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Analysis of the Market: Will Hype Become Reality?

Managing Editor

Amid a fast warm-up and high expectations the market is a go

The development of the RNAi biotechnology sector has been generally managing according to projection on its fundamental levels since its discovery and as the market segment progresses toward clinical trials that it envisions will eventually deliver therapeutics to market.

There have been problems, such as the intellectual property disputes and uncertainty associated with anticipated entry into clinical trials, but such issues are projected to be potholes rather than dead ends.

The confidence of the companies is validated thus far by promising research, positive investor interest, and upbeat market forecasts, as well as by the absence of any negative market indicators. The field is not oversaturated with companies rushing to practice the technology, therapeutic companies have focused R&D platforms that concentrate on select targets rather than diluting goals with overly broad agendas, and even though an IP situation exists in which companies are forced to protect their technologies, reason is prevailing over retribution.

Some of these RNAi companies are involved in litigation issues, most often as defendants cited for using the proprietary technology of another company in development of its lab tools; however, the trend in legal resolution seems to support a historically developing proclivity to share, rather than punish, as companies acknowledge there is more to be lost at this pivotal moment in the industry by spending time in the courts rather than the lab.

With respect reserved for the unforeseen, the market already has begun the journey on what is forecasted to be an expedition that culminates with a billion-dollar payoff.

Reagent sector poses little risk or apprehension

The reagent/research materials market is fully developed, with many marketed products that allow for gene silencing in the laboratory. There is no lack of essential RNAi research tools that are necessary to facilitate the current and anticipated levels of gene silencing research and development efforts in the clinic, with more than a dozen companies providing a comprehensive array ranging from custom kits to extensive libraries of siRNA, RNA oligonucleotides and related RNAi products, technologies, and services.

Leaders in this market include Dharmacon Inc., Ambion Inc., Promega Biosciences Corp., and Xenogen Inc., and sales and company growth are projected to increase in this sector throughout the decade, inasmuch as the market is flourishing now and hasn't even begun to profit from the demand of drug discovery in clinical trials.

The reagent market is one example of a sector that became a benefactor of the successful mapping of the human genome, as some of these firms have amassed full libraries that address target validation and gene silencing applications for every gene in specific areas of the human genome.

These reagent companies provide a broad range of products to complement RNAi therapeutic research, offering a scope of tools and services including single siRNA, entire siRNA libraries, expression vectors, and contract research. As a result, potentially encumbering resource reliability issues such as target availability, specificity, stability, and durability have essentially been eliminated as R&D roadblocks.

RNAi: Born and matured in the U.S., although other markets also will grow

The RNAi industry is dominated by the U.S. market, in terms of company assets, investment opportunity, and the number of companies involved in the technology, and it is projected to maintain that influence; however, the market outside the U.S. will experience growth commensurate to its size, abetted by increased investment, alliances, and the introduction of Pacific Rim companies into the market.

Benitec Ltd., the largest and most thriving non-U.S. player, is in the process of relocating its entire operation, currently headquartered in Queensland, Australia, to California by the end of 2004 to better capitalize on the flourishing American market, thus further weakening the international market, and arguably leaving atugen AG, of Berlin, Germany, as the leading dedicated RNAi business outside the United States.

Atugen was a contract research organization when it spun out of Ribozyme Pharmaceuticals (now Sirna Therapeutics) in February 2004, and has shifted its strategy to become a full-fledged RNAi therapeutics company, in which Sirna's financial stake has decreased to about 10 percent.

The company has chosen to concentrate on the oncology field, a discipline that tends to draw pharma support because of the high financial costs usually associated with cancer research and the pharmaceutical industry's long-time quest to conquer the disease. That could draw future investor interest, much needed in the European RNAi market, inasmuch as the company is concentrating on an important disease that is relatively not a center of attention in the first wave of RNAi companies' research plans to market candidates.

Companies outside the U.S. will be in a position to attract investors if they are able to advance their own technologies or enter into agreements with partners that have appealing research portfolios.

The lure for such investment would be the opportunity to profit from the RNAi industry with a smaller investment than would be necessary to capitalize on the more secure American market.

There is interest from large companies in the Asian market, particularly Japan and Singapore, about delving into RNAi drug development, and that could manifest itself with license agreements or internal start-up R&D programs.

