Roche backs RNAi research with $1 bln Alnylam deal

By Ben Hirschler and Thomas Atkins

LONDON/ZURICH (Reuters) - Roche Holding AG (ROG.VX) has signed a deal worth up to $1 billion with Alnylam Pharmaceuticals Inc. (ALNY.O), giving it access to the U.S. firm's skills in the new science of RNA interference.

The agreement is the largest drug discovery partnership in the field to date and a further vindication of the emerging area of biotechnology research which involves blocking disease-causing proteins.

Roche will pay Alnylam $331 million upfront in cash and equity investment, including a stake of 1.975 million Alnylam shares at $21.50 each, or just under 5 percent of Alnylam's outstanding common stock, the two firms said on Monday.

Denise Anderson, an analyst with Kepler Equities, said cash-rich Roche was paying a high price, given that the drug research is still early-stage and the market capitalization of Alnylam is less than $600 million.

The deal makes Basel-based Roche a co-investor in Alnylam with cross-town rival Novartis AG (NOVN.VX), which bought a 19.9 percent stake in 2005 for $11.11 a share.

For its investment Roche gets a non-exclusive license for Alnylam's technology platform. The alliance will initially focus on oncology, respiratory diseases, metabolic diseases and certain liver diseases.

Roche will also acquire Alnylam's European research site at Kulmbach, Germany, which will become the Swiss group's Center of Excellence for RNAi therapeutics discovery.

The agreement could be worth more than $1 billion, depending on future product milestone payments and field expansion payments. This excludes potential royalties on future sales of commercial products.

NOBEL PRIZE

RNA interference, or RNAi, is one of the hottest areas of biotechnology research at present and has attracted investment from a range of major drugmakers.

Last Friday Anglo-Swedish group AstraZeneca Plc (AZN.L) signed a smaller RNAi deal, worth up to $400 million, with Britain's Silence Therapeutics Plc (SLN.L).

RNAi was the basis for last year's Nobel Prize in medicine and is seen as having the potential to produce promising treatments for diseases including cancer, blindness and AIDS.

It is based on manipulating ribonucleic acid -- the genetic messenger of a cell -- to interfere with or "silence" targeted genes in order to prevent the formation of proteins that can cause diseases.

Merck & Co. Inc. (MRK.N) ignited interest in RNAi last October when it agreed to pay $1.1 billion for U.S.-based Sirna Therapeutics Inc. Since then other companies, including Pfizer Inc. (PFE.N), have struck a series of RNAi product development deals.

Lee Babiss, Roche's head of global pharma research, told reporters that the first products entering clinical trials from the Roche-Alnylam alliance were likely to be tested in humans within two years.