Dicerna Pharmaceuticals, Inc.
Q4 2016 Earnings Call Transcript

Published: 30 Mar 2017

[Operator:]

Good day, ladies and gentlemen. Welcome to the Dicerna Pharmaceuticals Fourth Quarter 2016 Earnings Conference Call. At this time, all participants’ lines are in a listen-only mode to reduce background noise. But later, we’ll be holding a question-and-answer session after the prepared remarks, and instructions will follow at that time. [Operator Instructions] As a reminder, today’s conference call is being recorded. I would now like to introduce your first speaker for today, Melody Carey. You have the floor, ma’am.

[Melody Carey:]

Thank you, Andrew. Good afternoon, and welcome to Dicerna’s conference call to discuss the company’s 2016 fourth quarter and year end results. For anyone who has not had a chance to review our results, we issued a press release after the close of market today, which is available under the Investors & Media tab on our website at www.dicerna.com. You may also listen to this conference call via webcast on our website, which will also be archived for 30 days beginning approximately two hours after the call is completed. I’d like to remind listeners that management will be making forward-looking statements on the call today, related to the company’s future expectations, plans and prospects that constitute forward-looking statements for the purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of Form 10-K filed with the SEC today. In addition, any forward-looking statements may represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so if our views change. Now, I would like to turn the call to Douglas Fambrough, Dicerna’s President and Chief Executive Officer.

[Douglas Fambrough:]

