DICERNA PHARMACEUTICALS : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

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 I, Item 1A - "Risk Factors" and "Special Note
Regarding Forward-Looking Statements" included elsewhere in this Annual Report
on Form 10-K.
Overview
Dicerna Pharmaceuticals, Inc. ("we", "us," "our," "the Company," or "Dicerna")
is a biopharmaceutical company focused on discovering, developing, and
commercializing medicines that are designed to leverage ribonucleic acid
interference ("RNAi") to silence selectively genes that cause or contribute to
disease. Using our proprietary GalXC™ and GalXC-Plus™ RNAi technologies, Dicerna
is committed to developing RNAi-based therapies with the potential to treat both
rare and more prevalent diseases. By silencing disease-causing genes, Dicerna's
GalXC platform has the potential to address conditions that are difficult to
treat with other modalities. Initially focused on disease-causing genes in the
liver, Dicerna has continued to innovate and is exploring new applications of
its RNAi technology with GalXC-Plus, which expands on the functionality and
application of our flagship liver-based GalXC technology, yet has the potential
to treat diseases across multiple therapeutic areas. In addition to our own
pipeline of core discovery and clinical candidates, Dicerna has established
collaborative relationships with some of the world's leading pharmaceutical
companies, including Novo Nordisk A/S ("Novo"), Roche, Eli Lilly and Company
("Lilly"), Alexion Pharmaceuticals, Inc. (together with its affiliates,
"Alexion"), Boehringer Ingelheim International GmbH ("BI"), and Alnylam
Pharmaceuticals, Inc. ("Alnylam"). Between Dicerna and our collaborative
partners, we currently have more than 20 active discovery, preclinical, or
clinical programs focused on rare, cardiometabolic, viral, chronic liver, and
complement-mediated diseases, as well as neurodegenerative diseases and pain.
Most of our drug discovery and development efforts are based on the therapeutic
modality of RNAi, a highly potent, natural, and specific mechanism that can be
directed to reduce expression of a target gene. In this naturally occurring
biological process, a short, synthetic, double-stranded RNA duplex induces the
enzymatic destruction of the messenger ribonucleic acid ("mRNA") of a target
gene that contains sequences complementary to one strand of a double-stranded
RNA. Our approach is to design proprietary RNA molecules that have the potential
to engage the enzyme Dicer and direct the endogenous cellular RNAi machinery to
silence a specific therapeutic target gene. Our GalXC technology utilizes a
proprietary GalNAc-mediated conjugate to cause the liver to efficiently
internalize our synthetic RNA molecules. In contrast, our GalXC-Plus technology
incorporates new chemistries and secondary structures to enable the targeting of
genes in tissues and cell types beyond the liver. Our current clinical programs
utilize the GalXC technology. Our GalXC-Plus technology utilizes modified RNA
structures and various fully-synthetic conjugated ligands to deliver to
non-liver tissues and is used in a number of our preclinical programs. Due to
the enzymatic nature of RNAi, a single GalXC or GalXC-Plus molecule incorporated
into the RNAi machinery can destroy hundreds or thousands of mRNAs from the
targeted gene.
The GalXC RNAi platform and other proprietary RNAi delivery technologies support
Dicerna's long-term strategy to retain a full or substantial ownership stake in
our programs, subject to the evaluation of potential licensing opportunities as
they may arise, and to invest internally in programs for diseases with focused
patient populations, such as certain rare diseases or diseases with
well-characterized genetic targets. These certain rare disease programs, which
include our nedosiran and alpha-1 antitrypsin ("AAT") programs, represent
opportunities that we believe carry a relatively higher probability of success,
with genetically and molecularly defined disease markers, high unmet medical
need, a limited number of centers of excellence to facilitate reaching these
patients, and the potential for more rapid clinical development paths to
regulatory approval. For more complex diseases with multiple gene dysfunctions
and/or larger patient populations, we continue to pursue collaborations that can
provide the enhanced scale, resources, and commercial infrastructure required to
maximize these prospects.
We currently view our operations and manage our business as one segment which
encompasses the discovery, research, and development of treatments based on our
RNAi technology platform.
Executive Summary

The following table provides a summary of revenue recognized for the year ended December 31, 2020 (amounts in thousands):

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               YEAR ENDED
              DECEMBER 31,
                  2020
Novo         $      13,874
Roche               73,927
Lilly               41,529
Alexion             32,243
BI                   2,734

Total        $     164,307

Payments received from our collaboration partners during the three months and year ended December 31, 2020 were as follows (amounts in thousands):

            THREE MONTHS ENDED           YEAR ENDED
            DECEMBER 31, 2020        DECEMBER 31, 2020
Novo      $                  -      $          175,000
Roche                        -                 201,981
Lilly                   10,000                  10,000
Alexion                  7,500                  22,594
BI                           -                     260
Total     $             17,500      $          409,835



Our results of operations for and liquidity and capital resources as of the year
ended December 31, 2020 include the following:
•In January 2020, we entered into a non-cancelable real property lease agreement
for 61,282 square feet of office space at 75 Hayden Avenue in Lexington,
Massachusetts. The original term commenced during the fourth quarter of 2020 and
is for 125 months with options to extend for two additional successive periods
of five years thereafter. The aggregate total fixed rent is approximately
$41.8 million. In July 2020, we entered into an amendment to the 75 Hayden
Avenue lease. The 75 Hayden Avenue lease amendment expands the square footage
leased under the 75 Hayden Avenue lease to comprise a total of 91,728 rentable
square feet. The 75 Hayden Avenue lease amendment increases monthly base rent by
an average of $0.2 million per month.
•In February 2020, we issued and sold approximately $40.0 million of shares of
our common stock to a single institutional investor through our "at-the-market"
sales facility with Cowen and Company, LLC. In this transaction, we sold an
aggregate of 2,077,500 shares of common stock at a price of $19.25 per share,
resulting in approximately $39.2 million after a deduction of approximately
$0.8 million in sales commissions. The shares in the offering were sold pursuant
to a shelf registration statement declared effective by the Securities and
Exchange Commission ("SEC") on May 31, 2018 and a prospectus supplement filed
with the SEC on June 1, 2018.
•In April 2020, we and Alnylam entered into a collaboration and license
agreement (the "A1AT Agreement") and a patent cross-license agreement (the "PH
Agreement"). Under the A1AT Agreement, we and Alnylam will work to develop and
commercialize investigational RNAi therapeutics for the treatment of alpha-1
antitrypsin ("AAT") deficiency-associated liver disease ("AATLD"). Under the PH
Agreement, we and Alnylam cross-licensed our respective intellectual property
related to Alnylam's lumasiran and our nedosiran investigational programs for
the treatment of primary hyperoxaluria ("PH"). The non-exclusive license
agreement provides for Alnylam to pay mid- to high-single-digit royalties to
Dicerna based on global net sales of lumasiran and for Dicerna to pay
low-single-digit royalties to Alnylam on global net sales of nedosiran. The
non-exclusive cross-license agreement ensures that each party has the freedom to
develop and commercialize its respective product.
•In April 2020, Roche nominated the first of up to five targets under the
research and development portion of our collaboration agreement.
•In June 2020, the Food and Drug Administration ("FDA") granted rare pediatric
disease designation for nedosiran for the treatment of PH. Under the FDA's rare
pediatric disease designation program, the FDA may grant a priority review
voucher to a Sponsor who receives a product approval for a "rare pediatric
disease." Subject to FDA approval of nedosiran for the treatment of PH, we would
be eligible to receive a voucher that may be redeemed to receive priority review
for a subsequent marketing application for a different product candidate or
which could be sold or transferred.
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•In October 2020, Lilly filed an IND and initiated a Phase 1 study of LY3561774,
targeting the ANGPTL3 gene for the treatment of dyslipidemia. As a result of
this filing, we achieved a milestone associated with the first filing of an IND
with the FDA, entitling us to a $10.0 million payment.
•In December 2020, Novo nominated its first candidate under the Novo
Collaboration Agreement. In conjunction with the nomination of the first
development candidate, Dicerna earned a $2.5 million milestone, which we
received in February 2021. Also in December 2020, Dicerna met its obligation to
deliver GalXC molecules for the first year of the Novo Collaboration Agreement,
entitling us to a $25.0 million payment, which we received in February 2021.
•We believe we have sufficient capital, along with anticipated milestone and
other payments from existing collaborations, to fund the execution of our
current clinical and operating plans into 2023.
In February 2021, Lilly notified us of their decision to extend for an
additional year the initial research collaboration term for the extrahepatic
targets subject to the Lilly Collaboration Agreement. Under the agreement
between the companies, Lilly has the option to extend the three-year initial
research collaboration term for these extrahepatic targets for up to three
consecutive one-year periods. This first extension allows the research program
for these extrahepatic targets under the collaboration between the two companies
to continue through October 2022.
COVID-19 Update
On March 11, 2020, the World Health Organization declared COVID-19 a pandemic.
The global spread of COVID-19 has created significant volatility, uncertainty,
and economic disruption worldwide. Governments in affected regions have
implemented, and may continue to implement, safety precautions which include
quarantines, travel restrictions, business closures, and other public health
safety measures.
We have been impacted by mandatory work from home edicts directed by local
governments in the jurisdictions in which we operate. However, essential work
exemptions continue to permit critical research and development and laboratory
activities for limited personnel. Those exemptions enable some continued
discovery research and activities supporting our collaborative agreements and
our own programs. Externally, the COVID-19 pandemic has resulted in slower
enrollment in our clinical trials, and we have undertaken efforts to mitigate
potential impacts to our business including those related to conducting clinical
trials and managing our supply chain. Our operating results could be affected by
delays or suspensions of clinical development associated with COVID-19, which
have impacted and may continue to impact global healthcare systems and our trial
sites' enrollment in our clinical trials, such as we have seen in the nedosiran
pivotal PHYOX2 and belcesiran Phase 1/2 studies, and delays in the supply chain
related to COVID-19. We continue to be alert to the potential for disruptions
that could arise from COVID-19 and monitor the FDA's and other health
authorities' guidance for the conduct of clinical trials during this time.
We conduct clinical trials in various countries around the world, including the
United States ("U.S.") and other areas heavily impacted by the COVID-19
pandemic. The current supply of our investigational medicines is sufficient to
support ongoing and planned clinical trials. Based on current evaluations, our
supply chain continues to appear intact to meet at least the next 12 months of
clinical, nonclinical, and chemistry, manufacturing, and control ("CMC") supply
demands across all programs. We have undertaken efforts to mitigate potential
future impacts to the supply chain by increasing our stock of critical starting
materials required to meet our needs and our collaborative partners' needs
through 2021 and by identifying and engaging alternative suppliers. We continue
to be alert to the potential for disruptions that could arise from COVID-19 and
remain in close contact with suppliers.
It is difficult to predict what the lasting impact of the pandemic will be, and
what the impact might be if we or any of the third parties with whom we engage
were to experience additional shutdowns or other prolonged business disruptions.
Our ability to conduct our business in the manner and on the timelines presently
planned could have a material adverse impact on our business, results of
operations, and financial condition. In addition, depending on the duration and
impact of the recurrence or resurgence of COVID-19 cases or continued evolution
of other strains causing COVID-19, and depending on where the infection rates
are highest, and including the ability of regulators to continue ensuring the
timely review and approval of applications, our business, results of operations,
and financial condition may be negatively impacted. We will continue to monitor
developments as we deal with the disruptions and uncertainties relating to the
COVID-19 pandemic. Please refer to the "Financial Operations Overview" section
below for specific anticipated effects on our financial statement line items.

