Alnylam Pharmaceuticals, Inc. — Q1 2011 Form 10-Q
Reporting period: Three months ended March 31, 2011; unaudited. Alnylam is a clinical-stage biopharmaceutical company developing RNA interference (RNAi) therapeutics and relies primarily on collaborations and licensing for revenue.
Financial performance and position
Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
| Metric | Q1 2011 | Q1 2010 / comparison |
|---|---|---|
| Collaboration revenue | $20.9 | $24.6; down 15% |
| Research and development expense | $26.3 | $24.7; up 7% |
| General and administrative expense | $10.2 | $11.2; down 8% |
| Total operating expenses | $36.6 | $35.9; up 2% |
| Operating loss | $(15.7) | $(11.3) |
| Net loss | $(16.3) | $(12.3) |
| Basic and diluted loss per share | $(0.38) | $(0.29) |
Revenue remained collaboration-based; the filing reports no product sales. Gross margin is not presented. Q1 2011 revenue included Roche $14.0 million, Takeda $5.8 million, Novartis $0.1 million, and other sources. Revenue fell mainly because the Novartis research program ended in October 2010 and the NIAID contract ended in December 2010. R&D spending rose mainly with clinical trial and manufacturing costs for ALN-RSV, ALN-VSP and ALN-TTR.
Operating cash use was $6.3 million, compared with $15.6 million in Q1 2010. The 2011 amount included a $10.7 million income-tax refund, partly offset by a $9.9 million decrease in deferred revenue and a $3.5 million decrease in accounts payable. Investing activities provided $22.3 million, primarily from net sales and maturities of securities; financing activities provided $0.01 million. Cash and cash equivalents increased to $90.6 million from $74.6 million at year-end.
At March 31, 2011, cash, cash equivalents and marketable securities totaled $342.8 million, versus $349.9 million at December 31, 2010. Total assets were $369.1 million; current assets were $250.7 million and current liabilities $99.3 million. Deferred revenue totaled $201.2 million. The balance sheet lists no company borrowings; separately, Alnylam guaranteed a portion of Regulus debt, with its reported maximum exposure including the investment and guaranteed debt. Accumulated deficit was $359.6 million. No fixed-income securities impairment was recorded.
Material changes and business developments
- Revenue declined year over year as the Novartis research collaboration concluded and government-contract revenue fell after the NIAID contract ended.
- The final $10 million Takeda technology-transfer milestone was paid in March 2011.
- R&D increased while G&A declined; the filing attributes lower G&A principally to reduced consulting and professional-services costs. A 2010 restructuring reduced the workforce by about 25%; no new restructuring charges were recorded in Q1, and $0.3 million remained accrued at quarter-end.
- The company settled Tuschl patent litigation in March 2011. The agreement provided mutual releases and dismissal of claims and established arrangements for future patent prosecution; Alnylam also granted UMass a limited right to sublicense U.S. Tuschl II patents in exchange for a share of certain future sublicense income.
- Two new legal matters arose: Tekmira and Protiva sued Alnylam alleging trade-secret and related claims; Alnylam denied the claims and filed counterclaims. The University of Utah filed an inventorship complaint concerning Tuschl patents. Alnylam disputes both matters and recorded no liability because loss likelihood and amount were uncertain.
Outlook, management commentary and risks
Management expects continued losses for several years and says results may fluctuate. It expects R&D expense and G&A expense to decrease slightly in subsequent quarters of 2011, while continuing to devote substantial resources to research and development. Management believes existing cash, cash equivalents and fixed-income securities, together with expected receipts under current alliances, can fund planned operations for at least the next several years; it cautions that additional funding could be needed sooner than expected and may not be available on acceptable terms.
Alnylam’s “Alnylam 5x15” strategy targets five RNAi programs in advanced clinical development by the end of 2015. It planned to designate and begin preclinical work on two additional candidates by year-end 2011. Core programs included ALN-TTR, ALN-PCS and ALN-HPN; partner-based programs included ALN-RSV, ALN-VSP and ALN-HTT. These are development objectives, not assurances of approval or commercialization. The filing reports no numerical revenue or earnings guidance.
- ALN-TTR01 Phase I enrollment could expand to up to 36 patients following favorable safety data to date; ALN-TTR02 was also being advanced.
- ALN-VSP Phase I enrollment was complete, with more than 40 patients treated. The filing disclosed that one patient experienced hepatic failure and died after a second dose; the event was considered possibly related to study drug. The company planned to partner the program before Phase II.
- ALN-RSV01 was in a Phase IIb trial; an interim analysis could increase enrollment from 76 to as many as 120 patients. ALN-RSV02 development was on hold by joint decision with Cubist.
- Roche had announced in November 2010 that it was discontinuing certain research and early-development activities, including RNAi research; the alliance remained in effect at quarter-end.
Principal risks include the unproven nature of RNAi therapeutics and delivery technologies, clinical and regulatory uncertainty, dependence on collaborators and third-party manufacturers, future financing needs, intellectual-property challenges and litigation. The filing also notes that a uniform 50-basis-point increase in interest rates would hypothetically reduce the fair value of interest-sensitive investments by about $1.0 million. Management reported disclosure controls and procedures were effective at the reasonable-assurance level.
Important facts for investors to verify
- Progress, safety findings and next milestones for ALN-TTR, ALN-PCS, ALN-HPN, ALN-RSV and ALN-VSP, including follow-up on the possibly treatment-related ALN-VSP death.
- Whether Roche’s withdrawal from RNAi research affects alliance performance, revenue recognition or future collaboration receipts.
- Developments and potential financial or intellectual-property consequences of the Tekmira/Protiva and University of Utah litigation, and implementation of the Tuschl settlement.
- Cash burn, deferred-revenue recognition, collaboration milestone timing and whether management’s stated multi-year funding outlook remains supportable.
- Any changes to the 2011 expense outlook, the 5x15 development objectives or the status of the ALN-RSV02 program.