XIST Source: Alexbateman http://bit.ly/GZNTZg

On January 18, 2012, start-up company RaNA Therapeutics (Cambridge, MA) emerged from stealth mode with 20.7 million in cash. The Series A venture funding was co-led by Atlas Venture, SR One, and Monsanto, with participation of Partners Innovation Fund.

RaNA will work on developing a technology platform that involves targeting long noncoding RNA (lncRNA), in order to selectively upregulate gene expression.

Arthur Krieg, M.D. will serve as RaNA’s President and CEO. He is the former Chief Scientific Officer of the now-closed Pfizer Oligonucleotide Therapeutics Unit, who later became an Entrepreneur in Residence at Atlas Venture (Cambridge, MA). Dr. Krieg was mentioned in two of our previous Biopharmconsortium Blog articles, dated February 15, 2011 and August 22, 2011.

Atlas quietly nurtured RaNA while working to complete the Series A venture round. According to a January 18, 2012 article in Mass High Tech, the company plans to move into about 9,000 square feet of space “somewhere in Cambridge” in early 2012.  RaNA has approximately a dozen employees.

According to the Mass High Tech article, RaNA’s platform is based on technology developed by scientific founder Dr. Jeannie Lee (Massachusetts General Hospital/Howard Hughes Medical Institute, Boston MA).  Drs. Lee and Krieg and Atlas Ventures are cofounders of RaNA.

This is Part 1 of our discussion of RaNA Therapeutics.

RaNA and “junk DNA”

RaNA’s focus is related to what has traditionally been called “junk DNA”. As shown by work on the Human Genome Project and other genomics studies, only about 2-3 percent of the human genome consists of protein-encoding genes. Genomics researchers had not been able to identify a function for most of the remaining 97-98% of the human genome. This gave rise to the idea that these sequences consisted of parasitic DNA sequences that had no function whatsoever. Most researchers thus called these sequences “junk DNA”. Some of the leading lights of the genomics field gave presentations in which they dismissed this DNA as “junk”, and they even proposed models for how this “junk DNA” might accumulate during evolution. Then they would go on to discuss the “interesting” 2-3 percent.

However, the “junk DNA” concept was not really established science, but a hypothesis. I–among a few others–would call these sequences “DNA of unknown function”.

In more recent years, many researchers showed that at least the vast majority of DNA of unknown function was transcribed. Then researchers found a function for a relatively small percentage of these sequences–they are precursors of microRNAs and other small regulatory RNAs. These RNAs are related to the phenomenon of RNA interference (RNAi), which has been the subject of much basic research, including the Nobel Prize-winning research of Drs. Andrew Fire and Craig Mello. RNAi is the basis for various therapeutic RNAi drug discovery and development efforts at such companies as Alnylam, Silence Therapeutics, Quark Phamaceuticals, Dicerna, and Santaris, as well as several large pharmaceutical companies.

The majority of DNA sequences of unknown function, however, are transcribed into lncRNA. As exemplified by the first article [“Quantity or quality?”, by Monika S. Kowalczyk and Douglas R. Higgs (University of Oxford)] in a point/counterpoint Forum published in the 16 February 2012 issue of Nature, many researchers postulate that at least most of these transcripts are nonfunctional. Transcription of these sequences might be, for example, at a low level, as the result of experimental artifacts or of exposure of sequences to the transcriptional machinery due to changes in chromatin during such processes as cell division or expression of nearby genes. This point of view moves the “junk DNA” hypothesis to the RNA level–now one might speak of “junk RNA”.

However, in the second article in the Nature Forum [“Patience is a virtue”, by Thomas R. Gingeras (Cold Spring Harbor Laboratory)], the author counsels “patience” in carefully unraveling the function, one by one, of each noncoding RNA (ncRNA) transcript. According to Dr. Gingeras’ article, there are currently some 161,000 human transcripts, 53% of which are ncRNAs. About 2% of these ncRNAs are precursors to microRNAs. Approximately 10% of the transcripts are lncRNAs that map to intergenic and intronic regions, and many of these transcripts have been implicated in regulation — both of locally and at a distance— of developmentally important genes. Another 16% of the ncRNAs are transcripts of pseudogenes — genes that appear to have lost their original functions during evolution. Some of the pseudogene transcripts have been shown to regulate gene expression by acting as decoys for microRNAs. Despite this progress in assigning functions to ncRNAs, no function has yet been found for the majority of these transcripts. However, these are early days in the ncRNA field, so patience and openness to new discoveries is advisable.