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Development Approach
In choosing which development programs to internally advance, we apply the
scientific, clinical, and commercial criteria that we believe allow us to best
leverage our GalXC and GalXC-Plus RNAi technologies and maximize value. Using
our GalXC RNAi technology, and applying the criteria of our development focus,
we have created a pipeline of core liver-focused therapeutic programs for
development by Dicerna. For opportunities that were not selected as a core
program opportunity, we have sought partners to fund the discovery, and
subsequently drive the development of, these non-core opportunities in exchange
for upfront payments, milestone payments, royalties on product sales, and
potentially other economic and operational arrangements. Our current
collaborations with Novo, Lilly, Alexion, and BI resulted from this effort. For
core programs targeting rare diseases, we intend to develop these programs
internally through approval. For core programs targeting larger populations, we
may seek development partners, such as our collaboration with Roche on RG6346,
under various economic and operational arrangements. Together, our core program
pipeline and our pipeline of non-core collaborative programs constitute a broad
and growing therapeutic pipeline that we believe may result in multiple valuable
approved products based on our GalXC and GalXC-Plus technologies.
In addition to the programs listed in our pipeline, we are exploring a variety
of potential programs involving gene targets in diverse tissues addressable with
our GalXC and GalXC-Plus technologies. Some of these programs may be elevated in
the future to be either a core program or a non-core collaborative program.
Under our collaborations with Novo, Roche, and Lilly, our collaborators have
rights to nominate additional programs for discovery by Dicerna and subsequent
development by the nominating collaborator, which will become part of our
non-core pipeline. In the case of our collaboration with Novo, we retain rights
to opt in to deeper participation, including enhanced economic rights, at
defined points in clinical development, for two programs nominated by Novo.
Our four current core GalXC development programs are: nedosiran for the
treatment of primary hyperoxaluria ("PH"), RG6346 for the treatment of chronic
hepatitis B virus ("HBV") infection, belcesiran (formerly DCR-A1AT) for the
treatment of AATLD, and DCR-AUD for the treatment of alcohol use disorder
("AUD").
We conduct clinical trials in various countries around the world, including the
U.S. and other areas heavily impacted by the COVID-19 pandemic. The current
supply of our investigational medicines is sufficient to support ongoing and
planned clinical trials. Based on current evaluations, our supply chain
continues to appear intact to meet at least the next 12 months of clinical,
nonclinical, and CMC supply demands across all programs. We have undertaken
efforts to mitigate potential future impacts to the supply chain by increasing
our stock of critical starting materials required to meet our needs and our
collaborative partners' needs through 2021 and by identifying and engaging
alternative suppliers. In 2020, there were delays related to several nedosiran
PHYOX programs and the belcesiran clinical trial in healthy volunteers as a
result of COVID-19. As a result, and based on the most recent updates from
clinical sites impacted by COVID-19 and precautionary measures related to the
pandemic, we regularly evaluate our expectations related to clinical development
milestones.
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The table below sets forth the state of development of our various GalXC RNAi
platform product candidates as of February 25, 2021:
[[Image Removed: drna-20201231_g2.jpg]]
Our GalXC Platform
The GalXC RNAi Platform
Dicerna's GalXC platform consists of our liver-targeted GalXC technology and our
GalXC-Plus technology for tissues outside the liver. Each utilizes a set of
proprietary double-stranded RNA structures capable of inducing RNAi and
associated chemical modifications and additions to these structures that enhance
their properties and help confer useful "drug-like" properties. Our
RNAi-inducing RNA structures consist of two strands of RNA. One of these
strands, called the guide strand, is complementary to the mRNA sequence of the
gene one is seeking to inhibit. The other strand, called the passenger strand,
includes sequences complementary to the guide strand, forming a double-stranded
RNA duplex with it. In the case of our GalXC and GalXC-Plus technologies,
additional sequences may be added to the passenger strand, including a four-base
sequence, known as a tetraloop, which is designed to enhance stability and
engineer out immunostimulatory activity and can serve as an attachment point for
various chemical additions that can facilitate delivery to diverse tissues.
GalXC RNAi Technology Targeted to the Liver
To target the liver, we conjugate the tetraloop region of our GalXC molecules to
a simple sugar, GalNAc, that is specifically recognized by a receptor on the
surface of liver hepatocytes. This leads to internalization, ultimately enabling
the GalXC molecules to access the RNAi machinery inside the hepatocyte and
deliver our targeted oligonucleotide to the RISC complex. Due to the efficiency
of this process, a full human dose may be administered via a single subcutaneous
injection.
GalXC-Plus RNAi Technology for Tissues Outside the Liver
For delivering to tissues outside the liver, we have continued to innovate our
GalXC platform using modified structures, chemistries, and conjugated moieties.
Referred to as GalXC-Plus, these proprietary technological advances extend our
expertise in RNAi silencing to address new tissues and organs outside the liver,
while retaining key pharmacological features from GalXC. In 2020, we presented
preclinical data demonstrating the potential application of our GalXC-Plus
technology to the CNS, skeletal muscle, and adipose tissue.
Research
We continue to advance our GalXC RNAi platform as it is applied to therapeutic
targets expressed in hepatocytes using GalNAc conjugates for both our
collaborative research and development programs and our internal liver-targeted
programs. All Dicerna collaborative programs include one or more liver-targeted
applications of the GalXC RNAi technology.
In addition, we are exploring applications of our RNAi technology, GalXC-Plus,
against therapeutic gene targets expressed in tissues other than the liver,
including targets expressed in the CNS, muscle tissue, adipose tissue,
tumor-associated immune cells, and other tissues. We have achieved significant
gene target knockdown (i.e., reduction in the expression of target mRNA activity
and disease biomarker activity) in multiple cell types and regions of the CNS
and other extrahepatic tissues, in both rodents and nonhuman primates. These
extrahepatic applications are based on proprietary modifications to our
well-characterized, clinical-stage GalXC platform that enable extrahepatic
delivery and pharmacological activity.
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On August 6, 2020, we presented our first preclinical data related to our
GalXC-Plus RNAi technology in CNS, skeletal muscle, and adipose tissues. Results
from preclinical studies demonstrated consistent and durable CNS-wide target
mRNA knockdown using novel constructs regardless of route of administration
(intrathecal [IT] or intracisterna magna [ICM]), and reduction in target mRNA in
skeletal muscle and adipose tissue using optimized chemistries, resulting in
equivalent and potentially highly durable target knockdown regardless of dosing
regimens.
Status of Dicerna Programs
Our current core GalXC RNAi platform development programs are as follows:
Nedosiran for Primary Hyperoxaluria
Nedosiran is our lead investigational product candidate for the treatment of PH
type 1 ("PH1"), PH type 2 ("PH2"), and PH type 3 ("PH3") and is derived from our
GalXC platform technology. PH is a family of rare, life-threatening genetic
liver disorders characterized by the overproduction of oxalate, a highly
insoluble metabolic end-product that is eliminated from the body mainly by the
kidneys. In patients with PH, the kidneys are unable to eliminate fully the
large amount of oxalate that is produced. This accumulation of oxalate
compromises the renal system, which may result in severe damage to the kidneys
and other organs.
PH encompasses three genetically distinct, autosomal-recessive, inborn errors of
glyoxylate metabolism characterized by the overproduction of oxalate. PH1, PH2,
and PH3 are each characterized by a specific enzyme deficiency. PH1 is caused by
a deficiency of glyoxylate-aminotransferase, PH2 is caused by a deficiency of
glyoxylate reductase/hydroxypyruvate reductase, and PH3 is caused by a
deficiency of 4-hydroxy-2-oxoglutarate aldolase. The last step in the production
of oxalate in the liver involves the enzyme product of the LDHA gene, making
LDHA silencing an ideal approach to blocking oxalate over-production in PH1,
PH2, and PH3. Our nedosiran product candidate seeks to block production of the
lactate dehydrogenase enzyme by silencing the LDHA gene, which is the final
common pathway of oxalate production in the liver.
As PH is characterized by overproduction of oxalate in the liver, patients with
PH are predisposed to the development of recurrent urinary tract (urolithiasis)
and kidney (nephrolithiasis) stones, composed of calcium oxalate crystals formed
from the excess oxalate. Stone formation is accompanied by diffuse deposits of
calcium oxalate in the kidneys (nephrocalcinosis) of some patients with PH,
which produces tubular toxicity, inflammation, and renal damage. This injury is
compounded by the effects of renal calculi-related obstruction, frequent
superimposed infections, and damage due to procedures needed to relieve
stone-related obstruction. Compromised renal function can eventually result in
the accumulation of oxalate in a wide range of organs including the skin, bones,
eyes, and heart. In the most severe cases, symptoms start in the first year of
life. A combined liver-kidney transplant may be undertaken to resolve PH1 or
PH2, but it is an invasive solution with limited availability and high morbidity
that requires lifelong immune suppression to prevent organ rejection. Based on
the evaluation of genome sequence databases, there may be as many as 16,000
people with PH in the U.S. and major European countries.
PHYOX™1 Single-Ascending-Dose Study
Data from the complete PHYOX1 trial, a Phase 1 single-ascending-dose study of
nedosiran in healthy volunteers and study participants with PH1 and PH2, showed
that nedosiran was generally well-tolerated in healthy volunteers and PH
participants, and no serious safety concerns were identified in this study. In
addition, nedosiran administration was associated with normalization or
near-normalization of urinary oxalate ("Uox") levels in 14 of 18 participants
with PH1 or PH2 following a single dose. We define normal and near-normal Uox as
below 0.46 mmol/1.73m2 BSA/24 hr and from 0.46 to 0.6 mmol/1.73m2 BSA/24 hr,
respectively.
