UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

For the quarterly period ended March 31, 2019

OR

For the transition period from ___________ to ___________

Commission File Number 001-36407

 

ALNYLAM PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

(617) 551-8200

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ☒   No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  ☒   No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ☐   No  ☒

Securities registered pursuant to Section 12(b) of the Act:

 

At April 30, 2019, the registrant had 106,536,778 shares of Common Stock, $0.01 par value per share, outstanding.

 

 

 

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INDEX

 

 

 

 

 

 

“Alnylam,” ONPATTRO^® and Alnylam Act^® are registered trademarks of Alnylam Pharmaceuticals, Inc. Our logo, trademarks and service marks are property of Alnylam. All other trademarks or service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.

 

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    ALNYLAM PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ALNYLAM PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, except per share amounts)

(Unaudited)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ALNYLAM PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ALNYLAM PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. NATURE OF BUSINESS

We commenced operations on June 14, 2002 as a biopharmaceutical company seeking to develop and commercialize novel therapeutics based on RNA interference, or RNAi. We are committed to the advancement of our company strategy of building a multi-product, commercial biopharmaceutical company with a sustainable pipeline of RNAi therapeutics to address the needs of patients who have limited or inadequate treatment options. Since inception, we have focused on discovering, developing and commercializing RNAi therapeutics by establishing and maintaining a strong intellectual property position in the RNAi field, establishing strategic alliances with leading pharmaceutical and life sciences companies, generating revenues through licensing agreements, and ultimately developing and commercializing RNAi therapeutics globally, either independently or with our strategic partners. We have devoted substantially all of our efforts to business planning, research, development, manufacturing and early commercial efforts, acquiring, filing and expanding intellectual property rights, recruiting management and technical staff, and raising capital. In late 2017, we filed a new drug application and a marketing authorisation application seeking regulatory approval of ONPATTRO^® (patisiran), our first product, in the U.S. and Europe, respectively. In August 2018, we received approval for ONPATTRO from the United States Food and Drug Administration and began commercializing and generating product revenues in the U.S. In August 2018, we also received approval of ONPATTRO from the European Commission and in October 2018, began commercializing and generating product revenues outside of the U.S. During 2018, we also submitted regulatory applications for the approval of ONPATTRO in Japan, Canada and Switzerland, and we plan to make regulatory filings in additional markets in Europe and elsewhere throughout 2019.

We are subject to risks common to companies in our industry including, but not limited to, uncertainties relating to conducting clinical research and development, the manufacture and supply of products for clinical and commercial use, obtaining and maintaining regulatory approvals and pricing and reimbursement for our products, market acceptance, managing global growth and operating expenses, availability of additional capital, competition, obtaining and enforcing patents, stock price volatility, dependence on collaborative relationships and third-party service providers, dependence on key personnel, potential litigation, product liability claims and government investigations.

 

2. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The accompanying condensed consolidated financial statements of Alnylam Pharmaceuticals, Inc. are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, applicable to interim periods and, in the opinion of management, include all normal and recurring adjustments that are necessary to state fairly the results of operations for the reported periods. Our condensed consolidated financial statements have also been prepared on a basis substantially consistent with, and should be read in conjunction with, our audited consolidated financial statements for the year ended December 31, 2018, which were included in our Annual Report on Form 10-K that was filed with the Securities and Exchange Commission on February 14, 2019. The year-end condensed consolidated balance sheet data was derived from our audited financial statements but does not include all disclosures required by GAAP. The results of our operations for any interim period are not necessarily indicative of the results of our operations for any other interim period or for a full fiscal year.

The accompanying condensed consolidated financial statements reflect the operations of Alnylam and our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Our significant accounting policies are described in Note 2 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2018.  Updates to our significant accounting policies, including the updated lease accounting policy due to the adoption of the new leasing accounting standard, are discussed below and under “Recent Accounting Pronouncements.”

Liquidity

Based on our current operating plan, we believe that our cash, cash equivalents and marketable debt securities at March 31, 2019, together with the cash we expect to generate from product sales and under our alliances, will be sufficient to enable us to advance our Alnylam 2020 strategy for at least the next 12 months from the filing of this Quarterly Report on Form 10-Q.

