NVS - DICE Therapeutics: Worth A Roll At The Right Price

2023-05-08 05:28:36 ET

Summary

• Shares of oral monoclonal antibody developer DICE Therapeutics, Inc. (DICE) go into the spotlight for the first time today.
• The company recently posted encouraging Phase 1c data from its lead candidate, psoriasis therapy DC-806, which demonstrated both meaningful efficacy and safety at week 4.
• With a potential oral answer to blockbuster Cosentyx but lacking market-moving data until likely 1H24, the recent beneficial owner buying merited further investigation.
• A full investment analysis follows in the paragraphs below.

Remember that sometimes not getting what you want is a wonderful stroke of luck. ? Dalai Lama XIV

Today we take a look at a small development company whose potential and pipeline seems to merit a moderate stake while waiting for further development from its pipeline. An analysis follows below.

Company Overview

DICE Therapeutics, Inc. ( DICE ) is a South San Francisco early clinical-stage biopharmaceutical concern focused on the development of oral versions of biologically and (in many instances) commercially validated treatments, primarily in the area of immunology. The company has two clinical programs: one undergoing evaluation in a Phase 1 trial; and a second set to initiate a Phase 2b study in 1H23. DICE was formed in 2013 and went public in September 2021, raising net proceeds of $214.7 million at $17 per share. The stock currently trades around $38.00 a share, translating to a market cap of just south of $1.8 billion.

Platform

The company's current focus is monoclonal antibodies (mAb), which have transformed the treatment landscape for many inflammatory diseases such as psoriasis, irritable bowel disease, as well as psoriatic and rheumatoid arthritis. They are ideally suited to inhibit protein-protein interactions (PPIs), owing to the large nature of their complementary binding areas. However, that size makes them inapt for oral administration, as they cannot be broken down in the stomach, instead requiring subcutaneous injection and regular patient monitoring due to potential side effects. DICE is attempting to disrupt this $150 billion class of therapies by developing small-molecule oral treatments that modulate PPIs as effectively as systemic biologics.

DICE is pursuing targets that are either dimeric (having two discrete components) or trimeric (three discrete components), as the interfaces between their protein components provide an opportunity for small molecules to block the PPI. Although the binding does not directly block the receptor-binding surface, it still has the effect of disrupting the PPI.

Pipeline

DC-806 . The first target of DICE's approach is Interleukin-17 (IL-17), a proinflammatory cytokine that plays a leading role in the immunopathogenesis of plaque psoriasis and other autoimmune disorders.

The worldwide psoriasis therapy market in 2022 was estimated at $24.2 billion, of which injectable mAbs - namely Novartis' ( NVS ) Cosentyx (secukinumab) and Eli Lilly's ( LLY ) Taltz (ixekizumab) - comprised ~$5.6 billion. These therapies inhibit both IL-17AA and IL-17AF isoforms, while sparing the IL-17FF isoform - whose inhibition provides only very modest benefit at the cost of safety - and are superior (in terms of effectiveness) to Amgen's ( AMGN ) oral phosphodiesterase 4 inhibitor Otezla (apremilast). However, owing to its more convenient oral administration, Otezla sales still reached $2.3 billion in 2022. According to Evaluate Pharma, the total market for treatments targeting IL-17 mAb-approved indications - which also includes psoriatic arthritis, ankylosing spondylitis, and multiple sclerosis - was $32.0 billion in 2022, with IL-17 mAbs accounting for $7.5 billion.

The company's lead candidate is DC-806, an oral antagonist of IL-17 that - similar to Cosentyx and Taltz - inhibits both IL-17AA and IL-17AF isoforms, without affecting the IL-17FF isoform. It was assessed in a three-cohort Phase 1 trial conducted in the UK that commenced in 2021. The Phase 1c portion, which included psoriasis patients, demonstrated significant promise, achieving a mean percentage reduction in Psoriasis Area and Severity Index (PASI) from baseline at 4 weeks of 43.7% in the high dose group versus 13.3% in the placebo group (exploratory p=0.0008).

Furthermore, it was well-tolerated across all cohorts - significant, considering recent safety issues with Eli Lilly's oral mAb clinical candidate.