The general Asian biotechnology market is regarded as one that is poised to undergo dramatic growth in the future, and already has begun to draw heavy analysis and investor interest; so, increasing involvement by the Asian market in biotech's hottest sector, RNAi therapeutic development, is projected to be a primary influential driver for the non-U.S. segment.

As if right on cue, at presstime for this book it was announced that Isis Pharmaceuticals Inc. opened a research lab in Singapore's burgeoning Biopolis biomedical sciences center that will focus on RNA-based drug discovery and development.

Isis, still involved in antisense drug development, is projected to be one of several companies that would gradually shift R&D efforts to incorporate more RNAi technology as the method proves itself more reliable and durable than antisense and ribozyme approaches.

Pharma wades in reagent waters to prepare for plunge into therapeutics

Indications that the robustness of the reagent market may render a carryover success to the RNAi therapeutics market are appreciable when observing the increasing number of big pharma collaborations with the reagent producers.

Recently, large pharmaceutical companies such as Merck, Bayer and Abbott Laboratories have entered supply or research agreements with reagent manufacturers, as big pharma seeks to infuse or accelerate RNAi agendas in recognition of the technology's prospective ability to realize its potential as a market driver for blockbuster therapeutics.

Taking into account big pharma's increasing RNAi reagent involvement, it is not implausible to deduce a corollary collaboration trend of big pharmaceutical companies forging strategic alliances with RNAi therapeutic developers as candidates begin to enter the clinic within the next year.

CytRx CEO Steve Kriegsman recently said that his company is actively pursuing, as well as being approached for, collaborative relationships with undisclosed big pharma and biotech, and is involved in working discussions to reach agreements.

Big pharma has interminable financial resources, but also has an abundance of products that have been languishing in the pipeline, while RNAi drug discovery companies have the potentially lucrative technology to jump-start sluggish R&D programs, generate pipeline buzz and reassure stockholders.

Large, experienced pharmaceutical companies know that vast amounts of money cannot make a product work, but can provide the support needed to facilitate research and push a viable candidate through clinic to market; therefore, it may be more feasible to jump into an established R&D program than to start from scratch on their own when the stakes could be a leveraged participation in a billion-dollar-plus market.

Therapeutics: It's time to see if this thing works

The RNAi therapeutic market is on target with projections made more than one year ago to have products in clinical trials between year's end and the first half of 2005. As of publication, there are two companies, Acuity Pharmaceuticals Inc. and Sirna Therapeutics Inc., that have filed INDs to begin human clinical trials for RNAi-based therapeutics, well ahead of their own projections.

Additionally, other companies, including Benitec Inc., Alnylam Pharmaceuticals Inc., and CytRx Inc., claim readiness to submit their own applications in the near future.

Those companies projected to continue to lead the drug development market, even as big pharma collaborations and venture capitalist interests increase and present opportunities for second-tier companies to augment their R&D agendas.

When the Mercks and Pfizers of the pharmaceutical industry, as well as the Genentechs and Amgens in biotechnology, are convinced the time is right to invest in RNAi drug discovery, their involvement will obviously influence the market, but will not drastically rearrange it.

The participation of such industry giants is projected to come, as product trials establish credibility with advancement into late-Phase I clinical work within the next two years, in the form of license deals with, most likely, the companies that will have best made a name for themselves in the field.

That will not shift the balance of power; rather, it will reinforce it. Therefore, those companies will remain attractive to investors.

The combination of those factors would have a positive effect on the employment growth in companies involved in the RNAi segment, as increased pursuit of drug development requires more personnel in areas ranging from executive through scientific to labor, as more personnel are needed to manage, research, and provide materials, respectively.

Currently, the majority of RNAi companies operate with a staff of between 50 and 100.

The big pharma and biotech company maneuver that would have the most influential effect on the balance of the RNAi market would be acquisition of leading companies. Such a move would immediately make a contender out of a second-tier therapeutics company or render a big pharma company a compelling advantage of power and opportunity in the market.

As stated previously with reference to the reagent companies, the trend in resolving intellectual property issues intimates mutually beneficial outcomes, rather than austerely punitive ones, as litigants acknowledge the importance of settlements that afford uninterrupted research, juxtaposed against the consequence of losing ground in the laboratory to those filers licensing out technologies and defendants conceding ownership to avoid delays in reaching clinic.

