Is Dicerna Pharmaceuticals Stock A Buy?

Dicerna Pharmaceuticals, Inc. (DRNA) is a clinical stage pharmaceutical company focused on developing new medicines and treatments for a wide range of diseases using RNA interference (RNAi) technology.

Dicerna’s Pipeline and Strategy

Dicerna made the strategic decision to develop its products through one of two methods, by either pooling resources and expertise with other pharmaceutical companies – often with complex diseases where patient populations are large and there is a high number of gene pathways involved in the illness at play – or by keeping its work in-house, usually focusing on treatments targeted at rare diseases with fewer patients – or diseases that have simpler and less costly therapeutic modalities.

One benefit of this approach is that it de-risks the company from many of the pitfalls typically associated with the drug development process. For instance, there is greater commercial and developmental risk attached to the treatment of more complex diseases because of the diminished likelihood of FDA approval, and also the fact that there are usually many other rival firms working on the same problem, thus diluting the potential market if a drug is indeed successful.

And, as Dicerna is normally the smaller party in these partnerships it can insulate itself from the heavy resource expense of the research process – but also gain from the upside of future royalties, all the while benefiting from cash milestones as the drug is still being developed.

Featured Projects

Dicerna teamed up with Novo Nordisk (NVO) in 2019 to work on several potential drug projects aimed at treating diseases such as chronic liver disease, diabetes, nonalcoholic steatohepatitis and obesity.

Earlier this year, the collaboration led to Novo nominating its first GalXC RNAi candidate, which triggered a milestone payment to Dicerna of $2.5 million, and promised $25 million annually for further delivery of RNAi molecules for the next three years of their agreement.

The most advanced drug in Dicerna’s own internal product portfolio is the primary hyperoxaluria (PH) drug Nedosiran. PH is a disease that comes in three types, and Dicerna’s Nedosiran is able to treat all three. This gives Dicerna a significant advantage over its rival and onetime partner Alnylam, who’s candidate drug for PH only works on one type of PH disease.

Nedosiran already has Breakthrough Therapy Designation for PH1, and a new drug application could be made to the FDA as soon as the fourth quarter of 2021.

Dicerna’s Cash Flow Situation

When evaluating a pharmaceutical company which is still at the clinical trials stage of its drug development cycle, we must place much consideration on the firm’s current cash position by assessing its cash balance and burn rate. This is because, like Dicerna, this kind of operation does not generate revenue from the sales of its products yet, and so maintaining access to funds to further navigate the FDA approval process – and continue pipeline development – is critical.

Fortunately, Dicerna’s cash position right now is looking very healthy. In its latest quarterly results call, the company’s Chief Financial Officer, Doug Pagan, stated his belief that Dicerna has the “resources to drive this pipeline forward”, with the firm having a strong cash balance of $545 million at the end of the financial period.

The expectation is that this will give Dicerna a cash runaway to fund its operating and R&D expenses for at least the next three years.

Dicerna was also able to raise a significant amount of liquid cash when it entered into a deal with Royalty Pharma plc, whereby Royalty acquired Dicerna’s interest in its Oxlumo product. Under this arrangement, Dicerna received an initial $180 million upfront payment, with a further $60 million in milestone awards dependent on future sales.

Dicerna Pharmaceuticals Profit Margins Threatened

Dicerna’s biggest product currently in its pipeline is the PH drug Nedosiran. In the short-term, a lot rests of Nedosiran not just passing FDA approval, but being a commercial success for the firm.

However, there remains much uncertainty around this: first, its own product must compete favorably with Alnylam’s Oxlumo for use in the treatment of PH1 – the same drug in fact that Dicerna sold its own interest in to Royalty Pharma; it must strike the right price point in the market to ensure adequate sales are made and it is able to achieve a decent profit margin; and the drug must become a widely used treatment option for PH among prescribing physicians – a task not made any easier by the fact that doctors are already dispensing Oxlumo to patients in clinical settings. 

Furthermore, in addition to Alnylam, Dicerna has another formidable competitor in the wider RNAi sector, namely Arrowhead Pharmaceuticals, Inc.

Arrowhead is arguably further along than both Dicerna and Alnylam in developing treatments for a broader range of targets, such as tumor, lung, muscle and liver. This potentially gives Arrowhead (ARWR) a crucial first-mover advantage over Dicerna, which no doubt harbors aspirations to develop its own therapies for these disease types too.

Is Dicerna Pharmaceuticals Undervalued?

The difficulty with valuing drug companies that have yet to bring a product to market is figuring out just when they’ll manage to do so. There are never any guarantees with the FDA approval process, and even if a drug makes it to market that doesn’t mean it’ll be commercially viable.

That said, Dicerna currently has a market capitalization of $2.5 billion, which is significantly lower than its two closest rivals, Alnylam and Arrowhead, which are worth $20.25 billion and $8.95 billion respectively. This suggests plenty of room for Dicerna to grow into and appreciate in price, regardless of any other metric.

Is Dicerna Pharma Stock A Buy? Takeaway

Dicerna is an innovative company working within a relatively novel, yet proven, technological niche.

It has a solid cash position, is already generating revenues from successfully meeting its development milestones, and has plenty of territory to claim as it expands and grows.

The firm’s stock price has great momentum too, and with positive catalysts on the horizon from successful trial results this year, there’s little reason to think this won’t continue for some time yet.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.