drna-10q_20180630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

Form 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission File Number: 001-36281

 

DICERNA PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

20-5993609

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

 

87 Cambridgepark Drive

Cambridge, MA 02140

(Address of principal executive offices and zip code)

(617) 621-8097

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days)    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes      No  

As of August 6, 2018, there were 52,949,660 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.

 

 

 

 


 

DICERNA PHARMACEUTICALS, INC.

INDEX TO FORM 10-Q

 

 

 

 

Page

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

 

 

 

PART I

FINANCIAL INFORMATION

 

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

5

 

 

Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017

5

 

 

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2017

6

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017

7

 

 

Notes to Condensed Consolidated Financial Statements

8

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

 

Item 4.

Controls and Procedures

27

 

 

 

PART II

OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

28

 

Item 1A.

Risk Factors

28

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

58

 

Item 3.

Defaults Upon Senior Securities

58

 

Item 4.

Mine Safety Disclosures

58

 

Item 5.

Other Information

58

 

Item 6.

Exhibits

59

 

2


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are “forward-looking statements” for purposes of this Quarterly Report on Form 10-Q. In some cases, you can identify forward-looking statements by terminology such as “may,” “could,” “will,” “would,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “intend,” “predict,” “seek,” “contemplate,” “project,” “continue,” “potential,” “ongoing,” “goal,” or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

 

how long we expect to maintain liquidity to fund our planned level of operations and our ability to obtain additional funds for our operations;

 

the initiation, timing, progress and results of our research and development programs, preclinical studies, any clinical trials and Investigational New Drug application, Clinical Trial Application, New Drug Application, and other regulatory submissions;

 

our ability to identify and develop product candidates for treatment of additional disease indications;

 

our or a collaborator’s ability to obtain and maintain regulatory approval of any of our product candidates;

 

the rate and degree of market acceptance of any approved product candidates;

 

the commercialization of any approved product candidates;

 

our ability to establish and maintain additional collaborations and retain commercial rights for our product candidates in the collaborations;

 

the implementation of our business model and strategic plans for our business, technologies, and product candidates;

 

our estimates of our expenses, ongoing losses, future revenue, and capital requirements;

 

our ability to obtain and maintain intellectual property protection for our technologies and product candidates and our ability to operate our business without infringing the intellectual property rights of others;

 

our reliance on third parties to conduct our preclinical studies or any clinical trials;

 

our reliance on third-party suppliers and manufacturers to supply the materials and components for, and manufacture, our research and development, preclinical and clinical trial drug supplies;

 

our ability to attract and retain qualified key management and technical personnel;

 

our dependence on our existing collaborator, Boehringer Ingelheim International GmbH (“BI”) for developing, obtaining regulatory approval for, and commercializing product candidates in the collaboration;

 

our receipt and timing of any milestone payments or royalties under our research collaboration and license agreement with BI or any future arrangements with any other collaborators;

 

our expectations regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startups Act of 2012;

 

our financial performance; and

 

developments relating to our competitors or our industry.

These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those set forth in Part II, Item 1A — “Risk Factors” below and for the reasons described elsewhere in this Quarterly Report on Form 10-Q. Any forward-looking statement in this Quarterly Report on Form 10-Q reflects our current view with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, industry and future growth. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

3


 

This Quarterly Report on Form 10-Q also contains estimates, projections, and other information concerning our industry, our business, and the markets for certain drugs, including data regarding the estimated size of those markets, their projected growth rates, and the incidence of certain medical conditions. Information that is based on estimates, forecasts, projections, or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained these industry, business, market, and other data from reports, research surveys, studies, and similar data prepared by third parties, industry, medical and general publications, government data, and similar sources. In some cases, we do not expressly refer to the sources from which these data are derived.

Except where the context otherwise requires, in this Quarterly Report on Form 10-Q, “we,” “us,” “our,” “Dicerna,” and the “Company” refer to Dicerna Pharmaceuticals, Inc. and, where appropriate, its consolidated subsidiaries.

Trademarks

This Quarterly Report on Form 10-Q includes trademarks, service marks, and trade names owned by us or by other companies. All trademarks, service marks, and trade names included in this Quarterly Report on Form 10-Q are the property of their respective owners.

 

4


 

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

DICERNA PHARMACEUTICALS, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share data and par value)

 

 

 

June 30,

2018

 

 

December 31,

2017

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

42,426

 

 

$

68,789

 

Held-to-maturity investments

 

 

39,875

 

 

 

44,889

 

Withholding tax receivable

 

 

1,583

 

 

 

1,583

 

Prepaid expenses and other current assets

 

 

3,728

 

 

 

3,415

 

Total current assets

 

 

87,612

 

 

 

118,676

 

NONCURRENT ASSETS:

 

 

 

 

 

 

 

 

Property and equipment—net

 

 

1,293

 

 

 

1,512

 

Restricted cash equivalents

 

 

744

 

 

 

744

 

Other noncurrent assets

 

 

66

 

 

 

70

 

Total noncurrent assets

 

 

2,103

 

 

 

2,326

 

TOTAL ASSETS

 

$

89,715

 

 

$

121,002

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,757

 

 

$

4,920

 

Accrued expenses and other current liabilities

 

 

6,299

 

 

 

5,726

 

Current portion of deferred revenue

 

 

6,180

 

 

 

6,180

 

Total current liabilities

 

 

16,236

 

 

 

16,826

 

NONCURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Long-term payable and accrued interest

 

 

8,904

 

 

 

 

Deferred revenue, net of current portion

 

 

 

 

 

3,090

 

Total noncurrent liabilities

 

 

8,904

 

 

 

3,090

 

TOTAL LIABILITIES

 

 

25,140

 

 

 

19,916

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value—5,000,000 shares authorized; no

   shares issued or outstanding at June 30, 2018 or December 31, 2017

 

 

 

 

 

 

Common stock, $0.0001 par value—150,000,000 shares authorized;

   52,867,771 and 51,644,841 shares issued and outstanding at

   June 30, 2018 and December 31, 2017, respectively

 

5

 

 

 

5

 

Additional paid-in capital

 

 

431,749

 

 

 

417,037

 

Accumulated deficit

 

 

(367,179

)

 

 

(315,956

)

Total stockholders’ equity

 

 

64,575

 

 

 

101,086

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

89,715

 

 

$

121,002

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5


 

Dicerna Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share data)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenue from collaborative arrangements

 

$

1,545

 

 

$

 

 

$

3,090

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

10,339

 

 

 

9,068

 

 

 

20,232

 

 

 

17,811

 

General and administrative

 

 

4,760

 

 

 

4,066

 

 

 

9,095

 

 

 

8,188

 

Litigation expense

 

 

22,244

 

 

 

2,234

 

 

 

25,428

 

 

 

3,608

 

Total operating expenses

 

 

37,343

 

 

 

15,368

 

 

 

54,755

 

 

 

29,607

 

Loss from operations

 

 

(35,798

)

 

 

(15,368

)

 

 

(51,665

)

 

 

(29,607

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

330

 

 

 

143

 

 

 

619

 

 

 

181

 

Interest expense

 

 

(176

)

 

 

 

 

 

(176

)

 

 

 

Total other income, net

 

 

154

 

 

 

143

 

 

 

443

 

 

 

181

 

Net loss

 

 

(35,644

)

 

 

(15,225

)

 

 

(51,222

)

 

 

(29,426

)

Dividends on redeemable convertible preferred stock

 

 

 

 

 

(2,622

)

 

 

 

 

 

