e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended December 31,
2009
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number
000-50743
ALNYLAM PHARMACEUTICALS,
INC.
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
(State or Other Jurisdiction
of
Incorporation or Organization)
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77-0602661
(I.R.S. Employer
Identification No.)
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300 Third
Street, Cambridge, MA 02142
(Address
of Principal Executive Offices) (Zip Code)
Registrants
telephone number, including area code:
(617) 551-8200
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.01 par value per share
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The Nasdaq Global Market
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Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
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 and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the voting Common Stock held by
non-affiliates of the registrant, based on the last sale price
of the registrants Common Stock at the close of business
on June 30, 2009, was $916,012,936.
As of January 31, 2010, the registrant had
41,837,475 shares of Common Stock, $0.01 par value per
share, outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants definitive proxy statement for
its 2010 annual meeting of stockholders, to be filed pursuant to
Regulation 14A with the Securities and Exchange Commission
not later than 120 days after the registrants fiscal
year end of December 31, 2009, are incorporated by
reference into Part II, Item 5 and Part III of
this
Form 10-K.
ALNYLAM
PHARMACEUTICALS, INC.
ANNUAL REPORT ON
FORM 10-K
For the Year Ended December 31, 2009
TABLE OF CONTENTS
1
This annual report on
Form 10-K
contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended, that involve risks and uncertainties. All statements
other than statements relating to historical matters should be
considered forward-looking statements. When used in this report,
the words believe, expect,
anticipate, will, plan,
target, goal and similar expressions are
intended to identify forward-looking statements, although not
all forward-looking statements contain these words. Our actual
results could differ materially from those discussed in the
forward-looking statements as a result of a number of important
factors, including the factors discussed in this annual report
on
Form 10-K,
including those discussed in Item 1A of this report under
the heading Risk Factors, and the risks discussed in
our other filings with the Securities and Exchange Commission.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect managements
analysis, judgment, belief or expectation only as of the date
hereof. We explicitly disclaim any obligation to update these
forward-looking statements to reflect events or circumstances
that arise after the date hereof.
PART I
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.
We are applying our technological expertise to build a pipeline
of RNAi therapeutics to address significant medical needs, many
of which cannot effectively be addressed with small molecules or
antibodies, the current major classes of drugs. We are working
to develop RNAi therapeutics that are delivered directly to
specific sites of disease, as well as RNAi therapeutics that are
administered systemically through the bloodstream by
intravenous, subcutaneous or intramuscular approaches. Our lead
RNAi therapeutic program, ALN-RSV01, is in Phase II
clinical trials for the treatment of human respiratory syncytial
virus, or RSV, infection, which is reported to be the leading
cause of hospitalization in infants in the United States and
also occurs in the elderly and in immune compromised adults. In
February 2008, we reported positive results from our
Phase II experimental RSV infection clinical trial,
referred to as the GEMINI study. In July 2009, we and Cubist
Pharmaceuticals, Inc., or Cubist, reported results from a Phase
IIa clinical trial assessing the safety and tolerability of
aerosolized
ALN-RSV01
versus placebo in adult lung transplant patients naturally
infected with RSV. This study achieved its primary objective of
demonstrating the safety and tolerability of ALN-RSV01. In
February 2010, we initiated a multi-center, global, randomized,
double-blind, placebo-controlled Phase IIb clinical trial to
evaluate the clinical efficacy endpoints, as well as safety, of
aerosolized ALN-RSV01 in adult lung transplant patients
naturally infected with RSV. The objective of this Phase IIb
study is to repeat and extend the clinical results observed in
the Phase IIa study.
We have formed collaborations with Cubist and Kyowa Hakko Kirin
Co., Ltd., or Kyowa Hakko Kirin, for the development and
commercialization of RNAi products for RSV. We have an agreement
to jointly develop and commercialize certain RNAi products for
RSV with Cubist in North America. Cubist has responsibility for
developing and commercializing any such products in the rest of
the world outside of Asia, and Kyowa Hakko Kirin has the
responsibility for developing and commercializing any RNAi
products for RSV in Asia. In November 2009, we and Cubist agreed
that Alnylam would move forward with the development of
ALN-RSV01, and together we would focus our collaboration and
joint development efforts on ALN-RSV02, a second-generation
compound, intended for use in pediatric patients. We and Cubist
each bears one-half of the related development costs for
ALN-RSV02.
We are also continuing to develop ALN-RSV01 for adult transplant
patients at our sole discretion and expense. Cubist has the
right to resume the collaboration on ALN-RSV01 in the future,
which right may be exercised for a specified period of time
following the completion of our Phase IIb study, subject to the
payment by
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Cubist of an opt-in fee representing reimbursement of an agreed
upon percentage of certain of our development expenses for
ALN-RSV01.
In March 2009, we initiated a Phase I study for ALN-VSP, our
second clinical program and our first systemically delivered
RNAi therapeutic candidate. We are developing ALN-VSP for the
treatment of liver cancers, including hepatocellular carcinoma,
or HCC, and other solid tumors with liver involvement. This
Phase I study is a multi-center, open label, dose escalation
study to evaluate the safety, tolerability, pharmacokinetics and
pharmacodynamics of intravenous ALN-VSP in up to approximately
55 patients with advanced solid tumors with liver
involvement, including HCC.
In December 2009, we filed regulatory applications to initiate a
clinical trial for ALN-TTR01, our second systemically delivered
RNAi therapeutic candidate. We are developing ALN-TTR, which
targets the transthyretin, or TTR, gene, for the treatment of
TTR-mediated amyloidosis, or ATTR. We plan to initiate a Phase I
trial of
ALN-TTR01 in
ATTR patients in the first half of 2010. ALN-TTR01 employs a
first generation lipid nanoparticle, or LNP, formulation. In
parallel, we are also advancing ALN-TTR02 utilizing
second-generation LNPs.
In January 2010, we announced that we expect ALN-PCS, a
systemically delivered RNAi therapeutic candidate for the
treatment of hypercholesterolemia, to be our next clinical
candidate. ALN-PCS targets a gene called proprotein convertase
subtilisin/kexin type 9, or PCSK9.
We are also working on a number of programs in pre-clinical
development, including ALN-HTT, an RNAi therapeutic candidate
targeting the huntingtin gene, for the treatment of
Huntingtons disease, which we are developing in
collaboration with Medtronic, Inc., or Medtronic. We have
additional discovery programs for RNAi therapeutics for the
treatment of a broad range of diseases.
In addition, we are working internally and with third-party
collaborators to develop capabilities to deliver our RNAi
therapeutics directly to specific sites of disease, such as the
delivery of ALN-RSV to the lungs. We are also working to extend
our capabilities to advance the development of RNAi therapeutics
that are administered systemically by intravenous, subcutaneous
or intramuscular approaches. Over the past 12 to 18 months, we
have made several of what we believe to be major advances
relating to the delivery of RNAi therapeutics, both internally
and together with our collaborators. 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 rely on the strength of our intellectual property portfolio
relating to the development and commercialization of small
interfering RNAs, or siRNAs, as therapeutics. This 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 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,
Takeda Pharmaceutical Company Limited, or Takeda, Kyowa Hakko
Kirin and Cubist. We have also entered 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 established collaborations
with and, in some instances, received funding from major medical
and disease associations. 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 opportunities to form new ventures in areas outside
our core strategic focus. For example, during 2009, we presented
new data regarding the application of RNAi technology to improve
the manufacturing processes for biologics, which is comprised of
recombinant proteins, monoclonal antibodies and vaccines. This
initiative,
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which we are advancing in an internal effort referred to as
Alnylam Biotherapeutics, has the potential to create new
business opportunities. Additionally, during 2007, we and Isis
established Regulus Therapeutics Inc., formerly Regulus
Therapeutics LLC, or Regulus, a company focused on the
discovery, development and commercialization of microRNA-based
therapeutics. Because microRNAs are believed to regulate whole
networks of genes that can be involved in discrete disease
processes, microRNA-based therapeutics represent a possible new
approach to target the pathways of human disease. Given the
broad applications for RNAi technology, we believe additional
opportunities exist for new ventures.
Below is a list of some of our key developments in 2009 and
early 2010.
2009 and
Early 2010 Key Developments
Product
Pipeline and Scientific Developments
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We advanced development of our ALN-RSV program focused on the
treatment of RSV infection. We and Cubist presented complete
data from a Phase IIa randomized, double-blind study of inhaled
ALN-RSV01 or placebo in RSV-infected adult lung transplant
patients. This study achieved its primary objective of
demonstrating safety and tolerability of ALN-RSV01. In order to
repeat and extend the Phase IIa results, we recently initiated a
multi-center, global, randomized, double-blind,
placebo-controlled Phase IIb study of ALN-RSV01 in RSV-infected
adult lung transplant patients.
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We initiated a Phase I multi-center, open label, dose escalation
trial to evaluate the safety, tolerability, pharmacokinetics and
pharmacodynamics of intravenous ALN-VSP in patients with
advanced solid tumors with liver involvement, including HCC.
ALN-VSP is our first systemic RNAi program and represents our
first clinical program in oncology.
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We filed regulatory applications to initiate a clinical trial
for our ALN-TTR program for ATTR. We expect to initiate a Phase
I trial of ALN-TTR01 in ATTR patients in the first half of 2010.
ALN-TTR01 is a systemically delivered RNAi therapeutic that
employs first generation LNPs. In parallel, we are also
advancing ALN-TTR02 utilizing second generation LNPs.
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We continued to advance additional development and pre-clinical
programs including ALN-PCS, an RNAi therapeutic targeting PCSK9
for the treatment of hypercholesterolemia. We expect that
ALN-PCS will be our next clinical candidate. In addition, in
collaboration with Medtronic, we continued to advance
ALN-HTT, an
RNAi therapeutic targeting the huntingtin gene for
Huntingtons disease.
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We have made what we believe to be several major advances
relating to the delivery of RNAi therapeutics. In collaboration
with scientists at the Massachusetts Institute of Technology, or
MIT, and, separately, in collaboration with scientists at AlCana
Technologies, Inc., or AlCana, Tekmira Pharmaceuticals
Corporation, or Tekmira, and The University of British Columbia,
or UBC, we published on the discovery of novel lipids that
enable formulation of second generation LNPs with markedly
enhanced gene silencing potency, with in vivo effects
achieved at doses as low as 0.01 mg/kg in rodents and
non-human primates.
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We formed new collaborations focused on the delivery of RNAi
therapeutics. We formed a new research collaboration with
scientists at UBC and AlCana, in addition to Tekmira, focused on
the discovery of novel cationic lipids for use in LNPs for the
systemic delivery of RNAi therapeutics. We also established a
new collaboration with Isis focused on the development of
single-stranded RNAi, or ssRNAi, technology.
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We launched Alnylam Biotherapeutics, which is an internal effort
regarding the application of RNAi technology to improve the
manufacturing processes for biologics. In particular, Alnylam
Biotherapeutics is advancing RNAi technologies to improve the
quantity and quality of biologics manufacturing processes using
mammalian cell culture, such as Chinese hamster ovary, or CHO,
cells. This RNAi technology potentially could be applied to the
improvement of manufacturing processes for existing marketed
drugs, new drugs in development and for the emerging biosimilars
market.
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During 2009, our scientists and scientists from Regulus
demonstrated continued scientific leadership with the
publication of 24 peer-reviewed scientific papers in some of the
worlds top journals.
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Business
Execution
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We formed a strategic collaboration with Cubist for the
development and commercialization of our
ALN-RSV
program. Our collaboration with Cubist is a
50-50
co-development and profit share arrangement in North America,
and a milestone- and royalty-bearing license arrangement in the
rest of the world outside of Asia, where we collaborate on the
ALN-RSV program with Kyowa Hakko Kirin. In November 2009, we and
Cubist agreed that Alnylam would move forward with the
development of ALN-RSV01 in adult transplant patient
populations, and together we would focus our collaboration and
joint development efforts on ALN-RSV02 in pediatric patients.
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Novartis elected to extend our RNAi therapeutics collaboration
for a fifth and final planned year, through October 2010,
resulting in continued research and development funding to us.
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We and Roche initiated the drug discovery phase of our 2007
alliance. In addition, we received a milestone payment from
Roche related to the initiation of pre-investigational new drug
application, or IND, studies for an RNAi therapeutic product
candidate.
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We and Isis continued our investment in Regulus with a
$20.0 million Series A preferred equity financing.
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Regulus, of which we own 49%, formed a new collaboration with
GlaxoSmithKline, or GSK, to develop and commercialize
microRNA-based therapeutics targeting miR-122 in all fields,
with hepatitis C virus, or HCV, infection, as the lead
indication. This new collaboration includes the potential for
Regulus to earn more than $150.0 million in upfront and
milestone payments, in addition to royalties, on worldwide sales
of products, if any, as Regulus and GSK advance microRNA-based
therapeutics targeting miR-122.
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Intellectual
Property
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We advanced our intellectual property estate, receiving over 40
new patents worldwide during 2009.
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We joined GSK in donating intellectual property to a patent pool
for neglected tropical diseases.
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We joined the Max Planck Society in taking legal action toward
the Whitehead Institute for Biomedical Research, or Whitehead.
Also named in the suit are MIT and the Board of Trustees of the
University of Massachusetts, or UMass. The complaint alleges
that Whitehead has breached its contractual obligations to Max
Planck and us in the manner in which it is prosecuting the
so-called Tuschl I patent applications and in its
fiduciary duty to all of the co-owners of the Tuschl I patent
series.
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RNA
Interference
RNAi is a natural biological pathway that occurs within cells
and can be harnessed to selectively silence the activity of
specific genes. The discovery of RNAi first occurred in plants
and worms in 1998, and two of the scientists who made this
discovery, Dr. Andrew Fire and Dr. Craig Mello,
received the 2006 Nobel Prize for Physiology or Medicine.
Opportunity
for Therapeutics Based on RNAi
Beginning in 1999, our scientific founders described and
provided evidence that the RNAi mechanism occurs in mammalian
cells and that its immediate trigger is a type of molecule known
as a small interfering RNA, or siRNA. They showed that
laboratory-synthesized siRNAs could be introduced into the cell
and suppress production of specific target proteins by cleaving
and degrading the messenger RNA, or mRNA, of the specific gene
that encodes that specific protein. Because it is possible to
design and synthesize siRNAs specific to any gene of interest,
the entire human genome is accessible to RNAi, and we therefore
believe that RNAi therapeutics have the potential to become a
broad new class of drugs.
In May 2001, one of our scientific founders, Thomas
Tuschl, Ph.D., published the first scientific paper
demonstrating that siRNAs can be synthesized in the laboratory
using chemical or biochemical methods and when introduced, or
delivered, into mammalian cells can silence the activity of a
specific gene. Since the Tuschl publication, the use of siRNAs
has been broadly adopted by academic and industrial researchers
for the
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fundamental study of the function of genes. This has resulted in
a significant number of publications focused on the use of RNAi
and has made the 2001 paper one of the most cited papers in
basic biologic research. Reflecting this, siRNAs are a growing
segment of the market for research reagents and related products
and services.
Beyond its use as a basic research tool, we believe that RNAi
can form the basis of a completely new class of drugs for the
treatment of disease. Drugs based on the RNAi mechanism could
offer numerous opportunities and benefits, which may include:
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Ability to target proteins that cannot be targeted
effectively by existing drug classes. Over the
last decade, the understanding of human disease has advanced
enormously and many proteins have been identified that play
fundamental roles in human disease. Paradoxically, greater than
80% of these key proteins cannot be targeted effectively with
existing drug approaches like small molecules or proteins such
as monoclonal antibodies. These so called
undruggable targets are potentially accessible to
siRNAs as they are made by mRNAs that can be targeted with RNAi.
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Ability to treat a broad range of
diseases. The ability to make siRNAs that target
virtually any gene to suppress the production of virtually any
protein whose presence or activity causes disease suggests a
broad potential for application in a wide range of diseases.
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Inherently potent mechanism of action. We
expect the inherent catalytic nature of the RNAi mechanism to
allow for a high degree of potency and durability of effect for
RNAi-based therapeutics, which we believe distinguishes RNAi
from other approaches.
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Simplified discovery of product candidates. In
contrast to the often arduous and slow drug discovery process
for proteins and small molecules, the identification of siRNA
product candidates has been, and we expect will continue to be,
much simpler, quicker and less costly because it involves
relatively standard processes that are directed by the known
gene target sequences and can be applied in a similar fashion to
many successive product candidates.
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We have reported on our advances in developing siRNAs as
potential drugs in a large number of peer-reviewed publications
and meetings, including publications by Alnylam scientists in
the journals Nature, Cell, Nature Medicine, Nature
Biotechnology and Proceedings of the National Academy of
Sciences, or PNAS.
Our
Product Platform
Our product platform provides a capability for a systematic
approach to identifying RNAi therapeutic candidates through
sequence selection, potency selection, stabilization by chemical
modification, improvement of biodistribution and cellular uptake
by various chemical conjugates and formulations. Key to the
therapeutic application of siRNAs is the ability to successfully
deliver siRNAs to target tissues and achieve cellular uptake of
the siRNA into the inside of the cell where the RNAi machinery,
called RNA-induced silencing complex, or RISC, is active. In
some tissues, including the lung and central nervous system, the
direct RNAi delivery approach, which employs the direct or local
application of siRNAs, achieves cellular uptake and gene
knockdown. For other tissues, such as the liver, systemic RNAi
delivery has been employed, where tissue access comes via
intravenous or subcutaneous injection of the siRNA into the
bloodstream and where cellular uptake can be achieved by the
conjugation of the siRNA with other molecules, such as small
chemical groups, or by formulation with other biomaterials, such
as LNPs. siRNA delivery is a key focus for our internal research
team and is also the focus of numerous current government,
academic and corporate collaborations. We have demonstrated RNAi
therapeutic activity towards multiple genes, in multiple organs
and in multiple species, including humans, as demonstrated by
our results in the GEMINI trial for ALN-RSV01.
We believe that we have made considerable progress in developing
our product platform, as documented in several recent
publications. Over the past 12 to 18 months, we have made
several of what we believe to be major advances relating to the
delivery of RNAi therapeutics, both internally and together with
our collaborators. The first relates to the discovery of new LNP
compositions that provide dramatic improvements in the potency
of gene silencing as compared to first generation LNPs.
Additionally, we believe we have discovered an important in
vivo mechanism for delivery relating to the role of
endogenous apolipoprotein E, or ApoE, a plasma protein involved
in lipoprotein metabolism, in the delivery of certain LNPs into
the cytoplasm of certain cells. The latter discovery has
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allowed the specific targeting of LNPs and allows the
possibility of delivery beyond the liver. We discuss these
advances and our overall delivery efforts in more detail below
in the section entitled Delivery Initiatives. With
the progress we have made to date and expect to make in the
future, we believe we will be well positioned to pursue multiple
therapeutic opportunities.
Our progress has enabled us to advance a number of development
programs for RNAi therapeutics that are administered directly to
diseased tissues, including ALN-RSV01 and ALN-HTT. Our progress
in achieving delivery of RNAi therapeutics through systemic RNAi
was demonstrated by the advancement in early 2009 of our first
systemically delivered RNAi therapeutic candidate ALN-VSP, for
the treatment of liver cancers, to the clinic, and the filing of
regulatory applications in December 2009 to initiate a clinical
trial for ALN-TTR01, our second systemically delivered RNAi
therapeutic candidate, for the treatment of ATTR. ALN-VSP and
ALN-TTR01 both utilize a first generation LNP formulation known
as stable nucleic acid-lipid particles, or SNALP, developed in
collaboration with Tekmira. In parallel with ALN-TTR01, we are
also advancing ALN-TTR02 utilizing the newer second-generation
LNPs. In addition, we have published pre-clinical results from
development programs for other systemically delivered RNAi
therapeutic candidates, including ALN-PCS, for the treatment of
hypercholesterolemia, which we recently identified as our next
clinical candidate. ALN-PCS is being advanced using
second-generation LNPs for systemic delivery. We recognize,
however, that challenges remain with respect to the development
of RNAi-based therapeutics, including achieving effective
delivery of siRNAs to target cells and tissues, and we therefore
regard further development of our product platform as an ongoing
priority.
Our
Product Pipeline
The following is a summary of our development programs as of
January 31, 2010:
Our most advanced program is focused on the treatment of RSV, a
virus that infects the respiratory tract. In January 2008, we
completed our GEMINI study, a Phase II clinical trial
designed to evaluate the safety, tolerability and anti-viral
activity of ALN-RSV01 in adult subjects experimentally infected
with RSV. In July 2009, we and Cubist reported results from a
Phase IIa clinical trial assessing the safety and tolerability
of aerosolized
ALN-RSV01
versus placebo in adult lung transplant patients naturally
infected with RSV. This study achieved its primary objective of
demonstrating the safety and tolerability of ALN-RSV01. In
February 2010, we initiated a multi-center, global, randomized,
double-blind, placebo-controlled Phase IIb clinical trial to
evaluate the clinical efficacy endpoints as well as safety of
aerosolized ALN-RSV01 in adult lung transplant patients
naturally infected with RSV. The objective of this Phase IIb
study is to repeat and extend the clinical results observed in
the Phase IIa study.
