Dicerna Pharmaceuticals May Be The Best Value Among RNAi Companies

Sep. 15, 2020 3:23 PM ETNovo Nordisk A/S (NVO)6 Comments4 Likes
William Meyers profile picture
William Meyers
6.37K Followers

Summary

  • Dicerna develops RNAi therapies. Several large-cap pharma companies are collaborators.
  • Dicerna's market capitalization is just $1.4 billion.
  • Its platform, pipeline, and partnerships make it a pick for long-term investors.

Dicerna Pharmaceuticals (DRNA) is a clinical stage biotechnology company specializing in RNAi-based medicines. Its most advanced candidate is nedosiran for primary hyperoxaluria, a rare genetic disease. But it also has entered into collaboration agreements with Boehringer Ingelheim, Alexion (ALXN), Lilly (LLY), Roche (OTCQX:RHHBY), and Novo Nordisk (NVO). This indicates a great deal of industry confidence in the Dicerna GalXC platform's capabilities. Dicerna has a strong cash position allowing it to pursue its commercialization goals. At the same time, Dicerna's market capitalization is well below that of other RNAi therapy companies, creating an opportunity for investors. This article will cover highlights of Dicerna's pipeline and partnerships. It will also compare Dicerna's value, by market capitalization, to some other leading RNAi companies. As of the close on Monday, September 14, 2020, Dicerna's stock price of $18.29 was roughly in the middle of its 52-week range. The 52-week low was $11.75, and the 52-week high was $27.68. I think the current price as a reasonable point to buy the stock for long-term investors.

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GalXC Platform and Competitors

Dicerna's platform GalXC creates an RNAi configuration called a tetraloop and is designed to treat organs beyond the liver and to have a longer duration of action than similar therapies.

GalXC therapies consist of double-stranded RNA structures capable of introducing RNAi structures and associated modifications to enhance their properties. RNAi-inducing structures consist of two strands of RNA. The guide strand is complementary to the mRNA sequence one is seeking to inhibit, while the passenger strand includes sequences complementary to the guide strand. Additional sequences are added to the passenger strand, to improve the therapeutic properties or serve as an attachment point for chemical additions. A four-base sequence, known as a tetraloop, on the passenger strand, is designed to enhance stability and engineer out immunostimulatory activity.

Source: Dicerna

GalXC molecules are conjugated on the tetraloop structure to a simple sugar, GalNAc (N-acetyl-D-galactosamine), that is specifically recognized by a receptor on the surface of hepatocytes (liver cells). GalXC RNAi enables a full human dose to be administered via a single subcutaneous injection. From the bloodstream, therapies are exposed and bind to hepatocytes expressing the GalNAc. Then, the GalXC molecules are internalized by the hepatocytes, enabling the GalXC molecules to access the RNAi machinery inside the cells. The platform allows for long duration of action and monthly or quarterly dosing.

RNAi therapies, including antisense RNA, are a relatively recent development. Natural RNAi was only discovered in the 1990s. The basic idea is that, when a mutant gene produces mutant mRNA, the RNAi therapy prevents that from being turned into mutant protein. The obvious therapy targets are diseases caused by abnormal proteins from mutant genes. To work an RNAi, therapy must be delivered to the cytoplasm of a cell. That turned out to be difficult to achieve. One of the main differences in the therapy platforms used by the various RNAi companies is how the RNAi is bound to other molecular structures to allow it to be delivered to cells.

Because some targets turned out to be easier to approach than others, some of the RNA therapies already commercialized compete with each other, as well as with more traditional therapies. For instance, Alnylam's (ALNY) Onpattro (Q2 2020 revenue $67 million) and Ionis' (IONS) Tegsedi (Q2 2020 revenue $16 million) both are approved to treat hATTR amyloidosis. It follows that to evaluate the chances of Dicerna's future success, an investor needs to know if other companies have already or could choose to go after the same disease target. Note too that being first is not a guarantee of long-term success, when a later introduction might be more effective, have less side effects, or be easier to administer.

It is worth understanding the differences in the RNAi platforms, but it is also possible that all the platforms produce effective drugs, and no one platform will sweep the field. I have heard each of the CEOs of the companies under discussion assert that their platform is superior, and everyone understands the importance of targeting beyond the liver. The Ionis platform uses an antisense RNA approach, and now has a second-generation platform, LICA or Ligand Conjugated Antisense. Alnylam has been quite successful with its RNAi platform and has the highest market capitalization of the stocks discussed. Arrowhead's (ARWR) TRiM, or Targeted RNAi Molecule platform, utilizes ligand-mediated delivery and is designed to enable tissue-specific targeting.