(2,622

)

Deemed dividend related to beneficial conversion feature of

   redeemable convertible preferred stock

 

 

 

 

 

(6,144

)

 

 

 

 

 

(6,144

)

Net loss attributable to common stockholders

 

$

(35,644

)

 

$

(23,991

)

 

$

(51,222

)

 

$

(38,192

)

Net loss per share attributable to common stockholders— basic

   and diluted

 

$

(0.68

)

 

$

(1.15

)

 

$

(0.98

)

 

$

(1.84

)

Weighted average common shares outstanding—basic and diluted

 

 

52,555,751

 

 

 

20,794,193

 

 

 

52,141,849

 

 

 

20,792,925

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6


 

Dicerna Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Six Months

Ended

June 30, 2018

 

 

Six Months

Ended

June 30, 2017

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(51,222

)

 

$

(29,426

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Non-cash litigation expense

 

 

10,315

 

 

 

 

Stock-based compensation

 

 

3,525

 

 

 

4,033

 

Depreciation

 

 

393

 

 

 

363

 

Loss on disposal of property and equipment

 

 

 

 

 

51

 

Amortization of (discount)/premium on investments

 

 

(195

)

 

 

(35

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Long-term payable

 

 

8,904

 

 

 

 

Deferred revenue

 

 

(3,090

)

 

 

 

Prepaid expenses and other assets

 

 

(313

)

 

 

(1,013

)

Accounts payable

 

 

(1,163

)

 

 

(599

)

Accrued expenses and other liabilities

 

 

573

 

 

 

(272

)

Net cash used in operating activities

 

 

(32,273

)

 

 

(26,898

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(173

)

 

 

(58

)

Maturities of held-to-maturity investments

 

 

35,000

 

 

 

25,000

 

Purchases of held-to-maturity investments

 

 

(29,790

)

 

 

(49,908

)

Net cash provided by (used in) investing activities

 

 

5,037

 

 

 

(24,966

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from issuance of redeemable convertible preferred stock, net of

   issuance costs

 

 

 

 

 

69,700

 

Proceeds from stock option exercises and issuances under Employee

   Stock Purchase Plan

 

 

908

 

 

 

87

 

Settlement of restricted stock for tax withholding

 

 

(35

)

 

 

(11

)

Net cash provided by financing activities

 

 

873

 

 

 

69,776

 

NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND

   RESTRICTED CASH EQUIVALENTS

 

 

(26,363

)

 

 

17,912

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH EQUIVALENTS —

   Beginning of period

 

 

69,533

 

 

 

21,981

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH EQUIVALENTS —

   End of period

 

$

43,170

 

 

$

39,893

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

NONCASH FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Dividends on redeemable convertible preferred stock

 

$

 

 

$

2,622

 

Deemed dividend related to beneficial conversion feature of redeemable preferred stock

 

$

 

 

$

6,144

 

Redeemable convertible preferred stock issuance costs included in accounts payable

 

$

 

 

$

450

 

NONCASH INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Property and equipment purchases included in accounts payable

 

$

6

 

 

$

 

 

Reconciliation of cash, cash equivalents and restricted cash equivalents within the Company’s consolidated balance sheets:

 

 

 

As of

June 30, 2018

 

 

As of

June 30, 2017

 

Cash and cash equivalents

 

 

42,426

 

 

 

38,777

 

Restricted cash equivalents

 

744

 

 

 

1,116

 

Cash, cash equivalents and restricted cash equivalents presented above

 

$

43,170

 

 

$

39,893

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

7


 

 

DICERNA PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(tabular amounts in thousands, except share and per share data and where otherwise noted)

1. Description of Business and Basis of Presentation

Business

Dicerna Pharmaceuticals, Inc. (“Dicerna” or the “Company”), a Delaware corporation founded in 2006 and located in Cambridge, Massachusetts, is a biopharmaceutical company focused on the discovery and development of innovative subcutaneously delivered ribonucleic acid interference (“RNAi”)-based pharmaceuticals using its GalXCTM RNAi platform for the treatment of diseases involving the liver, including rare diseases, viral infectious diseases, chronic liver diseases, and cardiovascular diseases.

Basis of presentation

These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, these condensed consolidated financial statements do not include all of the information and notes required by GAAP to constitute a complete set of financial statements. These condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position at June 30, 2018 and results of operations and cash flows for the interim periods ended June 30, 2018 and 2017. These unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. The results of the three and six months ended June 30, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018 or for any other interim period or for any other future year.

Significant judgments and estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the Company’s consolidated financial statements, as well as the revenues and expenses incurred during the reporting periods. On an ongoing basis, the Company evaluates judgments and estimates, including those related to revenue recognition and accrued expenses. The Company bases its estimates on historical experience and on various other factors that the Company believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results could differ materially from those estimates.

Liquidity

Based on the Company’s current operating plan and liquidity, management believes that available cash, cash equivalents, and held-to-maturity investments will be sufficient to fund the Company’s planned level of operations for at least the 12-month period following, August 8, 2018, which is the date that these condensed consolidated financial statements have been issued. Notwithstanding the availability of current liquidity, the Company’s ability to fund its preclinical and clinical operations, including completion of its clinical trials, will depend on the Company’s ability to raise additional capital through a combination of public or private equity offerings, debt financings, and research collaborations and license agreements. If the Company is unable to generate funding from one or more of these sources within a reasonable timeframe, it may have to delay, reduce, or terminate its research and development programs, preclinical or clinical trials, limit strategic opportunities, or undergo reductions in its workforce or other corporate restructuring activities.

Summary of Significant Accounting Policies — There have been no changes to the significant accounting policies disclosed in the Company’s most recent Annual Report on Form 10-K, except as a result of adopting the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”), as discussed below.

8


 

Revenue recognition

The Company generates revenue from research collaboration and license agreements with third-party customers. Goods and services in the agreements typically include (i) the grant of licenses for the use of the Company’s technology and (ii) the provision of services associated with the research and development of customer product candidates. Such agreements may provide for consideration to the Company in the form of upfront payments, research and development services, option payments, milestone payments, and royalty payments on licensed products.

The Company accounts for a contract when the Company has approval and commitment from both parties, when the rights of the parties are identified, when payment terms are identified, when the contract has commercial substance, and when collectability of consideration is probable.

In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations under each of its agreements, management completes the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations; (iii) measurement of the transaction price, including whether there are any constraints on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. As part of the accounting for the relevant arrangements, the Company develops assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the underlying contract. The Company uses key assumptions to determine the stand-alone selling price which may include, as applicable, relevant market data, forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates, or probabilities of technical and regulatory success.

Licenses of intellectual property: If a license granted to a customer to use the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from consideration allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company applies judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, to conclude upon the appropriate method of measuring progress for purposes of recognizing revenue related to consideration allocated to the performance obligation. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Milestone payments: At the inception of each contract with a customer that includes development or regulatory milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or of the licensee, such as regulatory approvals, are assessed as to the probability of achieving the related milestones. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of all milestones and any related constraint, and, if necessary, adjusts the estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis and are recorded as revenue and through earnings in the period of adjustment.

Options: Customer options, such as options granted to allow a licensee to choose to research and develop product candidates against target genes to be identified in the future, generally do not provide a material right to the customer and therefore do not give rise to a separate performance obligation. As such, the additional consideration that would result from a customer exercising an option in the future is not included in the transaction price for the current contract. Instead, additional option fee payments are recognized or begin being recognized as revenue when the licensee exercises the options, and the exercise of the option would be treated as a separate contract for accounting purposes.

