Alnylam Pharmaceuticals, Inc. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016; filed August 4, 2016. Unaudited results. Alnylam is a clinical-stage RNA interference (RNAi) therapeutics company with no product sales; revenue is primarily from collaborations.
Financial results
Amounts in millions, except per-share data. Parentheses indicate losses or cash outflows.
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Collaboration revenue | $8.7 | $8.7 | $16.1 | $27.2 |
| Research and development expense | $83.2 | $67.0 | $179.4 | $125.0 |
| General and administrative expense | $18.0 | $14.6 | $39.1 | $27.3 |
| Total operating expense | $101.2 | $81.6 | $218.5 | $152.4 |
| Operating loss | $(92.5) | $(72.9) | $(202.5) | $(125.2) |
| Net loss | $(90.1) | $(71.8) | $(193.1) | $(122.6) |
| Net loss per share, basic and diluted | $(1.05) | $(0.85) | $(2.26) | $(1.47) |
- Q2 revenue was essentially flat year over year, while first-half revenue declined about 41%, principally because Takeda and Monsanto revenue recognition had ended in 2015 and certain prior-year milestones did not recur. Sanofi Genzyme and The Medicines Company were the principal first-half revenue sources.
- Operating expenses rose 24% in Q2 and 43% in the first half, driven by pipeline expansion, higher headcount, clinical/manufacturing activity and stock-based compensation. First-half stock-based compensation was $39.3 million, versus $18.4 million a year earlier.
- Interest income was $3.9 million for the first half. Other income included $6.1 million of realized gains from Regulus share sales; the company also recorded substantial unrealized investment losses in other comprehensive income. First-half comprehensive loss was $225.8 million.
- At June 30, cash and cash equivalents were $271.1 million; marketable securities were $859.2 million, including $13.3 million in Regulus equity. Management reported $1.13 billion of cash, cash equivalents and fixed-income securities, excluding Regulus and $150 million of restricted investments.
- Six-month operating cash use was $153.8 million, versus $81.7 million in 2015. Investing activities provided $73.6 million, reflecting securities maturities and sales, partly offset by facility spending and restricted investments. Financing provided $170.4 million, including $150 million of term loans.
- Total assets were $1.38 billion and stockholders’ equity was $1.10 billion. Long-term debt was $150 million, due in 2021; matching cash collateral is reported as restricted investments. The loans bear interest at LIBOR plus 0.45% and include covenants and default provisions.
Material changes and business developments
- Compared with year-end 2015, cash and cash equivalents increased $90.2 million, while current and long-term marketable securities together declined. Property and equipment rose to $55.4 million from $27.8 million, reflecting investment in the new manufacturing facility. Restricted investments of $150 million were added to secure the loans.
- Alnylam purchased land in Norton, Massachusetts and began building a drug-substance manufacturing facility. It expected up to approximately $100 million of facility-related capital expenditures in 2016.
- Clinical updates included positive preliminary or interim findings for patisiran, fitusiran and ALN-CC5, and initiation of a Phase 1/2 trial for ALN-HBV. These are investigational results, not evidence of regulatory approval or assured efficacy.
- On August 2, 2016, the company extended a Cambridge lease through August 2022, with an option for one additional five-year term.
Outlook, commentary and risks
- Management reiterated its Alnylam 2020 ambition: three marketed products and ten clinical programs, including four late-stage programs. This is a goal, not formal financial guidance.
- Management expected collaboration revenue to increase in the second half of 2016, primarily from Sanofi Genzyme expense reimbursement. The next fitusiran milestone was expected in 2017 after the Phase 3 start timeline moved to early 2017. R&D expense was expected to increase in the second half; G&A was expected to remain relatively consistent with the first half.
- Management believed existing liquid resources and expected cash from current alliances would fund the 2020 objectives for at least the next several years. The company nevertheless expected continuing losses and substantial cash needs; funding, collaboration payments and development costs remain uncertain, and future financing may dilute shareholders or require surrendering rights.
- Key risks include clinical failure or safety findings, regulatory uncertainty, manufacturing scale-up and supply dependence, reliance on collaborators, patent and trade-secret disputes, competition, reimbursement and pricing pressure, and market and financing risks. The filing also discusses potential Brexit-related uncertainty.
- Legal matters include ongoing Dicerna trade-secret litigation, for which discovery was expected to close in November 2016, and an appeal seeking approximately $8 million in fees in the resolved University of Utah inventorship case. The fee award was uncertain. The filing reports the Arbutus arbitration was decided in Alnylam’s favor and not appealed by the deadline.
- Disclosure controls were assessed as effective at the reasonable-assurance level; no material change in internal control over financial reporting was reported for the quarter.
Important facts for investors to verify
- Whether clinical trial data, safety and efficacy, enrollment, and the revised early-2017 fitusiran Phase 3 timeline progress as planned.
- Whether collaboration reimbursements, milestones and any future royalties materialize, given the first-half revenue decline and dependence on a limited number of partners.
- Cash burn, capital spending and remaining liquidity, including the restrictions on the $150 million pledged as loan collateral and the debt’s interest, covenants and maturity.
- Manufacturing-facility construction costs, completion timing, qualification and the company’s ability to secure reliable clinical and commercial supply.
- Developments in Dicerna litigation and the University of Utah fee appeal, and any resulting costs or operational distraction.