We have formed collaborations with Cubist and Kyowa Hakko Kirin
for the development and commercialization of RNAi products for
RSV. We have an agreement to jointly develop and commercialize
certain RNAi products for RSV with Cubist in North America.
Cubist has responsibility for developing and
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commercializing any such products in the rest of the world
outside of Asia, and Kyowa Hakko Kirin has the responsibility
for developing and commercializing any RNAi products for RSV in
Asia. In November 2009, we and Cubist agreed that Alnylam would
move forward with the development of ALN-RSV01, and together we
would focus our collaboration and joint development efforts on
ALN-RSV02, a second-generation compound, intended for use in
pediatric patients. We and Cubist each bears one-half of the
related development costs for ALN-RSV02. We are also continuing
to develop ALN-RSV01 for adult transplant patients at our sole
discretion and expense. Cubist has the right to resume the
collaboration on ALN-RSV01 in the future, which right may be
exercised for a specified period of time following the
completion of our Phase IIb trial, subject to the payment by
Cubist of an opt-in fee representing reimbursement of an agreed
upon percentage of certain of our development expenses for
ALN-RSV01.
In March 2009, we initiated a Phase I study for ALN-VSP, our
second clinical program and our first systemically delivered
RNAi therapeutic candidate. We are developing ALN-VSP for the
treatment of liver cancers, including HCC, and other solid
tumors with liver involvement. This Phase I study is a
multi-center, open label, dose escalation study to evaluate the
safety, tolerability, pharmacokinetics and pharmacodynamics of
intravenous
ALN-VSP in
up to approximately 55 patients with advanced solid tumors
with liver involvement, including HCC.
In December 2009, we filed regulatory applications to initiate a
clinical trial for ALN-TTR01, our second systemically delivered
RNAi therapeutic candidate. We are developing ALN-TTR, which
targets the TTR gene, for the treatment of ATTR. ALN-TTR targets
wild-type and all mutant forms of TTR, and therefore is a
potential therapeutic for the treatment of all forms of ATTR,
including familial amyloidotic polyneuropathy, or FAP, and
familial amyloidotic cardiomyopathy, or FAC. We plan to initiate
a Phase I trial of ALN-TTR01 in ATTR patients in the first half
of 2010. ALN-TTR01 employs a first generation LNP formulation.
In parallel, we are also advancing ALN-TTR02 utilizing
second-generation LNPs.
In January 2010, we announced that we expect ALN-PCS, a
systemically delivered RNAi therapeutic candidate for the
treatment of hypercholesterolemia, to be our next clinical
candidate. ALN-PCS targets a gene called PCSK9. We are also
working on a number of programs in pre-clinical development,
including ALN-HTT, an RNAi therapeutic candidate for the
treatment of Huntingtons disease, which we are developing
jointly with Medtronic. We have additional discovery programs
for RNAi therapeutics for the treatment of a broad range of
diseases.
We have spent substantial funds over the past three years to
develop our product pipeline and expect to continue to do so in
the future. We incurred research and development costs of
$108.7 million in 2009, $96.9 million in 2008 and
$120.7 million in 2007. Research and development costs in
2007 included $27.5 million in license fees paid to certain
entities, primarily Isis, in connection with our alliance with
Roche.
Development
Programs
Respiratory
Syncytial Virus (RSV) Infection
Market Opportunity. RSV is a highly contagious
virus that causes infections in both the upper and lower
respiratory tract. RSV infects nearly every child by the age of
two years and is responsible for a significant percentage of
hospitalizations of infants, children with lung or congenital
heart disease, the elderly and adults with immune-compromised
systems, including lung transplant recipients. RSV infection
typically results in cold-like symptoms, but can lead to more
serious respiratory illnesses such as croup, pneumonia and
bronchiolitis, and in extreme cases, severe illness and death.
According to NIH, up to 125,000 children are hospitalized each
year due to RSV infection. A study published in the New
England Journal of Medicine estimates that over 170,000
elderly adults are hospitalized with RSV each year. In addition,
experts estimate that the overall prevalence of lung transplants
in the United States is between 8,000 to 10,000. The annual
incidence of RSV infection in lung transplant patients can be up
to ten percent.
Current Treatments. The only product currently
approved for the treatment of RSV infection is Ribavirin, which
is marketed as
Virazole®
by Valeant Pharmaceuticals International, or Valeant. However,
this product is approved only for treatment of hospitalized
infants and young children with severe lower respiratory tract
infections
8
due to RSV. Moreover, administration of the drug is complicated
and requires elaborate environmental reclamation devices because
of potential harmful effects on healthcare personnel exposed to
the drug.
Two other products, a monoclonal antibody known as
Synagis®
and an immune globulin called
RespiGamtm,
have been approved for the prevention of severe lower
respiratory tract disease caused by RSV in infants at high risk
of such disease. Neither of these products is approved for
treatment of an existing RSV infection.
Alnylam Program. In June 2007, we initiated
the GEMINI study, a double-blind, placebo-controlled, randomized
Phase II trial designed to evaluate the safety,
tolerability and anti-viral activity of ALN-RSV01 in adult
subjects experimentally infected with RSV. In total, 88 subjects
were randomized one-to-one to receive either ALN-RSV01 or
placebo treatment prior to and after experimental infection with
a wild-type clinical strain of RSV. In February 2008, we
reported positive results from the GEMINI study. ALN-RSV01 was
found to be safe and well tolerated and demonstrated
statistically significant anti-viral activity, including an
approximate 40% reduction in viral infection rate and a 95%
increase in infection-free patients (p<0.01), as compared
to placebo.
In July 2009, we and Cubist reported results from a Phase IIa
clinical trial assessing the safety and tolerability of
aerosolized ALN-RSV01 versus placebo in adult lung transplant
patients naturally infected with RSV. In total, 24 patients
confirmed with RSV infection were randomized two-to-one to
receive inhaled ALN-RSV01 or placebo once daily for three
consecutive days. The study achieved its primary objective of
demonstrating the safety and tolerability of ALN-RSV01. In
particular, there were no drug-related serious adverse events or
discontinuations, and there were no clinically significant
differences in the overall adverse event profile between
ALN-RSV01 and placebo. Importantly, there was no evidence of
disease exacerbation related to ALN-RSV01 treatment. At the
90-day
endpoint, all patients survived and the incidence of intubation,
new respiratory infection, or acute rejection was comparable
across ALN-RSV01 and placebo groups. In addition,
90-day
clinical data were collected. The study was not powered to
demonstrate clinical outcomes due to the small sample size and,
accordingly, such data were therefore considered exploratory.
Prospectively defined clinical secondary endpoints at
90 days included recovery of lung function (forced
expiratory volume in the first second, or
FEV1)
as measured by spirometry and clinical determination of new or
progressive bronchiolitis obliterans syndrome, or BOS. Based on
the data from this small study, ALN-RSV01 treatment was
associated with a statistically significant decrease in the
total incidence of new or progressive BOS at 90 days
compared to placebo (p=0.02) with 50% of placebo patients
showing new or progressive BOS as compared with only 7.1% of
ALN-RSV01-treated patients. Despite the small patient numbers,
we believe that these data may be important since the incidence
of BOS following RSV infection in lung transplant patients can
be a predictor of graft failure and overall survival. The
incidence of BOS in lung transplant patients infected with RSV
results in approximately 50% mortality within three to five
years of onset.
In February 2010, we initiated a multi-center, global,
randomized, double-blind, placebo-controlled Phase IIb clinical
trial to evaluate the clinical efficacy endpoints as well as
safety of aerosolized ALN-RSV01 in adult lung transplant
patients naturally infected with RSV. The objective of this
Phase IIb study is to repeat and extend the clinical results
observed in the Phase IIa study described above. This study is
expected to enroll 76 adult lung transplant patients who will be
randomized in a one-to-one drug to placebo ratio. The primary
endpoint is reduction in the incidence of new or progressive BOS.
Prior to the GEMINI and Phase IIa studies, ALN-RSV01 was shown
in pre-clinical testing to be effective in both preventing and
treating RSV infection in mice when administered intranasally.
ALN-RSV01 also showed no significant toxicities in animal
toxicology studies performed to enable the filing of an IND. We
submitted an IND for ALN-RSV01 to the United States Food and
Drug Administration, or FDA, in November 2005, and have
completed a number of Phase I clinical trials in both the United
States and Europe. In these Phase I trials,
ALN-RSV01
was found to be generally safe and well tolerated when
administered by single or repeat administration at doses up to
150 milligrams intranasally or at doses up to 0.6 milligrams per
kilogram by nebulizer. The results of our completed ALN-RSV01
clinical trials have been presented at medical conferences. We
also have an active program to identify second-generation
RNAi-based RSV inhibitors, and have identified several
candidates in pre-clinical studies. As discussed below, we and
Cubist are focusing our collaboration and joint development
efforts on ALN-RSV02, a second generation compound, intended for
use in pediatric patients.
We have formed collaborations with Cubist and Kyowa Hakko Kirin
for the development and commercialization of RNAi products for
RSV. We have an agreement to jointly develop and commercialize
9
certain RNAi products for RSV with Cubist in North America.
Cubist has responsibility for developing and commercializing any
such products in the rest of the world outside of Asia, and
Kyowa Hakko Kirin has the responsibility for developing and
commercializing any RNAi products for RSV in Asia. In November
2009, we and Cubist agreed that Alnylam would move forward with
the development of ALN-RSV01, and together we would focus our
collaboration and joint development efforts on ALN-RSV02, a
second-generation compound, intended for use in pediatric
patients. We and Cubist each bears one-half of the related
development costs for ALN-RSV02. As described above, we are also
continuing to develop ALN-RSV01 for adult transplant patients at
our sole discretion and expense and have recently initiated a
Phase IIb study. Cubist has the right to resume the
collaboration on ALN-RSV01 in the future, which right may be
exercised for a specified period of time following the
completion of our Phase IIb trial, subject to the payment by
Cubist of an opt-in fee representing reimbursement of an agreed
upon percentage of certain of our development expenses for
ALN-RSV01.
Liver
Cancer
Market Opportunity. An estimated
700,000 patients worldwide are diagnosed with primary liver
cancer each year. HCC is the most common form of liver cancer
and is responsible for about 90% of primary malignant liver
tumors in adults. HCC is the sixth most common cancer in the
world and the third leading cause of cancer-related deaths
globally. In addition to primary liver cancer patients, in whom
the disease starts in the liver, another 500,000 patients
are identified each year with secondary liver cancer, whereby
the primary tumor of another tissue, such as colorectal,
stomach, pancreatic, breast, lung or skin, has metastasized to
the liver.
Current Treatments. The treatment options for
liver cancer are dependent on the stage of disease, site of
tumor and condition of the patient, but can include surgical
resection, radiation, chemotherapy, chemoembolism, liver
transplantation and various combinations of these approaches. In
November 2007, the FDA approved Sorafenib, also called
Nexavar®,
for the treatment of un-resectable liver cancer. Even with
relatively early diagnosis and resection, the prognosis remains
very poor for liver cancer patients, who are often diagnosed
late in their clinical course of disease. For primary liver
cancer, with early diagnosis and a resectable tumor, the
five-year disease free survival rate has been reported at
approximately 20%. However, this applies only to about 15% of
primary liver cancer patients. For most primary liver cancer
patients, the disease is fatal within three to six months. The
prognosis for secondary liver cancer is generally also very
poor, due often to the late stage of the disease at the time of
diagnosis and metastatic nature of the neoplasm. For example, in
the absence of treatment, the prognosis for patients with
hepatic colorectal metastases is extremely poor, with five-year
survival rates of three percent or less. Among patients that can
be treated with complete resection of hepatic colorectal
metastases, only 30% to 40% will survive for five years
following resection.
Alnylam Program. In December 2008, we
submitted an IND to the FDA for ALN-VSP, our first systemically
delivered RNAi therapeutic candidate for the treatment of liver
cancers, including HCC, and other solid tumors with liver
involvement. In March 2009, we initiated a Phase I,
multi-center, open label, dose escalation study to evaluate the
safety, tolerability, pharmacokinetics and pharmacodynamics of
intravenous ALN-VSP in up to approximately 55 patients with
advanced solid tumors with liver involvement, including HCC.
ALN-VSP contains two siRNAs formulated using a first generation
LNP formulation known as SNALP, developed in collaboration with
Tekmira. ALN-VSP is designed to target two genes critical in the
growth and development of cancer: kinesin spindle protein, or
KSP, and vascular endothelial growth factor, or VEGF. KSP is a
key component of the cellular machinery that mediates chromosome
separation during cell division, which is critical for tumor
proliferation. As such, it represents an important target for
blocking tumor growth. VEGF is a potent angiogenic factor that
drives the development of blood vessels that are critical to
ensuring adequate blood supply to the growing tumor.
Pre-clinical data in mouse tumor model studies have demonstrated
efficacy of ALN-VSP, including suppression of these targeted
genes, demonstration of an RNAi mechanism of action, formation
of monoasters, a characteristic feature of KSP inhibition,
anti-angiogenic effects resulting from VEGF inhibition, tumor
reduction and extension of survival. Moreover, suppression of
KSP has been shown in both hepatocellular and colorectal
carcinoma models, and in liver tumors as well as metastases at
other sites.
10
We believe our strategy of using an RNAi therapeutic targeting
two well-validated genes critical for tumor proliferation and
survival has the potential of achieving meaningful clinical
benefit for patients with liver cancer. In addition, we believe
that this is the first dual targeting RNAi therapeutic program
to advance to clinical development. This is an important
milestone, as we view the ability to design and formulate
multiple siRNAs against more than one target as a potentially
attractive feature of our RNAi therapeutics platform,
particularly in the setting of oncology drug development.
TTR-Mediated
Amyloidosis (ATTR)
Market Opportunity. ATTR is a hereditary,
systemic disease caused by a mutation in the TTR gene. The
resulting abnormal protein is deposited as TTR-containing
amyloid fibrils in extrahepatic tissues, including the
peripheral nervous system and the heart, which leads to FAP and
FAC, respectively. FAP is associated with severe pain and loss
of autonomic nervous function, known as neuropathy, whereas FAC
is associated with heart failure. Typical onset for ATTR is
between the fourth and sixth decades of life and the disease is
often fatal within five to 15 years of onset. In its severest
form, ATTR represents a tremendous unmet medical need with
significant morbidity and mortality. ATTR is an orphan, or rare,
disease, affecting approximately 50,000 people worldwide.
Current Treatments. There are no existing
disease-modifying treatments to address ATTR. Currently, liver
transplantation is the only available treatment for FAP.
However, only a subset of FAP patients qualify for this costly
and invasive procedure and, even following liver
transplantation, the disease continues to progress for many of
these patients, presumably due to normal TTR being deposited
into preexisting fibrils. Moreover, there is a shortage of
donors to provide healthy livers for transplantation into
eligible patients. There are currently no therapies available to
treat FAC.
Alnylam Program. ALN-TTR is an RNAi
therapeutic candidate targeting the TTR gene for the treatment
of ATTR. TTR is a carrier for thyroid hormone and retinol
binding protein and is produced almost exclusively in the liver.
Thus, we believe TTR is a suitable target for an RNAi
therapeutic formulated to maximize delivery to liver cells.
ALN-TTR targets wild-type and all mutant forms of TTR, including
the V30M mutation, and therefore is a potential therapeutic for
the treatment of all forms of ATTR, including FAP and FAC.
In December 2009, we filed regulatory applications for ALN-TTR01
and plan to initiate a Phase I trial in ATTR patients in the
first half of 2010. ALN-TTR01 is a systemically delivered RNAi
therapeutic candidate that employs the first-generation LNP
formulation known as SNALP, developed in collaboration with
Tekmira. In parallel, we are also advancing ALN-TTR02 utilizing
second-generation LNPs.
In pre-clinical studies with hTTR V30M transgenic mice, ALN-TTR
treatment led to potent and robust reduction of mutant V30M TTR
mRNA levels in the liver and mutant protein levels in the
circulation. In non-human primates, administration of ALN-TTR
resulted in potent reduction of wild-type TTR. Moreover,
durability studies in transgenic mice and non-human primates
demonstrated reduction of TTR serum protein and liver mRNA
levels for at least three weeks post-administration of ALN-TTR.
When administered to hTTR V30M transgenic mice, ALN-TTR blocked
the deposition of mutant V30M TTR protein in a number of tissues
known to be affected by the disease, including sciatic nerve,
sensory ganglion, intestine, esophagus and stomach. These
tissues are all sites of TTR deposition in FAP patients, and are
locations of amyloid pathology associated with sensory and
autonomic neuropathy and severe gastrointestinal dysfunction.
Our findings demonstrate the potential therapeutic benefit of an
RNAi therapeutic targeting TTR for the treatment of ATTR.
Moreover, siRNA treatment may be superior to liver
transplantation based on the ability to simultaneously reduce
the expression of mutant, as well as wild-type, TTR. ATTR is
also one example of a number of orphan-like indications where
there is a very high unmet need and the potential for early
biomarker data in clinical studies, enabling rapid
proof-of-concept
and a clear opportunity for a large therapeutic impact in
patients.
Hypercholesterolemia
Market Opportunity. Coronary artery disease,
or CAD, is the leading cause of mortality in the
United States, responsible for 40% of all deaths annually.
Hypercholesterolemia, defined as a high level of LDL
cholesterol, or LDL-c, in the blood, is one of the major risk
factors for CAD. Although current therapies are effective in
many patients, studies have shown that as many as 45% of these
patients do not achieve adequate control
11
of their high cholesterol level with existing treatments, which
include drugs known as statins. Currently in the United States,
there are almost 500,000 patients with high cholesterol
levels not controlled by the use of existing lipid lowering
therapies. These patients are said to have refractory or poorly
controlled hypercholesterolemia and constitute a potential
target population for our product candidate.
Current Treatments. The current standard of
care for patients with hypercholesterolemia includes the use of
several agents. The first treatment often prescribed is a drug
from the statin family. Commonly prescribed statins include
Lipitor®
(atorvastatin),
Zocor®
(simvastatin),
Crestor®
(rosuvastatin) and
Pravachol®
(pravastatin). A different type of drug, such as
Zetia®
(ezetimibe) and
Vytorin®
(ezetimibe/simvastatin), which reduces dietary cholesterol
uptake from the gut, may also be used either on its own or in
combination with a statin. Despite these therapies, there are
many patients who have refractory or poorly controlled
hypercholesterolemia and require more intensive treatment. In
addition, some patients do not tolerate current treatments and
at least five percent of those treated with a statin have to
stop because of side-effects. In patients with very high
uncontrolled cholesterol levels, a procedure called lipid
apheresis is used, which effectively removes cholesterol from
the blood using a machine specifically designed for this
process. However, this procedure is inconvenient and
uncomfortable, requiring regular weekly visits to a
doctors office.
Alnylam Program. In January 2010, we announced
that we expect ALN-PCS, a systemically delivered RNAi
therapeutic candidate targeting PCSK9 for the treatment of
hypercholesterolemia, to be our next clinical candidate. ALN-PCS
is being advanced using second-generation LNPs for systemic
delivery.
PCSK9 is a widely acknowledged target for the treatment of
hypercholesterolemia by lowering of LDL-c levels. PCSK9 is a
protein that is produced by the liver but circulates in the
bloodstream. The liver determines cholesterol levels, in part by
taking up or absorbing LDL-c from the bloodstream. PCSK9 reduces
the livers capacity to absorb LDL-c. Recent evidence
indicates that, if PCSK9 activity could be reduced, the liver
should increase its uptake of LDL-c and blood cholesterol levels
should decrease. In fact, some individuals have been shown to
have a genetic mutation in PCSK9 that lowers its activity and
results in increased liver LDL-c uptake and lowered blood
cholesterol levels. In turn, these individuals have been shown
to have a dramatically reduced risk of CAD, including myocardial
infarction or heart attack. In addition, studies have shown that
PCSK9 levels are increased by statin therapy while LDL-c levels
are decreased, suggesting that the introduction of a PCSK9
inhibitor to statin therapy may result in even further
reductions in LDL-c levels.
