Alnylam Pharmaceuticals, Inc. — Q3 2012 Form 10-Q
Reporting period: Three and nine months ended September 30, 2012. Financial amounts below are in U.S. dollars; statement amounts are in millions unless noted. Alnylam is a clinical-stage biopharmaceutical company developing RNA interference (RNAi) therapeutics. It had no product sales; revenue came from research collaborations.
Financial results and liquidity
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Collaboration revenue | $16.8 | $20.8 | $58.2 | $62.3 |
| Research and development expense | $22.1 | $24.3 | $64.9 | $75.9 |
| General and administrative expense | $12.8 | $9.0 | $34.4 | $27.6 |
| Total operating expense | $34.9 | $33.2 | $99.3 | $103.5 |
| Operating loss | $(18.1) | $(12.4) | $(41.1) | $(41.2) |
| Net loss | $(19.5) | $(13.2) | $(43.8) | $(43.3) |
| Net loss per share, basic and diluted | $(0.38) | $(0.31) | $(0.88) | $(1.02) |
- At September 30, cash and cash equivalents were $75.8 million and marketable securities were $220.0 million, totaling $295.8 million in cash, cash equivalents and marketable securities. Total assets were $322.4 million; total liabilities were $145.2 million, including $116.2 million of deferred revenue. The balance sheet does not identify company borrowings.
- For the first nine months, operating cash use was $46.7 million; investing cash use was $40.1 million, including $7.7 million of property and equipment purchases; financing provided $92.4 million, principally the February equity offering. Cash and cash equivalents increased $5.6 million.
- Management said existing cash, fixed-income securities and expected cash under current alliances should fund planned operations through at least the end of 2014. The company reported an accumulated deficit of $444.8 million and expected significant losses to continue.
Material changes versus prior periods
- Q3 revenue fell 19% year over year, primarily because the Roche/Arrowhead collaboration’s remaining performance obligations ended in August 2012. Nine-month revenue declined 7%.
- Q3 operating expenses rose 5% and net loss widened to $19.5 million. Higher G&A, principally legal and other professional services, more than offset lower R&D. Nine-month operating expenses decreased 4%, largely reflecting reduced clinical and manufacturing costs and the workforce reduction; G&A increased 25%, primarily due to legal and professional services.
- Revenue from Roche/Arrowhead was $9.3 million in Q3 2012 versus $14.0 million in Q3 2011; no deferred revenue remained under that alliance at quarter-end. Takeda revenue was $5.5 million in both Q3 periods. Monsanto contributed $0.5 million of recognized Q3 revenue.
- February’s public offering of 8.625 million shares generated approximately $86.8 million net proceeds and increased shares outstanding. The company reported approximately 52.4 million shares outstanding at September 30.
Outlook, operations and key risks
- Management expected R&D and G&A expenses to remain broadly consistent for the remainder of 2012, and forecast approximately $20 million in 2012 operating-expense savings from the January restructuring. The workforce was reduced by about 33% to approximately 115 employees; $3.9 million of restructuring costs were recorded, with $0.4 million accrued at September 30.
- Alnylam’s “Alnylam 5x15” goal was to have five RNAi therapeutic programs in clinical development by the end of 2015. ALN-TTR02 was in Phase II; ALN-AT3 was the hemophilia development candidate. The company planned to partner ALN-PCS before Phase II and ALN-HPN and ALN-TMP before Phase I.
- ALN-TTR02 Phase I data showed up to 94% serum TTR reduction after a single dose; a Phase II multi-dose trial had begun. ALN-RSV01 Phase IIb did not meet its primary endpoint in the confirmed-infection analysis, although specified secondary analyses were statistically significant; next steps were under review. These are development-stage results, not approved-product outcomes.
- In October 2012, Genzyme paid a $22.5 million upfront fee for exclusive rights to specified TTR RNAi therapeutics in Japan and Asia-Pacific, with up to $50 million in development and regulatory milestones and tiered royalties. This post-quarter agreement was a nonrecognized subsequent event. Genzyme has termination rights, and specified circumstances could require repayment of amounts received.
- Regulus completed an October IPO, raising $50.9 million gross; Alnylam’s ownership fell from approximately 44% at quarter-end to approximately 17% afterward. Alnylam recorded a $3.6 million share of Regulus losses for the first nine months and disclosed a $5.6 million maximum exposure related to its investment and guaranteed debt.
- Major contingency: Tekmira and Protiva’s trade-secret and related lawsuit sought damages and remedies that could affect Alnylam’s MC3 and other intellectual-property rights. Alnylam disclosed plaintiffs’ damage theories of approximately $61 million–$234 million, or $310 million–$484 million if aggregated, with potential trebling raising the stated maximum to approximately $1.5 billion plus fees and interest. Alnylam disputed the claims, assessed loss as more than remote but less than probable, and recorded no estimate because it could not reasonably estimate a loss range. Trial was expected to begin in mid-November 2012.
- Other material risks include the University of Utah inventorship litigation; dependence on collaborators and third-party manufacturers; uncertain clinical, regulatory and commercial outcomes; patent disputes; and the possibility that future financing may be unavailable or dilutive. A 50-basis-point immediate interest-rate increase was estimated to reduce portfolio fair value by $0.8 million. Management reported disclosure controls were effective and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Subsequent developments and outcomes in the Tekmira litigation, including any effect on intellectual-property rights, damages exposure, legal costs or settlement.
- Whether the stated cash runway through at least the end of 2014 remains supportable as clinical spending, collaboration receipts and cash burn evolve.
- Clinical progress and safety data for ALN-TTR02 and ALN-AT3, and the company’s next-step decision for ALN-RSV01 after its Phase IIb results.
- Recognition and collection of deferred collaboration revenue, and the terms, performance obligations and termination or repayment provisions in the Monsanto and Genzyme agreements.
- Post-IPO changes in Alnylam’s Regulus ownership and any resulting effects on investment accounting, exposure and potential proceeds.