Layoffs at Alnylam to Follow Sunset of Novartis Partnership
BioWorld Today Contributing Writer
Novartis AG has declined a $100 million option to extend its landmark partnership with Alnylam Pharmaceuticals Inc. for the development of new RNAi therapeutics, a deal once valued at up to $700 million.
The breakup comes as no surprise to market watchers who have noted for several years that the partnership has not yet produced any clinical programs.
In response to the notification from Novartis, the Cambridge, Mass.-based biotech will restructure its work force, reducing staff levels by 25 percent to 30 percent, in order to save $25 million next year. Alnylam reiterated guidance to end the year with a cash balance of more than $325 million.
At the time of the 2005 partnership agreement, Novartis purchased a 19.9 percent equity stake in Alnylam, about 4.2 million shares at $11.11 per share, and made a $68.5 million up-front payment to access Alnylam's RNAi technology. The original deal was for a three-year term, with two one-year renewal options, for a total of five years. (See BioWorld Today, Sept. 8, 2005.)
John Maraganore, Alnylam's president and CEO, said, "This collaboration has provided Alnylam with about $125 million in overall funding and was incredibly helpful in our early years as we were building out our full capabilities and our technology was considerably younger."
Basel, Switzerland-based Novartis worked closely with Alnylam during their five-year partnership through its research headquarters in Cambridge.
With the expiration of the partnership, Novartis had an adoption license option to acquire additional access to Alnylam's technology, for an added $100 million in licensing fees, prepaid royalties and success milestones. Novartis has passed on that opportunity, choosing to develop a list of 31 targets already acquired from Alnylam.
Novartis retains subscription rights and investment rights related to the purchase of stock. The company is open to acquiring new RNAi products from Alnylam on a case-by-case basis; however, it no longer has a working relationship with Alnylam. Alnylam is still entitled to milestone payments on those 31 programs.
"We feel confident that we have enough in-house capability and knowledge to move forward on our own," Jeff Lockwood, a Novartis spokesman, told BioWorld Today. "A lot of that came from that experience with Alnylam. The 31 targets are proof positive of the productivity of the collaboration."
The expiration of the deal is an important signpost of a change in the investment climate. In the future, companies are unlikely to see such large speculative deals. Instead, partnerships will be built on proven clinical pipelines and deals will be smaller.
Edward Tenthoff, an analyst with Piper Jaffray and Co. told BioWorld Today, "These megadeals are things of the past. Alnylam now has to develop its pipeline to create value. We don't see a lot of near-term validation or progress from the pipeline."
Alnylam's lead product is ALN-RSV01, an RNAi therapeutic for RSV infection that silences the N gene of the RSV genome. Alnylam has reported potent antiviral activity in preclinical studies, and has completed a Phase II proof-of-concept trial in adults experimentally infected with RSV that showed statistically significant decreases in infection rates.
The company conducted Phase II trials of the product in lung transplant patients with partner Cubist Pharmaceuticals Inc., and is proceeding with a larger Phase IIb trial for the same indication.
Other compounds in Alnylam's pipeline include ALN-VSP for liver cancer and ALN-TTR for transthyretin amyloidosis, both in Phase I trials.
Although the company has an undeniably strong cash position heading into those trials, Piper Jaffray has remained neutral on its stock, with a $14 price target, mainly due to reservations about the strength of Alnylam's pipeline, particularly its lead compound in RSV in lung transplant patients. "It's a little unclear what that market opportunity is, especially considering how much they're spending," Tenthoff noted.
Rodman and Renshaw lowered the target price for Alnylam to $24 per share, citing, among other things, a negative impression made by Novartis snubbing a bargain $100 million price tag to license all therapeutic areas from Alnylam, when other companies have paid as much for just two therapeutic areas.
The investment bank also had concerns about the lack of near-term catalysts and a cash position that it rated as lower than expected.
"However," noted Rodman and Renshaw analysts Simos Simeonidis and Yatin Suneja, "We still see significant upside in the ALNY story and view the fundamentals of the story as strong as ever."
Alnylam (NASDAQ:ALNY) was down 95 cents, or 6.7 percent, to close at $13.27 Friday.