Alnylam Pharmaceuticals, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012. Alnylam is a clinical-stage biopharmaceutical company developing RNAi therapeutics; it reported no product sales, with revenue primarily from research collaborations.
Financial results and liquidity
| Metric | Q1 2012 | Q1 2011 / prior date |
|---|---|---|
| Collaboration revenue | $20.6 million | $20.9 million |
| Research and development expense | $21.1 million | $26.3 million |
| General and administrative expense | $10.4 million | $10.2 million |
| Operating loss | $10.9 million | $15.7 million |
| Net loss | $11.4 million; $0.25 per share | $16.3 million; $0.38 per share |
| Operating cash flow | $(30.2) million | $(6.3) million |
| Cash, cash equivalents and marketable securities | $316.9 million | $260.8 million at Dec. 31, 2011 |
At March 31, total assets were $340.3 million, total liabilities $142.9 million, and stockholders’ equity $197.4 million. The filing does not report company borrowings as a material balance-sheet item; it does disclose a $5.5 million maximum exposure related to Regulus debt guarantees. Current assets were $208.5 million versus current liabilities of $66.6 million. No operating margin is presented; the company remained loss-making.
Cash and cash equivalents ended the quarter at $61.7 million, down from $70.2 million at year-end. Operating cash use included a $20.1 million decrease in deferred revenue. Investing activities used $65.6 million, mainly from net purchases of marketable securities; financing provided $87.3 million, principally from a February stock offering. The offering raised $86.8 million net from 8.625 million shares sold at $10.75 per share. The accumulated deficit was $412.4 million.
Material changes and management commentary
- Revenue was broadly steady year over year, while operating expenses fell 14% and net loss narrowed. R&D expense declined 20%, mainly with lower clinical-trial, manufacturing and external-service costs; restructuring charges partly offset those reductions.
- In January, Alnylam reduced its workforce by approximately 33%, to about 115 employees. It recorded $3.9 million of restructuring costs and expects approximately $20 million in 2012 operating-expense savings, with no additional significant restructuring costs expected.
- Management expects R&D and G&A expenses to decrease for the remainder of 2012 following the workforce reduction. It expects collaboration revenue to decrease significantly beginning in the second half of 2012 as Roche/Arrowhead obligations wind down; the alliance’s remaining revenue recognition was expected to end in the third quarter. Deferred revenue totaled $120.8 million at quarter-end.
- Based on its operating plan, Alnylam believed existing cash, cash equivalents and fixed-income securities, together with expected alliance cash, would fund planned operations through at least the end of 2013. It cautioned that additional funding may be needed earlier, and that financing could be unavailable or dilutive. The company expects significant losses to continue.
Programs, outlook and risks
- Alnylam’s “Alnylam 5x15” goal was five RNAi programs in clinical development by the end of 2015. It prioritized ALN-TTR and ALN-APC for internal development and planned to partner ALN-PCS, ALN-HPN and ALN-TMP.
- ALN-TTR02 entered Phase I in March 2012. In April, the company reported Phase I ALN-PCS results: up to 50% LDL-cholesterol reduction and up to 84% PCSK9 reduction; management said it was well tolerated, with no serious drug-related adverse events. Alnylam planned to partner ALN-PCS before Phase II.
- In April 2012, Alnylam opted out of the 50-50 ALN-HTT cost/profit arrangement with Medtronic, switching to a milestone-and-royalty structure. Medtronic could continue development; Alnylam remained conditionally obligated to repay its pro-rata share of CHDI funding, with interest, if a product is commercialized.
- Material uncertainties include the early stage and unproven nature of RNAi drug development, clinical and regulatory outcomes, delivery and manufacturing constraints, dependence on collaborators, future financing needs, and patent and intellectual-property disputes.
- Tekmira’s pending suit alleges trade-secret misappropriation and related claims, seeks unspecified damages and remedies including transfer of certain intellectual property; Alnylam said the case was in discovery, expected trial in October 2012, and could not estimate a loss range. Alnylam also sued Tekmira for patent infringement; Tekmira moved to dismiss five of six claims. The University of Utah separately challenged inventorship of Tuschl patents.
- A prior ALN-VSP trial included a patient death from hepatic failure five days after a second dose, deemed possibly related to study drug, as disclosed in the filing’s risk discussion.
Important facts for investors to verify
- Whether the expected approximately $20 million in restructuring savings materialize without impairing execution or partnerships.
- How quickly collaboration revenue declines after Roche/Arrowhead performance obligations end, and whether replacement funding or partnerships are secured.
- Whether cash use and clinical-program costs remain consistent with management’s stated runway through at least 2013.
- Clinical safety, efficacy and development progress for ALN-TTR02, ALN-APC and partnered programs; the reported ALN-PCS results were early-stage findings.
- Developments, potential financial exposure and intellectual-property consequences in the Tekmira and University of Utah litigation.
- Potential dilution from future equity financing; the February 2012 offering materially increased shares outstanding.