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ALNY > SEC Filings for ALNY > Form 10-Q on 3-May-2012All Recent SEC Filings

Show all filings for ALNYLAM PHARMACEUTICALS, INC.

Form 10-Q for ALNYLAM PHARMACEUTICALS, INC.


3-May-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Without limiting the foregoing, the words "may," "will," "should," "could," "expects," "plans," "intends," "anticipates," "believes," "estimates," "predicts," "potential," "continue," "target," "goal" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these words. All forward-looking statements included in this Quarterly Report on Form 10-Q are based on information available to us up to, and including, the date of this document, and we expressly disclaim any obligation to update any such forward-looking statements to reflect events or circumstances that arise after the date hereof. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain important factors, including those set forth in this Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as under Part II, Item 1A - "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. You should carefully review those factors and also carefully review the risks outlined in other documents that we file from time to time with the Securities and Exchange Commission, or SEC.

Overview

We are a biopharmaceutical company developing novel therapeutics based on RNA interference, or RNAi. RNAi is a naturally occurring biological pathway within cells for selectively silencing and regulating the expression of specific genes. Since many diseases are caused by the inappropriate activity of specific genes, the ability to silence genes selectively through RNAi could provide a new way to treat a wide range of human diseases. We believe that drugs that work through RNAi have the potential to become a broad new class of drugs, like small molecule, protein and antibody drugs. Using our intellectual property and the expertise we have built in RNAi, we are developing a set of biological and chemical methods and know-how that we apply in a systematic way to develop RNAi therapeutics for a variety of diseases.

Our core product strategy, which we refer to as "Alnylam 5x15," is focused on the development and commercialization of novel RNAi therapeutics for the treatment of genetically defined diseases with high unmet medical need. Under our core product strategy, we expect to have five RNAi therapeutic programs in clinical development, including programs in advanced stages, on our own or with one or more collaborators, by the end of 2015. As part of this strategy, our goal is to develop product candidates with the following shared characteristics:
a genetically defined target and disease; the potential to have a significant impact in high unmet need patient populations; the ability to leverage our existing RNAi delivery platform; the opportunity to monitor an early biomarker in Phase I clinical trials for human proof of concept; and the existence of clinically relevant endpoints for the filing of a new drug application, or NDA, with a focused patient database and possible accelerated paths for commercialization. Our core programs currently in clinical or pre-clinical development are: ALN-TTR for the treatment of transthyretin-mediated amyloidosis, or ATTR; ALN-APC for the treatment of hemophilia; ALN-PCS for the treatment of severe hypercholesterolemia; ALN-HPN for the treatment of refractory anemia; and ALN-TMP for the treatment of hemoglobinopathies, including beta-thalassemia and sickle cell anemia. We intend to focus on developing and commercializing ALN-TTR and ALN-APC on our own in the United States and potentially certain other countries, and we intend to enter into alliances to advance our ALN-PCS, ALN-HPN and ALN-TMP programs.

While focusing our efforts on our core product strategy, we also intend to continue to advance additional development programs through existing or future alliances. We have three partner-based programs in clinical or pre-clinical development, including ALN-RSV01 for the treatment of respiratory syncytial virus, or RSV, infection, ALN-VSP for the treatment of liver cancers and ALN-HTT for the treatment of Huntington's disease, or HD.

Our most advanced core product development program, ALN-TTR, targets the transthyretin, or TTR, gene, for the treatment of ATTR, a hereditary, systemic disease associated with severe morbidity and mortality caused by a mutation in the TTR gene that leads to the extracellular deposition of amyloid fibrils. In November 2011, we reported preliminary clinical results from our ALN-TTR01 Phase I, multinational clinical trial showing that ALN-TTR01 was generally safe and well tolerated and resulted in statistically significant lowering of TTR serum levels in ATTR patients. We have completed enrollment in the ALN-TTR01 Phase I trial and expect to present final data in the first half of 2012. ALN-TTR01 employs a first-generation lipid nanoparticle, or LNP, formulation.

