Alnylam Pharmaceuticals, Inc. — 2010 Form 10-K
Business context and reporting period. Alnylam is a clinical-stage biopharmaceutical company developing RNA interference (RNAi) therapeutics. This annual report covers the fiscal year ended December 31, 2010; the company had no approved products or product-sales revenue. Its business was funded principally by collaboration, licensing, and government-contract revenue.
Financial performance and liquidity
| Metric | 2010 | 2009 |
|---|---|---|
| Collaboration and other research revenue | $100.0 million | $100.5 million |
| Research and development expense | $106.4 million | $108.7 million |
| Total operating expenses | $144.1 million | $148.6 million |
| Operating loss | $44.1 million | $48.1 million |
| Net loss | $43.5 million | $47.6 million |
| Net loss per share, basic and diluted | $1.04 | $1.14 |
| Net cash used in operating activities | $84.3 million | $72.1 million |
Revenue was essentially flat year over year, while operating and net losses narrowed. Operating margin is not a meaningful measure for this pre-commercial company; there were no product sales from which to assess product margins. Fourth-quarter 2010 revenue was $21.2 million, operating expenses were $33.6 million, and net loss was $6.9 million, compared with $26.6 million, $34.7 million, and $7.8 million, respectively, in fourth-quarter 2009.
At December 31, 2010, cash, cash equivalents, and marketable securities totaled $349.9 million, down from $435.3 million a year earlier; this included $74.6 million in cash and cash equivalents. Working capital was $152.1 million, total assets were $393.3 million, and stockholders’ equity was $158.2 million. The company reported no notes payable at year-end. Deferred revenue was $211.1 million, including $81.1 million current and $130.0 million long-term. Management believed existing liquid resources and expected alliance cash flows would fund planned operations for at least several years, while noting that additional funding could be needed sooner than expected.
Material changes versus the prior year
- Revenue declined slightly, by $0.5 million. Roche and Takeda accounted for approximately 56% and 22% of 2010 revenue, respectively.
- Operating expenses fell 3% to $144.1 million. Lower license fees, particularly after termination of the Isis single-stranded RNAi collaboration, were partly offset by restructuring costs and higher compensation and clinical/manufacturing costs.
- Operating cash use increased to $84.3 million from $72.1 million, mainly reflecting working-capital movements and a $60.7 million decrease in deferred revenue.
- Cash, cash equivalents, and marketable securities decreased by $85.4 million. Interest income fell to $2.3 million from $5.4 million.
- Regulus-related equity-method losses increased to $7.6 million from $4.9 million; other income included a $4.4 million gain associated with sanofi-aventis’s investment in Regulus and $2.0 million in government program awards.
Outlook, management commentary, and risks
- Pipeline and strategy: Under “Alnylam 5x15,” management aimed to advance five RNAi programs into advanced clinical development by the end of 2015. Three core programs were ALN-TTR, ALN-PCS, and ALN-HPN; the company also planned to designate two additional candidates and begin preclinical development by the end of 2011.
- Clinical updates: ALN-TTR01 entered Phase I in 2010; a second formulation, ALN-TTR02, was in development. ALN-PCS and ALN-HPN were preclinical. The ALN-RSV01 Phase IIb trial was ongoing, and ALN-VSP Phase I results included preliminary evidence of target engagement and RNAi activity in human biopsies. A patient receiving ALN-VSP experienced hepatic failure and died; the event was deemed possibly related to study drug. ALN-RSV02 development was put on hold in December 2010.
- Near-term financial outlook: Management expected no significant 2011 revenue from Novartis following completion of its five-year research program, or from the NIAID contract, which ended after a no-cost extension through December 2010. A final $10 million Takeda technology-transfer payment was due upon completion of specified activities, but no later than the second quarter of 2011.
- Cost actions: A September 2010 restructuring reduced the workforce by approximately 25%. The company recorded $2.2 million in restructuring costs and estimated the reduction, together with other cost changes, could save approximately $25 million versus previously planned 2011 operating expenses. Management expected R&D spending to decrease in 2011.
- Key risks: RNAi therapeutics and delivery technologies were unproven, clinical and regulatory outcomes were uncertain, and the company expected continuing losses. It relied on collaborators for funding, development, and commercialization; Roche had discontinued its RNAi research efforts, and Novartis’s research program had ended. Other material risks included delivery and safety challenges, dependence on third-party manufacturers (including Tekmira), patent disputes and opposition proceedings, competitive programs, reimbursement uncertainty, and potential dilution or financing constraints.
- Contingencies and commitments: Alnylam and Max Planck were engaged in litigation concerning Tuschl patent applications, with counterclaims filed and a trial expected in March 2011. The company did not accrue a litigation liability because the likelihood and amount of any loss were uncertain. Contractual cash obligations totaled $74.4 million, including operating leases, purchase commitments, and technology-related commitments.
Important facts for investors to verify
- Whether clinical data for ALN-TTR, ALN-VSP, and ALN-RSV01 demonstrate sufficient safety, efficacy, and reproducibility to support later-stage trials.
- Whether ALN-VSP’s potentially drug-related fatal hepatic event affects dose escalation, trial design, or the broader systemic-delivery safety profile.
- How the end of Novartis and NIAID activity, and the uncertain status of Roche’s RNAi efforts, affect future revenue and cash runway.
- Whether the restructuring delivers the anticipated 2011 cost savings without impairing research execution, staffing, or collaborations.
- Progress and potential financial exposure in the Tuschl patent litigation and other challenges to Alnylam’s intellectual-property position.
- The assumptions behind management’s liquidity runway, including operating cash burn, deferred-revenue recognition, collaboration funding, and possible future financing needs.