Roche's run at RNAi

Roche agrees to $331 million upfront payment to Alnylam in a deal that could eventually exceed $1 billion

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CAMBRIDGE, Mass.—In yet another stunning deal in the RNAi space, Roche announced in early July that it would pay $331 million to Alnylam Inc. for a non-exclusive license to the company's entire IP estate, purchase roughly five percent equity in the company, and acquire Alnylam's Kulmbach, Germany research facility which is set to become Roche's Center of Excellence for RNAi therapeutics discovery. In consideration of upfront payments, potential milestones for multiple products and field expansion payments, the deal could eventually plow more than $1 billion into Alnylam's coffers.

While some financial analysts were surprised by the size of the upfront payment considering the company's market cap prior to the deal was $600 million, it could easily be seen as a vindication for Alnylam management of the five-year-old company's strategy of locking up a sizable portion of the patents in the RNAi space. Not surprisingly, Alnylam stock shot up more than 50 percent to $21.50 on the day the deal was announced.

The alliance will cover four broad therapeutic areas: oncology, respiratory diseases, metabolic diseases and certain liver diseases. A key part of the deal, and one that will speed Roche's research in these areas, was the acquisition of Alnylam's German research lab and its team of 40 researchers.

"We're very pleased to have the team in Kulmbach as a part of Roche," says Lee Babiss, head of Roche global pharma research. "By drawing on their expertise in RNAi we have saved two or more years in advancing our research."

But it was research of another kind that led Roche to Alnylam—research that Babiss has been engaged in for a number of years to identify a single emerging technology which could have the greatest therapeutic impact. Not surprisingly, Roche focused on RNAi.

Initially, Babiss says, Roche began preliminary conversations with San Francisco-based Sirna Therapeutics about how the two companies could work together. Those feelers became moot late last year when Merck swooped in and bought Sirna for $1.1 billion, a price that—again—surprised industry watchers and led Kalorama Information analyst Dr. Kevin Krul to say at the time that "Merck is trying to lock up the technology, eliminating potential competition by taking the key stuff off the market."

Forced to look elsewhere, Roche turned to the other RNAi heavyweight Alnylam, which is doing anything but lock up the technology as it continues to seek non-exclusive deals that allow companies access to its broad patent estate. In September, 2005, Alnylam inked a deal with Roche competitor Novartis, whereby Novartis acquired an equity stake of 19.9 percent in the RNAi specialist. In all, that deal could top out at $700 million should Novartis opt to also take a non-exclusive license to Alnylam's platform for use in its own internal discovery programs.

"What we have done and will continue to do is allow companies access to our IP and to leverage the capabilities of companies like Roche to enable discovery in RNAi," says Barry Greene, COO of Alnylam. "By providing non-exclusive license to our IP, we have the ability to do this again and again."

Yet, despite money being hurled at RNAi companies and a handful of RNAi therapeutics in clinical trials, Babiss is the first to admit that the money Roche is spending today is a long-term investment in an area that may be 10 to 15 years away from truly exploding.

"We think we can have the first dose in human within two years," Babiss says, while acknowledging that the real challenge for RNAi therapeutics still lies in the delivery.

"The ultimate goal is systemic delivery, and I don't think there is going to be a short-term answer to that question. But we have taken a longer term view that these questions will ultimately be answered," he says.

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