We began our ALN-PCS program in collaboration with The
University of Texas Southwestern Medical Center, or UTSW. As
part of the UTSW collaboration, we and UTSW are testing RNAi
therapeutic candidates targeting PCSK9 in certain UTSW animal
models. Non-human primate data for our ALN-PCS program has
demonstrated efficient silencing of PCSK9 and rapid and durable
reductions in LDL blood cholesterol levels by greater than 50%.
Huntingtons
Disease (HD)
Market Opportunity. Huntingtons disease,
or HD, is a fatal, inherited and progressive brain disease that
results in uncontrolled movements, loss of intellectual
faculties, emotional disturbance and premature death. HD
patients typically first start to develop the disease in their
third or fourth decade of life and have an average survival of
only 10 to 20 years after initial diagnosis. The disease is
associated with the production of an altered form of a protein
known as huntingtin, the presence of which is believed to
trigger the death of important cells in the brain. This
autosomal dominant, neurodegenerative disease afflicts
approximately 30,000 patients in the United States. An
estimated 150,000 additional people in the United States carry
the mutant huntingtin gene and, therefore, have an approximate
50% risk of developing the disease in their lifetimes.
Current Treatments. The current treatment of
this severe disease is supportive care and symptomatic therapy,
with no drugs or therapies available that have been shown to
slow the underlying disease progression and the inexorable
erosion of the patients nerve cell functionality.
Alnylam Program. In collaboration with
Medtronic, we are seeking to develop a novel drug-device product
incorporating an RNAi therapeutic candidate targeting the
huntingtin gene, delivered using an implantable infusion device,
that will protect these cells by suppressing huntingtin mRNA and
the disease causing protein. Alnylam scientists and
collaborators have published and presented the data from our
ALN-HTT program comprised of
12
in vitro, rodent and non-human primate data
demonstrating that the administration of ALN-HTT results in
robust silencing of the huntingtin gene and reduced expression
of the huntingtin protein, achieves broad distribution following
continuous direct central nervous system administration, and is
safe and well tolerated in rats and non-human primates at
clinically relevant doses.
The ALN-HTT program is part of a
50-50
co-development/profit share relationship with Medtronic for the
United States market. Outside the United States, Medtronic will
be solely responsible for the development and commercialization
of the drug-device.
Discovery
Programs
In addition to our development efforts on RSV, liver cancers,
ATTR, hypercholesterolemia and HD, we are conducting research
activities to discover RNAi therapeutics to treat various
diseases. The diseases for which we have discovery programs
include: viral hemorrhagic fever, including the Ebola virus,
which can cause severe, often fatal infection and poses a
potential biological safety risk and bioterrorism threat;
Parkinsons disease, a progressive brain disease, which is
characterized by uncontrollable tremor, and, in some cases, may
result in dementia; and progressive multifocal
leukoencephalopathy, or PML, which is a disease of the central
nervous system caused by viral infection in immune compromised
patients. We are also pursuing other undisclosed internal
pre-clinical programs.
In addition to these programs, as part of our collaborations
with Novartis, Roche and Takeda, we have research activities to
discover RNAi therapeutics directed to a number of undisclosed
targets.
Our
Collaboration and Licensing Strategy
Our business strategy is to develop and commercialize a pipeline
of RNAi therapeutic products. As part of this strategy, we have
entered into, and expect to enter into additional, collaboration
and licensing agreements as a means of obtaining resources,
capabilities and funding to advance our RNAi therapeutic
programs.
Our collaboration strategy is to form (1) non-exclusive
platform alliances where our collaborators obtain access to our
capabilities and intellectual property to develop their own RNAi
therapeutic products; and
(2) 50-50
co-development
and/or
ex-U.S. market geographic partnerships on specific RNAi
therapeutic programs. We have entered into broad, non-exclusive
platform license agreements with Roche and Takeda, under which
we are also collaborating with each of Roche and Takeda on RNAi
drug discovery for one or more disease targets. We are pursuing
50-50
co-development programs with Cubist and Medtronic for the
development and commercialization of ALN-RSV02 and ALN-HTT,
respectively. In addition, we have entered into a product
alliance with Kyowa Hakko Kirin for the development and
commercialization of ALN-RSV in territories not covered by the
Cubist agreement, which include Japan and other markets in Asia.
We also have discovery and development alliances with Isis,
Novartis and Biogen Idec.
We also seek opportunities to form new ventures in areas outside
our core strategic focus. For example, during 2009, we
established Alnylam Biotherapeutics, an internal effort
regarding the application of RNAi technology to improve the
manufacturing processes for biologics, which is comprised of
recombinant proteins, monoclonal antibodies and vaccines. This
initiative has the potential to create new business
opportunities. In addition, during 2007, we formed Regulus,
together with Isis, to capitalize on our technology and
intellectual property in the field of microRNA-based
therapeutics. Given the broad applications for RNAi technology,
we believe additional opportunities exist for new ventures.
To generate revenues from our intellectual property rights, we
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. Our InterfeRx and research product licenses
aim to generate modest near-term revenues that we can re-invest
in the development of our proprietary RNAi therapeutics
pipeline. As of January 31, 2010, 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 agreements with other companies and academic
institutions to gain access to delivery
13
technologies. For example, we have entered into agreements with
Tekmira, MIT, UBC and AlCana, among others, to focus on various
delivery strategies. We have also entered into license
agreements with Isis, Max-Planck-Innovation GmbH, Tekmira and
MIT, as well as a number of other entities, to obtain rights to
important intellectual property in the field of RNAi. In April
2009, we established a new collaboration with Isis to focus on
the development of ssRNAi technology.
Finally, we seek funding for the development of our proprietary
RNAi therapeutics pipeline from the government and foundations.
In 2006, NIAID awarded us a contract to advance the development
of a broad spectrum RNAi anti-viral therapeutic against
hemorrhagic fever virus, including the Ebola virus. In 2007, the
Defense Threat Reduction Agency, or DTRA, an agency of the
United States Department of Defense, awarded us a contract to
advance the development of a broad spectrum RNAi anti-viral
therapeutic for hemorrhagic fever virus, which contract ended in
February 2009. In addition, we have obtained funding for
pre-clinical discovery programs from organizations such as The
Michael J. Fox Foundation.
Strategic
Alliances
We have formed, and intend to continue to form, strategic
alliances to gain access to the financial, technical, clinical
and commercial resources necessary to develop and market RNAi
therapeutics. We expect these alliances to provide us with
financial support in the form of upfront cash payments, license
fees, equity investments, research and development funding,
milestone payments
and/or
royalties or profit sharing based on sales of RNAi therapeutics.
Platform Alliances.
Roche. In July 2007, we and, for limited
purposes, Alnylam Europe AG, or Alnylam Europe, entered into a
license and collaboration agreement with Roche. Under the
license and collaboration agreement, which became effective in
August 2007, we granted Roche a non-exclusive license to our
intellectual property to develop and commercialize therapeutic
products that function through RNAi, subject to our existing
contractual obligations to third parties. The license is
initially limited to the therapeutic areas of oncology,
respiratory diseases, metabolic diseases and certain liver
diseases, and may be expanded to include up to 18 additional
therapeutic areas, comprising substantially all other fields of
human disease, as identified and agreed upon by the parties,
upon payment to us by Roche of an additional $50.0 million
for each additional therapeutic area, if any.
In consideration for the rights granted to Roche under the
license and collaboration agreement, Roche paid us
$273.5 million in upfront cash payments. In addition, in
exchange for our contributions under the collaboration
agreement, for each RNAi therapeutic product developed by Roche,
its affiliates or sublicensees under the collaboration
agreement, we are entitled to receive milestone payments upon
achievement of specified development and sales events, totaling
up to an aggregate of $100.0 million per therapeutic
target, together with royalty payments based on worldwide annual
net sales, if any. Due to the uncertainty of pharmaceutical
development and the high historical failure rates generally
associated with drug development, we may not receive any
milestone or royalty payments from Roche.
Under the license and collaboration agreement, we and Roche also
agreed to collaborate on the discovery of RNAi therapeutic
products directed to one or more disease targets, subject to our
contractual obligations to third parties. In October 2009, we
and Roche advanced our alliance to initiate this therapeutic
collaboration stage, referred to as the Discovery Collaboration.
Under this Discovery Collaboration, we and Roche are
collaborating on the discovery and development of specific RNAi
therapeutic products and each party contributes key delivery
technologies in the effort, which is focused on specific disease
targets. We and Roche intend to co-develop and co-commercialize
RNAi therapeutic products in the U.S. market and we are
eligible to receive additional milestone and royalty payments
for products developed in the rest of the world, if any. After a
pre-specified period of collaborative activities, each party
will have the option to opt-out of the
day-to-day
development activities in exchange for reduced milestones and
royalty payments in the future. The Discovery Collaboration is
governed by the joint steering committee that is comprised of an
equal number of representatives from each party.
The term of the license and collaboration agreement generally
ends upon the later of ten years from the first commercial sale
of a licensed product and the expiration of the
last-to-expire
patent covering a licensed product. We estimate that our
fundamental RNAi patents covered under the license and
collaboration agreement will expire both in and outside the
United States generally between 2016 and 2025, subject to any
potential patent term extensions
14
and/or
supplemental protection certificates extending such term
extensions in countries where such extensions may become
available. Roche may terminate the license and collaboration
agreement, on a licensed
product-by-licensed
product, licensed
patent-by-licensed
patent, and
country-by-country
basis, upon
180-days
prior written notice to us, but is required to continue to make
milestone and royalty payments to us if any royalties were
payable on net sales of a terminated licensed product during the
previous 12 months. The license and collaboration agreement
may also be terminated by either party in the event the other
party fails to cure a material breach under the license and
collaboration agreement.
In connection with the execution of the license and
collaboration agreement, we executed a common stock purchase
agreement with Roche Finance Ltd, or Roche Finance, an affiliate
of Roche. Under the terms of the common stock purchase
agreement, in August 2007, Roche Finance purchased
1,975,000 shares of our common stock at $21.50 per share,
for an aggregate purchase price of $42.5 million. Under the
terms of the common stock purchase agreement, in the event we
propose to sell or issue any of our equity securities, subject
to specified exceptions, we agreed to grant to Roche Finance the
right to acquire additional securities, such that Roche Finance
would be able to maintain its ownership percentage in us. Roche
Finance agreed that until August 9, 2010, neither it nor
any specified affiliates will acquire any of our securities or
assets (other than an acquisition resulting in such entities
beneficially owning less than five percent of our total
outstanding voting securities), participate in any tender or
exchange offer, merger or other business combination involving
us or seek to control our management, board of directors or
policies, subject to specified exceptions. Roche Finance also
agreed that neither it nor any specified affiliates would sell
or transfer any of our equity securities during the period prior
to August 9, 2009 and that it will limit the volume of such
sales or transfers in a single day during the following one-year
period, in each case, for so long as Roche Finance and such
affiliates beneficially own more than two and one half percent
of the total outstanding shares of our common stock.
In connection with the execution of the license and
collaboration agreement and the common stock purchase agreement,
we also executed a stock purchase agreement with Alnylam Europe
and Roche Beteiligungs GmbH, or Roche Germany, an affiliate of
Roche. Under the terms of the Alnylam Europe stock purchase
agreement, we created a new, wholly-owned German limited
liability company, Roche Kulmbach, into which substantially all
of the non-intellectual property assets of Alnylam Europe were
transferred, and Roche Germany purchased from us all of the
issued and outstanding shares of Roche Kulmbach for an aggregate
purchase price of $15.0 million. The Alnylam Europe stock
purchase agreement included transition services that were
performed by Roche Kulmbach employees at various levels through
August 2008. We reimbursed Roche for these services at an
agreed-upon
rate.
In connection with the license and collaboration agreement and
the common stock purchase agreement, during 2007, we paid
$27.5 million in license fees to our licensors, primarily
Isis, in accordance with the applicable license agreements with
those parties.
Takeda. In May 2008, we entered into a license
and collaboration agreement with Takeda to pursue the
development and commercialization of RNAi therapeutics. Under
the Takeda agreement, we granted to Takeda a non-exclusive,
worldwide, royalty-bearing license to our intellectual property
to develop, manufacture, use and commercialize RNAi
therapeutics, subject to our existing contractual obligations to
third parties. The license initially is limited to the fields of
oncology and metabolic disease and may be expanded at
Takedas option to include other therapeutic areas, subject
to specified conditions. Under the Takeda agreement, Takeda will
be our exclusive platform partner in the Asian territory, as
defined in the agreement, for a period of five years.
In consideration for the rights granted to Takeda under the
Takeda agreement, Takeda agreed to pay us $150.0 million in
upfront and near-term technology transfer payments. In addition,
we have the option, exercisable until the start of
Phase III development, to opt-in under a
50-50 profit
sharing agreement to the development and commercialization in
the United States of up to four Takeda licensed products, and
would be entitled to opt-in rights for two additional products
for each additional field expansion, if any, elected by Takeda
under the Takeda agreement. In June 2008, Takeda paid us an
upfront payment of $100.0 million. Takeda is also required
to make the additional $50.0 million in payments to us upon
achievement of specified technology transfer milestones,
$20.0 million of which was achieved in September 2008 and
paid in October 2008, $20.0 million of which is due upon
achievement of specified technology transfer activities, but no
later than May 2010, and $10.0 million of which is due upon
achievement of specified technology transfer activities within
24 to 36 months after execution of
15
the agreement. If Takeda elects to expand its license to
additional therapeutic areas, Takeda will be required to pay us
$50.0 million for each of up to approximately 20 total
additional fields selected, if any, comprising substantially all
other fields of human disease, as identified and agreed upon by
the parties. In addition, for each RNAi therapeutic product
developed by Takeda, its affiliates and sublicensees, we are
entitled to receive specified development and commercialization
milestones, totaling up to $171.0 million per product,
together with royalty payments based on worldwide annual net
sales, if any. Due to the uncertainty of pharmaceutical
development and the high historical failure rates generally
associated with drug development, we may not receive any
milestone or royalty payments from Takeda.
Pursuant to the Takeda agreement, we and Takeda are also
collaborating on the research of RNAi therapeutics directed to
one or two disease targets agreed to by the parties, subject to
our existing contractual obligations with third parties. Takeda
also has the option, subject to certain conditions, to
collaborate with us on the research and development of RNAi drug
delivery technology for targets agreed to by the parties. In
addition, Takeda has a right of first negotiation for the
development and commercialization of our RNAi therapeutic
products in the Asian territory, excluding our ALN-RSV program.
In addition to our
50-50 profit
sharing option, we have a similar right of first negotiation to
participate with Takeda in the development and commercialization
in the United States of licensed products. The collaboration is
governed by a joint technology transfer committee, a joint
research collaboration committee and a joint delivery
collaboration committee, each of which is comprised of an equal
number of representatives from each party.
The term of the Takeda agreement generally ends upon the later
of (i) the expiration of our
last-to-expire
patent covering a licensed product and (ii) the
last-to-expire
term of a profit sharing agreement in the event we elect to
enter into such an agreement. We estimate that our fundamental
RNAi patents covered under the Takeda agreement will expire both
in and outside the United States generally between 2016 and
2025, subject to any potential patent term extensions
and/or
supplemental protection certificates extending such term
extensions in countries where such extensions may become
available. The Takeda agreement may be terminated by either
party in the event the other party fails to cure a material
breach under the agreement. In addition, Takeda may terminate
the agreement on a licensed
product-by-licensed
product or
country-by-country
basis upon
180-days
prior written notice to us, provided, however, that Takeda is
required to continue to make royalty payments to us for the
duration of the royalty term with respect to a licensed product.
In connection with the Takeda agreement, during 2008, we paid
$5.0 million of license fees to our licensors, primarily
Isis, in accordance with the applicable license agreements with
those parties.
Discovery and Development Alliances.
Isis. In April 2009, we and Isis amended and
restated our existing strategic collaboration and license
agreement, originally entered into in March 2004, to extend the
broad cross-licensing arrangement regarding double-stranded RNAi
that was established in 2004, pursuant to which Isis granted us
licenses to its current and future patents and patent
applications relating to chemistry and to RNA-targeting
mechanisms for the research, development or commercialization of
double-stranded RNA, or dsRNA, products. We have the right to
use Isis technologies in our development programs or in
collaborations and Isis has agreed not to grant licenses under
these patents to any other organization for the discovery,
development and commercialization of dsRNA products designed to
work through an RNAi mechanism, except in the context of a
collaboration in which Isis plays an active role. We granted
Isis non-exclusive licenses to our current and future patents
and patent applications relating to RNA-targeting mechanisms and
to chemistry for research use. We also granted Isis the
non-exclusive right to develop and commercialize dsRNA products
developed using RNAi technology against a limited number of
targets. In addition, we granted Isis non-exclusive rights to
research, develop and commercialize single-stranded RNA products.
We agreed to pay Isis milestone payments, totaling up to
approximately $3.4 million, upon the occurrence of
specified development and regulatory events, and royalties on
sales, if any, for each product that we or a collaborator
develops using Isis intellectual property. In addition, we
agreed to pay to Isis a percentage of specified fees from
strategic collaborations we may enter into that include access
to Isis intellectual property. Isis agreed to pay us, per
therapeutic target, a license fee of $0.5 million, and
milestone payments totaling approximately $3.4 million,
payable upon the occurrence of specified development and
regulatory events, and royalties on sales, if any, for each
16
product developed by Isis or a collaborator that utilizes our
intellectual property. Isis has the right to elect up to ten
non-exclusive target licenses under the agreement and has the
right to purchase one additional non-exclusive target per year
during the term of the collaboration.
As part of the amended and restated Isis agreement, we and Isis
established a new collaborative effort focused on the
development of ssRNAi technology. Under the amended and restated
Isis agreement, we obtained from Isis a co-exclusive, worldwide
license to Isis current and future patents and patent
applications relating to chemistry and RNA-targeting mechanisms
to research, develop and commercialize ssRNAi products. Each
party has the opportunity to discover and develop drugs
employing the ssRNAi technology. Under the terms of the amended
and restated Isis agreement, we will potentially pay Isis up to
an aggregate of $31.0 million in license fees, payable in
four tranches, that include $11.0 million paid on signing,
$10.0 million payable in October 2010, or if and when in
vivo efficacy in rodents is demonstrated if sooner,
$5.0 million upon achievement of in vivo efficacy in
non-human primates, and $5.0 million upon initiation of the
first clinical trial with an ssRNAi drug, subject to our right
to unilaterally terminate the research program. We are funding
research activities at a minimum of $3.0 million each year
for three years with research and development activities
conducted by both us and Isis. If we develop and commercialize
drugs utilizing ssRNAi technology on our own or with a partner,
we would be required to make milestone payments to Isis,
totaling up to $18.5 million per product, as well as
royalties. Also, Isis initially is eligible to receive up to 50%
of any sublicense payments due to us from a third party based on
our partnering of ssRNAi products, which amount will decline
over time as our investment in the technology and drugs
increases. In turn, we are eligible to receive up to five
percent of any sublicense payments due to Isis from a third
party based on Isis partnering of ssRNAi products.
We have the unilateral right to terminate the ssRNAi research
program before September 30, 2010, in which event any
licenses to ssRNAi products granted by Isis to us under the
amended and restated Isis agreement, and any obligation
thereunder by us to pay milestone payments, royalties or
sublicense payments to Isis for such ssRNAi products, would also
terminate.
The term of the Isis agreement generally ends upon the
expiration of the
last-to-expire
patent licensed thereunder, whether such patent is a patent
licensed by us to Isis, or vice versa. As the license will
include additional patents, if any, filed to cover future
inventions, if any, the date of expiration cannot be determined
at this time.
Novartis. Beginning in September 2005, we
entered into a series of transactions with Novartis which we
refer to as our broad Novartis alliance. At that time, we and
Novartis executed a stock purchase agreement and an investor
rights agreement. When the transactions contemplated by the
stock purchase agreement closed in October 2005, the investor
rights agreement became effective and we and Novartis executed a
research collaboration and license agreement. The collaboration
and license agreement had an initial term of three years, with
an option for two additional one-year extensions at the election
of Novartis. In July 2009, Novartis elected to further extend
the term for the fifth and final planned year, through October
2010.
Under the terms of the collaboration and license agreement, we
and Novartis work together on a defined number of selected
targets, as defined in the collaboration and license agreement,
to discover and develop therapeutics based on RNAi. In
consideration for rights granted to Novartis under the
collaboration and license agreement, Novartis made an upfront
payment of $10.0 million to us in October 2005, partly to
reimburse prior costs incurred by us to develop in vivo
RNAi technology. The collaboration and license agreement
also includes terms under which Novartis has been providing us
with research funding and development milestone payments, and
may provide us in the future with sales milestone payments as
well as royalties on annual net sales of products resulting from
the collaboration, if any. The amount of research funding
provided by Novartis under the collaboration and license
agreement during the research term is dependent upon the number
of active programs on which we are collaborating with them at
any given time and the number of our employees that are working
on those programs, in respect of which Novartis reimburses us at
an agreed upon rate. Under the terms of the collaboration and
license agreement, Novartis has the right to select up to 30
exclusive targets to include in the collaboration, which number
may be increased to 40 under certain circumstances and upon
additional payments. For RNAi therapeutic products developed
under the agreement, if any, we would be entitled to receive
milestone payments upon achievement of certain specified
development and annual net sales events, up to an aggregate of
$75.0 million per therapeutic product. Due to the
uncertainty of pharmaceutical development and the high
historical
17
failure rates generally associated with drug development, we may
not receive any additional milestone payments or any royalty
payments from Novartis.
