Alnylam Pharmaceuticals, Inc. — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing also provides unaudited fourth-quarter results. Alnylam is a commercial-stage biopharmaceutical company developing RNA interference (RNAi) medicines. In August 2018, ONPATTRO (patisiran) became the first approved RNAi therapeutic, for hereditary transthyretin-mediated amyloidosis (hATTR) polyneuropathy in the U.S. and specified adult patients in the EU.
Financial and operating metrics
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Total revenue | $74.9 million | $89.9 million |
| ONPATTRO net product revenue | $12.5 million | None |
| Collaborator revenue | $62.4 million | $89.9 million |
| Operating costs and expenses | $889.6 million | $590.0 million |
| Operating loss | $814.7 million | $500.1 million |
| Net loss | $761.5 million | $490.9 million |
| Net loss per share, basic and diluted | $7.57 | $5.42 |
| Cash used in operating activities | $562.6 million | $382.8 million |
At year-end, cash, cash equivalents and marketable debt securities totaled $1.083 billion, excluding $44.8 million of restricted investments; working capital was $1.021 billion. Long-term debt was $30 million, due in April 2021, at LIBOR plus 0.45% and secured by cash collateral. Capital expenditures were $126.9 million, primarily for manufacturing-facility construction. No positive operating or net margin was reported. Gross margin is not a useful normalized measure yet: 2018 cost of goods sold was $1.8 million, and $17.3 million of ONPATTRO inventory had zero cost on the books, which the company expected to sell over 16–18 months. Management estimated normalized cost of goods sold at the mid-to-high teens as a percentage of net product revenue after that inventory is used.
Fourth quarter, unaudited: Revenue was $21.0 million, operating costs and expenses were $241.4 million, and net loss was $211.4 million ($2.09 per share).
Material changes versus the prior comparable period
- Total revenue fell 16.7% year over year, while net loss widened by $270.6 million. Reported collaborator revenue declined, partly reflecting lower reimbursable activity and the January 2018 adoption of a new revenue-recognition standard.
- Under the prior standard, 2018 collaborator revenue would have been $112.5 million rather than the reported $62.4 million, and net loss would have been $711.4 million rather than $761.5 million. Adoption reduced opening deferred revenue by $68.2 million, with a corresponding adjustment to accumulated deficit; it did not affect cash flows.
- R&D expense rose 29.4% to $505.4 million, driven mainly by manufacturing, stock-based compensation, external services and pipeline advancement. SG&A rose 91.8% to $382.4 million as Alnylam expanded commercial, medical-affairs and global-launch capabilities.
- ONPATTRO sales began in the U.S. in August and in Germany in October, with launches in additional European countries during the fourth quarter. The January 2018 alliance restructuring returned global TTR-program rights, including ONPATTRO and vutrisiran, to Alnylam and gave Sanofi Genzyme global rights to fitusiran.
Outlook, commentary and key risks
- Management expected 2019 ONPATTRO product revenue to increase with a full year of sales and potential launches in additional territories, subject to regulatory approvals. It also expected R&D and SG&A expenses to increase as pipeline development and commercial expansion continued.
- Late-stage programs included givosiran for acute hepatic porphyria, lumasiran for primary hyperoxaluria type 1, vutrisiran for ATTR amyloidosis, partner-led inclisiran for hypercholesterolemia and Sanofi Genzyme-led fitusiran for hemophilia. The filing described these candidates as investigational, not approved medicines.
- Management’s liquidity disclosures differ: the MD&A says existing resources, expected product sales, current alliances and January 2019 offering proceeds were expected to fund the Alnylam 2020 strategy for at least 24 months from filing; the financial-statement note says resources were expected to be sufficient for at least 12 months. The company also cautioned that additional funding could be needed sooner than expected.
- In January 2019, Alnylam sold 5 million shares at $77.50 per share for net proceeds of approximately $381.9 million. This post-year-end financing is not included in December 31, 2018 cash balances.
- Key risks include continuing substantial losses and cash burn; clinical, regulatory and reimbursement uncertainty; product safety and market uptake; reliance on third-party manufacturing, including Agilent as the sole ONPATTRO active-ingredient supplier; and competition. Historical safety events include discontinuation of revusiran after a mortality imbalance and a prior temporary fitusiran dosing suspension following a fatal thrombotic event. An interim givosiran analysis also included one treatment discontinuation after elevated liver transaminases.
- Unusual items included a $20.6 million gain on the Dicerna litigation settlement and $4.0 million of related interest income when a deferred settlement payment became due. Alnylam and Silence settled worldwide disputes in December 2018; the agreement provides Silence a 0.33%–1.0% royalty on EU ONPATTRO net sales from 2019 through 2023. Ionis had asserted in arbitration that fees were owed following the Sanofi Genzyme restructuring; Alnylam disputed the claim, and the filing did not report a resolution.
Important facts for investors to verify
- Reconcile the 12-month versus 24-month liquidity runway disclosures and confirm how the January 2019 financing affects the current runway.
- Track ONPATTRO sales growth, payer coverage and rebates, country launches, and the transition from zero-cost inventory to reported manufacturing costs.
- Review full-year and quarterly cash burn against planned R&D, commercial spending and capital requirements.
- Monitor clinical and regulatory milestones and safety updates for givosiran, lumasiran, vutrisiran and partner programs; verify the status of the Ionis arbitration and securities class action.
- Assess dependence on Agilent and other external manufacturers, the progress and cost of the Norton facility, and any constraints on supply or production scale-up.
- Consider the effects of revenue-standard adoption and significant stock-based compensation ($157.8 million in 2018) when comparing reported losses and collaborator revenue across periods.