Dicerna: Competitive GalXC RNAi Platform + Partnerships Makes Share Price Gain Likely

Summary

• Dicerna is an RNA-interference / gene silencing drug developer with a proprietary platform GalXC RNAi.
• The company is developing 2 wholly-owned drug candidates for the treatment of primary hyperoxaluria and alpha-1 antitrypsin.
• Dicerna also has collaboration agreements in place with Roche, Eli Lilly, Alexion, Bohringer Ingelheim and Novo Nordisk to develop and progress candidates towards commercialisation targeting a range of indications.
• With sufficient cash reserves to continue operations beyond 2021 Dicerna is on course to make significant progress towards commercialising a drug this year.
• Unique opt-in co-development strategy is an interesting point of difference to sector rivals. A good year will be steady progress, a stellar year delivering best-in-class trial data.

Investment Thesis

I have been looking into the biotech sector for RNA interference ("RNAi") and in this article I am focusing on Dicerna Pharmaceuticals (DRNA). Despite competing in a crowded field, the company's recent collaboration deals are impressive and there is reason to believe the GalXC platform can deliver a commercialised drug that can take market share from rival treatments. As such I feel the current share price somewhat undervalues Dicerna.

There are a cluster of companies, including Arrowhead (ARWR), Alnylam (ALNY), Ionis (IONS) and Moderna (MRNA) developing different varieties of gene-silencing drug candidates using proprietary technology platforms to identify and develop drugs, either themselves or by making structured deals with big-pharma companies involving milestone payments that are triggered by investigational new drug ("IND") or clinical trial application ("CTA") submissions, and progression through clinical trials, and revenue sharing agreements (usually in the mid-to-late-teens) of global net sales subsequent to approval for commercialisation.

It has taken more than a decade (since the Nobel prize-winning science behind RNAi gene silencing using strands of RNA first came to light) for RNAi targeted therapies to have achieved FDA approval for commercialisation due to the complexity of delivering these unstable molecules to their target organs and cells, whilst preventing the body's own immune system from destroying them before they are able to carry out their work of preventing messenger RNA ("mRNA") from passing on its instructions to manufacture disease-causing proteins.

Dicerna gets it name from the DICE enzyme which unwinds the double-stranded RNA molecule before passing it to the RNA induced silencing complex ("RISC") from where it is passed to the mRNA, which is cleaved and prevented from continuing the process of manufacturing proteins.

Extract from Dicerna guide to how its GalXC molecules work. Source: Dicerna website.

Dicerna's proprietary GalXC platform develops molecules that the company believes compare favourably with competing platforms such as Arrowhead's TRiM platform, Ionis Pharmaceuticals' antisense oligonucleotide LICA platform, and Alnylam's drug development technology. Chiefly these are potentially stronger potency, higher specific binding to disease-causing targets, longer duration of action, an infrequent subcutaneous dosing regime and a high therapeutic index (ability to address a broader range of diseases).

The company has recently announced a partnership (Source: Dicerna press release) with Novo Nordisk (NVO) for the discovery and development of 30+ molecules targeting liver-related cardio-metabolic diseases including chronic liver disease, non-alcoholic steatohepatitis ("NASH"), type 2 diabetes and obesity plus other rare diseases. By the terms of the agreement Dicerna will receive a $175m upfront payment plus $25m annually for 3 years subject to delivery of RNAi molecules, and stands to earn as much as $375m per target if the company meets its development, regulatory and commercialisation targets plus tiered royalties of global net product sales. As part of the agreement, Novo Nordisk also made a $50m equity investment into Dicerna.

As mentioned above, this is typical of most agreements between RNA drug developers and big-pharma concerns although a unique element of the Dicerna agreement is the option the company retains to opt in at the development stage of up to 2 of the (cardio-metabolic) programmes led by Novo Nordisk, whilst Novo can do the same for the orphan liver disease programmes that Dicerna will run. By stepping in at the development phase and providing co-funding, Dicerna will be able to earn a higher percentage revenue share of future sales (likely from high-20s to mid-30s) without having to fund the discovery phase.

