Merck hasn’t said much in public about what it’s doing in the field of RNA-based therapies, since it paid the jaw-dropping sum of $1.1 billion to acquire Sirna Therapeutics back in October 2006. So when I had the chance last week to sit down for an exclusive interview in San Francisco with Merck’s RNA therapeutics leader, Alan Sachs, I jumped at it.
What’s the big idea? RNA-based therapies hold the promise of silencing specific disease-related genes in ways conventional drugs don’t. They can potentially reach targets inside cells that have previously been inaccessible for a whole array of diseases.
This promise of a new wave of pharmaceuticals has enticed a generation of RNA-based drug companies to exploit this emerging science, including Cambridge, MA-based Alnylam Pharmaceuticals (NASDAQ: ALNY), Vancouver, BC-based Tekmira Pharmaceuticals, and microRNA drug startups like Carlsbad, CA-based Regulus Therapeutics. So whatever Merck does has a big impact not just on its shareholders, but ripples through an emerging technology sector.
“This is a big story as it relates to RNA therapeutics in general,” says Regulus CEO Kleanthis Xanthopoulos.
There was a lot of ground to cover during my 45-minute interview with Sachs. Before diving in, I should provide a little background on him. He’s a former professor of molecular and cell biology at the University of California Berkeley. He joined Merck in July 2001, and has been given a lot of managerial experience running a couple of leading edge operations inside Merck, including Sirna and Rosetta Inpharmatics.
Here are the highlights of the conversation, edited for length and clarity as always. Merck spokesman Ian McConnell was also there for the meeting.
Xconomy: How did you first get exposed to RNAi?
Alan Sachs: At Berkeley, I worked on RNA post-transcriptional control. I joined Merck in 2001 to help start a clinical genomics group. At that time, we had just acquired [Seattle-based] Rosetta Inpharmatics, and so that first year I worked with [Stephen Friend, Rosetta’s founder] to build up a molecular profiling unit which included gene expression genetics, proteomics, [and] informatics of course.
Molecular profiling at Merck was broad. It extended beyond Seattle to research sites in Boston, West Point, PA, just outside of Philadelphia, and Rahway, NJ. Then as part of the work in Seattle, we were developing siRNA as a tool for [drug] target discovery using cell-based screens. Thanks to Stephen, we really had more of a therapeutic push. We initiated a partnership with Alnylam, it must have been around 2005.
Somewhere around the middle of 2006, we realized that Alnylam did a big deal with Roche, and we realized the area was heating up. We needed to do more than a collaboration per se. It ultimately led to the decision to acquire Sirna Therapeutics, which closed at the end of 2006.
So I was asked at that time to lead a new department at Merck called RNA Therapeutics. The Sirna site which you’re sitting in now is a geographic identifier. The department at Merck is called RNA Therapeutics. Sirna San Francisco is responsible for lead discovery and optimization. On the East Coast, we have a very large effort in RNAi delivery in West Point, PA. In Rahway, NJ, all of our manufacturing of oligonucleotides and delivery vehicles occurs. So RNA Therapeutics is split over three research sites within the company.
What you often read about, but many people don’t understand, is how hard it is to make a drug. Our approach to RNA Therapeutics is made with a recognition of the full package it takes to launch a successful commercial product. We work based on that strategy. That’s versus another strategy you see from smaller companies, which is to get an interesting experimental result, and publicly disclose it in an attempt to increase the value of your investment or a VC’s investment, without a real [awareness] of what it will take to make a therapeutic eight years later. Timelines are very abbreviated for biotech. They can’t do the 5-10 year plan. Nobody has that kind of runway, except maybe Alnylam and Isis. There are very few companies with the infrastructure to do long-term planning.
We immediately, after the acquisition, invested not just heavily in the RNA piece that is here in San Francisco, but we built an entire delivery group in West Point, PA. The thing that continues to differentiate Merck is that we have people with decades of experience in pharma R&D, drug safety, metabolism, pharmacokinetics. To us, the delivery vehicle is a really big medicinal chemistry program. It really is the blend of pharmaceutical and medicinal chemistry that’s allowing us to make the advances we’re making. Then with the appreciation of issues on safety, and input we can get from our regulatory and clinical colleagues, we feel we have a very strong engine here for developing RNA therapies.
X: You said there are three key components from around the company. The discovery group and optimization is here in San Francisco, delivery, and a third. What does the third group really do?
AS: Manufacturing. It’s the synthesis of the oligos, not just in a standard way, but modified. And the delivery vehicles, whether it’s a polymer or lipid, or an RNA conjugate. All of that is a specialized set of chemistries. They do all our small scale synthesis, and large scale synthesis that’s need for large clinical trials and preclinical studies.
X: How many people across the company are working on RNAi?
AS: A lot.
X: How many?
