Alnylam Seeks to Prove RNAi Skeptics Wrong After Layoffs, End of Novartis Deal

10/21/10

[Corrected---10/22/10 at 6:30 am ET. See editor's note.] Those of us who follow Cambridge, MA-based Alnylam Pharmaceuticals (NASDAQ:ALNY]) have come to expect the biotech to land major deals with large drug makers related to its gene-silencing drugs. The firm’s pacts with Novartis, Roche, Takeda Pharmaceutical, and others have been the envy of the biotech industry for years. But Alnylam struck a more somber note late last month when it cut about 25 percent of its workers in anticipation of the end of its five-year collaboration with Swiss drug giant Novartis.

Novartis, which has its research headquarters in Cambridge, had provided a total of $125 million to Alnylam since 2005. That’s when the two firms began collaborating on the development of RNA interference drugs, which are intended to block the activity of certain disease-causing genes. Novartis’s payments supported about 25 Alnylam employees who were focused on the collaboration, and most of those workers were let go last month.

“I don’t think it’s a setback for us in any way,” says John Maraganore, the company’s CEO, in an interview. “Obviously, at a personal level, it’s never a fun thing to have to put [layoffs] in place and there were some goodbyes that were said that were heartfelt.”

While Novartis didn’t opt to pay Alnylam $100 million for further access to Alnylam’s gene-silencing technology, the Swiss drug company did decide to continue to pursue 31 drug targets with Alnylam’s experimental RNAi treatments. That means Alnylam has the chance to get up to $75 million fees from Novartis for each of those drug targets based on the achievement of certain development milestones. Also, Alnylam expects to have $325 million in the bank at the end of this year, and the firm’s current stockpile of cash will fund its operations for more than three years, Maraganore says. After the layoffs, the company has 175 workers.

Yet the end of the Novartis deal serves as reminder that Alnylam still has a lot to prove before its gene-silencing technology can be considered a success in terms of improving human health. RNAi pioneers Craig Mello and Andrew Fire won the 2006 Nobel Prize for their groundbreaking work, but neither Alnylam nor any of its counterparts have brought an RNAi drug to the market. And at this stage in Alnylam’s eight-year history, it needs to show investors and potential pharma partners more evidence that its drugs have a shot at working in humans. Nobody knows this better than Maraganore.

“I think everybody in the world is looking to Alnylam to pioneer this field and we’re up to the challenge,” Maraganore says. “As Alnylam generates data showing that RNAi works in humans, it’s going to increase the level of conviction around RNAi being a whole new class of drugs.”

Later this year, Alnylam plans to provide an update on its Phase I clinical trial of ALN-VSP, a gene-silencing drug that targets liver cancer. This trial is primarily to show whether the drug is safe for people. But the drug is also the first RNAi treatment that the company is using to circulate throughout the body to treat cancer. The gene-silencing drugs are notoriously difficult to deliver deep inside the body because they are made of short pieces of RNA, which can be chewed up in the blood stream before they reach their intended destination inside cells to block the activity of disease-related genes. [RNAi drugs were mistakenly described as short pieces of DNA. They should be described as short pieces of RNA.]

To deliver its liver cancer drug, Alnylam is using engineered particles licensed from Tekmira Pharmaceuticals in Vancouver, BC. Alnylam has already shown that its drugs can be delivered safely to the livers of non-human primates and other lab animals. Time will tell how well this success translates in humans. Alnylam is also using Tekmira’s technology for a separate drug in a Phase I study for treating TTR amyloidosis, and the drug targets the liver to essentially turn off the gene responsible for a mutant protein that causes the disease.

Alnylam CEO John Maraganore

Alnylam CEO John Maraganore

Leerink Swann, the Boston-based banking and analyst firm, said in a September 27 note to investors that they lowering their valuation of Alnylam from $20 to $14 per share “given the slow progress in solving RNAi delivery plus our remaining uncertainty as to whether liver-targeting RNAi therapies can be delivered safely.”

Partly because of the challenge of delivering RNAi therapies throughout the body, Alnylam has picked a localized delivery vehicle for its lead drug program. Alnylam’s most advanced candidate, ALN-RSV01, is inhaled into the lungs to treat respiratory syncytial virus infections.

Maraganore contends that concern over RNAi delivery might be blown out of proportion. “We’re beyond the point of any reasonable line of questioning as it relates to our ability to deliver these molecules,” the CEO says. “We are now at a stage of execution around those discoveries and technologies. So it’s no longer, in my mind, conceivable that this basic approach will never create medicines.”

Alnylam has had no shortage of partners that are willing to bet that RNAi can live up to its promise, which includes the ability to target genes that traditional small molecule drugs haven’t been able to hit. There’s no question Alnylam has a lot of support. The company hasn’t needed to raise money from the public markets since 2006 because it’s generated enough cash to keep growing from its partnerships with large drug makers, Maraganore says.

But while $325 million in the bank sounds like a lot, Alnylam will likely need even more financial help from its pharma friends to complete the long and expensive journey toward FDA approval.

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