I do not pretend to have the science expertise needed to pick any one platform as a sure winner. In many cases, the companies will attack different disease targets, so the platform may not matter, as long as the drug works. When there is competition, only the actual trial results will inform us as to platform superiority. Only if one platform bests the others in a series of indications would I be willing to invest based on the platform alone.

Nedosiran

Nedosiran (formerly DCR-PHXC) is a potential therapy for PH, or primary hyperoxaluria. The disease is rare, but can be caused by mutations in differing genes, and so has three classes, PH1, PH2, and PH3. In all the classes, oxalate builds up, then is secreted by the kidneys, and results in kidney and bladder stones. Eventually, the disease progresses to kidney failure. The disease is rare because both parents must carry a defective gene, and then, the patient must inherit the defective gene from each parent. Nedosiran is believed to work as a therapy for all three types of PH.

On August 6, 2020, Dicerna released updated nedosiran data. The PHYOX3 trial is an open label extension study, including patients with any known type of PH who participated in earlier trials. Of the 11 eight PH1 and three PH2 participants who had received nedosiran once-monthly for 120 days, nine participants, or 82%, had achieved normal or near-normal urinary oxalate levels. The only safety events were 3 injection-site reactions, though one patient had a serious event unrelated to the drug.

Meanwhile, the pivotal PHYOX2 trial should complete enrollment, for PH1 and PH2 only, before the end of 2020. Nedosiran has rare pediatric disease designation from the FDA. Dicerna is considering partnering for commercialization outside the U.S. PH is believed to affect about 1 in 58,000 people globally. That would put total global patients at about 120,000. Pricing of nedosiran, if it is approved by regulators, would likely be above $100,000 per year in developed nations, in line with other drugs for rare, deadly drugs affecting children.

RG6346 for Hepatitis B

RG6346 for chronic HBV (hepatitis B virus) infection was developed by Dicerna and is now in a collaboration with Roche. Phase 1 enrollment was completed in June 2020. There were 3 cohorts, one for dose ranging of healthy volunteers, one with RG6346 as monotherapy in newly diagnosed patients, and then, the targeted therapy which combined RG6346 with a nucleoside analog. The results with the third group, as of the reporting date, were positive. An extended follow-up of the patients is underway. The only safety events were injection-site reactions.

Roche will be responsible for initiating a Phase 2 study. Dicerna received $200 million up front in January 2020 and could receive up to $1.47 billion in potential milestone payments. If the product is commercialized, Dicerna will receive an undisclosed royalty. Dicerna retains an option to co-fund the development of RG6346 worldwide, which, if exercised, would result in enhanced royalties on net sales in the United States.

The HBV therapies already on the market are not cures for the chronic disease. There is RNAi competition, however. Ionis plans to start its HBV clinical study before the end of 2020. Alnylam has an HBV candidate in Phase 1.

DCR-A1AT for A1AT Liver Disease

DCR-A1AT is a subcutaneously administered RNAi therapy for the treatment of liver disease caused by A1AT (alpha-1 antitrypsin) deficiency. In A1AT deficiency, the SERPINA1 gene encodes a mutated form of A1AT, the majority of which accumulates in the liver, which can lead to liver disease. There are currently no approved therapies to treat A1AT deficiency-associated liver disease. DCR-A1AT received Orphan Drug designation from the FDA in March 2020.

Dicerna expects to dose the first healthy volunteer in a Phase 1/2 trial before the end of 2020. However, Dicerna reported in Q1 2020 that it had partnered with Alnylam for the A1AT program. Alnylam lists ALN-AAT02 in its pipeline for A1AT deficiency. Under the deal, Dicerna would be able to choose between its own product, DCR-A1AT and ALN-AAT02, for full development. But even after teaming up with Alnylam, there remains competition. Arrowhead announced its Phase 2/3 SEQUOIA trial of ARO-AAT completed enrollment of its first cohort in earlier this year, which puts it well ahead of Dicerna in the timeline to possible commercialization.

Research & Preclinical Therapy Roster

I will not deny that Dicerna is ambitious. The following graphic shows preclinical R&D well beyond the current therapies in clinical trials:

Source: Dicerna 2019 10-K

Boehringer Ingelheim NASH collaboration

In January 2019, Boehringer Ingelheim and Dicerna announced the second option of their hepatic disease collaboration had been exercised. Both indications relate to NASH, or nonalcoholic steatohepatitis. Boehringer Ingelheim will be responsible for future clinical development and commercialization. Dicerna is eligible to receive milestone payments and royalties on worldwide net sales. Boehringer Ingelheim is a privately held German pharmaceutical company.

Alexion Collaboration

In October 2018, Dicerna and Alexion announced a collaboration for discover and development of RNAi therapies for complement-mediated diseases. Complement pathways are an important part of the immune system. Two complement pathways will be targeted. Dicerna be responsible through the preclinical stage, then Alexion will lead development efforts beginning with Phase 1 studies. The agreement provides Alexion with exclusive worldwide licenses and commercial rights. Dicerna will receive an upfront payment of $22 million and a concurrent $15 million equity. Dicerna could earn additional development and approval-related milestone payments of up to $105 million per target, plus sales milestones and mid-single to low double-digit royalties on future product sales. This project is still listed as preclinical by Alexion.

Lilly Collaboration

In December 2018, Dicerna and Eli Lilly closed a licensing collaboration agreement. The agreement covers more than 10 targets in cardio-metabolic diseases, neurodegeneration, and pain. Dicerna received an upfront payment of $100 million and an equity investment of $100 million. Dicerna is eligible to receive up to approximately $350 million per target in development and commercialization milestones, as well as tiered royalties ranging from the mid-single to low-double digits on product sales.

Novo Nordisk Collaboration

On January 2, 2020, the closing of the collaboration agreement between Novo Nordisk and Dicerna was announced. The agreement is for cardio-metabolic diseases. It will explore over 30 liver cell targets, including chronic liver disease, NASH, type 2 diabetes, obesity, and rare diseases. Dicerna will fund discovery until targets are chosen, then Novo Nordisk will be responsible for further development. Dicerna received a $175 million upfront payment. Dicerna will receive $25.0 million annually for each of the first three years of the collaboration. It can receive up to $357.5 million per target in development, regulatory and commercialization milestone payments, plus tiered royalties on product sales ranging from the mid-single-digits to mid-teens. Novo Nordisk also made a $50.0 million equity investment in Dicerna.

Cash and Burn Rate

At the end of Q2 2020, Dicerna had a cash and equivalents balance of $669 million. Operating expenses in the quarter were $74 million. Given the potential milestone payments from collaborators, I do not expect Dicerna to have a cash problem in the near term.

RNAi Company Market Capitalizations

As a comparison, I made a table to the market capitalizations, as of end-of-day on September 14, 2020, of the four rival RNAi companies mentioned in this article:

Company

Market Capitalization, $ billions

# of approved therapies

Alnylam

15.2

2

Arrowhead

3.5

0

Dicerna

1.4

0

Ionis

7.5

3

Conclusion

Dicerna, like many clinical-stage pharmaceutical stocks, is likely to continue to exhibit high volatility, at least until it has, or appears likely to get, an approved commercial therapy. There is always the danger that clinical trial results will be negative. While there is potential competition for RG6346 and DCR-A1AT, nedosiran seems to have a clear path forward. Longer run, the other collaborations should produce data and perhaps more milestone payments. Several large pharmaceutical companies have shown confidence in the Dicerna platform. The breadth of the preclinical pipeline means this entire decade could be rich in new Phase 1 trials and positive data reveals. Also, Dicerna's cash represents a substantial portion of its market capitalization, which is significantly lower than those of its competitors. While risks from trial failures and competition should not be ignored, I am optimistic about Dicerna's long-term prospects. If I were running a large pharmaceutical company, I would consider it to be a cheap acquisition target.

This article was written by

William Meyers profile picture
6.37K Followers
I provided stock and bond research and analysis to a small cap specialist investor, Lloyd Miller, from 2002 until his death in January 2018. For my own account I invest mainly in technology and biotechnology stocks. My technology and investment web site is openicon.com, where readers can view the notes I take to make decisions and to write articles for Seeking Alpha.
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Disclosure: I am/we are long DRNA, IONS, ARWR. 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.

Additional disclosure: DRNA has been on my watch list for a while. After researching this article I decided to buy an initial small position.

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