Research and development services: Arrangements that include a promise to provide research or development services at the licensee’s discretion are assessed to determine whether the services provide a material right to the licensee and are capable of being distinct, are not highly interdependent or do not significantly modify one another, and if so, the services are accounted for as separate performance obligations as the services are provided to the customer. Otherwise, where research or development services are determined not to be capable of being distinct or distinct within the context of the contract, those services are added to the performance obligation that includes the underlying license.

Royalties: For arrangements that include sales-based royalties, including commercial milestone payments based on the level of sales, and when the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from any out-licensing arrangement.

9


 

The Company receives payments from its licensees as established in each contract. Upfront payments and fees are recorded as deferred revenue upon receipt or when due, and may require deferral of revenue recognition to a future period until the Company performs its obligations under these arrangements. Where applicable, amounts are recorded as contracts receivable when the Company’s right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the licensees and the transfer of the promised goods or services to the licensees will be one year or less.

Recent Accounting Pronouncements

Adopted in 2018

Revenue recognition

In May 2014, the FASB issued Topic 606, which amends the guidance for accounting for revenue from contracts with customers, superseding the revenue recognition requirements in Accounting Standards Codification Topic 605, Revenue Recognition. Topic 606 is effective for annual reporting periods beginning after December 15, 2017. Under Topic 606, two adoption methods were allowed: retrospectively to all prior reporting periods presented, with certain practical expedients permitted, or retrospectively with the cumulative effect of initially adopting Topic 606 recognized at the date of initial application. The Company elected to apply Topic 606 retrospectively to all prior periods presented. Adoption of Topic 606 did not have a significant quantitative impact on the Company’s consolidated financial statements. Adoption of Topic 606 has resulted in additional revenue-related disclosures in the notes to the Company’s condensed consolidated financial statements, as discussed above and in note 6.

Income taxes

In October 2016, the FASB issued ASU No. 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory (“ASU 2016-16”), which is part of the FASB’s simplification initiative aimed at reducing complexity in accounting standards. ASU 2016-16 eliminates the current exception that the tax effects of intra-entity asset transfers (intercompany sales) be deferred until the transferred asset is sold to a third party or otherwise recovered through use. Instead, the new guidance will require a reporting entity to recognize any tax expense from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer. ASU 2016-16 is effective for public business entities in fiscal years beginning on January 1, 2018. Adoption of ASU 2016-16 did not have any impact on the Company’s condensed consolidated financial statements.

Statement of cash flows

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) (“ASU 2016-15”), a consensus of the FASB’s Emerging Issues Task Force (“EITF”). ASU 2016-15 is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows and requires companies, among other matters, to use reasonable judgment to separate cash flows. Specifically, in the absence of specific guidance, ASU 2016-15 prescribes that an entity should classify each separately identifiable cash source and use on the basis of the nature of the underlying cash flows. The Company adopted ASU 2016-15 on January 1, 2018, with no significant impact on the Company’s condensed consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”), a consensus of the FASB’s EITF. ASU 2016-18 requires that the statement of cash flows explain the change during the period in the total of cash and cash equivalents, including amounts generally described as restricted cash or restricted cash equivalents. Entities are required to reconcile such total to amounts on the balance sheet and disclose the nature of the restrictions. By requiring that the statement of cash flows explain the change during the period in the total of cash, cash equivalents and restricted cash, the new guidance eliminates current diversity in practice. The Company adopted ASU 2016-18 on January 1, 2018 and has applied this new guidance retrospectively to all periods presented. Consequently, transfers between restricted and unrestricted cash equivalents accounts are no longer reported as a cash flow in the Company’s condensed consolidated statement of cash flows.

10


 

Stock-based compensation

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”), which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under ASU 2017-09, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions, whereas under previous guidance, judgments about whether certain changes to an award are substantive may impact whether or not modification accounting is applied in certain situations. The Company adopted ASU 2017-19 on January 1, 2018, with no impact on the Company’s condensed consolidated financial statements.

Not yet adopted

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 will be effective for the Company beginning in the first quarter of 2019. ASU 2016-02 requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. Management expects that the adoption of ASU 2016-02 will result in the recognition of a right of use asset and related liability associated with the Company’s non-cancelable operating lease arrangement for office and laboratory space that was executed in 2014 (see note 7).

 

Nonemployee stock-based compensation

In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). The ASU is intended to simplify the accounting for nonemployee share-based payments to be consistent with Accounting Standards Codification 718, Compensation—Stock Compensation (Topic 718) (“ASC 718”). Per ASU 2018-07, entities will be required to apply the measurement and classification requirements of ASC 718 to nonemployee awards instead of Equity—Equity Based Payments to Nonemployees (Topic 505). ASU 2018-07 will be effective for the Company beginning in the first quarter of 2019 with early adoption permitted. Management is currently evaluating the impact of ASU 2018-07 and expects that the adoption will not have a significant impact on the Company’s consolidated financial statements.

 

2. Net Loss Per Share

The outstanding securities presented below were excluded from the calculation of net loss per share, because such securities would have been anti-dilutive due to the Company’s net loss per share during the periods ending on the dates presented.

 

 

 

June 30,

 

 

 

2018

 

 

2017

 

Options to purchase common stock

 

 

7,556,554

 

 

 

6,212,437

 

Warrants to purchase common stock

 

 

2,198

 

 

 

87,901

 

Unvested restricted common stock

 

 

 

 

 

10,000

 

Redeemable convertible preferred stock

 

 

 

 

 

718,404

 

Total

 

 

7,558,752

 

 

 

7,028,742

 

 

3. Held-to-maturity investments

The following tables provide information relating to the Company’s held-to-maturity investments (amounts in thousands).

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

As of June 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held-to-maturity investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities maturing in one year or less

 

$

39,875

 

 

$

 

 

$

(17

)

 

$

39,858

 

11


 

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

As of December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held-to-maturity investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities maturing in one year or less

 

$

44,889

 

 

$

 

 

$

(30

)

 

$

44,859

 

 

4. Stock Option Plan and Stock-Based Compensation

During the three and six months ended June 30, 2018, the Company granted stock options to purchase 442,000 and 1,761,350 shares, respectively, of common stock to employees with aggregate grant date fair values of $3.8 million and $13.2 million, respectively, compared to stock options to purchase 352,500 and 1,330,997 shares of common stock granted to employees with aggregate grant date fair values of $0.7 million and $2.7 million, for the three and six months ended June 30, 2017, respectively.

