Alnylam Pharmaceuticals, Inc. — Q2 2012 Form 10-Q
Reporting period: Three and six months ended June 30, 2012. Financial statements are unaudited. Alnylam is a development-stage biopharmaceutical company developing RNAi therapeutics; it had no product sales and relied on research-collaboration revenue.
Financial performance
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Collaboration revenue | $20.9m | $20.6m | $41.5m | $41.5m |
| Research and development | $21.7m | $25.3m | $42.8m | $51.7m |
| General and administrative | $11.2m | $8.4m | $21.6m | $18.7m |
| Operating loss | $12.1m | $13.1m | $23.0m | $28.8m |
| Net loss | $13.0m | $13.8m | $24.3m | $30.1m |
| Net loss per share, basic and diluted | $0.25 | $0.33 | $0.50 | $0.71 |
Q2 operating expenses were $33.0m, down 2% year over year; six-month expenses were $64.4m, down 8%. Lower R&D costs—particularly clinical-trial and manufacturing spending—were partly offset by higher G&A, principally legal and professional fees. Net loss margins were approximately 62% for Q2 and 59% for the first half; the company reported no product gross margin.
For the six months, operating cash use was $51.9m, versus $32.9m in 2011. Investing activities used $58.0m, primarily reflecting net purchases of marketable securities; financing provided $87.9m, mainly from the February equity offering. Cash and cash equivalents were $48.3m at June 30. Cash, cash equivalents and marketable securities totaled $292.8m, compared with $260.8m at year-end 2011.
Total assets were $318.5m and stockholders’ equity $188.3m. Current assets of $240.3m exceeded current liabilities of $57.1m. The filing reports no conventional company borrowings; however, Alnylam guaranteed a portion of Regulus debt, with $5.6m of maximum exposure at quarter-end. Its Regulus investment was recorded as a $1.4m liability.
Material changes and business developments
- Revenue was broadly flat year over year. Roche/Arrowhead contributed $14.0m in Q2 and $28.0m in the first half; Takeda contributed $5.5m and $11.0m, respectively. Deferred revenue was $103.5m at June 30.
- Deferred revenue fell substantially, contributing to operating cash outflow. Alnylam expected revenue to decline significantly beginning in the second half of 2012 as it completed remaining Roche/Arrowhead performance obligations in Q3.
- In February, the company issued 8.625m shares at $10.75 each and received approximately $86.8m net. Shares outstanding increased from 42.7m at December 2011 to 52.0m at June 30; 52.2m were outstanding at July 31.
- A January restructuring reduced the workforce by approximately 33%, to about 115 employees. The company recorded $3.9m of restructuring costs and expected approximately $20m in 2012 operating-expense savings.
Outlook, pipeline and key risks
- Management expected existing cash, cash equivalents, fixed-income securities and anticipated cash from current alliances to fund planned operations through at least the end of 2014. It also cautioned that additional funding could be needed sooner; future financing may be unavailable or dilutive.
- Management expected R&D expense to remain consistent for the rest of 2012 and G&A expense to remain consistent. It expected continued operating losses and stated that profitability and product revenue were not predictable.
- ALN-TTR02 Phase I results reported in July showed up to 94% serum TTR reduction after a single dose; a Phase II multi-dose trial had begun. ALN-PCS Phase I results showed up to 50% LDL-cholesterol reduction; Alnylam planned to seek a partner before Phase II.
- ALN-RSV01 did not meet its primary Phase IIb endpoint in the confirmed-infection analysis (p=0.058), although specified secondary analyses were statistically significant and treatment was associated with a reported reduction of more than 50% in day-180 BOS incidence. The company planned regulatory discussions before determining next steps.
- After the quarter, Alnylam reported a strategic ALN-VSP collaboration with Ascletis for China and a $3.2m GSK development milestone under its VaxiRNA collaboration. These were post-period developments, not Q2 revenue.
- The Tekmira/Protiva lawsuit presents material intellectual-property and financial uncertainty. Plaintiffs’ expert theories, if aggregated, alleged damages of approximately $61m–$446m, potentially up to about $1.3bn if trebled, plus fees and interest. Alnylam disputed the claims, estimated damages under an alternative analysis at less than $4.4m, recorded no loss estimate, and said loss was more than remote but less than probable while it could not estimate a reasonable range.
- Other material risks include the University of Utah inventorship litigation, Alnylam’s patent-infringement suit against Tekmira, dependence on collaborators and third-party manufacturers, clinical and regulatory uncertainty, and the unproven nature of RNAi therapeutics. The filing also disclosed a prior possibly drug-related hepatic-failure death in the ALN-VSP Phase I trial.
Most important facts for investors to verify
- Whether collaboration revenue declines as forecast after Roche/Arrowhead obligations end, and whether replacement funding or partnerships materialize.
- Whether cash burn, deferred-revenue runoff and R&D spending remain consistent with the stated funding runway through at least 2014.
- Clinical progress and safety for ALN-TTR02, ALN-PCS and ALN-RSV01, including the implications of ALN-RSV01 missing its primary endpoint.
- Developments in the Tekmira/Protiva and University of Utah cases, including potential effects on intellectual-property rights, costs and financial exposure.
- Whether the restructuring achieves its expected savings without impairing development execution or retention of key personnel.