Alnylam inks $331m drug deal with Roche

In the latest endorsement of a science technique discovered at the University of Massachusetts, the international drug giant Roche signed a $331 million deal with Alnylam Pharmaceuticals Inc. of Cambridge for the rights to develop drugs using RNA interference.

Five-year-old Alnylam has staked out a position as a leader in the field of RNA interference, or RNAi, a biology tool that allows scientists to shut off the function of genes one at a time. The technique is already widely used in medical research, and Alnylam is one of a handful of firms racing to develop it for the far more lucrative purpose of making drugs.

Aside from being a hotly contested part of the drug industry, RNAi is also a point of pride for public higher education in Massachusetts: The process won a Nobel Prize last year for its co discoverer, UMass Medical School professor Craig Mello .

Yesterday's deal sent Alnylam stock soaring. Its share price leapt more than 50 percent, from $15.20 to $23.12 , a spike unusual even in the volatile world of biotechnology.

"We're obviously ecstatic about today's news," said Alnylam chief executive John Maraganore , who said he believed it was the largest-ever up-front payment in a biotech-pharma partnership.

The deal makes Roche the latest major drug company to throw its hat into the RNAi ring. Novartis AG signed a smaller deal with Alnylam in 2005, and last fall Merck & Co. bought another RNAi company, Sirna Therapeutics Inc. Several smaller companies also hope to develop RNAi drugs, including RXi Pharmaceuticals Corp. of Worcester, which is co-owned by Mello.

The power of RNAi to turn genes on and off, thus muting their function inside a cell, could lead to medicines that mount a highly focused attack on a disease, shutting off a dangerous gene or attacking a virus at a vulnerable point. But it also faces significant challenges, chiefly how to deliver strands of RNA -- a relatively complex and delicate molecule -- to the parts of the body where they are needed.

Currently, no RNAi-based drugs have reached the market, although Alnylam has launched human tests of an inhalable treatment for a common respiratory virus. A handful of other companies also have drugs in human trials.

As part of yesterday's deal, Roche bought just under 5 percent of Alnylam's stock at $21.50 a share and paid $15 million to acquire Alnylam's German research site with 40 employees. The deal also has the long-term potential to bring in $1 billion or more in milestone payments, plus additional royalties, if Roche succeeds in developing and commercializing drugs.

In exchange, Roche gets the rights to use Alnylam's RNAi-related patents in developing drugs in four areas: cancer, respiratory disease, some liver diseases, and metabolic disorders.

The deal assuages a concern many investors had about Alnylam. Until last fall, it was one of two leading RNAi companies. In October, Merck & Co. said it was buying Alnylam's rival, Sirna, for $1.1 billion . Although Alnylam's stock ticked upward that day, the Merck takeover also raised the worry that Alnylam had been passed over because its technology was less promising or because its 2005 deal left the company too entangled with Novartis.

Edward Tenthoff , a stock analyst with Piper Jaffray & Co., called the size of yesterday's deal "nothing short of astounding," and said it vindicated Alnylam's strategy of collecting the rights to numerous patents covering potential RNAi drugs.

"They're really the only game in town, so to play, you've got to pay," he said.

Yesterday's disclosure suggests Alnylam wasn't hobbled by the Novartis deal, and Alnylam chief executive Maraganore said his company is "very actively talking to" other potential partners as well.

In the meantime, Alnylam will have a half-billion dollars in cash on hand, money Maraganore said will go to clinical trials and research into effective ways to administer RNAi drugs, which is likely to be a long-term challenge.

"We're going to be working on delivery for many, many years," he said, "because that's the nature of biomedical research."

Stephen Heuser can be reached at sheuser@globe.com.