The same 16 February 2012 issue of Nature contains a “Nature Insight” supplement on “Regulatory RNA”. Of particular interest with respect to the functions of lncRNAs is the review by Mitchell Guttman (Broad Institute and MIT, Cambridge MA) and John Rinn (Broad Institute and Harvard, Cambridge MA), entitled “Modular regulatory principles of large non-coding RNAs”. Among the lncRNAs discussed in that review are the X-inactive specific transcript (XIST) (see the figure above) and the telomerase RNA component (TERC). Both of these lncRNAs were identified and their functions determined in the 1990s–XIST in 1991  and TERC in 1995. XIST is expressed exclusively from inactive X chromosomes and is required for X inactivation in mammals. TERC is an essential RNA component of telomerase, the enzyme that replicates chromosome ends (telomeres). At the same time as the functions of XIST and TERC were beginning to be unraveled, most researchers were continuing to dismiss ncDNA as “junk”. Should they have known better?

The Guttman and Rinn review discusses several other lncRNAs with known, important functions, all of which were discovered since the pioneering work on XIST and TERC. Among the genes that encode these lncRNAs are HOTAIR and HOTTIP, which affect expression of the HOXD and HOXA gene family, respectively. HOX genes are a superfamily of evolutionarily conserved genes that are involved the determination of the basic structure of an organism. They encode transcription factors that regulate target genes by binding to specific DNA sequences in enhancers. The large intergenic non-coding RNA-RoR (lincRNA-RoR) modulates reprogramming of human induced pluripotent stem cells (iPS cells, which were discussed in earlier articles on this blog). The lncRNA NRON regulates transcription factors of the NFAT (nuclear factor of activated T-cells) family, which are involved in regulating the immune response, as well as in the development of cardiac and skeletal muscle, and of the nervous system. These genes have also been implicated in breast cancer, especially in tumor cell invasion and metastasis.

A common theme in the function of several lncRNAs, as highlighted in the Guttman and Rinn review, is association of the lncRNA with a chromatin-regulatory protein complex. The lncRNA serves to guide the regulatory protein complex to specific regions of chromatin. The protein complex then modifies specific histones in the chromatin regions, resulting in silencing of target genes.

In particular, HOTAIR serves as a molecular scaffold that binds to two protein complexes. A 5′ domain of HOTAIR binds polycomb repressive complex 2 (PRC2), and a 3′ domain of HOTAIR binds the CoREST–LSD1 complex. This enables the targeting of PRC2 and LSD1 to chromatin for coupled histone H3 lysine 27 methylation by PRC2 and histone H3 lysine 4 demethylation by LSD1. Both are required for proper repression of HOX genes.

XIST has at least two discrete domains, one involved in silencing (RepA) and the other in localization (RepC) of the XIST molecule on the X chromosome. The silencing domain RepA binds to PRC2, and the localization domain RepC binds to the YY1 protein and heterogeneous nuclear ribonucleoprotein U (hnRNP U).

The cases of HOTAIR and XIST are examples of how lncRNAs may function as molecular scaffolds of regulatory protein complexes. This may be general phenomenon, since a recent study by Drs. Guttman and Rinn and their colleagues indicates that about 30% of lincRNAs in mouse embryonic stem (ES) cells are associated with multiple regulatory complexes. In this study, the researchers found that RNAi knockdown of dozens of lincRNAs causes either exit from the pluripotent state or upregulation of specific differentiation programs. Thus lincRNAs appear to have important roles in the circuitry controlling the pluripotent state of ES cells, and in commitment to differentiation into specific lineages.

