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 2^nd 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 ‘2^nd 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…

RNAi Therapeutics Investors Are Getting More Selective

The recent share price performances of RNAi Therapeutics companies have confirmed that clinical data have become the critical new bar for investors. Even discounting the fact that biotech in general has performed well this year, it is clear that the SNALP-enabled clinical phase I results for ALN-TTR01 (transthyretin amyloidosis) and ALN-PCS02 (hypercholesterolemia) have had the desired impact on the share prices of Tekmira and Alnylam: +57.5% and +73.5% increases since the ALN-TTR01 results were announced in November ’11, respectively. Moreover, the recent $80M+ financing by Alnylam, and to a smaller degree the $4M private placement by Tekmira, underline that new money is flowing into these companies.

Other companies have had a harder time. In fact, with the market capitalizations of Marina Biotech and microRNA Dx company Rosetta Genomics reaching a point where the companies become increasingly unsustainable, and Galena (formerly known as RXi Pharmaceuticals) ridding itself of its RNAi Therapeutics heritage, the shake-out in the field of the publicly traded RNAi Therapeutics-related companies has only intensified. Consequently, aside from Tekmira and Alnylam, the most significant remaining public RNAi Therapeutics companies are Silence Therapeutics, Arrowhead Research, and Benitec. To what degree they can be joined by the likes of Quark, re-surrected RXi Pharmaceuticals, or Calimmune remains to be seen as not too long ago, RNAi IPOs were all but unthinkable.

Here a quick run-down of the companies:

Tekmira: SNALP systemic delivery technology has emerged as the major value driver in the industry. Overly focused on technical progress rather than brand building, Tekmira is still fighting with a market perception that because it’s market cap is so small (<$40M), Alnylam must rightfully have full ownership of Tekmira’s technology. Especially the analyst community has largely been ignoring their position, but it looks like the courts are starting to see through Alnylam’s strategy (e.g. here). The recent financing will give Tekmira some breathing room albeit at the cost of further dilution. Besides the litigation, additional clinical results from the TKM-PLK1, TKM-EBOLA, ALN-TTR, and ALN-PCS02 programs expected this year will be critical to Tekmira shareholders.

Alnylam: Good clinical execution with its new crop of SNALP-enabled therapeutic candidates. One year after announcing 5x15^TM, the company has become much more narrowly focused on introducing only a select few products in the market itself. This, and the recent financing, could be interpreted as preparing for a potentially adverse outcome to the Tekmira litigation, but it is also a structure that will allow the company to sell itself more easily. This is in stark contrast to the strategy of antisense partner/competitor ISIS Pharmaceuticals which has stretched itself out onto so many different therapeutic areas and partnerships that it is difficult to see that company being acquired any time soon.

The successful offering has confirmed once again that Alnylam is well connected in the biotech financial machinery. After receiving upgrades and (re-)newed analyst attention from the likes of Leerink Swann (!- because of the infamous 2008 report on the company), MLV, and Rodman and Renshaw, the company reciprocated by letting them all participate in the offering. As a shareholder of Tekmira, this to me is frustrating as these analysts would never say a critical word about Alnylam’s position with regard to the Tekmira litigation. And, of course, the legal process is not exactly fair when a cash-rich company apparently does its best to delay the litigation so that it can financially outlast its ‘small’ opponent.

Continued positive clinical results will be important to extend the positive trend in ALNY, but all bets are off as we approach the late October 2012 trial date with Tekmira.

Arrowhead Research: The company arguably made a good deal with the acquisition of the Roche RNAi Therapeutics assets for a few pennies on the dollar originally paid by Roche. Critical to the success of that company will be how quickly DPC delivery technology is ready for clinical development. The absence of peer-reviewed non-human primate data and knowledge of how advanced DPC manufacturing is increases the risk that the DPC-enabled HBV program may take longer to enter clinical development than hoped for.

Silence Therapeutics: Following promising phase I data with Atu027 for solid cancer and positive developments on the IP front, recent developments were not so positive. Most discouragingly, Thomas Christely unexpectedly resigned after only a short stint as the CEO. In the absence of any cogent explanation besides the usual ‘personal reasons’, one may come to the conclusion that after the 6-month data delay with Atu027 and the apparent failure to extend the critical AstraZeneca and Dainippon Sumitomo collaborations, another painful round of dilution may be inevitable.

Benitec: The fortunes of that company are looking up as Gradalis and Calimmune are progressing their ddRNAi Therapeutics products. Just this morning, Benitec announced that Calimmune has taken a non-exclusive license to Benitec’s ddRNAi IP for HIV/AIDS. It is critical to Benitec’s strategy to make sure that the early ddRNAi candidates that are in or close to the clinic are licensed under their IP. As its fundamental Graham IP matures, however, it will have to wean itself off its focus on IP and instead execute on product development. Particularly the pain program looks promising here.

Marina Biotech and Rosetta Genomics: With their tiny market caps of $2.5-5.0M, it becomes increasingly difficult to further justify their coverage. It’s a pity because some of their technologies have some value. The erratic strategies of these companies, however, seem to have destroyed all investor confidence.

ISIS Pharmaceuticals: The topline data evidence is quite strong that ISIS RNaseH antisense can knock down genes in the liver, kidney, some cancer, and possibly other tissues in the clinic. Safety and tolerability issues and other delays, however, seem to still come up with regularity when it counts and only by presenting the full dataset can it be determined whether continuously high phosphorothioate concentrations, particularly following systemic administration, are sufficiently well tolerated for broad clinical use. In terms of technical progress therefore, the corresponding liver and kidney concentrations at which a knockdown is achieved is a key parameter to watch going forward.

If mipomersen does not get approved for anything beyond hoFH and/or does not sell well, the company’s strategy of giving away value early in development could start to hurt as it will be some time until another in-house development candidate can reach regulatory approval.