Alnylam Pharmaceuticals, Inc. — Q3 2013 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2013. Financial amounts below are in millions of dollars unless otherwise stated. Alnylam is a clinical-stage biopharmaceutical company developing RNAi therapeutics; it had no product-sale revenue and depended on research collaborations and financing.
Financial results
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Collaboration revenue | $9.0 | $16.8 | $36.3 | $58.2 |
| Research and development | $34.5 | $22.1 | $80.9 | $64.9 |
| General and administrative | $6.8 | $12.8 | $18.8 | $34.4 |
| Operating loss | $(32.2) | $(18.1) | $(63.4) | $(41.1) |
| Net loss | $(29.7) | $(19.5) | $(56.9) | $(43.8) |
| Basic and diluted loss per share | $(0.48) | $(0.38) | $(0.93) | $(0.88) |
- Cash flow: Nine-month operating cash use was $46.3 million, versus $46.7 million in 2012. Investing cash use was $186.6 million, largely reflecting net purchases of marketable securities; financing provided $193.3 million, primarily from the January 2013 stock offering.
- Liquidity and balance sheet: At September 30, cash and cash equivalents were $11.8 million and marketable securities were $355.3 million in fixed-income securities; together, these totaled $367.1 million. The company also held $58.0 million in Regulus equity securities. Current assets were $199.2 million and current liabilities $54.9 million. Total liabilities were $149.9 million, including deferred revenue; the filing reports no debt balance.
- Equity and funding: The January 2013 offering generated $173.6 million net proceeds from 9.2 million shares. Shares outstanding rose to 63.2 million at September 30 from 52.5 million at December 31, 2012. Accumulated deficit was $563.9 million.
- Margins: The filing presents operating and net losses but does not provide a clear gross-margin measure.
Changes versus the prior comparable period
- Revenue fell 46% in Q3 and 38% over nine months. The principal driver was completion of Roche/Arrowhead performance obligations in 2012. Nine-month 2013 revenue was partly supported by recognition of $9.7 million of deferred Cubist revenue after the agreement ended, and by newer Monsanto and Medicines Company (MDCO) revenue.
- Q3 R&D rose 56%, principally from clinical-trial and manufacturing costs for patisiran, ALN-TTRsc and ALN-AT3, as well as higher stock-based compensation. Nine-month R&D increased 25%.
- G&A fell 47% in Q3 and 45% for nine months, mainly because 2012 included substantial legal and professional costs related to Tekmira litigation; the 2012 period also included restructuring costs.
- The company recorded no equity-method loss from Regulus in 2013 after its ownership fell to about 15% and it discontinued equity-method accounting. The Regulus holding is now available-for-sale; fair-value movements affected other comprehensive income and related intraperiod tax allocations.
Outlook, programs and risks
- Management expected Q4 2013 collaboration revenue to remain consistent with Q3; R&D to decrease slightly, mainly due to lower expected stock-based compensation; and G&A to remain consistent with Q3. These are near-term expectations, not product-sales guidance.
- Based on its operating plan, Alnylam believed existing cash, cash equivalents, fixed-income securities and expected cash from current alliances would fund planned operations through at least the end of 2016. It expected continued losses and warned funding needs could arise earlier; additional financing may dilute shareholders or require rights concessions.
- Pipeline priorities included patisiran, with Phase II enrollment complete and a Phase III trial expected to begin by year-end 2013; ALN-TTRsc, with interim Phase I knockdown and tolerability results reported; and ALN-AT3, for which the company expected to start Phase I in 2014. ALN-AS1 had a selected development candidate, with IND-enabling work planned. In October 2013, Alnylam and MDCO selected subcutaneous ALN-PCSsc for ongoing development.
- Management emphasized substantial scientific, clinical, regulatory, manufacturing, intellectual-property and commercialization uncertainty. The company had not established that RNAi therapeutics could be successfully commercialized and expected collaboration revenue to remain important.
- Contingencies: The University of Utah litigation challenges inventorship of Tuschl patents. The company was seeking rehearing after an appellate ruling; it had not accrued a possible loss because likelihood and amount were uncertain. Separately, Alnylam initiated arbitration over Tekmira’s claimed $5.0 million milestone; payment would be due if the milestone were determined to have been achieved.
- Other notable risks: Partner performance and termination, clinical-trial outcomes and enrollment, manufacturing capacity, patent challenges, and possible dilution are material uncertainties. A hypothetical immediate 50-basis-point interest-rate increase would reduce investment fair value by an estimated $1.7 million; the company did not hedge this exposure.
Important facts for investors to verify
- Whether clinical milestones and timelines—particularly patisiran Phase III initiation and ALN-TTRsc development—were achieved, and how subsequent safety and efficacy data compare with interim findings.
- Whether collaboration revenue, deferred revenue ($125.3 million at September 30), and partner funding support the stated runway as development spending grows.
- The outcome and potential financial or intellectual-property consequences of the Utah litigation and Tekmira milestone arbitration.
- The effect of the January 2013 equity offering and further share issuance on per-share value and ownership dilution.
- Whether Regulus valuation changes and associated tax allocations materially affect reported comprehensive income or liquidity; these are distinct from operating cash generation.