Under the terms of the collaboration and license agreement, we
retain the right to discover, develop, commercialize and
manufacture compounds that function through the mechanism of
RNAi, or products that contain such compounds as an active
ingredient, with respect to targets not selected by Novartis for
inclusion in the collaboration, provided that Novartis has a
right of first offer with respect to an exclusive license for
additional targets before we partner any of those additional
targets with third parties.
The collaboration and license agreement also provides Novartis
with a non-exclusive option to integrate into its operations our
intellectual property relating to RNAi technology, excluding any
technology related to delivery of nucleic acid based molecules.
Novartis may exercise this integration option at any point
during the research term, which term is currently expected to
expire in the fourth quarter of 2010. In connection with the
exercise of the integration option, Novartis would be required
to make additional payments to us totaling $100.0 million,
payable in full at the time of exercise, which payments would
include an option exercise fee, a milestone based on the overall
success of the collaboration, and pre-paid milestones and
royalties that could become due as a result of future
development of products using our technology. This amount would
be offset by any license fees due to our licensors in accordance
with the applicable license agreements with those parties. In
addition, under this license grant, Novartis may be required to
make milestone and royalty payments to us in connection with the
development and commercialization of RNAi therapeutic products,
if any. The license grant under the integration option, if
exercised by Novartis, would be structured similarly to our
non-exclusive platform licenses with Roche and Takeda.
Novartis may terminate the collaboration and license agreement
in the event that we materially breach our obligations. We may
terminate the agreement with respect to particular programs,
products
and/or
countries in the event of specified material breaches by
Novartis of its obligations, or in its entirety under specified
circumstances for multiple such breaches.
Under the terms of the stock purchase agreement, in October
2005, Novartis purchased 5,267,865 shares of our common
stock at a purchase price of $11.11 per share for an aggregate
purchase price of $58.5 million, which, after such
issuance, represented 19.9% of our outstanding common stock as
of the date of issuance. In addition, under the investor rights
agreement, we granted Novartis rights to acquire additional
equity securities in the event that we propose to sell or issue
any equity securities, subject to specified exceptions, as
described in the investor rights agreement, such that Novartis
would be able to maintain its then-current ownership percentage
in our outstanding common stock. Pursuant to terms of the
investor rights agreement, in May 2008, Novartis purchased
213,888 shares of our common stock at a purchase price of
$25.29 per share resulting in a payment to us of
$5.4 million. In May 2009, Novartis purchased
65,922 shares of our common stock at a purchase price of
$17.50 per share, resulting in an aggregate payment to us of
$1.2 million. This purchase allowed Novartis to maintain
its ownership position of 13.4% of our outstanding common stock.
The exercises of this right did not result in any changes to
existing rights or any additional rights to Novartis. Further,
during the term described in the investor rights agreement,
Novartis is permitted to own no more than 19.9% of our
outstanding shares. At December 31, 2009, Novartis owned
13.3% of our outstanding common stock.
Under the terms of the investor rights agreement, we also
granted Novartis demand and piggyback registration rights under
the Securities Act of 1933 for the shares of our common stock
held by Novartis. Novartis agreed, until the later of
(1) October 12, 2008 and (2) the date of
termination or expiration of the selection term, which is
currently expected to occur in 2010, not to acquire any of our
securities, other than an acquisition resulting in Novartis and
its affiliates beneficially owning less than 20% of our total
outstanding voting securities, participate in any tender or
exchange offer, merger or other business combination involving
us or seek to control or influence our management, board of
directors or policies, subject to specified exceptions described
in the investor rights agreement.
In addition to the broad Novartis alliance, in February 2006, we
entered into the Novartis flu alliance. Under the terms of the
Novartis flu alliance, we and Novartis had joint responsibility
for the development of RNAi therapeutics for pandemic flu. This
program was stopped during 2008 and currently there are no
specific resource commitments for this program.
18
Biogen Idec. In September 2006, we entered
into a collaboration and license agreement with Biogen Idec. The
collaboration is focused on the discovery and development of
therapeutics based on RNAi for the potential treatment of PML.
Under the terms of the Biogen Idec agreement, we granted Biogen
Idec an exclusive license to distribute, market and sell certain
RNAi therapeutics to treat PML and Biogen Idec has agreed to
fund all related research and development activities. We
received an upfront $5.0 million payment from Biogen Idec.
In addition, upon the successful development and utilization of
a product resulting from the collaboration, if any, Biogen Idec
would be required to pay us milestone payments, totaling
$51.0 million, and royalty payments on sales, if any. Due
to the uncertainty of pharmaceutical development and the high
historical failure rates generally associated with drug
development, we may not receive any milestone or royalty
payments from Biogen Idec. The pace and scope of future
development of this program is the responsibility of Biogen
Idec. We expect to expend limited resources on this program in
2010.
Unless earlier terminated, the Biogen Idec agreement will remain
in effect until the expiration of all payment obligations under
the agreement. Either we or Biogen Idec may terminate the
agreement in the event that the other party breaches its
obligations thereunder. Biogen Idec may also terminate the
agreement, on a
country-by-country
basis, without cause upon 90 days prior written notice.
Product Alliances.
Medtronic. In July 2007, we entered into an
amended and restated collaboration agreement with Medtronic to
pursue the development of therapeutic products for the treatment
of neurodegenerative disorders. The amended and restated
collaboration agreement supersedes the collaboration agreement
entered into by the parties in February 2005, and continues the
existing collaboration between the parties focusing on the
delivery of RNAi therapeutics to specific areas of the brain
using implantable infusion systems.
Under the terms of the amended and restated collaboration
agreement, we and Medtronic are continuing our existing
development program focused on developing a combination
drug-device product for the treatment of Huntingtons
disease. 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 discovered and developed
using our RNAi therapeutics platform to the human nervous system
through implantable infusion devices developed by Medtronic. We
are responsible for supplying the siRNA component and Medtronic
is responsible for supplying the device component of any product
resulting from the collaboration.
With respect to the initial product development program focused
on Huntingtons disease, each party is funding 50% of the
development efforts for the United States while Medtronic is
responsible for funding development efforts outside the United
States. Medtronic will commercialize any resulting products and
pay royalties to us based on net sales of such products, if any,
which royalties in the United States are designed to approximate
50% of the profit associated with the sale of such product and
which royalties in Europe are similar to more traditional
pharmaceutical royalties, in that they are intended to reflect
each partys contribution.
Each party has the right to opt-out of its obligation to fund
the program under the agreement at certain stages, and the
agreement provides for revised economics based on the timing of
any such opt-out. Other than pursuant to the initial product
development program, and subject to specified exceptions,
neither party may research, develop, manufacture or
commercialize products that use implanted infusion devices for
the direct delivery of siRNAs to the human nervous system to
treat Huntingtons disease during the term of such program.
The amended and restated collaboration agreement expires, on a
product-by-product
and
country-by-country
basis, upon expiration of the royalty term for the applicable
product. The royalty term is the longer of a specified number of
years from the first commercial sale of the applicable product
and the expiration of the
last-to-expire
of specified patent rights. Royalties are paid at a lower level
during any part of a royalty term in which specified patent
coverage does not exist. Either party may terminate the amended
and restated collaboration agreement on 60 days prior
written notice if the other party materially breaches the
agreement in specified ways and fails to cure the breach within
the 60-day
notice period. Either party may also terminate the agreement in
the event that specified pre-clinical testing does not yield
results meeting specified success criteria.
19
Kyowa Hakko Kirin. In June 2008, we entered
into a license and collaboration agreement with Kyowa Hakko
Kirin. Under the Kyowa Hakko Kirin agreement, we granted Kyowa
Hakko Kirin an exclusive license to our intellectual property in
Japan and other markets in Asia for the development and
commercialization of an RNAi therapeutic for the treatment of
RSV infection. The Kyowa Hakko Kirin agreement covers ALN-RSV01,
as well as additional RSV-specific RNAi therapeutic compounds
that comprise the ALN-RSV program. We retain all development and
commercialization rights worldwide outside of the licensed
territory, subject to our agreement with Cubist, described below.
Under the terms of the Kyowa Hakko Kirin agreement, in June
2008, Kyowa Hakko Kirin paid us an upfront cash payment of
$15.0 million. In addition, Kyowa Hakko Kirin is required
to make payments to us upon achievement of specified development
and sales milestones totaling up to $78.0 million, and
royalty payments based on annual net sales, if any, of RNAi
therapeutics for RSV by Kyowa Hakko Kirin, its affiliates and
sublicensees in the licensed territory. Due to the uncertainty
of pharmaceutical development and the high historical failure
rates generally associated with drug development, we may not
receive any milestone or royalty payments from Kyowa Hakko Kirin.
Our collaboration with Kyowa Hakko Kirin is governed by a joint
steering committee that is comprised of an equal number of
representatives from each party. Under the agreement, Kyowa
Hakko Kirin is establishing a development plan for the ALN-RSV
program relating to the development activities to be undertaken
in the licensed territory, with the initial focus on Japan.
Kyowa Hakko Kirin is responsible, at its expense, for all
development activities under the development plan that are
reasonably necessary for the regulatory approval and
commercialization of an RNAi therapeutic for the treatment of
RSV in Japan and the rest of the licensed territory. We are
responsible for supply of the product to Kyowa Hakko Kirin under
a supply agreement unless Kyowa Hakko Kirin elects, prior to the
first commercial sale of the product in the licensed territory,
to manufacture the product itself or arrange for a third party
to manufacture the product.
The term of the Kyowa Hakko Kirin agreement generally ends on a
country-by-country
basis upon the later of (1) the expiration of our
last-to-expire
patent covering a licensed product and (2) the tenth
anniversary of the first commercial sale in the country of sale.
We estimate that our principal patents covered under the Kyowa
Hakko Kirin agreement will expire both in and outside the United
States generally between 2016 and 2025. These patent rights are
subject to any potential patent term extensions
and/or
supplemental protection certificates extending such term
extensions in countries where such extensions may become
available. Additional patent filings relating to the
collaboration may be made in the future. The Kyowa Hakko Kirin
agreement may be terminated by either party in the event the
other party fails to cure a material breach under the agreement.
In addition, Kyowa Hakko Kirin may terminate the agreement
without cause upon
180-days
prior written notice to us, subject to certain conditions.
Cubist. In January 2009, we entered into a
license and collaboration agreement with Cubist to develop and
commercialize therapeutic products based on certain of our RNAi
technology for the treatment of RSV. Licensed products initially
included ALN-RSV01, as well as several other second-generation
RNAi-based RSV inhibitors. In November 2009, we and Cubist
entered into an amendment to our license and collaboration
agreement, which provides that we and Cubist will focus our
collaboration and joint development efforts on ALN-RSV02, a
second-generation compound, intended for use in pediatric
patients. Consistent with the original license and collaboration
agreement, we and Cubist each bears one-half of the related
development costs for ALN-RSV02. Pursuant to the terms of the
amendment, we are also continuing to develop ALN-RSV01 for adult
transplant patients at our sole discretion and expense. Cubist
has the right to resume the collaboration on ALN-RSV01 in the
future, which right may be exercised for a specified period of
time following the completion of our Phase IIb trial of
ALN-RSV01 in adult lung transplant patients infected with RSV,
subject to the payment by Cubist of an opt-in fee representing
reimbursement of an agreed upon percentage of certain of our
development expenses for ALN-RSV01.
Under the terms of the Cubist agreement, we and Cubist share
responsibility for developing licensed products in North America
and each bears one-half of the related development costs,
subject to the terms of the November 2009 amendment. Our
collaboration with Cubist for the development of licensed
products in North America is governed by a joint steering
committee comprised of an equal number of representatives from
each party. Cubist will have the sole right to commercialize
licensed products in North America with costs associated with
such activities and any resulting profits or losses to be split
equally between us and Cubist. Throughout the rest of the
20
world, referred to as the Royalty Territory, excluding Asia,
where we have previously partnered our ALN-RSV program with
Kyowa Hakko Kirin, Cubist has an exclusive, royalty-bearing
license to develop and commercialize licensed products.
In consideration for the rights granted to Cubist under the
agreement, in January 2009, Cubist paid us an upfront cash
payment of $20.0 million. Cubist also has an obligation
under the agreement to pay us milestone payments, totaling up to
an aggregate of $82.5 million, upon the achievement of
specified development and sales events in the Royalty Territory.
In addition, if licensed products are successfully developed,
Cubist will be required to pay us double digit royalties on net
sales of licensed products in the Royalty Territory, if any,
subject to offsets under certain circumstances. Upon achievement
of certain development milestones, we will have the right to
convert the North American co-development and profit sharing
arrangement into a royalty-bearing license and, in addition to
royalties on net sales in North America, will be entitled to
receive additional milestone payments totaling up to an
aggregate of $130.0 million upon achievement of specified
development and sales events in North America, subject to
the timing of the conversion by us and the regulatory status of
a licensed product at the time of conversion. If we make the
conversion to a royalty-bearing license with respect to North
America, then North America becomes part of the Royalty
Territory. Due to the uncertainty of pharmaceutical development
and the high historical failure rates generally associated with
drug development, we may not receive any milestone or royalty
payments from Cubist.
Unless terminated earlier in accordance with the agreement, the
agreement expires on a
country-by-country
and licensed
product-by-licensed
product basis, (a) with respect to the Royalty Territory,
upon the latest to occur of (1) the expiration of the
last-to-expire
Alnylam patent covering a licensed product, (2) the
expiration of the Regulatory-Based Exclusivity Period (as
defined in the Cubist agreement) and (3) ten years from
first commercial sale in such country of such licensed product
by Cubist or its affiliates or sublicensees, and (b) with
respect to North America, if we have not converted North America
into the Royalty Territory, upon the termination of the
agreement by Cubist upon specified prior written notice. We
estimate that our fundamental RNAi patents covered under the
Cubist agreement will expire both in and outside of the United
States generally between 2016 and 2025. Certain claims covering
ALN-RSV compounds in the United States would expire in 2026.
These patent rights are subject to any potential patent term
extensions
and/or
supplemental protection certificates extending such term
extensions in countries where such extensions may become
available. In addition, more patent filings relating to the
collaboration may be made in the future. Cubist has the right to
terminate the agreement at any time (1) upon three
months prior written notice if such notice is given prior
to the acceptance for filing of the first application for
regulatory approval of a licensed product or (2) upon nine
months prior written notice if such notice is given after the
acceptance for filing of the first application for regulatory
approval. Either party may terminate the agreement in the event
the other party fails to cure a material breach or upon
patent-related challenges by the other party.
During the term of the Cubist agreement, neither party nor its
affiliates may develop, manufacture or commercialize anywhere in
the world, outside of Asia, a therapeutic or prophylactic
product that specifically targets RSV, except for licensed
products developed, manufactured or commercialized pursuant to
the agreement.
microRNAi-based
Therapeutics
Regulus. In September 2007, we and Isis
established Regulus, a company focused on the discovery,
development and commercialization of microRNA-based
therapeutics. Regulus combines our and Isis technologies,
know-how and intellectual property relating to microRNA-based
therapeutics.
Regulus, which initially was established as a limited liability
company, converted to a C corporation as of January 2, 2009
and changed its name to Regulus Therapeutics Inc. In
consideration for our and Isis initial interests in
Regulus, we and Isis each granted Regulus exclusive licenses to
our intellectual property for certain microRNA-based
therapeutics as well as certain patents in the microRNA field.
In addition, we made an initial cash contribution to Regulus of
$10.0 million, resulting in us and Isis making initial
capital contributions to Regulus of approximately equal
aggregate value. In March 2009, we and Isis each purchased
$10.0 million of Series A preferred stock of Regulus.
We and Isis currently own approximately 49% and 51%,
respectively, of Regulus and there are currently no other third
party investors in Regulus. Regulus continues to operate as an
independent company with a separate board of directors,
scientific advisory board and management team, some of whom have
options to purchase
21
common stock of Regulus. Members of the board of directors of
Regulus who are our employees or Isis employees are not
eligible to receive options to purchase Regulus common stock.
Regulus is exploring therapeutic opportunities that arise from
alterations in microRNA expression. Since microRNAs are believed
to regulate the expression of broad networks of genes and
biological pathways, microRNA-based therapeutics define a new
and potentially high-impact strategy to target multiple points
on disease pathways. Conventional messenger RNAs are genetically
encoded and in turn instruct the creation of proteins through
the process of translation. However, these small microRNAs do
not instruct creation of proteins but instead regulate the
expression of other genes. There are approximately 700 microRNAs
that have been identified in the human genome, and these are
believed to regulate the expression of up to 30% of all human
genes. Since microRNAs may act as master regulators for
physiological pathways or genetic networks to achieve integrated
biological functions, affecting the expression of multiple genes
in the pathway of disease, microRNAs potentially represent an
exciting new platform for drug discovery and development.
To date, microRNAs have been implicated in several disease areas
such as cancer, viral infection, inflammatory diseases and
metabolic disorders. Regulus most advanced program, which
is in pre-clinical research, is a microRNA-based therapeutic
candidate that targets miR-122. miR-122 is a liver-expressed
microRNA that has been shown to be a critical endogenous host
factor for the replication of HCV, and anti-miRs targeting
miR-122 have been shown to block HCV infection. HCV infection is
a significant disease worldwide, for which emerging therapies
target viral genes and, therefore, are prone to viral
resistance. Regulus is also pursuing a program that targets
miR-21. Pre-clinical studies by Regulus and collaborators have
shown that miR-21 is implicated in several therapeutic areas,
including heart failure and fibrosis. In addition to these
programs, Regulus is also actively exploring additional areas
for development of microRNA-based therapeutics, including
cancer, other viral diseases, metabolic disorders and
inflammatory diseases.
In April 2008, Regulus entered into a worldwide strategic
alliance with GSK to discover, develop and market novel
microRNA-targeted therapeutics to treat inflammatory diseases
such as rheumatoid arthritis and inflammatory bowel disease. In
connection with this alliance, Regulus received
$20.0 million in upfront payments from GSK, including a
$15.0 million option fee and a loan of $5.0 million
evidenced by a promissory note (guaranteed by Isis and us) that
will convert into Regulus common stock under certain specified
circumstances. Regulus could be eligible to receive development,
regulatory and sales milestone payments for each of the four
microRNA-targeted therapeutics discovered and developed as part
of the alliance, and would also receive royalty payments on
worldwide sales of products resulting from the alliance, if any.
In May 2009, Regulus achieved the first demonstration of a
pharmacological effect in immune cells by specific microRNA
inhibition, the initial discovery milestone under the GSK
alliance, which triggered a payment under the agreement.
In February 2010, Regulus and GSK established a new
collaboration to develop and commercialize microRNA-based
therapeutics targeting miR-122 in all fields, with HCV infection
as the lead indication. This new collaboration includes the
potential for Regulus to earn more than $150.0 million in
upfront and milestone payments, in addition to royalties, on
worldwide sales of products, if any, as Regulus and GSK advance
microRNA-based therapeutics targeting miR-122.
We, Isis and Regulus have also entered into a license and
collaboration agreement to pursue the discovery, development and
commercialization of therapeutic products directed to microRNAs.
Under the terms of the license and collaboration agreement, we
and Isis assigned to Regulus specified patents and contracts
covering microRNA-specific technology. In addition, each of us
granted to Regulus an exclusive, worldwide license under our
rights to other microRNA-related patents and know-how to develop
and commercialize therapeutic products containing compounds that
are designed to interfere with or inhibit a particular microRNA,
subject to our and Isis existing contractual obligations
to third parties. Regulus also has the right to request a
license from us and Isis to develop and commercialize
therapeutic products directed to other microRNA compounds, which
license is subject to our and Isis approval and to each
such partys existing contractual obligations to third
parties. Regulus granted to us and Isis an exclusive license to
technology developed or acquired by Regulus for use solely
within our respective fields (as defined in the license and
collaboration agreement), but specifically excluding the right
to develop, manufacture or commercialize the therapeutic
products for which we and Isis granted rights to Regulus.