PHYOX2 Multidose, Double-Blind, Randomized, Placebo-Controlled Pivotal Trial
PHYOX2 is a Phase 2 multidose, double-blind, 2:1 randomized, placebo-controlled
pivotal trial of nedosiran delivered as a once-monthly subcutaneous injection in
participants 6 and older who have PH1 or PH2. This global trial includes
countries across North America, Europe, and other regions, including Japan,
Australia, and New Zealand. The primary endpoint of the study is the percent
change from baseline in area under the curve of 24-hour Uox excretion between
Days 90 and 180. Enrollment in the PHYOX2 trial has successfully completed
globally and we anticipate the last patient to complete this study in the first
half of 2021. We expect to report top-line results from the study in mid-2021
and anticipate submitting a New Drug Application ("NDA") near the end of the
third quarter of 2021.
Commercial readiness activities continue across the organization to ensure the
timing of appropriate infrastructure, processes, and capabilities to support
Dicerna's evolution to a fully integrated biopharmaceutical company. The primary
focus is on U.S. commercialization infrastructure for nedosiran and the Medical
Affairs and Commercial teams that have been established. Additional
infrastructure and commercialization activities are paced to the PHYOX programs
and NDA preparations. Outside the U.S., active discussions for regional and/or
multinational commercial collaboration partners are underway.
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PHYOX3 Long-Term, Multidose, Open-Label Extension Study
Following positive Phase 1 data from PHYOX1 in 2019, we received clearance to
proceed with the pivotal trial (PHYOX2) and PHYOX3, a long-term, multidose,
open-label, extension study of nedosiran in PH. Unlike the PHYOX2 trial, which
requires screening and enrollment of new participants, patients are permitted to
transition into the PHYOX3 trial from any previous nedosiran trial in which they
have participated and completed.
The primary endpoint of PHYOX3 is to evaluate the impact of monthly nedosiran
administration on the annual rate of decline in estimated glomerular filtration
rate, a measure of kidney function. The PHYOX3 trial will also evaluate the
long-term effect of nedosiran on Uox excretion, new stone formation, progression
of nephrocalcinosis, and the potential to enable the gradual decrease or
elimination of patients' supportive hyperhydration therapies.
Additional PHYOX Trials: PHYOX4, PHYOX7, PHYOX8, and PHYOX-OBX
Given the fluid nature of the COVID-19 pandemic and the evolving and
extraordinary actions undertaken by clinical trial sites globally, we continue
to evaluate our clinical plans related to nedosiran. At this time, the status of
additional PHYOX trials is as follows:
•PHYOX4: Enrollment in a study of patients with PH3 began in January 2021 and
the first patient was dosed in February 2021. We anticipate top-line results
from the study mid-year 2021.
•PHYOX7: A study of PH1 and PH2 patients with severe renal impairment, including
those in dialysis, is expected to begin in the first quarter of 2021.
•PHYOX8: An open-label study in PH1 and PH2 patients aged 0-5 years with
relatively intact renal function is expected to begin in the second quarter of
2021.
•PHYOX-OBX: We initiated an observational study in the third quarter of 2020 in
participants with PH3 to evaluate the association between Uox excretion and the
rate of kidney stone formation. Enrollment of participants in this study is
expected in the first quarter of 2021.
RG6346 for Chronic Hepatitis B Virus Infection
Our GalXC RNAi product candidate for the treatment of chronic HBV
infection, RG6346, is currently being tested in a Phase 1 clinical trial. HBV is
the world's most common serious liver infection and affects an estimated 292
million people worldwide. Chronic HBV infection is characterized by the presence
of the HBV surface antigen ("HBsAg") for six months or more.
The Phase 1 trial is a randomized, placebo-controlled, double-blind study
designed to evaluate the safety and tolerability of RG6346 in healthy volunteers
and in patients with non-cirrhotic chronic HBV. Secondary objectives are to
characterize the pharmacokinetic profile of RG6346 and to evaluate preliminary
pharmacodynamic effects on markers of HBV antiviral efficacy, including
reductions of HBsAg and HBV DNA levels in blood. The Phase 1 clinical trial is
divided into three phases or groups:
•Group A is a single-ascending-dose arm in which 30 healthy volunteers received
a dose of RG6346.
•Group B is a single-dose arm in which eight participants with chronic HBV who
are naïve to nucleoside analog ("NUC") therapy received a 3.0 mg/kg dose of
RG6346 or placebo.
•Group C is a multiple-ascending-dose arm in which RG6346 (1.5, 3.0, or 6.0
mg/kg) or placebo was administered to 18 participants with chronic HBV who are
already being treated with NUCs.
To be optimally positioned to develop and commercialize RG6346 in combination
with other novel drugs, we entered into a research collaboration and licensing
agreement with Roche in October 2019. Under the terms of the agreement, we are
leading the development of RG6346 through the current Phase 1 trial, and pending
favorable results, Roche intends to further develop RG6346 with the overall goal
of developing a combination regimen to achieve a functional cure of chronic HBV
in combination with additional Roche product candidates. We expect Roche to
initiate RG6346 in a Phase 2 combination trial for the treatment of chronic HBV
infection in the first quarter of 2021.
Belcesiran (DCR-A1AT) for Alpha-1 Antitrypsin Deficiency-Associated Liver
Disease
Our GalXC RNAi product candidate for the treatment of AATLD, belcesiran, is
currently being tested in a Phase 1 clinical study. AAT deficiency is a rare,
genetic, inherited condition that can lead to liver disease in children and
adults and lung disease in adults. The condition is caused by mutations in the
SERPINA1 gene. In people with AATLD, the liver produces an abnormal version of
the AAT protein, which is prone to aggregation in the liver. This accumulation
of mutated AAT in the liver can lead to liver disease. Individuals with AATLD
also have an increased risk of having lung disease.
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Research suggests that people who have the pair of gene variants called "ZZ" are
most commonly identified as having AATLD. Recent epidemiology research indicates
that approximately 120,000 individuals in Europe and 63,000 individuals in the
U.S. carry this ZZ genotype; the genotype occurs more/most frequently in
individuals of Northern European descent. Although most individuals with this
pair will not develop liver disease, some will. Recent work indicates that the
current diagnosis rate for AATLD in individuals with the ZZ genotype is
approximately 10%, but that liver disease may remain under-diagnosed. AATLD can
affect infants, children, and adults. Liver transplantation is currently the
only effective treatment for AATLD.
Our Phase 1 trial of belcesiran is an ongoing placebo-controlled study designed
to evaluate the safety and tolerability of single doses of belcesiran when
administered to healthy adult participants. Secondary objectives are to
characterize the pharmacokinetic profile of belcesiran, and to evaluate the
preliminary pharmacodynamic effects on serum AAT protein concentrations. We
expect to initiate a Phase 2 trial in the first half of 2021 and expect to
present data from the Phase 1 trial in healthy volunteers in 2021.
In April 2020, we entered into the Alnylam Collaboration Agreement. Under the
Alnylam Collaboration Agreement, Alnylam's ALN-AAT02 and Dicerna's belcesiran
would be explored for the treatment of AATLD at our cost, and we had the option
to progress one or both of these investigational medicines through clinical
development. We selected belcesiran to advance in development for the treatment
of patients with AATLD.
DCR-AUD for Alcohol Use Disorder
We are currently pursuing development of DCR-AUD for the treatment of alcohol
use disorder ("AUD"). DCR-AUD is an investigational therapy based on Dicerna's
GalXC technology for the treatment of AUD. DCR-AUD specifically knocks down
ALDH2 gene expression in the liver, which plays a key role in alcohol
metabolism. Inhibition of ALDH2 may help individuals with AUD avoid harmful
levels of alcohol use.
AUD is a chronic condition characterized by compulsive alcohol use, loss of
control over alcohol use, and a negative emotional state when not using alcohol.
A range of medical, psychological, social, economic, and personal problems are
associated with AUD. It is estimated that 14 million adults in the U.S. are
living with AUD. With nearly 100,000 deaths annually, it is one of the leading
preventable causes of death in the U.S.
Our goal is to submit an Investigational New Drug ("IND") or Clinical Trial
Application ("CTA") filing in mid-2021 and initiate a subsequent Phase 1
single-ascending-dose trial in healthy volunteers in the third quarter of 2021.
Collaborative Program Updates
Eli Lilly and Company
During the first quarter of 2020, Lilly selected LY3819469, a GalXC molecule for
the second collaboration target in cardiometabolic disease that targets the LPA
gene, for advancement into preclinical development. We expect Lilly to file an
IND for LY3819469 in the second quarter of 2021. Another GalXC molecule,
LY3849889, is currently in preclinical development, and we expect Lilly to file
an IND for LY3849889 in the first quarter of 2022.
Lilly filed an IND and initiated a Phase 1 study of LY3561774, a GalXC molecule
for the first collaboration target in cardiometabolic disease that targets the
ANGPTL3 gene for the treatment of dyslipidemia, in the fourth quarter of 2020.
As a result of this filing, we achieved a milestone associated with the first
filing of an IND with the FDA, entitling us to a $10.0 million payment.
In February 2021, Lilly notified us of their decision to extend for an
additional year the initial research collaboration term for the extrahepatic
targets subject to the Lilly Collaboration Agreement. Under the agreement
between the companies, Lilly has the option to extend the three-year initial
research collaboration term for these extrahepatic targets for up to three
consecutive one-year periods. This first extension allows the research program
for these extrahepatic targets under the collaboration between the two companies
to continue through October 2022.
Novo Nordisk
During the fourth quarter of 2020, Novo nominated its first candidate under the
Novo Collaboration Agreement. In conjunction with the nomination of the first
development candidate, Dicerna earned a $2.5 million milestone, which we
received in February 2021. Also during the fourth quarter of 2020, Dicerna met
its obligation to deliver GalXC molecules for a defined number of targets for
the first year of the Novo Collaboration Agreement, entitling us to a $25.0
million payment. This payment was received in February 2021.
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Critical Accounting Policies and Significant Judgments and Estimates
Our discussion and analysis of our financial condition and results of operations
