Roche cuts workforce, and drops RNAi R&D

An early example of RNA interference. Source:

As the author of the recently published book-length report RNAi Therapeutics: Second-Generation Candidates Build Momentum (Insight Pharma Reports, Cambridge Healthtech Institute), in addition to my other involvements with the RNAi therapeutics R&D community, I feel an obligation to comment on the recent announcement from Roche.

As many of you already know, on November 17, 2010, Roche announced that it would cut 4800 jobs (about 6% of their workforce), as part of a $2.4 billion cost-reduction plan. The company also plans to transfer 800 jobs internally, and 700 jobs “to third parties”.

Most of the positions to be cut will be in sales, marketing and manufacturing (especially in Roche’s primary care sales organization) in the United States. However, in R&D, Roche plans to discontinue development of some preclinical drugs. And, most notably for the RNAi research community, Roche will discontinue R&D in RNAi therapeutics, including its RNAi research center in Kulmbach, Germany.

Roche attributed its need to make the cuts to several setbacks in its drug development programs, as well as effects of government health care policy changes in the United States and Europe. The company has also been hit by a drastic falloff in demand for its influenza treatment Tamiflu. Roche is outsourcing sales of Tamiflu to a contract sales organization.

Among Roche’s drug development setbacks have been delays in development of its antidiabetic taspoglutide and its breast cancer drug T-DM1, as well as late-stage clinical failures in studies of its best-selling cancer drug Avastin in prostate, stomach, and early colorectal cancers.

Taspoglutide is a glucagon-like peptide-1 (GLP-1) analog, which Roche has been co-developing with Ipsen. In September 2010, the companies suspended Phase 3 clinical trials due to unexpected adverse effects. in August 2010, the FDA rejected an application for Accelerated Approval of T-DM1, which Roche has been codeveloping with ImmunoGen. The companies will have to complete Phase 3 trials before resubmitting the drug to the FDA, and plan to do so in 2012.

As we said in a February 2010 blog post, Roche (as well as Novartis), unlike most Big Pharmas, had not been emphasizing layoffs and R&D cuts up to that time. However, because of the above setbacks, Roche now sees the need for large reductions in their workforce. Nevertheless, Roche’s R&D cuts appear to be much more selective than those of other Big Pharmas, including those which like Roche have undertaken large acquisitions in 2009, such as Pfizer and Merck.

RNAi therapeutics R&D

Roche’s exit from RNAi therapeutics R&D comes despite the company’s strategic platform alliance with RNAi therapeutics sector leader Alnylam Pharmaceuticals (Cambridge, MA), which was initiated in 2007. That agreement included $313 million in up-front payments, and the purchase of Alnylam’s European research site in Kulmbach, Germany. This site became Roche Kulmbach GmbH, Roche’s Center of Excellence for RNAi therapeutic research, which Roche now plans to close. Roche also had an alliance with RNAi delivery platform company Tekmira Pharmaceuticals (Burnaby, British Columbia, Canada), which also partners with Alnylam to develop and manufacture delivery vehicles for several of Alnylam’s drug candidates.

The withdrawal of Roche from therapeutic RNAi research is the second blow to Alnylam’s alliance strategy this fall. In September 2010, Novartis decided to end its 5-year partnership with Alnylam. As the result of Novartis’ decision, Alnylam carried out a corporate restructuring, including an approximately 25-30% reduction in its workforce. However, Novartis remains very much in the therapeutic RNAi field, as the result of the technology and the rights that it acquired as the result of its partnership with Alnylam. And Alnylam is entitled to receive milestone payments for any RNAi therapeutic products that Novartis develops based on the 31 targets that it has acquired exclusive development rights to from Alnylam.

According to Alnylam’s CEO, John Maraganore, Alnylam was surprised to hear about Roche’s decision to exit therapeutic RNAi. He said, however, that the Roche move would not materially affect Anylam’s financial position or its future plans.

Tekmira’s CEO, Dr. Mark J. Murray, said in a press release that it does not expect Roche’s decision to have a substantive impact on their business. The majority of Tekmira’s revenue comes from its exclusive manufacturing relationship with Alnylam, and its growing relationship with the U.S. government’s Transformational Medical Technologies (TMT) program. This refers to the $140 million contract awarded to Tekmra by the TMT Program, to develop an RNAi-based product for protection against infection with the deadly Ebola virus. Tekmira expects these programs to be its main sources of revenue through 2011, together with its ongoing R&D collaborations with Pfizer, Takeda and Bristol-Myers Squibb (BMS).

As a result of Roche’s exit from RNAi therapeutics R&D, several commentators have been speculating on what other Big Pharmas with internal RNAi programs and/or RNAi alliances (e.g., Pfizer, Merck, BMS, Takeda, Novartis, GlaxoSmithKline, AstraZeneca) might do, and on whether Roche’s move might dampen the prospects for funding of smaller RNAi companies. Others speculate that Roche’s move may simply open up the RNAi market for other competitors. However, this early after Roche’s move, no one knows how valid any of this speculation might be.

As we discussed in our July 13, 2009 blog post, and in more detail in our RNAi Insight Pharma Report, the therapeutic RNAi (and microRNA) field represents an early-stage area of science and technology, with not one drug that has successfully gotten beyond Phase 2 of clinical development. The field may even be technologically premature, as was the monoclonal antibody (MAb) drug field in the 1980s. There are still knowledgeable analysts and industry researchers and executives who believe that RNAi will never yield marketable drugs, or that marketable drugs will be few in number (as is the current situation with antisense and aptamer drugs) and/or be decades away. This is despite the apparent progress in overcoming hurdles to therapeutic RNAi development, and in developing specific drug candidates, as outlined in our report.

