Alnylam Pharmaceuticals, Inc. — Q3 2011 Form 10-Q
Business context and reporting period. Alnylam is a development-stage biopharmaceutical company focused on RNA interference (RNAi) therapeutics. This unaudited filing covers the quarter and nine months ended September 30, 2011; comparisons are with the same 2010 periods. The company had no product sales and relied primarily on collaborator revenue.
Financial performance and liquidity
Amounts below are in millions of dollars except per-share data. Operating margin is calculated as operating loss divided by revenue.
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Collaborator revenue | $20.8 | $27.7 | $62.3 | $78.8 |
| Research and development expense | $24.3 | $27.5 | $75.9 | $80.3 |
| General and administrative expense | $9.0 | $8.9 | $27.6 | $30.2 |
| Total operating expense | $33.2 | $36.4 | $103.5 | $110.5 |
| Operating loss (operating margin) | $(12.4) (-59.8%) | $(8.7) (-31.5%) | $(41.2) (-66.2%) | $(31.7) (-40.2%) |
| Net loss | $(13.2) | $(9.6) | $(43.3) | $(36.6) |
| Basic and diluted loss per share | $(0.31) | $(0.23) | $(1.02) | $(0.87) |
- Balance sheet at September 30: cash and cash equivalents of $74.3 million and marketable securities of $211.9 million, totaling $286.2 million in cash, cash equivalents and marketable securities. Total assets were $310.2 million; total liabilities $182.4 million; stockholders’ equity $127.9 million. Accumulated deficit was $386.7 million.
- Liquidity: current assets were $180.0 million versus current liabilities of $93.9 million (current ratio approximately 1.9). Deferred revenue totaled $160.5 million, including current and long-term balances.
- Cash flow, nine months: operating activities used $61.9 million; investing activities provided $61.2 million, primarily from net marketable-security sales and maturities; financing activities provided $0.5 million. Cash and cash equivalents decreased $0.3 million.
- Debt and contingencies: the balance sheet does not show borrowings. Alnylam guaranteed a portion of Regulus debt, with $5.4 million of guaranteed debt including accrued interest at September 30; its Regulus investment was carried at $1.4 million.
Material changes versus the prior comparable period
- Revenue declined 25% in Q3 and 21% for the nine months. Roche revenue was unchanged at $14.0 million in Q3 and $42.0 million year to date; lower Novartis, government-contract and other collaborator revenue drove the overall decline. The Novartis research program ended in October 2010, and the NIAID contract ended in December 2010.
- Despite lower operating expenses, operating and net losses widened as revenue fell. Nine-month R&D expense decreased 5%; clinical-trial and manufacturing expense increased to $19.5 million from $15.2 million, primarily reflecting ALN-PCS development. Lower external services and the prior-year restructuring charge partly offset that increase.
- Operating cash use improved modestly from $64.0 million to $61.9 million, but included a $50.6 million reduction in deferred revenue. A $10.7 million tax refund received in March 2011 partly offset cash use.
- Cash, cash equivalents and marketable securities fell from $349.9 million at year-end 2010 to $286.2 million. Marketable securities declined as funds were redeployed and used to fund operations.
Outlook, management commentary, risks and unusual items
- Management said existing cash, fixed-income securities and expected cash from current alliances were expected to fund planned operations for at least the next several years. It also cautioned that additional funds might be needed earlier than expected. A shelf registration filed in July 2011 permits issuance of up to $150 million of common stock and/or other securities.
- Management expected R&D and G&A expenses to remain consistent for the remainder of 2011. It expected continued operating losses for the foreseeable future and revenue to remain primarily alliance-, licensing-, government- and foundation-based.
- The “Alnylam 5x15” strategy aims to advance five RNAi programs into advanced clinical development by the end of 2015. Four core programs were identified: ALN-TTR, ALN-PCS, ALN-HPN and ALN-APC. ALN-PCS began a Phase I trial in September 2011; ALN-HPN and ALN-APC remained in preclinical development. ALN-TTR01 was in Phase I, with a second-generation formulation also being advanced.
- ALN-VSP Phase I results included evidence of biological activity, but one patient’s hepatic failure and subsequent death had been deemed possibly related to study drug. Alnylam said it intended to partner the program before Phase II. The ALN-RSV02 program remained on hold; ALN-RSV01 was in a Phase IIb study.
- Roche discontinued certain RNAi research activities in 2010. In October 2011, Arrowhead announced it had acquired Roche RNA-therapeutics assets, including the Alnylam agreement. The agreement remained in effect at quarter-end; Alnylam said a termination or modification could prompt reassessment of its revenue-recognition period.
- Other post-quarter development: Alnylam announced an October 2011 VaxiRNA collaboration with GSK for influenza vaccine production, with research funding and potential milestone and unit-sales payments.
- A $0.6 million impairment charge was recorded on Tekmira equity securities; no impairment was recorded on fixed-income securities. Revenue recognition for existing major collaboration agreements generally deferred upfront and milestone proceeds over performance periods.
- Material litigation includes Tekmira/Protiva claims concerning confidential information, trade secrets, contracts and related matters, and a University of Utah claim seeking changes to inventorship of Tuschl patents. Alnylam disputed the claims; it recorded no estimate of possible losses because likelihood and amount were uncertain. A separate Tuschl dispute was settled in March 2011.
- Key risks include clinical and regulatory failure, unproven RNAi delivery and safety, dependence on collaborators and contract manufacturers, intellectual-property disputes, ongoing losses and financing needs. Management reported disclosure controls were effective as of September 30, 2011, and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether collaboration revenue, particularly from Roche and Takeda, can be maintained or replaced as programs and agreements change.
- Actual cash burn and runway relative to management’s “at least several years” estimate, including the effect of deferred-revenue runoff, trial spending and any financing.
- Clinical progress and safety outcomes for ALN-TTR, ALN-PCS, ALN-RSV01 and ALN-VSP, including the reported possibly treatment-related ALN-VSP death.
- Developments in the Tekmira/Protiva and University of Utah litigation, potential effects on licensed delivery technology or patents, and any resulting costs or liabilities.
- Whether the Arrowhead-Roche transaction changes the Roche collaboration, and whether the October 2011 GSK VaxiRNA agreement produces the anticipated funding or milestones.