ProQR Therapeutics- an RNA Therapeutics IPO to Be Enjoyed Responsibly

This week, a new RNA Therapeutics company went public: mRNA repair company ProQR Therapeutics.  This Dutch company from genetics hotbed Leiden sets out to cure severe diseases that are caused by small mutations by repairing the mutations at the messenger RNA level.  First on the list is a treatment for Cystic Fibrosis caused by the 508 deletion.

If Only Science Were Always That Way

The repair is thought to be mediated by the provision of at least two synthetic RNA oligonucleotides (CF4 and CF6 in the image above), a long, modified one (~30nt) with complementarity to the area around the mutation, and a shorter (~10nt), 5’ and 3’-phosphorylated, but otherwise unmodified one of the desired sequence.  Add this to living cells, and hocus-pocus, mutant mRNA is converted into good mRNA.

What makes the publication by Zamecnik et al. from 2004 on which PRO-010 for Cystic Fibrosis is based so amazing, is that by just wishing to repair an RNA and without knowledge of an mRNA repair pathway (note: I’ve considered myself an RNA molecular biologist for close to 10 years, but never came across even the notion of such a mechanism), they obtained the desired results wanted.  Unfortunately, this is not how science works—never. 

In fact, even they considered themselves somewhat lucky, as they had initially thought that the repair first required a third oligonucleotide which by acting via RNaseH mechanism would cleave the target mRNA so that it becomes more amenable to repair ligation reactions.  But when they tried it, it did not make a difference (I would have expected a knockdown), so they stuck with the 2 oligo approach.  Equally amusing was the fact that the phosphorylations were just added for good luck, without any investigation on whether they were useful or necessary.  But as they say, never change a winning team.

Molecular Mechanism Supported Only by Tricky PCR

Most bothersome to me was the fact that the claimed mRNA repair could only be supported after trying out a bunch of PCR amplification reactions, with some reactions suggesting that something might have occurred to the target mRNA. 

As anybody who’s ever work with PCR knows, a lot of strange products are generated during most PCR reactions, either in tiny amounts or less tiny amounts (the infamous PCR artefacts that make lab meetings a fun event).  A related problem is that no conclusions can be drawn from end-point PCRs as used in that seminal paper regarding the amount of these products.  This would have answered the question of whether the phenotypic changes that were reported could be explained by the x % of wild-type CFTR mRNA being generated.

At the minimum, the generation of wildtype CFTR mRNA should have been shown through a hybridization method, not PCR.

Biology’s Best-Kept Secret

As you might imagine, the ability to repair mRNAs with simple oligonucleotides would generate a lot of interest, the type of interest for example that the discovery of RNAi received.   In the case of RNAi, the seminal findings by Tuschl and colleagues that RNAi gene silencing worked in mammalian cells were instantly followed by an explosion of publications harnessing this technology.  Strangely, however, according to GoogleScholar, only 9 papers have cited the mRNA repair publication by Zamecnik et al.  This is explained by most scientists just shaking their heads on reading the publication and then move on, with the more gullible ones failing to reproduce the results.

Laughing All the Way to the Bank

I know that as a scientist I have to be open-minded, but as described above my BS-recognition system, is lighting up bright red.  I  am therefore upset that such science was able to raise $90M in the IPO, valuing ProQR Therapeutics at 300 million dollar- US, not Zimbabwean ones!  On the one hand, I should be glad that financial interest in orphan diseases and RNA Therapeutics is so big right now that this was even possible.  And if you invest according to relative valuations, you will probably do quite well in RNA Therapeutics (Regulus e.g. is worth around the same $300M).  On the other hand, I am always afraid about backlashes from the failures of such companies.  It is therefore important to remember that the qualities of RNA technologies differ vastly in quality from company to company.

If You Like Dicerna, You Will Love This Company

Yesterday, RNAi Therapeutics platform company Dicerna went public and following a wildly oversubscribed offering, popped 200% from the issue price.

It was a day to celebrate for the RNAi Therapeutics sector.  Following years of starvation and neglect, the going public of a private RNAi company marks another milestone in the technology’s recovery and vindicates activities in the early VC rounds seen last year (e.g. Solstice and Arcturus; correction: as rightly noted by Arcturus, the source of Arcturus' early-stage funding was not classical VC funding).  This is because venture investing in biotech really only pays off when the exit is on the public market- and very rarely by means of Big Pharma takeovers.

Sorry Bruce, but planning your company’s on the assumption that they will be Big Pharma takeover targets is flawed as you are dealing with miser companies failing to see the Big picture for their discounted cash flow obsession.  And how can you trust a counterpart which for years have refused to pay small biotechs based on the value of their discoveries and instead preyed on their need of capital, only to cry foul now that the public markets provide a more attractive alternative source of capital to them.

