Alnylam Pharmaceuticals, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Unless stated otherwise, financial amounts below are in millions of dollars. The filing is unaudited.
Business context
Alnylam is a commercial-stage biopharmaceutical company focused on RNA interference (RNAi) therapeutics. ONPATTRO, its first approved product, was launched in 2018; approvals in Japan and Canada followed in June 2019. The company is also advancing late-stage programs including givosiran, lumasiran and vutrisiran, while partners advance inclisiran and fitusiran.
Financial performance and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $44.7 | $29.9 | $78.0 | $51.8 |
| ONPATTRO product revenue | $38.2 | $0 | $64.5 | $0 |
| Collaborator revenue | $6.5 | $29.9 | $13.5 | $51.8 |
| Research and development | $163.9 | $137.6 | $293.0 | $234.4 |
| Selling, general and administrative | $112.8 | $84.7 | $202.4 | $157.1 |
| Operating loss | $(236.3) | $(192.4) | $(425.1) | $(339.8) |
| Net loss | $(219.5) | $(163.6) | $(401.4) | $(304.8) |
| Net loss per share, basic and diluted | $(2.02) | $(1.63) | $(3.75) | $(3.04) |
Alnylam remained loss-making; no positive profit margin was reported. Q2 cost of goods sold was $4.3 million against $38.2 million of product revenue. Management said zero-cost inventory was expected to be used over the next 9–12 months; thereafter it estimated cost of goods sold at the mid- to high-teens percentage of ONPATTRO revenue.
For the six months, operating cash flow was positive $100.2 million versus cash used of $258.4 million in the prior-year period. The 2019 result included a $400.0 million Regeneron upfront collaboration payment reflected in deferred revenue, so operating cash flow should not be read as evidence of sustainable operating profitability. Investing cash use was $186.8 million, including $65.3 million of capital expenditures; financing provided $803.5 million.
At June 30, cash and cash equivalents were $1,136.3 million and marketable debt securities were $790.5 million, totaling approximately $1.93 billion. Current assets were $2,063.8 million and current liabilities $328.6 million. Long-term debt was $30.0 million, secured by cash collateral; operating lease liabilities totaled $306.6 million and are separate from debt. Accumulated deficit was $3.24 billion.
Changes and notable transactions
- Revenue increased 50% in Q2 year over year as ONPATTRO sales began to contribute; collaborator revenue fell 78%, mainly because reimbursable activity under the Sanofi Genzyme and Vir agreements declined.
- Q2 operating costs rose 26%. R&D increased 19%, including higher Regeneron-related license fees, clinical and external-service costs, and personnel expenses. SG&A increased 33%, reflecting commercial expansion and the global ONPATTRO launch.
- In January, Alnylam raised $381.9 million net in a public stock offering. Regeneron’s May transaction provided a $400.0 million collaboration upfront payment and $400.0 million for newly issued shares. These transactions materially strengthened liquidity and increased shares outstanding.
- The Regeneron collaboration covers discovery and development programs in eye, CNS and selected liver targets. The filing reports a $521.6 million transaction price for accounting purposes, including the upfront payment and estimated variable consideration; $403.0 million of collaboration contract liabilities were recorded at June 30.
- Adoption of the new lease standard added approximately $230 million of right-of-use assets and $290 million of lease liabilities at January 1, 2019; management said it did not materially affect the income statement.
Outlook, risks and contingencies
Management expected ONPATTRO revenue to increase during the remainder of 2019 with a full year of sales and additional geographic launches. It expected R&D and SG&A expenses to rise as pipeline development, regulatory preparation and commercial infrastructure expanded. The filing gives no specific revenue or earnings guidance. Management stated in the MD&A that available resources and anticipated receipts could support the Alnylam 2020 strategy for multiple years; the liquidity note describes coverage of at least the next 12 months.
Givosiran’s NDA received FDA Priority Review after quarter-end, with a February 4, 2020 action date; its European marketing application was validated. Management also reported lumasiran Phase 3 enrollment milestones and planned further clinical advancement. These outcomes remain subject to clinical, regulatory, manufacturing, reimbursement and commercialization risks. The company highlighted its continuing losses, dependence on collaborators and third-party manufacturers, uncertain product uptake and pricing, and potential need for additional financing.
Contingencies include a securities class action alleging misleading statements concerning ONPATTRO safety and efficacy; Alnylam said it would defend the case and could not predict the outcome. An Ionis arbitration over alleged technology-access fees was in discovery, with a hearing scheduled for the first half of 2020. The filing also describes potential litigation costs and risks related to intellectual property. Management concluded disclosure controls were effective as of June 30, 2019.
Important facts for investors to verify
- Subsequent ONPATTRO sales, geographic launches, payer access and product economics as zero-cost inventory is depleted.
- Whether collaborator revenue and deferred revenue convert into recurring revenue and cash flow, particularly under the Regeneron agreement.
- Actual R&D and SG&A growth, cash burn excluding upfront collaboration proceeds, and the company’s runway assumptions.
- Givosiran regulatory decisions and pipeline trial results, including safety findings and timing.
- Developments in the securities litigation and Ionis arbitration, as well as manufacturing capacity and supply risks.