 

The assumptions used to estimate the grant date fair value using the Black-Scholes option pricing model were as follows:

 

 

 

Three Months

Ended

June 30, 2018

 

 

Six Months

Ended

June 30, 2018

 

Common stock price

 

$9.14 – $14.41

 

 

$9.14 – $14.41

 

Expected option term (in years)

 

5.50-6.25

 

 

5.50-6.25

 

Expected volatility

 

76.8% – 78.33%

 

 

75.89% –90.9%

 

Risk-free interest rate

 

2.65% – 2.84%

 

 

2.32% – 2.84%

 

Expected dividend yield

 

0.00%

 

 

0.00%

 

 

 

 

Three Months

Ended

June 30, 2017

 

 

Six Months

Ended

June 30, 2017

 

Common stock price

 

$2.91 – $3.47

 

 

$2.49 – $3.47

 

Expected option term (in years)

 

5.50-6.25

 

 

5.50-6.25

 

Expected volatility

 

79.7% – 80.8%

 

 

79.4% – 80.8%

 

Risk-free interest rate

 

1.86% – 1.89%

 

 

1.86% – 2.07%

 

Expected dividend yield

 

0.00%

 

 

0.00%

 

 

The Company has classified stock-based compensation in its condensed consolidated statements of operations as follows (amounts in thousands):

 

 

 

Three

Months

Ended

June 30,

 

 

Six

Months

Ended

June 30,

 

 

Three

Months

Ended

June 30,

 

 

Six

Months

Ended

June 30,

 

 

 

2018

 

 

2018

 

 

2017

 

 

2017

 

Research and development expense

 

$

751

 

 

$

1,557

 

 

$

972

 

 

$

1,917

 

General and administrative expenses

 

 

1,028

 

 

 

1,968

 

 

 

1,053

 

 

 

2,116

 

Total

 

$

1,779

 

 

$

3,525

 

 

$

2,025

 

 

$

4,033

 

 

12


 

5. Fair Value Measurements

A summary of the Company’s financial assets that are measured or disclosed at fair value on a recurring basis as of June 30, 2018 and December 31, 2017 are presented below (amounts in thousands).

 

Description

 

At June 30,

2018

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

38,258

 

 

$

38,258

 

 

$

 

 

 

$

 

Held-to-maturity investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

 

39,858

 

 

 

 

 

$

39,858

 

 

 

 

Restricted cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

744

 

 

 

 

 

 

744

 

 

 

 

Total

 

$

78,860

 

 

$

38,258

 

 

$

40,602

 

 

$

 

 

Description

 

At December

31, 2017

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

51,441

 

 

$

51,441

 

 

$

 

 

$

 

Held-to-maturity investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

 

44,859

 

 

 

 

 

 

44,859

 

 

 

 

Restricted cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

 

744

 

 

 

 

 

 

744

 

 

 

 

Total

 

$

97,044

 

 

$

51,441

 

 

$

45,603

 

 

$

 

 

The Company’s cash equivalents, which are in money market funds, are classified within Level 1 of the fair value hierarchy because they are valued using quoted prices as of June 30, 2018 and December 31, 2017.

The Company’s restricted cash equivalents bore interest at the prevailing market rates for instruments with similar characteristics and, accordingly, the carrying value of these instruments also approximated their fair value. These financial instruments were classified within Level 2 of the fair value hierarchy because the inputs to the fair value measurement are valued using observable inputs as of June 30, 2018 and December 31, 2017.

The Company’s held-to-maturity investments bore interest at the prevailing market rates for instruments with similar characteristics. The financial instruments were classified within Level 2 of the fair value hierarchy because the inputs to the fair value measurement are valued using observable inputs as of June 30, 2018 and December 31, 2017.

 

As of June 30, 2018, and December 31, 2017, the carrying amounts of the withholding tax receivable, accounts payable, and accrued expenses approximated their estimated fair values because of the short-term nature of these financial instruments.

 

As of June 30, 2018, we had an $8.7 million long-term payable to Alnylam Pharmaceuticals, Inc. (“Alnylam”). The long-term payable carries an interest rate set at current market rates, which is the primary driver in our conclusion that the carrying value approximates fair value. There was no long-term payable for the period ended June 30, 2017.

For the three and six months ended June 30, 2018 and 2017, there were no transfers between Level 1 and Level 2.

13


 

6. Collaborative Research and License Agreement

On October 27, 2017, the Company entered into a collaborative research and license agreement with Boehringer Ingelheim International GmbH (“BI”) (the “BI Agreement”), pursuant to which the Company and BI jointly research and develop product candidates for the treatment of chronic liver disease using the GalXC platform, Dicerna’s proprietary RNAi-based technology. The BI Agreement is for the development of product candidates against one target gene with an option for BI to add the development of product candidates that target a second gene. Also, pursuant to the BI Agreement, Dicerna granted BI a worldwide license in connection with the research and development of the product candidates and will transfer to BI intellectual property rights of the product candidates selected by BI for clinical development and commercialization. Dicerna also may provide assistance to BI in order to help BI further develop selected product candidates. Under the terms of the BI Agreement, BI agreed to pay Dicerna a non-refundable upfront payment of $10.0 million for the first target, less a refundable withholding tax in Germany of $1.6 million. The German withholding tax was withheld by BI and remitted to the German tax authorities in accordance with local tax law; the Company received reimbursement of this tax in July 2018.

During the term of the research program, BI will reimburse Dicerna the cost of certain materials and third-party expenses that have been included in the preclinical studies. The Company is eligible to receive up to $191.0 million in potential development and commercial milestones related to the initial target. Dicerna is also eligible to receive royalty payments on potential global net sales, subject to certain adjustments, tiered from high single digits up to low double digits. BI’s option to add a second target would provide for an option fee payment and success-based development and commercialization milestones and royalty payments to Dicerna.

Milestone payments that are contingent upon the Company’s performance under the BI Agreement include potential developmental milestones totaling $99.0 million, including milestones for the first commercial sale. The Company has excluded the amounts from allocable consideration at the outset of the arrangement, as described below. All potential net sales milestones, totaling $95.0 million, will be accounted for in the same manner as royalties and recorded as revenue at the later of the achievement of the milestone or the satisfaction of the performance obligation.

The Company assessed the BI Agreement in accordance with Topic 606 and concluded that BI is a customer. The Company identified the following performance obligations under the contract: the license of intellectual property and conducting agreed-upon research program services. The Company has concluded that the license and research and development services do not have standalone value and are not capable of being distinct, therefore, the Company considers these as one performance obligation. The Company concluded the option underlying the transfer of future licenses and potential associated research for any not-yet-known target gene is not a performance obligation of the contract at inception because the option is not considered to be a material right, as the option fee reflects the standalone selling price of the option. The Company considered the level of BI’s therapeutic expertise specifically related to RNAi, as well as BI’s know-how vis-à-vis the Company’s GalXC conjugates, and concluded that BI cannot currently benefit from the granted license on its own or together with other resources that are readily available to BI, including relationships with oligonucleotide vendors who synthesize GalXC conjugates under contract with the Company. As a result, the combination of the license of intellectual property together with the provision of research and development support services together represent the highest level of goods and services that can be deemed distinct.

Based on management’s evaluation, the non-refundable upfront fee and the agreed-upon reimbursable third-party expenses constituted the amount of the consideration to be included in the transaction price and has been allocated to the performance obligations identified based on the Company’s best estimate of the relative standalone selling price via application of a market assessment approach. None of the development milestones have been included in the transaction price, since none of such milestone amounts are within the control of the Company and are not considered probable to occur until confirmed by BI, at BI’s sole discretion. Any consideration related to commercial sales-based milestones (including royalties) will be recognized when the related sales occur, since these amounts have been determined to relate predominantly to the license granted to BI and therefore are recognized at the later of when the performance obligation is satisfied or the related sales occur. The Company will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

The $10.3 million transaction price is being recognized over the current research term, which is estimated to extend through June 30, 2019, which represents the Company’s best estimate of the period of the obligation to provide research support services to BI, and is the expected period over which we estimate the deferred revenue balance will be recognized in revenue. Related revenue is being recognized on a straight-line basis, which is in management’s judgment an appropriate measure of progress toward satisfying the performance obligation, largely in absence of evidence that obligations are fulfilled in a specific pattern.

14


 

The following table presents changes in the Company’s deferred revenue accounts during the six months ended June 30, 2018 (amounts in thousands).