The bullish view: potential

The $700M market cap for a preclinical-stage company, however, does raise some legitimate questions.  Supporting such a valuation is the realization that this is a platform company and that once it has clinically relevant delivery figured out, it can roll out an Alnylam-type broad pipeline in a short period of time.  Or think of a pipeline with not just one Alexion-type drug (one-rare-orphan-drug wonder with a >$30B market cap), but a handful of those. Thus, valuing the company merely based on the number of development products and their development stages would be woefully short-sighted. 

It is obviously a mistake to apply the same risk discount based on the stage of development regardless of technology and drug target.  Hence, once delivery is validated (e.g. through extensive non-human primate experience), you should significantly increase your valuation of an RNAi Therapeutics company that wisely seeks to minimize target risk by taking advantage of RNAi to choose from a plethora of targets.  And under such circumstances when capital and not technology becomes limiting, a capital raise should even increase shareholder value and not be viewed as shareholder dilution.

So if you speculate that Dicerna will have a TTR amyloidosis-type program and will have generated impressive proof-of-concept knockdown in a clinical study by the end of 2015, a $700M market cap would seem acceptable if not on the low end.  

The bearish view: limited de-risking and relative valuation

On the other hand, it seems easy to challenge the view that Dicerna has fulfilled a key criteria for the $700M valuation: clinical de-risking.  

By clinical de-risking, I do not even mean SNALP-type gene knockdown results in humans (e.g. >90% with ALN-TTR02).  By that criterion, an Arrowhead Research, with a market cap similar to Dicerna, would fail the test, too.  However, ARWR's valuation is supported by solid non-human primate efficacy data and human safety data, plus Arrowhead is leading the way in the important area of ligand-targeted polyconjugates (for more on my view on Arrowhead Research and much more, please consult the RNAi Therapeutics Investment Guide 2014).

By contrast, the degree of validation of Dicerna’s delivery system is essentially limited to rodents, although I expect them to have collected at least some non-human primate safety data as they are about to enter clinical development in the first half of 2014.  Non-human primate data is required in RNAi Therapeutics as it has been shown again and again that rodent data often do not translate into humans. 

Accordingly, it can be argued that Dicerna’s lipid-based (Encore) delivery system will be at a similar stage to that of Tekmira’s lipid-based (SNALP) delivery technology 5 years ago.  As Tekmira’s (TKM-ApoB) experience with SNALP illustrates, there can be time-consuming lessons to be learned before a suitable formulation and administration solution are found.  On top of that, Tekmira controls some fundamental patents covering Encore delivery technology (Semple/Wheeler), although their expiration date is certainly approaching fast.

In terms of pipeline strategy, Dicerna and Tekmira are also not all that different either, both of them pursuing indications targeting gene expression in the liver and cancer, with an increasing focus on orphan diseases.  In all respects, Tekmira can be considered more advanced although RNAi companies do not like to talk about their specific orphan indications for competitive reasons.

The analysis thus far has shown that the overall strategies of Dicerna and Tekmira are quite similar, but Tekmira is (much) more advanced in practical terms.

One obvious difference between the companies is the nature of the RNAi triggers employed.  As the name Dice-RNA implies, the company was built on the Dicer-substrate technology that was once pushed by some to be superior in terms of knockdown potency to other RNAi triggers.  I believe I can safely say that most would agree that this is not the case and that the main advantage of Dicer-substrates may be in conjunction with certain conjugation strategies. 

The argument that Dicer-substrate RNAi triggers are commercially so valuable because they are the only alternative to Alnylam’s RNAi trigger IP, is also outdated.  This is because Alnylam has lost its standing in RNAi trigger IP and there have been other developments, such as the issuance of the Baulcombe patents that showed that Dicerna does not have the automatic freedom-to-operate when it comes to its RNAi triggers. 

In an intriguing twist of events, the IPO document (S1) filed by Dicerna with the SEC describes how the fact that Alnylam has acquired the RNAi assets of Merck unexpectedly could have a chilling effect over business development efforts involving Europe.  This is because the opposition has relied on Merck to do the heavy lifting in revoking Kreutzer-Limmer once and forever.  It teaches me to never count Alnylam out as they seem to have always one more Machiavellian move up their sleeves.  And it should hardly surprise you that (according to the S1), yes, Dicerna in 2010 also received a not-so-friendly reminder from Alnylam’s lawyers that it does not have freedom-to-operate.

In addition, as I had observed before, the S1 also describes that Dicerna is not the only one with access to the fundamental Dicer-substrate RNAi trigger IP licensed from the City of Hope, but that Arrowhead Research enjoys similar access.  If Arrowhead Research wanted to hurt Dicerna as a competitor, it could frivolously sub-license the Dicer-substrate IP and thus destroy its scarcity value.  By contrast, Tekmira can play it safe by utilizing the Alnylam-type RNAi triggers to which it has access in addition to usiRNAi triggers which appear to be a simple and cheap way to get around all of the otherwise fundamental RNAi trigger IP.

