Shedding Baggage, Alnylam Turns a Corner

2/21/13

What convinces investors that a drug discovery company is likely to bring products to the market, and rewards to shareholders? It comes down to just a few things: Proprietary biology. Confident management. Experience driving products into clinical trials and onto the market. Enough of a story to be able to raise money. And the likelihood, based on animal or early human data, that the drugs might actually work. These days, the final charm is to focus on orphan drug markets, where reimbursements are still robust.

Role models that have built on proprietary biology in the orphan space include the granddaddy of them all, Genzyme, acquired by Sanofi in 2011 for $20.1 billion; BioMarin (NASDAQ:BMRN), a disciple of Genzyme, and the current market darling, Sarepta (NASDAQ:SRPT), currently in Phase 2 trials in Duchenne Muscular Dystrophy.

I argue here that the latest company to join this glowing group is Alnylam Pharmaceuticals (NASDAQ: ALNY), a clinical-stage biotech in Cambridge, Massachusetts. In my view, Alnylam has turned a corner in becoming a legitimate orphan drug developer with a strong proprietary pipeline and a good bargaining position with pharma. As much as wishful stock-pickers are speculating on BioMarin being the next juicy big pharma acquisition in the orphan-disease space, Alnylam just might beat them to the punch.

The smart money seems to agree with me. After settling a lawsuit with Tekmira (NASDAQ:TKMR) in November for an initial $65 million, Alnylam announced in January that it was raising $125 million. It actually raised $174 million—a good sign—at $20.13 a share, and the stock price continued to go up. Lately the stock has been trading in the $24 range, putting the company’s market capitalization at $1.2 billion, plenty large to attract investment from institutional investors.

Disclosure: I have been a consultant to Alnylam, most recently in 2007. At the time of this writing, I am long Alnylam.

Along the way, Alnylam has overcome huge doubt although there are still skeptics (and more skeptics). Talk about climbing a wall of worry! Skeptics have complained, in some cases accurately, that Alnylam faces big, scary challenges:

  • RNA has never made a good drug.
  • You’ll never solve the delivery problem.
  • RNAi, if it ever works, will be one-and-done. No way to build a pipeline.
  • Big Pharma has turned its back on RNA interference (RNAi). Merck and Roche made huge mistakes on RNAi and no big pharma ever wants to make that mistake again.
  • Raising money, whether through partnerships or stock offerings, is no guarantee of clinical success.

The last statement is definitely true. I’ll come back to it. First, let’s take the others one by one.

RNA is not a drug

When Alnylam was founded, it was truly heretical to invest in a platform developing nucleic acid drugs. I was a venture capitalist at the time and other investors told me that I was “throwing away my career” by pursuing investments in the field. Well, I’m not a venture capitalist any more but my career change was not due to any failed bets on RNA as a therapy. In fact, the investment that VCs, including my fund, made in Sirna Therapeutics in 2003 and some follow-ons paid off in a $1.1 billion acquisition by Merck in 2006. That early wave of interest in RNAi—a good five years too early, in retrospect—helped sustain Alnylam via partnerships with Novartis  and Roche.

In the meantime, RNA therapies and their ilk are certainly not mainstream but they are no longer considered impossible long shots. An RNA-targeting product, mipomersen (Kynamro), developed by Alnylam’s business partner and competitor Isis Pharmaceuticals, received a high-profile approval from the FDA in late January, albeit with an attached warning. Other nucleic acid medications have made it to market (e.g. pegaptanib, an antibody-like aptamer sold as Macugen for age-related macular degeneration) only to be eclipsed by other products. A slew of new nucleic acid drugs—gene therapies, microRNA therapeutics—are making their way towards the market, some with validating pharma partnerships.

An astute industry insider I know, a senior executive at a pharmaceutical company with no stake in the success of RNAi drugs, told me that it’s not just Alnylam that has turned a corner—”it’s the whole field of oligonucleotide drugs.” But, he added, this shift is “less about advancing the technology than it is about finally coming to terms with and accepting its limitations. It’s not a panacea; rather it’s a modality that is useful in very particular settings (e.g., genetic disorders) and very particular tissues (e.g., liver).”

Other insiders agree the tide is turning and the fundamental opposition to the whole class of RNA-based drugs is melting away.

Delivery is an insurmountable problem.

Ten years ago, the biggest hurdle RNAi faced—both in public perception and in the laboratory—was delivery of RNA-interference-based medications across the cell membrane. In some ways, delivery still is a big challenge. But Alnylam has managed in several ways … Next Page »

Steve Dickman is a former venture capitalist and the CEO of boutique consulting firm CBT Advisors as well as the author of the blog Boston Biotech Watch. Follow @

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  • http://twitter.com/BioDueDiligence Andrew G.

    ALNY has come a long way since the “dark days” but you are just too generous. First, to say 5×15 has succeeded is laughable, the original definition of 5 programs in late-stage trials by 2015 is hopelessly out of reach. Second, how about we see a shred of long-term data with their current generation products (heck, I’ll settle for TWO doses…). Third, the MDCO deal was just so-so. ALNY got $25m to spend on two years of preclinical/phase 1 development for the SC version. The lead IV version will never see the light of day and it all adds up to virtually no true “upfront” payment. I do applaud the rare disease focus – if ISIS had pivoted in this direction years earlier, it would be a very different company today.