By Rob Wright, Chief Editor, Life Science Leader
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Product Strategy Creates Best Opportunity for Value Creation
A natural process cells use to silence the activity of specific genes, ribonucleic acid interference (RNAi), was first discovered in 1998. Soon after, the race by investigators to understand RNAi’s role in normal and diseased cells began with a focus on how to harness the mechanism for use in medical therapies. From 2002 to 2005, a number of RNAi biotechnology start-ups popped up to try to capitalize on the potentially disruptive technology, including Alnylam Pharmaceuticals, which still retains its original name, as well as its first and only CEO, John Maraganore, Ph.D. A 25-year industry veteran, Maraganore has witnessed the initial buzz surrounding RNAi that resulted in Big Pharma jumping into the fray to the tune of $2.5 to $3.5 billion U.S. through partnering and acquisition. He has also observed the subsequent exodus (e.g. Roche) when the technology failed to deliver the quick wins for which Big Pharma was hoping. Throughout it all, he has stayed the course believing in the science of RNAi and Alnylam’s ability to deliver on results. Maraganore shares his approach of taking Alnylam from a small start-up, navigating the turbulent waters created by patent cliff chaos and economic turmoil to position the company toward being on the brink of a big breakthrough.
From Recruited To Recruiter
In 2002 Maraganore was happily employed at Millennium Pharmaceuticals. Though not actively seeking a job, let alone the position as CEO of a biotech start-up, he was all ears when he got a call from a renowned MIT professor who wanted to share some insight on a little project on which he was working. The MIT professor just so happens to be Nobel Laureate Phillip Sharp, Ph.D., whom Maraganore had worked closely with when he was at Biogen Idec, and the “little project” was Alnylam Pharmaceuticals. “He told me a little bit about Alnylam, and I just got the bug,” he explains. “At the time, Alnylam was really just a concept, an understanding that RNAi could ultimately lead to a whole new class of medicines.” In December of that same year, after doing his due diligence on the science, meeting the venture capitalists involved, and discussing with some close advisors, Maraganore joined Alnylam as the CEO. At the time, the company was no more than six employees, with about $17.5 million in the bank. “There were no labs up and running, though a space had been identified and leased.”
As a new CEO of a biotech start-up, Maraganore quickly learned the importance of being able to wear multiple hats. Alnylam needed labs so it could begin moving forward on scientific activities. But more importantly, it needed people — scientists to be specific. “I spent incredible amounts of time in those early days on recruiting and building the initial team of scientists,” he shares. To begin the process of building the Alnylam team, Maraganore relied on his passion for meeting and spending time with people. “I drive my assistant crazy, because if anybody even reasonably credible sends me an email, I’ll follow up with them,” he states. “I just really enjoy talking to people.” Maraganore believes this to be one of the most important things you can do as a leader, because it allows you to build and keep a network of top talent. “As you mentor and counsel individuals throughout their career development, not only does it ultimately enrich your skillset, it creates a network for you to be able to ultimately find talent for different roles within your company,” he affirms. When it came to building the Alnylam team, Maraganore started with the rich substrate of people within his own network who were reachable. In addition, many people contacted the company, excited by the science and the company’s transformative vision for targeting previously “undruggable” targets with RNAi. The combination proved to be a powerful mix in the early days of building the Alnylam team. Of course, there were challenges in recruiting, particularly for the company’s chief scientific officer, as the bar was incredibly high for a person with the needed leadership skills of a very special company.
By the end of 2003, the Alnylam team had grown to nearly 20 employees. Today it consists of about 130 people engaged in six active clinical development programs, one of which is on the brink of going into Phase 3 clinical trials. In addition to being Alnylam’s number-one recruiter and team builder, Maraganore found two other skills which he acquired through mentorship, to come in rather handy, and rather quickly — his ability to create strategic business partnerships, as well as secure nondilutive capital (see sidebar below).
Science Drives Excitement
Barely a month into his position as Alnylam’s CEO, Maraganore received a phone call from Stephen Friend, an SVP at Merck. Well known in the field of genome analysis, Friend explained Merck was interested in partnering with Alnylam on RNAi. Maraganore had been involved in doing partnerships from both the buy side (in-licenser) and sell side (out-licenser). From his experience, it is very infrequent for the sell side (Alnylam) to be contacted proactively by the buy side (Merck). “Usually, when you’re on the sell side, you’re pounding the pavement, meeting with people, introducing your technology to companies,” he explains. “You’re not usually receiving cold calls from senior people at pharma companies who want to work with you.” Maraganore took this as a good sign, especially considering the newness of Alnylam. After the initial call, Maraganore and a small Alnylam team visited Merck to discuss the structure of a partnership. As always, there were ups and downs during the course of the negotiations. Maraganore also needed to get internal alignment with his board, as a company’s first partnership can often set the stage for future business development activities. After that initial call, it took nine months to ink the deal with signatures.
