In contrast to Merck (NYSE: MRK ) , Sanofi (NYSE: SNY ) is stepping up in a big way to gain exposure to the RNA interference (RNAi) therapeutic class. Sanofi announced Monday morning that it would acquire a 12% stake in Alnylam (NASDAQ: ALNY ) as well as forge a far-reaching partnership for multiple pipeline projects under way at Alnylam. With this deal, Sanofi gets a valuable "seal of approval" from Big Pharma and will also significantly expand its commercialization options for its pipeline. For Sanofi, the company gains access to a therapeutic/treatment approach to rare diseases where IP is precious and where sentiment has shifted from enthusiasm to despair and back again to rampant enthusiasm.
Sanofi and Alnylam announced that Sanofi will be buying newly issued shares equivalent to a 12% position in Alnylam at $80 per share, a greater than 20% premium to Friday's close and a roughly $900 million investment for the large French pharmaceutical company. Not unlike Sanofi's relationship with Regeneron, this may may prove to be a "starter" position, as Sanofi has the right to increase its ownership up to 30% of Alnylam shares.
Sanofi isn't doing this deal just because the folks at Alnylam are a great group of people. In exchange for the investment, the two companies are expanding an existing relationship and forging a new one that could ultimately prove quite broad.
The two companies had a preexisting marketing agreement for patisiran, Alnylam's late-stage drug candidate for familial amyloid polyneuropathy (or FAP), but it only covered Asian markets. Now Sanofi will have rights to all areas outside of the U.S. and western Europe, with the customary milestones and tiered royalties going back to Alynylam.
This deal also gives Sanofi the option to acquire rights to other Alnylam programs. Sanofi will be acquiring the worldwide rights to ALN-TTRsc (for familial amyloidotic cardiomyopathy, or FAC), with the two companies co-developing and co-promoting in the U.S. and Western Europe. Sanofi will also have the right (through 2020/2021) to create a similar deal for either ALN-AT3 (hemophilia) or ALN-AS1 (porphrias) and one additional rare disease that is not presently part of the explicit Alnylam 5x15 pipeline.
Why Do This Deal?
Alnylam isn't exactly hurting for funds right now, so why do this deal? For starters, I happen to believe there was likely a low-key auction process going on, as multiple Big Pharma players have been sniffing around the space. With that, Alnylam had the option to do a deal on solid terms at a time when there was more than one potential partner in the market.
Second, this deal gives Alnylam an invaluable "gold seal of approval" that will allow the company to raise funds on more advantageous terms. With that, I'd be surprised if Alnylam did not announce a follow-on offering in the next few weeks or months to take advantage of this run in the stock to "top off the tanks" so to speak.
Last and not least, Sanofi's Genzyme unit is an invaluable partner to have in the rare disease marketplace. While companies like Alexion (NASDAQ: ALXN ) have definitely shown that a small company can establish its own marketing presence for rare diseases in the U.S. and Europe, Alnylam can now leverage Genzyme's existing sales infrastructure outside of these markets to maximize the sales potential and value of the drugs.
From the standpoint of Sanofi, this gives the company added exposure to the emerging RNAi space and additional rare disease shots on goal. While Sanofi has an existing relationship with RNAi/antisense developer Isis (NASDAQ: ISIS ) for the hypercholesterolemia drug Kynamro, Isis has multiple other partnering arrangements and arguably lacks the depth of delivery technology that Alnylam can bring to the table. It's also worth noting that Isis is partnered with GlaxoSmithKline (NYSE: GSK ) for amyloidosis and Alnylam has chosen to focus more specifically on rare diseases with its RNAi platforms.
The Bottom Line
For Sanofi, this represents a relatively small investment (less than 1% of market cap) to acquire access to multiple potential billion-dollar drugs. It also gives the company a solid foothold in one of the leading RNAi companies and the option to take that relationship even further if Alnylam's clinical and pipeline developments establish RNAi as a must-have therapeutic category to rival approaches like antibodies. All things considered, it's the sort of deal Sanofi ought to be doing, but not a huge value-changer in the short run.
For Alnylam, this does not change the clinical risk of the pipeline whatsoever, but it does certainly improve the company's market perception. Having a solid partner to market its drugs with (and share some of the development costs) is a plus, no doubt, but most of the value here is in making investors feel better about the approach. While I remain a shareholder of Alnylam and directionally bullish, I can't help but note that Alnylam investors have seen this sort of enthusiasm about RNAi before, and it will be the clinical results that determine whether it can last.
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