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As the producers of this blog, and as consultants to the biotechnology and pharmaceutical industry, Haberman Associates would like to hear from you. If you are in a biotech or pharmaceutical company, and would like a 15-20-minute, no-obligation telephone discussion of issues raised by this or other blog articles, or of other issues that are important to  your company, please click here. We also welcome your comments on this or any other article on this blog.

Source: Narayanese. http://bit.ly/oi10H1

On July 29, 2011, Merck announced that It was shutting down the San Francisco research laboratory that it had acquired as part of its $1.1 billion acquisition of therapeutic RNAi specialist company Sirna Therapeutics. This announcement was covered in a July 29, 2011 article in Xconomy, and in a news brief in the 4 August issue of Nature and a linked Nature news blog article.

According to the Xconomy article, the shutdown will include the loss of around 50 jobs. Around ten people are being offered transfers to other Merck facilities in nearby Palo Alto CA and on the East Coast.

The Merck facility shutdown continues the exit or retrenchment from therapeutic RNAi research at other Big Pharma companies. The Biopharmconsortium Blog has covered these moves at Roche and Pfizer.

As we discussed in the Roche article, Novartis had also decided to end its 5-year partnership with therapeutic RNAi specialty company Alnylam In September 2010. However, Novartis acquired technology and exclusive development rights for RNAi therapeutics against 31 targets for in-house use as the result of its partnership with Alnylam.  Alnylam is entitled to receive milestone payments for any RNAi therapeutic products that Novartis develops based on these targets. Thus Novartis is still involved in RNAi therapeutics, despite the termination of the Alnylam partnership.

Moreover, according to the Nature news blog, Ian McConnell of Merck’s Scientific Affairs, R&D and Licensing and Partnerships said that Merck will continue to have over 100 scientists working on RNA-based therapeutics, and that it continues to invest significantly in the field. Closing the San Francisco lab represents an effort to trim the budget by eliminating the cost of maintaining a separate RNAi facility.

In our previous blog articles on Big Pharma RNAi therapeutics retrenchment, and in our October 2010 book -length report, RNAi Therapeutics: Second-Generation Candidates Build Momentum, we discussed the strategic issues that are involved in undertaking (or in retrenching from) R&D programs in RNAi therapeutics, and in investing in that area. The therapeutic RNAi (and microRNA) field represents an early-stage area of science and technology. The field may be technologically premature, as was the monoclonal antibody (MAb) drug field in the 1980s.

Big Pharma originally got into RNAi therapeutics in order to help fill weak pipelines, and with the hope of staking out a commanding position in the RNAi field once it became successful. However, with the short-term pressure at Big Pharma companies to cut expenses and programs, Big Pharmas have been losing the needed patience to continue with a technologically premature field like RNAi therapeutics.

In the June 2011 issue of Molecular Therapy, there is an editorial by Arthur Krieg, M.D. (former Chief Scientific Officer of the now-closed Pfizer Oligonucleotide Therapeutics Unit, and now Entrepreneur in Residence at Atlas Venture, Cambridge, MA), entitled “Is RNAi dead?” As discussed in the editorial, the move of Big Pharma away from RNAi, according to some observers, signals the death of the therapeutic RNAi platform. Dr. Krieg outlines an alternative view.

According to Dr. Krieg, Big Pharmas got into RNAi therapeutics with the hope of enabling the rapid development of targeted drugs without the long time lags and uncertainties of small molecule drugs and biologics. In theory, if a research team has a good target, it could rationally design a lead RNAi drug specific for the target and ready for human clinical trials within 15 months. And researchers would not have to worry about “undruggability” of targets. However, there have been several unforeseen hurdles to the development of RNAi drugs, the most formidable of which is the issue of drug delivery. Although certain high-profile publications suggested that the challenge of RNAi drug delivery could be easily overcome, this proved not to be the case in practice.

However, Dr. Krieg believes that the progress in RNAi delivery in recent years has been “nothing short of spectacular”. In 2008, the best RNAi delivery systems for a liver target might have an IC50 (i.e., the RNAi dose required for 50% inhibition of target expression) of 1–3 mg/kg, but in 2010/2011, the IC50 has been reduced to about 1% of this value, which is an improvement of two logs. Dr. Krieg also says that there have also been significant advances in reducing off-target and other undesired systemic effects of RNAi therapeutics in animal models in recent years.

