Inside Merck's Biotech Buy
Kerry A. Dolan, 10.31.06, 10:00 AM ET
Burlingame, Calif. - Here's how fast the world of multibillion-dollar pharmaceutical companies can move. A week ago, Howard Robin, chief executive of tiny San Francisco-based biotechnology firm Sirna Therapeutics, told this reporter to expect an announcement sometime soon of another collaboration with a big pharmaceutical company on one of Sirna's drug candidates.
Yesterday, Merck (nyse: MRK - news - people ) announced it was buying Sirna (nasdaq: RNAI - news - people ) for $1.1 billion, more than a 100% premium to Sirna's $470 million market capitalization.
As of last week, Sirna had been in discussions with a number of large pharmaceutical firms about a collaboration, says a spokesman. What happened to turn those discussions into a buyout offer is under wraps, for now. But this much is clear: It was impossible for Sirna executives to turn down such a big premium to its market value.
Sirna has been in the news of late because Andrew Fire and Craig Mello, the discoverers of the technology upon which Sirna's drugs are based--RNA interference, or RNAi-- won a Nobel Prize for medicine last month. The technology is a form of gene silencing and could lead to a new class of medicines to treat a variety of diseases. Sirna already has a collaboration with Allergan (nyse: AGN - news - people ) for its lead compound, a drug to treat age-related macular degeneration, a leading cause of blindness. The drug is in mid-stage trials. And with GlaxoSmithKline (nyse: GSK - news - people ), Sirna inked a deal to develop drugs for the treatment of respiratory diseases such as asthma and allergic rhinitis.
In a report last month about Alnylam Pharmaceuticals (nasdaq: ALNY - news - people ), Sirna's closest competitor in the RNAi drug development field, Bear Stearns analyst Avanish Vellanki wrote: "We view siRNA [short-interacting RNA] drugs as potentially holding significant advantages over small-molecule and antibody therapeutics, including greater potency, rapid generation of drug candidates, application to diseases previously thought to be 'undruggable,' and specificity for disease-causing genes."
The $1.1 billion buyout offer caps a remarkable turnaround for Sirna. Just under three years ago, the company had only $2 million in cash, its stock had fallen as low as 23 cents and it was getting delisting notices from Nasdaq. Then called Ribozymes and based in Boulder, Colo., the company was trying to turn ribozymes, RNA molecules that catalyze chemical reactions, into successful drugs. But it was going nowhere.
Robin, an accountant who had spent 21 years at the U.S. units of German pharmaceutical company Schering A.G. (nyse: SHR - news - people ), including as head of its $1 billion (sales) oncology and immunology unit, was recruited as the chief executive of Ribozymes in mid-2001. When he took over, he found a company that lacked discipline. Drug trials were poorly designed, and scientists hadn't paid attention to the all-important issue of drug delivery mechanisms, he says.
"There was a lot of very thin data that was purported to be robust," Robin recalled in an interview last week. The company, which went public in the late 1990s, was burning through $60 million a year. A drug trial for metastatic breast cancer failed, and another trial for hepatitis C had to be halted due to a toxicity problem in animals.
Robin concluded that the company needed a total overhaul. He decided to harness the strength of what he calls "the finest RNA chemists in the world" to use their knowledge in the nascent field of RNA interference. Convincing the board to shift the company's focus took "many meetings and many fights," recalls Robin. He put together a drug delivery team and laid off two-thirds of the 180 employees.
Robin needed cash, and he knew that he couldn't tap the public markets. In April 2003, he raised $53 million from venture investors, including Venrock Associates, Oxford Bioscience Partners and the Sprout Group, who were keen on the new drug development technology. And he changed the name of the company to Sirna Therapeutics to reflect its new mission. He shrunk the company's cash burn rate to $18 million and in 2005 shifted company headquarters to San Francisco to recruit experienced employees more easily. "I think it's as good a turnaround as it gets in biotech," says Robin.
Sirna has laid claim to a huge patent estate in the RNAi field. Thus far, it has 50 issued patents and at least 250 filed patents, many of them gene and viral targets that may be the focus of RNAi drugs developed by Sirna itself or other companies in the future.
"All pharma companies are working in the [RNAi] space now, but they are using the technology in the discovery sense, not the therapeutic sense," says James Niedel, former chairman of Sirna and managing director of New Leaf Ventures, the largest investor in Sirna. "One of the things Sirna did extremely well was to work on the chemistry and work around the hurdles of the stability of these molecules. They made pretty good strides."
Robin is clearly pleased. "I think it's a great validation for Sirna. It means that there is a greater likelihood that siRNAs [short-interacting RNAs] become drugs," he says. Whether that indeed happens will depend on the results of the clinical trials currently underway, and on those Merck will very likely fund in the future.
-- With additional reporting by Peter Kang |
