Why did revenue more than double in 2007, and how much of the Roche money is already in reported revenue?

Revenue rose to $50.9M from $26.9M mainly because of the Roche alliance signed in August 2007, plus higher government contract revenue from NIAID and DTRA. Of the $331.0M Roche paid upfront, only $51.3M was allocated to the stock purchase, and $278.2M is deferred and recognized straight-line over five years, so Roche contributed roughly $17.6M of 2007 revenue. Investors should expect reported revenue to rise steadily over the next several years as this deferred balance is recognized, though not in a way that equals cash received.

How long can Alnylam fund operations, and will it need to raise more capital?

Management believes existing resources of $455.6M, together with expected alliance cash such as from Roche, will be sufficient to fund planned operations for at least the next several years. However, the company explicitly warns it may need significant additional funds sooner than expected to commence clinical trials and commercialize products. Any future equity financing or exercise of Novartis or Roche anti-dilution rights would cause dilution, and debt financing may carry restrictive covenants.

What is the status of the lead drug candidate and what are the next steps?

ALN-RSV01, an inhaled RNAi therapeutic for respiratory syncytial virus, completed a double-blind, placebo-controlled Phase II GEMINI study in 88 adults experimentally infected with RSV. It was safe, well tolerated and showed statistically significant anti-viral activity. Alnylam plans a second Phase II trial in naturally infected adult patients during the first half of 2008. The drug remains in clinical development, and the company cautions that early trial success does not guarantee later success, and that no RNAi drug has yet received regulatory approval.

What are the main risks investors should focus on?

Key risks include the unproven nature of RNAi as a drug class, with unresolved concerns about off-target effects and interferon response; reliance on collaborators such as Roche and Novartis, which can terminate or compete with Alnylam; dependence on government contracts subject to appropriations; limited manufacturing and commercial experience; and intellectual property risk, including European oppositions to the Kreutzer-Limmer and Glover patents and potential competition from Isis and Merck. The company also has a history of losses and no product revenue to date.

Are there any material legal proceedings or concentrated ownership risks?

Alnylam reports no material legal proceedings as of the filing date. Novartis owns approximately 13% of common stock and has rights to maintain its ownership percentage, which could delay a change in control or pressure the stock if Novartis sells a large block. Anti-takeover provisions, a classified board, a stockholder rights plan and Delaware Section 203 also could make an acquisition more difficult.

ALNY 10-K FY2007 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 10, 2008. Cited figures are marked; the original filing is the authoritative source.

Alnylam Pharmaceuticals' 2007 10-K (filed March 2008) shows a company transitioning from a pure research-stage RNAi developer toward a funded, alliance-driven pipeline.

Net revenues rose to $50.9 million^a in 2007 from $26.9 million in 2006, driven largely by the August 2007 Roche alliance, which brought $331.0 million in upfront proceeds (of which $278.2 million is being recognized as revenue straight-line over five years). Despite the revenue increase, the company posted a net loss of $85.5 million (EPS of -$2.21) as operating expenses rose to $144.1 million, including $27.5 million in license fees paid largely to Isis tied to the Roche deal and $14.7 million in delivery-technology license charges. Accumulated deficit reached $226.0 million.

Balance sheet strength improved markedly: cash, cash equivalents and marketable securities totaled $455.6 million^b at year-end 2007, versus $217.3 million a year earlier, and management states these resources, together with alliance cash, should fund planned operations for at least the next several years. Deferred revenue of $263.3 million is a large non-cash liability that will be recognized over coming years, so reported revenue will not fully reflect cash received.

The key value driver is the lead program ALN-RSV01 for respiratory syncytial virus, which completed a Phase II GEMINI study in February 2008 showing approximately a 40%^c reduction in viral infection and a statistically significant anti-viral effect (p<0.01), with a second Phase II trial planned for 1H 2008. Investors should weigh this against the company's short operating history, lack of approved products, dependence on collaborators (Roche, Novartis, government contracts), concentrated revenue, and the unproven nature of RNAi as a drug class, along with ongoing European patent oppositions to its core Kreutzer-Limmer patent.

02—Key points

Key Highlights

Net revenues increased to $50.9M in 2007 from $26.9M in 2006, primarily from the August 2007 Roche alliance and government contracts.
Roche alliance delivered $331.0M in upfront proceeds ($273.5M license, $42.5M stock purchase, $15.0M Roche Kulmbach shares), with $278.2M of deferred revenue recognized over five years.
Net loss widened to $85.5M ($2.21 per share) as R&D expenses reached $120.7M, including $27.5M in license fees tied to the Roche deal.
Cash, cash equivalents and marketable securities rose to $455.6M at December 31, 2007, from $217.3M a year earlier.
Lead program ALN-RSV01 (RSV) reported positive Phase II GEMINI results in February 2008: ~40% reduction in viral infection and 95% increase in infection-free patients (p<0.01).
Accumulated deficit of $226.0M and a full valuation allowance against deferred tax assets; the company has never achieved annual profitability.
Significant concentration risk: Roche, Novartis and NIAID accounted for 35%, 29% and 15% of 2007 revenue, respectively; Novartis holds about 13% of common stock.

03—Questions

Frequently Asked Questions

Why did revenue more than double in 2007, and how much of the Roche money is already in reported revenue?
Revenue rose to $50.9M from $26.9M mainly because of the Roche alliance signed in August 2007, plus higher government contract revenue from NIAID and DTRA. Of the $331.0M Roche paid upfront, only $51.3M was allocated to the stock purchase, and $278.2M is deferred and recognized straight-line over five years, so Roche contributed roughly $17.6M of 2007 revenue. Investors should expect reported revenue to rise steadily over the next several years as this deferred balance is recognized, though not in a way that equals cash received.
How long can Alnylam fund operations, and will it need to raise more capital?
Management believes existing resources of $455.6M, together with expected alliance cash such as from Roche, will be sufficient to fund planned operations for at least the next several years. However, the company explicitly warns it may need significant additional funds sooner than expected to commence clinical trials and commercialize products. Any future equity financing or exercise of Novartis or Roche anti-dilution rights would cause dilution, and debt financing may carry restrictive covenants.
What is the status of the lead drug candidate and what are the next steps?
ALN-RSV01, an inhaled RNAi therapeutic for respiratory syncytial virus, completed a double-blind, placebo-controlled Phase II GEMINI study in 88 adults experimentally infected with RSV. It was safe, well tolerated and showed statistically significant anti-viral activity. Alnylam plans a second Phase II trial in naturally infected adult patients during the first half of 2008. The drug remains in clinical development, and the company cautions that early trial success does not guarantee later success, and that no RNAi drug has yet received regulatory approval.
What are the main risks investors should focus on?
Key risks include the unproven nature of RNAi as a drug class, with unresolved concerns about off-target effects and interferon response; reliance on collaborators such as Roche and Novartis, which can terminate or compete with Alnylam; dependence on government contracts subject to appropriations; limited manufacturing and commercial experience; and intellectual property risk, including European oppositions to the Kreutzer-Limmer and Glover patents and potential competition from Isis and Merck. The company also has a history of losses and no product revenue to date.
Are there any material legal proceedings or concentrated ownership risks?
Alnylam reports no material legal proceedings as of the filing date. Novartis owns approximately 13% of common stock and has rights to maintain its ownership percentage, which could delay a change in control or pressure the stock if Novartis sells a large block. Anti-takeover provisions, a classified board, a stockholder rights plan and Delaware Section 203 also could make an acquisition more difficult.

04—Continue

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