Alnylam Pharmaceuticals, Inc. — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015; comparisons are with the corresponding 2014 periods. Amounts below are in millions of U.S. dollars unless noted. Alnylam is a clinical-stage RNAi therapeutics company and had no product sales; revenue came from collaborations.
Financial results and liquidity
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Collaboration revenue | $8.7 | $7.3 | $27.2 | $15.6 |
| Research and development expense | $67.0 | $44.7 | $125.0 | $88.4 |
| Total operating expenses | $81.6 | $52.3 | $152.4 | $329.6 |
| Operating loss | $(72.9) | $(45.0) | $(125.2) | $(314.1) |
| Net loss | $(71.8) | $(44.1) | $(122.6) | $(295.0) |
| Net loss per share, basic and diluted | $(0.85) | $(0.58) | $(1.47) | $(4.11) |
- Q2 net loss widened year over year as R&D spending and other operating costs rose. R&D increased 50% in Q2 and 41% for the first half, mainly from clinical-trial and manufacturing costs, program advancement, and increased headcount.
- First-half 2014 expenses included a $220.8 million Sirna asset-acquisition in-process R&D charge; its absence in 2015 chiefly explains the lower year-over-year first-half operating expense and net loss. 2014 also included an $18.2 million income-tax benefit.
- At June 30, cash and cash equivalents were $151.3 million and marketable securities were $1,245.5 million, including $64.6 million of Regulus equity securities. Cash, cash equivalents and fixed-income marketable securities totaled about $1.40 billion, excluding Regulus. Total assets were $1.53 billion and total liabilities $122.2 million. No debt is reported in the provided balance-sheet data.
- First-half operating cash use was $81.7 million, versus $88.3 million in 2014. Financing provided $606.1 million, including $496.4 million net proceeds from a January public offering and $89.0 million from Genzyme share purchases. Investing used $448.3 million, primarily for marketable-security purchases. Cash and cash equivalents ended the period at $151.3 million.
- Shares outstanding increased to 84.5 million at June 30 from 77.2 million at December 31, 2014, reflecting equity issuance and other share activity. The filing reports no gross margin measure.
Material changes and business developments
- Collaboration revenue rose 19% in Q2 and 75% for the first half. The filing attributes the increases to work under Genzyme and The Medicines Company agreements, and, for the first half, revenue recognition following a Monsanto agreement amendment and certain non-recurring milestones.
- Management expected collaboration revenue to decline in the second half of 2015, primarily because Takeda revenue amortization concluded in May. Deferred revenue was $62.7 million at June 30.
- Clinical progress included continued enrollment in Phase 3 studies of patisiran and revusiran; reported positive 12-month patisiran extension data; and advancement of ALN-AT3 and ALN-CC5 based on early clinical findings. Phase 1 studies of ALN-AS1 and ALN-AAT began, and enrollment in the ALN-PCSsc Phase 1 trial was completed.
- Alnylam reported three revusiran Phase 2 extension-study discontinuations by August 5, 2015, associated with injection-site reactions, some with diffuse rash. The broader study population was otherwise described as generally well tolerated; initial results were planned for late 2015.
- The company’s stated Alnylam 2020 goal is three marketed products and ten clinical programs, including four late-stage programs, by the end of 2020. Management expected R&D expense to rise in the second half of 2015 and G&A to increase slightly.
Outlook, commitments and risks
- Alnylam said existing cash, cash equivalents, fixed-income securities and expected cash from current alliances were expected, under its operating plan, to support achievement of its 2020 goal. It also warned that additional funding may be needed earlier than expected; future financing may be unavailable or dilutive, and could require slowing programs or relinquishing rights.
- The company had an accumulated deficit of $1.1 billion, expected significant losses to continue, and could not predict when, if ever, it would generate product revenue or become profitable. Clinical, regulatory, manufacturing, financing and collaboration outcomes are uncertain.
- New Cambridge leases increase facility lease obligations through 2034 by $409.3 million; updated future minimum lease payments total approximately $459.5 million. The 675 West Kendall Street lease covers about 295,000 square feet, with rent expected to commence around 2019.
- Utah litigation over inventorship and related damages claims remained pending; Alnylam had sought summary judgment and expected a ruling in Q3 2015. No possible loss estimate was recorded because the likelihood and amount were uncertain. Alnylam also sued Dicerna over alleged trade-secret misappropriation and sought injunctive relief and damages.
- Interest-rate sensitivity: an immediate, uniform 50-basis-point increase was estimated to reduce the fair value of interest-sensitive investments by $5.1 million; the company did not hedge this exposure. No impairment charges on fixed-income securities were recorded for the first half.
- Management concluded disclosure controls were effective as of June 30, 2015, and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Progress, safety and enrollment in the Phase 3 patisiran and revusiran programs, including the significance of revusiran-related discontinuations.
- Whether collaboration revenue, milestone receipts and partner participation develop as anticipated, especially after the expected Takeda revenue decline.
- R&D spending, operating cash burn and the assumptions underlying management’s estimate that resources support the 2020 plan.
- Cash and investment portfolio values, including Regulus exposure and unrealized market-value changes; the first-half comprehensive loss included a $30.0 million unrealized securities loss.
- Potential financial and intellectual-property consequences of the Utah and Dicerna matters, and the status of the Tekmira arbitration, for which a decision was expected in Q3 2015.
- Long-term lease commitments, future equity dilution and Genzyme’s ownership and related rights.