Armed with data that suggest DC-806 could be a best-in-class oral agent against psoriasis, DICE received an IND from the FDA in March 2023 and is on track to initiate a global, dose-ranging Phase 2b study in patients with moderate-to-severe psoriasis (PASI ? 12) and body surface area affected ? 10% in 1H23. The likely endpoints will be efficacy and safety at 12 weeks with the goal of finding an optimal dose for a Phase 3 trial. No timeline for data has been provided, but best guess is 2H24.

DICE's advancement of DC-806 was trailing Eli Lilly's LY3509754 until the latter pulled out of the oral IL-17 inhibition game in early 2022 when liver toxicity menaced its Phase 1 study. DC-806 is now the leader in the race, slightly ahead of LEO Pharma, whose LP0200 is undergoing evaluation in a Phase 1 trial. In addition to Otezla, Bristol Myers Squibb ( BMY ) markets an oral psoriasis treatment: TYK2 inhibitor Sotyktu (deucravacitinib).

DC-853 . Right behind DC-806 is DC-853, which management believes to be an improved version of DC-806, exhibiting superior potency and metabolic stability in the preclinic to support lower dosing. It is undergoing assessment in a Phase 1 study on healthy volunteers, with results expected to be read out in 2H23.

DICE is also in the discovery phase with oral candidates targeting ?4ß7 integrin and ?Vß1/?Vß6 integrin for the treatment of inflammatory bowel disease and idiopathic pulmonary fibrosis, respectively. The company also regained the commercial rights to a small molecule PD-L1 inhibitor program after Sanofi ( SNY ) stepped away near YE21.

Stock Price Performance

Marketing the idea of an oral mAb, DICE was a hot IPO, opening up $13 from its pricing at $30 a share. It began to give back its initial momentum in November 2021, which accelerated with the news of Eli Lilly abandoning its oral IL-17 program, making some leery that the same safety issues could bedevil DC-806. As such, shares of DICE retreated 67% over a seven-month period, bottoming out at $12.64 in mid-June 2022. After the proof-of-concept data was readout in October 2022, DICE surged 62% in the subsequent trading session to $40.00 a share. The company leveraged the investor enthusiasm to execute a secondary offering, raising net proceeds of $323.7 million at $36.50 a share. The stock pulled back some 20% subsequently but has now regained those levels.

Balance Sheet & Analyst Commentary

The October 2022 funding left DICE with cash and marketable securities of $574.2 million at YE22, providing it a runway into 2026.

With an oral therapy potentially as effective as subcutaneously injected Cosentyx, the Street is extremely and unanimously optimistic on DICE's prospects, featuring eight buy or outperform ratings and a median price objective of just over $60 a share.

Beneficial owner RA Capital Management agrees with the analysts, purchasing 498,556 shares at an average price of $26.99 from March 23rd through March 27th, raising its ownership interest above 15%. Three insiders did take advantage of the recent rally in the shares to disposed of just over $1.5 million worth of equity collectively last week.

Verdict

Unfortunately for DICE, the biggest (and only meaningful) data of FY23 will come from the pharmacokinetic profile of DC-853 in 2H23, as it is only being administer to healthy subjects. It will provide benchmarks versus DC-806 and commercially available anti-IL-17 meds but not much else. With the IND from the FDA in the company's pocket, the initiation of the DC-806 Phase 2b psoriasis study in 1H23 is a foregone conclusion. With no substantial market moving catalysts, shares of DICE are likely to drift with the whims of the market and biotech sector for the foreseeable future. As such, a potential better entry point could appear sometime over the ensuing months closer to $30. Obviously, a collaboration deal would derail this prognosis.

Therefore, this is a name in which I am slowly accumulating a position within the stock. DICE is a promising company with no binary catalysts over the next 12 months. The recommendation is to cost average at lower prices if the market (and no collaboration deal) provides that opportunity.

Note: This research was originally presented exclusively to Biotech Forum members on April 3rd with a recommendation to accumulate when the stock was trading at $28. It has been updated to reflect recent news events and data since then.

Shallow men believe in luck or in circumstance. Strong men believe in cause and effect ."? Ralph Waldo Emerson

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