It was only the day after Christmas when I mentioned that Tekmira (TKMR) was a name that investors should think about investigating as a potentially cheaper play on RNA interference (RNAi) than better-known representatives of the class like Alnylam Pharmaceuticals (NASDAQ:ALNY) and Isis Pharmaceuticals (ISIS). The stock had done pretty well since then (up about 20% in two weeks), but news of a deal with Monsanto (NYSE:MON) gave another boost to the shares.
Now I'm starting to wonder if things are getting a little too crazy in RNAi-land. Alnylam was up very strongly on news of its partnership with Sanofi (NYSE:SNY) and Tekmira too was up more than one-third in the peak of excitement over the Monsanto deal. Don't get me wrong, I think the Monsanto agreement is a nice feather in the company's cap and something that could become meaningful in a couple of years. I just think it's a little bold for the Street to factor in 50% of the deal value as more or less a given.
Monsanto Acquires More RNAi Tools
It isn't all that widely known, but Monsanto has been actively looking to broaden its IP base beyond its traditional focus on transgenic seeds. The company has partnered with Novozymes (OTCPK:NVZMY) to develop a range of biologicals and the company has also been investing resources into RNAi research to produce better hybrid seeds and topical treatments.
There are some tall fences in the RNAi space, and Monsanto has had a licensing partnership with Alnylam for some time. With delivery technology being a key factor in RNAi, it seems logical that Monsanto would try to add a relationship with Tekmira to the mix.
With this deal, Monsanto effectively acquires a four-year option on Tekmira's delivery technology. According to Tekmira, Monsanto has already been evaluating this delivery technology in field tests pertaining to pest, virus, and weed control. This makes me wonder, then, as to whether Monsanto knows it already has something good and simply wants to cover its tail on the IP/delivery technology side of things.
In any case, Tekmira will be getting an upfront payment of more than $16 million, and the total deal value could reach $86 million if Monsanto fully-opts in on the agreement. If nothing else, this is a small price to pay to get a good look at Tekmira's delivery technology and its applicability to agricultural RNAi - simply making sure that a rival like Dow (DOW), BASF, Syngenta (NYSE:SYT), or DuPont (DD) can't have it may be worth something to Monsanto at this point.
Will Others Get A Look?
Given how important delivery technologies are in RNAi, Tekmira and Alnylam may not be the only companies that garner attention from the ag sector. Arrowhead Research (NASDAQ:ARWR) has its dynamic polyconjugates and homing peptides, while Santaris has its locked nucleic acid approach. It's simply speculation on my part, but why wouldn't the R&D teams at Monsanto, DuPont, et al want to take a look at as many approaches to RNAi delivery as possible?
A Nice Deal, But Not Thesis-Changing
If Tekmira's release is to be taken at face value and the maximum value of this deal is $86 million (no additional royalties, etc.), then the per-share value is a little over $4. As I just said, the fact that Monsanto has already been out in the field with Tekmira's technology does lead me to wonder whether they already have indication in mind that is important and useful. After all, you don't typically create an enforceable IP claim by just experimenting with somebody else's technology (it's when you try to commercialize it that it becomes a problem).
So perhaps this deal does deserve a higher probability of success than the typical 20% to 40% odds of biotech approval. Even so, the nearly $3.50 move at the top of Monday's trading seems like too much to me, and the greater than $2 per share move to close the day is plenty generous.
In Other News
Tekmira's option deal with Monsanto isn't the only new news from the company. Last week there was a restructuring that involved naming Dr. Michael Abrams as "Chief Discovery Officer" and Dr. Ian MacLachlan as "Chief Technology Officer". I believe these moves are chiefly of interest only to the internal operations at Tekmira, but the idea of a "medical countermeasures" group at Tekmira (which MacLachlan will be heading) is interesting.
Speaking of medical countermeasures, Tekmira also announced today (Tuesday) that it has dosed the first human subjects in its TKM-Ebola safety study. As a reminder, this is a part of development under the so-called "Animal Rule" whereby a company can prove the efficacy of a drug/compound in non-human efficacy studies and then establish safety in humans prior to submitting for FDA approval. The reason this approach is permitted is that it is unethical to infect human subjects with Ebola (not to mention good luck trying to enroll that study!).
The Bottom Line
I would have assigned a value to the Monsanto deal of around $1.50, but I'm not going to quibble that much with how the market has reacted. I do have concerns that the entire RNAi space is getting too hot for its own good, but Tekmira still looks undervalued and under-followed relative to its peers. Adding in $1.50 for the Monsanto deal, Tekmira still looks slightly undervalued and there is still time to consider these shares.
Disclosure: I am long ALNY, MON. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.