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Novartis to Buy Big Stake in Alnylam as Part Of RNAi Alliance; Deal Could Be Worth $700M


Alnylam Pharmaceuticals announced this week that it has struck an RNAi drug discovery and development alliance with Novartis Pharmaceuticals. The deal will bolster Alnylam's coffers with millions in upfront fees and equity investments, and calls for Novartis to take a 19.9 percent equity stake in the RNAi-based drugs developer.

The three-year alliance will focus on a "significant number of disease targets" identified by Novartis across "multiple therapeutic areas," according to Vincent Miles, senior vice president of business development at Alnylam. Terms of the deal call for Alnylam to optimize Novartis' lead RNAi therapeutic candidates, and for Novartis to move them into the clinic and beyond, he said during a conference call this week.

"This is a game-changing event for Alnylam."

"This alliance will combine our expertise … in RNAi with Novartis' research expertise, development capabilities, and funding to advance RNAi therapeutics toward multiple targets for multiple diseases," Alnylam President and CEO John Maraganore said during the call. He noted that the funding provided by Novartis under the deal will give Alnylam the funds necessary to operate through 2010.

On the news, shares of Alnylam surged almost 40 percent, climbing $3.817 to $13.377 during midday trading on Wednesday. Meanwhile, shares of rival Sirna Therapeutics got a sympathetic boost, rising almost 32 percent to $5.30.

"This is a game-changing event for Alnylam," Barry Greene, Alnylam's COO, said during the conference call. "The deal provides a large infusion of cash, and with successful execution on collaboration objectives is expected to provide funding for Alnylam through the end of this decade."

As a result of the Novartis deal, Alnylam has revised its year-end cash guidance to greater than $75 million from previous estimates of greater than $25 million.

Greene noted that Alnylam plans to begin working on the collaboration's discovery efforts "quickly … by leveraging our existing employee base." To compensate for the shift in personnel from the company's other R&D efforts, Alnylam plans to expand its staff and expects to grow to about 110 employees from the current 82 by mid-2006, a 34-percent increase, he said.

Anatomy of the Deal

Under the terms of the three-year deal, Novartis will make payments of roughly $56.8 million to Alnylam, consisting of upfront cash and the purchase of about 4.2 million shares of Alnylam stock at $11.11 each.

After certain regulatory hurdles are cleared, Novartis will buy about 1 million additional shares of Alnylam, also at $11.11 each, giving Novartis a 19.9 percent equity interest in its new partner.

Alnylam said it is also eligible to receive research and early development funding, progress and development milestones, sales milestones, and royalties. The arrangement may be extended for two additional one-year periods beyond its initial three-year term. Alnylam added that it could receive more than $700 million in collective payments, not including royalties, should the partnership result in the development and commercialization of multiple products.

"As part of the alliance, Alnylam has retained the right to co-invest in development and to share profits in products from the collaboration with this right guaranteed for a defined number of programs," Miles noted.

Novartis also has a non-exclusive option to integrate Alnylam's RNAi therapeutics technology into its own internal programs. Products from these programs would then be subject to future milestones and royalties to Alnylam.

Miles said that Alnylam has "retained the rights to our proprietary pipeline, which includes our program for the development of an RNAi therapeutic for [respiratory syncytial virus] infection, as well as our other unpartnered and partnered programs." These includes Alnylam's ocular disease and spinal injury projects with Merck and its neurodegenerative disease collaboration with Medtronic, as well as its own pandemic influenza and cystic fibrosis efforts.

Novartis has a right of first offer option, on a target-by-target basis, should Alnylam seek to partner other programs in the future.

The companies will also form a "scientific strategy and advisory group to review the overall strategy for the relevant science and clinical applications of the collaboration," Alnylam said. The group will be chaired by Mark Fishman, president of the Novartis Institutes for BioMedical Research, and Phillip Sharp, Alnylam co-founder and MIT professor.

— Doug Macron ([email protected])