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. OverviewDicerna 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
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Table of Contents 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
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 endedDecember 31, 2020 include the following: •InJanuary 2020 , we entered into a non-cancelable real property lease agreement for 61,282 square feet of office space at75 Hayden Avenue inLexington, 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 . InJuly 2020 , we entered into an amendment to the75 Hayden Avenue lease. The75 Hayden Avenue lease amendment expands the square footage leased under the75 Hayden Avenue lease to comprise a total of 91,728 rentable square feet. The75 Hayden Avenue lease amendment increases monthly base rent by an average of$0.2 million per month. •InFebruary 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 withCowen 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 theSecurities and Exchange Commission ("SEC") onMay 31, 2018 and a prospectus supplement filed with theSEC onJune 1, 2018 . •InApril 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. •InApril 2020 , Roche nominated the first of up to five targets under the research and development portion of our collaboration agreement. •InJune 2020 , theFood and Drug Administration ("FDA") granted rare pediatric disease designation for nedosiran for the treatment of PH. Under theFDA'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. 80
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•InOctober 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. •InDecember 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 inFebruary 2021 . Also inDecember 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 inFebruary 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. InFebruary 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 throughOctober 2022 . COVID-19 Update OnMarch 11, 2020 , theWorld 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 theFDA'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, includingthe 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. 81
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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 theU.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. 82
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The table below sets forth the state of development of our various GalXC RNAi platform product candidates as ofFebruary 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. 83
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OnAugust 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 theU.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 acrossNorth America ,Europe , and other regions, includingJapan ,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 onU.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 theU.S. , active discussions for regional and/or multinational commercial collaboration partners are underway. 84
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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 inJanuary 2021 and the first patient was dosed inFebruary 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 inOctober 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. 85
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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 inEurope and 63,000 individuals in theU.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. InApril 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 theU.S. are living with AUD. With nearly 100,000 deaths annually, it is one of the leading preventable causes of death in theU.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. InFebruary 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 throughOctober 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 inFebruary 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 inFebruary 2021 . 86
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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 theU.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. 87
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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. 88
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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 onU.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. InDecember 2019 , theFinancial 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 afterDecember 15, 2020 . We are currently evaluating the effect this standard will have on our financial statements and related disclosures. 89
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Adopted in 2020 Measurement of Credit Losses InJune 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 ofJanuary 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 InFebruary 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 onJanuary 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. 90
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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 endedDecember 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 endedDecember 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 endedDecember 31, 2020 compared to the year endedDecember 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 endedDecember 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. 92
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General and administrative expenses General and administrative expenses were$72.1 million and$42.8 million for the years endedDecember 31, 2020 and 2019, respectively. General and administrative expenses increased$29.4 million for the year endedDecember 31, 2020 compared to the year endedDecember 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 endedDecember 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 endedDecember 31, 2020 compared to the year endedDecember 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 endedDecember 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 endedDecember 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 endedDecember 31, 2018 . The increases in Lilly and Alexion revenue for the year endedDecember 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 endedDecember 31, 2019 , as work had not yet commenced under either agreement. 93
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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 endedDecember 31, 2019 compared to the year endedDecember 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 endedDecember 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 endedDecember 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 endedDecember 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 endedDecember 31, 2019 and 2018, respectively. The increase was primarily due to higher held-to-maturity investments balances amounts during the year endedDecember 31, 2019 primarily resulting from our follow-on public offering inSeptember 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 endedDecember 31, 2018 represents interest expense incurred on our litigation settlement payable. 94
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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 ofDecember 31, 2020 , we had cash, cash equivalents, and held-to-maturity investments of$568.8 million compared to$348.9 million as ofDecember 31, 2019 . OnNovember 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. OnFebruary 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 withCowen 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 theSEC onMay 31, 2018 and a prospectus supplement filed with theSEC onJune 1, 2018 . Payments received from our collaboration partners during the three months and year endedDecember 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
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 endedDecember 31, 2020 and 2019, respectively. The$175.8 million increase in net cash provided by operating activities for the year endedDecember 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 endedDecember 31, 2019 and 2018, respectively. The$19.0 million decrease in net cash provided by operating activities for the year endedDecember 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. 95
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Investing activities Net cash used in investing activities for the year endedDecember 31, 2020 was$258.9 million , compared to net cash provided by investing activities of$49.5 million for the year endedDecember 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 endedDecember 31, 2019 was$49.5 million , compared to net cash used in investing activities of$202.7 million for the year endedDecember 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 endedDecember 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 endedDecember 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 inSeptember 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 endingDecember 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 endedDecember 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; 96
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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 ofDecember 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 $ -
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* 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 inLexington, 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 ofDecember 31, 2020 . Off-Balance Sheet Arrangements As ofDecember 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. 97
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