Thank you, Melody. Good afternoon and thank you all for joining us this afternoon. With me today is Jack Green, our Chief Financial Officer and Bob Brown, our Chief Scientific Officer. Before I review our 2016 results, let me just touch on today's financing announcement. As most of you have now seen, we were pleased to report the signing of a securities purchase agreement with a syndicate of seven investors led by Bain Capital Life Sciences to raise $70 million in a convertible preferred stock offering. Combined with the cash on hand, the financing which is expected to fund on or before April 11, 2017 significantly strengthens Dicerna’s balance sheet, removes a near term overhang and will allow us to comfortably advance our novel pipeline of RNAi based therapeutics through value-creating inflection points in 2018 and 2019. I want to say that we are delighted with the exceptional caliber of firms participating in this financing, half of whom are new to the Dicerna story. Further we are privileged to have Bain Capital Life Sciences as lead in this transaction and are pleased to welcome to our Board of Directors Dr Adam Koppel, Managing Director at Bain Capital Life Sciences and one of the healthcare industry's most prominent investors. Our ability to complete this critical transaction further validates the strength of our proprietary gene-silencing GalXC technology and its potential to generate a range of new therapies for diseases involving the liver. Jack will provide additional color on the financing during his formal comments. Now turning to our results. As you know, 2016 was a very important and pivotal time for Dicerna. During the year we implemented a key strategic shift to focus 100% of our efforts on harnessing the power of our proprietary GalXC technology platform in order to drive our drug discovery and development efforts going forward. The fully optimized GalXC platform is allowing us to develop innovative subcutaneously-delivered RNAi based pharmaceutical candidates capable of silencing any disease causing gene in the liver. Our pipeline continues to be focused on compounds for rare diseases, cardiovascular diseases, viral infectious diseases, and chronic liver diseases. We are confident that with the power of GalXC we can develop a broad pipeline of drugs with tangible competitive benefits. As we stated on earlier calls, these include strong potency, exceptional specificity to a single target gene, high therapeutic index and the ability to provide for infrequent patient dosing among other benefits. With the power and performance of GalXC we believe we have very strong opportunities for growth. As a reminder, our strategy is two pronged. First, our internal efforts are aimed at developing drugs for rare diseases that are genetically and molecularly defined and have high unmet medical need and offer efficient development paths with high probabilities of success. Compounds falling into this bucket are those for which we intend to retain full or substantial rights. The first of these is our lead product for the treatment of primary hyperoxaluria type 1 or PH1, named DCR-PHXC as well as a second candidate for an undisclosed rare disease and these also make up the first two GalXC based INDs we intend to file. Looking for a moment at PH1, this is an ultra orphan disease which statistics show affects approximately 2000 people in the United States. The condition involves an inborn error of metabolism in which the liver over-produces oxalate, causing severe kidney damage in the vast majority of cases. Presently the only therapeutic option for patients with PH1 is a dual kidney liver transplant which itself offers a five-year survival rate of only 64%. Absent that, the disease often proves fatal for patients. Driven by preclinical data in which a single five milligram per kilogram subcutaneous dose of DCR-PHXC reduced oxalate production to near normal levels in the mouse genetic model of PH1, reversing the disease condition and silencing target gene expression by greater than 90%. We are hopeful that DCR-PHXC may yield superior efficacy versus other drugs in development for this indication. It may therefore represent a best in class program. We have advanced DCR-PHXC IND enabling studies and are on track to file an IND and/or CTA by year end. Initiation of human proof of concept trials should occur shortly thereafter, likely during the first quarter of 2018. I also want to remind investors that we have continued to advance our primary hyperoxaluria observational study called PHYOS which is collecting data on key biochemical parameters implicated in the pathogenesis of PH1 and which has enrolled a total of twenty patients. We will use this data to better understand the baseline PH1 disease state which as noted in earlier calls will help guide our long term development plans, including patient recruitment for DCR-PHXC. Moving on, during the fourth quarter of 2016 we formally launched development of a GalXC based therapeutic that targets a liver express gene involved in another rare disease. While we are not disclosing the indication at this time, the target gene and disease are a good fit for our criteria, providing a solid therapeutic hypothesis, readily identifiable patient population with a high unmet medical need, availability of a potentially predictive biomarker, favorable competitive positioning in what we believe is a rapid projected path to approval. An IND is expected to be filed during the second quarter of 2018 and again this is a program for which we intend to retain full or substantial rights. The second leg of our strategy involves pursuing partnerships for those programs that address complex diseases with multiple gene dysfunctions and much larger patient populations and where the probability of success is also quite high. The thought process here is that we may partner such programs as late as after completions of phase one human proof of concept studies. These include DCR PCSK9 for the treatment of hypercholesterolemia and DCR HBV for treatment of hepatitis B virus, both addressing potentially multibillion dollar markets. As those who follow the industry closely know, PCSK9 is a well validated target for hypercholesterolemia and FDA approved therapies currently on the market utilize monoclonal antibody technology. Based on our preclinical studies, however, we believe that our GalXC RNAi platform has the power to produce a more commercially attractive PCSK9 targeted therapy, requiring smaller subcutaneous injection volumes, less frequent dosing and the ability to provide equal or superior control of serum cholesterol. Based on our work during the fourth quarter of 2016 we are positioned to advance DCR PCSK9 into formal pre-clinical development. Concurrently we are using our GalXC platform to investigate potential pharmaceutical treatments for HBV. Because current therapies rarely lead to a long term immunological cure as measured by the clearance of HBV surface antigen or HBsAg, the need exists for an alternative therapeutic option. Here again based on our preclinical studies, we believe that the GalXC platform should be able to produce an experimental HBV targeted therapy that eliminates HBsAg expression in HBV patients and can be delivered in a commercially attractive subcutaneous dosing regimen. Based on our candidate development work during the fourth quarter we are positioned to advance DCR-HBV into formal pre-clinical development. In terms of partnerships for both our PCSK9 and HBV programs, as we stated previously, our goal is to partner these programs at a stage where the terms of a collaborative deal or deals fairly reflect each asset value to Dicerna and its shareholders. In the more immediate term as you know we have been in very active discussions with a number of interested parties for discovery stage partnership, that is for indications that may be more speculative in nature. This would include targets within chronic liver disease such as NASH and fatty liver disease, as well as several within the cardiovascular disease space. I want to reiterate that we are extremely focused on securing such partnerships both to fully exploit and leverage our technology and as an integral part of our ongoing funding strategy. I will now turn over the call to our Chief Financial Officer Jack Green. Jack?

[Jack Green:]