Nevertheless, the advances in RNAi delivery and safety are moving too slowly for Big Pharma’s current short-term mindset. According to Dr. Krieg, if companies are not able to take an RNAi drug into clinical development this year, then the next time there is an R&D portfolio review, investments in “high-risk” technology platforms such as RNAi are likely to be cut. As we have discussed in this blog, and as is well-known to most of you, every Big Pharma company has been cutting R&D and shedding poorly productive and high-risk programs. The focus at many Big Pharmas is on fast, sure returns. High-risk or premature technologies that have not yet yielded any marketed drugs, such as RNAi (and for example, stem cells/regenerative medicine) is not likely to offer such returns.

Dr. Krieg also notes that in the case of another once-premature technology, monoclonal antibody (MAb) drugs, it took several waves of technology development to advance from repeated clinical failure to one of the most successful classes of drugs today. In our view, MAb technology is the classic case (in the life sciences, anyway) of how researchers and companies can take such a premature technology up the technology curve by developing enabling technologies. We discussed this case in our September 28, 2009 blog article, and its applicability to RNAi and stem cells in our July 13, 2009 blog article. As discussed in these articles, and as noted by Dr. Krieg, it was not Big Pharmas, but biotech companies “on the cutting edge” (together with academic labs) that advanced the therapeutic MAb field. Big Pharmas later bought into the MAb field, typically by large acquisitions. This is especially exemplified by the acquisition of MAb drug leader Genentech by Roche.

With respect to RNAi, as mentioned above, at least Merck and Novartis among the Big Pharmas are continuing with in-house RNAi therapeutics programs. And such biotechs as Alnylam, Silence Therapeutics, Quark Phamaceuticals, Dicerna, and Santaris have RNAi and/or microRNA-based drug candidates in clinical trials, often partnered with Big Pharma companies (such as Pfizer) that have cut or reduced their own RNAi drug programs. Therefore, there are companies that are working on advancing RNAi therapeutics up the technology curve. As Dr. Krieg says in his editorial, success in such programs will be expected to lead to Big Pharma reinvestment in RNAi/microRNA therapeutics, just as in the case of MAb drugs.

Piwi-siRNA base pairing. Source: Narayanese http://bit.ly/eEtQQR

In our November 23, 2010 blog post, we discussed Roche’s November 2010 R&D cuts, especially its decision to discontinue R&D in RNAi therapeutics. This had followed closely on the October 2010 publication of our report RNAi Therapeutics: Second-Generation Candidates Build Momentum (Insight Pharma Reports, Cambridge Healthtech Institute). Our report included a discussion of Big Pharma efforts in therapeutic RNAi R&D, specifically including Roche.

Now a second Big Pharma with a significant internal therapeutic RNAI R&D project area covered in our report, Pfizer, announced on February 1, 2011, that it was exiting therapeutic RNAi R&D. This was a small part of a global R&D restructuring plan aimed at saving the company $1.5 billion. The new R&D cuts at Pfizer will eliminate an estimated 3500 jobs worldwide, and will close Pfizer’s large R&D facility in Sandwich, U.K. (eliminating 2400 jobs) and eliminate 1100 jobs at its large R&D facility in Groton, Connecticut.

In addition to exiting RNAi therapeutics research, Pfizer is also discontinuing most of its regenerative medicine research. Both research groups are located at the company’s Memorial Drive laboratory in Cambridge, MA, which will be closed, resulting in approximately 100 layoffs.

Other areas to be discontinued include allergy and respiratory medicine and internal medicine (located in Sandwich), and antibacterials (located in Groton). Pfizer will focus its R&D efforts in neuroscience, cardiovascular, metabolic and endocrine diseases, inflammation and immunology, oncology, and vaccines. The company will create new units in pain and sensory disorders, biosimilars, and Asia R&D. Pfizer’s regenerative medicine group in Cambridge, UK (which had been focusing on development of preclinical embryonic stem (ES) cell-based ophthalmology therapies, in collaboration with the University of London) will be folded into the new pain and sensory disorder research unit.