In parallel with the completion of the ALN-TTR01 Phase I clinical trial, we are also advancing ALN-TTR02 utilizing the same siRNA as ALN-TTR01, formulated in a proprietary second-generation LNP with the MC3 lipid. In pre-clinical studies, this second-generation LNP technology demonstrated an over 10-fold improvement in potency. We expect ALN-TTR02 to be our lead


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development candidate for our ALN-TTR program. In March 2012, we initiated a Phase I clinical trial with ALN-TTR02. The ALN-TTR02 Phase I clinical trial is being conducted in the United Kingdom as a randomized, single-blind, placebo-controlled, single-ascending dose study, enrolling up to 32 healthy volunteer subjects. The primary objective of the study is to evaluate the safety and tolerability of a single dose of ALN-TTR02, with subjects being enrolled into five sequential cohorts of increasing doses ranging from 0.01 to 0.50 mg/kg. Secondary objectives of this study include the characterization of pharmacokinetics of ALN-TTR02 and the assessment of clinical activity as measured by effects on serum TTR levels through at least day 56 following a single dose. The Committee for Orphan Medicinal Products of the European Medicines Agency adopted a positive opinion for ALN-TTR01 designation as an orphan medicinal product for the treatment of familial amyloidotic polyneuropathy. In April 2011, the European Commission officially designated ALN-TTR01 as an orphan drug. This designation also applies to ALN-TTR02.

We also plan to advance ALN-TTRsc, which utilizes a GalNAc-conjugate delivery technology and subcutaneous dose administration, into clinical development. Pre-clinical studies have shown that once-weekly dosing with ALN-TTRsc enables robust and sustained silencing of TTR over a multi-week period. We believe that ALN-TTRsc has the potential to provide product differentiation and expansion in the ATTR indication.

Our second core product development program is ALN-APC. ALN-APC is an RNAi therapeutic targeting protein C, a genetically defined target, for the treatment of hemophilia. Hemophilia is a hereditary disorder caused by genetic deficiencies of various blood clotting factors, resulting in recurrent bleeds into joints, muscles and other major internal organs. Pre-clinical studies of an siRNA targeting protein C showed dose-dependent silencing of the protein C messenger RNA, or mRNA. Further, administration of a small interfering RNA, or siRNA, resulted in marked reductions in protein C plasma levels. We are exploring both systemically delivered LNP and subcutaneously delivered GalNAc-conjugate approaches for ALN-APC with the goal of selecting the clinical candidate and advancing the ALN-APC program toward the clinic.

Our third core development program is ALN-PCS for the treatment of severe hypercholesterolemia. In April 2012, we reported clinical data from our Phase I clinical trial of ALN-PCS. ALN-PCS employs the same proprietary second-generation LNP formulation, specifically using the MC3 lipid, as ALN-TTR02. We are developing ALN-PCS for the treatment of severe hypercholesterolemia. ALN-PCS targets a gene called proprotein convertase subtilisin/kexin type 9, or PCSK9, which is involved in the regulation of LDL receptor levels on hepatocytes and the metabolism of LDL cholesterol, or LDL-c, which is also commonly referred to as "bad" cholesterol.

The Phase I clinical trial was conducted as a randomized, single-blind, placebo-controlled, single-ascending dose study in healthy volunteer subjects with elevated baseline LDL-c (greater than 116mg/dL). The primary objective of the study was to evaluate the safety and tolerability of a single dose of ALN-PCS. Secondary objectives included assessment of pharmacodynamic effects of the drug on plasma PCSK9 protein levels and evaluation of clinical efficacy as measured by LDL-c levels. A total of 32 subjects were enrolled into six sequential dose cohorts ranging from 0.015 to 0.400 mg/kg in a 3-to-1 randomization of drug to placebo.

In this study, administration of ALN-PCS resulted in rapid, dose-dependent and durable reductions in LDL-c of up to 50% relative to baseline and placebo, with a statistically significant mean reduction of 41% (p<0.01) at the 0.400 mg/kg dose level. In addition, ALN-PCS administration resulted in rapid, dose-dependent and durable knockdown of PCSK9 protein levels in plasma of up to 84% relative to baseline and placebo, with a statistically significant mean reduction of 68% in the highest dose group of 0.400 mg/kg (p<0.0001). There was also a dose-dependent increase in the proportion of subjects who achieved "target" levels of LDL-c of less than 100 mg/dL (p<0.05). We believe the effects of a single dose of ALN-PCS support a once-monthly dose administration regimen for future studies.

ALN-PCS was shown to be safe and well tolerated in this study and there were no serious adverse events related to study drug administration. There were no drug-related discontinuations and no liver enzyme elevations. There was also no significant change compared to baseline in levels of high-density lipoprotein, or HDL, also referred to as "good" cholesterol, consistent with the phenotype observed in human PCSK9 loss-of-function mutations.

