Alnylam Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2014. Unaudited results; amounts below are in U.S. dollars unless noted. Alnylam is a clinical-stage biopharmaceutical company developing RNA interference (RNAi) therapeutics and had no product sales.
Financial results and liquidity
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Collaboration revenue | $11.0 million | $9.0 million | $26.5 million | $36.3 million |
| Research and development expense | $46.3 million | $34.5 million | $134.7 million | $80.9 million |
| Total operating expenses | $56.2 million | $41.2 million | $385.8 million | $99.7 million |
| Operating loss | $45.2 million | $32.2 million | $359.3 million | $63.4 million |
| Net loss | $44.0 million | $29.7 million | $339.0 million | $56.9 million |
| Net loss per share, basic and diluted | $0.58 | $0.48 | $4.62 | $0.93 |
- Quarterly collaboration revenue rose about 22%; nine-month revenue fell about 27%, mainly because 2013 included $9.7 million of deferred Cubist revenue recognized after that agreement ended.
- Nine-month expenses included a $220.8 million in-process research and development charge for the Sirna asset acquisition. Excluding this unusual charge, operating expenses were $165.0 million, still higher year over year as development activity, clinical-trial and manufacturing costs, and headcount expanded.
- Operating cash use was $129.0 million for the nine months, versus $46.3 million in 2013. Investing cash use was $570.2 million, primarily net purchases of fixed-income securities. Financing provided $728.8 million, principally from the Genzyme share transactions.
- At September 30, cash and cash equivalents were $82.7 million and marketable securities were $832.5 million, including $41.3 million of Regulus equity securities. The company reported $915.2 million of cash, cash equivalents and fixed-income securities, excluding Regulus. Current assets were $643.0 million and current liabilities $56.8 million; total assets were $986.4 million and stockholders’ equity $904.5 million.
- The balance sheet lists no borrowings or other debt. Total liabilities were $81.9 million, including deferred revenue and accrued expenses. The filing does not provide a separate debt balance.
- Accumulated deficit was $935.2 million. No product gross margin was reported because the company had no product revenue.
Material changes and unusual items
- In February 2014, Genzyme paid $700 million for shares and collaboration rights; it later paid a further $23 million to maintain its ownership position. The nine-month cash-flow statement reports $723.0 million of proceeds from common-stock issuance to Genzyme. The collaboration grants Genzyme regional rights to genetic-medicine programs, with specified broader options, while Alnylam retains North American and Western European rights.
- In March 2014, Alnylam acquired Sirna RNAi assets from Merck for $25 million cash and shares. The transaction was accounted for as an asset acquisition, with $220.8 million expensed as in-process R&D; the filing says no further Sirna acquisition IPR&D charges are expected.
- In September, Alnylam and Monsanto discontinued the planned discovery collaboration. Monsanto will not pay a remaining $1 million milestone. The amendment accelerated deferred-revenue recognition: the company expected to recognize $8.8 million in Q4 2014 and $5.6 million in Q1 2015, with a further $5.0 million dependent on the end of a potential refund obligation.
- The nine-month income-tax benefit was $18.1 million, primarily reflecting intraperiod tax allocation associated with the Genzyme equity transaction. Alnylam recorded $0.6 million of realized gains from sales of Regulus shares; market value of its Regulus holding fell to $41.3 million from $45.5 million at year-end.
Outlook, management commentary and risks
- Management expected Q4 2014 collaboration revenue to increase from Q3 due to Monsanto deferred-revenue recognition; R&D expense to increase slightly because of late-stage clinical activity; and G&A expense to remain broadly consistent with Q3.
- Management’s Alnylam 5x15 goal was six to seven genetic-medicine candidates in clinical development by the end of 2015, including at least two in Phase 3 and five to six with human proof of concept. The company said existing cash and fixed-income securities should fund planned operations through launch of its first commercial product, but noted actual funding needs could be higher or timing could change.
- Pipeline updates included patisiran in Phase 3; revusiran in Phase 2, with a Phase 3 start planned by year-end 2014; and ALN-AT3 in Phase 1. The filing reported encouraging interim patisiran open-label data and generally favorable tolerability to date, but these are early clinical findings and do not establish efficacy or approval.
- Alnylam expected to file INDs or equivalents for ALN-CC5 and ALN-AS1 in late 2014 or early 2015, and cited a mid-2015 IND target for ALN-AAT. Such timelines are forward-looking and subject to development and regulatory uncertainty.
- Key risks include continued losses and cash use; clinical, safety, delivery and regulatory uncertainty for an unproven therapeutic approach; reliance on collaborators and third-party manufacturers; competition, reimbursement and commercialization challenges; and intellectual-property disputes. The University of Utah inventorship litigation over Tuschl patents was scheduled for trial on November 2, 2015; Alnylam had not accrued a loss because the outcome and amount were uncertain. The company also extended its Cambridge lease through September 2021, increasing obligations by $37.8 million.
- For its fixed-income portfolio, management estimated that an immediate, uniform 50-basis-point interest-rate increase would reduce fair value by $3.3 million; it did not hedge this exposure. Management reported disclosure controls were effective as of September 30, 2014.
Important facts for investors to verify
- Whether clinical results and planned milestones for patisiran, revusiran, ALN-AT3 and other candidates were achieved, and how later safety and efficacy data compare with interim findings.
- Actual collaboration revenue timing, including Monsanto recognition and Genzyme milestone or option decisions, and the terms and economics of any future collaborations.
- Cash burn and runway against the stated plan, including future clinical, manufacturing, lease and other commitments, and whether additional financing becomes necessary.
- The progress and outcome of the Utah patent litigation and any other intellectual-property challenges that could affect the RNAi platform or product rights.
- The extent of dilution and governance implications from Genzyme’s ownership and rights, and the market value and liquidity implications of the Regulus investment.