Although Pfizer will be closing the Memorial Drive laboratory in Cambridge, MA, it intends to expand its R&D efforts in Cambridge/Boston, creating an estimated 450 new jobs. Cardiovascular and neuroscience units will be moved from Groton to a new facility (yet to be acquired or built) in Cambridge/Boston. Pfizer will also maintain its manufacturing and research facility in Andover, MA, which specializes in biologics. Pfizer plans for its R&D units in Cambridge/Boston to interact more intensively with the local biomedical research and entrepreneurial community.

Pfizer’s Sandwich laboratories have long served as the company’s center for small-molecule drug discovery. Researchers at Sandwich discovered such drugs as the erectile dysfunction treatment Viagra, the blood pressure medicine Norvasc, and the antifungal Diflucan.

According to company spokespeople, it is possible that Pfizer might partner, out-license, or spin off some of its discontinued research programs. And some venture capitalists also expect to see new biotech companies emerge, at least from the Sandwich site.

This latest Pfizer R&D restructuring is on top of the 15% of its 128,000 employees Pfizer laid off over the past two years after its acquisition of Wyeth. In late 2009, the company said it was closing six of its 20 research sites as it reduced its R&D operations by 35%. A major factor in the latest round of layoffs and facility closings is the impending loss of patent protection (in Novemer 2011) for Pfizer’s largest-selling drug, the cholesterol-lowering agent Lipitor (atorvastatin). This is coupled with Pfizer’s R&D productivity deficit, and resulting inability to bring enough large-selling drugs to market to maintain its growth.

According to Pfizer’s new CEO, Ian C. Read, “The most fundamental question that Pfizer has to fix is our innovative core. This [restructuring] is the start of fixing that in a way that will give us consistent productivity in our innovation.” Read further says that the company’s goal is to stop putting resources into high-risk areas that provide a low return on investment or where Pfizer lacks the expertise to compete.

Pfizer’s exit from RNAi and regenerative medicine: the issue of technological prematurity

The RNAi therapeutics research and biotech company community, is as expected focused on Pfizer’s discontinuation of its efforts in this area. Even the New York Times has echoed this emphasis, with an article that is marred by several erroneous statements. [For example, in humans the RNAi pathway, although one of its functions is defense against viruses (as stated in the article), is mainly involved in a fundamental process of cellular regulation, principally via microRNAs.] Pfizer’s exit from the RNAi therapy field comes on the heels of the discontinuation of therapeutic RNAi research at Roche, and of Novartis’ termination of its 5-year partnership with Alnylam. According to  Dirk Haussecker’s RNAi Therapeutics blog, Big Pharmas have decided to exit internal development of RNAi technologies and drugs, and to wait to partner with or acquire RNAi specialty companies as their RNAi therapeutics programs yield meaningful clinical results. (Even Pfizer already has two external RNAi collaborations, with Quark and Tacere.) Dr. Haussecker himself plans to blog less, and only resume blogging as clinical results come in.

Despite this focus on Pfizer’s RNAi discontinuation by RNAi researchers and some journalists, Pfizer’s exit from RNAi therapeutics R&D is a small part of the company’s restructuring. It should therefore be put into the context of the strategic intent of the company’s restructuring as a whole. From our point of view, it is significant that Pfizer is discontinuing not only RNAi therapeutics R&D, but also regenerative medicine R&D.

The very first article on this blog, dated July 13, 2009, is entitled “RNAi, embryonic stem cells, and technological prematurity”. Both RNAi therapeutics and ES cell research (the latter of which includes induced pluripotent stem cells as well as ES cells per se, and which is the basis for Pfizer’s regenerative medicine R&D) are technologically premature, or at the very least very early-stage technologies. (Regenerative medicine based on adult stem cells is also technologically premature.) As the New York Times article–among others–points out, monoclonal antibody (MAb) therapeutics took 20 years from the time of the discovery of MAbs to achieve market success, and RNAi therapeutics might have a similar timeline. So might regenerative medicine based on stem cell technology.

