SMALL RNA, BIG MONEY: Novartis takes 19.9 percent stake in Alnylam in a deal that could eventually top $700 million

CAMBRIDGE, Mass.—Novartis AG jumped feet first into the RNAi fray early last month with the announcement that it would make initial payments of $56.8 million to RNAi specialist Alnylam consisting of both an upfront payment and a 19.9 percent stake in the company via the purchase of company stock. The three-year deal, with provisions for two additional single-year terms, could eventually pump as much as $700 million dollars into Alnylam coffers based on the development and commercialization of multiple products and other performance conditions.

There has been no shortage of suitors for Alnylam over the past 10 plus months. This coincides with Anylam's publication last November in Nature of a study showing in vivo gene silencing in mammals via RNAi using a method that can potentially be applied for human RNAi therapy—a significant breakthrough in the young and burgeoning field. And while the delivery method—via injection—was significant, so was the condition the study addressed: high cholesterol.

"We knew that the publication was going to significantly widen the eyes of people in pharma companies," says Barry Greene, Alnylam's COO. "We had been having ongoing conversation with Novartis prior to that. But when the piece appeared it changed the flavor and the speed of our talks. We really see this agreement as a landmark for Alnylam."

Two key areas of the deal involve the equity position obtained by Novartis and—something of a novelty—the formation of a Scientific Strategy and Advisory Group to actively manage the focus of the collaboration.

"We are quite willing to invest in a company with the understanding that it is a methodology where we can add capital to help the company do what they need to do," says Jeremy Levin, global head of strategic alliances with Novartis. "So rather than needing to raise capital elsewhere, we will have capitalized them to the extent they can build up their capabilities. That allows the management team to be more focused on things that interest us all: science."

The Scientific Strategy and Advisory Group will be headed by Dr. Mark Fishman, president of the Novartis Institutes for Biomedial Research and Alnylam founder and director Phillip A. Sharp, Ph.D., Institute Professor of MIT and 1993 Nobel Laureate in Physiology or Medicine. Fishman and Sharp have a long association and it was their familiarity that initiated talks between the two companies.

"This type of structure is not the norm. Generally, collaboration structures have either a governing body or a management team and dispute resolution," says Levin. "Our thinking was what we really have to do in an innovative area is to establish the scientific principals and the strategy behind the science. In order to do that, we have the commitment of our top leaders and others to devote the time and thought of how to explore the opportunities appropriately."

The potential total payout to Alnylam of $700 million over the course of the agreement would be based on milestones, including developing and commercializing multiple products and payments Alnylam would be eligible to receive should Novartis exercise a non-exclusive right to integrate Alnylam's RNAi therapeutics platform for its internal discovery program. Should Novartis exercise that right, Alnylam will also be eligible for future milestones and royalties on products resulting from use of the Alnylam platform.

Alnylam will retain rights to develop its own pipeline of RNAi therapeutics including its ongoing program includings in respiratory syncytial virus (RSV). Finally, Novartis will have right of first offer, should Alnylam seek additional partnerships.

But there seems little chance of Alnylam looking for more money anytime soon. "This agreement will keep us funded through 2010," says Greene. "For us, Novartis was the perfect partner because among companies their size, they are regarded as very innovative. Plus, their facility here in Cambridge is only two blocks from our office, so we think the proximity will also help the collaboration."