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Facing Funding Woes, Nucleonics Puts Itself On the Block, Begins Liquidating Lab Gear

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Expressed RNAi drug developer Nucleonics has put itself in the block amid financing difficulties and is in the process of liquidating much of its high-end research equipment, RNAi News has learned.
 
At the same time, the company has halted a phase I study of its investigational hepatitis B therapy NucB 1000, according to a company official.
 
“The financing situation has been difficult … and the board decided it was time to put the company up for sale,” Nucleonics President and CEO Robert Towarnicki told RNAi News this week.
 
Indeed, the last time the privately held company was able to raise any significant cash was in mid-2004, when it closed a Series B round valued at roughly $50 million (see RNAi News, 6/4/2004). Late in 2007, the company had its sights set on a $40 million Series C round, which could potentially have been followed by an initial public offering as soon as this year (see RNAi News, 11/15/2007).
 
But Nucleonics apparently has had little success in wooing the investment community a third time.
 
“It’s difficult out there and the board came to the conclusion that we were better [off] trying to sell the assets [including] the IP [estate and] the development programs, [which] we still think are very promising,” Towarnicki said. “It’s time to consolidate with somebody else.”
 
Nucleonics has just begun shuttering its operations, a process that has included mass layoffs that reduced its workforce to seven from a one-time high of 42.
 
At the same time, the company has been “getting rid of a lot of equipment,” Towarnicki said. Items on the block include an imaging system, tissue-preparation and -processing instrumentation, microscopes, a PCR system, centrifuges, and plate readers, according to biotech auctioneer firm Cowan Alexander.
 
As for the NucB 1000 study, which began in January (see RNAi News, 1/17/2008), Towarnicki said the company has halted patient enrollment and that the fate of the trial will hinge on “a potential acquirer’s interest in whether they will move that [program] forward or not.”
 
That trial was enrolling patients with mild-to-moderate chronic HBV at three sites in the US — in San Francisco, Chicago, and Philadelphia — and two sites in Eastern Europe. Patients were to be randomized into five escalating, single-dose groups with three subjects in each. Three patients have already been treated in the study.
 
Towarnicki said that it is “hard to predict” when Nucleonics may be able to find a buyer, but added that “the sooner we can accomplish an agreement in principal and [begin] a transition, the happier everyone will be from the board’s perspective.
 
“We really just started the process,” he added. “We’ve reached out to a few [companies and] are trying to gauge the interest.”
 
He declined to name the companies, but said that Nucleonics is approaching big pharmas, small biotechs, and pure-play RNAi drug shops.
 
When asked about a fair value for Nucleonics, he said that “we will let the market determine that.”
 
Don’t Blame Benitec
 
In the interview with RNAi News, Towarnicki denied that protracted patent-infringement legal battle with Australian rival Benitec had any impact on Nucleonics’ ability to raise funds.
 
The dispute between Benitec and Nucleonics began in 2004 when Benitec sued three firms — Nucleonics, Ambion, and GenScript — for allegedly infringing its core US patent, which essentially claims gene-expression knockdown using DNA that transcribes double-stranded RNA (see RNAi News, 4/2/2004).
 

“We think one of the major assets we have is [our] IP position and the freedom to operate. That’s really not the issue.”

Although Ambion and GenScript licensed the patent to end the litigation, Nucleonics chose to fight. As part of its legal strategy, Nucleonics sought a court ruling that Benitec’s patent was invalid, and either opposed the patent or requested re-examinations of Benitec’s IP in several nations, including the US.
 
After years of legal wrangling, Benitec withdrew its lawsuit in order to return to the business of drug development. Nucleonics, however, pushed to have the litigation reinstated, even taking its request to the US Supreme Court, which ultimately declined to hear the case (see RNAi News, 4/24/2008).
 
Still, Nucleonics’ US patent office challenge has apparently paid off: Earlier this year, the US Patent and Trademark Office issued its fourth non-final rejection of Benitec’s patent.
 
In light of the USPTO’s decision, “we think one of the major assets we have is [our] IP position and the freedom to operate,” he said, stressing that Benitec was “really not the issue” in the decision to sell Nucleonics.
 
Instead, Towarnicki blamed the overall economic landscape, which made it difficult for companies with a single, early-stage clinical program based on an untested technology to find investors.
 
Chagrin and Bear It
 
Indeed, a number of other companies in the RNAi drugs space have found Wall Street’s appetite for the gene-silencing technology to be limited.
 
For instance, about a year ago, a tepid response from investors compelled Quark Pharmaceuticals (then called Quark Biotech) to pull the plug on a proposed $67 million IPO. The move was made despite the fact that the company had a wet age-related macular degeneration drug, which was licensed to Pfizer the year before (see RNAi News, 9/28/3006), in a phase I/IIa trial and other drugs nearing human testing (see RNAi News, 8/2/2007).
 
Another example is Benitec, which has found it difficult to raise capital after its costly dispute with Nucleonics forced a sweeping corporate reorganization in 2006 (see RNAi News, 6/29/2006).
 
Since then, Benitec has failed to close a number of fund-raising efforts (see RNAi News, 9/14/2006 and 4/5/2007). Last month, the company said it had suspended a non-renounceable rights issue that would have brought in about $4.8 million.
 
Yet other players in the RNAi field have had success raising capital, although some more than others. One company is Tacere Therapeutics, which was founded in 2006 by several members of Benitec’s former management team. The company is primarily focused on developing the preclinical hepatitis C therapy TT-033i, which was licensed from Benitec around the time of its restructuring (see RNAi News, 10/12/12006).
 
Less than two years later, Tacere announced that Pfizer licensed TT-033i, marking the first time a big pharma has signed on to develop an expressed RNAi drug (see RNAi News, 1/10/2008).
 
“The dogma around the more gene therapy-type approach [to RNAi] …is that pharma would not be interested, and we’d never be able to partner a drug,” Tacere CEO Sara Hall told RNAi News at the time. “Obviously, this [deal] proved that resoundingly wrong.”
 
But for Nucleonics, such a deal is unlikely. According to Towarnicki, Nucleonics had long planned to conduct phase I and early phase II studies of NucB 1000 on its own, so the company has not been “actively attempting to partner the HBV program.”
 
And in the end, Nucleonics isn’t looking for any licensing deal in hopes of staying afloat as an independent firm.
 
“The entire company is for sale,” Towarnicki said.

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