Alnylam Pharmaceuticals, Inc. — Q3 2010 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2010; financial statements are unaudited. Alnylam is a clinical-stage biopharmaceutical company developing RNA interference (RNAi) therapeutics. It had no product-sale revenue; revenue came primarily from collaborations, government funding and licenses.
Financial performance and position
| Metric | Q3 2010 | Q3 2009 | Nine months 2010 | Nine months 2009 |
|---|---|---|---|---|
| Revenue | $27.7 million | $24.2 million | $78.8 million | $73.9 million |
| Operating expenses | $36.4 million | $33.9 million | $110.5 million | $113.9 million |
| Operating loss | $(8.7) million | $(9.7) million | $(31.7) million | $(40.0) million |
| Net loss | $(9.6) million | $(9.2) million | $(36.6) million | $(39.8) million |
| Basic and diluted loss per share | $(0.23) | $(0.22) | $(0.87) | $(0.96) |
- Revenue increased 14% in Q3 and 7% year to date. Operating loss was about 32% of revenue in Q3 and 40% year to date; the company reported no product gross margin.
- Q3 research and development expense rose 18% to $27.5 million, partly reflecting $2.2 million of restructuring costs and higher clinical and manufacturing spending. Nine-month R&D fell 8% to $80.3 million, primarily because prior-year license fees were higher. Nine-month G&A increased 13% to $30.2 million, mainly due to legal and professional costs.
- Cash, cash equivalents and marketable securities totaled $371.9 million at September 30, versus $435.3 million at December 31, 2009. Current assets were $244.6 million and current liabilities $99.4 million (approximate current ratio 2.5). Accumulated deficit was $336.4 million.
- Nine-month operating cash use was $64.0 million, compared with $55.3 million in 2009; investing cash use was $29.7 million and financing provided $3.1 million. Cash and cash equivalents declined $90.6 million during the period. Deferred revenue was $230.9 million.
- The filing reports no company borrowings in the presented balance sheet. Alnylam guaranteed a portion of Regulus debt; its exposure under that guarantee was $5.3 million at September 30. The company’s equity-method investment in Regulus had a carrying value of $20,000.
Material changes and developments
- Management approved a restructuring in September, including an approximately 25% workforce reduction, following the planned completion of Novartis’s final research-program year. The company recorded $2.2 million of severance and related costs and expected substantially all to be paid by the first half of 2011.
- Novartis selected 31 gene targets for exclusive development rights, but declined a separate integration option that would have generated $100 million in additional payments. Its research program was substantially completed in October 2010.
- Revenue concentration included Roche ($42.0 million), Takeda ($16.5 million) and Novartis ($9.0 million) for the first nine months of 2010. The NIAID contract had $0.2 million of funding remaining and was extended through December 2010.
- After quarter-end, sanofi-aventis invested $10 million in Regulus. Also after quarter-end, Alnylam, Medtronic and CHDI formed a Huntington’s disease collaboration; CHDI agreed to initially fund about 50% of IND-enabling work, representing over $10 million in potential funding.
- A Cambridge lease amendment added 34,000 square feet effective October 1 and increased net lease commitments through 2016 by $7.2 million after expected sublease receipts.
Outlook, commentary and principal risks
- Management expected revenue to decrease significantly beginning in Q4 2010 because of the Novartis research program’s completion and the expected end of NIAID funding; a $2.0 million government award was expected to partly offset the decline. The company expected to continue relying primarily on alliance, government, foundation and licensing revenue.
- Management projected approximately $25 million in savings from previously planned 2011 operating expenses following the restructuring. It expected existing cash, investments and anticipated alliance cash flows to fund planned operations for at least several years, while warning that additional funds could be needed sooner and future financing might not be available on acceptable terms.
- The company expected continued losses for several years and had never achieved annual profitability. Development and regulatory success remained uncertain; all pipeline programs were investigational.
- In the ALN-VSP Phase I trial, one patient developed hepatic failure and died after dosing; the event was deemed possibly related to the study drug. Six other patients at that dose showed no evidence of hepatotoxicity. Dose escalation continued.
- Alnylam and Max Planck were pursuing patent litigation concerning the Tuschl I and II patent applications; defendants had filed counterclaims. A jury trial was expected in early 2011, and the company had not accrued a liability because potential loss was uncertain.
- Other material risks include clinical-trial failure or delay, RNAi delivery and safety challenges, dependence on collaborators and contract manufacturers, intellectual-property disputes, investment and financing risks, and possible effects of workforce reductions. A 50-basis-point immediate interest-rate increase was estimated to reduce investment fair value by $1.3 million.
Important facts for investors to verify
- Timing and financial impact of the Novartis program’s completion and the NIAID contract’s expiry on revenue and cash burn.
- Whether the announced restructuring savings materialize without impairing execution, collaboration relationships or pipeline progress.
- Clinical safety and efficacy updates, particularly the ALN-VSP hepatic-failure case and results from the ALN-RSV01 Phase IIb trial.
- Cash runway assumptions, future collaboration receipts, and the amount and timing of any additional financing needs.
- Developments in the Tuschl patent litigation and any effect on the company’s intellectual-property rights, costs or licensing prospects.