Alnylam Pharmaceuticals, Inc. — 2014 Form 10-K Summary
Business context and period. This annual report covers the fiscal year ended December 31, 2014. Alnylam is a clinical-stage biopharmaceutical company developing RNA interference (RNAi) therapeutics, primarily using liver-targeted delivery technologies. Its pipeline is organized around Genetic Medicines, Cardio-Metabolic Disease, and Hepatic Infectious Disease. It had no approved products or product sales; revenue came from collaborations and other arrangements.
Financial performance and position
| Metric | FY 2014 | FY 2013 |
|---|---|---|
| Collaboration revenue | $50.6 million | $47.2 million |
| Research and development expense | $190.2 million | $113.0 million |
| In-process research and development expense | $220.8 million | None reported |
| Total operating expenses | $455.5 million | $140.1 million |
| Operating loss | $405.0 million | $92.9 million |
| Net loss | $360.4 million | $89.2 million |
| Basic and diluted loss per share | $4.85 | $1.45 |
| Cash, cash equivalents and fixed-income marketable securities | $881.9 million | $350.5 million |
| Working capital | $651.0 million | $200.2 million |
Revenue rose approximately 7%, while operating expenses more than tripled, principally because of the $220.8 million non-cash charge for the Sirna asset acquisition and a 68% increase in R&D spending. R&D growth reflected expanded clinical, manufacturing, and development activity. The company recorded a $40.2 million income-tax benefit, largely associated with tax allocation for the increase in Regulus investment value and the Genzyme equity transaction. No funded debt is identified in the financial statements provided.
Net cash used in operating activities was $165.6 million, compared with $68.7 million in 2013. Investing activities used $548.8 million, mainly from net purchases of marketable securities; financing activities provided $736.5 million, mainly from Genzyme equity purchases. Cash and cash equivalents alone were $75.2 million at year-end; the broader $881.9 million liquidity figure includes marketable securities and excludes the Regulus equity investment. Collaboration revenue is not a conventional product-sales base, so operating margins are not representative of a commercial business.
In fourth-quarter 2014, revenue was $24.0 million, operating expenses were $69.7 million, net loss was $21.4 million, and loss per share was $0.28. Fourth-quarter 2013 figures were $10.8 million, $40.4 million, $32.4 million, and $0.51, respectively. The 2014 quarterly results included the large Sirna acquisition charge in the first quarter.
Material changes and notable developments
- Alnylam acquired Sirna Therapeutics from Merck in March 2014 for $25.0 million cash and shares valued at approximately $195.8 million, recording the acquisition cost as in-process R&D. The acquisition added intellectual property, preclinical candidates, chemistry, and delivery assets.
- The 2014 Genzyme collaboration was a major strategic and financing event. Genzyme paid $700.0 million for shares and acquired collaboration rights in Genetic Medicines; related equity purchases brought 2014 financing proceeds from Genzyme to approximately $723.0 million. Genzyme held about 12% of Alnylam’s shares and received specified ownership-maintenance, voting, and other rights.
- Collaboration revenue increased modestly, but its composition shifted. Takeda contributed $22.0 million, Monsanto $15.0 million, and The Medicines Company (MDCO) $10.8 million in 2014. Management expected collaboration revenue to decrease in 2015 as Monsanto and Takeda performance obligations were scheduled to conclude.
- The company initiated Phase 3 trials of patisiran for ATTR-FAP and revusiran for ATTR cardiomyopathy. ALN-AT3, ALN-PCSsc, and ALN-CC5 were also in clinical development by early 2015; ALN-AS1 was expected to enter Phase 1 in mid-2015, subject to regulatory clearance.
- In January 2015, after year-end, Alnylam completed a public offering of 5.45 million shares for approximately $496.4 million net proceeds. Genzyme also purchased shares in concurrent private placements for approximately $70.7 million and $18.3 million.
Outlook, risks, and contingencies
Management’s “Alnylam 2020” goal was to have three marketed products and ten clinical programs, including four in late-stage development, by the end of 2020. The company expected R&D expense to increase significantly in 2015 and anticipated continued operating losses. Management stated that year-end resources, January 2015 financing proceeds, and expected alliance cash flows were expected to fund the plan; this outlook depends on development progress, spending, and partner payments.
- Clinical and regulatory risk: RNAi therapeutics and their delivery systems remained unproven, and clinical results, safety, enrollment, manufacturing, and regulatory review could delay or prevent approval. Patisiran’s and revusiran’s Phase 3 outcomes were not established.
- Partner and revenue dependence: Collaboration payments and future milestones or royalties are uncertain. MDCO may terminate its agreement without cause on four months’ notice; Genzyme and other partners control or share important development and commercial responsibilities.
- Patent litigation: The University of Utah’s inventorship case involving Tuschl patents was scheduled for trial on November 2, 2015. Alnylam said it had not estimated a potential loss because likelihood and amount were uncertain.
- Other dispute: Arbitration with Tekmira concerned a disputed $5.0 million milestone; a hearing was expected in the second quarter of 2015.
- Contractual commitments: Reported contractual cash obligations totaled $173.6 million, including $104.5 million in purchase commitments and $50.2 million in operating lease obligations. Additional contingent license milestones were excluded where amounts or timing could not be reasonably predicted.
- Unusual accounting and market items: A $220.8 million Sirna in-process R&D charge materially affected annual results. The $40.2 million tax benefit was not solely a recurring operating tax benefit. The Regulus investment was carried at fair value and was subject to market fluctuations.
Most important facts for investors to verify
- Progress, safety, and efficacy results from the patisiran and revusiran Phase 3 trials, and the status of other clinical programs.
- Whether cash burn and R&D spending track management’s plans, and how long available liquidity supports the pipeline and 2020 targets.
- Timing and amount of collaboration revenue, milestone payments, reimbursements, and any partner decisions to opt in, continue, or terminate programs.
- Resolution and financial consequences, if any, of the Utah patent litigation and Tekmira arbitration.
- Share dilution and Genzyme’s ownership, participation, and governance rights, including the impact of the January 2015 financings.
- Whether reported liquidity is assessed using cash and marketable securities separately from the Regulus equity holding, and whether contractual commitments or contingent obligations change.