22
After a sufficient portfolio of data is obtained with respect to
each microRNA therapeutic candidate developed by Regulus,
Regulus may elect to continue to pursue the development and
commercialization of products directed to such microRNA compound
and related microRNA compounds, in which event Regulus would be
obligated to pay us and Isis a royalty on net sales of any such
resulting products. If Regulus decides not to continue to pursue
the development and commercialization of products directed to
particular microRNA compounds, either we or Isis may pursue
development and commercialization of such Regulus products.
Development and commercialization of such products by either
party would be subject to the payment to Regulus of a specified
upfront fee, milestone payments upon achievement of specified
regulatory events, royalties on net sales and a portion of
income received from sublicensing rights.
In addition, we are also a party to a services agreement with
Isis and Regulus. Under the terms of the services agreement, we
and Isis provide to Regulus certain research and development and
general and administrative services, as set forth in an
operating plan mutually agreed upon by us and Isis. Pursuant to
this agreement, we and Isis are paid by Regulus for these
services.
Alnylam
Biotherapeutics
During 2009, we presented new data regarding the application of
RNAi technology to improve the manufacturing processes for
biologics, which is comprised of recombinant proteins,
monoclonal antibodies and vaccines. This initiative, which we
are advancing in an internal effort referred to as Alnylam
Biotherapeutics, has the potential to create new business
opportunities. In particular, we are advancing RNAi technologies
to improve the quantity and quality of biologics manufacturing
processes using mammalian cell culture, such as CHO cells. This
RNAi technology potentially could be applied to the improvement
of manufacturing processes for existing marketed drugs, new
drugs in development and for the emerging biosimilars market. We
have developed proprietary delivery lipids that enable the
efficient transfection of siRNAs into CHO cells when grown in
suspension culture. Studies have demonstrated that silencing
certain target genes involved in certain CHO cell apoptotic and
metabolic pathways resulted in 40% to 60% improved cell
viability as compared with untreated cells. As Alnylam
Biotherapeutics advances the technology, it plans to seek
partnerships with established biologic manufacturers, selling
licenses, products and services.
Other
RNAi Areas of Opportunity
We continue to seek additional opportunities to form new
ventures in areas outside our core strategic interest. During
2008, we further expanded our technology platform with the
acquisition of RNA activation, or RNAa, technology. As part of
our overall strategy to be the leader in the field of RNA
therapeutics, including RNAi and microRNA-based therapeutics, we
consolidated key intellectual property in the emerging
biological field of RNAa. RNAa technology has the potential to
activate gene expression, which may have multiple potential
therapeutic applications, including the treatment of certain
genetic diseases and cancer. We have entered into exclusive
license agreements with UTSW, the University of California
San Francisco and the Salk Institute for Biological
Studies. RNAa technology represents a potential new product
platform in our efforts to advance innovative medicines to
patients.
We are also evaluating various other opportunities in the areas
of stem cell research, genomics, vaccines and other non-coding
RNAs. Given the broad applications for RNAi technology, we
believe additional opportunities exist for new ventures.
Licenses
To further enable the field and monetize our intellectual
property rights, we have established our InterfeRx program and
our research reagents and services licensing program.
InterfeRx Program. Our InterfeRx program
consists of the licensing of our intellectual property to others
for the development and commercialization of RNAi therapeutic
products relating to specific targets outside our direct
strategic focus. We expect to receive license fees, annual
maintenance fees, milestone payments and royalties on sales of
any resulting RNAi therapeutic products. Generally, we do not
expect to collaborate with our InterfeRx licensees in the
development of RNAi therapeutic products, but may do so in
certain circumstances. To date, we
23
have granted InterfeRx licenses to a number of companies,
including GeneCare Research Institute Co., Ltd., or GeneCare,
Quark Biotech, Inc., or Quark, Calando Pharmaceuticals, Inc., or
Calando, and Tekmira. In general, these licenses allow the
licensees to discover, develop and commercialize RNAi
therapeutics for a limited number of targets in return for
upfront, milestone, license maintenance
and/or
royalty payments to us. In some cases, we also retained a right
to negotiate the ability to co-promote
and/or
co-commercialize the licensed product, and in one case, we
included the rights to discover, develop and commercialize RNAi
therapeutics utilizing expressed RNAi (i.e., RNAi mediated by
siRNAs generated from DNA constructs introduced into cells). In
addition, Benitec Ltd., or Benitec, has an option to take an
InterfeRx license, subject to certain conditions. We have
granted InterfeRx licenses or options relating to approximately
20 gene targets and, as of January 31, 2010, only eight
targets have been selected by InterfeRx partners.
Research Reagents and Services. We have
granted approximately 15 licenses to our intellectual property
for the development and commercialization of research reagents
and services, and intend to enter into additional licenses on an
ongoing basis. Our target licensees are vendors that provide
siRNAs and related products and services for use in biological
research. We offer these licenses in return for an initial
license fee, annual renewal fees and royalties from sales of
siRNA research reagents and services. No single research reagent
or research services license is material to our business.
Delivery
Initiatives
We are working internally and with third-party collaborators to
extend our capabilities in developing technology to achieve
effective and safe delivery of RNAi therapeutics to a broad
spectrum of organ and tissue types. In connection with these
efforts, we have entered into a number of agreements to evaluate
and gain access to certain delivery technologies. In some
instances, we are also providing funding to support the
advancement of these delivery technologies. Over the past 12 to
18 months, we believe we have made major advances relating
to the delivery of RNAi therapeutics, which we describe in more
detail below.
In May 2007, we entered into an agreement with the David H. Koch
Institute for Integrative Cancer Research at MIT, under which we
are sponsoring an exclusive five-year research program focused
on the delivery of RNAi therapeutics. In December 2009, we and
MIT announced the publication of new data in the journal PNAS
describing further advancements in the discovery and
development of LNPs based on novel lipidoid
formulations for the systemic delivery of RNAi therapeutics.
Lipidoids are lipid-like materials discovered for the delivery
of RNAi therapeutics, and were originally described by us and
our collaborators at MIT. In particular, the new research
findings demonstrated the discovery, using a combinatorial
chemistry-based approach, of new lipidoid materials that
facilitate significantly improved in vivo potency for
RNAi therapeutics. In in vivo studies, second generation
LNPs employing novel lipidoids showed gene silencing of the
clinically relevant gene, TTR, at doses as low as
0.03 mg/kg in non-human primates. Lipidoid formulations
represent one of several approaches we are pursuing for systemic
delivery of RNAi therapeutics.
In addition, during 2007, we obtained an exclusive worldwide
license to the liposomal delivery formulation technology of
Tekmira for the discovery, development and commercialization of
LNP formulations for the delivery of RNAi therapeutics, and a
non-exclusive worldwide license to certain liposomal delivery
formulation technology of Protiva Biotherapeutics Inc., or
Protiva, for the discovery, development and commercialization of
certain LNP formulations for the delivery of RNAi therapeutics.
In May 2008, Tekmira acquired Protiva. In connection with this
acquisition, we entered into new agreements with Tekmira and
Protiva, which provide us access to key existing and future
technology and intellectual property for the systemic delivery
of RNAi therapeutics with liposomal delivery technologies. Under
these agreements, we continue to have exclusive rights to the
Semple (U.S. Patent No. 6,858,225) and Wheeler
(U.S. Patent Nos. 5,976,567 and 6,815,432) patents for
RNAi, which we believe are critical for the use of LNP delivery
technology. In July 2009, we and Tekmira agreed to jointly
participate in a new research collaboration with scientists at
UBC and AlCana focused on the discovery of novel lipids for use
in LNPs for the systemic delivery of RNAi therapeutics. We are
funding the collaborative research over a two-year period, and
the work is being conducted by our scientists together with
scientists at UBC and AlCana. We will receive exclusive rights
to all new inventions as well as sole rights to sublicense any
resulting intellectual property to our current and future
collaborators. Tekmira will receive rights to use new inventions
for their own RNAi therapeutic programs that are licensed under
our InterfeRx program.
24
In January 2010, we announced the publication of new data in the
journal Nature Biotechnology from our collaboration with
Tekmira and scientists at UBC and AlCana. This new study
employed a rational design approach for the discovery of novel
lipids that can be incorporated into LNPs for systemic delivery
of RNAi therapeutics. This research complements the
combinatorial chemistry-based approach described above under our
MIT collaboration and demonstrates the advantages of using
multiple parallel approaches for optimizing LNPs. We have
discovered novel lipids based on a medicinal chemistry effort
exploring the structure-activity relationships in a lipid which
has been used in certain first generation LNPs such as
Tekmiras SNALP formulations. In vivo data with
these new LNPs showed that gene silencing in rodents was
achieved following a single injection at doses as low as
0.01 mg/kg and that potent and selective silencing of the
clinically relevant gene, TTR, was achieved at doses as low as
0.1 mg/kg in non-human primates. We expect that the
significantly improved potency of these second generation LNPs
will yield important advantages for advancement of RNAi
therapeutics including potentially lowered material
requirements, improved therapeutic index and expanded scope of
delivery beyond the liver. Alnylam has exclusive rights to the
novel lipids described in this work and sole rights to
sublicense related intellectual property to its current and
future collaborators. Tekmira has rights to use these new
inventions for their own RNAi therapeutic programs that are
licensed under our InterfeRx program.
As noted above, we are developing ALN-VSP, a systemically
delivered RNAi therapeutic candidate, for the treatment of
primary and secondary liver cancer. ALN-VSP contains two siRNAs
formulated using the first generation LNP formulation known as
SNALP, developed in collaboration with Tekmira. We also have
rights to use SNALP technology in the advancement of our other
systemically delivered RNAi therapeutic programs, and are
advancing ALN-TTR01, for the treatment of ATTR, utilizing a
first generation SNALP formulation. In parallel with ALN-TTR01,
we are advancing ALN-TTR02 utilizing second-generation LNPs. In
addition, we have published pre-clinical results from
development programs for other systemically delivered RNAi
therapeutic candidates, including ALN-PCS, for the treatment of
hypercholesterolemia, which we recently identified as our next
clinical candidate. ALN-PCS is being advanced using
second-generation LNPs for systemic delivery.
In addition to the advances described above, in January 2010, we
reported the discovery of a key mechanism related to the
systemic delivery of RNAi therapeutics using LNPs. This
pre-clinical research was performed in collaboration with
scientists at the Max Planck Institute of Molecular Cell Biology
and Genetics. The new data document a key mechanism for
endogenous targeting of certain LNPs to the liver, provide
alternative targeting strategies for the delivery of RNAi
therapeutics to the liver, and highlight potential targeting
approaches for delivery to non-liver tissues and cell types.
Specifically, these in vitro and in vivo
research findings establish the role of ApoE as an
endogenous targeting ligand for neutrally charged ionizable
LNPs, or iLNPs, but not certain cationic LNPs, or cLNPs, and
demonstrate an alternative targeting strategy for the delivery
of RNAi therapeutics to the liver using the carbohydrate
N-acetylgalactosamine, or GalNAc, as an exogenous ligand.
We are pursuing additional approaches for delivery that include
other LNP formulations, mimetic lipoprotein particles, or MLPs,
siRNA conjugation strategies and ssRNAi, among others. In
addition, we have other RNAi therapeutic delivery collaborations
and intend to continue to collaborate with government, academic
and corporate third parties to evaluate and gain access to
different delivery technologies.
Government
Funding
NIH. In September 2006, the NIAID, a component
of NIH, awarded us a contract for up to $23.0 million over
four years to advance the development of a broad spectrum RNAi
anti-viral therapeutic for hemorrhagic fever virus, including
the Ebola virus. As a result of the continued progress of this
program, the NIAID appropriated the entire $23.0 million
over the four-year term of the contract, which will be completed
in September 2010.
Department of Defense. In August 2007, DTRA
awarded us a contract to advance the development of a broad
spectrum RNAi anti-viral therapeutic for hemorrhagic fever
virus. The government initially committed to pay us up to
$10.9 million through February 2009, which included a
six-month extension granted by DTRA in July 2008. Following a
program review in early 2009, we and DTRA determined not to
continue this program and accordingly, the remaining funds of up
to $27.7 million were not accessed.
25
Patents
and Proprietary Rights
We have devoted considerable effort and resources to establish
what we believe to be a strong intellectual property position
relevant to RNAi therapeutic products and delivery technologies.
In this regard, we have amassed a portfolio of patents, patent
applications and other intellectual property covering:
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fundamental aspects of the structure and uses of siRNAs,
including their use as therapeutics, and RNAi-related mechanisms;
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chemical modifications to siRNAs that improve their suitability
for therapeutic uses;
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siRNAs directed to specific targets as treatments for particular
diseases;
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delivery technologies, such as in the field of cationic
liposomes; and
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all aspects of our specific development candidates.
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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. Our intellectual property estate for RNAi
therapeutics includes over 1,800 active cases and over 700
granted or issued patents, of which over 300 are issued or
granted in the United States, the European Union, or EU, and
Japan. 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.
Intellectual
Property Related to Fundamental Aspects and Uses of siRNA and
RNAi-related Mechanisms
In this category, we include United States and foreign patents
and patent applications that claim key aspects of siRNA
architecture and RNAi-related mechanisms. Specifically included
are patents and patent applications covering targeted cleavage
of mRNA directed by RNA-like oligonucleotides, dsRNAs of
particular lengths and particular structural features, such as
blunt and/or
overhanging ends. Our strategy has been to secure exclusive
rights where possible and appropriate to key patents and patent
applications that we believe cover fundamental aspects of RNAi.
The following table lists patents
and/or
patent applications to which we have secured rights that we
regard as being fundamental for the use of siRNAs as
therapeutics.
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Patent
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First
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Licensor/Owner
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Subject Matter
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Priority Date
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Inventors
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Status
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Expiration Date*
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Alnylam Rights
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Isis
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Inactivation of target mRNA
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6/6/1996 and 6/6/1997
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S. Crooke
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U.S. 5,898,031, U.S. 6,107,094, U.S. 7,432,250 & USSN 10/078,949 (allowed) EP 0928290
Additional applications pending in the U.S. and several foreign jurisdictions
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06/06/2016
06/06/2017
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Exclusive rights for therapeutic purposes related to siRNAs**
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Carnegie Institution of Washington
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Double-stranded RNAs to induce RNAi
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12/23/1997
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A. Fire,
C. Mello
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U.S. 6,506,559, U.S. 7,560,438 & U.S. 7,538,095
Additional applications pending in the U.S. and several foreign jurisdictions
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12/18/2018
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Non-exclusive rights for therapeutic purposes
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Medical
College of Georgia Research Institute, Inc.
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Methods for inhibiting gene expression using double-stranded RNA
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1/28/1999
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Y. Li,
M. Farrell, M. Kirby
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AU 776150 (Australia)
Additional applications pending in the U.S., Europe and Canada
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1/28/2020
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Exclusive rights
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26
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Patent
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First
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Licensor/Owner
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Subject Matter
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Priority Date
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Inventors
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Status
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Expiration Date*
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Alnylam Rights
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Alnylam
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Small double- stranded RNAs as therapeutic products
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1/30/1999
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R. Kreutzer,
S. Limmer
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EP 1214945 (revoked/under appeal), EP 1550719 (granted/opposed),
EP 1352061 (maintained/under appeal) & EP App. No.
02702247.4 (Intent to Grant), CA 2359180 (Canada), AU 778474
(Australia), ZA 2001/5909 (South Africa), DE 20023125 U1, DE
10066235 & DE 10080167 (Germany)
Additional applications pending in the U.S. and several foreign
jurisdictions
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01/29/2020
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Owned
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Alnylam
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Composition and methods for inhibiting a target nucleic acid
with double-stranded RNA
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4/21/1999
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C. Pachuk,
C. Satishchandran
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AU 781598 (Australia)
Additional applications pending in the U.S. and several foreign
jurisdictions
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4/19/2020
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Owned
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Cancer
Research Technology Limited
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RNAi uses in mammalian oocytes, preimplantation embryos and
somatic cells
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11/19/1999
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M. Zernicka-Goetz,
M.J. Evans,
D.M. Glover
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EP 1230375 (revoked/under appeal), SG 89569 (Singapore), AU
774285 (Australia)
Additional applications pending in the U.S. and several foreign
jurisdictions
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11/17/2020
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Exclusive rights for therapeutic purposes
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Massachusetts Institute of Technology, Whitehead Institute, Max
Planck Gesellschaft***
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Mediation of RNAi by small RNAs 21-23 base pairs long
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3/30/2000
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D.P. Bartel,
P.A. Sharp,
T. Tuschl, P.D. Zamore
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EP 1309726, AU 2001249622 (Australia)
Additional applications pending in the U.S. and several foreign
jurisdictions
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03/30/2020
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Non-exclusive rights for therapeutic purposes***
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Max Planck Gesellschaft
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Synthetic and chemically modified siRNAs as therapeutic products
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12/01/2000, 04/24/2004 and 04/27/2004
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T. Tuschl,
S. Elbashir,
W. Lendeckel
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U.S. 7,056,704 & U.S. 7,078,196, EP 1407044, AU 2002235744
(Australia), ZA 2003/3929 (South Africa), SG 96891 (Singapore),
NZ 52588 (New Zealand), JP 4 095 895 (Japan), RU 2322500
(Russia), CN 1568373 (China)
Additional applications pending in the U.S. and several foreign
jurisdictions
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11/29/2021
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Exclusive
rights for therapeutic purposes
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Alnylam
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Methods for inhibiting a target nucleic acid via the
introduction of a vector encoding a double-stranded RNA
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1/31/2001
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T. Giordano,
C. Pachuk,
C. Satishchandran
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AU 785395 (Australia)
Additional applications pending in the U.S., Australia and Canada
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1/31/2021
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Owned
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Cold Spring Harbor Laboratory
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RNAi uses in mammalian cells
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3/16/2001
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D. Beach, G. Hannon
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Pending in the U.S. and several foreign jurisdictions
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Non-exclusive rights for therapeutic purposes
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Stanford University
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RNAi uses in vivo in mammalian liver
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7/23/2001
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M.A. Kay,
A.P. McCaffrey
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AU 2002326410 (Australia)
Additional applications pending in the U.S. and several foreign
jurisdictions
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7/23/2021
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Exclusive rights for therapeutic purposes
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* |
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For applications filed after June 7, 1995, the patent term
generally is 20 years from the earliest application filing
date. However, under the Drug Price Competition and Patent Term
Extension Act of 1984, known as the Hatch-Waxman Act, we may be
able to apply for patent term extensions for our U.S. patents.
We cannot predict whether or not any patent term extensions will
be granted or the length of any patent term extension that might
be granted. |
27
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** |
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We hold co-exclusive therapeutic rights with Isis. However, Isis
has agreed not to license such rights to any third party, except
in the context of a collaboration in which Isis plays an active
role. |
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*** |
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We hold exclusive rights to the interest owned by three
co-owners. A separate entity, UMass, has licensed its purported
interest separately to third parties. |
We believe that we have a strong portfolio of broad rights to
fundamental RNAi patents and patent applications. Many of these
rights are exclusive, which we believe prevents potential
competitors from commercializing products in the field of RNAi
without taking a license from us. In securing these rights, we
have focused on obtaining the strongest rights for those
intellectual property assets we believe will be most important
in providing competitive advantage with respect to RNAi
therapeutic products.
We believe that the Crooke patent series, issued in several
countries around the world, covers the use of all modified
oligonucleotides to achieve enzyme-mediated cleavage of a target
mRNA and, as such, has broad issued claims that cover RNAi. We
have obtained rights to the Crooke patents through a license
agreement with Isis. Under the terms of our amended and restated
Isis agreement, Isis agreed not to grant licenses under these
patents to any other organization for oligonucleotide products
designed to work through an RNAi mechanism, except in the
context of a collaboration in which Isis plays an active role.
Through our acquisition of Ribopharma AG, now known as Alnylam
Europe, we own the entire Kreutzer-Limmer patent portfolio,
which includes pending applications in the United States and
many countries worldwide. The first patent to issue in the
Kreutzer-Limmer series (EP 1144623) was granted in Europe
in 2002, and specifically covered the use of small dsRNAs as
therapeutics. This patent was revoked in appeal. The second
European Kreutzer-Limmer patent (EP 1214945) to issue in
the series was granted in Europe in 2005. This patent covers
dsRNA structures of 15 to 49 successive nucleotide pairs in
length. In January 2009, the European Patent Office, or EPO,
ruled in favor of the opposing parties in an opposition
proceeding related to the second Kreutzer-Limmer patent. We have
appealed this ruling. In December 2008, the EPO granted a third
patent in the Kreutzer-Limmer series (EP 1550719). This patent
covers therapeutic dsRNAs which are 15 to 21 consecutive
nucleotide pairs in length. The third Kreutzer-Limmer patent has
been opposed. In July 2009, the EPO issued a Notice of Intent to
Grant for a fourth patent in the Kreutzer-Limmer series (EP App.
