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How Tekmira Became Canada’s Hottest Biotech Stock

In January 2014, a perfect storm of positive corporate, industry, and investor validation occurred that has rewarded Tekmira with a surging valuation...
In January 2014, a perfect storm of positive corporate, industry, and investor validation occurred that has rewarded Tekmira with a surging valuation…

Tekmira (TSX:TKM, Nasdaq:TKMR) has always had a compelling story -the company is a pioneer in a exciting new area of medicine with best-in-class technology -but until very recently it lacked a broad investor audience.

In late 2013, however, the company made some strategic decisions that helped grow its investor appeal greatly and turned the stock into one of the best performing in North America so far this year.

In January, a perfect storm of positive corporate, industry and investor validation occurred that has rewarded Tekmira with a newfound investor audience and a surging valuation. Shares of the Burnaby-based company have exploded; from a December 31st close of $8.45 to $31.50 this past Friday. After years of going under appreciated, how has it all come together so quickly?”

Tekmira is working in a relatively new area of drug development known as RNA interference (RNAi). RNAi is a new approach to drug development, whereby genes, that produce proteins implicated in disease, can be “silenced”; hence it is sometimes referred to as gene silencing.

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Tekmira’s biggest contribution to RNAi has been their lipid nanoparticle (LNP) delivery technology. LNP is at the forefront of RNAi delivery. No RNAi delivery technology has been more broadly studied or partnered / monetized than LNP. Tekmira also maintains an interest in RNAi drug development. Until recently the company’s drug development focus was squarely on two assets, TKM-Ebola and TKM-PLK1. Both are attractive products, TKM-Ebola fully funded under a $140-million U.S. Department of Defense contract, and TKM-PLK1 is one of the most advanced oncology products in the RNAi class.

Yet even with these excellent clinical assets, plus its best-in-class delivery technology, Tekmira still struggled to strike a chord with a broad investment audience. In the fall of 2013, the company announced an ambitious plan to expand its pipeline. Tekmira announced plans to develop a product for hepatitis B virus, alcohol dependency, and certain orphan/rare diseases. The company also strongly reiterated their plans to monetize their LNP delivery through strategic collaborations. Almost immediately investor interest in Tekmira increased –its expanded development plans, coupled with its ongoing partnering efforts, seemed to capture investor’s imaginations.

Tekmira was able to tap into the ground swell of institutional interest in RNAi that had been steadily building over the past 18 months.

Following the expanded pipeline announcement, Tekmira raised (US)$34.5-million that not only strengthened its balance sheet but also attracted broad U.S. institutional ownership and additional U.S. sell-side research. By completing the financing, Tekmira was able to tap into the ground swell of institutional interest in RNAi that had been steadily building over the past 18 months. Pull up the 12-month chart of Tekmira’s peer Arrowhead Research (Nasdaq: ARWR) for an example of the exponential increase in investor interest in RNAi. Or look at an 18-month chart for Alnylam (Nasdaq: ALNY), the leading developer of RNAi therapeutics, and see its meteoric rise. Relative to these peers, Tekmira had been a laggard throughout 2013. But with an expanded pipeline, improved balance sheet, and new investor following it entered 2014 in a great position to benefit from the surging investor interest in RNAi.

The perfect storm for Tekmira really started on January 12th, the eve of the biggest biotech investor gathering of the year, JP Morgan’s Annual Healthcare Conference in San Francisco, when Alnylam announced a massive partnership with biotech giant Genzyme. Genzyme’s (US) $700-million investment in Alnylam was incredibly validating for the RNAi sector. Without diving too deeply into the history of RNAi, the sector once attracted Big Pharma R&D collaborations worth hundreds of millions. But the space had fallen out of favour, and until the Alnylam Genzyme deal, there hadn’t been a sizable validating transaction in more than five years. The Genzyme deal signified that the pharmaceutical/biotech industry was finally waking up to what investors already knew; that RNAi is simply a great investment.

The final piece of the puzzle fell into place for Tekmira in the last days of January when a new RNAi company, Dicerna Pharmaceuticals (Nasdaq: DRNA), had its IPO.

The next morning, January 13th, amidst the opening of the biotech love-in that is the JP Morgan Conference, and the RNAi love-in post the Alnylam Genzyme deal, Tekmira delivered its own validation when it announced a collaboration with Monsanto. Tekmira had been alluding to business development deals in the months leading up to the announcement, so the (US)$86-million delivery collaboration ($14.5 upfront) with Monsanto represented a critical milestone. Although Tekmira had a history of doing LNP delivery deals with industry partners, it had not closed a deal in more than two years. Investor doubt had begun to surface as to whether LNP was still the best-in-class delivery technology for RNAi and whether Tekmira would be able to monetize the platform. So the Monsanto deal was both validating for the company and their delivery platform, as it removed an overhang of doubt about the company’s ability to partner LNP.

The final piece of the puzzle fell into place for Tekmira in the last days of January when a new RNAi company, Dicerna Pharmaceuticals (Nasdaq: DRNA), had its IPO.

As discussed above, the investor interest in RNAi had been building over the past one to two years, but it wasn’t until the Dicerna IPO that we saw something different: investor urgency to own RNAi.

The Dicerna IPO was priced at $15, the issue was heavily oversubscribed and it closed its first day of trading at $46. The stock has since settled back into the mid-30s. Nevertheless the offering was an incredible demonstration of investor appetite for the space. The already substantial investor audience for RNAi companies suddenly became that much bigger, creating further demand for Tekmira and its peers.

Since January, there have been analyst upgrades, conference presentations, and some new preclinical data, all of which have contributed to Tekmira’s surging market cap. However, the foundation for valuation growth really started in late 2013 with the pipeline expansion and follow-on financing. These two events were critical in building an investor audience that has grown exponentially with all the validating events that occurred in early 2014. Now that Tekmira has an audience, the story is even more compelling.

Disclosure: Hogan Mullally is a shareholder of Tekmira and an investor relations consultant to the company.

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