The phone call from Friend led to Alnylam establishing two partnerships with Merck, the first being consummated in 2003 and what Maraganore described as being a starter deal. Maraganore believes Merck’s interest was driven by the excitement surrounding RNAi science. For example, a January 2003 Science article named RNAi as the breakthrough of the year, and a February article in Forbes proclaimed RNAi as a brand new way to make drugs. Seeing the value of the buzz which was being created by RNAi, Maraganore made an interesting decision, choosing to adopt an open innovation platform, a term which had only recently been coined by Henry Chesbrough in his book, Open Innovation: The New Imperative for Creating and Profiting from Technology. “The lesson we learned is science drives enthusiasm and excitement, because people can see how science can translate into transformative new approaches for medicine,” he states. “We decided to be very open about our science and to actively publish our scientific results as we achieved them.” Maraganore admits the decision was not easy and involved a strong internal debate around the distinct possibility that by publishing the science they could be enabling the competition. This was weighed against the choice of keeping the science confidential and a trade secret. At the end, the decision was made around the dining room table at Maraganore’s home, where a small group of Alnylam’s senior leaders were meeting for the company’s first “off-site.” “The consequence of keeping our science private was that people wouldn’t really appreciate the quality of the work we were doing, and the only way to really communicate science is through peer-reviewed papers,” he explains. The decision, though risky, paid off with multiple deals.
Sharing Science Proves Profitable
In 2004 Alnylam scientists published a paper in Nature which showed for the first time that RNAi can be achieved in an animal. It was the first time any in vivo evidence for RNAi was proven in an animal. “That paper led to Novartis doing a deal with us in 2005,” Maraganore says. The Novartis deal was Alnylam’s first substantial transaction, with $65 million up front and significant R&D funding. The deal also resulted in a “rather heated” internal discussion. Specifically, the company’s board was concerned that Novartis was potentially getting too broad a scope of rights and that the agreement structure could limit future business development activities. “We did have to do some soul searching to make sure the structure of the Novartis relationship would be economically beneficial to Novartis without being detrimental to the long-term growth of Alnylam,” he says. The partnership turned out to be a great opportunity for the biotech company, providing nondilutive funding and allowing Alnylam, at this point a publicly traded company, to build its underlying technology without having to go back to the capital markets frequently to raise money.
The company went on to strike numerous lucrative deals without giving away its technology (e.g. Roche $331 million up front, Takeda $150 million up front), as well as establish partnerships with Medtronic, Cubist, Kyowa Hakko Kirin, GSK, Biogen Idec, Monsanto, Genzyme, and The Medicines Company.
If you are interested in creating partnerships, Maraganore has some insight as to how to go about it. First, he recommends choosing committed partners that are going to work well with you and your scientific team. Second, have strong senior-level relationships with those partners. “In other words, know people at the senior-most levels of those companies, and develop a relationship with them that builds a foundation of trust between the two companies,” he affirms. For example, in order for the Roche deal to happen, a critical meeting was held at Roche Chairman Franz Humer’s New York City condo, where Maraganore and Humer agreed to the final terms and also committed to complete the deal within 30 days . In terms of structuring the partnership, he recommends finding the right balance that gives significant value for the pharma company’s economic investment while retaining the freedom to continue building your own business. “Partnerships are critical to any new company getting started,” he asserts. “However, if you end up giving away a scope of rights that might be a significant proportion of the future of your company — that becomes the most dilutive form of capital there is. You didn’t form a partnership, but rather, you just sold your company,” he warns. “Don’t be afraid to go small initially when getting started,” he advises. “But be prepared and ready to think big when the time is right.”