 

Six months ended June 30, 2018

 

Balance at beginning

of period

 

 

Additions

 

 

Deductions

 

 

Balance at end of

period

 

Current portion of deferred revenue

 

$

6,180

 

 

 

 

 

 

 

 

 

$

6,180

 

Deferred revenue, net of current portion

 

$

3,090

 

 

 

 

 

$

(3,090

)

 

$

 

 

The Company recognized revenues of $1.5 million and $3.1 million for the three and six months ended June 30, 2018, as a result of changes in the deferred revenue balances. There was no activity related to the Company’s deferred revenue accounts during the three and six months ended June 30, 2017.

7. Commitments and Contingencies

Facility lease

Future minimum lease payments on the Company’s non-cancelable operating lease for office and laboratory space are as follows (amounts in thousands):

 

Years Ending December 31,

 

Operating

Lease

 

Remaining 2018

 

$

817

 

2019

 

$

1,678

 

2020*

 

 

1,580

 

Total

 

$

4,075

 

 

*

The end of the lease term is November 30, 2020.

Litigation

On June 10, 2015, Alnylam filed a complaint against the Company in the Superior Court of Middlesex County, Massachusetts (the “Court”). The complaint alleged misappropriation of confidential, proprietary, and trade secret information, as well as other related claims, in connection with the Company’s hiring of a number of former employees of Merck & Co., Inc. (“Merck”) and its discussions with Merck regarding the acquisition of its subsidiary, Sirna Therapeutics, Inc., which was subsequently acquired by Alnylam.

On April 18, 2018, the Company and Alnylam entered into a Confidential Settlement Agreement and General Release (the “Settlement Agreement”), resolving all ongoing litigation between the Company and Alnylam. The terms of the Settlement Agreement include mutual releases and dismissals with prejudice of all claims and counterclaims in the following litigation between the parties: (i) Alnylam Pharmaceuticals, Inc. v. Dicerna Pharmaceuticals, Inc., No. 15-4126 pending in the Massachusetts Superior Court for Middlesex County and (ii) Dicerna Pharmaceuticals, Inc., v. Alnylam Pharmaceuticals, Inc. No.1:17-cv-11466 pending in the United States District Court for the District of Massachusetts. Pursuant to the terms of the Settlement Agreement, the Company has agreed to make the following payments to Alnylam: (i) a $2.0 million upfront payment in cash; (ii) an additional $13.0 million in cash to be paid as 10% of any upfront or first year cash consideration that the Company receives pursuant to future collaborations related to Ga1NAc-conjugated RNAi research and development (excluding any amounts received or to be received by the Company from its existing collaboration with BI), provided that the $13.0 million must be paid by no later than April 28, 2022; and (iii) issuance of shares of the Company’s common stock (the “Shares”) pursuant to a share issuance agreement between the parties (the “Share Issuance Agreement”).

Under the Settlement Agreement, for periods ranging from 18 months up to four years, the Company will be restricted in its development and other activities relating to oligonucleotide-based therapeutics directed toward a defined set of eight Alnylam targets (the “Oligo Restrictions”). The Oligo Restrictions pertain to targets where Dicerna does not have, or does not currently intend to have, a therapeutic program, or are expected to be consistent with Dicerna’s execution on programs in the normal course of business. The Settlement Agreement does not include any admission of liability or wrongdoing by either party or any licenses to any intellectual property from either party.

On April 20, 2018, the Company and Alnylam entered into the Share Issuance Agreement, pursuant to which the Company agreed to issue to Alnylam 983,208 Shares in satisfaction of the Company’s obligation under the Settlement Agreement to deliver Shares to Alnylam. The Share Issuance Agreement contains customary representations and warranties of each party. Pursuant to the terms of the

15


 

Share Issuance Agreement, Alnylam may not, without the prior approval of the Company, dispose of any of the Shares for a six-month period commencing on the closing date of the Share issuance. Thereafter, through the fifth anniversary of the closing date of the Share issuance, Alnylam will only dispose of the maximum number of Shares that it would be permitted to dispose if the Shares were subject to the volume restrictions set forth in Rule 144(e) of the Securities Act of 1933, as amended.

The Company paid the upfront payment of $2.0 million dollars in May 2018 and recorded the future payment of $13.0 million as a long-term payable discounted to present value of $8.7 million at an effective interest rate of 10%. The 983,208 shares issued pursuant to the Share Issuance Agreement was recorded at fair market value of $10.3 million based on the Company’s closing share price on April 18, 2018, the date the Settlement Agreement was executed. The Settlement Agreement resulted in the Company recording an additional $21.0 million of litigation expenses for the three and six months ended June 30, 2018. The Company did not assign any value to the Oligo Restrictions as the Company did not incur additional losses or give up any value as a result of the restrictions.

Total litigation expense was $22.2 million and $25.4 million for the three and six months ended June 30, 2018, respectively, all of which related to the litigation with Alnylam, of which $21.0 million related to the Settlement Agreement. The Company recorded litigation expenses, also related to the Alnylam litigation, of $2.2 million and $3.6 million for three and six months ended June 30, 2017, respectively, which was previously recorded as a component of general and administrative expenses and recast to litigation expense for comparative purposes.   

From time to time, the Company may be subject to various claims and legal proceedings. If the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount is reasonably estimable, the Company will accrue a liability for the estimated loss. There were no contingent liabilities recorded as of June 30, 2018 and December 31, 2017.

8. Subsequent Events

Under the BI Agreement, BI paid to Dicerna a non-refundable upfront payment of $10.0 million for the first target, less a refundable withholding tax in Germany of $1.6 million. The German withholding tax was withheld by BI and remitted to the German tax authorities in accordance with local tax law, and the Company received reimbursement of this tax in July of 2018.

******

16


 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section as well as factors described in Part II, Item 1A —“Risk Factors.”

Overview

Dicerna Pharmaceuticals, Inc. (“we”, “the Company” or “Dicerna”) is a biopharmaceutical company focused on the discovery and development of innovative subcutaneously delivered ribonucleic acid (“RNA”) interference (“RNAi”)-based pharmaceuticals using our GalXCTM RNAi platform for the treatment of diseases involving the liver, including rare diseases, viral infectious diseases, chronic liver diseases and cardiovascular diseases. Within these therapeutic areas, we believe our GalXC RNAi platform will allow us to build a broad pipeline of therapeutics with commercially attractive pharmaceutical properties, including a subcutaneous route of administration, infrequent dosing (e.g., dosing that is monthly or quarterly, and potentially even less frequent), high therapeutic index, and specificity to a single target gene.

All of our GalXC drug discovery and development efforts are based on the therapeutic modality of RNAi, a highly potent and specific mechanism for silencing the activity of a targeted gene. In this naturally occurring biological process, double-stranded RNA molecules induce the enzymatic destruction of the messenger ribonucleic acid (“mRNA”) of a target gene that contains sequences that are complementary to one strand of the therapeutic double-stranded RNA molecule. The Company’s approach is to design proprietary double-stranded RNA molecules that have the potential to engage the enzyme Dicer and initiate an RNAi process to silence a specific target gene. Our GalXC RNAi platform utilizes a particular structure of double-stranded RNA molecules configured for subcutaneous delivery to the liver. Due to the enzymatic nature of RNAi, a single GalXC molecule incorporated into the RNAi machinery can destroy hundreds or thousands of mRNAs from the targeted gene.