is based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the U.S. The
preparation of our consolidated financial statements requires us to make
estimates and apply judgments that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements, as well as the revenue and expenses
incurred during the reported periods. We base our estimates on historical
experience and on various other factors that we believe are reasonable under the
circumstances. Actual results may differ from these estimates and could have a
material impact on our consolidated financial statements.
While our significant accounting policies are more fully described in the notes
to our consolidated financial statements included elsewhere in this Annual
Report on Form 10-K, we believe the following accounting policies are the most
critical to understanding the judgments and estimates applied in our reported
financial results.
Revenue recognition
We generate 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 our technology and (ii) the provision
of services associated with the research and development of collaborative
partner product candidates. Such agreements may provide for consideration to us
in the form of upfront payments, research and development services, option
payments, milestone payments, and royalty payments on licensed products.
We account for a contract when (i) we have approval and commitment from both
parties, (ii) the rights of the parties are identified, (iii) payment terms are
identified, (iv) the contract has commercial substance, and (v) collectability
of consideration is probable.
In determining the appropriate amount of revenue to be recognized as we fulfill
our obligations under each of our collaboration agreements, management completes
the following steps: (i) identifies the contract(s) with a customer;
(ii) identifies the performance obligations in the contract; (iii) measures the
transaction price, including whether there are any constraints on variable
consideration; (iv) allocates the transaction price to the performance
obligations; and (v) recognizes revenue when (or as) we satisfy each performance
obligation.
In order to account for our contracts with customers, we identify the promised
goods or services in the contract and evaluate whether such promised goods or
services represent performance obligations. We account for those components as
separate performance obligations when the following criteria are met:
•the customer can benefit from the good or service either on its own or together
with other resources that are readily available to the customer, and
•our promise to transfer the good or service to the customer is separately
identifiable from other promises in the contract.
This evaluation requires subjective determinations and requires us to make
judgments about the promised goods and services and whether such goods and
services are separable from the other aspects of the contractual relationship.
In determining the performance obligations, we evaluate certain criteria,
including whether the promised good or service is capable of being distinct and
whether such good or service is distinct within the context of the contract,
based on consideration of the relevant facts and circumstances for each
arrangement. Factors considered in this determination include the research,
manufacturing, and commercialization capabilities of the partner; the
availability of research and manufacturing expertise in the general marketplace;
and the level of integration, interrelation, and interdependence among the
promises to transfer goods or services.
At contract inception, we determine the standalone selling price for each
performance obligation identified in the contract. If an observable price of the
promised good or service sold separately is not readily available, we utilize
assumptions that require judgment to determine the standalone selling price for
each performance obligation identified in the underlying contract, which may
include development timelines, probabilities of technical and regulatory
success, reimbursement rates for personnel costs, forecasted revenues, potential
limitations to the selling price of the product, expected technological life of
the product, and discount rates. The transaction price is allocated among the
performance obligations using the relative selling price method, and the
applicable revenue recognition criteria are applied to each of the separate
performance obligations.
The Company applies judgment in determining whether a combined performance
obligation is satisfied at a point in time or over time, and, if over time,
concluding upon the appropriate method of measuring progress to be applied for
purposes of recognizing revenue. The Company evaluates the measure of progress
each reporting period and, as estimates related to the measure of progress
change, related revenue recognition is adjusted accordingly. Changes in the
Company's estimated measure of progress are accounted for on a cumulative
catch-up basis as a change in accounting estimate and are recorded through
earnings in the period of adjustment.
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Licenses of intellectual property: If a license granted to a customer to use our
intellectual property is determined to be distinct from the other performance
obligations identified in the arrangement, we recognize 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, we apply 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. We evaluate the measure of progress each reporting period and, if
necessary, adjust the measure of performance and related revenue recognition.
Milestone payments: At the inception of each contract with a customer that
includes research, development, or regulatory milestone payments, we evaluate
whether the milestones are considered probable of being reached and estimate 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 our control 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, we reevaluate the
probability of achievement of all milestones and any related constraint, and, if
necessary, adjust 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 additional product candidates or reserve product
candidates against target genes to be identified in the future, or options that
allow a customer to designate a target as a lead product, are evaluated at
contract inception in order to determine whether those options provide a
material right (i.e., an optional good or service offered for free or at a
discount) to the customer. If the customer option represents a material right,
the material right is treated as a separate performance obligation at the outset
of the arrangement. The Company allocates the transaction price to material
rights based on the standalone selling price, and revenue is recognized when or
as the future goods or services are transferred or when the option expires.
Customer options that are not material rights do not give rise to separate
performance obligations, and 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, the option is deemed a
marketing offer, and additional option fee payments are recognized or begin
being recognized as revenue when the licensee exercises the options. The
exercise of an option that does not represent a material right is 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, when research or development services are determined not to
be capable of being distinct or distinct within the context of the contract,
those services are combined with the performance obligation that includes the
underlying license.
Royalties: For arrangements that include sales-based royalties, including
commercial milestone payments based on the achievement of a specified level of
sales, and when the license is deemed to be the predominant item to which the
royalties relate, we recognize 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,
we have not recognized any royalty revenue resulting from any out-licensing
arrangement.
We receive payments from our 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 (or as) we
satisfy our performance obligations under these arrangements. Where applicable,
amounts are recorded as contracts receivable when our right to consideration is
unconditional. We do not assess whether a contract with a customer 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.
Stock-based compensation
Our stock-based compensation programs grant awards which may include stock
options, restricted common stock, rights to acquire stock, and other stock-based
awards. Stock-based compensation cost is measured at the grant date based on the
fair value of the award and is recognized as expense over the requisite service
period, which generally represents the vesting period, and includes an estimate
of the awards that will be forfeited.
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We estimate the fair values of stock options granted to our employees and
non-employees on the grant date, rights to acquire stock granted under our
Employee Stock Purchase Plan, and the resulting stock-based compensation
expense, using the Black-Scholes option-pricing model. The Black-Scholes
option-pricing model requires the use of judgment to develop input assumptions,
some of which are highly subjective, including: (i) the fair value of our common
stock on the date of grant; (ii) the expected volatility of our stock; (iii) the
expected term of the award; (iv) the risk-free interest rate; and (v) expected
dividends. In applying these assumptions, we consider the following factors:
Fair Value of Common Stock: We use the market closing price for our common stock
on the date of grant to determine the fair value of our common stock on the date
of grant.
Expected Term: The expected term assumption represents the weighted average
period the stock options are expected to be outstanding. We use the simplified
method to calculate the expected term for options granted to employees, as our
stock option grants are considered "plain vanilla" and we do not have sufficient
historical exercise data to provide a reasonable basis upon which to estimate
the expected term due to the limited period of time our common stock has been
publicly traded. The simplified method calculates the expected term as the
average time-to-vesting and the contractual life of the options. We plan to
continue to use the simplified method until we have sufficient exercise history
as a publicly-traded company.
Expected Volatility: Due to the lack of company-specific historical and implied
volatility data, we base our estimate of expected volatility on the historical
volatility of a group of similar companies that are publicly traded. The
historical volatility is calculated based on a period of time commensurate with
the expected term assumption. The computation of expected volatility is based on
the historical volatility using the daily closing prices of a representative
group of companies with similar characteristics to us, including stage of life
cycle, financial leverage, enterprise value, risk profiles, and position within
the industry, along with historical share price information sufficient to meet
the expected life of the stock-based awards. We believe the group selected has