The time sure seems right for Alnylam. Though the buzz around RNAi has gone through peaks and troughs, Maraganore believes the science of RNAi hasn’t changed, and Alnylam’s commitment to it has never wavered. What has evolved, however, is the understanding of where RNAi can work (e.g. the liver). “In some ways, our current strategy with RNAi therapeutics is like finding a bullet in the wall and painting a target around it,” he concludes. The company’s product strategy is called “Alnylam 5x15,” where the company is focused on RNAi therapeutics for genetically validated targets — often orphan diseases — and where the company aims to have five such programs in clinical development, including in late stages, by the end of 2015. With a number of compounds advancing in clinical trials and one about to start Phase 3, the next two years should prove if Alnylam and RNAi can create a breakthrough of the billion-dollar variety.
4 Tips For Securing Funding
Some people say Alnylam’s CEO, John Maraganore, Ph.D., makes the process of securing funding look easy. He doesn’t feel that way, though. “It is incredibly hard, and it takes a significant commitment level,” he states. “You have to be prepared to go through the ups and downs, be persistent, consistently passionate, and committed.” If you want to secure funding so your team can focus on the science, here are some of Maraganore’s tips on how to do so. “Number one, be incredibly straightforward and transparent with investors, regardless of where your capital is coming from,” he recommends. “There’s really no room for BS. You’ve just got to lay it on the table and be very clear with people on what the opportunity is.” In addition to having and being able to articulate your company’s vision, Maraganore feels you need to be open about the things that are working, as well as the areas in which knowledge gaps still exist. “This gives people a clear sense of where the limitations might be going forward.”
His second tip is to remember that at some level you are always raising money. “You’ve always got to keep your eye out for the capital needs of the company, because it takes a lot of capital to build one of these companies,” he exclaims. Maraganore refers to great companies like Genentech and Biogen Idec, where each cost between $1 billion to $2 billion and took 10 to 20 years before they were profitable. Thus far, Alnylam has raised about $1.3 billion, with a large amount of money from pharma, a small amount from the venture capitalists, and the balance from the public equity markets. “Be focused on raising capital for when you need it,” he suggests. “Raise capital when you have built a lot of value, not when things are tough and at a low point.” Maraganore’s third tip is to always be dilution-sensitive and, with partnerships, to make sure you are giving fair value to your partners without giving away the company’s future. Be willing to start small. Also, be willing to walk away. “We had a discussion with another pharmaceutical company in 2003 before we did the Merck deal,” he explains. “They wanted to have an exclusive relationship with Alnylam for a five-year period that would have kept us ‘off the market’ for any other deals. We felt the cost of entry for an exclusive partnership was at least $100 million. The other company was only willing to go up to $70 million. So we walked away from the deal.”
Finally, Maraganore reminds you to be sure you are rewarding your existing shareholders. “If you cannot let your existing shareholders make a lot of money, they won’t invest in you again,” he says. “You have to be focused on making your investors successful if you’re going to raise money.”
Competitor Buyout Proves Pivotal For Alnylam And RNAi
In 2006, Merck paid a 102% premium when it agreed to purchase Sirna Therapeutics for $1.1 billion. At the time, Sirna was a small biotech firm developing drugs based on RNAi. Despite the fact that just one month earlier RNAi technology was the focal point for the Nobel Prize in medicine, John Maraganore feels the decision was driven in part by Alnylam’s 2005 deal with Novartis and another Nature paper Alnylam scientists published in 2006 showing that RNAi works in nonhuman primates. “Merck felt the larger deal with Novartis could ultimately limit their access to RNAi opportunities,” he states. According to Maraganore, Merck’s decision to purchase Sirna Therapeutics turned out to be one of the best things to happen to Alnylam because it did two things. “One is it took what, at the time, was our only real competitor off the market,” he affirms. “Two, it completely reset valuation expectations for our technology. It was an amazingly good thing for the field of RNAi, as well as Alnylam.” Maraganore believes the Merck acquisition of Sirna played a pivotal role in getting companies like Roche interested in doing something with Alnylam in RNAi. “If Novartis was doing something big, and Merck was doing something big, Roche appropriately reasoned they wanted to be a player in this space as well,” he concludes.
Alnylam’s 2007 deal with Roche included $331 million up front, and potential future milestones and royalties. This furthered interest in the RNAi field and continued the domino effect for Alnylam deal making. For example, in 2008 the company formed a partnership with Takeda which involved $100 million in up-front cash, $50 million in near-term technology transfer, as well as $171 million in milestones, along with royalties for each product codeveloped. These deals proved pivotal to sustaining Alnylam through the lean times created by the start of the 2008 economic crisis and the R&D budget cutting – including their RNAi efforts - by Big Pharma in 2010.