There are a number of companies that are regarded to be in attractive and advantageous positions that have aligned with individual founding pioneers and institutions that have established significant technology patents and noteworthy R&D programs, and it is improbable to conceive the proliferation of the market without their inclusion.

These corporations include Sirna Therapeutics Inc., CytRx, Benitec, Alnylam Pharmaceuticals Inc., and Acuity Pharmaceuticals Inc., and their affiliation with pioneering RNAi institutions such as the University of Massachusetts Medical School, the University of Pennsylvania, and Stanford University should garner them attention as appealing investment targets.

Additionally, these companies have aligned themselves with notable and highly regarded scientific innovators and researchers, such as Tom Tushl, Ph.D. (Alnylam Pharmaceuticals co-founder and scientific advisory board) and Craig Mello, Ph.D. (CytRx scientific advisory board).

The research programs of these companies address, for the most part, disparate targets that encompass a broad array of the world's most deadly diseases, which helps to reinforce their positions as leaders in the field, inasmuch as direct competition to produce a specific therapeutic is minimized, even though there have been IP clashes that indicate competition for the technology used to deliver those therapeutics. There is also the allure to investors who are intrigued by the potential return to be generated by a successful treatment or drug for such harmful infirmities as cancer, ALS, AMD, and obesity.

Who's driving this market to the finish line, and who's moving the IP barricade?

Who is the leader in the field? Unless extreme developments in litigation or R&D discoveries transpire that skew the advantage to one specific company, there will likely remain a group of approximately five of the most aggressive RNAi companies that will be regarded as principals.

That type of sector leadership should afford more equal footing among participating companies, encourage competition, and broaden therapeutic targets as companies seek niches to address more diseases.

For example, Benitec is focused on the development of RNAi therapeutics drugs for viral infections such as HIV/AIDS and hepatitis C, autoimmune diseases, and cancers, while Alnylam Pharmaceuticals concentrates on Parkinson's disease and a systemic delivery therapeutic that can address a broad scope of illnesses.

There is some overlap in areas of application among the prominent companies, such as in the applications of AMD and hepatitis C; however, disagreement between companies results from acknowledgement and subsequent assignment of technology ownership, not the drug itself. Thus, drug discovery programs are not invading each other's space or hindering healthy competition.

None of the companies contacted expresses any concern brought to bear by competing therapeutic development, even when involved in litigation over technology issues. Expectations of drug developers, even those who are litigation defendants without the benefit of being perceived as technology owners, are optimistic that even a worst-case-scenario judgment against them will result in the payment of manageable damages and contingent royalties, but will not disrupt ongoing drug development programs or schedules.

The general consensus is that it would be more advantageous for the victor in court to benefit from the work of others as their research progresses, than to eliminate a prospective source of no-risk revenue and, more importantly, an additional potentially constructive remedy to some of the world's most harmful maladies.

So, settlements focusing on collaboration, rather than punishment, show indication of being the norm in litigation trends, rendering minimal impact on investment decisions and the RNAi hierarchy of leading companies.

Also, no additional outbreak of lawsuits is expected to emerge in the future, as companies have a clearer delineation of the market and each other's place in it.

Reagent companies are in a position for uninterrupted growth throughout the decade, inasmuch as their established market is necessary for the general progression of the therapeutic development industry.

The importance of these companies is acknowledged by the attention paid to the reagent industry with the proliferation of RNAi conferences that focus on the scientific personnel, rather than solely addressing executive issues.

Scientific evaluation, in addition to executive decision, is a critical component in the growth of such a fast-paced, research-based discipline that needs to bring laboratory and clinical workers together to broaden the general knowledge of available and patented technology, in an attempt to minimize the risk of infringement, and consequent penalty.

The RNAi sector, led by Dharmacon Inc., which provides as much as half of all siRNA research tools, would continue to benefit from increased demand for RNAi laboratory products, and the resolution of pending litigation that involves reagent companies would not drastically change the pecking order, given that most defendants in these cases are likely to receive non-exclusive licenses that would not preclude the plaintiff from striking agreements with the defendants' competitors for the same technology. Taking such into account, a more likely scenario would be a reaffirmation of the current balance of power.

Therapeutic companies involved in litigation are likewise not losing ground to companies that are currently litigation-free, inasmuch as they are still open to pursue the research in question while the case is determined.

