Regulus, Leading Developer of MicroRNA Drugs, Prepares to Get Independence from Alnylam and Isis

1/21/09Follow @xconomy

Regulus Therapeutics has shown it can crawl, now it’s ready to walk. The fledgling Carlsbad, CA-based company is taking steps to raise a large round of private investment capital, and become a more independent company developing a new breed of microRNA-based drugs.

Regulus plans to raise “a very respectable amount” of capital from private investors, which will allow it to reorganize as an independent corporation, says Regulus CEO Kleanthis Xanthopoulos. The company currently operates as a joint venture formed by Carlsbad, CA-based Isis Pharmaceuticals and Cambridge, MA-based Alnylam Pharmaceuticals. Xanthopoulos discussed the plan after a series of meetings with investors and potential partners at the JP Morgan Healthcare Conference last week in San Francisco.

The company, founded less than 18 months ago, made waves in the scientific community in late November. That’s when it published results in Nature from a series of experiments that showed for the first time that blocking microRNA targets in mice was an effective way to prevent and treat congestive heart failure. MicroRNAs are tiny substances first discovered in humans in 2001. They are thought to have big potential as drugs, because they can affect not just one gene or protein in isolation, but rather full networks of genes. That might be useful in treating complex diseases like diabetes or heart failure, where multiple genes are thought to be out of whack.

The company has been able to benefit from getting intellectual property, office space, and staff support from its corporate parents, but apparently the offspring yearns for an ability to raise its own cash.

“I’m not in a position to issue equity now because I don’t have structure to do it since I’m in a joint venture,” Xanthopoulos says. Once Regulus re-organizes with new bylaws as a Delaware corporation, then Xanthopoulos can issue new equity shares, and dole out stock options to employees, instead of offering them stakes in Alnylam or Isis, he says.

The new form of Regulus will have to go through a “branding exercise,” Xanthopoulos says. Isis Pharmaceuticals CEO Stanley Crooke called Regulus a “satellite company” during his presentation, while Alnylam’s John Maraganore calls it a “joint venture.” Both said they were pleased with the model of setting up an independent entity to focus exclusively on a promising field like microRNA, rather than trying to keep it in-house as part of a bigger portfolio, where presumably, it wouldn’t get such focused attention.

Regulus has set up its headquarters with about 25 employees in office space subleased in Carlsbad, CA from Isis (NASDAQ: ISIS). Regulus was founded with intellectual property from Isis and Cambridge, MA-based Alnylam (NASDAQ: ALNY). Regulus’ board reflects strong influence from its two parents. It includes Crooke and Lynne Parshall from Isis; Maraganore and Barry Greene from Alnylam; David Baltimore, a Nobel Laureate and Caltech biology professor; Stelios Papadopoulos, a longtime biotech financier at Cowen & Co., and Xanthopoulos.

Regulus is currently structured as a 50-50 joint venture, although Isis technically has a 51 percent stake so that it can consolidate financial results from Regulus into its quarterly reports, Xanthopoulos says. Re-organizing with an outside capital infusion would mean granting new equity stakes to investors, while reducing the ownership percentages of Isis and Alnylam. Both companies have said they want to maintain “as high a percentage of ownership as possible,” Xanthopoulos says.

The published paper in Nature has given Regulus some financial freedom to pursue an option like this, which many other biotechs would love to have. The company currently has about three years worth of cash on hand, so it doesn’t need to raise money immediately. Prominent cardiologists from around the country have called the company to offer ideas for next steps in development, and pharmaceutical companies have inquired about partnership possibilities since the Nature paper appeared, Xanthopoulos says. Regulus formed a partnership with GlaxoSmithKline to grant the London-based drugmaker the rights to co-develop drugs against four microRNA targets of inflammatory diseases. That deal could be worth almost $600 million if the drugs reach certain goals in development, Regulus has said.

Regulus has a goal of signing one more partnership this year, which could include diseases like cardiovascular conditions, cancer, or infectious diseases, Xanthopoulos says. He sounds as though he’s going to be picky, because he would rather find a partner committed to microRNA and with expertise that his company lacks to move it forward, rather than do a deal just to bring in cash.

“There’s not a single pharma company that’s not curious,” Xanthopoulos says.

No microRNA drug has yet emerged in a clinical trial, and much work still needs to be done to get it to that point. Regulus has a goal of nominating its first clinical trial candidate this year, and entering a human study in 2010, Xanthopoulos says.

Regulus also has its share of competitors. At least two small, venture-backed competitors have emerged, Seattle-based Mirina and Boulder, CO-based Miragen Therapeutics. With the latter company, Xanthopoulos says he doubts they have intellectual property to develop a drug candidate without a license from Regulus, but if they do “we’ll monitor them closely.”

One other thing he’s watching closely is whether Roche is able to finalize its proposed acquisition of Genentech, a biotech industry bellwether. If that happens, it could benefit all sorts of emerging startup companies as the shareholders in Genentech look around for the next big thing. “It will trickle down,” Xanthopoulos says.

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