Alnylam Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2014; filed August 8, 2014. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Business context
Alnylam is a clinical-stage biopharmaceutical company developing RNA interference (RNAi) therapeutics. It had no product sales and relied on collaborator revenue and financing. Its lead program, patisiran, was in Phase 3; ALN-TTRsc was in Phase 2 and ALN-AT3 in Phase 1.
Key financial metrics
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Collaborator revenue | $7.3 | $8.7 | $15.6 | $27.3 |
| Research and development expense | $44.7 | $24.2 | $88.4 | $46.4 |
| General and administrative expense | $11.5 | $5.8 | $20.4 | $12.1 |
| In-process R&D expense (credit) | ($3.9) | — | $220.8 | — |
| Operating loss | ($45.0) | ($21.3) | ($314.1) | ($31.1) |
| Net loss | ($44.1) | ($18.2) | ($295.0) | ($27.2) |
| Net loss per share | ($0.58) | ($0.29) | ($4.11) | ($0.45) |
At June 30, 2014, cash and cash equivalents were $80.7 million and marketable securities were $875.2 million, totaling $955.9 million in cash, cash equivalents and fixed-income securities. This excludes the $49.5 million Regulus equity investment. Total assets were $1,032.7 million, liabilities $90.4 million, and stockholders’ equity $942.3 million. The filing reports no debt balance.
Six-month operating cash use was $88.3 million; investing cash use was $608.2 million, principally net purchases of marketable securities; financing provided $724.0 million, primarily from Genzyme-related stock issuance. Cash and cash equivalents ended the period at $80.7 million.
Material changes and unusual items
- Six-month collaborator revenue fell 43% from 2013, mainly because $9.7 million of Cubist deferred revenue was recognized in 2013 after that agreement ended. Q2 revenue was comparatively similar year over year.
- Six-month net loss included a $220.8 million Sirna-related in-process R&D charge. Alnylam acquired Sirna assets from Merck for $25.0 million cash and shares; the acquired assets were expensed because the transaction did not include employees, facilities, developed processes or clinical-stage assets. The Q2 expense line included a $3.9 million credit from remeasurement of shares issued after technology transfer.
- In February 2014, Genzyme paid $700 million for 8.77 million Alnylam shares in connection with the collaboration; Genzyme later paid $23.0 million for additional shares to maintain its ownership level. Financing cash flow reflects $723.0 million of proceeds from these share issuances. Alnylam’s share count increased materially.
- R&D expense rose with clinical and manufacturing activity, increased headcount, and license fees, including payments to Isis associated with the Genzyme collaboration. Q2 G&A growth included a one-time charge related to modified stock options.
Outlook, commentary and risks
- Management expected continued significant losses and cash needs as it advanced its pipeline. Based on its then-current operating plan, it believed available cash, cash equivalents and fixed-income securities would fund planned operations through launch of its first commercial product; it cautioned that additional funds could be needed sooner.
- Excluding a one-time Isis license fee, management expected R&D expense to increase slightly in the second half of 2014 versus the first half as programs advanced. Excluding the one-time stock-option modification charge, it expected G&A expense to remain consistent.
- Pipeline plans included targeting two IND filings in late 2014 and one in early 2015; management also planned to initiate a Phase 3 trial of ALN-TTRsc by year-end 2014. These were forward-looking plans, not assurances of achievement.
- The Genzyme collaboration grants regional opt-in rights for eligible genetic medicine programs and specified broader rights for certain programs. Potential milestones and royalties are contingent on development and commercial success; Genzyme shares development costs for opted-in programs under the agreement’s terms.
- Key risks include clinical and regulatory uncertainty, unproven RNAi delivery approaches, reliance on collaborators and third-party manufacturers, future financing and dilution, competition, and intellectual-property challenges. The University of Utah inventorship litigation will proceed in district court after the U.S. Supreme Court denied Alnylam’s certiorari petition; no loss estimate was recorded because the outcome and amount were uncertain.
- A 50-basis-point immediate and uniform interest-rate increase was estimated to reduce the fair value of interest-sensitive investments by $3.9 million. The company did not hedge this exposure. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Progress and results for patisiran Phase 3, ALN-TTRsc and ALN-AT3, including safety, efficacy, enrollment and timing of planned trials and filings.
- Cash runway against operating cash use, the assumptions behind management’s funding-through-launch statement, and the potential need for additional financing.
- Genzyme collaboration economics, opt-in decisions, milestone conditions, cost sharing, and the effects of Genzyme’s ownership and participation rights on dilution and governance.
- The recurring operating cost trajectory after excluding the Sirna acquisition charge, one-time license fee and stock-option modification charge.
- Developments in the Utah litigation and other intellectual-property disputes, including any potential effect on key patents or financial exposure.