The GalXC RNAi platform supports Dicerna’s long-term strategy to retain, subject to the evaluation of potential licensing opportunities as they may arise, a full or substantial ownership stake and to invest internally in diseases with focused patient populations, such as certain rare diseases. We see such diseases as representing opportunities that carry a relatively higher probability of success, with genetically and molecularly defined disease markers, high unmet need, a limited number of Centers of Excellence to facilitate reaching these patients, and the potential for more rapid clinical development programs. For more complex diseases with multiple gene dysfunctions and larger patient populations, we plan to pursue collaborations that can provide the enhanced scale, resources, and commercial infrastructure required to maximize these prospects, such as the BI Agreement, as defined and discussed below.

Development Programs

In choosing which development programs to advance, we apply scientific, clinical, and commercial criteria that we believe allow us to best leverage our GalXC RNAi platform and maximize value. The Company is focusing its efforts on three priority therapeutic programs that currently have a Clinical Trial Application (“CTA”) filed, Investigational New Drug (“IND”) application filed, or are in enabling studies in preparation to file additional regulatory clearances to initiate clinical trials. The Company is also focusing its efforts on a series of programs in the clinical candidate selection stage that may be elevated into IND/CTA enabling studies in the future, either on our own or in collaboration with larger pharmaceutical companies. Our three priority programs are: DCR-PHXC for the treatment of primary hyperoxaluria (“PH”); a program for an undisclosed rare disease; and DCR-HBVS for the treatment of chronic hepatitis B virus (“HBV”) infection. Our programs in clinical candidate selection include a program for the treatment of hypercholesterolemia, for which DCR-PCSK9 has been selected as a provisional clinical candidate, and multiple programs targeting undisclosed targets in chronic liver diseases, cardiovascular diseases and additional rare diseases. In October 2017, we filed a CTA for our lead GalXC product candidate, DCR-PHXC, with the Medicines and Healthcare products Regulatory Agency (“MHRA”) in the United Kingdom (“UK”), and in December 2017, we dosed the first human in the Group A portion of the Phase 1 clinical trial of DCR-PHXC. On March 30, 2018, we received a notice from the United States (“U.S.”) Food and Drug Administration (“FDA”) indicating that our proposed clinical investigation for DCR-PHXC referenced in our IND may proceed. In May 2018, the Company dosed the first PH patient with DCR-PHXC in the Group B portion of the Phase 1 clinical trial and received notice from the FDA granting Orphan Drug Designation to DCR-PHXC for treatment of PH.  In July 2018, the European Medicines Agency (“EMA”)’s Committee for Orphan Medicinal Products (“COMP”) recommended designating DCR-PHXC as an orphan medicinal product for the treatment of PH in the EU and the recommendation was adopted by the European Commission in August 2018. We have received regulatory and ethical approvals for the clinical trial in the UK, France, and Germany. A CTA has been submitted and is pending approval in the Netherlands. We expect to file for additional regulatory clearances to commence clinical trials for our programs in 2018 and 2019.

17


 

The table below sets forth the state of development of our various GalXC RNAi platform product candidates as of August 8, 2018.

 

 

Our current GalXC RNAi platform development programs are as follows:

 

Primary Hyperoxaluria. We are developing DCR-PHXC for the treatment of all types of PH. PH is a family of rare inborn errors of metabolism in which the liver produces excessive levels of oxalate, which in turn causes damage to the kidneys and to other tissues in the body. DCR-PHXC is currently being investigated in a Phase 1 clinical trial called PHYOX. In preclinical models of PH, DCR-PHXC reduces oxalate production to near-normal levels, ameliorating the disease condition.

PHYOX is a Phase 1 single ascending-dose study of DCR-PHXC in normal healthy volunteers (“NHVs”) and patients with PH. The study is divided into two groups: Group A is a placebo-controlled, single-blind, single center study, which has enrolled 25 NHVs; Group B is an open-label, multi-center study enrolling up to 16 patients with PH type 1 (“PH1”) and PH type 2 (“PH2”). The primary objective of the study is to evaluate the safety and tolerability of single doses of DCR-PHXC in both groups. The secondary objectives are to evaluate the pharmacodynamic effect of single doses of DCR-PHXC on biochemical markers, and to characterize the pharmacokinetics of single doses of DCR-PHXC in NHVs and patients with PH. We have submitted CTAs for the PHYOX study in the UK, France, and Germany and have received the appropriate regulatory and ethical approvals. A CTA has been submitted and is pending approval in the Netherlands. The FDA has accepted the Company’s IND for the PHYOX study. We have completed the Group A portion of the study in NHV. While the study is still blinded toward treatment assignment, there have been no serious adverse events. There have been two mild-to-moderate transient injection site reactions lasting up to a total of 36 hours at the highest doses of 6 and 12 mg/kg. With the completion of the Group A portion of the study in NHVs, we have started on the Group B portion of the study and dosed the first PH patient with DCR-PHXC. Group B consists of three cohorts of  patients dosed with PH1 at 1.5, 3, and 6 mg/kg. An additional fourth cohort that consists of patients with PH2 dosed at a flexible dosing level. We have enrolled 10 patients out of 16 (four PH1 patients in Cohort 1, four PH1 patients in Cohort 2, one PH1 patient in Cohort 3, and one PH2 patient in Cohort 4). We expect to report interim results from the PHYOX trial later in the third quarter and publicly present trial results in the fourth quarter of 2018. Additionally, we intend to initiate a multi-dose Phase 2/3 study in the first quarter of 2019, pending positive proof-of-concept (“POC”) data and regulatory feedback.

 

An undisclosed rare disease involving the liver. We are developing a GalXC-based therapeutic, targeting a liver-expressed gene involved in a serious rare disease. For competitive reasons, we have not yet publicly disclosed the target gene or disease. We have selected this target gene and disease based on criteria that include having a strong therapeutic hypothesis, a readily-identifiable patient population, the availability of a potentially predictive biomarker, high unmet medical need, favorable competitive positioning and what we believe is a rapid projected path to approval. The disease is a genetic disorder where mutations in the disease gene lead to the

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production of an abnormal protein. The protein causes progressive liver damage and fibrosis, in some cases leading to cirrhosis and liver failure, and we believe that silencing of the disease gene will prevent production of the abnormal protein and thereby slow or stop progression of the liver fibrosis. Greater than 100,000 people in the U.S. are believed to be homozygous (i.e. having identical pairs of genes for any given pair of hereditary characteristics) for the mutation that causes the liver disease, and at least 10% of those people, and potentially a significantly higher fraction, are believed to have liver-associated disease as a consequence. We are seeking a risk-sharing collaborator for this program before we file regulatory clearances to initiate a clinical trial, which we expect to be prepared to file towards the end of 2018.

 

Chronic Hepatitis B Virus infection. We have declared a GalXC RNAi platform-based product candidate for the treatment of HBV, DCR-HBVS, and are conducting formal non-clinical development studies. We expect to file regulatory clearances in New Zealand and Australia during the fourth quarter of 2018. Current therapies for HBV rarely lead to a long-term immunological cure as measured by the clearance of HBV surface antigen (“HBsAg”) and sustained HBV deoxyribonucleic acid (“DNA”) suppression in patient plasma or blood. DCR-HBVS targets HBV messenger RNA and leads to greater than 99% reduction in circulated HBsAg in mouse models of HBV infection. Based on these preclinical studies, and only if we receive appropriate regulatory approval to begin human clinical trials, we hope to determine the potential of DCR-HBVS to reduce HBsAg and HBV DNA levels in the blood of HBV patients in a commercially attractive subcutaneous dosing paradigm.