Dicerna has a similar opt-in arrangement with another collaboration partner, Roche (OTCQX:RHHBY), for development of drug candidate DCR-HBVS targeting Hepatitis B which will allow the company to co-promote the product in the US should it be approved for commercialisation.

Overall, Dicerna has negotiated an impressive collection of commercial partners to advance numerous candidates targeting a range of indications which, combined with its 2 wholly owned candidates targeting primary hyperoxaluria ("PH") and A1AT liver disease (which are progressing nicely through clinical trials) make the company an interesting investment proposition.

The company has a short-term cash position of over $300m and expects to receive its $200m and $175m payments from Roche and Novo imminently (most likely in Q1 20), which should enable it to fund operations through to 2021 given it has a quarterly cash burn of ~$40m per quarter, although management has forecast this figure will increase during 2020.

Dicerna's share price gained around 98% over the past year, enjoying a spike to $27 early this year (most likely on the back of Novartis $9.7bn acquisition of MDCO which raised expectations around the RNAi sector as a whole), but has since dropped to ~$21. With a market cap of just $1.5bn, buoyed by the Novo deal and if data from the PH late-stage trials and Roche HBV collaboration phase trials due in the first half of 2020 are positive, Dicerna's share price could regain its early-year high of $27 or even hit the top end of analysts' 1-year price targets for the stock of $39, in my view.

Company overview - nedosiran moving closer to approval?

Dicerna has yet to release its Q419 or FY19 earnings but CEO Doug Fambrough had plenty of news to divulge during the Q3 earnings call in November.

Dicerna's most advanced candidate is DCR-PHXC, a treatment for the rare genetic condition primary hyperoxaluria ("PH"), which is caused by a deficiency in a particular liver enzyme which leads to an over-production of oxalate, a natural end product of metabolic processes, which is normally removed by the kidney. When not disposed of, Oxalate forms into solid crystals which can form kidney stones and also affect other organs such as the eyes, bones, skin muscles and heart [Source: NHS]. There are 3 types of PH and DCR-PHXC - now known as nedosiran, is able to treat them all.

Types of primary hyperoxaluria. Source: NHS.

Dosing is now underway in 2 clinical trials - PHYOX2 and PHYOX3 (Source: Clinicaltrials.gov). Pivotal trial PHYOX2 will enrol 36 patients with Type 1 and 2 forms of PH and will test for reduction in urinary oxalate levels from baseline to measurements taken from the ends of months three through six using a monthly fixed dose subcutaneous injection of 1 milliliter volume, which the company feels is the optimal treatment design and enables pre-filled syringes. PHYOX3 is an open label rollover extension of phase 1 trial PHYOX1 of 18 patients - 15 for PH1 and 3 for PH2 - in which normalisation or near-normalisation was achieved in 60%, 83% and 100% of participants using doses of 1.5, 3.0 and 6.0 mg/kg, respectively, with 2 of the 3 PH2 patients achieving normalisation or near-normalisation. Data from both the ongoing trials are expected to be available in mid-2020.

The number of patients suffering from PH1, PH2 and PH3 globally are estimated to be ~5,200, 3,000 and 4,000, respectively; however, Dicerna management believes that diagnoses will increase once an effective commercial treatment has been launched, and estimates peak sales of nedosiran to be somewhere between $0.5bn and $1bn.

Prevalence and diagnosis rates of PH1, 2 and 3. Source: Dicerna Stiffel Conference presentation Nov '19).

The median age for kidney failure in PH Type 1 patients is estimated in the mid-20s, whilst PH2 is recognised as a serious enough disease by the FDA for a treatment to be approved rapidly since data has shown that the lifetime risk of end-stage renal disease is comparable to PH1, Fambrough suggested on the recent earnings call.

Whilst nedosiran is the only drug able to treat all types of PH, rival RNAi developer Alnylam expects to file a NDA for PH1 treatment lumasiran early this year. Lumasiran reportedly met its primary endpoint in a phase 3 trial of percent change from baseline, versus placebo, in 24-hour urinary oxalate excretion (source: "AJMC") with no serious adverse events ("SAEs") reported - hence Dicerna will be hoping that approval for nedosiran arrives quickly and becomes the preferred choice of physicians. Having already commercialised 2 drug treatments, Givlaari and Onpattro, Alnylam may feel it has a slight competitive advantage when it comes to the inevitable marketing battle.

