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Roche's Transfer Of Assets To Arrowhead May Create Most-Comprehensive RNAi Firm

This article was originally published in The Pink Sheet Daily

Executive Summary

After an expensive foray into RNAi, Roche is handing off its substantial portfolio to Arrowhead, in exchange for a 10% stake in the company and right-of-first-negotiation to programs and earn-out potential.

It was like the sound of the other shoe dropping Oct. 24 as Roche and Arrowhead Research Corporation announced an agreement transferring Roche's RNA-interference assets to the biotech in a stock-and-asset purchase transaction that gives the pharma some downstream rights to the technology.

The deal followed last November's announcement by Roche that it was ending its active involvement in the development of RNAi therapeutics, concluding a multi-year stretch in which it had licensed or acquired intellectual property for several RNAi delivery and small interfering RNA (siRNA) formats, to focus on other therapeutic areas such as next-generation antibodies and peptides ( (Also see "Roche Exits RNAi, Raising Questions For Stalwarts " - In Vivo, 1 Dec, 2010.)

In a same-day investor call, Arrowhead President and CEO Christopher Anzalone called the deal a victory for the overall RNAi arena, which was shaken by Roche's exit last fall from the field. That was proceeded a month earlier by a decision by Novartis AG to drop its R&D collaboration with one the of the space's pioneer companies, Alnylam Pharmaceuticals (Also see "Alnylam Shifts To Product-Focused Strategy As RNAi Platform Takes A Hit" - Pink Sheet, 17 Jan, 2011.).

In an interview, Alnylam Senior VP and Chief Business Officer Laurence Reid concurred with Anzalone's assessment. Alnylam was a partner with Roche on some of the assets that Arrowhead will now possess, and its stock took a heavy hit after Roche's announcement.

"We think it's good news," he said. "We consider ourselves now to be partners with Arrowhead and we look forward to working with them to exploit the IP that it's picked up. Seeing a company be able to put together a financing and remove the doubt around what was going to happen with these assets is good. We hope Arrowhead is going to take the assets forward aggressively and generate value for itself, and we'll share a piece of that value creation."

Three RNAi Delivery Systems And Three siRNA Formats

The transaction gives to Arrowhead three RNAi delivery systems and three siRNA formats, including the so-called Canonical siRNA structure Roche licensed from Alnylam in 2007 for $331 million upfront ([See Deal]). Arrowhead also will take possession of Roche's state-of-the-art RNAi subsidiary site and personnel, which the big pharma originally acquired through the purchase of Mirus Bio for $125 million in 2008 (Also see "Roche Keeps Shopping: Mirus Acquisition Bolsters RNAi Portfolio" - Pink Sheet, 22 Jul, 2008.).

In exchange, Arrowhead issued the pharma a promissory note transferring more than nine million shares of its common stock, with a plan to eventually give Roche up to an additional 1.5 million shares, or their equivalent cash value. In total, the Swiss pharma will hold a 9.9% interest in Arrowhead. The biotech's stock closed trading Oct. 25 at $0.54, up 9% from the day before.

In tandem with the deal, the Pasadena, Calif.-based nanomedicine firm, closed on a $4 million private placement, to augment a recently announced $5.5 million financing, and entered a three-year, $15 million credit facility with Lincoln Park Capital, which it can draw down as needed.

Roche also receives a limited right of first negotiation to three existing RNAi therapeutic candidates transferred to Arrowhead, as well up to five other unspecified clinical candidates. For specified candidates, Roche will be entitled to a 3% royalty on net sales should it not enter licensing agreements for those candidates. In addition, Arrowhead will owe Roche milestones - said to range between $2.5 million and $6 million - for achievements such as first regulatory approval of an RNAi therapeutic and sales milestones.

During the investor call, Anzalone noted that Roche had spent roughly $500 million building a "comprehensive world-class RNA therapeutics unit."

"As they built these impressive assets, they did not rush to the clinic," he continued. "Rather, they focused resources on further developing and understanding the various platforms and technologies. The result is a broad, relatively mature and complete set of technologies and capabilities. These are the broad shoulders we are fortunate to stand on today."

Significant Stockpile Of Unpublished Data To Be Unveiled

As a result, Arrowhead is now the most comprehensive RNAi company in the world, and plans to use its portfolio to drive large industry partnerships "to bring in potentially substantial, non-dilutive capital that we can then use to fund operations and development of our own drug pipeline," Anzalone said.

Roche also had amassed a large amount of unpublished data from its RNAi efforts. "What we would like to do is come out in the very near term with first a white paper on the various technologies - where they are in development, what the strengths are, what some of the data look like, and then after that with more granular guidance on what the clinical development path looks like," he said.

Through its Calando Pharmaceuticals and Leonardo Biosystems subsidiaries, Arrowhead already owned an RNAi candidate - CALAA-01, in Phase I studies of solid tumors refractory to standard-of-care therapy - and two RNAi delivery systems.

Alnylam's Reid, while acknowledging the impressive portfolio Arrowhead has assembled, said Alnylam, with 10 years experience in RNAi therapeutic development and four programs in clinical development, remains the most advanced player in the space.

The deal brings to Arrowhead the following assets:

· Roche Madison Inc. (formerly Mirus Bio), a facility and infrastructure in Madison, Wis., including more than 40 scientists who have been working on the Dynamic PolyConjugates delivery platform ([See Deal]);

· A license from Tekmira Pharmaceuticals to use its Stable Nucleic Acid-Lipid Particle (SNALP) delivery system to develop RNAi therapeutics ([See Deal]);

· A proprietary Liposomal Nanoparticle (LNP) delivery system for RNAi therapeutics developed in-house by Roche;

· The Canonical siRNA structure and RNAi intellectual property in four undisclosed disease fields which Roche licensed from Alnylam in 2007 on a non-exclusive basis. Reid said those assets could yield up to $100 million in milestones and royalties back to Alnylam in the future;

· A license from City of Hope National Medical Center's Beckman Research Institute that provides access to Dicer substrate siRNA structures; and

· A non-exclusive license from Marina Biotech (then called MDRNA) providing access to Meroduplex siRNA structures ([See Deal]).

Anzalone said this combination of delivery systems and siRNA structures will enable Arrowhead to develop a broad array of RNAi therapeutic candidates, both in-house and in partnership with other companies. Besides Roche and Alnylam, other potential partners in the space include Pfizer Inc. and Merck & Co.

"With these advanced delivery platforms housed under one roof, we can optimize delivery based on tissue type, disease state, target and siRNA chemistry," he said. "One of the challenges of siRNA delivery is that no single platform will be optimal for all targets. We now have unmatched flexibility and power to create efficient small RNA therapeutics. We also are uniquely positioned to offer the most comprehensive solution to potential pharma partners and collaborators."

These efforts will build on discovery work by Roche scientists that has shown that the ability of various RNAi formats to induce "gene knockdown" differs on a target-by-target basis, added Anzalone.

-Joseph Haas ([email protected])

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