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Sirna Filing with SEC Reveals Acquisition Deal in the Works; IP, Delivery May Be Factors

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Sirna Therapeutics may soon acquire an undisclosed private company, the RNAi drug developer said in a US Securities and Exchange Commission filing dated Nov. 15.

In its 10-Q filing with the SEC for the quarter ended Sept. 30, Sirna stated: “In October, 2004, the company entered into various agreements with a closely-held private corporation and related parties. Upon the successful completion of certain technical feasibility studies and other closing conditions, [Sirna] will complete a transaction to acquire all of the issued and outstanding shares of the private corporation.”

If Sirna’s acquisition goes through, the company will become the latest in a number of RNAi companies to join forces with another player in the industry. Indeed, at the beginning of this year, Richard Warburg, a partner with the law firm of Foley & Lardner, had told RNAi News that he expected to see a wave of mergers and acquisitions within the RNAi industry as companies turned to consolidation in order to avoid intellectual property disputes, much the way Alnylam Pharmaceuticals did when it acquired Ribopharma last year (see RNAi News 1/2/2004).

While the number of combinations may not have reached the level Warburg predicted, the RNAi field did see a couple during the year: In February, Fisher Scientific signed a deal to acquire Dharmacon for $80 million in cash, (see RNAi News, 2/13/2004). Then, in May, Benitec bought Avocel for roughly $5.4 million in stock (see RNAi News, 5/21/2004), and the company has made well-known its intention of floating its shares in the US by buying a publicly traded company (see RNAi News, 1/30/2004).

While the 10-Q did not reveal the name of the private corporation Sirna is eyeing, some industry players offered their opinions on what kinds of companies might make good takeover targets for an RNAi therapeutics developer.

According to Jean-Francois Gauthier, a partner with corporate advisory firm TSG Partners, most of the RNAi-based drug makers have been able to develop stable siRNA sequences that can efficiently knock down target gene expression, but have thus far failed to adequately deal with the overarching delivery problem.

“A lot of the players have taken the approach where they said, ‘Let’s develop … functionally valid … sequences that are stable and go after the right target,’” he told RNAi News this week. “But at the same time, they made the decision that the complex delivery problem would be solved … in parallel with that.

“After a couple of years of taking that approach, they are faced with the fact that there are no broadly applicable delivery technologies” available for indications more complicated than ocular diseases, Gauthier said.

As such, a deal with a strong drug-delivery player might make sense for an RNAi-based therapeutics firm, he noted, without commenting specifically on the Sirna situation.

Jim Barrett, a general partner at New Enterprise Associates and a Nucleonics director, sees it a different way. “At this stage of the development of [RNAi] technology, the major driver for consolidation is going to be IP, as it has been over the last few years,” he told RNAi News this week. He added that a merger or acquisition would be an easy way for two companies to resolve what could potentially become an expensive legal dispute.

“I don’t think there’s going to be serious consolidation, unless [it involves transactions] driven by clinical data,” Barrett said. “But that’s going to be a fair piece of time coming • I don’t see that happening in the near term.

“It’s my view that any consolidation that’s going on now would be very heavily influenced by IP issues,” he said, adding that he has no specific knowledge of Sirna’s M&A activities.

Douglas Fambrough, a principal at Sirna investor Oxford Bioscience and member of Sirna’s board, agreed with Barrett that IP would likely be the key to any mergers or acquisitions in the RNAi therapeutics field.

Fambrough told RNAi News this week that the “complexity of the IP [in the RNAi field] is far overstated relative to the general complexity of intellectual property in most circumstances,” but pointed out that this doesn’t mean the situation is a simple one. Therefore “a consolidation of IP would bring clarity to a situation that is slightly confused in reality and perceived as being very confused,” he said.

Fambrough noted that when RNAi’s IP landscape is discussed, people usually think of the fundamental patents and patent applications that cover the basic mechanisms of the gene-silencing technology such as the Tuschl-1 and Tuschl-2 patent applications. “But there’s really a lot more IP that needs to be considered,” he said, such as patents covering stabilization chemistry, delivery formulations, and drug targets.

“The other IP, I think, is really what would be the more interesting driver of potential consolidation,” Fambrough added, stressing that he is “not aware of any consolidation in the RNAi industry,” and that his comments were made as part of a “theoretical discussion.”

Sirna’s 10-Q said that “pursuant to an escrow agreement, the company deposited 170,068 shares of its common stock into escrow, [and that] some or all of [the] shares are issuable to the related parties of the private corporation upon the consummation or termination of the contemplated acquisition. The company has also entered into invention assignment, non-competition, and/or consulting agreements with the related parties,” the 10-Q states.

“Additionally, upon the consummation of the contemplated acquisition, [Sirna] will issue to such parties an additional 510,204 of shares of common stock,” the 10-Q states. “Subject to the achievement of certain milestones and other conditions, the company may issue additional shares of its common stock (some or all of which may be paid in cash in lieu of shares) plus additional shares of common stock based on possible future sales (some or all of which may be paid in cash in lieu of shares), the value of such stock will be based on the price of the stock as of future dates.”

Based on Sirna’s stock price of $2.96 as of midday Wednesday, and exclusive of additional payments that may be made upon the achievement of milestones and other conditions, the acquisition could be worth roughly $2 million.

Sirna senior vice president and COO Nassim Usman declined to comment on the nature of the agreements detailed in the 10-Q.

- DM

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