So what is left to justify the $250M vs $700M market cap difference between Tekmira and Dicerna?  Not much since Tekmira’s relationships with regard to Ebola, ALN-TTR02, Monsanto, and Alnylam (and quite likely more to come...mRNA), easily outweigh the Kyowa Hakko relationship of Dicerna.  

So yes, to come to the point of this blog entry, if you like DRNA, you should love TKMR (which, of course, I own and selfishly choose to promote).      

Drama and Pipeline Revealed in Dicerna IPO Document

The New Year has barely begun and already we see evidence that the strong capital markets interest in the RNAi Therapeutics turnaround story will be a continuing theme this year.  This is because as the fireworks illuminated the skies, hitherto rather secretive VC-backed Dicerna Pharmaceuticals shined some light on its workings in an S-1 filed with the SEC in preparation of an IPO that is anticipated to take place in Q1 2014. 

Although IPO intentions could have been expected based on the funds that participated in the $60M series C this summer and the fact that the biotech IPO window seems wide open, the S-1 makes for an intriguing read as it suggests that Dicerna might have as well filed for bankruptcy instead of an IPO in 2014 and the pipeline around which the company is being built.

Series C amid downsizing and bridge funding

If you do the math, i.e. taking account of the company’s operating cash usage, the $60M Series C, and the $55M on the balance sheet as of October 2013, Dicerna had just run out of money when the Series C happened.  In fact, a $3M bridge loan had to be put into place to keep the company operating until everything had been properly legalized.  Moreover, Dicerna’s operating expenses had been contracting because of a reduction in activities which you can bet means that there had been lay-offs in the 2012-early 2013 period.

Since most of the existing shareholders were able to participate in the Series C, it seems that in addition to some employees, the real losers on the capital side have been the small fry like company founders that lost out big: a 1-to-250 reverse split (ouch!) in common stock occurred in conjunction with the Series C, and even so, the estimated valuation on August 31, 2013 was $3.42.

The latter leads me to guess that the company will attempt to raise on the order of $30M at a $150-200M valuation giving that this would give the company a ~3 year cash runway when added to the current $50M in cash plus the increased expenses that are part and parcel of growing your product pipeline and going into the clinic.

Increased focus on orphan diseases

In addition to being testament to the last-minute nature by which a number of RNAi companies were bailed out by sector clinical results and the generally positive biotech environment, the S-1 also reflects the shift in RNAi and indeed oligonucleotide therapeutics as a whole from cancer Hail Maries (until now, Dicerna was only known to work on oncology candidates) to clinical candidates in the severe orphan disease space with genetically well-validated targets and early biomarker opportunities.

So although LNP-enabled DCR-M1711 for Myc-related cancers should go into the clinic first (2014), the orphan pipeline is catching up fast, with a 2015 IND predicted for DCR-PH1 in primary hyperoxaluria 1.  This candidate targets glycolate oxidase with a liver-directed LNP formulation and proof-of-concept for therapeutic effect has been obtained in rodent models of the disease.  The incidence of this fatal disease is about 8 in a million persons based on natural mutation rates and the fact that the only non-dietary treatment today is a dual liver-kidney transplant…you got it, premium pricing.

Science and IP

S-1 filings also typically allow you to increase your understanding of the competitive dynamics in a field. 

As such, it should be of interest that Dicerna extensively cautioned that Arrowhead Research through Roche has broad access to the core Dicer-substrate RNAi trigger IP from the City of Hope on which it was originally founded (dsRNA with one blunt end and one 2nt overhang on the guide strand and a 25-30 nt sense strand).  Therefore, Dicerna not only lacks exclusivity in Dicer substrate technology (various other Dicer substrates outside of that IP can be envisioned), it also has to share the features of the probably most advanced Dicer substrate version with another company.  One might reason that getting back exclusivity is of greater value to Dicerna than the loss to Arrowhead if it gave up sublicensing rights related to their access.  Yes, a deal could be a win-win here.

Another RNAi trigger-related IP issue that was raised in the S-1 was Alnylam’s Kreutzer-Limmer patent estate in Europe, although yours truly is of the view that the writing on that patent estate is on the wall and at most could mean paying lawyers when the outcome seems so obvious (works well though if your target is low on cash).

The S-1 similarly is consistent with the notion that LNPs will be Dicerna’s preferred mode of delivery for the near future at least.  Since Tekmira’s IP related to LNP composition of matter is very broad if you consider what has worked scientifically in the area, patent infringement concerns might apply.

A happy and prosperous New Year to Dicerna and everyone else, especially those that have given RNAi Therapeutics companies a fighting chance to establish the category as a major drug development platform and themselves as significant, independent pharmaceutical companies. 