Thanks Doug. Before I review the key financial results for the fourth quarter and year ended December 31, 2016, let me provide some additional commentary on the financing we announced today and also refer you to our 8-K filed with the SEC. As Doug noted, we are pleased to have entered into a stock purchase agreement with a syndicate of new and existing investors led by Bain Capital Life Sciences to purchase 700,000 shares of convertible preferred stock, gross proceeds of $70 million. The preferred stock will be convertible into common shares at a conversion price of $3.19 per share. We can require the conversion -- we can require conversion if the price of the common stock exceeds $6.38 per share for 45 of 60 days after the achievement of specified business and commercial and clinical development milestones. The preferred shares carry a cumulative annual dividend of 12%, payable in stock which can be reduced upon the achievement of the same milestones. Each of these events would reduce the dividend rate by 400 basis points. So if both were achieved the dividend would be reduced to 4%. Under the terms of the financing we are expanding our Board of Directors by one seat to a total of nine, and as Doug has mentioned we are pleased to add Adam Koppel to our board, upon closing of the transaction. Bain is among the world's foremost investment managers and we look forward to their insights and guidance as we progress our clinical program’s overall strategy. This transaction represents a significant corporate milestone for Dicerna, as Doug has also noted. This will allow us a greater runway with which to advance our pipeline of novel RNAi-based therapeutics while creating value for our shareholders. I’d now like to briefly summarize the key financial results for the fourth quarter and the year ended December 31, 2016 and direct you to our 10-K filing for additional details. In the fourth quarter of 2016 the company had a net loss of $14 million or $0.68 per share, compared to a net loss of $15.6 million or $0.76 by per share for the same period in 2015. For the full year of 2016, the company reported a net loss of $59.5 million or $2.87 per share, compared to $62.8 million or $3.09 per share in 2015. Research and development expenses were $9.3 million for the fourth quarter of 2016 compared to $11.3 million for the same period of 2015. The decrease was primarily due to lower spending in discovery and early development and to cost reductions associated with the wind-down of our DCR-PH1 and DCR- MYC clinical development programs which we announced during the third quarter of 2016. For the full year of 2016, R& D expenses totaled $41.7 million compared to $44 million in 2015. The decrease was primarily due to lower spending in delivery and early development for our LNP programs as these programs advance into manufacturing and clinical testing before those studies were discontinued. This was partially offset by additional preclinical studies -- this was partially offset by additional preclinical studies for the new GalXC platform as well as increased employee and facility-related expenses. General and administrative expense for the fourth quarter of 2016 totaled $4.9 million, compared to $4.4 million for the same period in 2015. The increase was primarily attributable to higher legal costs, partially offset by lower payroll related expenses. G&A expenses for the full year of 2016 were $18.3 million compared to $19.2 million in 2015. The decrease was primarily due to lower employee related costs, partially offset by an increase in professional fees related to legal costs. As of December 31, 2016 we had $45.9 million in cash, cash equivalents and held to maturity investments, compared to $94.6 million as of December 31, 2015. In addition, we also had $1.1 million of restricted cash on the balance sheet which reflected collateral securing our facility lease obligations. In the fourth quarter of 2016 we utilized $11.7 million of cash in operations. Finally, we anticipate that our current cash along with expected proceeds from the convertible preferred financing will be sufficient to fund the execution of our current operating plan into 2019 as we focus our resources on advancing our first three development programs through proof of concept studies and a fourth program into formal pre-clinical development, excluding any additional funding from new partnership agreements. More details of the financial information and analysis for 2016 may be found in the company's annual report on Form 10-K which was filed today with the SEC. I’d now like to turn the call back over to Doug.

[Douglas Fambrough:]

Thank you, Jack. Before opening it up to questions, I'd just like to thank our existing investors who are participating in this latest financing for their ongoing support and to express our thanks as well to Bain and our other new investors for their belief in our management team and the potential power of the GalXC platform. We look forward to keeping you updated on all our efforts, including pipeline development and partnership opportunities and with that let's open it up to questions. Operator?

[Operator:]

[Operator Instructions] Our first question comes from the line of Eun Yang from Jefferies.

[Unidentified Analyst:]

Hi, this is Carmine [ph] on for Eun. Thanks for taking the questions. So first, you mentioned that there has been some interest in discovery staged partnership. Could you comment on what kind of structure you would want to see in that type of partnership and also have there been any discussions around partnership of the PCSK9 or HBV assets?

[Douglas Fambrough:]

Hi. Yes, so I can speak in general terms about basis of our conversations and I won’t surprise you that we are talking about very traditional structures for our industry involving upfront payment, milestones and royalties where Dicerna would be responsible for the discovery and optimization of the GalXC based clinical candidate. And then during development through pre-clinical and early clinical studies there would be a transition point where the molecule switch over to a partner being responsible for development. The bulk of our active marketing to the pharmaceutical industry is in the category of targets where we are more speculative and perhaps lower probability of success, some of the more novel cardiovascular disease targets and chronic liver disease targets, we have not been actively marketing PCSK9 and HBV asset. That said, having publicly announced those efforts and having publicly discussed the performance characteristics of the GalXC platform we have had inbound interest associated with those assets and per our strategy we may partner them as late as Phase 1 proof of concept. But if the terms are appropriate we would consider an earlier deal as well but that is not the focus of our outgoing efforts.

[Unidentified Analyst:]

And then one more, could you elaborate on what kind of IND enabling studies remain to be completed before the filing for DCR-PHXC at the end of the year?

