This is Why Sanofi Doubled Down on Alnylam

This is Why Sanofi Doubled Down on Alnylam

Sanofi believes Alynylam -- featured here in my Best Biotechs of 2013 article series -- has some impressive technology. After all, it's one thing to agree to collaborate with Alynylam. But It's another thing altogether to take an equity stake.

And that's exactly what Sanofi did over the weekend, agreeing to a 27% premium of nearly $80 per share to acquire 12% of the high flying Alnylam. That healthy premium is being paid on top of a return of more than 200% in 2013.

Here's what captured Sanofi's attention

Alnylam is one of many companies working in the area of RNA interference, or RNAi, a unique approach designed to disrupt the way genes work. Alnylam believes the technology could prove valuable in orphan diseases and has outlined a five in fifteen strategy to have five drugs in human trial by 2015. That program includes drugs for amyloid diseases, hemophilia, acute intermittent porphyria, hypercholesterolemia and alpha-1 antitrypsin deficiency.

The most advanced in the 5x15 lineup is Alnylam's TTR program. Those drugs use nanoparticle technology -- most likely from Arrowhead Research -- to treat disease caused by mutations of the TTR gene, which can result in a life threatening build up of protein in organs like the liver and heart.

In November, Alnylam announced data from a phase 2 trial showing ALN-TTR02, also known as patisiran, reduced serum TTR levels up to 96% in patients with familial amyloidotic polyneuropathy, or FAP. On the heels of that data, Alnylam is moving the drug into phase 3 trials, which lands the company a $7 million milestone payment from Sanofi's Genzyme unit. That payment is part of an agreement Sanofi made in 2012 that includes an upfront $22.5 million for rights to the TTR program in Asia, where the disease is most prevalent.

With Sanofi's new deal, those TTR rights expand to include everywhere except North America and Western Europe.

If phase 3 trials are as successful as phase 2, TTR-02 will compete with Pfizer's (NYSE: PFE) Vyndaqel, which won EU approval for early stage cases of FAP in November, 2011. Vyndaqel is not approved in the United States.

Sanofi's previous deal also includes ALN-TTRsc, a phase 2 drug Alnylam for the treatment familial amyloidotic cardiomyopathy, or FAC, and senile systemic amyloidosis, or SSA. As part of the new deal, Sanofi and Alnylam will share development and marketing in North America and Western Europe, but Alnylam retains all the rights to the drug in other markets. Alnylam expects it will be able to report data from that study late in 2014.

But Sanofi and Alnylam aren't alone in advancing therapies for TTR. Isis is teamed up with GlaxoSmithKline on ISIS-TTR. Success in a phase 2b study of ISIS-TTR resulted in Glaxo handing over a $2 million milestone payment to Isis in July. Glaxo's had already paid Isis $20 million in previous milestones and has agreed to pay up to $50 million in milestones during this study.

Other interesting compounds

Sanofi also gains the opportunity to exercise rights for Alnylam's ALN-AT3 for hemophilia, which is being moved into phase 1 this year. That drug could become a second line therapy for non-responders to existing drugs from Novo, Biogen, and Baxter. It's a small market of just 5,000 patients in the U.S., but pricing could still make this a big seller -- if it can ever make it to market.

Sanofi also gets the option to acquire the non-North American non-Western Europe rights for all Alnylam's pre-clinical compounds, including ALN-CC5 can eventually challenge Alexion Pharmaceuticals in complement-mediated hematology diseases including PNH, atypical hemolytic uremic syndrome, or aHUS, and neuromyelitis optica.

ALN-CC5 has a lot more ground to cover between now and then, given the drug won't even enter human trials until 2015. But if successful in those trials it could be another multi-hundred million a year drug given Alexion's Soliris racked up $400 million in sales during the third quarter, in part thanks to a $400,000 price tag.

A timely infusion of capital

As I mentioned in my prior piece on Alnylam, the company has money in the bank but its burning cash quickly. As a result, its $200 million war chest is roughly half its size in 2008.

Alnylam's plans to bring more compounds into clinic meant the cash burn was about to climb even more quickly, pressuring the company to tie up with someone with deep pockets. Since Sanofi was already knee deep in with Alnylam, it probably wasn't much of a stretch to guess they'd be one of the first on Alnylam's speed dial.

Alnylam's CEO, John Maraganore, Ph.D., summed up the importance of the $700 million cash infusion in the company's press release, calling it a "game-changer" that will "accelerate" development of RNAi therapeutics.

Fool-worthy final thoughts

The deal with Sanofi expands upon an existing relationship to collaborate across a number of drug compounds and gives Alnylam much needed financial support to usher drugs through clinical trials. including the equity payment, potential research and development assistance and possible royalties, the total value of Sanofi's deal with Alnylam likely exceeds $1 billion. But the deal could end up being bigger because Sanofi also gets an opportunity to buy up to 30% more of Alnylam over the course of the agreement. That suggests the chapter on this subject may not be over yet.

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Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd also owns Gundalow Advisor's, LLC. Gundalow's clients do not have positions in the companies mentioned. The Motley Fool recommends Alnylam Pharmaceuticals and Isis Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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