Biotech IPOs Show Wall Street Likes New Toys

The biotech sector is white hot these days, and as a result, the IPO window is wide open.  This is illustrated by the fact that preclinical companies like gene therapy outfit Bluebird Bio and Agios Pharmaceuticals have either just slipped through the window or are about to.   This is also illustrated by the fact that Duchenne Muscular Dystrophy (DMD) exon skipping company Prosensa is aiming at a valuation of $400M at its IPO despite the uncertainties around the approvability of its only product candidate that matters (endpoints and safety issues) and for which it has given away much of the financial potential to a Big Pharma (GSK). And the ticker: RNA.

As it relates to gene therapy and RNA Therapeutics companies IPOeing- in addition to Prosensa, small molecule RNA processing modulation Co. PTC Therapeutics and aptamer company Regado- a gap between the valuations of already public companies and those emerging from the obscurity of the private sector is becoming apparent.  Without meaning to talk down on Bluebird Bio or gene therapy, I am scratching my head as to why this early-stage company sports a $150-200M market cap (it priced above its guided range and popped 50% on the open) whereas a much more proven and clinically advanced lentivirus-based gene therapy company, Oxford Biomedica, is not valued at even a quarter of that.  

Given that Oxford Biomedica is developing drugs for medically important indications, especially for those affecting the eye and can be proud of a remarkable preclinical literature record, just as Bluebird Bio can, the difference cannot be product versus platform focus.  Or take for comparison preclinical microRNA Therapeutics company Regulus Therapeutics (2012 IPO) with a market cap of $350M and clinically slightly more advanced Arrowhead Research with a market cap of around $60M (disclosure: I own Arrowhead).   

Instead, I believe it shows the benefit of being able to stay out of the spotlight when valuations are severely depressed as they were in the wake of the housing crisis when research and having a pipeline were actually assumed to be liabilities, not assets.  Companies like Oxford Biomedica and Arrowhead Research may thus be viewed as damaged goods.  Only supposed best-in-class companies in the RNA Therapeutics space with a halo like Alnylam and ISIS Pharmaceuticals were able to decisively spring back from low valuations as sentiments improved.

By contrast, biotech networks such as the one around Third Rock have understood to wrap up biotech companies as exciting new toys for Wall Street to buy.   Orphan drugs anybody?  Of interest, Alnylam’s CEO John Maraganore has had an involvement with both Agios and Bluebird.  I give these individuals full credit for promoting innovation.   By the same token, the depressed valuations of some of the existing innovators are another example of the inefficiency of the public markets.

The Regulus IPO: A Reason to Invest in MicroRNA Therapeutics

Many of you will already have seen it: With little fanfare, Regulus Therapeutics (ticker: RGLS) is now a publicly traded company.  Rather than re-hashing the financials of the IPO and whether the first (depending on whether you count Rosetta Genomics in) public exit was good for the microRNA Therapeutics sector or not, I want to remind readers of one key selling point of the technology, one that I believe explains why Regulus has been so successful in  generating partnership revenues from the likes of Sanofi-Aventis, GSK, and AstraZeneca: microRNAs are a major class of genes and their products can only be targeted by oligonucleotide approaches.

Big Pharma companies are a conservative bunch and small molecules habits die hard.  While the industry has embraced monoclonal antibodies with all their benefits, but also warts, oligonucleotide therapeutics are still considered outcasts in the industry.  Maybe a therapeutic area group in Big Pharma will take a look at it when nothing else seems to work (hello respiratory disease groups).   While this could change given therapeutic (and vaccine) oligonucleotide candidates in TTR amyloidosis (Alnylam and ISIS/GSK), HBV (Dynavax), and hypercholesterolemia (mipomersen/ISIS) and the excitement around the exon-skipping drug candidates from Prosensa and Sarepta, the precise timing of a lasting turnaround in sentiment would probably depend on whether and when sales of any of these potential products really take off.  Money does not smell to Big Pharma either.  But until then, it's likely to continue being a roller-coaster ride.

Despite falling in the oligonucleotide therapeutics category and despite being younger and technically less validated, microRNA Therapeutics have an important marketing advantage over RNAi and RNaseH antisense.  Unlike RNAi and RNaseH which often have to hide in the ‘undruggable’ space, i.e. in addition to the desperate research groups they may be considered by Big Pharma if small molecules and monoclonal antibodies cannot address a biologically attractive target, microRNA Therapeutics do not stand in such direct competition.  Biologically too important to ignore and implicated in many diseases, oligonucleotides, at least for the foreseeable future, are what it takes to tap this critical group of genes.  

Because of that, I expect industry interest (= partnership $$$) in microRNA Therapeutics, and as a leading company in that area, in Regulus Therapeutics, to be less volatile than what has been the case for its two older siblings.  Having a strong balance sheet, should also help in that regard.  So welcome, Little Emperor, to the public markets.