No. 02702247.4). This patent covers methods and medicaments
having dsRNAs that are less than 25 nucleotides in length having
a 3 nucleotide overhang on the antisense strand which
inhibit anti-apoptotic genes in tumor cells. We have also
received grants for patents in the Kreutzer-Limmer series in
several other countries, as reflected in the table above. The
decision with respect to EP 1144623 and the outcome of the EP
1214945 opposition will only affect the granted or pending
claims of other members of the Kreutzer-Limmer patent series to
the extent the same issue arises in the formal examination or
post-grant review proceedings of the other members of the
series. We do not expect this to occur, but in the event it
does, the ruling in the former proceeding would be controlling.
The Glover patent series has resulted in several patent grants,
including in Europe (EP 1230375). The European Glover patent was
revoked in June 2008 during opposition proceedings and our
appeal of this decision is pending. Broad claims from this
patent cover dsRNAs of any length or structure as mediators of
RNAi in mammalian systems. We have an exclusive license to the
Glover patent for therapeutic uses from Cancer Research
Technology Limited.
The Tuschl patent applications filed by Whitehead, MIT, UMass
and Max-Planck-Gesellschaft zur Forderung der Wissenschaften
E.V. on the invention by Dr. Tuschl and his colleagues,
which we call the Tuschl I patent series, cover compositions and
methods important for RNAi discovery. While none of the
applications in this family have been granted in the United
States, the EPO recently granted patent EP 1309726. This patent
consists of 19 claims broadly covering in vitro RNAi
methods, including methods of reducing the expression of a gene,
including those of mammalian or viral origin, with dsRNAs
between 21 and 23 nucleotides in length. In addition, the patent
also includes claims covering methods of examining the function
of a gene, as well as the use of both unmodified and chemically
modified dsRNAs. The Tuschl I series has also been granted in
New Zealand (Patent 522045) and recently allowed in Korea.
We are the exclusive licensee of the ownership interests of the
Max Planck Society, MIT and Whitehead in the Tuschl I patent
series for RNAi therapeutics.
The Tuschl patent applications filed by Max Planck Gesellschaft
zur Förderung der Wissenschaften e.V. on the invention by
Dr. Tuschl and his colleagues, which we call the
Tuschl II patent series, cover what we believe are key
28
structural features of siRNAs. Specifically, the Tuschl II
patents and patent applications include claims directed to
synthetic siRNAs and the use of chemical modifications to
stabilize siRNAs. In June 2006, the United States Patent and
Trademark Office, or USPTO, issued U.S. Patent
No. 7,056,704 and in July 2006 the USPTO issued
U.S. Patent No. 7,078,196, each covering methods of
making dsRNAs having a 3 overhang structure. In September
2007, the EPO granted broad claims for the Tuschl II patent
in Europe (EP 1407044). Five parties have filed Notices of
Opposition in the EPO against EP 1407044. The Japanese Patent
Office has granted the Tuschl II patent in Japan (JP 4 095
895) and the Chinese Patent Office has granted the
Tuschl II patent in China (CN 1568373). We have also
received grants for patents in the Tuschl II series in
several other countries, as reflected in the table above. We
have obtained an exclusive license to claims in the
Tuschl II patent series uniquely covering the use of RNAi
for therapeutic purposes.
The Fire and Mello patent owned by the Carnegie Institution
covers the use of dsRNAs to induce RNAi. The Carnegie
Institution has made this patent broadly available for licensing
and we, like many companies, have taken a non-exclusive license
to the patent for therapeutic purposes. We believe, however,
that the claims of the Fire and Mello patent do not cover the
structural features of dsRNAs that are important for the
biological activity of siRNAs in mammalian cells. We believe
that these specific features are the subjects of the Crooke,
Kreutzer-Limmer, Glover and Tuschl II patents and patent
applications for which we have secured exclusive rights.
The other pending patent applications listed in the table above
either provide further coverage for structural features of
siRNAs or relate to the use of siRNAs in mammalian cells. For
some of these, we have exclusive rights, and for others, we have
non-exclusive rights. In addition, in December 2008, we acquired
the intellectual property assets of Nucleonics, Inc., a
privately held biotechnology company. This acquisition included
over 100 active patent filings, including 15 patents that have
been granted worldwide, of which five have been granted in the
United States and Europe. With this acquisition, we obtained
patents and patent applications with early priority dates,
notably the Li & Kirby, Pachuk
I and Giordano patent families, that cover
broad structural features of RNAi therapeutics, thus extending
the breadth of our fundamental intellectual property.
Intellectual
Property Related to Chemical Modifications
Our amended and restated collaboration and license agreement
with Isis provides us with rights to practice the inventions
covered by over 200 issued patents worldwide, as well as rights
based on future chemistry patent applications through April
2014. These patents will expire both in and outside the United
States generally between 2009 and 2029, subject to any potential
patent term extensions
and/or
supplemental protection certificates extending such term
extensions in countries where such extensions may become
available. These inventions cover chemical modifications we may
wish to incorporate into our RNAi therapeutic products. Under
the terms of our amended and restated license agreement, Isis
agreed not to grant licenses under these patents to any other
organization for dsRNA products designed to work through an RNAi
mechanism, except in the context of a collaboration in which
Isis plays an active role.
In addition to licensing these intellectual property rights from
Isis, we are also working to develop our own proprietary
chemical modifications that may be incorporated into siRNAs to
endow them with drug-like properties. We have filed a large
number of patent applications relating to these novel and
proprietary chemical modifications.
With the combination of the technology we have licensed from
Isis, U.S. Patent No. 7,078,196, a patent in the
Tuschl II patent series, and our own patent application
filings, we possess issued claims that cover methods of making
siRNAs that incorporate any of various chemical modifications,
including the use of phosphorothioates,
2-O-methyl,
and/or
2-fluoro modifications. These modifications are believed
to be important for achieving drug-like properties
for RNAi therapeutics. We hold exclusive worldwide rights to
these claims for RNAi therapeutics.
Intellectual
Property Related to siRNAs Directed to Specific
Targets
We have filed a number of patent applications claiming specific
siRNAs directed to various gene targets that correlate to
specific diseases. While there may be a significant number of
competing applications filed by other organizations claiming
siRNAs to treat the same gene target, we were among the first
companies to focus and file on RNAi therapeutics, and thus, we
believe that a number of our patent applications may predate
competing applications that others may have filed. Reflecting
this, in August 2005, the EPO granted a broad patent,
29
which we call the Kreutzer-Limmer II patent, with 103
allowed claims on therapeutic compositions, methods and uses
comprising siRNAs that are complementary to mRNA sequences in
over 125 disease target genes. In July 2009, the EPO ruled in
our favor in an opposition proceeding related to the
Kreutzer-Limmer II patent. The decision has been appealed
by the opponents. The Kreutzer-Limmer II patent will expire
on January 9, 2022, subject to any potential patent term
extensions
and/or
supplemental protection certificates extending such term
extensions in countries where such extensions may become
available. Some of these claimed gene targets are being pursued
by our development and pre-clinical programs, such as those
expressed by viral pathogens including RSV and influenza virus.
In addition, the claimed targets include oncogenes, cytokines,
cell adhesion receptors, angiogenesis targets, apoptosis and
cell cycle targets, and additional viral disease targets, such
as hepatitis C virus and HIV. The Kreutzer-Limmer II
patent series is pending in the United States and many foreign
countries. Moreover, a patent in the Tuschl II patent
series, U.S. Patent No. 7,078,196, claims methods of
preparing siRNAs that mediate cleavage of an mRNA in mammalian
cells and, therefore, covers methods of making siRNAs directed
toward any and all target genes. We hold exclusive worldwide
rights to these claims for RNAi therapeutics.
With respect to specific siRNAs, we believe that patent coverage
will result from demonstrating that particular compositions
exert suitable biological and therapeutic effects. Accordingly,
we are focused on achieving such demonstrations for siRNAs in
key therapeutic programs.
Intellectual
Property Related to the Delivery of siRNAs to
Cells
We are pursuing internal research and collaborative approaches
regarding the delivery of siRNAs to mammalian cells. These
approaches include exploring technology that may allow delivery
of siRNAs to cells through the use of cationic lipids,
cholesterol and carbohydrate conjugation, peptide and
antibody-based targeting, and polymer conjugations. Our
collaborative efforts include working with academic and
corporate third parties to examine specific embodiments of these
various approaches to delivery of siRNAs to appropriate cell
tissue, and in-licensing of the most promising technology. For
example, we have obtained an exclusive license from UBC and
Tekmira in the field of RNAi therapeutics to intellectual
property covering cationic liposomes and their use to deliver
nucleic acid to cells. The issued United States patents and
foreign counterparts, including the Semple (U.S. Patent No
6,858,225) and Wheeler (U.S. Patent Nos. 5,976,567 and
6,815,432) patents, cover compositions, methods of making and
methods of using cationic liposomes to deliver agents, such as
nucleic acid molecules, to cells. These patents will expire both
in and outside the United States on October 30, 2017,
January 6, 2015 and June 7, 2015, respectively,
subject to any potential patent term extensions
and/or
supplemental protection certificates extending such term
extensions in countries where such extensions may become
available.
Intellectual
Property Related to Our Development Candidates
As our development pipeline matures, we have made and plan to
continue to make patent filings that claim all aspects of our
development candidates, including dose, method of administration
and manufacture.
Patent
Pool
In July 2009, we announced that we will contribute more than
1,500 patents or pending patent applications in our RNAi
technology patent estate to a patent pool established by GSK in
March 2009. We are the first company to add its patents to the
approximately 800 patent filings GSK provided to the pool. The
patent pool was formed to aid in the discovery and development
of new medicines for the treatment of 16 neglected tropical
diseases, or NTDs, as defined by the FDA, in the worlds
least developed countries. Through our contribution to the
patent pool, we are providing RNAi intellectual property,
technology and know-how on a royalty-free, non-profit basis
worldwide to research, develop and manufacture therapies for use
in the least developed countries through licensing agreements
with qualified third parties. Such organizations will be engaged
in research efforts focused on discovery of new medicines for
NTDs. In January 2010, we and GSK announced the appointment of
BIO Ventures for Global Health, or BVGH, to administer the
patent pool. As the patent pools administrator, BVGH will
organize disease-specific meetings that identify the gaps in
expertise and intellectual property that currently exist in
product development for NTDs. BVGH will then help global health
researchers work with industry to fill these gaps so that the
resources made available by companies will be used to create
medicines for NTDs faster and more efficiently.
30
Intellectual
Property Challenges
As the field of RNAi therapeutics is maturing, patent
applications are being fully processed by national patent
offices around the world. There is uncertainty about which
patents will issue, and, if they do, as to when, to whom, and
with what claims. It is likely that there will be significant
litigation and other proceedings, such as interference,
reexamination and opposition proceedings, in various patent
offices relating to patent rights in the RNAi field. For
example, as noted above, various third parties have initiated
oppositions to patents in our Kreutzer-Limmer and Tuschl II
series in the EPO, as well as in other jurisdictions. We expect
that additional oppositions will be filed in the EPO and
elsewhere, and other challenges will be raised relating to other
patents and patent applications in our portfolio. In many cases,
the possibility of appeal exists for either us or our opponents,
and it may be years before final, unappealable rulings are made
with respect to these patents in certain jurisdictions. 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 June 2009, we joined with Max-Planck-Gesellschaft Zur
Forderung Der Wissenschaften E.V. and Max-Planck-Innovation
GmbH, collectively, Max Planck, in taking legal action against
Whitehead, MIT and UMass. The complaint, initially filed in
Suffolk County Superior Court in Boston, Massachusetts and
subsequently removed to the U.S. District Court for the
District of Massachusetts, alleges, among other things, that the
defendants have improperly prosecuted the Tuschl I patent
applications and wrongfully incorporated inventions covered by
the Tuschl II patent applications into the Tuschl I patent
applications, thereby potentially damaging the value of
inventions reflected in the Tuschl I and Tuschl II patent
applications. In the field of RNAi therapeutics, we are the
exclusive licensee of the Tuschl I patent applications from Max
Planck, MIT and Whitehead, and of the Tuschl II patent
applications from Max Planck.
The complaint seeks to enjoin the defendants from taking any
further action in connection with the prosecution of any Tuschl
I application, a declaratory judgment and unspecified monetary
damages. In August 2009, the court denied our motion for a
preliminary injunction. In addition, in August 2009, Whitehead
and UMass filed counterclaims against us and Max Planck,
including for breach of contract. A trial on the merits was
originally scheduled to begin in February 2010. In January 2010,
we and Max Planck filed a motion for leave to file an amended
complaint expanding upon the allegations in the original
complaint. In January 2010, the court granted this motion
allowing our amended complaint and postponed the start of the
trial. We currently expect the trial to start in June 2010.
In addition, in September 2009, the USPTO granted Max
Plancks petition to revoke power of attorney in connection
with the prosecution of the Tuschl I patent application. This
action prevents the defendants from filing any papers with the
USPTO in connection with further prosecution of the Tuschl I
patent application without the agreement of Max Planck.
Whiteheads petition to overturn the ruling on Max
Plancks petition was denied.
Although we, along with Max Planck, are vigorously asserting our
rights in this case, litigation is subject to inherent
uncertainty and a court could ultimately rule against us. In
addition, litigation is costly and may divert the attention of
our management and other resources that would otherwise be
engaged in running our business.
Competition
The pharmaceutical marketplace is extremely competitive, with
hundreds of companies competing to discover, develop and market
new drugs. We face a broad spectrum of current and potential
competitors, ranging from very large, global pharmaceutical
companies with significant resources, to other biotechnology
companies with resources and expertise comparable to our own and
to smaller biotechnology companies with fewer resources and
expertise than we have. We believe that for most or all of our
drug development programs, there will be one or more competing
programs under development at other companies. In many cases,
the companies with competing programs will have access to
greater resources and expertise than we do and may be more
advanced in those programs.
31
The competition we face can be grouped into three broad
categories:
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other companies working to develop RNAi therapeutic products;
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companies developing technology known as antisense, which, like
RNAi, attempts to silence the activity of specific genes by
targeting the mRNAs copied from them; and
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marketed products and development programs for therapeutics that
treat the same diseases for which we may also be developing
treatments.
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We are aware of several other companies that are working to
develop RNAi therapeutic products. Some of these companies are
seeking, as we are, to develop chemically synthesized siRNAs as
drugs. Others are following a gene therapy approach, with the
goal of treating patients not with synthetic siRNAs but with
synthetic, exogenously-introduced genes designed to produce
siRNA-like molecules within cells.
Companies working on chemically synthesized siRNAs include
Merck & Co., Inc., or Merck, through its subsidiary
Sirna Therapeutics, Inc., or Sirna, Roche, Takeda, Kyowa Hakko
Kirin, Pfizer Inc.s Research Technology Center, MDRNA,
Inc., Calando, Quark, Silence Therapeutics plc, RXi
Pharmaceuticals Corporation, Tekmira, Sylentis S.A., Dicerna
Pharmaceuticals, Inc., Opko Health, Inc., ZaBeCor
Pharmaceuticals and Abbott Laboratories. Many of these companies
have licensed our intellectual property.
Companies working on gene therapy approaches to RNAi
therapeutics include Benitec, Cequent Pharmaceuticals, Inc. and
Targeted Genetics Corporation.
Companies working on microRNA-based therapeutics include Rosetta
Genomics, Santaris Pharma A/S, miRagen Therapeutics, Inc. and
Asuragen, Inc.
Antisense technology uses short, single-stranded, DNA-like
molecules to block mRNAs encoding specific proteins. An
antisense oligonucleotide, or ASO, contains a sequence of bases
complementary to a sequence within its target mRNA, enabling it
to attach to the mRNA by base-pairing. The attachment of the ASO
may lead to breakdown of the mRNA, or may physically block the
mRNA from associating with the protein synthesis machinery of
the cell. In either case, production of the protein encoded by
the mRNA may be reduced. Typically, the backbone of an ASO, the
linkages that hold its constituent bases together, will carry a
number of chemical modifications that do not exist in naturally
occurring DNA. These modifications are intended to improve the
stability and pharmaceutical properties of the ASO.
While we believe that RNAi drugs may potentially have
significant advantages over ASOs, including greater potency and
specificity, others are developing ASO drugs that are currently
at a more advanced stage of development than RNAi drugs. For
example, Isis has developed an ASO drug,
Vitravene®,
which is currently on the market, and has several ASO product
candidates in clinical trials. In addition, a number of other
companies have product candidates in various stages of
pre-clinical and clinical development. Included in these
companies are Genta Incorporated and AVI BioPharma, Inc. Because
of their later stage of development, ASOs, rather than siRNAs,
may become the preferred technology for drugs that target mRNAs
in order to turn off the activity of specific genes.
The competitive landscape continues to expand and we expect that
additional companies will initiate programs focused on the
development of RNAi therapeutic products using the approaches
described above as well as potentially new approaches that may
result in the more rapid development of RNAi therapeutics or
more effective technologies for RNAi drug development or
delivery.
Competing
Drugs for RSV
The only product currently approved for the treatment of RSV
infection is Ribavirin, which is marketed as Virazole by
Valeant. This is approved only for treatment of hospitalized
infants and young children with severe lower respiratory tract
infections due to RSV. While it is also used to treat RSV
infection in lung transplant patients, no randomized controlled
trials of Ribavirin have been conducted in the lung transplant
patient population. Ribavirin has been reported to have limited
efficacy and limited anti-viral activity against RSV. Moreover,
administration of the drug is complicated and requires elaborate
environmental reclamation devices because of
32
potential harmful effects on health care personnel exposed to
the drug. According to published reports by Valeant, sales of
Virazole were $12.3 million in 2008.
Other current RSV therapies consist of primarily treating the
symptoms or preventing the viral infection by using the
prophylactic drug Synagis (palivizumab), which is marketed by
MedImmune. Synagis is a neutralizing monoclonal antibody that
prevents the virus from infecting the cell by blocking the RSV F
protein. Synagis is injected intramuscularly once a month during
the RSV season to prevent infection. According to published
reports by MedImmune and AstraZeneca PLC, which acquired
MedImmune during 2007, worldwide Synagis sales were
approximately $1.1 billion in 2009. MedImmune is also
developing motavizumab (formerly known as
Numax®),
a humanized monoclonal antibody, which is being evaluated for
its potential to prevent serious lower respiratory tract disease
caused by RSV in pediatric patients at high risk of contracting
RSV disease. MedImmune submitted a biologic license application
for motavizumab to the FDA in early 2008 and received a complete
response letter from the FDA in November 2008 requesting
additional information. MedImmune submitted a response to the
FDA in December 2009. MedImmune has also initiated a Phase I/IIa
clinical trial of a live, attenuated intranasal vaccine in
development to help prevent severe RSV infections and has
several ongoing Phase I trials to evaluate a second live,
attenuated intranasal vaccine in development to help prevent
severe lower respiratory tract disease caused by RSV or
parainfluenza virus 3. In addition, Novartis has a small
molecule drug, RSV604, licensed from Arrow Therapeutics Ltd,
which was last reported as being in Phase II clinical
trials. RSV604 is an oral drug that targets the viral N protein.
Competing
Drugs for Liver Cancer
There are a variety of surgical procedures, chemotherapeutics,
radiation and other approaches that are used in the management
of both primary and secondary liver cancer. However, for the
majority of patients the prognosis remains poor with fatal
outcomes within several months of diagnosis. In November 2007,
the FDA approved Sorafenib, also called
Nexavar®,
for the treatment of un-resectable liver cancer. Nexavar is the
product of Onyx Pharmaceuticals, Inc., developed in
collaboration with Bayer Pharmaceuticals Corporation. Worldwide
sales of Nexavar were $843.5 million in 2009.
There are also a large number of drugs in various stages of
clinical development as cancer therapeutics, although the
efficacy and safety of these newer drugs are difficult to
ascertain at this point of development.
Competing
Drugs for TTR-Mediated Amyloidosis (ATTR)
Currently, liver transplantation is the only available treatment
option for FAP. However, only a subset of FAP patients qualify
for this costly and invasive procedure and, even following liver
transplantation, the disease continues to progress for many
patients, presumably due to normal TTR being deposited into
preexisting fibrils. Moreover, there is a shortage of donors to
provide healthy livers for transplantation into eligible
patients. There are no existing disease-modifying treatments to
address ATTR.