sufficient similar economic and industry characteristics and includes companies
that are most representative of our company. We intend to continue to
consistently apply this process using the same or similar public companies until
a sufficient amount of historical information regarding the volatility of our
own common stock share price becomes available, or unless circumstances change
such that the identified companies are no longer similar to us, in which case,
more suitable companies whose share prices are publicly available would be
utilized in the calculation.
Risk-Free Interest Rate: The risk-free interest rate is based on the implied
yield available on U.S. Treasury zero-coupon issues in effect at the time of
grant for periods corresponding with the expected term of the option.
Expected Dividend Yield: We have never paid and have no plans to pay dividends
on our common stock. Therefore, we use an expected dividend yield of zero.
Stock-based compensation expense recognized in the financial statements is based
on awards that are ultimately expected to vest. Accordingly, we are also
required to estimate forfeitures at the time of grant, and to revise those
estimates in subsequent periods if actual forfeitures differ from estimates. We
use historical data to estimate pre-vesting option forfeitures and record
stock-based compensation expense only for those awards that are expected to
vest. Our forfeiture rate estimates are based on an analysis of our actual
forfeiture experience, employee turnover behavior, and other factors. The impact
of any adjustments to our forfeiture rates would be recorded as a cumulative
adjustment in the period of adjustment. To the extent that actual forfeitures
differ from our estimates, the difference is recorded as a cumulative adjustment
in the period the estimates were revised.
Recent Accounting Pronouncements
A summary of recent accounting pronouncements that we have adopted or expect to
adopt is included in Note 2 - Summary of Significant Accounting Policies to our
consolidated financial statements (see Part I, Item 8 - "Financial Statements
and Supplementary Data" of this Annual Report on Form 10-K). Additional
information regarding relevant accounting pronouncements is provided below.
In December 2019, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") 2019-12, Simplifying the Accounting for
Income Taxes, amending accounting guidance that simplifies the accounting for
income taxes as part of its initiative to reduce complexity in the accounting
standards. The amendments eliminate certain exceptions related to the approach
for intraperiod tax allocation, the methodology for calculating income taxes in
an interim period, and the recognition of deferred tax liabilities for outside
basis differences. The amendments also clarify and simplify other aspects of the
accounting for income taxes. For public business entities, ASU 2019-12 is
required to be adopted effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2020. We are currently
evaluating the effect this standard will have on our financial statements and
related disclosures.
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Adopted in 2020
Measurement of Credit Losses
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments. The FASB
subsequently issued amendments to ASU 2016-13 which had the same effective date
as ASU 2016-13 of January 1, 2020. These standards require that credit losses be
reported using an expected losses model rather than the incurred losses model
that was previously used, and establish additional disclosures related to credit
risks associated with financial assets. The adoption of this standard did not
have a significant impact on our financial statements but required additional
disclosures.
Adopted in 2019
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), as amended by
multiple standards updates, in order to increase transparency and comparability
among organizations by requiring lessees to recognize most leases on their
balance sheets and making targeted changes to lessor accounting. The most
significant change arising from the new standard is the recognition of
right-of-use ("ROU") assets and lease liabilities for leases classified as
operating leases. Under the standard, disclosures are required to enable
financial statement users to assess the amount, timing, and uncertainty of cash
flows arising from the leases. Companies are also required to recognize and
measure leases existing at, or entered into after, the adoption date using a
modified retrospective approach, with certain practical expedients available.
Comparative periods prior to adoption have not been retrospectively adjusted.
We adopted this standard on January 1, 2019 and elected the package of three
practical expedients that permitted an entity not to (a) reassess whether
expired or existing contracts contain leases, (b) reassess lease classification
for existing or expired leases, and (c) consider whether previously capitalized
initial direct costs would be appropriate under the new standard. Initial
implementation of the standard did not have a material impact on our financial
statements but required additional disclosures.
Financial Operations Overview
Revenue
Our revenue to date has been generated primarily through research funding,
license fees and other upfront payments, option exercise fees, milestone
payments, and preclinical development activities, and research activities under
our research collaboration and license arrangements with Novo, Roche, Lilly,
Alexion, and BI. We have not generated any commercial product revenue, nor do we
expect to generate any product revenue in the near-term.
In the future, we may generate revenue from a combination of research and
development payments, license fees and other upfront payments, milestone
payments, product sales, and royalties in connection with our current or future
collaborations with partners, and product sales from our internally developed
products. We expect that any revenue we generate will fluctuate in future
periods as a result of the timing of our or our collaborators' achievement of
preclinical, clinical, regulatory, and commercialization milestones, to the
extent achieved, the timing and amount of any payments to us relating to such
milestones, and the extent to which any of our product candidates are approved
and successfully commercialized by us or a collaborator. Delays in or changes to
the research and development plans and timelines related to our collaboration
agreements are likely due to the COVID-19 pandemic. Because we recognize the
majority of our collaboration revenue on a cost-to-cost measure of progress,
revenues recognized in the near-term may be lower than originally anticipated
and could be recognized over an extended period of time as a result.
Research and development expenses
Research and development expenses consist of costs associated with our research
activities, including discovery and development of our molecules and drug
delivery technologies, clinical and preclinical development activities, and
research activities under our research collaboration and license agreements. Our
research and development expenses include:
•  direct research and development expenses incurred under arrangements with
third parties, such as contract research organizations, contract manufacturing
organizations, and consultants;
•  platform-related lab expenses, including discovery research, lab supplies,
license fees, and consultants;
•  employee-related expenses, including salaries, benefits, and stock-based
compensation expense; and
•  facilities, depreciation, and other allocated expenses, which include direct
and allocated expenses for rent and maintenance of facilities, depreciation of
leasehold improvements and equipment, and laboratory and other supplies.
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We expense research and development costs as they are incurred. We account for
non-refundable advance payments for goods and services that will be used in
future research and development activities as expenses when the service has been
performed or when the goods have been received. A significant portion of our
research and development costs are not tracked by project, as they benefit
multiple projects or our technology platform.
Delays in or changes to our research and development plans and timelines, which
impact both our internal and external resources, have occurred and may continue
to occur due to the COVID-19 pandemic. Internally, we have been impacted by
mandatory work from home edicts directed by the local governments in the
jurisdictions in which we operate. However, essential work exemptions continue
to permit critical research and development and laboratory activities for
limited personnel. Those exemptions enable some continued discovery research and
activities supporting our collaborative agreements and our own programs. We also
anticipate that the timing of hiring additional personnel may shift into later
periods than initially anticipated. Externally, a number of our clinical trial
sites have delayed and may continue to delay trial-related activities as a
result of COVID-19. Any of these factors could cause the timing of the research
and development expenses we expect to incur to shift into later periods and have
the potential to cause us to expend more funds than originally contemplated as a
result of needing to extend clinical development activities.
General and administrative expenses
General and administrative expenses consist primarily of salaries and related
benefits, including stock-based compensation, related to our executive, finance,
legal, business development, commercial, and support functions. Other general
and administrative expenses include travel expenses, professional legal fees
(excluding litigation expenses), audit, tax, and other professional services,
and allocated facility-related costs not otherwise included in research and
development expenses.
Litigation expense
Litigation expense consists of legal fees and expenses solely related to
litigation with Alnylam Pharmaceuticals, Inc. ("Alnylam").
Other income (expense)
Other income (expense) consists primarily of interest income. Interest income
consists of income earned on our cash and cash equivalents, held-to-maturity
investments, and restricted cash equivalents. We expect that interest income
will continue to decrease due to recent decreases in interest rates. Other
income (expense) also includes expense recorded for the derivative liability
established for contingent royalty and milestone payments that may be owed to
Alnylam in the future under the terms of our collaboration agreement.
Results of Operations
Comparison of the years ended December 31, 2020 and 2019
The following table summarizes the results of our operations for the periods
indicated (amounts in thousands, except percentages):
                                              YEAR ENDED
                                             DECEMBER 31,
                                         2020            2019         $ CHANGE       % CHANGE
        Revenue                      $  164,307      $   23,904      $ 140,403               *
        Operating expenses:

