Alnylam Pharmaceuticals, Inc. — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013. Financial statements are unaudited. Alnylam is a clinical-stage biopharmaceutical company developing RNAi therapeutics; it had no product-sale revenue.
Financial performance and position
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Collaboration revenue | $8.7 million | $20.9 million | $27.3 million | $41.5 million |
| Research and development expense | $24.2 million | $21.7 million | $46.4 million | $42.8 million |
| General and administrative expense | $5.8 million | $11.2 million | $12.1 million | $21.6 million |
| Operating loss | $(21.3) million | $(12.1) million | $(31.1) million | $(23.0) million |
| Net loss | $(18.2) million | $(13.0) million | $(27.2) million | $(24.3) million |
| Basic and diluted loss per share | $(0.29) | $(0.25) | $(0.45) | $(0.50) |
- Revenue fell primarily because the Roche/Arrowhead alliance obligations were completed in August 2012. For the first half, the decline was partly offset by $9.7 million of deferred Cubist revenue recognized after termination, plus revenue under new Monsanto and Medicines Company agreements.
- Q2 R&D expense increased 11%, mainly from ALN-TTR and ALN-AT3 clinical, manufacturing and preclinical work. G&A declined 48%, largely because legal and other consulting costs related to the Tekmira litigation had fallen following its 2012 settlement.
- Six-month operating cash use was $24.6 million, versus $51.9 million in 2012. Investing used $184.0 million, primarily reflecting net purchases of fixed-income securities; financing provided $182.2 million, including $173.6 million net proceeds from the January 2013 stock offering.
- At June 30, cash and cash equivalents were $25.0 million and fixed-income marketable securities were $354.5 million, totaling $379.5 million. The company separately held $60.3 million of Regulus equity securities. Current assets were $214.4 million and current liabilities $53.1 million. The filing reports no borrowings or debt balance.
- Total assets were $462.6 million; total liabilities $154.4 million; stockholders’ equity $308.2 million. Deferred revenue was $131.2 million, primarily reflecting previously received collaboration payments. Accumulated deficit was $534.2 million.
Material changes, outlook and risks
- Management expected collaboration revenue in each of Q3 and Q4 2013 to remain consistent with Q2. R&D expense was expected to increase moderately in the second half of 2013, particularly for the preclinical pipeline using GalNAc-siRNA conjugates; G&A was expected to remain consistent.
- Based on its operating plan, Alnylam believed existing cash, cash equivalents and fixed-income securities, together with expected cash from current alliances, would fund planned operations through at least the end of 2016. The company warned that costs, development progress, collaboration payments and financing availability could require funds earlier than expected; further financing could dilute shareholders or require rights concessions.
- Development update: interim Phase II ALN-TTR02 data showed dose-dependent serum TTR knockdown and were described as generally well tolerated. A Phase III trial was conditional on positive Phase II results. The ALN-AT3 IND timeline shifted by one quarter; Alnylam expected to file in 2013 and begin Phase I in 2014. These are forward-looking expectations, not guarantees.
- Alnylam reported a $2.9 million Q2 and $3.4 million first-half income-tax benefit associated with appreciation in its Regulus investment and intraperiod tax allocation. Regulus’s fair value was $60.3 million at quarter-end; its unrealized gains also contributed to other comprehensive income. No impairment charges were recorded on fixed-income securities.
- The January 2013 stock offering increased shares outstanding; 62.46 million shares were outstanding at June 30. The filing also notes a July 2013 Regulus offering that reduced Alnylam’s ownership to approximately 15%.
- Key risks include clinical, regulatory and manufacturing uncertainty; reliance on collaborators and third-party suppliers; continued operating losses and potential need for additional capital; and patent disputes. In the University of Utah inventorship litigation, an appeal was awaiting decision; Alnylam had recorded no loss estimate because the outcome and amount were uncertain. Alnylam also disclosed arbitration over a disputed $5.0 million Tekmira milestone.
Important facts for investors to verify
- Whether collaboration revenue and payments develop as expected, given the significant year-over-year revenue decline and dependence on alliance funding.
- Clinical progress, safety and timing for ALN-TTR02 and ALN-AT3, including the conditions attached to anticipated trial milestones.
- Cash burn, investment liquidity and the assumptions supporting management’s runway estimate through 2016.
- Potential dilution or other financing terms if additional capital is needed, and the financial outcomes of the Utah litigation and Tekmira arbitration.
- The value and volatility of the Regulus holding and the non-cash tax and comprehensive-income effects tied to its market valuation.