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Ryan Bloom, Christina Loh, Ph.D., Grace Zheng Ph.D., and Sebastian Caliri, M.S.

Regulus Therapeutics (NASDAQ:RGLS), whose focus is on targeting small regulatory RNAs called microRNAs, is a joint venture between two leading RNA therapeutics companies, Isis (NASDAQ:ISIS) and Alnylam (NASDAQ:ALNY). Last fall, Regulus joined its two parent companies on the NASDAQ stock exchange after an $80 million IPO, despite being founded a mere 5 years earlier and having no compounds in clinical development. Regulus did ink three major partnerships with Big Pharma partners, and had begun preclinical development of a compound targeting miR-10b for glioblastoma, which it intends to develop itself. When trying to value a company so far from the commercial stage, a key question that many investors might pose would be: will Regulus have enough cash to survive until it can bring its own compound through clinical development? Or, will it have to raise capital by diluting out investors, significantly affecting its share price? A close look at its current balance sheet and partnerships shows that Regulus currently has the cash to last into 2016. With $1.7 billion dollars in pre-clinical and clinical milestone payments possible from its partnerships, it finds itself in a strong cash position as it moves its miR-10b agonist along into clinical development. Table 1 shows the various partnerships and expected milestone payments that will sustain Regulus. Detailed information about those partnerships is explained below.

Table 1.Partnerships and expected milestone payments to Regulus.

Total Milestone Payments ($millions)

Partner

miRNA target

Already received

Pre-clinical and IND

Clinical

Commercialization

Percent of sales

GSK

miR 122 - HCV

28

144

10-20%

Sanofi

miR 21 - fibrosis, heatocellular carcinoma

40

70

640

10-20%

Astra Zeneca

miR 33 - atherosclerosis

3

50

129

370

5-15%

AstraZeneca

The partnership with AstraZeneca (NYSE:AZN) and Regulus is founded on one publicly announced miRNA therapeutic, miR-33. Micro-RNA-33 regulates the biogenesis of high-density lipoprotein (HDL) ("good cholesterol"), such that HDL levels are boosted with miR-33 inhibition; this is significant as the levels of HDL are inversely correlated with atherosclerotic vascular disease [1, 2]. Although its partnership includes the development of 2 other miRNA therapeutics (in oncology and metabolic diseases), the miRNA targets are not publicly known. Together with AZN, Regulus will work towards bringing the miR-33 therapeutic to the stage that an Investigational New Drug (IND) will be filed, after which AZN will resume a natural role in the clinical trials and commercialization of the miR-33 silencing agent. It is anticipated that the miR-33 IND filing will occur by 2014 and is backed by impressive pre-clinical results in mice and primates [1, 2].

The partnership with AZ and Regulus was initiated in August 2012 with an upfront payment of $3M to be spent over two years. Their alliance was solidified in October 2012 when Regulus' initial public offering, which included a $25M private sale of shares to AZN. The specifics of the AZN partnership are typical of a relationship with a Contract Research Organization (CRO) and Big Pharma, whereby they each utilized their respective strengths. Regulus will lead the development of the miRNA target to IND filing within a prescribed 4 year time frame. If achieved, Regulus will see a $5M pre-clinical milestone payout for miR-33, with another $2.5M (per therapeutic) for another two miRNA therapeutics (undisclosed), after which AZN will naturally lead and finance the clinical trials and commercialization of the therapeutic. From this partnership, Regulus may receive both clinical and commercialization milestone payments (up to $129M and $370M, respectively), in addition to royalties (between 5-15%, dependent upon the product and volume of sales). In total, AZN has provided $28M in financing to Regulus, with the potential to bring in another $509M with this partnership.

Based on the pre-clinical results and press releases from Regulus, it is likely that Regulus will file an IND for miR-33 in 2014 and Regulus will see a $5M payout for the successful pre-clinical work which led to IND filing. Similarly, given the non-toxic readouts in pre-clinical primate studies (anticipated clinical measures) we also believe that miR-33 has a high probability of advancing through phase I clinical trials, leading to a portion of the $109M payout for clinical milestones going to Regulus. Additional payments of up to $370M are available to Regulus for commercialization of these compounds, as well as a small percentage of sales, which gives significant upside to this partnership. Nevertheless, high density lipoprotein boosters have yet to make it past Phase III clinical trials, as seen with dalcetrapib (Roche), torcetrapib (Pfizer)(NYSE:PFE) and Niaspan (National Institutes of Health study). These studies were confounded by the inability to demonstrate positive clinical outcomes, despite increasing HDL levels. Currently, two other compounds, anacetrapib (Merck)(NYSE:MRK) and evacetrapib (Eli Lilly)(NYSE:LLY) are in Phase III clinical trials. Both have shown promising results by targeting a different molecule in HDL biogenesis, cholesteryl ester transfer protein. As a result, the outcomes of these clinical trials (due in the next few years) may have financial and long-term consequences on the success of miR-33 and, consequently, payouts to Regulus.

