Monday, April 23, 2018

Dicerna Focuses Operations Following Settlement With Alnylam

Last Friday, Dicerna and Alnylam announced that they had settled all ongoing litigation between the parties just as the acrimonious fight was about to court. 

Settlement terms
As part of the settlement, Dicerna will pay Alnylam $25M in stock and cash and drop its anti-competitive practices counter-suit against the RNAi behemoth.  In addition, Dicerna has agreed to not pursue certain targets/indications (see discussion below).  In return, Alnylam will drop its trade secret lawsuit it had filed on grounds of suspected GalNAc-conjugate trade secret misappropriation in the wake of Alnylam’s acquisition of the Merck RNAi assets in early 2014.

Litigation background
Allegedly, ex-Merck employees who had been hired by Dicerna had taken along competitively advantageous information that Alnylam claimed that it paid for.

Personally, given the timing and fuzziness of the litigation, I had always believed that Alnylam primarily filed the lawsuit to drain a much smaller, but direct competitor of vital financial resources.  In particular, even if these ex-Merck employees took with them information important to Alnylam, Merck obviously didn’t protect such knowledge as expected for trade secrets.  Moreover, Dicerna’s application of GalNAc-RNAi conjugate looks extremely different from that of Alnylam.  Even a more negative outcome should therefore not have adversely affected Dicerna's ability to further develop its technology.  

Coming out from underneath the litigation cloak
Still, this strategy had almost worked out.  Ironically, it was Alnylam’s own success in the clinic (à primarily Patisiran phase III APOLLO data last fall, but also GalNAc-related data) that had provided Dicerna stock with sufficient strength for the company to be in a position to ward off the existential threat posed by the litigation: $25M just 15 months ago would have been a mortal blow to ~$50M market cap minion Dicerna.  Today, the $600M market cap makes the $25M almost immaterial.

Nevertheless, based on the extremely bullish market reaction to the deal (up close to 40% following announcement of the settlement before settling the day at +18%), I believe that an important facet of the deal has been widely underappreciated.  Specifically, the fact that Dicerna had to agree not to pursue certain targets could completely change the face of this company. 

'Dicerna will be restricted in its development and other activities relating to oligonucleotide-based therapeutics directed toward a defined set of Alnylam targets, for periods ranging from 18 months up to four years.'

Instead of a broad pure-play GalNAc RNAi company, Dicerna now probably needs to be considered a 5-or-so development candidate company for which the end game will be its sale to a larger company.  Except for the long-promised deal on the mystery candidate (AAT?), this reduces expectations for future strategic blockbuster deals.

Disclosure: Especially in light of the target selection restrictions, I view the settlement as incrementally negative for Dicerna and expect the market to realize the same soon.  Following Friday's strong move to the upside, Dicerna is a short-term conviction short with a $10 near-term price target.  Also expect Alnylam to sell the 2M million Dicerna shares almost as soon as it receives them (please read comments section below for correction).  Long Alnylam.


Dirk Haussecker said...

Thank you for the note. Clearly lessens the value of the stock consideration, unless they were allowed to short last Friday ;).

Anonymous said...

You do know that the scientist that developed Galnac for ALNY originally worked for Ionis ....... JM must be thanking God for the IP agreements that he signed with Ionis some 10 years ago

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