There are a few drugs in clinical development for the treatment
of ATTR. FoldRx Pharmaceuticals, Inc. recently completed a Phase
II/III trial of tafamidis for FAP and a Phase II trial of
tafamidis for FAC. Tafamidis is a small-molecule compound that
is intended to stabilize wild-type and variant TTR, prevent
misfolding and inhibit the formation of TTR amyloid fibrils. In
the Phase II/III study in patients suffering from FAP, tafamidis
was found to halt disease progression, reduce the burden of
disease after 18 months compared to placebo, and appeared
to be safe and well tolerated. Researchers at Boston University,
in collaboration with the National Institute of Neurological
Disorders and Stroke, are currently conducting a Phase II/III
study of diflunisal for the treatment of FAP. Diflunisal is a
commercially available non-steroidal anti-inflammatory agent
that has been found to stabilize TTR in vitro.
Competing
Drugs for Hypercholesterolemia
The current standard of care for patients with
hypercholesterolemia includes the use of several agents. Front
line therapy consists of HMG CoA reductase inhibitors, commonly
known as statins, which block production of cholesterol by the
liver and increase clearance of LDL-c from the bloodstream.
These include Lipitor, Zocor, Crestor and Pravachol. A different
class of compounds, which includes Zetia and Vytorin, function
by blocking cholesterol uptake from the diet and are utilized on
their own or in combination with statins. Each of Lipitor,
Crestor,
33
Zetia and Vytorin had sales of greater than $1.0 billion
during 2009, according to published reports. With regard to
future therapies, mipomersen, formerly ISIS 301012, is a
lipid-lowering drug targeting apolipoprotein B-100 being
developed by Isis in collaboration with Genzyme Corporation that
is currently in Phase III development. Top line data from a
Phase III study evaluating mipomersen in patients with
homozygous familial hypercholesterolemia demonstrated a 25%
reduction in LDL-c after 26 weeks of treatment versus three
percent for placebo (p < 0.001). This study also met
each of its three secondary endpoints of reduction in apoB,
total cholesterol and non-HDL cholesterol (all p < 0.001).
A weekly injectable therapeutic, mipomersen is being developed
primarily for patients at significant cardiovascular risk who
are unable to achieve target cholesterol levels with statins
alone or who are intolerant of statins.
Competing
Drugs for Huntingtons Disease (HD)
While certain drugs are currently used to treat some of the
symptoms of HD, no drug has been approved in the United States
for the treatment of the underlying disease. Current
pharmacological therapy for HD is limited to the management or
alleviation of neurobehavioral or movement abnormalities
associated with the disease. No disease modifying, disease
slowing or neuroprotective agent is currently approved or used
to treat HD, although there are several drugs in development.
Avicena Group Inc.s HD-02, an ultra-pure creatine, is a
candidate for prophylactic use for HD which has shown potential
neuroprotective properties in HD patients in Phase II
trials. Medivation Inc.s
Dimebontm
is an orally- available small molecule that is believed to block
the mitochondrial permeability transition pore, or MPTP, the
glutamate N-methyl D-asparate, or NMDA, receptor and
cholinesterase activity. The safety and efficacy of Dimebon is
currently being investigated in an international Phase III
trial, in collaboration with Pfizer Inc. Results from a
Phase II trial completed in early 2008 showed significantly
improved cognitive function in patients with
mild-to-moderate
HD over placebo.
Other
Competition
Finally, for many of the diseases that are the subject of our
RNAi therapeutics discovery programs, there are already drugs on
the market or in development. However, notwithstanding the
availability of these drugs or drug candidates, we believe there
currently exists sufficient unmet medical need to warrant the
advancement of RNAi therapeutic programs.
Regulatory
Matters
The research, testing, manufacture and marketing of drug
products and their delivery systems are extensively regulated in
the United States and the rest of the world. In the United
States, drugs are subject to rigorous regulation by the FDA. The
Federal Food, Drug, and Cosmetic Act and other federal and state
statutes and regulations govern, among other things, the
research, development, testing, manufacture, storage, record
keeping, packaging, labeling, promotion and advertising,
marketing and distribution of pharmaceutical products. Failure
to comply with the applicable regulatory requirements may
subject a company to a variety of administrative or
judicially-imposed sanctions and the inability to obtain or
maintain required approvals to test or market drug products.
These sanctions could include warning letters, product recalls,
product seizures, total or partial suspension of production or
distribution, clinical holds, injunctions, fines, civil
penalties or criminal prosecution.
The steps ordinarily required before a new pharmaceutical
product may be marketed in the United States include
non-clinical laboratory tests, animal tests and formulation
studies, the submission to the FDA of an IND, which must become
effective prior to commencement of clinical testing, adequate
and well-controlled clinical trials to establish that the drug
product is safe and effective for the indication for which FDA
approval is sought, submission to the FDA of a new drug
application, or NDA, satisfactory completion of an FDA
inspection of the manufacturing facility or facilities at which
the product is produced to assess compliance with current good
manufacturing practice, or cGMP, requirements and FDA review and
approval of the NDA. Satisfaction of FDA pre-market approval
requirements typically takes several years, but may vary
substantially depending upon the complexity of the product and
the nature of the disease. Government regulation may delay or
prevent marketing of potential products for a considerable
period of time and impose costly procedures on a companys
activities.
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Success in early stage clinical trials does not necessarily
assure success in later stage clinical trials. Data obtained
from clinical activities, including the data derived from our
clinical trials for ALN-RSV01 and ALV-VSP, is not always
conclusive and may be subject to alternative interpretations
that could delay, limit or even prevent regulatory approval.
Even if a product receives regulatory approval, later discovery
of previously unknown problems with a product, including new
safety risks, may result in restrictions on the product or even
complete withdrawal of the product from the market.
Non-clinical tests include laboratory evaluation of product
chemistry and formulation, as well as animal testing to assess
the potential safety and efficacy of the product. The conduct of
the non-clinical tests and formulation of compounds for testing
must comply with federal regulations and requirements. The
results of non-clinical testing are submitted to the FDA as part
of an IND, together with manufacturing information, analytical
and stability data, a proposed clinical trial protocol and other
information.
A 30-day
waiting period after the filing of an IND is required prior to
such application becoming effective and the commencement of
clinical testing in humans. If the FDA has not commented on, or
questioned, the application during this
30-day
waiting period, clinical trials may begin. If the FDA has
comments or questions, these must be resolved to the
satisfaction of the FDA prior to commencement of clinical
trials. The IND approval process can result in substantial delay
and expense. We, an institutional review board, or IRB, or the
FDA may, at any time, suspend, terminate or impose a clinical
hold on ongoing clinical trials. If the FDA imposes a clinical
hold, clinical trials cannot commence or recommence without FDA
authorization and then only under terms authorized by the FDA.
Clinical trials involve the administration of an investigational
new drug to healthy volunteers or patients under the supervision
of a qualified investigator. Clinical trials must be conducted
in compliance with federal regulations and requirements,
including good clinical practices, or GCPs, under protocols
detailing, among other things, the objectives of the trial and
the safety and effectiveness criteria to be evaluated. Each
protocol involving testing on human subjects in the United
States, or in foreign countries if such tests are intended to
support approval in the United States, must be submitted to the
FDA as part of the IND. The study protocol and informed consent
information for patients in clinical trials must be submitted to
IRBs for approval prior to initiation of the trial.
Clinical trials to support NDAs for marketing approval are
typically conducted in three sequential phases, which may
overlap or be combined. In Phase I, the initial
introduction of the drug into healthy human subjects or
patients, the drug is tested to primarily assess safety,
tolerability, pharmacokinetics, pharmacological actions and
metabolism associated with increasing doses. Phase II
usually involves trials in a limited patient population, to
assess the optimum dosage, identify possible adverse effects and
safety risks, and provide preliminary support for the efficacy
of the drug in the indication being studied.
If a compound demonstrates evidence of effectiveness and an
acceptable safety profile in Phase II trials,
Phase III trials are undertaken to further evaluate
clinical efficacy and to further test for safety in an expanded
patient population, typically at geographically dispersed
clinical trial sites. Phase I, Phase II or
Phase III testing of any product candidates may not be
completed successfully within any specified time period, if at
all. After successful completion of the required clinical
testing, generally an NDA is prepared and submitted to the FDA.
We believe that any RNAi product candidate we develop, whether
for RSV, liver cancers, ATTR, hypercholesterolemia, HD or the
various indications targeted in our pre-clinical discovery
programs, will be regulated as a new drug by the FDA. FDA
approval of an NDA is required before marketing of the product
may begin in the United States. The NDA must include the results
of extensive clinical and other testing, as described above, and
a compilation of data relating to the products
pharmacology, chemistry, manufacture and controls. In addition,
an NDA for a new active ingredient, new indication, new dosage
form, new dosing regimen, or new route of administration must
contain data assessing the safety and efficacy for the claimed
indication in all relevant pediatric subpopulations, and support
dosing and administration for each pediatric subpopulation for
which the drug is shown to be safe and effective. In some
circumstances, the FDA may grant deferrals for the submission of
some or all pediatric data, or full or partial waivers. The cost
of preparing and submitting an NDA is substantial. Under federal
law, NDAs are subject to substantial application user fees and
the sponsor of an approved NDA is also subject to annual product
and establishment user fees.
35
The FDA has 60 days from its receipt of an NDA to determine
whether the application will be accepted for filing based on the
agencys threshold determination that the NDA is
sufficiently complete to permit substantive review. Once the
submission is accepted for filing, the FDA begins an in-depth
review of the NDA. The review process is often significantly
extended by FDA requests for additional information or
clarification regarding information already provided in the
submission. The FDA may also refer applications for novel drug
products or drug products that present difficult questions of
safety or efficacy to an advisory committee, typically a panel
that includes clinicians and other experts, for review,
evaluation and a recommendation as to whether the application
should be approved. The FDA is not bound by the recommendation
of an advisory committee. The FDA normally also will conduct a
pre-approval inspection to ensure the manufacturing facility,
methods and controls are adequate to preserve the drugs
identity, strength, quality, purity and stability, and are in
compliance with regulations governing cGMPs.
If the FDA evaluation of the NDA and the inspection of
manufacturing facilities are favorable, the FDA may issue an
approval letter, which authorizes commercial marketing of the
drug with specific prescribing information for a specific
indication. As a condition of NDA approval, the FDA may require
post-approval testing, including Phase IV trials, and
surveillance to monitor the drugs safety or efficacy and
may impose other conditions, including labeling restrictions,
which can materially impact the potential market and
profitability of the drug. Once granted, product approvals may
be withdrawn if compliance with regulatory standards is not
maintained or problems are identified following initial
marketing.
While we believe that any RNAi therapeutic we develop will be
regulated as a new drug under the Federal Food, Drug, and
Cosmetic Act, the FDA could decide to regulate certain RNAi
therapeutic products as biologics under the Public Health
Service Act. Biologics must have a biologics license
application, or BLA, approved prior to commercialization. Like
NDAs, BLAs are subject to user fees. To obtain BLA approval, an
applicant must provide non-clinical and clinical evidence and
other information to demonstrate that the biologic product is
safe, pure and potent, and like NDAs, must complete clinical
trials that are typically conducted in three sequential phases
(Phase I, II and III). Additionally, the applicant
must demonstrate that the facilities in which the product is
manufactured, processed, packaged or held meet standards,
including cGMPs and any additional standards in the license
designed to ensure its continued safety, purity and potency.
Biologics establishments are subject to pre-approval
inspections. The review process for BLAs is also time consuming
and uncertain, and BLA approval may be conditioned on
post-approval testing and surveillance. Once granted, BLA
approvals may be suspended or revoked under certain
circumstances, such as if the product fails to conform to the
standards established in the license.
Once an NDA or BLA is approved, a product will be subject to
certain post-approval requirements, including requirements for
adverse event reporting, submission of periodic reports,
recordkeeping, product sampling and distribution. Additionally,
the FDA also strictly regulates the promotional claims that may
be made about prescription drug products and biologics. In
particular, a drug or biologic may not be promoted for uses that
are not approved by the FDA as reflected in the products
approved labeling. In addition, the FDA requires substantiation
of any claims of superiority of one product over another,
including that such claims be proven by adequate and
well-controlled
head-to-head
clinical trials. To the extent that market acceptance of our
products may depend on their superiority over existing
therapies, any restriction on our ability to advertise or
otherwise promote claims of superiority, or requirements to
conduct additional expensive clinical trials to provide proof of
such claims, could negatively affect the sales of our products
or our costs. We must also notify the FDA of any change in an
approved product beyond variations already allowed in the
approval. Certain changes to the product, its labeling or its
manufacturing require prior FDA approval and may require the
conduct of further clinical investigations to support the
change. Such approvals may be expensive and time-consuming and,
if not approved, the FDA will not allow the product to be
marketed as modified.
If the FDAs evaluation of the NDA or BLA submission or
manufacturing facilities is not favorable, the FDA may refuse to
approve the NDA or BLA or issue a complete response letter. The
complete response letter describes the deficiencies that the FDA
has identified in an application and, when possible, recommends
actions that the applicant might take to place the application
in condition for approval. Such actions may include, among other
things, conducting additional safety or efficacy studies after
which the sponsor may resubmit the application for further
review. Even with the completion of this additional testing or
the submission of additional requested
36
information, the FDA ultimately may decide that the application
does not satisfy the regulatory criteria for approval. With
limited exceptions, the FDA may withhold approval of an NDA or
BLA regardless of prior advice it may have provided or
commitments it may have made to the sponsor.
Some of our product candidates may need to be administered using
specialized drug delivery systems. We may rely on drug delivery
systems that are already approved to deliver drugs like ours to
similar physiological sites or, in some instances, we may need
to modify the design or labeling of the legally available device
for delivery of our product candidate. In such an event, the FDA
may regulate the product as a combination product or require
additional approvals or clearances for the modified device. In
addition, to the extent the delivery device is owned by another
company, we would need that companys cooperation to
implement the necessary changes to the device and to obtain any
additional approvals or clearances. Obtaining such additional
approvals or clearances, and cooperation of other companies,
when necessary, could significantly delay, and increase the cost
of obtaining marketing approval, which could reduce the
commercial viability of a product candidate. To the extent that
we rely on previously unapproved drug delivery systems, we may
be subject to additional testing and approval requirements from
the FDA above and beyond those described above.
Once an NDA or BLA is approved, the product covered thereby
becomes a listed drug that can, in turn, be cited by potential
competitors in support of approval of an abbreviated new drug
application, or ANDA, upon expiration of relevant patents, if
any. An approved ANDA provides for marketing of a drug product
that has the same active ingredients in the same strength,
dosage form and route of administration as the listed drug and
has been shown through bioequivalence testing to be
therapeutically equivalent to the listed drug. There is no
requirement, other than the requirement for bioequivalence
testing, for an ANDA applicant to conduct or submit results of
non-clinical or clinical tests to prove the safety or
effectiveness of its drug product. Drugs approved in this way
are commonly referred to as generic equivalents to the listed
drug, are listed as such by the FDA and can often be substituted
by pharmacists under prescriptions written for the original
listed drug.
Federal law provides for a period of three years of exclusivity
following approval of a listed drug that contains previously
approved active ingredients but is approved in a new dosage,
dosage form, route of administration or combination, or for a
new use, if the FDA deems that the sponsor was required to
provide support from new clinical trials to obtain such
marketing approval. During such three-year exclusivity period,
the FDA cannot grant approval of an ANDA to commercially
distribute a generic version of the drug based on that listed
drug. However, the FDA can approve generic or other versions of
that listed drug, such as a drug that is the same in every way
but its indication for use, and thus the value of such
exclusivity may be undermined. Federal law also provides a
period of up to five years exclusively following approval of a
drug containing no previously approved active ingredients,
during which ANDAs for generic versions of those drugs cannot be
submitted unless the submission accompanies a challenge to a
listed patent, in which case the submission may be made four
years following the original product approval.
Additionally, in the event that the sponsor of the listed drug
has properly informed the FDA of patents covering its listed
drug, applicants submitting an ANDA referencing that drug are
required to make one of four patent certifications, including
certifying that it believes one or more listed patents are
invalid or not infringed. If an applicant certifies invalidity
or non-infringement, it is required to provide notice of its
filing to the NDA sponsor and the patent holder. If the patent
holder then initiates a suit for patent infringement against the
ANDA sponsor within 45 days of receipt of the notice, the
FDA cannot grant effective approval of the ANDA until either
30 months have passed or there has been a court decision
holding that the patents in question are invalid, unenforceable
or not infringed. If the patent holder does not initiate a suit
for patent infringement within the 45 days, the ANDA may be
approved immediately upon successful completion of FDA review,
unless blocked by a regulatory exclusivity period. If the ANDA
applicant certifies that it does not intend to market its
generic product before some or all listed patents on the listed
drug expire, then the FDA cannot grant effective approval of the
ANDA until those patents expire. The first of the ANDA
applicants submitting substantially complete applications
certifying that one or more listed patents for a particular
product are invalid or not infringed may qualify for an
exclusivity period of 180 days running from when the
generic product is first marketed, during which subsequently
submitted ANDAs cannot be granted effective approval. The
180-day
generic exclusivity can be forfeited in various ways, including
if the first applicant does not market its product within
specified statutory timelines. If more than one applicant files
a substantially complete ANDA on the same day, each such first
applicant will be entitled to share the
180-day
37
exclusivity period, but there will only be one such period,
beginning on the date of first marketing by any of the first
applicants.
From time to time, legislation is drafted and introduced in
Congress that could significantly change the statutory
provisions governing the approval, manufacturing and marketing
of drug products. In addition, FDA regulations and guidance are
often revised or reinterpreted by the agency in ways that may
significantly affect our business and development of our product
candidates and any products that we may commercialize. It is
impossible to predict whether additional legislative changes
will be enacted, or FDA regulations, guidance or interpretations
changed, or what the impact of any such changes may be.
Foreign
Regulation of New Drug Compounds
In addition to regulations in the United States, we are subject
to a variety of regulations in other jurisdictions governing,
among other things, clinical trials and any commercial sales and
distribution of our products.
Whether or not we obtain FDA approval for a product, we must
obtain the requisite approvals from regulatory authorities in
all or most foreign countries prior to the commencement of
clinical trials or marketing of the product in those countries.
Certain countries outside of the United States have a similar
process that requires the submission of a clinical trial
application much like the IND prior to the commencement of human
clinical trials. In Europe, for example, a clinical trial
application, or CTA, must be submitted to each countrys
national health authority and an independent ethics committee,
much like the FDA and IRB, respectively. Once the CTA is
approved in accordance with a countrys requirements,
clinical trial development may proceed. Similarly, all clinical
trials in Australia require review and approval of clinical
trial proposals by an ethics committee, which provides a
combined ethical and scientific review process.
The requirements and process governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary from
country to country. In all cases, the clinical trials must be
conducted in accordance with GCP, which have their origin in the
World Medical Associations Declaration of Helsinki, the
applicable regulatory requirements, and guidelines developed by
the International Conference on Harmonization, or ICH, for GCP
practices in clinical trials.
The approval procedure also varies among countries and can
involve requirements for additional testing. The time required
may differ from that required for FDA approval and may be longer
than that required to obtain FDA approval. Although there are
some procedures for unified filings in the EU, in general, each
country has its own procedures and requirements, many of which
are time consuming and expensive. Thus, there can be substantial
delays in obtaining required approvals from foreign regulatory
authorities after the relevant applications are filed.
In Europe, marketing authorizations may be submitted under a
centralized or decentralized procedure. The centralized
procedure is mandatory for the approval of biotechnology and
many pharmaceutical products and provides for the grant of a
single marketing authorization that is valid in all EU member
states. The decentralized procedure is a mutual recognition
procedure that is available at the request of the applicant for
medicinal products that are not subject to the centralized
procedure. We strive to choose the appropriate route of European
regulatory filing to accomplish the most rapid regulatory
approvals. However, our chosen regulatory strategy may not
secure regulatory approvals on a timely basis or at all.
If we fail to comply with applicable foreign regulatory
requirements, we may be subject to, among other things, fines,
suspension or withdrawal of regulatory approvals, product
recalls, seizure of products, operating restrictions and
criminal prosecution.
Pharmaceutical
Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and
reimbursement status of any drug products for which we obtain
regulatory approval. In the United States and markets in other
countries, sales of any products for which we may receive
regulatory approval for commercial sale will depend in part on
the availability of reimbursement from third party payors. Third
party payors include government health administrative
authorities, managed care providers, private health insurers and
other organizations. The process for determining whether a payor
will provide coverage for a drug product may be separate from
the process for setting the price or reimbursement rate
38
that the payor will pay for the drug product. Third party payors
may limit coverage to specific drug products on an approved
list, or formulary, which might not include all of the
FDA-approved drugs for a particular indication. These third
party payors are increasingly challenging the price and
examining the medical necessity and cost-effectiveness of
medical products and services, in addition to their safety and
efficacy. In addition, significant uncertainty exists as to the
reimbursement status of newly approved healthcare product
candidates. We may need to conduct expensive pharmacoeconomic
studies in order to demonstrate the medical necessity and
cost-effectiveness of our products, in addition to the costs
required to obtain FDA approvals. Our product candidates may not
be considered medically necessary or cost-effective. A
payors decision to provide coverage for a drug product
does not imply that an adequate reimbursement rate will be
approved. Adequate third party reimbursement may not be
available to enable us to maintain price levels sufficient to
realize an appropriate return on our investment in product
development.