 

Hypercholesterolemia (PCSK9 targeted therapy). We are using our GalXC RNAi platform to develop a therapeutic that targets the PCSK9 gene for the treatment of hypercholesterolemia. The Company has selected a provisional clinical candidate for the program but is continuing to explore ways to further optimize the program. PCSK9 is a validated target for hypercholesterolemia, and there are FDA-approved therapies targeting PCSK9 that are based on monoclonal antibody technology. Based on preclinical studies, we believe that our GalXC RNAi platform has the potential to produce a PCSK9-targeted therapy with attractive commercial properties, such as small subcutaneous injection volumes and less frequent dosing.

 

Additional pipeline programs. We have developed a robust portfolio of additional targets and diseases that we plan to pursue either on our own or in collaboration with partners. We have applied our GalXC technology to multiple gene targets across our disease focus areas of rare diseases, chronic liver diseases and cardiovascular diseases. Pursuant to our strategy, we are seeking collaborations with larger and/or more experienced pharmaceutical companies to advance our programs in the areas of chronic liver diseases and cardiovascular diseases. Both these disease areas represent large and diverse patient populations, requiring complex clinical development and commercialization paths that we believe can be more effectively pursued in collaboration with larger pharmaceutical companies. For our additional rare diseases, we are continuing to assess their potential for clinical success and market opportunity while optimizing our GalXC molecules. For our additional pipeline programs (including PCSK9), we may utilize more advanced versions of our GalXC technology that further improve pharmaceutical properties of the GalXC molecules, including enhancing the duration of action and potency. We have further optimized our GalXC technology platform, enabling the development of next generation GalXC molecules. Improvements to our GalXC compound include modification of the tetraloop end of the molecule, which can be applied to any target gene, resulting in a substantially longer duration of action and higher potency of target gene silencing in animal models across multiple targets. Modification of the tetraloop only impacts the passenger strand and does not impact the guide strand. These modifications are unique to our GalXC molecules and, we believe, provide a competitive advantage for the Company.

In addition to the GalXC development programs outlined above, we are party to a collaborative research and license agreement with Boehringer Ingelheim International GmbH (“BI”) (the “BI Agreement”), pursuant to which the Company and BI jointly research and develop product candidates for the treatment of chronic liver diseases, with an initial focus on nonalcoholic steatohepatitis (“NASH”) using our GalXC platform. NASH is caused by the buildup of fat in the liver, potentially leading to liver fibrosis and cirrhosis. NASH has an especially high prevalence among obese and diabetic patients and is an area of high unmet medical need. The BI Agreement is for the development of product candidates against one target gene with an option for BI to add the development of product candidates that target a second gene. We are working exclusively with BI to develop the product candidates against the undisclosed target gene. We are responsible for the discovery and initial profiling of the product candidates, including primary pre-clinical studies, synthesis, and delivery. BI is responsible for evaluating and selecting the product candidates for further development. If BI selects one or more product candidates, it will be responsible for further pre-clinical development, clinical development, manufacturing, and commercialization of those products. Also pursuant to the BI Agreement, we granted BI a worldwide license in connection with the research and development of the product candidates and will transfer to BI intellectual property rights of the product candidates selected by BI for clinical development and commercialization. We also may provide assistance to BI in order to help BI further develop selected product candidates. Pursuant to the BI Agreement, BI agreed to pay us a non-refundable upfront payment of $10.0 million for the first target. During the term of the research program, BI will reimburse us the cost of materials and third-party expenses that have been included in the preclinical studies up to an agreed-upon limit. We are eligible to receive up to $191.0 million in potential development and commercial milestones related to the initial target. We are also eligible to receive royalty payments on potential global net sales, subject to certain adjustments, tiered from high single digits up to low double digits. BI’s option to add a second target would provide for an option fee payment and success-based development and commercialization milestones and royalty payments to us.

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We also have developed a wholly-owned clinical candidate, DCR-BCAT, targeting the ß-catenin oncogene. DCR-BCAT is based on an extended version of our earlier generation non-GalXC Dicer Substrate RNAi technology and is delivered by our lipid nanoparticle tumor delivery system, EnCoreTM. We plan to out-license, spin out or seek external funding to advance the DCR-BCAT opportunity, given our focus on our GalXC platform-based programs.

Corporate Developments

On April 18, 2018, we entered into a Confidential Settlement Agreement and General Release (the “Settlement Agreement”) with Alnylam Pharmaceuticals, Inc. (“Alnylam”), resolving all ongoing litigation between the Company and Alnylam. The terms of the Settlement Agreement include mutual releases and dismissals with prejudice of all claims and counterclaims in the following litigation between the parties: (i) Alnylam Pharmaceuticals, Inc. v. Dicerna Pharmaceuticals, Inc., No. 15-4126 pending in the Massachusetts Superior Court for Middlesex County and (ii) Dicerna Pharmaceuticals, Inc., v. Alnylam Pharmaceuticals, Inc. No.1:17-cv-11466 pending in the United States District Court for the District of Massachusetts. Pursuant to the terms of the Settlement Agreement, we have agreed to make the following payments to Alnylam: (i) a $2 million upfront payment in cash; (ii) an additional $13 million in cash, to be paid as 10% of any upfront or first year cash consideration that we receive pursuant to future collaborations related to Ga1NAc-conjugated RNAi research and development (excluding any amounts received or to be received by the Company from its existing collaboration with BI), provided that the $13 million must be paid by no later than April 28, 2022; and (iii) issuance of shares of our common stock (the “Shares”) pursuant to a share issuance agreement between the parties (the “Share Issuance Agreement”).

Under the Settlement Agreement, for periods ranging from 18 months up to four years, we will be restricted in our development and other activities relating to oligonucleotide-based therapeutics directed toward a defined set of eight Alnylam targets (the “Oligo Restrictions”). The Oligo Restrictions pertain to targets where Dicerna does not have, or does not currently intend to have, a therapeutic program, or are expected to be consistent with our execution on programs in the normal course of business. The Settlement Agreement does not include any admission of liability or wrongdoing by either party or any licenses to any other intellectual property from either party.

On April 20, 2018, we entered into the Share Issuance Agreement, pursuant to which we agreed to issue to Alnylam 983,208 Shares in satisfaction of our obligation under the Settlement Agreement to deliver Shares to Alnylam. The Share Issuance Agreement contains customary representations and warranties of each party. Pursuant to the terms of the Share Issuance Agreement, Alnylam may not, without our prior approval, dispose of any of the Shares for a six-month period commencing on the closing date of the Share issuance. Thereafter, through the fifth anniversary of the closing date of the Share issuance, Alnylam will only dispose of the maximum number of Shares that it would be permitted to dispose if the Shares were subject to the volume restrictions set forth in Rule 144(e) of the Securities Act of 1933, as amended.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of our condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the revenue and expenses incurred during the reported periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition and accrued expenses. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from these estimates under different assumptions or conditions.

The critical accounting policies that we believe impact significant judgments and estimates used in the preparation of our financial statements presented in this report are described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K filed with the SEC on March 8, 2018. There have been no changes to our critical accounting policies during the three or six months ended June 30, 2018 from those discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report on Form 10-K filed with the SEC on March 8, 2018, except as discussed below.

Recent Accounting Pronouncements

A summary of recent accounting pronouncements that have been adopted or are expected to be adopted by the Company is included in note 1 to our condensed consolidated financial statements (see Part I, Item 1 –“Financial Statements” of this Quarterly Report on Form 10-Q). Additional information regarding relevant accounting pronouncements is provided below.