We plan to partner our ALN-PCS program prior to initiating a Phase II clinical trial. Our other two core development programs, ALN-HPN for the treatment of refractory anemia and ALN-TMP for the treatment of hemoglobinopathies, including beta-thalassemia and sickle cell anemia, are in pre-clinical development. We plan to partner each of these programs prior to initiating a Phase I clinical trial.

As noted above, while focusing our efforts on our core product strategy, we also intend to continue to advance additional partner-based development programs through existing or future alliances. We have three partner-based programs in clinical or pre-clinical development, including ALN-RSV for the treatment of RSV, ALN-VSP for the treatment of liver cancers and ALN-HTT for the treatment of HD.


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In July 2007, we entered into an amended and restated collaboration agreement with Medtronic, Inc., or Medtronic, to pursue the development of RNAi therapeutics for the treatment of neurodegenerative disorders using implantable infusion systems. ALN-HTT is an RNAi therapeutic candidate targeting the huntingtin gene, for the treatment of HD, which we have been developing in collaboration with Medtronic under this agreement. In November 2010, we and Medtronic entered into an agreement with CHDI Foundation, Inc., or CHDI, under which CHDI agreed to initially fund approximately 50% of the costs of the ALN-HTT program up to the point at which an investigational new drug application, or IND, can be filed with the United States Food and Drug Administration, or FDA, or a comparable foreign regulatory filing can be made.

In connection with our January 2012 strategic corporate restructuring, we determined to align our resources to focus on our lead programs, ALN-TTR and ALN-APC. In April 2012, as part of this alignment of resources, we exercised our option under the Medtronic agreement to opt-out of the 50-50 expense/profit share arrangement of the ALN-HTT drug-device development program and move to a royalty and milestone licensing structure.

Medtronic has the right to continue development of the ALN-HTT program. If Medtronic decides to continue the ALN-HTT program, it would assume responsibility for future development plans. We intend to transition the program to Medtronic, and intend to continue to supply ALN-HTT for the program, as well as provide technical support to Medtronic, as requested. If Medtronic continues the program, we would be compensated for the supply of ALN-HTT, and would be entitled to certain development milestones, as well as royalties on annual net sales, if any. We continue to be obligated to repay CHDI for our pro-rata share of funding received through the effective date of our opt-out, with interest, in the event that a product is ultimately commercialized from the funded research.

In addition, we and Medtronic may jointly agree to collaborate on additional product development programs for the treatment of other neurodegenerative diseases, which can be addressed by the delivery of siRNAs to the human nervous system through implantable infusion devices, under the amended and restated collaboration agreement, which remains in effect.

We continue to work internally and with third-party collaborators with the goal of developing new technologies to deliver our RNAi therapeutics both directly to specific sites of disease, and systemically by intravenous or subcutaneous administration. We have numerous RNAi therapeutic delivery collaborations and intend to continue to collaborate with government, academic and corporate third parties to evaluate different delivery options.

We believe that the strength of our intellectual property portfolio relating to the development and commercialization of siRNAs as therapeutics provides us a leading position with respect to this therapeutic modality. Our intellectual property portfolio includes ownership of, or exclusive rights to, issued patents and pending patent applications claiming fundamental features of siRNAs and RNAi therapeutics as well as those claiming crucial chemical modifications and promising delivery technologies. We believe that no other company possesses a portfolio of such broad and exclusive rights to the patents and patent applications required for the commercialization of RNAi therapeutics. Given the importance of our intellectual property portfolio to our business operations, we intend to vigorously enforce our rights and defend against challenges that have arisen or may arise in this area.

In addition, our expertise in RNAi therapeutics and broad intellectual property estate have allowed us to form alliances with leading pharmaceutical companies, including Isis Pharmaceuticals, Inc., or Isis, Medtronic, Novartis Pharma AG, or Novartis, Biogen Idec Inc., or Biogen Idec, F. Hoffmann-La Roche Ltd, or Roche (which assigned its rights and obligations to Arrowhead Research Corporation, or Arrowhead, during 2011), Takeda Pharmaceutical Company Limited, or Takeda, Kyowa Hakko Kirin Co., Ltd., or Kyowa Hakko, and Cubist Pharmaceuticals, Inc., or Cubist. We have previously entered, and in the future we intend to enter, into contracts with government agencies, including the National Institute of Allergy and Infectious Diseases, or NIAID, a component of the National Institutes of Health, or NIH. We have also established collaborations with and, in some instances, received funding from, major medical and disease associations, including CHDI. Finally, to further enable the field and monetize our intellectual property rights, we also grant licenses to biotechnology companies for the development and commercialization of RNAi therapeutics for specified targets in which we have no direct strategic interest, under our InterfeRxtm program, and to research companies that commercialize RNAi reagents or services under our research product licenses.