In the case of MAb drugs, in the 1980s and early 1990s researchers developed enabling technologies that made it possible for companies to overcoming the hurdles to successful development of marketable products. As a result, in the late 1990s the MAb drug field took off, and is now one of the most successful areas of pharmaceutical development. RNAi companies have been developing enabling technologies (e.g., delivery vehicles, new oligonucleotide structures with greater potency or self-delivering properties) to overcome hurdles to successful RNAi therapeutic development. However, it remains to be seen whether and when such technologies will enable the RNAi therapeutics field to take off the way that MAbs did in the late 1990s.

Why would Big Pharma be interested in getting into such an early-stage and perhaps premature field as RNAi therapeutics? We discuss this issue in detail in our Insight Pharma Report. Among these reasons are the need to fill weak pipelines, and the desire to stake out a commanding position in the RNAi field once it becomes successful, by getting into it early. Big Pharma is trying to avoid repeating its experience with MAb drugs, where it failed to get into the field early, considering it too high-risk. When the MAb sector became highly successful, it was expensive for large pharmaceutical companies to acquire a major stake in it.

Roche, because of its relatively early purchase of a stake in MAb leader Genenetech, and its acquisition of Genentech in 2009, and its strategy to integrate itself with Genentech so as to become essentially a large biopharmaceutical company, may feel less of a need to have internal programs and large alliances in RNAi therapeutic research than other Big Pharma companies. Roche/Genentech currently has a rich pipeline of biologics and small-molecule drugs in clinical development, and in particular continues to develop innovative MAb drugs. For example, the FDA approved Roche/Genentech’s Actemra (tocilizumab) for the treatment of moderate to severe rheumatoid arthritis in January 2010. Actemra is the first interleukin-6 (IL-6) receptor-inhibiting MAb approved for that indication. With its leading position in the MAb/biologics field (including already approved Roche/Genentech blockbusters trastuzumab [Herceptin], bevacizumab [Avastin], and rituximab [Rituxan]), Roche may consider RNAi R&D a “nice to have” instead of a “must have”. Thus, faced with the setbacks that it has experienced in 2010, Roche may feel that it was in its best interests to drop RNAI therapeutics R&D. Other Big Pharma companies with different circumstances may continue with their RNAi internal operations or alliances as part of their long-term pipeline strategies.

Moreover, Roche may have left itself a means to continue to participate in the therapeutic RNAi field without the need to manage internal operations and/or alliances in that area. Roche has a history of spinning off some of its discontinued internal operations as independent companies, while retaining a stake in these entities or options on outlicensed products, and/or collaborating with the spin-offs on newer products. For example, in 1997 Roche researchers started Actelion Ltd., to continue a research program on endothelin receptor antagonists which they had been working on but which Roche decided to discontinue because the projected market was too small for Roche. The spin-out was financed by the venture capital firms Atlas Venture and Sofinnova Partners, which together contributed about $11 million to Actelion’s Series A round. Today Actelion is Switzerland’s largest biotech company (with a U.S. subsidiary), and one of its products, Tracleer (bosentan) for treatment of pulmonary arterial hypertension, has annual sales of more than $1 billion.

In 2000, Roche spun off Basilea Pharmaceutica Ltd. in 2000 to pursue antibiotic and antifungal R&D when Roche decided to exit that area. Basilea was formed by about 50 Roche scientists and executives, with five experimental compounds and 206 million Swiss francs ($214 million) in funding from Roche. Although 51% of the company was sold to private investors, Roche kept options on some of the experimental drugs. Today, Basilea markets Toctino (alitretinoin), a retinoid compound for treatment of severe chronic hand eczema (CHE) which does not respond to the standard topical corticosteroids. It also has a pipeline of antibacterial and antifungal compounds, and conducts earlier-stage research in anti-infectives and oncology. By spinning out Basilea, Roche was able to recoup its investment in anti-infectives.

According to Roche CEO Severin Schwan, Roche might spin off or find partners for its discontinued RNAi therapeutics operations.

We believe that Roche Kulmbach GmbH, Roche’s Center of Excellence for RNAi therapeutic research, might be a good potential candidate for a spin-off. The Kulmbach facility started in 2000 as an independent biotech company, Ribopharma AG. Ribopharma, a spin-off of the University of Bayreuth in Germany, claimed to be the first company to focus on RNAi therapeutics. Alnylam acquired Ribopharma in 2003, and Roche acquired the facility in 2007 as part of its agreement with Alnylam. Might the Kulmbach Center of Excellence become an independent company again as the result of a spin-out? Roche is also planning to close its Madison, Wisconsin facility, which has been conducting therapeutic RNAi R&D. That facility was also once an independent company, Mirus Bio; Roche acquired Mirus Bio in 2008. Roche RNAi researchers in Kulmbach and Madison had collaborated closely. Might Roche/Madison also be a spin-out candidate, either as a stand-alone operation or as part of a combined organization with Kulmbach? At this point, this is all speculation.

If Roche spins out one or more RNAi operations, and retains a stake in these companies, this might provide a way for Roche to participate in the therapeutic RNAi area, without having to manage day-to-day operations. And it might give Roche an opportunity to participate more actively in the field, especially as RNAi-based drugs advance toward market entry. Currently, Roche collaborates with its spin-out company Actelion on development of the selective S1P1 receptor agonist ACT-128800/RG3477 for treatment of multiple sclerosis.  In the future, Roche could enter into similar collaborations with any RNAi companies that it might spin out in 2010/2011.

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