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Leases

We determine whether a contract is, or contains, a lease at inception. We classify each of our leases as operating or financing considering factors such as the length of the lease term, the present value of the lease payments, the nature of the asset being leased, and the potential for ownership of the asset to transfer during the lease term. Leases with terms greater than one-year are recognized on the condensed consolidated balance sheets as right-of-use assets and lease liabilities and are measured at the present value of the fixed payments due over the expected lease term minus the present value of any incentives, rebates or abatements we expect to receive from the lessor. Options to extend a lease are included in the expected lease term if exercise of the option is deemed reasonably certain.  Costs determined to be variable and not based on an index or rate are not included in the measurement of the lease liability and are expensed as incurred. The interest rate implicit in lease contracts is typically not readily determinable. As such, we utilize the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis an amount equal to the lease payments over a similar term and in a similar economic environment. We record expense to recognize fixed lease payments on a straight-line basis over the expected lease term. We have elected the practical expedient not to separate lease and non-lease components for real estate leases.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board, or FASB, issued a new leasing standard which generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use assets on the condensed consolidated balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. We adopted the new standard on January 1, 2019, using a modified retrospective basis and did not restate comparative periods. In addition, we did not elect the package of practical expedients permitted under the transition guidance that permits companies to carry forward prior conclusions related to (1) whether any expired or existing contracts are, or contain, leases, (2) the lease classification for expired or existing leases, and (3) initial direct costs for existing leases. All our leases have been classified as operating leases under the new leasing standard.  We elected to combine lease and non-lease components and to keep leases with an initial term of 12 months or less off the condensed consolidated balance sheets and recognize the associated lease payments in the condensed consolidated statements of comprehensive loss on a straight-line basis over the lease term. Please read Note 8 for additional disclosures related to accounting for leases under this new standard.

The adoption of ASC 842 has a material impact on our condensed consolidated balance sheet as the standard requires us to measure and recognize a right of use asset and lease liability.  As most leases do not provide an implicit rate, our incremental borrowing rate was determined based on the information available at the date of adoption to measure our lease liability.  Costs determined to be variable and not based on an index or rate were not included in the measurement of the lease liability.  We recognized approximately $290 million of operating lease liabilities and approximately $230 million of operating lease right-of-use assets on our condensed consolidated balance sheet as of January 1, 2019, which are presented as separate line items on the condensed consolidated balance sheet as of March 31, 2019.  Had we not adopted the new leasing standard, we would not have had operating lease right-of-use assets or operating lease liabilities on our condensed consolidated balance sheet as of March 31, 2019. The adoption of the standard did not have a material impact on our condensed consolidated statement of comprehensive income.

In March 2017, the FASB issued a new standard that amends the amortization period for certain purchased callable debt securities held at a premium by shortening the amortization period for the premium to the earliest call date.  The new standard became effective for us on January 1, 2019. This standard did not have a significant impact on our condensed consolidated financial statements and related disclosures.

In August 2018, the FASB issued amendments that eliminate, add and modify certain disclosure requirements on fair value measurements. The amendments become effective for our fiscal year, including interim periods, beginning January 1, 2020. Early adoption of the amendments in full or only the provisions that eliminate or modify the disclosure requirements for fair value measurements is permitted. We are currently evaluating the timing of our adoption and the expected impact that these amendments could have on our disclosures.

In November 2018, the FASB issued guidance to clarify the interaction between the accounting guidance for collaborative arrangements and revenue from contracts with customers. The amendments become effective for our fiscal year, including interim periods, beginning January 1, 2020. Early adoption, including adoption in any interim period, is permitted. This guidance is required to be applied retrospectively as of the date of our adoption of the new revenue standard on January 1, 2018. We are currently evaluating the timing of our adoption and the expected impact this guidance could have on our condensed consolidated financial statements and related disclosures.

 

 

 

 

 

 

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3. PRODUCT REVENUES, NET

During the three months ended March 31, 2019, we recorded product revenues, net of $26.3 million, which consisted of commercial sales of ONPATTRO primarily in the U.S., along with sales in several European countries. We did not record any product revenues in the three months ended March 31, 2018.

As of March 31, 2019 and December 31, 2018, net product revenue related receivables of $22.1 million and $13.1 million, respectively, were included in “Accounts receivable, net.”

 

4. COLLABORATION AGREEMENTS

The following table summarizes our total condensed consolidated net revenues from collaborators, for the periods indicated, in thousands:

 

The following table presents the balance of our receivables and contract liabilities related to our collaboration agreements at March 31, 2019 and December 31, 2018, in thousands:

 

 

During the three months ended March 31, 2019, we recognized the following revenue as a result of the change in the contract liability balances related to our collaboration agreements, in thousands:

 

 

In order to determine revenue recognized in the period from contract liabilities, we first allocate revenue to the individual contract liability balance outstanding at the beginning of the period until the revenue exceeds that balance. If additional consideration is received on those contracts in subsequent periods, we assume all revenue recognized in the reporting period first applies to the beginning contract liability as opposed to a portion applying to the new consideration for the period.

 

The following table provides the research and development expenses incurred by type that are directly attributable to our collaboration agreements by our collaboration partners for the periods indicated, in thousands:

 

 

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The research and development expenses incurred for each agreement listed in the table above consist of costs incurred for external development and manufacturing services for which we are reimbursed, licensing payments made to the counterparty to such agreement and costs directly attributable to Sanofi Genzyme transition services. In addition, these expenses include a reasonable estimate of compensation and related costs as billed to our counterparties. As part of our revenue recognition policy adopted on January 1, 2018, the costs in the above table are considered as an input in our determination of transaction price when they relate to consideration received for the delivery of goods or services. For the three months ended March 31, 2019 and 2018, we did not incur material selling, general and administrative expenses related to our collaboration agreements.