Research and development 205,384 109,339 96,045 87.8 %

General and administrative 72,131 42,751 29,380 68.7 %

Total operating expenses 277,515 152,090 125,425 82.5 %

        Loss from operations           (113,208)       (128,186)       

14,978 (11.7) %

Other income (expense):

        Interest income                   6,011           7,537        

(1,526) (20.2) %

        Interest expense                    (20)             (3)           (17)              *
        Other (expense) income           (5,530)            193         (5,723)              *
        Total other income, net             461           7,727        

(7,266)       (94.0) %
        Net loss                     $ (112,747)     $ (120,459)     $   7,712         (6.4) %

* Percentage change not meaningful

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Revenue

The following tables provide a summary of revenue recognized (amounts in thousands):

                 YEAR ENDED
                DECEMBER 31,
             2020           2019        $ CHANGE       % CHANGE
Novo      $  13,874      $      -      $  13,874        100.0  %
Roche        73,927             -         73,927        100.0  %
Lilly        41,529        13,127         28,402        216.4  %
Alexion      32,243         4,405         27,838               *
BI            2,734         6,297         (3,563)       (56.6) %
Other             -            75            (75)      (100.0) %
Total     $ 164,307      $ 23,904      $ 140,403               *


* Percentage change not meaningful
Revenue primarily includes amounts recognized on upfront and milestone payments.
The increase in revenue for the year ended December 31, 2020 is primarily
attributable to increased activities and associated costs under the recent
collaboration agreement with Roche, as well as under the Alexion and Lilly
collaboration agreements, as all three agreements are recognized as revenue on a
cost-to-cost measure of progress method.
Research and development expenses
The following table summarizes our research and development expenses incurred
during the periods indicated (amounts in thousands, except percentages):
                                                          YEAR ENDED
                                                         DECEMBER 31,
                                                    2020               2019            $ CHANGE             % CHANGE
Belcesiran direct research and development
expenses                                        $  14,487          $   9,652          $  4,835                    50.1  %
Nedosiran direct research and development
expenses                                           42,583             28,736            13,847                    48.2  %
Partner and additional core programs direct
research and development expenses                  57,113             21,045            36,068                   171.4  %
Total direct research and development expenses    114,183             59,433            54,750                    92.1  %
Platform-related and other discovery expenses      15,025             13,222             1,803                    13.6  %
Employee-related expenses                          64,116             31,173            32,943                   105.7  %
Facilities, depreciation, and other expenses       12,060              5,511             6,549                   118.8  %
Total                                           $ 205,384          $ 109,339          $ 96,045                    87.8  %