We also seek to form or advance new ventures and opportunities in areas outside our primary focus on RNAi therapeutics. Through an internal effort we refer to as Alnylam Biotherapeutics, we are advancing the application of RNAi technology to improve the manufacturing processes for biologics, including recombinant proteins and monoclonal antibodies. We have formed, and intend to


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form additional, collaborations through this effort with third-party biopharmaceutical companies. In October 2011, we entered into a collaboration with GlaxoSmithKline, or GSK, for influenza vaccine production, under our VaxiRNA™ platform, an RNAi technology developed under our Alnylam Biotherapeutics initiative, for the enhanced production of viruses used in the manufacture of vaccine products. Additionally, in 2007, we and Isis established Regulus Therapeutics Inc., or Regulus, a company focused on the discovery, development and commercialization of microRNA therapeutics. Regulus has formed collaborations with GSK and Sanofi to advance its efforts. Given the broad applications for RNAi technology, in addition to our efforts on Alnylam Biotherapeutics, VaxiRNA and Regulus, we believe new ventures and opportunities will be available to us.

In January 2012, our Board of Directors approved, and we implemented, a strategic corporate restructuring pursuant to which we reduced our overall workforce by approximately 33%, to approximately 115 employees. The goal of the restructuring was to align our resources to focus on what we believe to be our highest value opportunities, including a focus on ALN-TTR for the treatment of ATTR and ALN-APC for the treatment of hemophilia as our lead programs, while advancing other pipeline programs through existing alliances and new collaborations. We expect the reduction in personnel costs, along with other external costs, to result in savings of approximately $20.0 million in our 2012 operating expenses. During the three months ended March 31, 2012, we substantially completed the implementation of the strategic corporate restructuring and recorded $3.9 million of restructuring-related costs in operating expenses, including employee severance, benefits and related costs. We expect to pay substantially all of these restructuring costs during 2012. We do not expect to incur any additional significant costs associated with this restructuring.

We have incurred significant losses since we commenced operations in 2002 and expect such losses to continue for the foreseeable future. At March 31, 2012, we had an accumulated deficit of $412.4 million. Historically, we have generated losses principally from costs associated with research and development activities, acquiring, filing and expanding intellectual property rights and general administrative costs. As a result of planned expenditures for research and development activities relating to our drug development programs, including the development of drug delivery technologies and clinical trial costs, extension of the capabilities of our technology platform, including through business initiatives, continued management and growth of our patent portfolio, collaborations and general corporate activities, we expect to incur additional operating losses for the foreseeable future. We anticipate that our operating results will fluctuate for the foreseeable future. Therefore, period-to-period comparisons should not be relied upon as predictive of the results in future periods.

Although we currently have programs focused on a number of therapeutic areas, we are unable to predict when, if ever, we will successfully develop or be able to commence sales of any product. To date, a substantial portion of our total net revenues has been derived from collaboration revenues from strategic alliances with Roche, Takeda, Cubist and Novartis, and from the United States government in connection with our development of treatments for hemorrhagic fever viruses, including Ebola. We expect our sources of potential funding for the next several years to be derived primarily from new and existing strategic alliances, which may include license and other fees, funded research and development and milestone payments, government and foundation funding, and proceeds from the sale of equity or debt. In July 2011, we filed a shelf registration statement with the SEC for an indeterminate number of shares of common stock and/or other securities, in an amount up to an aggregate of $150.0 million, for future issuance. In February 2012, we sold an aggregate of 8,625,000 shares of our common stock through an underwritten public offering at a price to the public of $10.75 per share. As a result of the offering, we received aggregate net proceeds of approximately $86.8 million, after deducting underwriting discounts and commissions and other estimated offering expenses of approximately $5.9 million. We intend to use these proceeds for general corporate purposes, ultimately focused on advancing our clinical pipeline, in particular our ALN-TTR02 and ALN-APC programs, as well as for working capital, capital expenditures, and general and administrative expenses.

