Alnylam Pharmaceuticals, Inc. — 2012 Form 10-K Summary
Business context and reporting period
Alnylam is a clinical-stage biopharmaceutical company developing RNA interference (RNAi) therapeutics. This Form 10-K covers the fiscal year ended December 31, 2012; quarterly figures below identify the fourth quarter where relevant. The company had no product sales and depended on collaboration, licensing and other research-related revenue.
Its “Alnylam 5x15” strategy targeted five RNAi programs in clinical development by the end of 2015. Core programs included ALN-TTR, ALN-AT3, ALN-AS1, ALN-PCS and ALN-TMP.
Financial performance, cash flow and liquidity
| Metric | 2012 | 2011 |
|---|---|---|
| Collaboration revenue | $66.7 million | $82.8 million |
| Research and development expense | $86.6 million | $99.3 million |
| General and administrative expense | $44.6 million | $38.3 million |
| Total operating expenses | $196.2 million | $137.6 million |
| Operating loss | $129.5 million | $54.8 million |
| Net loss | $106.0 million | $57.6 million |
| Net loss per share, basic and diluted | $2.11 | $1.36 |
| Net cash used in operating activities | $115.6 million | $87.1 million |
| Cash, cash equivalents and fixed-income marketable securities at year-end | $226.2 million | $260.8 million |
| Working capital at year-end | $77.1 million | $71.0 million |
Operating margins are not a meaningful measure for this loss-making, pre-commercial business. No borrowing balance is shown in the provided balance-sheet data; liabilities were $153.5 million, including $132.3 million of deferred collaboration revenue. The filing reported $24.5 million of operating lease obligations and $11.1 million of purchase commitments.
Management said existing resources and expected receipts under current alliances were projected to fund planned operations through at least the end of 2016. Separately, the January 2013 stock offering added approximately $173.6 million of net proceeds; it was a subsequent event and is not included in December 31, 2012 cash and securities.
Material changes versus the prior comparable period
- Revenue declined 19%, primarily because the Roche/Arrowhead performance period ended in August 2012. The company expected collaboration revenue to decrease significantly in 2013 on a comparable basis.
- Operating expenses rose 43%, driven chiefly by a one-time $65.0 million Tekmira restructuring charge. Excluding that charge, reported operating expenses were $131.2 million, below 2011’s $137.6 million.
- Net loss increased by $48.4 million. A $16.1 million gain related to Regulus’s IPO and a $10.6 million tax benefit partly offset the operating loss in 2012.
- Regulus’s IPO reduced Alnylam’s ownership from about 44% to 17%; Alnylam recognized a $16.1 million gain and reported its Regulus investment at $38.7 million at year-end.
- Operating cash use increased by $28.5 million. Cash and securities declined by $34.6 million year over year, notwithstanding $86.8 million of net proceeds from a February 2012 offering.
Outlook, management commentary, risks and unusual items
- Management expected 2013 R&D expense to remain broadly consistent with 2012 and G&A expense to decrease significantly, mainly because of lower legal and other professional-service costs. These are expectations, not assurances.
- In February 2013, Alnylam granted The Medicines Company (MedCo) worldwide PCSK9 rights for a $25.0 million upfront payment, up to $180.0 million in specified milestones and scaled double-digit royalties. The partner may terminate without cause on four months’ notice.
- In February 2013, Cubist declined to opt into ALN-RSV01, and the parties terminated their agreement. Alnylam intended to seek another partner to advance the program.
- Clinical and scientific uncertainties remain material: RNAi therapeutics were unapproved, delivery and safety were not established across programs, and clinical success was uncertain. ALN-RSV01’s Phase IIb trial missed its primary endpoint, although certain prespecified analyses were statistically significant. The filing also described a death possibly related to ALN-VSP in an earlier trial and infusion reactions in some studies.
- Other major risks include reliance on collaborators and third-party manufacturers, the need for future financing, competition, reimbursement and regulatory uncertainty, and challenges to the company’s patent portfolio. The University of Utah inventorship litigation remained pending; the company had not estimated a possible loss. Tekmira-related litigation was settled in November 2012 as part of the $65.0 million restructuring.
- Alnylam reduced its workforce by approximately 33% in 2012 and recorded $3.9 million of restructuring costs. It also suspended active resource allocation to ALN-HPN to prioritize other programs.
Most important facts for investors to verify
- Whether the stated cash runway remains adequate after actual operating cash use, collaboration receipts and clinical-development spending; confirm the effect of the January 2013 offering separately.
- How much of the $132.3 million deferred revenue balance will be recognized, and whether collaboration revenue falls as management anticipated after Roche/Arrowhead obligations ended.
- Clinical progress, safety and funding requirements for ALN-TTR, ALN-AT3 and ALN-AS1, as well as the status and economics of the MedCo PCSK9 alliance.
- Whether the company can replace Cubist as a partner for ALN-RSV01 and what the Phase III path would require.
- Resolution and potential financial impact of the University of Utah litigation, and continuing patent challenges or third-party intellectual-property claims.
- Quarterly 2012 results show Q4 revenue of $8.5 million, operating expenses of $96.8 million and net loss of $62.2 million; confirm the effects of the Tekmira charge, Regulus gain and tax benefit when assessing underlying performance.
The filing reported an unqualified independent auditor opinion and effective internal control over financial reporting as of December 31, 2012.