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Adopted in 2018

Revenue recognition

In May 2014, the accounting guidance related to revenue recognition was amended to replace current guidance with a single, comprehensive standard for accounting for revenue from contracts with customers. The new guidance became effective for us on January 1, 2018. The new revenue standard applies to all contracts with customers, and only contracts with customers are in the scope of the new revenue standard. Once a contractual arrangement is scoped into the new guidance, revenue is recognized based on a model that includes identifying performance obligations and determining and allocating the transaction price to the performance obligations identified in the contract. Revenue is recognized as those performance obligations are satisfied. We elected to apply this new guidance retrospectively to all prior periods presented, and adoption of this new guidance did not have a significant quantitative impact on our condensed consolidated financial statements. Adoption of this guidance has resulted in additional revenue-related disclosures in the notes to our condensed consolidated financial statements.

Income taxes

New guidance issued in October 2017 related to income taxes is aimed at reducing complexity in accounting standards by eliminating the current exception that the tax effects of intra-entity asset transfers (such as intercompany sales or transfers of intellectual property) be deferred until the transferred asset is sold to a third party or otherwise recovered through use. Instead, the new guidance will require that a reporting entity recognize any tax expense from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer. We adopted this new guidance on January 1, 2018, and such adoption did not have an impact on our condensed consolidated financial statements, largely given that we have not recorded any deferred tax assets or liabilities on our condensed consolidated balance sheet.

Statement of cash flows

In August 2017, the accounting guidance related to the statement of cash flows was amended with the intent of reducing diversity in practice as to the classification of certain transactions in the statement of cash flows. This guidance became effective for us on January 1, 2018, with no significant impact on our condensed consolidated financial statements. Additionally, in November 2017, new accounting guidance was issued related to the statement of cash flows implications related to restricted cash and cash equivalents. The guidance requires that the statement of cash flows explain the change during the period in the total of cash and cash equivalents, including amounts generally described as restricted cash or restricted cash equivalents. Entities are also required to reconcile such total to amounts on the balance sheet and disclose the nature of the restrictions. We applied this new guidance on January 1, 2018 and have made current and retrospective presentation adjustments such that transfers between restricted and unrestricted cash accounts no longer are reported as a cash flow in our condensed consolidated statement of cash flows.

Stock-based compensation

In May 2017, the accounting guidance related to stock-based compensation was amended to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Per the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions, whereas under previous guidance, judgments about whether certain changes to an award are substantive may impact whether or not modification accounting is applied in certain situations. This new guidance is effective prospectively for annual periods beginning on or after December 15, 2017. We adopted this guidance on January 1, 2018, with no impact to our condensed consolidated financial statements.

Not yet adopted

Leases

In February 2016, accounting guidance related to leases was issued that will require an entity to recognize leased assets and the rights and obligations created by those leased assets on the balance sheet and to disclose key information about an entity’s leasing arrangements. This guidance will become effective for us on January 1, 2019, with early adoption permitted. We expect that the adoption of this guidance will impact our condensed consolidated financial statements and notes thereto, resulting, among other factors, from the recognition of a right of use asset and related liability related to our 2014 non-cancelable operating lease arrangement for our office and laboratory space in Cambridge, Massachusetts. As of June 30, 2018, and as presented below, our total future minimum lease obligation associated with this lease was $4.1 million, and a substantial portion of this commitment will remain outstanding at the time we adopt the new guidance. Our evaluation of this guidance and its full impact on our condensed consolidated financial statements will continue throughout 2018.

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Nonemployee stock-based compensation

In June 2018, accounting guidance related to nonemployee share-based compensation was issued that will require an entity to apply the measurement and classification criteria consistent with the accounting for employee share-based compensation. This guidance will become effective for us on January 1, 2019, with early adoption permitted. We expect that the adoption of this guidance will not have a significant impact on our condensed consolidated financial statements.

Financial Operations Overview

Comparison of the Three and Six Months Ended June 30, 2018 and 2017

The following table summarizes the results of our operations for the periods indicated (amounts in thousands, except percentages).

 

 

 

Three Months

Ended

June 30,

 

 

Three Months

Ended

June 30,

 

 

Increase/

(Decrease)

 

 

Six Months

Ended

June 30,

 

 

Six Months

Ended

June 30,

 

 

Increase/

(Decrease)

 

 

 

2018

 

 

2017

 

 

 

 

 

 

2018

 

 

2017

 

 

 

 

 

Revenue from collaborative arrangements

 

$

1,545

 

 

$

 

 

$

1,545

 

 

$

3,090

 

 

$

 

 

$

3,090

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

10,339

 

 

 

9,068

 

 

 

1,271

 

 

 

20,232

 

 

 

17,811

 

 

 

2,421

 

General and administrative

 

 

4,760

 

 

 

4,066

 

 

 

694

 

 

 

9,095

 

 

 

8,188

 

 

 

907

 

Litigation expense

 

 

22,244

 

 

 

2,234

 

 

 

20,010

 

 

 

25,428

 

 

 

3,608

 

 

 

21,820

 

Total operating expenses

 

 

37,343

 

 

 

15,368

 

 

 

21,975

 

 

 

54,755

 

 

 

29,607

 

 

 

25,148

 

Loss from operations

 

 

(35,798

)

 

 

(15,368

)

 

 

(20,430

)

 

 

(51,665

)

 

 

(29,607

)

 

 

(22,058

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

330

 

 

 

143

 

 

 

187

 

 

619

 

 

 

181

 

 

 

438

 

Interest expense

 

 

(176

)

 

 

 

 

 

(176

)

 

 

(176

)

 

 

 

 

 

(176

)

Total other income, net

 

154

 

 

 

143

 

 

 

11

 

 

443

 

 

 

181

 

 

 

262

 

Net loss

 

 

(35,644

)

 

 

(15,225

)

 

 

(20,419

)

 

 

(51,222

)

 

 

(29,426

)

 

 

(21,796

)

Dividends on redeemable convertible preferred stock

 

 

 

 

 

(2,622

)

 

 

2,622

 

 

 

 

 

 

(2,622

)

 

 

2,622

 

Deemed dividend related to beneficial conversion

   feature of redeemable convertible preferred stock

 

 

 

 

 

(6,144

)

 

 

6,144

 

 

 

 

 

 

(6,144

)

 

 

6,144

 

Net loss attributable to common stockholders

 

$

(35,644

)

 

$

(23,991

)

 

$

(11,653

)

 

$

(51,222

)

 

$

(38,192

)

 

$

(13,030

)

 

Revenue from collaborative arrangements

Revenue recognized during the three and six months ended June 30, 2018 relates primarily to the BI Agreement, pursuant to which BI agreed to pay us a non-refundable upfront payment of $10.0 million for the first target and agreed to reimburse us for the cost of certain materials and third-party expenses that have been included in the preclinical studies. Revenue recognized to date is primarily comprised of the periodic amortization of the aforementioned upfront payment.

We recognized $1.5 million and $3.1 million of the $10.3 million transaction price during the three and six months ended June 30, 2018, respectively, which explains the increase as compared to the three and six months ended June 30, 2017, respectively, during which no collaboration revenues were recorded.

We do not expect to generate any product revenue for the foreseeable future.

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Research and development expenses

The following table summarizes our research and development expenses incurred during the periods indicated (amounts in thousands).

 

 

 

Three Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

Increase

(Decrease)

 

Direct research and development expenses

 

$

5,066

 

 

$

4,016

 

 

$

1,050