Alnylam Pharmaceuticals, Inc. — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018. Unaudited results are for a commercial-stage RNAi biopharmaceutical company; comparisons below are with the corresponding 2017 periods unless noted.
Business context and key developments
Alnylam received FDA approval for ONPATTRO (patisiran) in August 2018 and European Commission marketing authorization later that month. U.S. sales began in August; the first European launch, in Germany, began in October. ONPATTRO is approved for polyneuropathy of hereditary transthyretin-mediated amyloidosis in adults, with the European authorization specifying Stage 1 or Stage 2 polyneuropathy. The company remains focused on its Alnylam 2020 strategy: three marketed products and ten clinical programs, including four late-stage programs, across at least three therapeutic areas by the end of 2020.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Total revenue | $2.1 million | $17.1 million | $53.9 million | $52.0 million |
| Operating costs and expenses | $256.6 million | $142.9 million | $648.2 million | $404.8 million |
| Operating loss | $254.6 million | $125.8 million | $594.3 million | $352.8 million |
| Net loss | $245.3 million | $122.9 million | $550.1 million | $348.6 million |
| Basic and diluted loss per share | $2.43 | $1.34 | $5.48 | $3.93 |
| Operating cash used | Not separately provided | Not separately provided | $412.2 million | $279.7 million |
Q3 ONPATTRO net product revenue was $0.46 million; the balance of Q3 revenue was collaborator revenue. For the first nine months, collaborator revenue was $53.4 million. Product-level margins are not meaningfully assessable from this launch-quarter revenue base. Reported cost of goods sold was $0.14 million, including $0.03 million of royalties; manufacturing costs were partly reflected in the cost of inventory capitalized after approval.
Research and development expense was $139.9 million in Q3 and $374.4 million for nine months; selling, general and administrative expense was $116.5 million and $273.7 million, respectively. Stock-based compensation was $87.9 million in Q3 and $129.8 million for nine months, including significant performance-award expense associated with ONPATTRO approval and clinical milestones.
At September 30, 2018, cash and cash equivalents were $316.6 million and marketable debt securities were $905.2 million. Management reported $1.22 billion of cash, cash equivalents and marketable debt securities, excluding $44.8 million of restricted investments. Total assets were $1.68 billion; current assets were $1.34 billion and current liabilities $121.5 million. Long-term debt was $30.0 million, secured by cash collateral, and matures in April 2021. Cash, cash equivalents and restricted cash fell $328.1 million during the first nine months. Capital spending on property, plant and equipment was $89.4 million.
Material changes and unusual items
- Revenue-standard adoption materially affected reported results. On January 1, 2018, adoption reduced deferred revenue by $68.2 million and increased opening accumulated deficit by the same amount. For the first nine months, reported revenue was $50.1 million lower and net loss $50.1 million higher than under the prior standard; prior-year figures were not restated.
- Q3 revenue fell $15.0 million year over year, mainly as Sanofi Genzyme collaboration revenue declined following completion of transition-related performance obligations. Nine-month reported revenue increased $1.9 million, but would have been $51.6 million higher year over year under the prior revenue standard.
- Alnylam recorded $20.6 million of other income from its Dicerna settlement: $2.0 million cash, Dicerna shares valued at $10.0 million, and the discounted value of a further $13.0 million payment due by April 2022. The shares were valued at $15.0 million at September 30, generating a separate $5.0 million unrealized gain for the nine-month period.
- Cash and cash equivalents plus marketable debt securities declined from $1.69 billion at December 31, 2017 to $1.22 billion at September 30, 2018. Operating cash use increased from $279.7 million to $412.2 million year over year for the nine-month periods.
- Facility lease extensions increased lease obligations through 2034 by $160.3 million. The Cambridge headquarters lease was extended through January 2034; the 101 Main Street lease through March 2024.
Outlook, management commentary and risks
Management expects Q4 2018 product revenue to increase from Q3 due to continued U.S. sales and the German launch. Collaborator revenue is also expected to increase from Q3, primarily due to reimbursable activities. R&D expense excluding stock compensation and SG&A excluding stock compensation are expected to rise in Q4 as development and commercial infrastructure expand; stock-based compensation is expected to decrease significantly from Q3’s non-recurring performance-award charges.
Management stated that available cash, cash equivalents and marketable debt securities, together with expected product and alliance cash generation, should fund the Alnylam 2020 strategy for at least 12 months from the filing date. The company nevertheless expects significant losses for the foreseeable future and may need additional funding; financing may be unavailable or dilutive, or require surrendering rights. The company reported an accumulated deficit of $2.63 billion.
Pipeline updates included positive topline interim results for the givosiran ENVISION Phase 3 study. Alnylam planned a rolling NDA submission beginning in 2018, with full clinical sections in mid-2019, assuming positive final results expected in early 2019. Lumasiran’s Phase 3 study began, with topline results expected in late 2019. The ALN-TTRsc02 Phase 3 study was planned to start in late 2018. These development timelines and outcomes are uncertain.
Key risks include commercial uptake, pricing and reimbursement of ONPATTRO; clinical and regulatory failure or delay; safety concerns and post-market requirements; manufacturing capacity and reliance on Agilent and other suppliers; collaboration-partner performance; intellectual-property disputes; and the need for additional capital. Silence Therapeutics pursued patent claims alleging ONPATTRO infringement in Europe and sought injunctive relief. A securities class action filed in September 2018 alleged misleading statements about ONPATTRO safety and efficacy; Alnylam disputed the allegations. In November 2018, Ionis filed an arbitration demand claiming additional technology access fees related to the Sanofi restructuring; Alnylam disputed that fees were owed. Outcomes and potential financial impacts were uncertain.
Important facts for investors to verify
- Whether ONPATTRO launches, patient access, reimbursement and sales develop as expected, including the European rollout and Japan review.
- How the new revenue standard affects reported collaborator revenue and year-over-year comparability; distinguish reported figures from prior-standard estimates.
- Cash burn, commercial investment, manufacturing-facility spending and the timing or terms of any future financing.
- Final givosiran results and regulatory timing, and progress in the ALN-TTRsc02, lumasiran and fitusiran programs.
- Developments and potential exposure in the Silence patent proceedings, securities class action and Ionis arbitration.