DCR-HBVS - Roche collaboration for Hepatitis B moves forward

Dicerna will complete the initial phase 1 trial for this candidate before handing the reins to Roche (whilst retaining the right to opt back in should the candidate progress to pivotal trials). The phase 1 trial which began dosing in December 2018 is a three-part study involving healthy volunteers and patients with chronic hepatitis B. Group A - a single dose ascending study of 30 healthy patients with escalating doses from 0.1 - 12.0 mg/kg - is now complete whilst Group B - a single dose placebo controlled study of 8 patients with NUC-naive chronic hepatitis B at a dose level of 3.mg/kg is ongoing. Group C is an escalating dose study involving 18 NUC-experienced chronic HBV patients using an escalating 4 monthly dose of up to 6mg/kg. Full results from the trial are expected in mid-2020. During the earnings call, a hint of early promise was highlighted - some patients from Group C have entered an extension phase of the trial which is triggered only if the patient records a more-than-one log reduction in circulating S antigen - although neither Roche nor Dicerna are currently aware which patients are receiving the drug and which the placebo.

Dicerna RNAi targeting of the HBV genome. Source: Dicerna Stiffel Conference presentation Nov '19).

Affecting more than 292m people globally, Hepatitis B is the world's most prevalent serious liver condition, responsible for more than 780,000 deaths annually in its most chronic form, with 650,000 of these caused by cirrhosis and liver cancer (Source: Dicerna Q319 submission) and Dicerna is not alone in targeting the disease.

Arrowhead - in collaboration with Janssen, Alnylam - in collaboration with Vir, and Ionis - in collaboration with GSK, are all guiding RNAi (or antisense, in Ionis's case) drug candidates through early-to-mid-stage trials. Whilst RNAi developers continue to work on targeting organs besides the liver (all of the developers saying they are working on this but none has so far succeeded), treating HBV represents the biggest prize currently on offer.

In Aug 2019, Arrowhead released data from a phase 2 clinical trial reporting that 97% (31 of 32) of patients achieved a ≥1.0 log10 (90%) reduction in HBsAg - which suggests the company may be in pole-position treatment development-wise, whilst Alnylam's candidate, ALN-HBV02 is currently in a phase 1/2a trial. Still, Roche ditched its own in-house HBV treatment (Source: Fierce Biotech) candidate in favour of partnering with Dicerna, so it will be interesting to see who will win the development race, and of course the FDA may well approve numerous treatments which will then have to compete for physicians' favour.

A1AT Liver disease

Alpha1 anti-trypsin deficiency is caused by homozygosity of the missense Z-allele (PIZZ genotype) which expresses only 10-20% of normal AAT protein (with the rest being mutated or "misfolded") which results in pulmonary and liver storage disease and potentially disorders of the lung (where the A1AT protein controls neutrophil elastase). The condition is inherited and around 7% of children and 10% of adults develop cirrhosis as a result of A1AT deficiency, with 15% likely to go on to require a liver transplant.

DCR A1AT, Dicerna's treatment candidate is now in a single dose/multiple dose 2 part study which is expected to start dosing in mid-2020. Dicerna is hopeful that positive results from this trial will result in progress directly to a pivotal trial without having to further address safety concerns. The company hasn't given any guidance on the market sales potential of an approved drug to treat A1AT, but as with PH, believes that the number of diagnoses will increase once a targeted solution becomes commercialised.

It will probably come as no surprise by now to hear that Dicerna isn't the only RNA specialist developing a treatment for A1AT. Arrowhead's ARO-AAT is currently in a pivotal phase 3 trial, SEQUOIA, although this trial is scheduled to last until mid-2023. Alnylam's ALN-AAT02 is currently in a phase 1/2 trial scheduled to complete in June 2021.