AS: We don’t disclose how many. It’s viewed as, in the pharmaceutical industry is constantly re-inventing itself. To a large degree, Merck did not move quickly enough in the biologics space to be leading. Although we have plans to be a player. The decision to acquire Sirna for $1.15 billion was for us to be a leader in a modality that could differentiate our company. While we don’t talk about the size of the investment, the size of the original investment is an indication of the seriousness with which Peter Kim has toward making sure we are successful.
X: I won’t belabor this, but can you say how many people you have here in San Francisco?
AS: We have two floors here, and it’s about 60,000 square feet. We’re effectively fully staffed. But we don’t disclose headcount.
X: Obviously the Sirna acquisition was a high-profile public event. But has Merck formed any other less visible partnerships with small biotech companies or academic groups to work on key parts of the problem, like delivery? Or is everything in-house?
AS: At the time of the acquisition of Sirna, we had two existing agreements. One was with GlaxoSmithKline, the other was with Allergan. GSK was for respiratory diseases, and Allergan was for the eye. We successfully completed both of those collaborations, per the terms of the agreement. The GSK collaboration ended about a year ago, or a year and half. Those are pretty good sized-collaborations in which both of those companies have the rights to RNAs we’ve discovered. They can develop them for indications they’ve specified. We have an enormous external licensing evaluation effort.
We have a graph we’ve disclosed which represents the number of opportunities we have looked at to do exactly what you describe, which is collaborate, particularly in the delivery space to advance this field. We are fully funded to do that, not just the evaluation, but the actual work. And what’s really disappointing is that when you look at that graph, which is current as of mid-2009, there were 250-260 interesting opportunities, and there are really only two or three which have data that’s valuable—meaning they have data from non-human primates.
Our approach to external licensing has been very much an evaluation prior to the collaboration. We have done a number of evaluations, and I’m sorry to report that the number that has progressed to a true collaboration has been only a handful.
So the yield here is reasonably low. Less than 2-3 percent of the things we are told are true are things we can confirm to be true enough to have value.
X: So I guess that means there’s a lot of hype here, right?
AS: There’s a lot of hype, and there’s a lot of ideas. But it’s not a straightforward problem. Injecting something in the bloodstream, leading to something appearing in the cytoplasm in the RNA-silencing complex, there are a lot of black boxes between those two steps. People who are entering the field start with a white paper. It’s much like people who started on targeted therapeutics years ago started with a white paper. If it were so easy, one would have to describe why so few examples exist. The same is true in the RNAi delivery process. You can write down the steps. You can write down what you think will happen. But then you have to put it in a 50-nanometer particle that’s safe and potent to deliver.
X: OK, so you have a graph that shows the 250 or so opportunities that you’ve evaluated. You’ve actually consummated a handful of collaborations? Have they been announced?
AS: No. But we’ve done a lot of evaluations in anticipation of collaborations. A few have proceeded to collaborations, and we don’t disclose those. We generally don’t unless it’s something unusual. There’s a lot of activity we’ve done that we can’t or choose not to disclose.
X: Why? Because of the competition?
AS: It’s a combination of the competition, and from our seat, a misunderstanding of the intent of the collaboration. That is, the field is so ready to put money in, we don’t want a Merck collaboration to be read as a sign of approval. The goals of our collaboration, after an initial period, are to develop something that is usable in the non-human primate.
Ian McConnell: It’s fundamentally about managing expectations.
X: On a different train of thought, what kind of delivery technologies do you like or think have promise at the moment?
AS: There are three main areas of delivery. First are lipid-based delivery systems. At the time of our acquisition of Sirna, they had successfully shown lipid-based delivery to the liver. Initially, it was through a collaboration with what is now called [Vancouver, BC-based] Tekmira. That was really the leading standard for the area. Several [applications to begin clinical trials] have been filed with the FDA. We spent a lot of internal research money and time on novel lipids. The liability of that platform is absolutely its safety. As you know from writing about the area, the biodistribution of lipid is focused toward the liver. Which has some indications that are useful for IV therapy, but it’s restrictive with respect to cancers and diseases of other organs.
We’ve also moved into two other delivery areas. One is polymer-based delivery. It’s exemplified by the Mirus delivery system that Roche fully acquired in 2008 for $125 million. That’s a really nice delivery system because it’s a targeted delivery system. But, it too, has liabilities as does every delivery system.
The last one is a conjugation to RNA system. You directly attach to the RNA molecule a targeting agent. It’s a defined complex, which for local delivery, works well. It can work well for systemic delivery as well. By local I mean something like injection into the joint.
X: What kind of data do you have in hand at this point to support your programs? What’s the best thing that happened in this department in 2009?
AS: There have been a lot of breakthroughs in the department. I think one thing I emphasize, and is good to capture, is that the value for this space is in the commercial product. That’s the long-term goal. The short to mid-term goal may be somewhat opaque to a biotech company, because they don’t have the same pipeline needs as someone like Merck or another large company. It’s about increasing the probability of success of this pipeline. In order to do that, we need to validate targets, and de-risk targets. Before we inject three years and, Lord only knows how many chemists and support people, to make a small molecule, we better be sure the target is the right target. Before we build a new medicine for diabetes, for example, we want to be sure it doesn’t raise LDL cholesterol. Because it may be great for glucose control, but if it has a liability like [raising] LDL, it would be a cardiovascular risk.
