Alnylam Pharmaceuticals, Inc. — 2016 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2016; the fourth-quarter figures are unaudited. Alnylam is a clinical-stage biopharmaceutical company developing RNA interference (RNAi) therapeutics. It had no approved products or product-sales revenue during the period; reported revenue came from collaborators.
Financial performance and liquidity
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Collaborator revenue | $47.2 million | $41.1 million |
| Research and development expense | $382.4 million | $276.5 million |
| General and administrative expense | $89.4 million | $60.6 million |
| Total operating expenses | $471.7 million | $337.1 million |
| Operating loss | $424.6 million | $296.0 million |
| Net loss | $410.1 million | $290.1 million |
| Net loss per share, basic and diluted | $4.79 | $3.45 |
| Cash used in operating activities | $307.7 million | $189.1 million |
Revenue increased about 15% year over year, while operating expenses rose about 40% and net loss widened about 41%. R&D represented 81% of operating expenses. With no product sales and substantial development spending, conventional product gross margins are not applicable; the filing does not provide a meaningful operating margin measure beyond the reported operating loss.
Q4 2016: Revenue was $17.5 million, operating expenses $132.9 million, net loss $112.9 million, and loss per share $1.32. Q4 2015 revenue was $7.6 million, expenses $100.1 million, net loss $90.7 million, and loss per share $1.07.
Year-end liquidity and debt: Cash, cash equivalents and fixed-income marketable securities totaled $942.6 million, excluding Regulus equity securities and $150.0 million of restricted investments. Working capital was $540.2 million; total assets were $1.263 billion and stockholders’ equity was $920.2 million. Long-term debt was $150.0 million, due in April 2021, at LIBOR plus 0.45%; it is secured by cash collateral equal to outstanding principal. The company reported an accumulated deficit of $1.66 billion.
Material changes and notable items
- R&D expense rose $105.9 million, primarily with clinical development, manufacturing, external services and increased staffing. G&A rose $28.7 million as the company expanded operations and commercial-readiness capabilities.
- Operating cash use increased by $118.6 million. Cash and fixed-income securities fell from $1.281 billion to $942.6 million, while 2016 financing included $150 million of term loans and $14.3 million from a Sanofi Genzyme share issuance.
- Collaborator revenue increased mainly because of Sanofi Genzyme program activity; Takeda and Monsanto revenue amortization ended in 2015. Sanofi Genzyme accounted for 68% of 2016 collaborator revenue and MDCO 24%.
- After discontinuing revusiran, Alnylam shortened its estimated performance period for certain Sanofi Genzyme obligations. This accounting estimate change increased recognized revenue by $1.8 million per quarter beginning in Q4 2016; it was not a new product-sales stream.
- The company sold Regulus shares and recognized $7.0 million of realized gains in 2016; the remaining Regulus investment was valued at $9.0 million at year-end.
Outlook, management commentary and risks
Management’s Alnylam 2020 goal was three marketed products and ten clinical programs, including four late-stage programs, by year-end 2020. The company expected R&D expense to remain relatively consistent in 2017 versus 2016, with quarterly variability, and G&A expense to increase as commercial infrastructure expanded. It expected collaborator revenue to increase in 2017, principally from Sanofi Genzyme reimbursements and possible milestones. These are expectations, not guaranteed results.
- Patisiran: Phase 3 APOLLO top-line results expected mid-2017; NDA and MAA submissions targeted by year-end 2017 if results were positive. Potential launch was planned for 2018, subject to approval.
- Fitusiran: A Phase 3 program was planned for early 2017, subject to diligence and regulatory feedback. Sanofi Genzyme opted into co-development and co-commercialization in the U.S., Canada and Western Europe, and retained its regional rights elsewhere.
- Givosiran: Phase 3 initiation targeted for late 2017, subject to regulatory discussions. Alnylam retained global rights after Sanofi Genzyme declined to opt in.
- Inclisiran: MDCO led and funded development from Phase 2 onward. Interim Phase 2 results showed substantial LDL-C reductions; MDCO intended to advance the program to Phase 3.
- Revusiran safety event: Development was discontinued in October 2016 after the trial monitoring committee recommended suspending dosing and an imbalance in deaths was observed among treated patients versus placebo. The cause remained uncertain and under evaluation. The patisiran APOLLO monitoring committee recommended continuing that trial without modification; this does not establish patisiran safety or efficacy.
Key risks include clinical-trial failure or delay, safety findings, regulatory and reimbursement uncertainty, the unproven RNAi platform, dependence on collaborators and contract manufacturers, intellectual-property disputes, and continued substantial cash burn. Management said existing resources and expected collaboration cash flows should fund the strategy for at least the next several years, but additional funding may be needed sooner than expected. The company reported effective internal control over financial reporting, as confirmed by its auditor.
Important facts for investors to verify
- Whether APOLLO results met the primary endpoint and supported the planned patisiran regulatory filings and launch timetable.
- Findings from the revusiran safety evaluation, including whether they alter the risk assessment for related programs.
- Actual 2017 R&D spending, operating cash burn, collaboration reimbursements and milestone receipts versus management expectations.
- Usable liquidity after accounting for the $150 million cash collateral, debt terms and construction commitments.
- Progress, enrollment, safety and efficacy evidence for fitusiran, givosiran and partner-led inclisiran development, while distinguishing preliminary data from confirmatory trial results.
- Commercial manufacturing readiness, regulatory approval prospects, access and reimbursement assumptions, and the company’s ability to execute its 2020 goals.