Research and Development

Since our inception, we have focused on drug discovery and development programs. Research and development expenses represent a substantial percentage of our total operating expenses. Under our core product strategy, we expect to have five RNAi therapeutic programs in clinical development by the end of 2015, including programs in advanced stages, on our own or with one or more collaborators. While focusing our efforts on our core product strategy, we also intend to continue to advance additional partner-based development programs through existing or future alliances. In addition, we continue to work internally and with third-party collaborators to develop new technologies to deliver our RNAi therapeutics both directly to specific sites of disease, and systemically by intravenous or subcutaneous administration.


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There is a risk that any drug discovery or development program may not produce revenue for a variety of reasons, including the possibility that we will not be able to adequately demonstrate the safety and efficacy of the product candidate. Moreover, there are uncertainties specific to any new field of drug discovery, including RNAi. The successful development of any product candidate we develop is highly uncertain. Due to the numerous risks associated with developing drugs, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts necessary to complete the development of, or the period, if any, in which material net cash inflows will commence from, any potential product candidate. These risks include the uncertainty of:

• our ability to discover new product candidates;

• our ability to progress product candidates into pre-clinical and clinical trials;

• the scope, rate of progress and cost of our pre-clinical trials and other research and development activities, including those related to developing safe and effective ways of delivering siRNAs into cells and tissues;

• the scope, rate of progress and cost of any clinical trials we commence;

• clinical trial results;

• the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

• the terms, timing and success of any collaboration, licensing and other arrangements that we may establish;

• the cost, timing and success of regulatory filings and approvals or potential changes in regulations that govern our industry or the way in which they are interpreted or enforced;

• the cost and timing of establishing sufficient sales, marketing and distribution capabilities;

• the cost and timing of establishing sufficient clinical and commercial supplies for any product candidates and products that we may develop;

• limits on our ability to research, develop, or manufacture our product candidates as a result of contractual obligations to third parties or intellectual property held by third parties;

• the costs associated with legal activities, including litigation, arising in the course of our business activities and our ability to prevail in any such legal disputes; and

• the effect of competing technological and market developments.

Any failure to complete any stage of the development of any potential products in a timely manner could have a material adverse effect on our operations, financial position and liquidity. A discussion of some of the risks and uncertainties associated with completing our projects on schedule, or at all, and the potential consequences of failing to do so, are set forth in Part II, Item 1A below under the heading "Risk Factors."

Strategic Alliances

A significant component of our business plan is to enter into strategic alliances and collaborations with pharmaceutical and biotechnology companies, academic institutions, research foundations and others, as appropriate, to gain access to funding, capabilities, technical resources and intellectual property to further our development efforts and to generate revenues. We also seek to form or advance new ventures and opportunities in areas outside our primary focus on RNAi therapeutics.

To generate revenues from our intellectual property rights, we also grant licenses to biotechnology companies under our InterfeRx program for the development and commercialization of RNAi therapeutics for specified targets in which we have no direct strategic interest. We also license key aspects of our intellectual property to companies active in the research products and services market, which includes the manufacture and sale of reagents. We expect our InterfeRx and research product licenses to generate modest near-term revenues that we can re-invest in the development of our proprietary RNAi therapeutics pipeline. At March 31, 2012, we had granted such licenses, on both an exclusive and non-exclusive basis, to approximately 20 companies.

Since delivery of RNAi therapeutics remains a major objective of our research activities, we also look to form collaboration and licensing arrangements with other companies and academic institutions to gain access to delivery technologies. For example, we


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have entered into agreements with Arrowhead, Tekmira Pharmaceuticals Corporation, or Tekmira, the Massachusetts Institute of Technology, or MIT, The University of British Columbia, or UBC, and AlCana Technologies, Inc., or AlCana, among others, to focus on various delivery strategies. We have also entered into license agreements with Isis, Max Planck Innovation GmbH (formerly known as Garching Innovation GmbH), or Max Planck Innovation, Tekmira, MIT, Cancer Research Technology Limited, or CRT, Whitehead Institute for Biomedical Research, or Whitehead, and The University of Texas Southwestern Medical Center, or UTSW, as well as a number of other entities, to obtain rights to intellectual property in the field of RNAi.

Finally, we seek funding for the development of our proprietary RNAi therapeutics pipeline from the government and foundations. For example, in 2010, we completed a contract awarded to us by the NIAID to advance the development of a broad spectrum RNAi anti-viral therapeutic against hemorrhagic fever virus, including the Ebola virus.

Alnylam Biotherapeutics . . .

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