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Nastech Considers Dropping RNAi Spinout Plans as Stock Price Drops

Nastech Pharmaceutical’s top official last week said that the company is considering dropping plans to spin out its RNAi therapeutics assets into a new publicly traded firm amid financial troubles including a sharp drop in share price, in part tied to the termination of a non-RNAi drug-development collaboration.
During a conference call with investors last week, Nastech Chairman, President, and CEO Steven Quay said that although the company still believes “it’s very important to receive independent investor validation” for its RNAi drug assets, “we are looking at some alternative structures” beyond the spinout.
He declined to elaborate on the other structures, noting that “we’re not ready to talk about those at this point in time.”
Nastech has been active in RNAi therapeutics since at least 2005 (see RNAi News, 4/8/2005), but the company really began working in the field in earnest after it acquired Galenea’s RNAi-related assets, including an influenza program, in early 2006 (see RNAi News, 2/23/2006).
Since that time, Nastech has carved out a place for itself in the increasingly crowded RNAi drugs space by focusing on Dicer-substrates (see RNAi News, 11/9/2006), which are 27-nucleotide-long RNA duplexes that have been shown to trigger an RNAi effect without inducing an interferon response. Additionally, since these molecules are longer than standard siRNA duplexes, Dicer-substrates are also believed to fall outside of the intellectual property estates controlled primarily by Alnylam and Merck subsidiary Sirna Therapeutics.
In a bid to improve the valuation of its RNAi assets and differentiate them from its non-RNAi activities, Nastech last year began preparing to spin out its RNAi operations into a public company, called MDRNA, by as early as the first half of this year.
Last November, Quay said that Nastech planned to seek around $20 million in independent financing from “qualified institutional investors and certain venture capitalists” to support MDRNA through its first year of operations, after which the new company would pursue a public listing.

“We recognize that a lot of damage has been done with regard to our stock price because of certain recent events. Despite the setback, we remain confident there is a lot of value in our technology, pipeline, and intellectual property.”

However, that same month, Procter & Gamble pulled out of a non-RNAi research and development collaboration with Nastech. As a result, Nastech began a corporate restructuring that has thus far included the elimination of about 120 employees, cutting the company’s headcount to about 87.
Nastech’s stock has also suffered in the wake of P&G’s decision, losing about 86 percent of its value in four months. The company’s shares were trading at $2.18 as of midday Thursday compared with just under $15 before the ended alliance.
It is this sharp drop that has led Nastech to reconsider spinning out MDRNA.
“With respect to the spin off … the analysis is quite different if you’re looking at a spinout from a $300-to-$400 million market cap company versus doing it where we are now,” Quay said during the conference call.
“We recognize that a lot of damage has been done with regard to our stock price because of certain recent events,” he added. “Despite the setback, we remain confident there is a lot of value in our technology, pipeline, and intellectual property.”
Quay said that the most recent round of layoffs will cut the company’s monthly burn to less than $2.5 million, giving it “sufficient resources to drive our key initiatives forward in the near term without necessarily having to go to the capital markets immediately.” He added, however, that “we are always looking at fundraising and will continue to do so.”
Among those initiatives is to “publicly demonstrate the RNAi value proposition around patents, people, and programs, and preserve the rapid progress we are making in moving our RNAi programs into development in 2008,” Quay said.
“We have advanced from just … test tube data to in vivo animal studies, where we have demonstrated efficacy … that is as good as, or better than, all the companies we have seen in the industry,” he said, adding that the company intends to publish some of these data this year.
Also in 2008, “we intend to establish partnerships in the RNAi space,” Quay said. He did not elaborate.
Although Nastech’s RNAi programs are still preclinical, Quay said that in light of deals Sirna and Alnylam have forged before they moved any programs into the clinic, “it’s pretty clear that big pharma has a profound interest in this particular space for companies that have good technology and intellectual property.
“A partner is … the most critical validating event … and we are in discussions,” he said. “That is our clear 2008 goal.”

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