If the settlement ultimately involves a license agreement, defendant drug discovery companies are not disadvantaged juxtaposed to companies that are not involved in litigation. Even though financial and punitive details are routinely undisclosed, it can be speculated that there is little difference in the applicable research and marketing language, other than specific percentages relative to royalties, of a judicially induced license agreement and one that is voluntarily forged between non-litigious parties.

The licensee in both instances is free to practice the technology of the originator and sell any products derived from subsequent development, but must pay a percentage of revenue to the licensor.

Full speed ahead, and don't stop until you see a $ billion sign

Currently, all the predominant companies are enthusiastic about their research, vitalized about their futures and confident in their financial status. This is observable at many of the well-attended RNAi conferences held around the world, as company presentations inevitably begin with some variation of "We are the leading RNAi company."

Such confidence is not without merit, inasmuch as most companies have three-plus years of cash reserves, relative to their individual burn rates, and none of the RNAi therapeutics companies have encountered significant, if any, obstacles in attracting investment.

That is not to insinuate there is no overlap in areas of application. For example, even though the technology approaches are different, there are quite a few major companies involved in the pursuit of therapeutics that attend to age-related macular degeneration. Benitec uses its ddRNAi platform, while Acuity utilizes a proprietary siRNA method to address the disease.

BioWorld projects the overall RNAi market to be $310 million in 2004, increasing to $493 million in 2005 and $1.13 billion in 2010, according to research. Steady progress in the clinic would almost account for a billion-dollar industry by the end of the decade, but the inclusion of one or two RNAi drugs on the market would break that mark, and the successful development of multiple therapeutics would grow the latter figure as high as $3 billion.

The value of the market for therapeutics and drug discovery is estimated to be $247 million in 2004, increasing to $412 million in 2005 and $836 million in 2010.

Factors such as the projected successful mapping of the bacteria genome could provide expansion for this segment by opening up additional targets for RNAi and leading to drug development in associated classes such as antibiotics.

The reagent/research tools segment is projected to be $63 million in 2004, increasing to $81 million in 2005 and $294 million in 2010, as therapeutic candidates progress through clinical trial stages, dictating increased demand for laboratory tools and services.

The sector also factors in target validation and contract research work as components alongside RNAi manufacturing and supply services.

Furthermore, the stability of reagent companies affected by the demise of the antisense technology market will not be challenged, since the relative antisense drug discovery companies will not be leaving the market, but more than likely will become RNAi drug development companies that require related reagents and research tools.

And, the obligatory bad news is

The bad news is that the RNAi sector, like any technology, could crash and burn; however, the tempering good news is that any such negative evaluation would be founded on much shakier speculative ground than the optimistic counter-projections, since the market indicators imply growth.

Despite the sanguine outlook for the future of the market, there are still unresolved matters best answered in the clinic. These concerns, however, do not portend failure, inasmuch as they represent no more than a customary reason to conduct human trials in the first place: the opportunity to confront and conquer unanswered questions. Most industry researchers contacted acknowledge the perceived obstacles, but are overwhelmingly awaiting clinical trials with expressed confidence to address outstanding issues.

One such problem concerns the delivery method. Treatment begins with delivery and it is not yet clear whether a direct injection into the cell or an ex vivo form of delivery will work best, if at all; however, the prevailing opinion is that once clinical trials begin, the conundrum will be resolved by applicable research. Successful delivery has been achieved in mammalian experimentation, but there is no surety of equivalent success in humans without clinical trial validation.

Research stagnation has not been a problem yet, but the industry has reached a critical point at which R&D must move forward to the clinic in order to maintain market vitality and protect the technology's untarnished scientific image.

Research has, in terms of deducing associated work to human applications, progressed as far as effectively possible in plants, C. elegans and mice without the comparative validation of clinical trials. Important work has been achieved in those milieus, but companies are ready to move from the lab—where they indirectly relate and assign findings, in theory, to human environments—into the clinic, where theory can be substantiated.

If companies cannot get regulatory approval to proceed to the clinic with RNAi candidates in this current six- to 12-month window, concerns questioning the merit of the technology will overwhelm the buoyant outlook and likely cause a more negatively critical re-evaluation, and consequently, a more downbeat perception and forecast of the market.

