Control over intellectual property and protection against potential patent litigation are the key reasons behind Sigma-Aldrich's decision this week to license Benitec's RNAi patent portfolio and buy a stake in the company, according to a Sigma-Aldrich executive.
Sigma-Aldrich, which entered the RNAi market early this year through its purchase of Proligo (see BioCommerce Week 2/24/2005), currently trails dominant player, and Fisher Scientific subsidiary, Dharmacon and reagent giant Qiagen in the emerging RNAi reagent sector. Sigma-Aldrich hopes that acquiring the rights to Benitec's patents can help it expand Proligo's current offerings and quell any patent-infringement fears potential pharmaceutical partners may have about licensing its technology.
"DNA-based RNAi technology is central to our strategy for moving into the RNAi space," Keith Jolliff, director of global marketing for molecular biology at Sigma-Aldrich, told BioCommerce Week. "This not only gives us freedom to operate, but also gives us a position in the market where we can hold discussions for additional IP."
He added, "I think one of the important things about [the RNAi] area is [that] the IP landscape is constantly shifting, and this certainly gives us an important piece of IP with which to continue to negotiate with emerging patent claims. In dealing with pharma companies, they're very concerned about the IP situation, and this is just a way to solidify it."
"I think one of the important things about [the RNAi] area is [that] the IP landscape is constantly shifting, and this certainly gives us an important piece of IP with which to continue to negotiate with emerging patent claims. In dealing with pharma companies, they're very concerned about the IP situation, and this is just a way to solidify it."
Sigma-Aldrich made strides this past summer to shore up its RNAi patent position by licensing non-exclusive rights to the Kreutzer-Limmer patent family owned by Alnylam. The patents cover short-interfering RNAs and their use to mediate RNA interference in mammalian cells. At the time, Sigma became the 12th company, which includes seven reagent and service providers, to take a license to Alnylam's patent estate.
In addition to the patent licenses and the Proligo acquisition, Sigma-Aldrich in March became a scientific collaborator and distribution partner to MIT's RNAi Consortium, helping the consortium develop and distribute clones, purified DNA, and viral stocks from the group's RNAi libraries to researchers worldwide. Based at the Broad Institute, the consortium comprises seven research institutions, including Massachusetts General Hospital, Harvard Medical School, Dana-Farber Cancer Institute, The Broad Institute, Whitehead Institute for Biomedical Research, Massachusetts Institute of Technology, and Academia Sinica. Besides Sigma, the Consortium is home to Bristol-Myers Squibb, Eli Lilly, and Novartis.
Taking a Swing at an Emerging Market
Sector consolidation has been rapid in the RNAi field, with bigger research products firms snatching up smaller players that hold the key intellectual property covering the uses of RNA interference in research applications. Qiagen got the ball rolling with its April 2002 acquisition of Xeragon, which was followed by Invitrogen's November 2003 purchase of Sequitur, Fisher Scientific's acquisition last year of Dharmacon, and Sigma's acquisition of Proligo this year.
One of the primary reasons Sigma-Aldrich purchased Proligo was a set of licenses it shares with Dharmacon, Qiagen, and Ambion that allows the research use of RNAi technologies contained in a portfolio of patent applications held by MIT, the Whitehead Institute, the Max-Planck Institute, the Carnegie Institution of Washington, and the University of Massachusetts.
The four companies are the sole licensees of the patent applications, which are regarded as critical for operating in the RNAi research market. Together with Invitrogen's Sequitur, these companies define the siRNA market of oligos, estimated at $30 million to $35 million in 2004 (including closely related services like design and validation). The market is expected to rise to $40 million to $50 million this year, according to Jean-François Gauthier, partner at TSG Partners, a Life Sciences corporate advisory firm that closely follows this market.
Sigma-Aldrich currently holds a small share of the RNAi reagents market, which it hopes will grow following the Benitec deal. "It is relatively modest at this point, certainly compared to Dharmacon," Jolliff said. "But we have global distribution capabilities, [and] this is a very good fit with our Sigma Genesis business.
"Proligo did a very good job partnering with a couple of key pharmaceutical companies, and we've been able to maintain those relations and we expect to expand them."
"We will be making a very credible run at the siRNA market, and we'll be gaining market share," he said. "Proligo did a very good job partnering with a couple of key pharmaceutical companies, and we've been able to maintain those relations and we expect to expand them."
Jolliff explained that the patents licensed from Benitec complement those it gained through the Proligo acquisition. Proligo has been working on siRNA technologies, according to Jolliff, while Benitec's patents focus on DNA-based, or shRNA, technologies. "There is going to be a movement, I think, toward the DNA-based" technologies, he said, but "there is a place for both."
He added that the Benitec pact is "just an indication of the strong position we want to take in this field. We want to be the company that, regardless of which direction is most appropriate for a researcher to take, Sigma has the solution they require."
Jolliff also said that Sigma-Aldrich gained the right to sublicense the Benitec patents in the research field, though "it's not clear at this point what we are going to do exactly."
Benitec is concentrating on developing RNAi-based therapeutics, and licensing research applications to Sigma-Aldrich makes sense, given Sigma's market reach and sizable sales force in the research field.
Jolliff told BioCommerce Week that Sigma-Aldrich is not interested in developing RNAi-based therapeutics. "There's a great deal of research being undertaken right now using RNAi, not as a therapeutic, but for target validation and that type of thing," and that is Sigma-Aldrich's primary interest. But, he added that the stake in Benitec would give Sigma "some foothold into the area of RNAi therapeutics."
It also follows a recent agreement under which Sigma-Aldrich acquired the right to sublicense Oxford BioMedica's LentiVector lentiviral-based gene-delivery technology for research purposes, as well as the first rights to negotiate for a license to develop a new range of products based on the technology. In exchange, Oxford received an upfront payment and will get minimum annual payments and royalties on sales. Sigma also took a $5 million equity position in Oxford BioMedica.
Investing in Benitec
As part of the licensing pact, Sigma-Aldrich paid Benitec an initial licensing fee of $2 million, and will make additional royalty payments based on sales and sublicensing revenue. Sigma also agreed to make an equity investment in Benitec of at least $2.5 million.
In the first tranche of the investment, Sigma-Aldrich purchased 13,507,118 shares of Australia-based Benitec for $1.7 million. Following shareholder approval, Sigma will purchase an additional 6,024,132 shares for $800,000. Benitec had roughly 152 million shares outstanding as of a July financial filing, which would put Sigma-Aldrich's stake in Benitec at around 12.8 percent following the second tranche.
According to the partners, Sigma-Aldrich would also gain roughly 10 million options to purchase Benitec stock exercisable at a price of A$.32 at any point prior to April 6, 2008. Benitec's shares closed Wednesday at A$.15 on the Australian Stock Exchange.
Whether or not Sigma-Aldrich is interested in acquiring a larger stake or all of Benitec has not been disclosed by company officials, but it seems highly unlikely. Sigma CFO Mike Hogan told BioCommerce Week early this year that potential acquisitions must meet a two-part test: The target must be growing faster than 10 percent a year, and it must be profitable (see BioCommerce Week 1/20/2005).
Benitec is an unprofitable, preclinical stage company developing therapeutics — a market that Sigma-Aldrich does not participate in — thus, it does not appear to be a fit for Sigma-Aldrich's acquisition strategy.
— Edward Winnick ([email protected])