Looking forward, this partnership with AZN is may have another avenue for financial gain. Current research on their first lead partnership drug, miR-33, has revealed the potential for a new indication with an under-served market, liver regeneration. Recent work out of the same lab that identified miR-33's role in HDL biogenesis has determined that antagonizing miR-33 was able to improve liver regeneration by accelerating cellular proliferation and progression into cell cycle [3].

GlaxoSmithKline

In April 2008, Regulus reached an agreement with GlaxoSmithKline (NYSE:GSK) to develop four miRNA programs in the area of inflammation and immunology. In Feb 2010, this agreement was expanded to include miR-122 for the HCV infection. miR-122 is the most abundant miRNA in the liver, and plays important roles for liver cell identity, lipid metabolism, and hepatitis C virus (HCV) replication [3]. The liver is amenable to the delivery of oligonucleotides following systemic administration, making miR-122 an ideal target for HCV antisense oligonucleotide therapy.

As an expert in delivering antisense oligonucleotides, Regulus is well positioned to deliver the miR-122 antisense therapy for HCV infection. In the past couple of years, Regulus identified a few targets of miR-122, all of which are important regulators of gene expression in liver [4,5]. In addition, it has demonstrated the ability of using antisense oligonucleotides to silence the expression of miR-122 in liver [6]. Recently, Santaris, another RNA-therapeutics company, has obtained favorable results in the phase I clinical trial of using miR-122 to treat HCV infection. The progress and positive results achieved by Regulus and Santaris pave the way for Regulus to successfully create an antisense oligonucleotide therapy for HCV infection.

Regulus' partnership with GSK in 2008 resulted in a $15M option fee, and a $5M loan in the form of a convertible note. The expanded agreement in 2010 resulted in a $3M upfront payment, and another $5M loan in the form of a convertible note. By the end of Dec 2011, Regulus has received $7.1M in milestone payment (May 2009: $0.5M, Dec 2010, $3M, July 2011, $0.5M, and Dec 2011, $3.1M). Regulus can receive up to $144.5M in preclinical, clinical, regulatory, and commercialization milestone payment for the miR-122 program, as well as the other 3 miRNA programs. All of this sounds great, but can Regulus deliver?

Regulus is likely to file an IND on miR-122 by 2014 and receive another milestone payment. In addition, given the positive results from the Santaris phase I clinical trial, we expect equally favorable results from the phase I clinical trial by Regulus. This means that Regulus will have approximately a 20% chance of successfully launching the miR-122 therapy for HCV (based upon historical clinical data, [7]), which would result in a total of $144M in expected payments. In addition to milestone payments, GSK will pay a tiered royalty to Regulus, based on the sale of the drug. However, given the competition from existing HCV treatments (interferon, telaprevir, and boceprevir based, as well as antisense oligonucleotide based from Santaris), a decreasing number of treatment opportunities, and the late entry of Regulus to the HCV market, the sale of a potential miR-122 HCV therapy is only estimated at $250M per year [8], which translates to a $25M royalty per year.

Overall, the strategic alliance with GSK will deliver a lot of cash to Regulus to help with the R&D of in-house therapeutics. An estimated royalty payment of approximately $25M per year upon commercialization of the therapy would be a welcome bonus for Regulus.

Sanofi

Regulus’s partnership with Sanofi (NYSE:SNY) centers around the development of miR-21 for two indications: kidney fibrosis, and hepatocellular carcinoma (HCC). Current preclinical data supports an optimistic outlook for IND filing as soon as 2014. On the fibrosis front, an abstract published in November 2012 demonstrated effectiveness in attenuating kidney fibrosis and loss of function in a mouse model without substantial side effects [9]. An additional study showed that miR-21 knockout in mice reduced fibrosis in response to renal injury, a finding recapitulated when oligonucleotide therapy was administered on wild type animals with disease [10]. In oncology, miR- 21 is known to be upregulated in HCC as well as numerous other cancers [11], but less published data on tumor response to therapy is available.