Toxicity is another issue, since without relative research on human cells, it remains unknown whether the level it takes for RNAi to be effective is tolerable in humans. There has been indicative success in plants and mammals, but there also have been instances of rejection, intolerability and even death; however, it is unlikely, considering the research to-date on the whole, that work to be done in impending human clinical trials will not be able to educe an appropriately efficacious administration of relative therapeutic.

According to most experts, questions of delivery, rejection and toxicity are expected to be overcome when addressed in the clinic, since the technology is comprised of nucleic acid and is a naturally occurring cellular mechanism. Because nucleic acid is already a human body element, the aforementioned issues are anticipated to be addressed and controlled in clinical trials by apposite experimental application.

The natural foundation of RNAi helps to allay concerns. Its introduction in such a comparable environment is not likely to be rejected by the body or cause toxic side effects upon administration, once the proper levels of administration are determined.

Of course, the problem of the moment is the abundance of intellectual property suits that await resolution. Their impact will define the market and determine the starting positions and resources of the industry players, but these cases are not anticipated to bring about austere shifts in power, court-ordered exclusion of companies from technologies in which they are involved or abandonment of R&D pursuits.

The admirable willingness to work together through partnerships, licensing agreements, patent pooling or similar collaborative efforts seems to be the preferred approach to resolving differences that have the potential to stagnate R&D efforts, daunt investors, distress stockholders and cloud corporate and individual futures by idling in litigation for extended periods.

The RNAi market, in spite of all the hype associated with it and the lack of clinical data, has progressed cautiously, but steadily, and has thus far presented little that should intimidate investors. There have been no publicized devastating setbacks in the lab, the courts or the boardroom to-date.

Why the bad news isn't so bad, after all

While RNAi was being touted as the breakthrough technology of the year in 2002 and the biotechnology bellwether for the 21st century, the predominant circumspect attitude by RNAi companies allowed them to remain focused on research and strategy, rather than the attention the market was attracting.

The intellectual property issues are the current major problematic area, and thus far, they have not produced any damaging decisions that would severely affect the R&D focus or general operation of the involved parties.

The United States Patent and Trademark Office (USPTO) has been proactive in seeking to ward off potential showdowns between technology developers and to minimize its own contribution to bottlenecks in the patent process by methods such as publication of materials advocating patent pooling, reiterating the most efficient manner to file a relative biotechnology patent, adding a specific RNAi session for therapeutic developers and lawyers and general staff upgrades and maintenance.

There has not been a reckless rush to be the first to clinic with the hottest technology; instead, companies are progressing by design and following projections made long ago to ensure quality, so they don't suffer setbacks and lose ground due to research breakdowns or negative regulatory responses.

The technology is new, but it is not unproven, and is afforded the advanced benefit of lessons learned from antisense and ribozyme technologies; as a result, RNAi is not the traditionally typical new platform technology starting from ground zero.

It already appears to be years ahead of those platforms in terms of specificity, potency and stability, and only a few years after its discovery, is now in a position to apparently replace those technologies. That development can be evidenced by the dwindling number and stagnated research of antisense programs, as well as by the increasing number of companies with dedicated antisense strategies incorporating RNAi into their R&D agendas or abandoning the old platforms altogether.

Even though the technology is regarded as new, relative to human therapeutics, it has nevertheless been tested and proven successful in the lab for plant and mammalian applications. That success does not guarantee accomplishment in human treatment research; however, it does establish a basis of logical confidence in the science and erudite expectations of clinical progression toward eventual medicines and therapies for human use against a broad range of diseases such as cancer, AMD, hepatitis, Type II diabetes, obesity, and ALS.

Once there are a considerably sufficient number of therapeutic candidates in human clinical trials, projected at mid-2006, that bell-ringing attention no longer will accompany each press release, researchers will be able to begin to work in the relative obscurity in which success is historically determined, and the technology will validate itself or lay bare any acute flaws.

Either way, barring the total rejection of the RNAi mechanism by the human body, the initiation, and subsequent progression of clinical trials will continue to be a heavily anticipated and important event and is forecasted to buoy the RNAi market through at least the end of the decade, with a projection of RNAi-derived therapeutics available for consumer use as early as 2008.

This analysis is an account of the RNAi market, and is based on the research and judgment of the editor and the BioWorld Publishing Group in an effort to convey the market and a vaticination founded on history, trend evaluation, industry resources, and experience.