ALNY

Business Context and Reporting Period

Company: Alnylam Pharmaceuticals, Inc.
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 2007
Business Overview: Alnylam is a biopharmaceutical company developing therapeutics based on RNA interference (RNAi). The company has no commercial product sales and relies on strategic alliances and government contracts for revenue. Its lead program, ALN-RSV01 for respiratory syncytial virus (RSV), entered Phase II clinical trials in June 2007.

Key Financial Metrics

Note: Total Cash, Equivalents & Marketable Securities for 2007 calculated as Cash ($84,464) + Marketable Securities ($110,304).

Material Changes vs. Prior Period

• Revenue Growth: Net revenues increased 39% to $16.35 million, driven primarily by new collaborations with Biogen Idec and the NIH (Ebola program), offset by a decrease in revenue from the Novartis flu alliance.
• Expense Surge: Operating expenses increased 69% to $55.3 million. Research and Development (R&D) expenses rose 87% to $45.5 million, largely due to a $7.9 million non-cash license fee for Tekmira's delivery technology, increased clinical trial costs for RSV, and higher external service costs.
• Liquidity Position: While cash and cash equivalents decreased by $43.5 million due to operating losses and net purchases of marketable securities, the total liquid portfolio (cash + marketable securities) remained robust at approximately $194.8 million.
• Debt: The company maintained equipment lines of credit with Oxford Finance and Lighthouse Capital, with approximately $8.5 million in principal outstanding as of June 30, 2007.

Guidance, Outlook, and Material Events

Subsequent Events (Post-June 30, 2007):

• Roche Alliance: In July 2007, Alnylam entered a License and Collaboration Agreement with Roche. Roche agreed to pay $273.5 million in upfront cash payments and purchase 1.975 million shares of common stock for $42.5 million. This deal is expected to significantly boost revenue starting in Q3 2007.
• Asset Sale: In connection with the Roche deal, Alnylam agreed to sell its German subsidiary (Roche Kulmbach) for $15.0 million.
• Government Contracts: In August 2007, the company was awarded a Department of Defense contract for up to $38.6 million to develop RNAi therapeutics for hemorrhagic fever viruses.

Outlook and Risks:

• Management expects to incur significant additional losses over the next several years as it advances clinical trials and expands its pipeline.
• The company anticipates that the Roche alliance proceeds will allow it to release its valuation allowance against deferred tax assets in Q3 2007.
• Key risks include the unproven nature of RNAi technology, the high failure rate of clinical trials, dependence on third-party collaborators for funding and commercialization, and the need for substantial additional capital.

Investor Verification Checklist

• Roche Deal Closing: Verify the final closing date and receipt of the $273.5 million upfront payment and $42.5 million equity investment.
• License Fee Obligations: Confirm the timing and amount of the ~$30 million payment required to third-party licensors (primarily Isis Pharmaceuticals) triggered by the Roche deal.
• Cash Burn Rate: Monitor the quarterly cash burn rate to ensure the $194.8 million liquid position is sufficient to fund operations until the next milestone payments or financing events.
• Clinical Trial Progress: Track the results of the Phase II experimental infection trial for ALN-RSV01 initiated in June 2007.
• Government Funding Certainty: Assess the likelihood of full funding realization for the NIH ($23M) and DoD ($38.6M) contracts, as future tranches are subject to budgetary considerations.