Business Context and Reporting Period
Company: Alnylam Pharmaceuticals, Inc.
Filing Type: Form 10-Q (Unaudited)
Period Ended: September 30, 2009
Business Overview: Alnylam is a biopharmaceutical company developing therapeutics based on RNA interference (RNAi). The company has no approved products and generates revenue primarily through strategic alliances (Roche, Takeda, Novartis, Cubist), government contracts (NIAID, DTRA), and licensing activities. As of September 30, 2009, the company had an accumulated deficit of $292.0 million.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2008 |
|---|---|---|---|
| Net Revenues | $24,249 | $73,907 | $71,759 |
| Operating Expenses | $33,899 | $113,949 | $91,781 |
| Loss from Operations | $(9,650) | $(40,042) | $(20,022) |
| Net Loss | $(9,208) | $(39,799) | $(16,857) |
| Net Loss Per Share (Basic & Diluted) | $(0.22) | $(0.96) | $(0.41) |
| Cash and Cash Equivalents (Sep 30, 2009) | $98,087 | ||
| Marketable Securities (Sep 30, 2009) | $355,390 (Current: $119,883; Non-Current: $235,507) | ||
| Total Liquidity (Cash + Securities) | $453,477 | ||
| Deferred Revenue (Total) | $292,097 (Current: $82,420; Non-Current: $209,677) |
Material Changes vs. Prior Period
- Revenue: Net revenues increased 3% for the nine months ended September 30, 2009, compared to the prior year period. This increase was driven primarily by the Takeda alliance (revenue increased from $7.4M to $16.3M) and the new Cubist alliance. These gains were partially offset by a decrease in government contract revenues due to the wind-down of the DTRA collaboration.
- Operating Expenses: Total operating expenses increased 24% ($22.2M) for the nine-month period.
- R&D Expenses: Increased 21% ($15.2M) primarily due to license fees paid to Isis Pharmaceuticals for the ssRNAi program, higher license fees related to the Cubist alliance, and increased clinical trial costs for ALN-VSP and ALN-RSV.
- G&A Expenses: Increased 35% ($7.0M) driven by higher consulting and professional services (primarily legal activities related to patent litigation) and increased stock-based compensation.
- Cash Flow: Net cash used in operating activities was $55.3 million for the nine months ended September 30, 2009, compared to net cash provided of $70.3 million in the prior year period. The shift was due to the net loss and a $37.9 million decrease in deferred revenue as the company recognized revenue from prior upfront payments.
- Investing Activities: Net cash used in investing activities was $41.2 million, primarily due to net purchases of marketable securities ($33.7M) and a $10.0 million additional investment in the Regulus Therapeutics joint venture.
Guidance, Outlook, and Risks
- Outlook: Management expects to continue incurring net losses for the foreseeable future as it advances drug development programs. The company believes its existing cash, cash equivalents, and marketable securities ($453.5 million), combined with expected cash from alliances, are sufficient to fund operations for at least the next several years.
- Strategic Developments:
- Roche: Advanced the alliance to the therapeutic collaboration stage in October 2009 to jointly discover and develop specific RNAi products.
- Cubist: Amended the agreement in November 2009 to focus joint development on ALN-RSV02 (pediatric) while Alnylam continues to develop ALN-RSV01 (adult transplant) at its own expense.
- Novartis: Extended the collaboration agreement for the fifth and final year through October 2010.
- Risks and Contingencies:
- Patent Litigation: Alnylam and Max Planck are engaged in litigation against Whitehead Institute, MIT, and UMass regarding the prosecution of "Tuschl I" and "Tuschl II" patent applications. A trial is scheduled for February 2010. The outcome is uncertain and could materially impact the company's IP portfolio.
- Regulatory Approval: No RNAi therapeutics have been approved by the FDA. Success depends on demonstrating safety and efficacy in clinical trials, which is inherently uncertain.
- Capital Requirements: The company may require additional funding in the future. If funds are not available, it may need to curtail research programs or relinquish rights to technologies.
Investor Verification Checklist
- Liquidity Runway: Verify the sufficiency of the $453.5 million cash and securities balance against projected R&D burn rates, given the lack of product revenue.
- Revenue Recognition: Review the accounting treatment of large upfront payments from Roche, Takeda, and Cubist, which are recognized over multi-year periods (5-7 years), creating a lag between cash receipt and revenue recognition.
- Patent Litigation Status: Monitor the progress of the lawsuit against Whitehead/MIT/UMass, as the outcome could threaten the exclusivity of Alnylam's core RNAi IP.
- Clinical Trial Progress: Track the results of the Phase II trials for ALN-RSV01 (adult lung transplant) and the Phase I trial for ALN-VSP (liver cancer), as these are critical for future milestone payments and commercialization.
- Joint Venture Exposure: Assess the financial health of Regulus Therapeutics Inc. (49% owned), which reported a net loss of $5.9 million for the nine months ended September 30, 2009.