Alnylam Pharmaceuticals, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; financial statements are unaudited. Alnylam is a clinical-stage RNAi therapeutics company with no product sales to date.
Financial performance and liquidity
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Collaboration revenue | $7.3 million | $18.5 million; down 60% |
| Operating expenses | $117.4 million | $70.8 million; up 66% |
| Operating loss | $110.0 million | $52.2 million |
| Net loss | $103.0 million; $1.21 per share | $50.8 million; $0.62 per share |
| Operating cash flow | $(83.6) million | $(26.3) million |
- Revenue fell mainly because Monsanto and Takeda revenue recognition had ended, and prior-year revenue included nonrecurring milestones. Management expected collaboration revenue to rise during the rest of 2016, including expense reimbursements and an expected Sanofi Genzyme milestone.
- Research and development expense was $96.3 million, up 66%, primarily reflecting clinical trial and manufacturing activity, pipeline expansion, headcount and stock compensation. General and administrative expense was $21.1 million, also up 66%.
- Cash, cash equivalents and fixed-income marketable securities totaled approximately $1.21 billion at March 31, excluding Regulus equity securities. Cash and cash equivalents were $231.3 million; marketable securities were $977.0 million. Management believed existing resources and expected alliance cash flows would support its Alnylam 2020 plan.
- Total assets were $1.317 billion; liabilities were $127.9 million; accumulated deficit was $1.350 billion. The filing reports no material debt outstanding at quarter-end.
- Q1 financing cash flow included $14.3 million from a Sanofi Genzyme share purchase. Investing cash flow was $117.9 million, primarily reflecting net sales and maturities of marketable securities. Stock-based compensation was $23.5 million.
- Revenue and operating margins are not useful indicators of product economics at this stage: revenue is collaboration-based and the company has no product sales. The filing does not provide a clear product gross-margin measure.
Material changes and unusual items
- Net loss approximately doubled year over year as operating expenses rose while collaboration revenue declined.
- Other income included a $5.2 million realized gain from sales of Regulus securities. The company also reported $5.2 million in other income, but the filing’s statements do not make clear whether this line consists solely of that realized gain.
- Comprehensive loss was $116.4 million, including losses and reclassification adjustments related to available-for-sale securities. The Regulus investment’s carrying value declined to $33.9 million from $51.4 million at year-end.
- Sanofi Genzyme bought 205,030 shares for $14.3 million in February, maintaining ownership of approximately 12%. Shares outstanding were 85.5 million at March 31.
Outlook, developments and risks
- Alnylam 2020 objective: Three marketed products and ten clinical programs, including four late-stage programs, by the end of 2020. These are company goals, not guaranteed outcomes.
- Pipeline timing: Patisiran Phase 3 APOLLO enrollment was complete; results were expected mid-2017 and, if positive, filings by year-end 2017 and launch in 2018. Fitusiran Phase 3 trials were planned to begin in mid- and late 2016. Other program plans included a potential ALN-TTRsc02 Phase 3 start in 2017, a focused ALN-CC5 Phase 2 study by year-end 2016, and an ALN-HBV Phase 1 start in mid-2016.
- Management expected quarterly R&D expense to increase from Q1 levels, with variability from trials, manufacturing and stock compensation; G&A was expected to remain relatively consistent with Q1.
- The company planned approximately $100 million of 2016 capital spending for a Norton, Massachusetts drug-substance manufacturing facility. The land purchase closed April 4, after quarter-end.
- On April 29, the company entered into term-loan agreements totaling up to $150 million, maturing in April 2021, at LIBOR plus 0.45%. The loans are secured by cash collateral of at least 100% of outstanding principal. The filing does not state whether amounts had been drawn by the filing date.
- Key risks include clinical and regulatory failure, uncertain safety or efficacy of RNAi and delivery technology, reliance on collaborators and third-party manufacturers, future funding needs, potential dilution, intellectual-property disputes, and construction and scale-up risks. Management expects significant losses to continue.
- Litigation: Alnylam’s principal inventorship claims dispute with the University of Utah was dismissed and Utah’s appeal was dismissed with prejudice; Alnylam separately appealed denial of approximately $8 million in fees. Alnylam’s trade-secret case against Dicerna remained in discovery, with discovery expected to close September 2016.
- Interest-rate sensitivity: a hypothetical immediate 50-basis-point increase would reduce the fair value of interest-sensitive investments by $2.6 million. The company did not hedge this exposure.
Most important facts to verify
- Whether expected Sanofi Genzyme reimbursements and milestone payments materialize, and how collaboration revenue develops after Q1.
- Clinical-trial progress, safety findings and results against the stated timelines, particularly for patisiran and fitusiran.
- Actual operating cash burn, runway assumptions and any future financing or equity dilution.
- Whether the $150 million facility is drawn, the amount of restricted cash required, and total manufacturing-project spending and completion timing.
- Developments in Dicerna litigation, the fee appeal in the Utah matter, and any resulting costs or impact on intellectual property.