Business context and reporting period
Alnylam Pharmaceuticals, Inc. is a clinical-stage biopharmaceutical company developing RNA interference (RNAi) therapeutics. This unaudited Form 10-Q covers the quarter ended March 31, 2018. The company had no product sales; revenue came from collaborations. Its Alnylam 2020 strategy targeted three marketed products and ten clinical programs, including four late-stage programs, by the end of 2020.
Key financial metrics
| Metric | Q1 2018 / March 31, 2018 | Comparable period / December 31, 2017 |
|---|---|---|
| Collaboration revenue | $21.9 million | $19.0 million in Q1 2017 |
| Research and development expense | $96.9 million | $87.0 million in Q1 2017 |
| General and administrative expense | $72.4 million | $38.5 million in Q1 2017 |
| Total operating expenses | $169.3 million | $125.5 million in Q1 2017 |
| Operating loss | $147.4 million | $106.5 million in Q1 2017 |
| Net loss / diluted loss per share | $141.2 million / $1.41 | $107.3 million / $1.25 in Q1 2017 |
| Operating cash used | $155.7 million | $100.3 million in Q1 2017 |
| Cash and cash equivalents | $396.1 million | $645.4 million at December 31, 2017 |
| Marketable securities | $1,172.4 million total fair value | $1,059.2 million at December 31, 2017 |
| Long-term debt | $30.0 million | $30.0 million at December 31, 2017 |
Cash, cash equivalents and fixed-income marketable securities totaled approximately $1.57 billion at March 31, excluding $30.0 million of restricted investments. Current assets were $1.69 billion and current liabilities $115.4 million. The company reported no product gross margin; margin measures are not meaningful for this collaboration-funded, loss-making business at this stage.
Material changes versus the prior comparable period
- Reported collaboration revenue rose $2.9 million year over year, while operating expenses increased $43.8 million and net loss widened $33.9 million.
- Revenue comparisons are materially affected by adoption of the new revenue standard on January 1, 2018, using the modified retrospective method. Q1 2018 revenue was $21.9 million under the new standard; the filing shows $55.0 million under the prior standard. Prior-year figures were not restated.
- Adoption reduced opening deferred revenue by $68.2 million, with a corresponding adjustment to accumulated deficit. The company says this adoption did not affect cash flows.
- G&A expense rose substantially, chiefly from commercial and medical-affairs hiring and services ahead of potential product launches. R&D growth reflected headcount, external services and regulatory work, partly offset by lower manufacturing expense.
- Cash, cash equivalents and restricted cash fell by $249.0 million during the quarter. Operating cash use and net purchases of marketable securities were the principal uses; financing provided $41.5 million, mainly from stock-option exercises.
Outlook, management commentary, risks and unusual items
- Patisiran: The FDA accepted the NDA for priority review, with an August 11, 2018 action date; the EMA accepted the MAA. If approved, Alnylam expected a 2018 launch and possible initial product revenue. The company also planned regulatory filings in Japan and other countries.
- Pipeline: Management expected givosiran interim Phase 3 results around September 2018 and, if positive and subject to FDA review, an NDA around year-end. Lumasiran Phase 3 initiation was expected in mid-2018, with results in 2019 and a possible NDA in early 2020. Fitusiran was expected to transition substantially to Sanofi Genzyme by mid-2018. These are forward-looking plans, not assured outcomes.
- Spending and liquidity: Management expected R&D and G&A expenses to increase significantly during the remainder of 2018 as the pipeline and commercial infrastructure expand. The filing states existing liquidity and expected alliance cash would support the Alnylam 2020 strategy for at least the next few years; a separate liquidity note states at least 12 months. The company anticipated continued operating losses and may seek additional financing.
- Sanofi Genzyme restructuring: Alnylam obtained global rights to TTR products, including patisiran, and took responsibility for their development and commercialization costs. Sanofi Genzyme obtained global rights to fitusiran. A $50.0 million fitusiran milestone was achieved in Q1; revenue recognition was affected by the new accounting standard. Alnylam expected to fund fitusiran transition costs up to a $50.0 million cap.
- Other unusual item: In April 2018, Alnylam settled all ongoing litigation with Dicerna. The agreement provides $25.0 million in total consideration, including $2.0 million cash, Dicerna shares valued at $10.0 million, and up to $13.0 million in future payments tied to Dicerna partnership and collaboration revenue, due no later than April 18, 2022. It also includes time-limited restrictions on certain Dicerna activities. This was a nonrecognized subsequent event in the quarter.
- Key risks: Drug candidates remain subject to clinical, safety, regulatory, manufacturing, commercialization and reimbursement uncertainty. The filing discusses prior revusiran discontinuation after safety concerns and fitusiran’s 2017 dosing suspension following a fatal thrombotic event; fitusiran studies resumed under a risk-mitigation plan. Patent litigation with Silence remained ongoing, including claims concerning patisiran and fitusiran. The Dicerna settlement resolved its litigation.
- The company identified exposure of its fixed-income portfolio to interest rates and credit risk; a hypothetical immediate, uniform 50-basis-point rate increase would reduce fair value by an estimated $2.3 million. It did not hedge this exposure.
Important facts for investors to verify
- Regulatory decisions and timing for patisiran, and whether approval, labeling, launch and reimbursement support commercial uptake.
- Clinical and safety outcomes for givosiran, lumasiran and fitusiran, including the fitusiran transition and safety-monitoring arrangements.
- The effect of the new revenue standard on collaboration revenue, deferred revenue and comparability; reported Q1 2018 revenue differs materially from the prior-standard presentation.
- Cash burn, commercial and R&D spending growth, alliance receipts, and whether management’s stated liquidity runway remains adequate.
- Sanofi Genzyme royalty and milestone economics, transition costs, and Alnylam’s costs and rights following the restructuring.
- Collection and valuation of Dicerna settlement consideration, including the contingent $13.0 million; and outcomes of remaining Silence patent proceedings.