However, a premature technology is not simply a technology that takes a long time to be translated into successful products. It is a technology that requires development of enabling technologies to overcome hurdles to development, and to move the technology up the development curve. MAb therapeutics represented a classic case of a premature technology. We discussed the history of the MAb therapeutics field in our September 28, 2009 blog article. Successful enabling technologies for MAb therapeutics began to be developed in the early 1980s, by biotechnology companies and by academic laboratories. Some of these companies eventually became leaders in the MAb field.

Arguably the most successful MAb development company, Genentech, developed enabling technologies in collaboration with academic researchers beginning in the early 1980s. But Genentech’s first MAb products, the highly successful antitumor agents Rituxan (codeveloped with Idec) and Herceptin, did not reach the market until 1997 and 1998, respectively. Roche purchased a majority stake in Genentech in 1990, when Genentech needed an infusion of capital to complete clinical development of its MAb products. In 2009, Roche moved to fully acquire Genentech, which now operates as a wholly-owned subsidiary. Most of the other leaders in the MAb therapeutics field were acquired by Big Pharmas or Big Biotechs in the late 1990s, after the MAb field became successful.

The take-home lessons for RNAi therapeutics and stem cell-based regenerative medicine R&D are that enabling technologies are necessary to move these fields up the technology development curve as well. In the case of RNAi therapeutics, specialty biotech companies in that area have been busy working on such enabling technologies, in two principal areas–design of the oligonucleotide molecules themselves, and delivery technologies. With respect to oligonucleotide design, certain types of chemical modifications enabled researchers to develop siRNAs (small interfering RNAs) that do not trigger an innate immune response. The immunogenicity of early siRNA drug candidates was a significant hurdle to the development of siRNA therapeutics. The New York Times article sounds as if the problem of immunogenicity of siRNAs has not been overcome, which is not true.

Ironically, the article quotes Arthur Krieg, the head of the RNAi group at Pfizer, in support of this contention. But although Dr. Krieg did the studies quoted in the article that showed the extent of the problem of immunogenicity in early siRNA candidates, he himself is one of the researchers who developed means to overcome this problem. Dr. Kreig came to Pfizer via the company’s 2008 acquisition of Coley Pharmaceuticals, where he was the head of R&D. Coley was focused on developing RNA-based immunotherapeutics, so Dr. Kreig is a leader in the field of RNA-mediated immunogenicity. As a result of the Coley acquisition, Pfizer has been developing oligonucleotide vaccine adjuvants, which are now in Phase III trials and have been licensed to GlaxoSmithKline.

Even when enabling technologies that ultimately prove to be successful have been developed, it typically takes many years before this produces promising clinical results, let alone approved drugs. The example of Genentech, which developed its patented MAb enabling technology platform in the early 1980s, but produced no marketed drugs based on that technology platform until the late 1990s, is illustrative of this point. (Of course, the long timeline to produce any marketed drug, from initial drug discovery to approval, is a large part of the reason for this time gap.) Therefore, any company that undertakes to develop products based on an exciting, but premature, technology must be both highly creative and very patient–and have patient capital behind it. An infusion of capital as such a company moves into the clinical phase–as with Roche’s 1990 equity investment in Genentech, helps as well.

The reward for companies that develop products based on a premature technology is that such a company may become a leader in an important new area of technology, with a large market. However, the risk of undertaking such a course of action is high.

As we discussed in our 2010 RNAi therapeutics report, Big Pharma was interested in getting into RNAi therapeutics, despite the field’s risks, in part because of its past experience with MAbs and other biologics. Because Big Pharma companies had failed to get into the now highly successful biologics field early, acquiring a major stake in that field had been expensive. Seeing the promise of RNAi therapeutics, Big Pharmas were therefore eager to get into RNAi therapeutics early, in the hope of capturing a commanding position in the field once drugs reached the market.

However, with any RNAi drugs still far in the future, and with their increasing short-term pressures, Big Pharmas have been losing the needed patience to continue with a technologically premature field like RNAi therapeutics. Therefore. their interest has been cooling. As (according to the New York Times article) Klaus Stein, head of therapeutic modalities for Roche, said, “I have no doubt that at a certain point in time RNAi will make it to the market….[but] when we looked into this, we came to the conclusion that we have opportunities that have higher priorities.”