Research and development expenses increased $96.0 million for the year ended
December 31, 2020 compared to the year ended December 31, 2019 primarily due to
a $54.8 million increase in direct research and development expenses. Direct
research and development expenses include expenses incurred under arrangements
with third parties, such as contract research organizations, contract
manufacturing organizations, and consultants. The $54.8 million increase in
total direct research and development expenses for the year ended December 31,
2020 is primarily due to a $36.1 million increase in partner and additional core
programs direct research and development expenses, which includes increases of
$16.3 million in manufacturing costs and $13.5 million in other direct research
and development costs, largely reflective of increased activities primarily
associated with our collaborations with Lilly, Alexion, and Novo. Total direct
research and development expenses were also impacted by $13.8 million and $4.8
million increases in nedosiran and belcesiran direct research and development
expenses, respectively.
Research and development expenses were also impacted by a $32.9 million increase
in employee-related expenses, which includes salaries, benefits, and stock-based
compensation. The increase in employee-related expenses is a result of an
increase in research and development headcount necessary to support our
collaboration agreements and expanding pipeline.
We expect our overall research and development expenses to continue to increase
for the foreseeable future as we ramp our clinical manufacturing activities,
continue clinical activities associated with our core product candidates, and
continue activities under our existing collaboration agreements.
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General and administrative expenses
General and administrative expenses were $72.1 million and $42.8 million for the
years ended December 31, 2020 and 2019, respectively. General and administrative
expenses increased $29.4 million for the year ended December 31, 2020 compared
to the year ended December 31, 2019, primarily due to a $20.6 million increase
in employee-related compensation, including salaries, benefits, and stock-based
compensation, due to an increase in headcount necessary to support our growing
operations. In addition, professional consulting services increased $6.0 million
in the year ended December 31, 2020.
We expect general and administrative expenses to continue to increase in the
foreseeable future, largely due to investments in staffing and market readiness
activities.
Other income (expense)
Total other income (expense) decreased $7.3 million for the year ended
December 31, 2020 compared to the year ended December 31, 2019, primarily due to
$6.0 million of expense recorded for the derivative liability established for
contingent royalty and milestone payments that may be owed to Alnylam in the
future under the terms of our collaboration agreement.
Comparison of the years ended December 31, 2019 and 2018
The following table summarizes the results of our operations for the periods
indicated (amounts in thousands, except percentages):
                                              YEAR ENDED
                                             DECEMBER 31,
                                          2019           2018         $ CHANGE       % CHANGE
         Revenue                      $   23,904      $   6,176      $  17,728        287.0  %
         Operating expenses:
         Research and development        109,339         45,711         63,628        139.2  %
         General and administrative       42,751         21,685         21,066         97.1  %
         Litigation expense                    -         29,132       

(29,132) (100.0) %

Total operating expenses 152,090 96,528 55,562 57.6 %

         Loss from operations           (128,186)       (90,352)      

(37,834) 41.9 %

         Other income (expense):
         Interest income                   7,537          2,102          5,435        258.6  %
         Interest expense                     (3)          (603)           600        (99.5) %
         Other income                        193              -            193        100.0  %
         Total other income, net           7,727          1,499          6,228        415.5  %
         Net loss                     $ (120,459)     $ (88,853)     $ (31,606)        35.6  %

Revenue

For the year ended December 31, 2019, revenue reflects $13.1 million, $4.4
million, and $6.3 million from the Lilly, Alexion and BI collaborations,
respectively, compared to $0.1 million and $6.1 million from the Alexion and BI
collaborations, respectively, for the year ended December 31, 2018. The
increases in Lilly and Alexion revenue for the year ended December 31, 2019
reflect increased activities under each agreement, as both agreements are
recognized as revenue on a cost-to-cost measure of progress method. No revenue
was recognized under the Novo and Roche agreements during the year ended
December 31, 2019, as work had not yet commenced under either agreement.
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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, except percentages):
                                                          YEAR ENDED
                                                         DECEMBER 31,
                                                    2019              2018            $ CHANGE             % CHANGE
Belcesiran direct research and development
expenses                                        $   9,652          $  2,365          $  7,287                   308.1  %
Nedosiran direct research and development
expenses                                           28,736            15,186            13,550                    89.2  %
Partner and additional core programs direct
research and development expenses                  21,045             5,361            15,684                   292.6  %
Total direct research and development expenses     59,433            22,912            36,521                   159.4  %
Platform-related and other discovery expenses      13,222             6,325             6,897                   109.0  %
Employee-related expenses                          31,173            13,130            18,043                   137.4  %
Facilities, depreciation, and other expenses        5,511             3,344             2,167                    64.8  %
Total                                           $ 109,339          $ 45,711          $ 63,628                   139.2  %


Research and development expenses increased $63.6 million for the year ended
December 31, 2019 compared to the year ended December 31, 2018 primarily due to
a $36.5 million increase in direct research and development expenses. Direct
research and development expenses include expenses incurred under arrangements
with third parties, such as contract research organizations, contract
manufacturing organizations, and consultants. The $36.5 million increase in
total direct research and development expenses for the year ended December 31,
2019 is primarily due to a $15.7 million increase in partner and additional core
programs direct research and development expenses, which includes increases of
$8.3 million in manufacturing costs and $6.9 million in other direct research
and development costs, largely reflective of increased activities primarily
associated with our collaborations with Lilly and Alexion, as well as with
RG6346 (formerly known as DCR-HBVS). Total direct research and development
expenses were also impacted by $13.6 million and $7.3 million increases in
nedosiran and belcesiran direct research and development expenses, respectively.
Research and development expenses were also impacted by a $18.0 million increase
in employee-related expenses, which include salaries, benefits, and stock-based
compensation. The increase in employee-related expenses is a result of a 124%
increase in research and development headcount necessary to support our
collaboration agreements and expanding pipeline. Finally, platform-related
expenses increased $6.9 million primarily due to higher raw materials and lab
supplies costs of $5.0 million.
General and administrative expenses
General and administrative expenses were $42.8 million and $21.7 million for the
years ended December 31, 2019 and 2018, respectively. The $21.1 million increase
in general and administrative expenses is primarily due to increases of $10.0
million in employee-related compensation, including salaries, benefits, and
stock-based compensation, due to a 220% increase in headcount necessary to
support our growing operations. In addition, general and administrative expenses
increased $5.7 million related to professional fees and consulting costs.
Litigation expense
Litigation expenses of $29.1 million recorded during the year ended December 31,
2018 are comprised solely of litigation and settlement expenses associated with
the litigation with Alnylam.
Interest income
Interest income is comprised of interest earned from our money market accounts
and held-to-maturity investments. Interest income was $7.5 million and
$2.1 million for the years ended December 31, 2019 and 2018, respectively. The
increase was primarily due to higher held-to-maturity investments balances
amounts during the year ended December 31, 2019 primarily resulting from our
follow-on public offering in September 2018 and funds received from the
collaboration agreements with Lilly and Alexion in the fourth quarter of 2018.
Interest expense
Interest expense of $0.6 million during the year ended December 31, 2018
represents interest expense incurred on our litigation settlement payable.
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Liquidity and Capital Resources
Overview
We have historically funded our operations primarily through the public offering
and private placement of our securities and consideration received from our
collaborative arrangements with Novo, Roche, Lilly, Alexion, and BI. As of
December 31, 2020, we had cash, cash equivalents, and held-to-maturity
investments of $568.8 million compared to $348.9 million as of December 31,
2019.
On November 7, 2019, we filed a universal shelf registration statement as a
well-known seasoned issuer on Form S-3 permitting the sale of common stock,
preferred stock, debt securities, warrants, other rights, or units. We may offer
and sell these securities in one or more issuances at prices and on terms that
will be determined at the time of offering.
On February 6, 2020, we issued and sold an aggregate of approximately $40.0
million of shares of our common stock to a single institutional investor
pursuant to our common stock Sales Agreement with Cowen and Company, LLC as the
sales agent. In this transaction, we sold an aggregate of 2,077,500 shares of
common stock at a price of $19.25 per share, resulting in net proceeds of
approximately $39.2 million after a deduction of approximately $0.8 million in
sales commissions. The shares in the offering were sold pursuant to a
shelf registration statement declared effective by the SEC on May 31, 2018 and
a prospectus supplement filed with the SEC on June 1, 2018.
Payments received from our collaboration partners during the three months and
year ended December 31, 2020 were as follows (amounts in thousands):
                                                          YEAR ENDED
           THREE MONTHS ENDED DECEMBER 31, 2020       DECEMBER 31, 2020
Novo      $                                   -      $          175,000
Roche                                         -                 201,981
Lilly                                    10,000                  10,000
Alexion                                   7,500                  22,594
BI                                            -                     260
Total     $                              17,500      $          409,835


