In More RNAi Demand, Preclinical Dicerna IPO Piques Investor Interest

The biotech took advantage of rising investor interest in RNAi to pull off a heavily oversubscribed IPO.

Even in a relatively open market for biotech initial public offerings, Dicerna Pharmaceuticals Inc.’s debut on Jan. 29 raised eyebrows across the board. The stock more than tripled in its first day of trading, making it the largest post-IPO pop since 2000. Demand for the offering was almost unprecedented with over $1 billion in orders—all for a pre-clinical RNAi play.

Dicerna is in part riding on the momentum created by the RNAi-validating, $700 million deal between Alnylam Pharmaceuticals Inc. and Sanofi’s Genzyme unit that stole the show at January’s J.P. Morgan Healthcare conference (Also see "How And Why Genzyme And Alnylam Expanded Their Alliance" - Pink Sheet, 20 Jan, 2014.). It also highlights the ability of crossover investors to command a large portion of IPO shares and to help transition a company to the public markets.

Interest in RNAi had been growing going into that deal. In mid-2013, investors recapitalized another RNAi company Arrowhead Pharmaceuticals Inc., enabling it to climb out of the micro-cap ranks on the strength of a $36 million financing in May that was followed by another $60 million infusion in October.

“Given the strength of Alnylam, Arrowhead and RNAi generally, in the fall last year, we decided that it might make sense to bring the company public to access additional capital,” Michael Brinkman of Jefferies said in an interview. Jefferies was the lead left banker on the Dicerna IPO.

“It’s a technology platform in a space that’s been very well validated recently. It’s an area that’s of great interest to investors, with a focus on orphan indications of the liver. With Alnylam and Intercept Pharmaceuticals Inc., that’s been a very successful space. The lead liver opportunity for DCR-PH1 seems like an untapped, very serious orphan disease where their approach makes perfect sense for RNAi and seems like a very tractable opportunity,” he said . Intercept rose more than 500% in a few short days in early January on an early trial stop for efficacy .

But there isn’t much in the way of near-term milestones to support the stock. Dicerna anticipates advancing DCR-M1711 for cancers driven by the MYC oncogene into the clinic in the first half of 2014, with proof-of-concept data in mid- to late 2015. It also expects to start clinical trials for a treatment of primary hyperoxaluria in 2015, with proof-of-concept data due in mid to late 2015.

2014 Biotechnology Initial Public Offerings, By Date
Offer Date	Company Name	Description	Amount raised (millions)	Change In First Trading Day
2/6	Argos	Immunotherapy	$45	7%
2/5	Egalet	Abuse-resistant pain	$50	0%
2/5	Revance	Non-injectable botox	$96	68%
2/5	Eleven	Ophthalmic	$50	9%
2/4	Acucela	Ophthalmic	$162	NA*
2/4	Auspex	Orphan diseases	$84	31%
2/4	Biocept	Oncology diagnostics	$19	-6%
2/4	Genocea	Vaccines	$66	-8%
2/4	uniQure	Gene therapy	$92	-14%
1/30	Cara	Pain	$55	17%
1/30	Trevena	GPCR biased ligands	$65	-7%
1/30	Ultragenyx	Rare genetic diseases	$122	101%
1/29	Celladon	Heart failure	$44	2%
1/29	Dicerna	RNAi	$90	207%
1/9	GlycoMimetics	Sickle cell and cancer	$56	13%
Source: Renaissance Capital and company information

Attractions Of Dicerna

Peter Kolchinsky of RA Capital Management – which recapped Arrowhead and invested in Dicerna – sees a lot of room for companies to establish themselves in RNAi. And he anticipates more big biopharmas will be looking to do RNAi deals. Kolchinsky sits on Dicerna’s board.

“People are waking up to the idea that RNAi is like antibody technology. It’s going to be a modality with broad clinical application, almost unimaginably so when they crack delivery to organs besides the liver,” he said in an interview, "but compare this space to the prolific antibody field which yielded dozens of wins for investors, whether platforms like Regeneron or single antibody companies like Alexion, and the investment options in RNAi seem pretty sparse for a technology with such potential."

“It makes a lot of sense to own Dicerna and Arrowhead after the Alnylam deal with Sanofi. Now Alnylam has even less incentive to bother with smaller deals. Someone shopping for RNAi assets will find far more receptive companies in Dicerna and Arrowhead, which are valued at a roughly 90% discount to Alnylam. A lot of what they are doing is still preclinical, but thanks to Alnylam's repeated successes in the clinic, liver-targeted RNAi is looking increasingly more straightforward.”

Before Dicerna, the most recent preclinical biotech IPO that also triggered a lot of investor enthusiasm was for cancer stem cell play Agios Pharmaceuticals Inc. in May. In September, Agios entered the clinic with AG-221 to treat advanced hematologic malignancies with an isocitrate dehydrogenase-2 (IDH2) mutation. The biotech has also advanced AG-120, part of its IDH1 program, into the clinic and on Feb. 3 said it would retain U.S. rights under its deal with Celgene Corp. Agios is well-off its $44 per share 52-week high achieved during J.P. Morgan, but at $28 it’s still up 55% from its $18 offer price.

Dicerna’s initial pop has also settled a bit, bringing its gains down closer to twice, rather than three times its offer price. That impressive early response raises questions of whether or not the company left too much money on the table.

Getting The Deal Done

The biotech originally targeted a $60 million raise, but by increasing the share price to $15 from an originally proposed range of $11 to $13 and raising the number of shares sold to 6 million from 5 million, it ended up raising $90 million [See Deal]. That’s before the overallotment, which could add another $13.5 million. The company was targeting about $100 million, but didn’t want too much dilution or to over-price the deal for insiders, who took half of IPO shares.

“Dicerna wanted a deal that would trade well, that would make money for new investors and also give their insiders at least half of the stock because of the strong interest around the table. They wanted to manage dilution and keep to a $100 million raise; this gives them more than enough capital to execute on their business plan,” said a source familiar with the deal.

Last July, Dicerna did a $60 million Series C round at $7 a share with crossover investors RA Capital, Deerfield Management and Brookside Capital Partners as well as venture capitalists Domain Associates, Skyline Venture Partners, Abingworth Bioventure, S.R. One and Oxford Biosciences Partners.

The growing influence of crossover investors was also apparent. A limited number of crossover investors have been doing private placements pre-IPO and then participating in IPOs. Brinkman expects to see more of these, however, to allow predominately public investors to get in ahead of an IPO thereby securing larger positions.

“Crossover private placements are an important trend. That model seems to be working very well. I expect a rapidly increasing number of transactions and new public investors to get involved in pre-IPO financing. They have been very rare, but I expect their ranks will rise dramatically,” he said (Also see "From Public To Private, Crossover Investors Are Back In Biotech" - Scrip, 26 Nov, 2012.).

He concluded, “If you want a big share of an IPO, you better get in pre-IPO. In these hot deals, the biggest allocations are in the low multi-million dollar range and many funds are getting much less. If you want big participation, you have to get in early.”