Meanwhile, R&D and dealmaking continues in the small RNAi and microRNA specialty companies. For example, on February 3, 2010, it was announced that RNAi specialty firm Marina Biotech (Bothell, WA) entered into an agreement with Swiss biotech development group Debiopharm to develop and commercialize Marina’s preclinical RNAi-based therapy for bladder cancer. The deal is worth up to $25 million to Marina, based on predefined R&D milestones and royalties on the sales of products resulting from the agreement. Also in February 2010, Marina raised $5.1 million in a new public offering, and plans to use the proceeds to fund development of a drug candidate for familial adenomatous polyposis (FAP).

Preclinical and clinical studies are also continuing at such leading RNAi or microRNA therapeutics companies as Alnylam, Tekmira, Quark, RXi, Silence, Calando, Dicerna, Regulus, Santaris, and miRagen. If and when the products of these companies reach late-stage trials or commercialization, Big Pharmas may have to partner for or acquire these products or companies on a similar basis as for biologics in the last decade. A  key question is whether the RNAi/microRNA therapeutic sector can raise enough capital to fund its R&D, now that several Big Pharmas’ exit from the field appears to have dampened investors’ interest.

Pfizer’s restructuring strategy as a whole

As for Pfizer’s restructuring as a whole, we discussed the Big Pharma strategy of attempting to deal with loss of revenues from aging blockbusters and the lack of R&D productivity via megamergers, restructuring, and outsourcing in our February 19, 2010 blog post. Earlier megamergers, such as Pfizer’s acquisitions of Warner-Lambert in 2000 and of Pharmacia in 2002, followed by restructurings, enabled Pfizer to acquire blockbuster products (including Lipitor) and to realize significant cost savings from staff reductions. However, the continuing lack of productivity in R&D and the looming patent expiration of Lipitor and other large-selling drugs, motivated Pfizer management to enter into yet another megamerger, with Wyeth in 2009.

However, the Wyeth acquisition has not altered Pfizer’s fundamental issues. R&D productivity remains low, and Pfizer is the Big Pharma company that is most affected by upcoming patient expirations. Patent expirations are expected to expose approximately two-thirds of Pfizer’s total sales to generic competition over the next three years. This is mainly due to Pfizer’s dependence on revenues from Lipitor.

Meanwhile, Pfizer is maintaining its stock price not only by R&D retrenchment, but by spending $5 billion to buy back its own stock. The combination of cutting R&D and stock buy-backs is popular with investors. As of February 4, Pfizer’s stock was up 5.2% since the February 1 announcement of the R&D cuts and stock buy-back. In contrast, Merck’s new CEO Ken Frazier said on February 3 that that company would not make the cuts necessary to meet its long-term earnings forecasts. Instead, it would focus on investing in pharmaceutical R&D to drive future growth. Merck’s stock dropped 2.7% that day. However, Pfizer’s stock buy-back and R&D cuts only provide temporary relief, since they do not alter the fundamentals.

Meanwhile, the “other Merck”, Merck KGaA (Darmstadt, Germany), is expanding its R&D. This includes expansion of the company’s facility in Billerica, MA, where it will hire about 100 new researchers, doubling its staff. The Billerica R&D team will focus on discovery and development of new agents for cancer, neurodegenerative diseases and infertility.

As for Pfizer’s exiting the therapeutic areas of allergy, respiratory medicine, and internal medicine, it makes sense for a company to terminate programs that have not been productive. However, which areas to cut will vary by company. For example, in our February 19, 2010 blog post, we mentioned that GlaxoSmithKline (GSK) had eliminated its R&D in depression, anxiety, and pain. In contrast, Pfizer is building a new unit in pain and sensory disorders.

The main issue, however, as Pfizer’s CEO Ian Read said, is for Pfizer to fix its “innovative core”. The restructuring may help by freeing resources that had been devoted to low productivity therapeutic areas, and to high-risk/low-return areas. However, the cutbacks will not fix Pfizer’s low R&D productivity in any fundamental way.

