review Likely To Result In Staff, Program Cuts" - Pink Sheet, 3 September, 2010.).

Observers have privately speculated that RNAi was earmarked for elimination by very senior executives at Roche – and that nobody directly involved in the research was aware of the decision – because the technology had been eschewed by Genentech. “The team at Genentech showed active disinterest in RNAi,” said one senior biotech executive not involved with Roche or Alnylam.

Certainly the early 2010 departure of Lee Babiss, who championed RNAi work as Roche’s R&D chief, didn’t help. In any case, as of late November, RNAi companies were beginning to see the hastily prepared resumes of Roche employees from sites in Kulmbach, Germany, and Madison, Wisconsin.

Among RNAi companies and their backers there is real disappointment though not yet panic. Maraganore points to continued investment at Merck, Pfizer, Takeda, and other large pharmas and smaller biotechs. A couple of weeks after Roche’s announcement, Kyowa Hakko Kirin opted to expand its January 2010 RNAi oncology deal with Dicerna Pharmaceuticals into the related therapeutic spaces of immunology and inflammation.

But others suggest Roche’s decision may have a short-term chilling effect on de novo RNAi investments and dealmaking. “Put yourself in the shoes of an RNAi deal champion at some big company – they’re facing a lot of questions from RNAi skeptics right now,” said one biotech executive.

Show Me The Data

The only catalyst for renewed investment in RNAi, therefore, will come from clinical data. Alnylam’s decision to articulate its 5x15 strategy demonstrates it is acutely aware that it will only be valued on clinical success going forward.

The 5x15 plan is built on a foundation for executing a product strategy that came together in 2010, said Maragnore. Specifically, the plan includes ALN-TTR for the treatment of transthyretin-mediated amyloidosis, ALN-PCS for severe hypercholesterolemia, ALN-HPN for refractory anemia, and two programs that will be identified later this year. More generally, 5x15 solidifies Alnylam’s clinical strategy as one that will remain focused on genetically defined molecular targets and areas where efficacy signals are measurable in Phase I.

The strategy “derisks the pipeline substantially,” said Maraganore. Clinical progress with these assets should then “reinstill faith in where the technology is going” and grease the wheels of Alnylam’s business development machine, he said

“We’re going to be generating an amazing drumbeat of clinical data,” said Maraganore. “Because of the benefits of the time we’ve invested in delivery, we’re about to enter into an execution mode in terms of pipeline and programs in a way that will be exciting to the outside world.”

Maraganore maintains that Alnylam has multiple ongoing discussions relating to its RNAi therapeutics platform and specific RNAi product candidates. He also points to potential dealmaking by Regulus Therapeutics, the microRNA therapeutics company it co-owns with Isis Pharmaceuticals, and its biotherapeutics platform “A-Bio”, which aims to improve the manufacturing process for biologics.

“We’re going to do a lot of deals going forward and continue to use that as a strategy to fund the company,” he said, noting that, thanks to its partnering prowess, Alnylam is one of a rare breed of biotechs that has not gone to the capital markets since 2006.

In November, Alnylam reported cash reserves of approximately $372 million as of the end of September 2010. As part of 5x15 it promises to end 2010 with no less than $345 million and to end 2011 with no less than $275 million.

By Chris Morrison

Alnylam Shifts To Product-Focused Strategy As RNAi Platform Takes A Hit

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