Other Commercial Partnerships and mystery wholly-owned candidate

Besides Roche and Novo Nordisk, Dicerna is also collaborating with Eli Lilly (LLY) to develop candidates targeting cardiometabolic diseases, neurodegeneration and pain and has received a $100m upfront payment and $100m equity investment, with potentially $350m per target in development on the table in milestone payments and revenue-sharing agreements in the mid-single to low-double-digit percentages.

Alexion recently exercised an option on 2 RNAi molecules within the complement pathway (Source: Alexion press release), triggering a $20m payment, and meaning the 2 companies are now co-developing a total of 4 targets. Dicerna could earn up to $600m plus mid-single to low-double-digit royalties on net global sales.

Dicerna has an agreement in place with Boehringer Ingelheim to develop candidates for treatment of chronic liver diseases, most notably nonalcoholic steatohepatitis ("NASH") which affects the obese and diabetes sufferers and represents an area of high unmet need, the company says. An upfront payment of $10m has been paid to Dicerna who will be reimbursed for development costs and there is $191m of milestone payments plus royalties on the table by the terms of this deal.

Finally, Dicerna expects to advance an investigational GalXC therapy for an undisclosed rare disease and suggested in a recent presentation (Source: Jeffries) that a clinical trial application was due to be filed imminently (although my research suggests this has yet to happen).

Conclusion - new partnerships provide momentum but company not yet a clear leader in any field

Dicerna's work securing lucrative partnerships that have boosted its cash reserves as well as the reputation of its GalXC platform was probably the company's most notable achievement in 2019 and CEO Fambrough suggested in response to an analyst question on the Q3 earnings call that the company would be open to further collaborations. It's possible that he was referencing the Novo Nordisk deal which had not been announced at the time of the call but either way it will be interesting to see how the company handles the dual responsibility of running wholly-owned and collaborative projects simultaneously.

The company's opt-in arrangements seem far-sighted and overall, Dicerna appears to be positioned well for an assault on all fronts during the rest of 2020 and beyond, in my view.

I would have some concerns around the company playing catch-up to its sector rivals on many of the diseases it is targeting. In April 2018, Dicerna agreed to pay $25m (Source: Fierce Biotech) in cash and stock to Alnylam plus another $13m over the next 4 years to settle a case brought against the company by Alnylam who accused Dicerna of poaching trade secrets. Alnylam had spent $325m in 2014 acquiring a Merck RNAi focused subsidiary - Dicerna subsequently hired a number of scientists who had been at the company and were involved in developing the science that Alnylam thought it was acquiring exclusively.

Dicerna filed a counter-claim alleging Alnylam was simply trying to crush a sector rival. Either way, Dicerna can now focus its full attention on a platform that represents a genuine threat to the likes of Alnylam, Arrowhead, Ionis, et al, but will have to focus all of its efforts and resources on achieving commercialisation at a similar time to, or ideally ahead of its rivals.

Like all RNAi developers, the holy grail for Dicerna would be finding a way to target organs other than the liver (develop non-hepatic programs), and the company has promised to present data in this regard at conferences during 2020.

My feeling is that 2020 will be a year of progress for Dicerna and I do not foresee the share price dropping by much unless trial results reveal unexpectedly poor results. The network of partnerships possibly makes an acquisition less likely which could prevent the kind of share price gains that acquisition rumours tend to propagate.

On the upside, if any of Dicerna's candidates outperforms sector rivals in clinical trials, then this will likely be huge for the company and trigger large gains in the share price. This is not unthinkable as the GalXC platform has points of difference and the company is well funded (although it lacks the resources of rivals; e.g., Alnylam which spends nearly 3x as much on R&D per quarter).

I believe the PH opportunity could move forward rapidly in 2020 and to my mind this represents the company's most exciting opportunities in the short term. There are no signs of the RNAi sector losing its lustre in 2020 and therefore, whether it is through keeping pace (reasonable upside potential) or outperforming (strong gains likely) rivals in 2020, I believe Dicerna can match or exceed consensus price performance targets of between $28 and $39 by YE20.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.