We believe that our cash, cash equivalents, and held-to-maturity investments
provide us with sufficient resources to continue our planned operations and
clinical activities into 2023.
Cash flows
The following table shows a summary of our consolidated cash flows for the
periods indicated (amounts in thousands):
                                                                      YEAR ENDED
                                                                     DECEMBER 31,
                                                          2020           2019           2018
Net cash provided by (used in) operating activities   $  175,112      $   (692)     $   18,298
Net cash (used in) provided by investing activities   $ (258,860)     $ 49,531      $ (202,731)
Net cash provided by financing activities             $   59,423      $ 

52,888 $ 169,883

Operating activities
Net cash provided by operating activities was $175.1 million compared to net
cash used in operating activities of $0.7 million for the years ended
December 31, 2020 and 2019, respectively. The $175.8 million increase in net
cash provided by operating activities for the year ended December 31, 2020 was
primarily due to a $266.0 million decrease in contract receivables largely due
to the receipt of upfront cash payments received from our collaborative partners
in 2020. This increase was offset by a decrease in deferred revenue of
$132.0 million associated with our collaboration agreements.
Net cash used in operating activities was $0.7 million compared to net cash
provided by operating activities of $18.3 million for the years ended
December 31, 2019 and 2018, respectively. The $19.0 million decrease in net cash
provided by operating activities for the year ended December 31, 2019 was
primarily due to an increased operating loss of $31.6 million. The decrease in
cash was also impacted by a $21.0 million decrease in the litigation settlement
payable as a result of the change in year over year activity. These decreases
were offset by an increase in deferred revenue of $37.9 million associated with
our collaboration agreements.
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Investing activities
Net cash used in investing activities for the year ended December 31, 2020 was
$258.9 million, compared to net cash provided by investing activities of $49.5
million for the year ended December 31, 2019. The decrease of $308.4 million in
net cash used in investing activities during 2020 primarily relates to a $540.0
million increase in purchases of held-to-maturity investments that were
partially offset by a $237.0 million increase in proceeds from the maturities of
held-to-maturity investments.
Net cash provided by investing activities for the year ended December 31, 2019
was $49.5 million, compared to net cash used in investing activities of $202.7
million for the year ended December 31, 2018. The decrease of $252.3 million in
net cash used in investing activities during 2019 primarily relates to a $337.0
million increase in proceeds from the maturities of held-to-maturity investments
that were partially offset by a $78.7 million increase in purchases of
held-to-maturity investments.
Financing activities
Net cash provided by financing activities was $59.4 million and $52.9 million
for the years ended December 31, 2020 and 2019, respectively. The increase of
$6.5 million in cash provided by financing activities is due to a $39.2 million
increase in proceeds from the issuance of common stock to an institutional
investor and a $13.3 million increase in proceeds from the exercise of stock
options and issuance of common stock under our Employee Stock Purchase Program.
These increases were partially offset by a $45.8 million decrease in proceeds
from the issuance of common stock to our collaboration partners.
Net cash provided by financing activities was $52.9 million and $169.9 million
for the years ended December 31, 2019 and 2018, respectively. The decrease in
cash provided by financing activities of $117.0 million was primarily due to the
receipt of $108.1 million in net proceeds in September 2018 from a follow-on
public offering of our common stock.
Funding requirements
We expect that our primary uses of capital will continue to be commercialization
readiness and launch activities, subject to approval of our development
candidates; third-party clinical research and development services and
manufacturing costs; compensation and related expenses; laboratory and related
supplies; legal and other regulatory expenses; and general overhead costs.
Because of the numerous risks and uncertainties associated with the development
and commercialization of our product candidates and the extent to which we may
enter into additional collaborations with third parties to participate in their
development and commercialization, we are unable to estimate the amounts of
capital outlays and operating expenditures associated with our anticipated
development activities. However, based on our current operating plan, we believe
that our available cash, cash equivalents, held-to-maturity investments, and
anticipated milestone and other payments from existing collaborations will be
sufficient to fund the execution of our current clinical and operating plans
into 2023. We based this estimate on assumptions that may prove to be incorrect,
and we could utilize our available capital resources sooner than we currently
expect. In addition, through the year ending December 31, 2021, we forecast
receiving over $100.0 million in cash from our collaborations (inclusive of the
receipt of $17.5 million in the three months ended December 31, 2020), including
anticipated milestone achievement, based on the current terms in our
collaboration agreements and anticipated timing of development in our programs
covered by such collaborations. There can be no assurance that we will actually
receive such payments under our collaboration agreements.
Our forecast of the period of time through which our financial resources will be
adequate to support our operations is a forward-looking statement that involves
risks and uncertainties, and actual results could vary materially as a result of
a number of factors. Our future capital requirements are difficult to forecast
and will depend on many factors, including:
•the potential receipt of any milestone payments under the Novo Collaboration
Agreement, Roche Collaboration Agreement, Lilly Collaboration Agreement, Alexion
Collaboration Agreement, BI Agreements, and Alnylam Collaboration Agreement and
the potential payment of any royalties under the Alnylam Collaboration
Agreement;
•the potential payment or receipt of royalty payments under the Alnylam
Cross-License Agreement;
•the terms and timing of any other collaboration, licensing, and other
arrangements that we may establish;
•the initiation, progress, timing, and completion of preclinical studies and
clinical trials for our current and future potential product candidates,
including the impact of COVID-19 on our ongoing and planned research and
development efforts and the timing of a potential commercial launch date for
nedosiran;
•our alignment with the FDA on regulatory approval requirements;
•the impact of COVID-19 on the operations of key governmental agencies, such as
the FDA, which may delay the development of our current product candidates or
any future product candidates;
•the number and characteristics of product candidates that we pursue;
•the outcome, timing, and cost of regulatory approvals;
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•delays that may be caused by changing regulatory requirements;
•the cost and timing of hiring new employees to support our continued growth;
•the costs involved in filing and prosecuting patent applications and enforcing
and defending patent claims;
•the costs of filing and prosecuting intellectual property rights and enforcing
and defending any intellectual property-related claims;
•the costs of responding to and defending ourselves against complaints and
potential litigation;
•the costs and timing of procuring clinical and commercial supplies for our
product candidates;
•the extent to which we acquire or in-license other product candidates and
technologies; and
•the extent to which we acquire or invest in other businesses, product
candidates, or technologies.
Until such time, if ever, that we generate product revenue, we expect to finance
our future cash needs through a combination of public or private equity
offerings, debt financings, potential royalty stream monetization, and research
collaboration and license agreements.
Please see the risk factors set forth in Part I, Item 1A - "Risk Factors" in
this Annual Report on Form 10-K for additional risks associated with our
substantial capital requirements.
Contractual Obligations and Commitments
The following is a summary of our contractual obligations as of December 31,
2020 (amounts in thousands):
                                                        Payments Due By Period*
                                                              More Than        More Than
                                                             1 Year and       3 Years and
                                             Less Than        Less Than        Less Than        More Than
                                Total          1 Year          3 Years          5 Years          5 Years
Operating lease obligations   $ 71,747      $    7,351      $    17,215      $     18,263      $  28,918
Finance lease obligations     $    242      $       64      $       120

$ 58 $ -

____________________________

*  Represents future minimum lease payments under our existing non-cancelable
operating leases for our offices and laboratory space and our finance lease for
equipment. Excluded from the table above are fixed lease payments of
$24.6 million associated with our newest lease in Lexington, Massachusetts. Such
lease payments were excluded, as the commencement dates have not yet occurred
for accounting purposes and lease liabilities have not yet been recognized on
our consolidated balance sheet.
We also have obligations to make future payments to licensors that become due
and payable on the achievement of certain development, regulatory, and
commercial milestones. We have not included any such potential obligations on
our consolidated balance sheet or in the table above since the achievement and
timing of these milestones were not probable or estimable as of December 31,
2020.
Off-Balance Sheet Arrangements
As of December 31, 2020, we did not have any relationships with unconsolidated
entities or financial partnerships, such as entities often referred to as
"special purpose" entities, which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes.
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