Shares of RNAi Drug Companies

Novo Nordisk AS (NVO, Financial) is shelling out $3.3 billion to buy partner Dicerna Pharmaceuticals Inc. (DRNA, Financial). That’s $38.25 per share in cash, an 80% premium to the $21.28 closing price of Dicerna on Wednesday, Nov. 17, and the third-highest premium in a deal for a publicly-traded biotech this year, according to BioPharma Dive’s database.

Yet, Wall Street thinks Novo’s getting a bargain. That’s because Dicerna stock has traded as high as $40 in the past year. An 80% premium on that price would have put $72 per share in the pockets of the biotech’s investors.

Denmark-based Novo saved some serious money in the transaction because Dicerna’s shares were torpedoed after the company’s experimental treatment for a liver disease flopped in clinical trials. The drug in question, nedosiran, spearheaded Dicerna’s research and development program, so its failure was a gut-punch to the 15-year-old company headquartered in Lexington, Massachusetts.

Along with two drugs that are in phase 2 testing at Dicerna, Novo acquires RNAi capabilities, a technology that has regained favor recently after many starts and stops. RNAi therapeutics is an innovative new class of medicines based on RNA interference—a breakthrough discovery in understanding how genes are regulated naturally within cells. The discovery of RNAi was recognized with the 2006 Nobel Prize in Medicine or Physiology.

Interest in RNAi has ebbed and flowed over the years. In the mid-2000s, large drugmakers invested heavily in the modality. Leading the way was Alnylam Pharmaceuticals Inc. (ALNY, Financial), which partnered with Roche (RHHBY, Financial) and Novartis (NVS, Financial), among others. Merck & Co. Inc. (MRK, Financial) paid $1.1 billion to acquire Sima Therapeutics, but quickly exited the partnership after problems getting RNAi medicines into cells became too big a hurdle.

But the modality is now back in vogue now that Alnylam has earned the Food and Drug Administration’s approval of the first RNAi drug. Two others from the company followed and another of its discoveries, currently the property of Novartis (NVS, Financial), is approved in Europe to treat cholesterol.

Members of Big Pharma want to get in on the RNAi party, including Johnson & Johnson (JNJ), which pledged up to $3.7 billion in a pact with Arrowhead Pharmaceuticals (ARWR, Financial). Eli Lilly and Co. (LLY, Financial), Roche and Alexion Pharmaceuticals all have licensing deals with Dicerna.

News of the Dicerna buyout pushed up shares of RNAi drugmakers Arrowhead and Alnylam higher, both by about 8%. BioPharma Dive reported that Luca Issi, an analyst at RBC Capital Markets, wrote in a note to clients that the acquisition “reiterates pharma’s appetite for platform technologies that are de-risked and close to commercial-stage” and “will have a positive read through to the broader RNAi space.”

On Thursday, Bloomberg reported that Alnylam may be a potential buyout target for Novartis, which is newly flush with cash after selling its stake in Roche for about $20 billion. The two companies were previously allied in the mid-2000s, but Novartis backed out of RNAi development in 2014 and sold the Alnylam assets it owned to Arrowhead the following year.

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