Business context and reporting period
Alnylam Pharmaceuticals, Inc. is a commercial-stage RNAi therapeutics company. This unaudited Form 10-Q reports the quarter and nine months ended September 30, 2020. ONPATTRO and GIVLAARI were its two marketed products; its pipeline included late-stage programs developed independently and with partners.
Financial results and liquidity
Amounts below are in millions of dollars except per-share data. Comparisons are with the corresponding 2019 period.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $125.9 | $70.1 | $329.3 | $148.1 |
| Net product revenue | $99.2 | $46.1 | $248.7 | $110.6 |
| Collaboration revenue | $26.6 | $24.0 | $80.6 | $37.5 |
| Cost of goods sold | $21.8 | $5.2 | $55.0 | $12.9 |
| Research and development | $161.8 | $160.8 | $486.4 | $453.8 |
| Selling, general and administrative | $167.5 | $120.4 | $422.1 | $322.7 |
| Operating loss | $(225.2) | $(216.3) | $(634.2) | $(641.4) |
| Net loss | $(253.3) | $(208.5) | $(614.7) | $(609.9) |
| Basic and diluted loss per share | $(2.18) | $(1.92) | $(5.37) | $(5.63) |
- Revenue and margins: Q3 revenue rose 80%, led by product sales; nine-month revenue rose 122%. The company remained loss-making, and operating expenses exceeded revenue in both periods. COGS increased as sales grew and the company sold capitalized inventory; management expects COGS as a share of product revenue to vary.
- Cash flow: Nine-month operating cash use was $491.8 million, compared with $82.4 million in 2019. Investing cash use was $337.6 million and financing cash inflow was $777.0 million. Cash, cash equivalents and restricted cash ended at $499.2 million.
- Liquidity: Cash, cash equivalents and marketable securities totaled approximately $1.83 billion at September 30, versus $1.54 billion at December 31, 2019. Current assets were $2.55 billion and current liabilities $480.2 million. Accumulated deficit was $4.34 billion.
- Debt-like financing: The Blackstone royalty transaction generated $500 million in April and a further unconditional $500 million is due September 30, 2021. The royalty-sale liability was $1.043 billion at quarter-end; related interest expense was $28.7 million for Q3 and $56.0 million for nine months. The company had not drawn the delayed-draw term loan facility as of September 30.
Material changes versus prior period
- ONPATTRO Q3 sales increased 79% to $82.5 million, supported by international expansion; GIVLAARI contributed $16.7 million following its initial U.S. and European launches.
- Higher SG&A—up 39% in Q3 and 31% for nine months—reflected commercial and organizational growth, as well as a higher estimated Ionis arbitration liability. R&D was nearly flat in Q3 and rose 7% year to date.
- Q3 net loss widened by $44.8 million. The nine-month net loss was broadly unchanged, while operating loss improved slightly.
- Year-to-date other income included $66.6 million in realized and unrealized gains on marketable equity securities; this was offset in part by royalty-financing interest expense and lower interest income.
- Financing activity included $500 million from the royalty sale and $99.5 million from a Blackstone-affiliated equity placement. Shares outstanding increased to 116.1 million from 112.2 million at year-end 2019.
Outlook, management commentary and risks
- Management expected 2020 product revenue and collaboration revenue to increase year over year, and expected combined R&D and SG&A expenses to rise as pipeline development and commercialization continue. It said losses would continue for the foreseeable future.
- Management believed available liquidity, expected product and alliance cash flows, and Blackstone financing would support strategic goals for multiple years and could enable a self-sustainable profile without future equity financing. This remains dependent on execution, product sales, partner performance and financing availability.
- Lumasiran was under regulatory review: the FDA action date was December 3, 2020, and the European Commission decision was expected in Q4 2020 after a positive CHMP opinion. Inclisiran was being advanced by Novartis, which acquired The Medicines Company; it had received a positive EU CHMP opinion and remained under U.S. and EU review.
- COVID-19 had reduced patient demand and genetic-testing requests in Q2, delayed APOLLO-B enrollment into 2021, and created continuing risks to diagnosis, treatment, clinical trials, regulatory review, manufacturing and supply.
- Ionis arbitration: a partial award favored Ionis on a technology-access-fee issue and rejected other requested amounts; damages remained undetermined as of November 4, 2020. Alnylam increased its estimated contingent liability by $28 million. A separate securities class action’s motion to dismiss was denied on November 2, 2020; another securities complaint had been dismissed without prejudice, with a further-amendment request pending.
- The credit agreement carries secured obligations, variable interest, fees, covenants and a minimum consolidated-liquidity requirement of $100 million. The filing’s note describes a facility of up to $700 million, while the MD&A and risk-factor discussion refer to up to $750 million; the filing text does not provide a clear reconciled value.
Important facts for investors to verify
- Reconcile the stated credit-facility maximum ($700 million in the note versus $750 million elsewhere) and confirm the timing and conditions for each tranche.
- Track the Ionis arbitration’s final damages award and any resulting change to the $28 million liability estimate.
- Monitor ONPATTRO and GIVLAARI demand, market access, COVID-19 effects and the extent to which revenue growth offsets rising operating costs.
- Assess lumasiran and inclisiran regulatory outcomes, clinical milestones and partner execution, as well as the resulting royalties and milestone cash flows.
- Review the economic cost and repayment mechanics of the royalty sale, including the 11% estimated effective annual interest rate and the additional $500 million payment due in 2021.