As with other Big Pharma companies, Pfizer needs to fundamentally rethink its R&D strategy, and move towards the types of “smarter R&D” and partnering discussed in our December 3, 2010 blog article, and in the one-page article by GSK CEO Andrew Witty referenced in that article. This does not mean copying other companies’ “smart R&D” strategies, even Novartis’ or Roche/Genentech’s strategies that have been the most successful. It means developing a new R&D and partnering strategy specific for Pfizer, based on the fundamentals of what has worked in R&D in the past ten years or so, and building on Pfizer’s R&D assets. (Given the fast-changing nature of biomedical science and technology, as well as of the pharmaceutical and health care business landscape, even companies like Novartis and Roche/Genentech need to keep honing their R&D and partnering strategies.)

As we stated in our December 3 2010 article, this revamping of R&D strategy may well enable Pfizer to achieve additional cost savings. However, such selective R&D budget cuts would not impair the ability of the company to successfully discover and develop new, medically-significant drugs as across-the-board cuts tend to do.

Pfizer’s decision to concentrate its R&D facilities in research hubs such as Greater Boston, and to mandate that its researchers interact more intensively with academic and biotechnology researchers and entrepreneurs located in these hubs, can facilitate moving towards a “smarter R&D” and partnering strategy. We in the Boston area welcome Pfizer researchers and executives who will be moving here, and hope that we can work with Pfizer to help facilitate its R&D success.

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As the producers of this blog, and as consultants to the biotechnology and pharmaceutical industry, Haberman Associates would like to hear from you. If you are in a biotech or pharmaceutical company, and would like a 15-20-minute, no-obligation telephone discussion of issues raised by this or other blog articles, or of other issues that are important to  your company, please click here. We also welcome your comments on this or any other article on this blog.

An early example of RNA interference. Source: http://bit.ly/gbXhli

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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Figure by Daniel Ramsköld, Karolinska Institutet. http://tinyurl.com/37n36qh

On November 4, 2010, Cambridge Healthtech Institute (CHI) announced the publication of our new book-length report, RNAi Therapeutics: Second Generation Candidates Build Momentum.

Since the Nobel Prize-winning discovery of RNAi (RNA interference), there has been intense interest by the biotech, pharmaceutical, and investment community in developing oligonucleotide drugs based on RNAi technology. First-generation candidate RNAi therapeutics met with serious obstacles related to potency, stability, immunogenicity, and delivery. However, these issues are being addressed by the current second-generation RNAi therapeutics making progress through preclinical and clinical development.

This new Insight Pharma Report examines the science behind therapeutic RNAi and miRNA (microRNA), technologies for design of therapeutic oligonucleotides that work via an RNAi or miRNA-modulating mechanism, technologies for design of delivery vehicles, and leading specialty companies in the therapeutic RNAi/miRNA industry sector. These include such companies as Alnylam, Quark, RXi, Silence, Tekmira, Regulus, and Santaris.

The report also discusses the role of large pharmaceutical companies in the therapeutic RNAi/miRNA sector, including alliances with RNAi specialty companies and in-house drug development. Also covered are companies that focus on development of miRNA-based diagnostics. The report also includes a discussion of the outlook for the therapeutic RNAi/miRNA industry sector, including strategic issues such as technological prematurity and the development of enabling technologies, the role of Big Pharma investment, the impact of patent litigation and cross-licensing in shaping the RNAi/miRNA sector, and a scenario for the development of RNAi and miRNA-based drugs.

The report also includes transcripts of interviews with five leaders of biotech companies in the RNAi/miRNA industry sector.

The Biopharmconsortium Blog includes two articles on the therapeutic RNAi/miRNA sector, published in 2009. You can access these articles here. The new CHI Insight Pharma Report provides a much more extensive–and updated–exposition of the state of RNAi and miRNA therapeutic development, and of the exciting, fast-moving industry sector that is working to develop these drugs.

For more information on RNAi Therapeutics: Second Generation Candidates Build Momentum, or to order it, see the CHI Insight Pharma Reports website.