So target validation and target de-risking are approachable using RNA as a tool. Not a therapeutic, but a tool. In a correct non-human primate model, you can really rapidly validate and de-risk targets. That’s the major advance for us. It’s about realizing the value of the acquisition partially by increasing the [odds] in our pipeline with RNA. That was not available to Merck before. Previously, you’d have to make a drug. But by time you get to the primate, you’ve already made a multi-year investment. With RNA, going from when the gene is named to the primate, it’s just 9 to 12 months.
X: OK, so this is not the kind of typical value creation that the external world, Wall Street or whoever, can look at and say ‘Oh, you’ve de-risked a target.’ They aren’t going to value that. But you’re saying that within Merck, this is proving something to say you can have a batch of candidates with a higher probability of success.
AS: Exactly. If we move that little bar of POS [probability of success] by 10 percent—and Ian can get exact numbers—but it comes down to a savings of something like $125 million per program. Because the cost of failure is what makes drug development a $1.3 or $1.4 billion investment. It’s all in the failure. By changing the rate of failure, a little bit, by percentages, the aggregate savings to the company are huge.
X: But you won’t really know the answer to whether you’ve done that for another 10 years or so, right, as the clinical trials play out?
AS: This is why only a large company can afford to invest in an early technology that has a payout that valuable for discovery and development, not just for the commercial products that will come from it. When people look at RNA therapeutics, all the excitement is in making the drug. We know how hard it will be to commercialize these medicines, because with the delivery space there are issues around safety. Less so with the RNA itself. But still, it’s a new modality. The $1.15 billion was not meant to be recovered by a commercial product within five years. It’s meant to do what I just described, to increase the POS [probability of success] of our pipeline.
X: Do you have a lead drug candidate that’s been identified and ready for the clinic, or anything demonstrating safety and efficacy in the clinic?
AS: Again, our Phase Ib, IIa clinical trials [of RNAi molecules] biomarker driven studies are for target validation and de-risking. We wouldn’t disclose those, because those are targets that are quickly followed by a small-molecule or biologic. Because the indication might not be consistent with an RNAi therapeutic delivered through intravenous means. No diabetic in the general population, if you’re a Type 2 diabetic on [multiple oral drugs], then IV therapy isn’t going to work.
X: I understand that. But I’m talking about your RNAi therapeutics that are being developed for commercialization.
AS: We broadly state that we anticipate RNAi-based therapeutics, targeting the liver will be used for hepatocellular carcinoma (HCC) and likely hepatitis, whether it’s hepatitis B or hepatitis C. Things that are for acute treatment, represent an unmet need, or for people who are really suffering. [Unlike] companies developing [RNA-based] ApoB or PCSK9 therapies, for familial hypercholesterolemics, we’d stop our studies at Phase I to show that LDL is lowered or HDL is raised and follow with a small molecule.
X: I don’t know if you saw, but I just did an interview with Alnylam CEO John Maraganore in which he’s calling this the ‘RNA decade.’ By that he means this will be the decade that RNAi demonstrates efficacy. Do you agree?
AS: I have no doubt that RNAi, if it hasn’t already, will absolutely demonstrate efficacy. It’s an incredible drug. What’s interesting about what we do is that the drug isn’t the problem. It’s the delivery of it. It’s almost an inversion of the standard problems in this industry. Chemists struggle with PK [pharmacokinetics] and they struggle with oral bioavailability, but they really struggle with target selectivity. In this field, the RNA is a natural mechanism. It’s incredibly potent. And we’re maturing it to make it even better with RNA chemistry. But the challenge is in pharmaceutical chemistry, the delivery of the molecule.
John’s absolutely correct, this is a time in which RNA will bear fruit. It will be limited only by how easily, and how safely, it can be delivered.
X: Do you worry about things getting a little too frothy RNAi? Because history with other new therapies, like monoclonal antibodies, there was tons of hype in the 1980s, followed by a long bust in the 1990s, before a few products got across the finish line.
AS: My background in molecular profiling was around when the Human Genome Project sequence came out in 2000 and 2001, and living through that bubble. What you realize is that the essence of the excitement is correct, and the reduction to practice may make it less-than-anticipated, but it’s still real. The same thing will be true of the RNA therapeutics space. There is a lot of expectation and anticipation. The reality will be somewhere between that and zero. We’d like to think because of the experience we have in our company that we have a clear line of sight on what’s practical within a certain time frame.
This will settle down. The acquisition of Sirna by Merck really set this thing off. We’re three years past that. I think in two more years, you’ll see this settle down, much like in the genomics space. In genomics, many of the opportunities consolidated into a few big players. The same thing will happen here. But the big companies like Merck, Roche, Novartis and Pfizer, that have committed to do this, ultimately will be there. Because of the long-term potential of the modality, not the immediate potential, but the long-term potential. It’s huge.
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