 

Sanofi Genzyme Collaboration

Collaboration Amendment

On April 8, 2019, we and Sanofi Genzyme entered into an amendment to our 2014 Sanofi Genzyme collaboration, which we refer to as the Collaboration Amendment.  Under the Collaboration Amendment, we and Sanofi Genzyme agreed to conclude the research and option phase under our collaboration agreement. In connection and simultaneously with entering into the Collaboration Amendment, we and Sanofi Genzyme also entered into the Amended and Restated ALN-AT3 Global License Terms with respect to ALN-AT3 (fitusiran) and certain back-up products, which we refer to as the A&R AT3 License Terms. The A&R AT3 License Terms amend and restate the ALN-AT3 Global License Terms entered into by us and Sanofi Genzyme in January 2018 to modify certain of the business terms. The material collaboration terms for fitusiran, as previously announced, will continue unchanged.

In connection with entering into the Collaboration Amendment and the A&R AT3 License Terms, we agreed to advance, at our cost, a selected investigational asset in an undisclosed rare genetic disease through the end of IND-enabling studies. Following completion of such studies, we will transition, at our cost, such asset to Sanofi Genzyme. Thereafter, Sanofi Genzyme will fund all potential future development and commercialization costs for such asset. If this asset is developed and approved, we will be eligible to receive tiered double-digit royalties on global net sales.

No changes were made to our Exclusive License Agreement with Sanofi Genzyme, referred to as the Exclusive TTR License, pursuant to which we have global rights for the development and commercialization of ONPATTRO, together with vutrisiran and all back-up products, which remains in full force and effect.

Amended and Restated Investor Agreement

In connection with the Collaboration Amendment, we and Sanofi Genzyme also entered into an Amended and Restated Investor Agreement, referred to as the A&R Investor Agreement, which amends and restates the Investor Agreement entered into by us and Sanofi Genzyme in February 2014, referred to as the Original Investor Agreement. Pursuant to the A&R Investor Agreement, Sanofi Genzyme is released from the lock-up restrictions under the Original Investor Agreement and is permitted to sell shares of our common stock in transactions approved by us or in fully bought block sale transactions satisfying the conditions set forth in the A&R Investor Agreement. As of January 17, 2019, Sanofi Genzyme owned 10,554,134 shares of our common stock.

 

Under the A&R Investor Agreement, until the earlier of (i) the fifth anniversary of the expiration of the last to expire royalty term or the earlier termination of the collaboration agreement, as amended by the Collaboration Amendment, and (ii) the date after December 31, 2021 on which the beneficial ownership of Sanofi Genzyme and its affiliates no longer represents at least 5% of the outstanding shares of common stock, Sanofi Genzyme and its affiliates will be bound by certain “standstill” provisions, including an agreement not to propose or support a proposal to acquire us. Under the A&R Investor Agreement, Sanofi Genzyme no longer has registration rights or the conditional right to appoint one individual to our board of directors. Sanofi Genzyme continues to be entitled to certain financial information rights until Sanofi Genzyme and its affiliates no longer beneficially own at least 2.5% of our outstanding shares of common stock.

 

 

5. INVENTORY

The following table presents our inventory at March 31, 2019 and December 31, 2018, in thousands:

 

 

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6. FAIR VALUE MEASUREMENTS

The following tables present information about our assets that are measured at fair value on a recurring basis at March 31, 2019 and December 31, 2018, and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair value, in thousands:

 

 

 

During the three months ended March 31, 2019 and 2018, there were no transfers between Level 1 and Level 2 financial assets. The carrying amounts reflected in our condensed consolidated balance sheets for cash, accounts receivable, net, other current assets, accounts payable and accrued expenses approximate fair value due to their short-term maturities. The fair value of our long-term debt at March 31, 2019 and December 31, 2018, computed pursuant to a discounted cash flow technique using a market interest rate, was $30.1 million and is considered a Level 3 fair value measurement. The effective interest rate reflects the current market rate.

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7. MARKETABLE DEBT SECURITIES

 

We obtain fair value measurement data for our marketable debt securities from independent pricing services. We perform validation procedures to ensure the reasonableness of this data. This includes meeting with the independent pricing services to understand the methods and data sources used. Additionally, we perform our own review of prices received from the independent pricing services by comparing these prices to other sources and confirming those securities are trading in active markets. We did not record any impairment charges related to our marketable debt securities during the three months ended March 31, 2019 or 2018.

The following tables summarize our marketable debt securities at March 31, 2019 and December 31, 2018, in thousands:

 

 

 

The fair values of our marketable debt securities by classification in the condensed consolidated balance sheets were as follows, in thousands: