Tuesday, November 21, 2017

RNAi Therapeutics Stocks (Part 1)

According to the RNAi calendar, a calendar characterized by 3-year sentiment cycles, we are coming to the end of the first third of another RNAi Therapeutics stock bull market. 

The current cycle follows one (2014-7) that I had referred to as The Wait when the stock market had priced in the ability of RNAi to knock down genes in humans, yet still needed confirmation that this would translate into overall therapeutically beneficial drugs to justify a further increase in the valuation of RNAi companies.  As you know, the phase III APOLLO study of Patisiran in hATTR amyloidosis has provided us with just that.  Expectedly, this has not only lifted the stock price of Alnylam (+70% since results 1 ½ months ago), but positive sentiment has trickled down to 2nd tier companies like Arrowhead Research and Dicerna vying to be the next Alnylam.
The following blog entries will give you a quick run-down on my thoughts about the most bona fide, publicly-listed RNAi companies and stocks as well as the most interesting plays in the oligonucleotide therapeutics arena at large.

Alnylam (ALNY)

Love them or hate them, this company and management has stuck to their belief that RNAi is a major drug development platform to support the development of major biotech companies.  Such belief is shown by the fact that Alnylam has long chosen to retain main commercialization rights to their drug candidates while building 100 million $ manufacturing and sales operations around that.  Talk about planning for success!
While this company has recently received most recognition for the outstanding APOLLO data, it has another three (!) drug candidates (Fitusiran for hemophilia, Givosiran for Acute Hepatic Porphyria, and MDCO-partnered PCSK9 inhibitor Inclisiran) for which pivotal phase III data will read out over the next 2 years.

Nevertheless, I suspect that their share price will be largely driven by the launch of Patisiran in 2018. While the base case of ~10k patients on drug seems to be baked into its $13B market cap, there is an upside from the identification of more TTR amyloidosis patients which I feel is quite likely.  And if the amyloidosis, largely heart disease, from wild-type TTR becomes more widely recognized as a significant disease in the elderly along with diseases like Alzheimer’s, TTR amyloidosis alone should be able to support the $30-40B market caps enjoyed by similar niche players like Alexion (àsevere complement-related diseases) and Vertex Pharmaceuticals (àcystic fibrosis).
The main risk is that the competitor TTR drug Inotersen by Ionis will gain a larger market share than is currently widely anticipated, partly because patients prefer the convenience of a simple at-home injection to a day spent in an infusion center every 3 weeks.

I currently view ALNY as the RNAi stock in most need of a breather and am playing the stock from the short side as a hedge for temporary dips in the oligonucleotide and wider biotech stock market.

Dicerna (DRNA)
Long a neglected laggard in RNAi stocks, DRNA has been catching up with the competition with a solid ~200% increase over the last 3 months.

The bullish view of why you might want to ride up the stock further (note: unlike you constantly luck out on binary events, riding a stock up in bull markets is your best bet to make outsized stock market returns) is that DRNA sits now where Alnylam was in 2011/12 when it first demonstrated solid gene knockdown in humans.  It’s been a ~20x return since then. 
Actually, Dicerna’s technology is more advanced than Alnylam’s was back then.  On the other hand, there is now more competition for knocking down genes in the liver which is where Dicerna is focused on almost exclusively.  Still, I love Dicerna as they have a chance to bring two distinct, impactful drugs for severe orphan diseases towards marketing application by 2022 (for primary hyperoxaluria and an undisclosed one).  

A currently diluted market cap of slightly more than $300M is attractive given this realistic opportunity, and in hindsight their widely poo-poo’d March 2017 convertible stock offering now looks like genius as they keep hitting on all the milestones for lowering the inherent cost of the convertible. 
Some of the main 2018 potential catalysts will be (1) the conclusion of the litigation with Alnylam, (2) the disclosure of the second orphan drug candidate and subsequent IND/CTA filing, and (3) positive clinical biomarker data from the hyperoxaluria program.

DRNA is my second largest position along with IONS. 

Arrowhead Pharmaceuticals (ARWR)
While the discontinuation of their DPC-based pipeline was certainly a setback, for the long-term development of the company it wasn’t nearly as dramatic as its once ardent supporters, now harshest critics make it out to be. 
DPC, as illustrated by the cardiovascular deal with Amgen preceding the DPC fiasco, was on its way out and simpler conjugates on their way in as enhanced RNAi trigger stabilization chemistry has been able to close the potency gap with DPC and is now able to provide more sustained gene knockdown.
To play in that area, Arrowhead has been assembling an able, integrated drug development team with a proven track record of quickly advancing drug candidates towards the clinic using best RNAi practices.  Pair that with one, if not the industry’s most commanding IP estates and a proven ability to deal with Big Pharma (à partnering opportunities), I consider Arrowhead as the most likely ‘2nd tier’ company to achieve or even exceed Alnylam greatness.
Look for continued progress of them getting back into the clinic and advances of achieving robust gene knockdown outside the liver.
ARWR has been my largest position for the last few months.

To be continued…

1 comment:

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By Dirk Haussecker. All rights reserved.

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