[Douglas Fambrough:]

We’re engaging in a very fulsome IND-enabling campaign in order to enable as rapid and broad clinical development program as possible. But it all falls within the very conventional realm of IND enabling studies, two species of toxicology studies et cetera. Those studies take what they take and the FDA requirements are what they are, so this tends to be period of time that's fairly constant between different organizations going through the process and we should be able to wrap it up and get the filing done in Q4.

[Operator:]

Thank you. Our next question comes from the line of Stephen Willey from Stifel.

[Stephen Willey:]

Yeah good afternoon. Thanks for taking my questions and congratulations on the financing. I guess, Doug, you said that you now have I guess -- I think it was 20 patients enrolled into PHYOS and I guess I'm just wondering if there's anything from kind of an observational perspective, that you’re collecting out of that study that is somehow giving you either some novel insight into the course of disease progression and I guess whether or not any of that insight is kind of allowing you to refine some of your development plans or at least in the early stage?

[Douglas Fambrough:]

Steve, I think the most crucial data that we're developing is a look at the stability of the baseline biomarker data -- the glycolate and oxalate levels in plasma and urine specifically, that those levels have not historically had good horizontal data so to speak about their stability and have been the subject of variability in past studies, where when one reviews those past studies it's not entirely clear whether the variability is in fact real variability or methodological variability associated with collection, shipping, storage, assay et cetera. By having a fairly broad number of patients and having them on observation for a significant amount of time and consolidating the methods and analytical location et cetera, I think we're achieving a dataset on stability of those measurements that is otherwise not available to anybody. And that does figure into the design of the clinical trials because it sets an expectation about baseline where we will be comparing biomarker measurements treated to their baseline levels. Bob, do you want to add anything about that?

[Bob Brown:]

I think that covers it completely. It's going to allow us to have an expectation of what cause it to significant knockdown due to our drug effect.

[Stephen Willey:]

And then I guess maybe just going back to the partnering strategy, I guess you’ve highlighted PCSK9 as being a potential asset specific deal. You've obviously also talked about there being an opportunity to do kind of a platform focused deal in the cardiovascular space. And I guess just wondering if you think that there could possibly be a deal structure whereby those two things are converged into the same type of collaboration or into a collaboration that's kind of all encompassing with one partner whereby you provide PCSK9 and in doing so provide additional optionality or other CV targets of interest.

[Douglas Fambrough:]

I mean certainly that, a structure like that could be logical, for example, a deal that's focused on cardiovascular that rolled in were speculative discovery stage targets and PCSK9 but when we talk about partnering PCSK9 we’re usually discussing it to explain our strategy. And that we have selected this program for internal resourcing through at least phase one clinical development. Because it's a high probability of success asset and that by investing in development of that asset we may, we believe, generate a very good return on investment for that capital that we invest in the asset. And that partnering it with clinical data may be the highest value point for us to do that. And consequently it's not what we actively market to pharma and to the extent we talk about it it's due to incoming interest. So I don't want there to be an expectation that we are trying to achieve partnership on that asset at this time. I just want to explain how it fits into our longer term strategy but one is opportunistic in this business, is the interest was there.

[Operator:]

[Operator Instructions] Our next question comes from the line of Madhu Kumar from Chardan Capital.

[Madhu Kumar:]

Thanks for taking my question. So first one relates to the natural history study; is there any plans to report the data from the natural history study at any upcoming conferences this year? Then I have a follow-up question after that.

[Douglas Fambrough:]

Yes, there will be a presentation of the data we expect this year from the PHYOS study around the middle of the year.

[Madhu Kumar:]

And so then thinking about human efficacy and PH1, or more generally on orphan diseases, what kind of a window do you think is there for differences in knockdown being phenotypically different, are you really waiting for the natural history dose study to really get a good sense of where the gaps could emerge?

[Douglas Fambrough:]

Based on the pre-clinical models of the disease we do understand a clear relationship between target knockdown and improvement in molecular markers like oxalate levels and changes in glycolate, if those systems translate to patient setting we will know what we're looking for but that will rely on there being a clean translation into the human system. End of Q&A

[Operator:]

Thank you. Looks like we have no other questioners in the queue at this time. So I'd like to turn the call back over to Douglas Fambrough for closing comments.

[Douglas Fambrough:]

Thanks everyone again for your attention today. We look forward to speaking again in this forum in another quarter and perhaps in other forums earlier. Thanks.

[Operator:]

Ladies and gentlemen thank you again for your participation in today's conference call. This now concludes the program and you may now disconnect at this time. Everyone have a great evening.