West Coast Editor

Merck & Co. Inc.'s plan to buy Sirna Therapeutics Inc. for $1.1 billion, despite two of Sirna's major programs tied to partnerships with other pharma firms, casts a shadow over the Merck deal with Alnylam Pharmaceuticals Inc., rival of Sirna in the RNA interference space.

But RNAi holds enough opportunity for all comers, said James Niedel, managing director of New Leaf Venture Partners, Sirna's largest shareholder. "The field is so enormous that it's silly to think of [Alnylam and Sirna as the only competitors]," he said.

Just the same, Wall Street buzzed Tuesday about a possible counter-offer from the London-based pharma giant GlaxoSmithKline plc, which is partnered with Sirna for respiratory diseases.

After the market closed Monday, Whitehouse Station, N.J.-based Merck disclosed its plan to buy Sirna, of San Francisco, for $13 per share - a 102 percent premium over the previous trading day's closing price.

Sirna's shares (NASDAQ:RNAI) closed Tuesday at $12.63, up $6.18, or about 96 percent. Cambridge, Mass.-based Alnylam's stock (NASDAQ:ALNY) rose, too, ending the day at $19.72, up $3.12, or 18.8 percent. The strong hike added to a recent upward trend by Alnylam, itself the subject of speculation regarding a buyout by partner Novartis AG or another suitor.

"Whether Novartis acquires Alnylam or not, there were really only two players in the [RNAi] chemistry space, and that's where pharma companies feel more comfortable," Niedel said, although there is plenty of action in RNAi areas considered more experimental. New Leaf owns slightly more than 25 percent of outstanding shares.

Thirty-six percent of Sirna's stockholders have made known their support for the Merck deal. Given the huge premium, which could scare away a potential counter-offer from GSK, the rest of Sirna's shareholders likely will follow their lead. GSK this spring entered a deal worth up to $700 million with Sirna. (See BioWorld Today, April 4, 2006.)

Sirna's program for ophthalmic diseases is partnered in a potential $250 million deal with Allergan Inc., of Irvine, Calif., which includes a Phase II-ready candidate for age-related macular degeneration, Sirna-027. (See BioWorld Today, Sept. 30, 2005.)

Jonathan Aschoff, analyst with Brean Murray Carret & Co. in New York, told BioWorld Today that Merck "clearly picked the best horse to bet on," and selected Sirna for the "myriad other potential therapeutic applications of the technology beyond AMD and the four respiratory diseases partnered with GSK."

He called the $13-per-share price "more than fair," and said he expects no counter-offer from GSK. "I also expect no takeout offer for Alnylam whatsoever," he said, adding that "Alnylam's deal with Novartis hinders Alnylam's ability to do large drug development deals going forward."

About a year ago, Basel, Switzerland-based Novartis signed a three-year deal with Alnylam and, as part of the potential $700 million agreement, bought almost 20 percent of the firm - as much as possible without having to consolidate the bookkeeping. (See BioWorld Today, Sept. 8, 2005.)

Brett Holley, analyst with CIBC World Markets, called the Merck takeover of Sirna surprising, given the two already-partnered programs, and wrote in a research note Tuesday that an attempt by GSK to beat the Merck offer is "possible."

Alnylam's deal with Merck could be compromised by the latest developments, wrote analyst Pamela Bassett, of Cantor Fitzgerald, in a report. This summer, Merck and Alnylam consolidated and revised their two deals, which stem from a relationship begun in 2003. (See BioWorld Today, July 7, 2006.)

The amended arrangement called for Merck to provide nine therapeutic targets for initial development by Alnylam, which is allowed to select three to develop jointly with Merck on a 50/50 basis. Merck also agreed to begin co-funding the joint programs from the outset, rather than waiting until the completion of certain preclinical work. Alnylam stands to gain as much as $120 million in milestone payments.

Banc of America remained strong on Alnylam, reiterating a "buy" rating and moving the price target to $30 from $23. Mark Monane, of Needham & Co., wrote in a research report that the Merck news "signals a major shift in perception by large pharma about the prospects for RNAi therapeutics" in general.

Those prospects have been the subject of exploration by Merck since the firm's $620 million acquisition of Kirkland, Wash.-based Rosetta Inpharmatics Inc. (See BioWorld Today, May 14, 2001.)

"[Merck is] getting an enormous amount of detailed information around biochemical pathways and potential disease mechanisms, and they have probably been using RNAi internally to explore some of those pathways," Niedel said.

Meanwhile, Sirna continued its own work, but "it would have been impossible for Sirna to pursue anything other than the tip of the iceberg" without help from the likes of Merck, he said. The two firms began talking about a discovery collaboration during the past few months, Niedel told BioWorld Today, and those talks evolved into the current plan.

For Merck, the takeover of Sirna garners an entire platform and recalls the pharma giant's decision earlier this year to grab Abmaxis Inc., of Santa Clara, Calif., along with GlycoFi Inc., of Lebanon, N.H., for $80 million and $400 million, respectively. The moves gave Merck Abmaxis' monoclonal antibody technology and GlycoFi's glycoengineering. (See BioWorld Today, May 10, 2006.)

Formerly Ribozyme Pharmaceuticals Inc., Sirna in 2003 changed its name, took on the "RNAI" Nasdaq symbol, and got agreements for $48 million from investors. The Merck buyout is expected to close in the first quarter of next year.