Sanofi has already invested significantly in Regulus, but numerous milestone payments are still available. Regulus has received $5M for R&D each year between 2010 and 2012, a $10M equity investment upon finalizing the partnership agreement in 2010, as well as a $25M payment amortized over five years starting in 2011. An additional $15M will be paid out upon filing of the miR-21 IND. Although Sanofi takes on full responsibility for clinical development of all drugs developed through this alliance, an estimated $160M plus royalties between 10 and 20% could be paid out as miR-21 passes key development and commercialization targets. Beyond miR-21, Regulus is also eligible for up to three payments of $5M upon announcing each of three new drug targets as part of the Sanofi alliance. The same $15M IND filing bonus along with $160M apiece in additional milestones, plus tiered royalties, are also on the table for these three potential drugs.

Regulus could therefore realize up to $750M plus royalties through the Sanofi alliance - but how much will actually be paid out, and when? Through 2015, Regulus will have at least $5M a year from the amortized upfront alliance payment. Given the advanced state of preclinical fibrosis research, an additional $15M from an miR-21 IND filing in 2014 also seems likely. After 2014, a roughly 20% probability of commercialization success yields an expected value of $32M, along with the potential for royalties after FDA approval which could come between 2019 and 2022. The value of these milestones will increase with the success of miR-122 in clinical trials, as positive results would reduce some of the risk associated with hitherto untested miRNA-targeted therapeutics. The values of the other three drug targets are difficult to predict. It stands to reason that Regulus has begun by selecting the most promising target for Sanofi's chosen indications. However, the possibility of developing other compounds for these indications gives Regulus more shots on goal and adds some upside to this partnership.

Conclusion

Despite being likely several years away from commercialization of their own compound, Regulus Therapeutics is in a strong cash position as they move towards clinical development. They accomplished this by structuring their partnerships so that they act as a contract R&D company - leveraging their expertise in RNA therapeutics while their pharmaceutical partners foot the bill and take on most of the market risk. In this way, Regulus can keep their burn rate low, and rake in significant payments for early stage pre-clinical and clinical development milestones in far less time than it would take to bring a compound to market. Furthermore, Regulus has taken the strategy of targeting orphan disease compounds for in-house development, which can take significantly less time and capital than traditional drugs. If Regulus can turn their scientific expertise into safe and effective therapeutics, then its balance sheet should look strong well into the next decade.

References

[1] Rayner KJ, Sheedy FJ, Esau CC et al. Antogonism of miR-33 in mice promotes reverse cholesterol transport and regression of atherosclerosis. J Clin Invest. 2011; 121(7):2921-2931.

[2] Rayner KJ, Esau CC, Hussain FN et al. Inhibition of miR-33a/b in non-human primates raises plasma HDL and lowers VLDL triglycerides. Nature. 2011; Oct 19; 478(7369):404-7.

[3] Cirera-Salinas D, Pauta M, Allen RM et al. Mir-33 regulates cell proliferation and cell cycle progression. Cell Cycle. 2012. Mar 1;11(5):922-33.

[4] Haussecker D and Kay M. miR-122 continues to blaze the trail for microRNA therapeutics. Molecular therapy (2010) 18 2, 240-242.

[5] Kojima S, Gatfield D, Esau CC and Green CB. MicroRNA-122 modulates the rhythmic expression profile of the circadian deadenlase Nocturnin in mouse liver. Plos One. 2010 Jun 22:5(6):e11264.

[6] Gatfield D, Le Martelot G, Vejnar CE et al. Integration of microRNA miR-122 in hepatic circadian gene expression. Genes Dev. 2009 Jun 1; 23(11): 1313-26.

[7] Paul SM, Myteika DS, Dunwiddie CT et al. How to improve R&D productivity: the pharmaceutical industry’s grand challenge. Nature Reviews, 2010. Mar; 9: 203-214.

[8] Wade G, Moussatos L, Marai C and Nierengarten D, Regulus Therapeutics (NASDAQ:TGLS). Wedbush Pacgrow life sciences. 2013. Feb 21.

[9] Regulus Therapeutics. Press Release: Anti-miR21 Protects Collagen 4A3 Deficient Mice from Progression of Alport Disease. 2012.Mar 11.

[10] Chau BN, Xin C, Hartner J et al. MicroRNA-21 promotes fibrosis of the kidney by silencing metabolic pathways. Sci Transl Med (2012) 121:121ra18.

[11] Ladeiro Y, Couchy G, Balabaud C, Bioulac-Sage P, Pelletier L, et al. MicroRNA profiling in hepatocellular tumors is associated with clinical features and oncogene/tumor suppressor gene mutations. Hepatology (2008) 47: 1955–1963.

Source: Regulus Therapeutics: Strong Balance Sheet As It Moves Into Clinical Development