Alnylam Pharmaceuticals, Inc. — Q2 2010 Form 10-Q
Reporting period: Three and six months ended June 30, 2010. Unaudited results; financial amounts below are in U.S. dollars. Alnylam is a development-stage biopharmaceutical company focused on RNA interference (RNAi) therapeutics and had no product-sale revenue.
Financial performance and liquidity
| Metric | Q2 2010 | Q2 2009 | Six months 2010 | Six months 2009 |
|---|---|---|---|---|
| Collaboration revenue | $26.6m | $24.6m | $51.2m | $49.7m |
| Research and development expense | $28.1m | $38.6m | $52.8m | $63.9m |
| General and administrative expense | $10.1m | $8.4m | $21.3m | $16.1m |
| Operating loss | $(11.6)m | $(22.4)m | $(22.9)m | $(30.4)m |
| Net loss | $(14.6)m | $(22.7)m | $(27.0)m | $(30.6)m |
| Basic and diluted loss per share | $(0.35) | $(0.55) | $(0.64) | $(0.74) |
For the six months, operating cash outflow was $39.9m, investing cash outflow $34.4m, and financing cash inflow $3.1m; cash and cash equivalents fell $71.3m to $66.2m. Cash, cash equivalents and marketable securities totaled $396.9m at June 30, versus $435.3m at year-end 2009. Working capital was approximately $171.5m. Deferred revenue totaled $253.1m. The filing reports no material corporate borrowings; Alnylam’s maximum stated exposure related to Regulus includes $5.2m of guaranteed debt and accrued interest.
Margins are not a meaningful product-economics measure because revenue is from collaborators rather than product sales. Operating loss equaled approximately 43.7% of revenue in Q2 2010, compared with 91.1% in Q2 2009.
Changes versus the prior comparable period
- Q2 revenue rose 8%; first-half revenue rose 3%. Growth included a $1.9m share of Regulus’s upfront payment from its sanofi-aventis alliance and higher Novartis collaboration revenue.
- Q2 operating expenses fell 19%, and first-half expenses fell 7%, primarily because prior-year research and development included higher license fees, particularly payments related to Isis. General and administrative expense increased, chiefly from legal and professional fees.
- Net loss narrowed year over year, although Regulus equity-method losses increased to $5.5m for the first half, and interest income declined to $1.2m.
- Cash and marketable securities declined by $38.4m from December 31, 2009. Operating cash use increased to $39.9m from $34.7m in the first half of 2009.
Outlook, pipeline, risks and unusual items
- Management expected cash, cash equivalents and marketable securities to exceed $325m at year-end 2010 and believed existing resources and expected alliance receipts could fund planned operations for at least several years. The company nevertheless expects continued losses and significant cash needs; funding depends partly on collaborations, milestones, government support and potential equity financing.
- Management expected R&D expense to remain consistent or increase slightly in the rest of 2010; G&A, excluding legal costs, was expected to remain consistent or increase slightly. No revenue or earnings guidance was provided.
- ALN-RSV01 was in a Phase IIb trial for RSV in adult lung-transplant patients. ALN-VSP remained in Phase I; one patient developed hepatic failure and died after dosing, an event deemed possibly related to study drug. In July 2010, after the reporting date, Alnylam began a Phase I trial of ALN-TTR01.
- Alnylam’s Tuschl patent litigation remained unresolved, with a jury trial expected in late 2010 or early 2011. The company recorded no estimated liability because potential loss likelihood and amount were uncertain; legal activity contributed to higher G&A.
- A May 2010 lease amendment added 34,000 square feet, effective October 1, 2010. Lease obligations through 2016 increased by $8.9m, partly offset by $1.7m of expected sublease payments, for a net increase of $7.2m.
- Alnylam reported a possible fatal safety event in ALN-VSP, substantial dependence on alliance revenue, and risks from clinical development, delivery technology, intellectual-property disputes, collaborator performance and access to future financing. A 50-basis-point uniform interest-rate increase would have reduced portfolio fair value by an estimated $1.4m.
Important facts for investors to verify
- Clinical-trial updates, particularly the ALN-VSP safety investigation and results from the ALN-RSV01 Phase IIb trial.
- Whether Novartis exercises its integration option before the collaboration research term ends in Q4 2010; the potential payment is $100m, subject to offsets and terms described in the filing.
- Cash burn, conversion of deferred collaboration revenue into recognized revenue, and the timing and certainty of future alliance or government payments.
- Developments in the Tuschl patent litigation and any resulting impact on Alnylam’s intellectual-property rights, legal costs or contingencies.
- Regulus’s operating losses and Alnylam’s related-party exposure, including its share of losses and guaranteed debt.