Federal, state and local governments in the United States
continue to consider legislation to limit the growth of
healthcare costs, including the cost of prescription drugs.
Future legislation could limit payments for pharmaceuticals such
as the drug candidates that we are developing.
Different pricing and reimbursement schemes exist in other
countries. In the European Community, governments influence the
price of pharmaceutical products through their pricing and
reimbursement rules and control of national health care systems
that fund a large part of the cost of those products to
consumers. Some jurisdictions operate systems under which
products may be marketed only after a reimbursement price has
been agreed. To obtain reimbursement or pricing approval, some
of these countries may require the completion of clinical trials
that compare the cost-effectiveness of a particular product
candidate to currently available therapies. Other member states
allow companies to fix their own prices for medicines, but
monitor and control company profits. The downward pressure on
health care costs in general, particularly prescription drugs,
has become very intense. As a result, increasingly high barriers
are being erected to the entry of new products. In addition, in
some countries, cross-border imports from low-priced markets
exert a commercial pressure on pricing within a country.
The marketability of any products for which we receive
regulatory approval for commercial sale may suffer if the
government and third party payors fail to provide adequate
coverage and reimbursement. In addition, an increasing emphasis
on managed care in the United States has increased and we expect
will continue to increase the pressure on pharmaceutical
pricing. Coverage policies and third party reimbursement rates
may change at any time. Even if favorable coverage and
reimbursement status is attained for one or more products for
which we receive regulatory approval, less favorable coverage
policies and reimbursement rates may be implemented in the
future.
Hazardous
Materials
Our research and development processes involve the controlled
use of hazardous materials, chemicals and radioactive materials
and produce waste products. We are subject to federal, state and
local laws and regulations governing the use, manufacture,
storage, handling and disposal of hazardous materials and waste
products. We do not expect the cost of complying with these laws
and regulations to be material.
Manufacturing
We have no commercial manufacturing capabilities. We may
manufacture drug substance for use in
IND-enabling
toxicology studies in animals at our own facility, but we have
not manufactured any such material to date and we do not
anticipate manufacturing the substantial portion of such
material or any drug substance or finished product for human
clinical use ourselves. We have contracted with several
third-party contract manufacturing organizations for the supply
of drug substance and finished product to meet our testing needs
for pre-clinical toxicology and clinical testing. Commercial
quantities of any drugs that we may seek to develop will have to
be manufactured in facilities, and by processes, that comply
with FDA regulations and other federal, state and local
regulations, as well as comparable foreign regulations. We plan
to rely on third parties to manufacture commercial quantities of
drug substance and finished product for any product candidate
that we successfully develop.
Under our agreements with Tekmira, we are obligated to utilize
Tekmira for the manufacture of all LNP-formulated product
candidates covered by Tekmiras intellectual property
beginning during pre-clinical development and continuing through
Phase II clinical trials. During 2009, we and Tekmira entered
into a
39
manufacturing and supply agreement under which we are committed
to pay Tekmira a minimum of CAD$11.2 million (representing
U.S.$9.2 million at the time of execution) through December 2011
for manufacturing services.
We believe we have sufficient manufacturing capacity through our
third-party contract manufacturers to meet our current research
and clinical needs. We believe that we have established, or will
be able to develop or acquire, sufficient supply capacity to
meet our anticipated needs. We also believe that with reasonably
anticipated benefits from increases in scale and improvements in
chemistry, we will be able to manufacture our product candidates
at commercially competitive prices.
Scientific
Advisors
We seek advice from our scientific advisory board, which
consists of a number of leading scientists and physicians, on
scientific and medical matters. Our scientific advisory board
meets regularly to assess:
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our research and development programs;
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the design and implementation of our clinical programs;
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our patent and publication strategies;
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new technologies relevant to our research and development
programs; and
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specific scientific and technical issues relevant to our
business.
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The current members of our scientific advisory board are:
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Name
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Position/Institutional Affiliation
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David P. Bartel, Ph.D.
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Member/Whitehead Institute for Biomedical Research;
Professor/Massachusetts Institute of Technology;
Investigator/Howard Hughes Medical Institute
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Fritz Eckstein, Ph.D.
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Professor/Max Planck Institute for Experimental Medicine
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Robert S. Langer, Ph.D.
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Institute Professor/Massachusetts Institute of Technology
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Judy Lieberman, M.D., Ph.D.
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Senior Investigator/Immune Disease
Institute Harvard Medical School;
Professor/Harvard Medical School;
Director, Division of AIDS/Harvard Medical School
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Stephen N. Oesterle, M.D.*
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Senior Vice President for Medicine and Technology/Medtronic, Inc.
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Paul R. Schimmel, Ph.D.
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Ernest and Jean Hahn Professor/Skaggs Institute for Chemical
Biology, The Scripps Research Institute
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Phillip A. Sharp, Ph.D.
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Institute Professor/The Koch Institute for Integrative Cancer
Research, Massachusetts Institute of Technology
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Markus Stoffel, M.D., Ph.D.
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Professor/Institute of Molecular Systems Biology, Swiss Federal
Institute of Technology (ETH) Zurich
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Thomas H. Tuschl, Ph.D.
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Professor/Rockefeller University;
Investigator/Howard Hughes Medical Institute
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Phillip D. Zamore, Ph.D.
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Gretchen Stone Cook Professor/University of Massachusetts
Medical School;
Investigator/Howard Hughes Medical Institute
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Dr. Oesterle participates as an observer on our scientific
advisory board. |
Employees
As of January 31, 2010, we had 178 employees, 147 of
whom were engaged in research and development. None of our
employees are represented by a labor union or covered by a
collective bargaining agreement, nor have we experienced work
stoppages. We believe that relations with our employees are good.
40
Financial
Information About Geographic Areas
See the section entitled Segment Information
appearing in Note 2 to our consolidated financial
statements for financial information about geographic areas. The
Notes to our consolidated financial statements are contained in
Part II, Item 8 of this annual report on
Form 10-K.
Corporate
Information
The company comprises four entities, Alnylam Pharmaceuticals,
Inc. and three wholly owned subsidiaries (Alnylam U.S., Inc.,
Alnylam Europe AG and Alnylam Securities Corporation). Alnylam
Pharmaceuticals, Inc. is a Delaware corporation that was formed
in May 2003. Alnylam U.S., Inc. is also a Delaware corporation
that was formed in June 2002. Alnylam Securities Corporation is
a Massachusetts corporation that was formed in December 2006.
Alnylam Europe AG, which was incorporated in Germany in June
2000 under the name Ribopharma AG, was acquired by Alnylam
Pharmaceuticals, Inc. in July 2003. Our principal executive
office is located at 300 Third Street, Cambridge, Massachusetts
02142, and our telephone number is
(617) 551-8200.
Investor
Information
We maintain an internet website at
http://www.alnylam.com.
The information on our website is not incorporated by reference
into this annual report on
Form 10-K
and should not be considered to be a part of this annual report
on
Form 10-K.
Our website address is included in this annual report on
Form 10-K
as an inactive technical reference only. Our reports filed or
furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, including our annual reports on
Form 10-K,
our quarterly reports on
Form 10-Q
and our current reports on
Form 8-K,
and amendments to those reports, are accessible through our
website, free of charge, as soon as reasonably practicable after
these reports are filed electronically with, or otherwise
furnished to, the Securities and Exchange Commission, or SEC. We
also make available on our website the charters of our audit
committee, compensation committee and nominating and corporate
governance committee, our corporate governance guidelines and
our code of business conduct and ethics. In addition, we intend
to disclose on our web site any amendments to, or waivers from,
our code of business conduct and ethics that are required to be
disclosed pursuant to the SEC rules.
You may read and copy any materials we file with the SEC at the
SECs Public Reference Room at 100 F Street, NE,
Washington, DC 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC also maintains an Internet website that contains
reports, proxy and information statements, and other information
regarding Alnylam and other issuers that file electronically
with the SEC. The SECs Internet website address is
http://www.sec.gov.
Executive
Officers of the Registrant
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Name
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Age
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Position
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John M. Maraganore, Ph.D.
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Chief Executive Officer and Director
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Barry E. Greene
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President and Chief Operating Officer
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Akshay K. Vaishnaw, M.D., Ph.D.
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Senior Vice President, Clinical Research
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Patricia L. Allen
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Vice President of Finance and Treasurer
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John M. Maraganore, Ph.D. has served as our Chief
Executive Officer and as a member of our board of directors
since December 2002. Dr. Maraganore also served as our
President from December 2002 to December 2007. From April 2000
to December 2002, Dr. Maraganore served as Senior Vice
President, Strategic Product Development at Millennium
Pharmaceuticals, Inc., a biopharmaceutical company.
Dr. Maraganore serves as a member of the board of directors
of the Biotechnology Industry Organization.
Barry E. Greene has served as our President and Chief
Operating Officer since December 2007, as our Chief Operating
Officer since he joined us in October 2003, and from February
2004 through December 2005, as our Treasurer. From February 2001
to September 2003, Mr. Greene served as General Manager of
Oncology at Millennium Pharmaceuticals, Inc., a
biopharmaceutical company. Mr. Greene serves as a member of
the board of directors of Acorda Therapeutics, Inc., a
biotechnology company.
41
Akshay K. Vaishnaw, M.D., Ph.D. has served
as our Senior Vice President, Clinical Research since December
2008, and prior to that served as our Vice President, Clinical
Research from the time he joined us in January 2006. From
December 1998 through December 2005, Dr. Vaishnaw held
various positions at Biogen Idec Inc. (formerly Biogen, Inc.), a
biopharmaceutical company, most recently as Senior Director,
Translational Medicine. Dr. Vaishnaw is a Member of the
Royal College of Physicians, United Kingdom.
Patricia L. Allen has served as our Vice President of
Finance since she joined us in May 2004, and as our Treasurer
since January 2006. From March 1992 to May 2004, Ms. Allen
held various positions at Alkermes, Inc., a biopharmaceutical
company, most recently as Director of Finance. Ms. Allen is
a certified public accountant.
42
Our business is subject to numerous risks. We caution you
that the following important factors, among others, could cause
our actual results to differ materially from those expressed in
forward-looking statements made by us or on our behalf in
filings with the SEC, press releases, communications with
investors and oral statements. All statements other than
statements relating to historical matters should be considered
forward-looking statements. When used in this report, the words
believe, expect, anticipate,
will, plan, target,
goal and similar expressions are intended to
identify forward-looking statements, although not all
forward-looking statements contain these words. Any or all of
our forward-looking statements in this annual report on
Form 10-K
and in any other public statements we make may turn out to be
wrong. They can be affected by inaccurate assumptions we might
make or by known or unknown risks and uncertainties. Many
factors mentioned in the discussion below will be important in
determining future results. Consequently, no forward-looking
statement can be guaranteed. Actual future results may vary
materially from those anticipated in forward-looking statements.
We explicitly disclaim any obligation to update any
forward-looking statements to reflect events or circumstances
that arise after the date hereof. You are advised, however, to
consult any further disclosure we make in our reports filed with
the SEC.
Risks
Related to Our Business
Risks
Related to Being an Early Stage Company
Because
we have a short operating history, there is a limited amount of
information about us upon which you can evaluate our business
and prospects.
Our operations began in 2002 and we have only a limited
operating history upon which you can evaluate our business and
prospects. In addition, as an early-stage company, we have
limited experience and have not yet demonstrated an ability to
successfully overcome many of the risks and uncertainties
frequently encountered by companies in new and rapidly evolving
fields, particularly in the biopharmaceutical area. For example,
to execute our business plan, we will need to successfully:
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execute product development activities using unproven
technologies related to both RNAi and to the delivery of siRNAs
to the relevant cell tissue;
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build and maintain a strong intellectual property portfolio;
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gain regulatory acceptance for the development of our product
candidates and market success for any products we commercialize;
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develop and maintain successful strategic alliances; and
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manage our spending as costs and expenses increase due to
clinical trials, regulatory approvals and commercialization.
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If we are unsuccessful in accomplishing these objectives, we may
not be able to develop product candidates, commercialize
products, raise capital, expand our business or continue our
operations.
The
approach we are taking to discover and develop novel RNAi
therapeutics is unproven and may never lead to marketable
products.
We have concentrated our efforts and therapeutic product
research on RNAi technology, and our future success depends on
the successful development of this technology and products based
on it. Neither we nor any other company has received regulatory
approval to market therapeutics utilizing siRNAs, the class of
molecule we are trying to develop into drugs. The scientific
discoveries that form the basis for our efforts to discover and
develop new drugs are relatively new. The scientific evidence to
support the feasibility of developing drugs based on these
discoveries is both preliminary and limited. Skepticism as to
the feasibility of developing RNAi therapeutics has been
expressed in scientific literature. For example, there are
potential challenges to achieving safe RNAi therapeutics based
on the so-called off-target effects and activation of the
interferon response.
43
Relatively few product candidates based on these discoveries
have ever been tested in animals or humans. siRNAs may not
naturally possess the inherent properties typically required of
drugs, such as the ability to be stable in the body long enough
to reach the tissues in which their effects are required, nor
the ability to enter cells within these tissues in order to
exert their effects. We currently have only limited data, and no
conclusive evidence, to suggest that we can introduce these
drug-like properties into siRNAs. We may spend large amounts of
money trying to introduce these properties, and may never
succeed in doing so. In addition, these compounds may not
demonstrate in patients the chemical and pharmacological
properties ascribed to them in laboratory studies, and they may
interact with human biological systems in unforeseen,
ineffective or harmful ways. As a result, we may never succeed
in developing a marketable product, we may not become profitable
and the value of our common stock will decline.
Further, our focus solely on RNAi technology for developing
drugs, as opposed to multiple, more proven technologies for drug
development, increases the risks associated with the ownership
of our common stock. If we are not successful in developing a
product candidate using RNAi technology, we may be required to
change the scope and direction of our product development
activities. In that case, we may not be able to identify and
implement successfully an alternative product development
strategy.
Risks
Related to Our Financial Results and Need for
Financing
We
have a history of losses and may never become and remain
consistently profitable.
We have experienced significant operating losses since our
inception. As of December 31, 2009, we had an accumulated
deficit of $299.8 million. To date, we have not developed
any products nor generated any revenues from the sale of
products. Further, we do not expect to generate any such
revenues in the foreseeable future. We expect to continue to
incur annual net operating losses over the next several years
and will require substantial resources over the next several
years as we expand our efforts to discover, develop and
commercialize RNAi therapeutics. We anticipate that the majority
of any revenue we generate over the next several years will be
from alliances with pharmaceutical and biotechnology companies
or funding from contracts with the government or foundations,
but cannot be certain that we will be able to secure or maintain
these alliances or contracts, or meet the obligations or achieve
any milestones that we may be required to meet or achieve to
receive payments.
We believe that to become and remain consistently profitable, we
must succeed in discovering, developing and commercializing
novel drugs with significant market potential. This will require
us to be successful in a range of challenging activities,
including pre-clinical testing and clinical trial stages of
development, obtaining regulatory approval for these novel drugs
and manufacturing, marketing and selling them. We may never
succeed in these activities, and may never generate revenues
that are significant enough to achieve profitability. Even if we
do achieve profitability, we may not be able to sustain or
increase profitability on a quarterly or annual basis. If we
cannot become and remain consistently profitable, the market
price of our common stock could decline. In addition, we may be
unable to raise capital, expand our business, diversify our
product offerings or continue our operations.
We
will require substantial additional funds to complete our
research and development activities and if additional funds are
not available, we may need to critically limit, significantly
scale back or cease our operations.
We have used substantial funds to develop our RNAi technologies
and will require substantial funds to conduct further research
and development, including pre-clinical testing and clinical
trials of any product candidates, and to manufacture and market
any products that are approved for commercial sale. Because the
successful development of our products is uncertain, we are
unable to estimate the actual funds we will require to develop
and commercialize them.
Our future capital requirements and the period for which we
expect our existing resources to support our operations may vary
from what we expect. We have based our expectations on a number
of factors, many of which are difficult to predict or are
outside of our control, including:
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our progress in demonstrating that siRNAs can be active as drugs;
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our ability to develop relatively standard procedures for
selecting and modifying siRNA product candidates;
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progress in our research and development programs, as well as
the magnitude of these programs;
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the timing, receipt and amount of milestone and other payments,
if any, from present and future collaborators, if any;
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the timing, receipt and amount of funding under current and
future government contracts, if any;
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our ability to maintain and establish additional collaborative
arrangements;
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the resources, time and costs required to initiate and complete
our pre-clinical and clinical trials, obtain regulatory
approvals, and obtain and maintain licenses to third-party
intellectual property;
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the resources, time and cost required for the preparation,
filing, prosecution, maintenance and enforcement of patent
claims;
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the costs associated with legal activities arising in the course
of our business activities;
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progress in the research and development programs of
Regulus; and
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the timing, receipt and amount of sales and royalties, if any,
from our potential products.
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If our estimates and predictions relating to these factors are
incorrect, we may need to modify our operating plan.
Even if our estimates are correct, we will be required to seek
additional funding in the future and intend to do so through
either collaborative arrangements, public or private equity
offerings or debt financings, or a combination of one or more of
these funding sources. Additional funds may not be available to
us on acceptable terms or at all. In addition, the terms of any
financing may adversely affect the holdings or the rights of our
stockholders. For example, if we raise additional funds by
issuing equity securities, further dilution to our stockholders
will result. In addition, our investor rights agreement with
Novartis provides Novartis with the right generally to maintain
its ownership percentage in us and our common stock purchase
agreement with Roche contains a similar provision. In May 2008,
Novartis purchased 213,888 shares of our common stock at a
purchase price of $25.29 per share. In May 2009, Novartis
purchased 65,922 shares of our common stock at a purchase
price of $17.50 per share. These purchases allowed Novartis to
maintain its ownership position of 13.4% of our outstanding
common stock. While the exercise of these rights by Novartis has
provided us with an aggregate of $6.6 million in cash, and
the exercise in the future by Novartis or Roche may provide us
with additional funding under some circumstances, this exercise
and any future exercise of these rights by Novartis or Roche
will also cause further dilution to our stockholders. Debt
financing, if available, may involve restrictive covenants that
could limit our flexibility in conducting future business
activities and, in the event of insolvency, would be paid before
holders of equity securities received any distribution of
corporate assets. If we are unable to obtain funding on a timely
basis, we may be required to significantly curtail one or more
of our research or development programs. We also could be
required to seek funds through arrangements with collaborators
or others that may require us to relinquish rights to some of
our technologies, product candidates or products that we would
otherwise pursue on our own.
If the
estimates we make, or the assumptions on which we rely, in
preparing our consolidated financial statements prove
inaccurate, our actual results may vary from those reflected in
our projections and accruals.
Our consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America. The preparation of these consolidated
financial statements requires us to make estimates and judgments
that affect the reported amounts of our assets, liabilities,
revenues and expenses, the amounts of charges accrued by us and
related disclosure of contingent assets and liabilities. We base
our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the
circumstances. We cannot assure you, however, that our
estimates, or the assumptions underlying them, will be correct.
45
The
investment of our cash, cash equivalents and marketable
securities are subject to risks which may cause losses and
affect the liquidity of these investments.
At December 31, 2009, we had $435.3 million in cash,
cash equivalents and marketable securities. We historically have
invested these amounts in corporate bonds, commercial paper,
securities issued by the U.S. government and municipal
obligations, certificates of deposit and money market funds
meeting the criteria of our investment policy, which is focused
on the preservation of our capital. These investments are
subject to general credit, liquidity, market and interest rate
risks, including the impact of U.S. sub-prime mortgage
defaults that have affected various sectors of the financial
markets and caused credit and liquidity issues. We may realize
losses in the fair value of these investments or a complete loss
of these investments, which would have a negative effect on our
consolidated financial statements. In addition, should our
investments cease paying or reduce the amount of interest paid
to us, our interest income would suffer. For example, due to
market conditions, interest rates have fallen, and accordingly,
our interest income decreased to $5.4 million for the year
ended December 31, 2009, from $14.4 million for the
year ended December 31, 2008. These market risks associated
with our investment portfolio may have an adverse effect on our
results of operations, liquidity and financial condition.
Risks
Related to Our Dependence on Third Parties
Our
collaboration with Novartis is important to our business. If
this collaboration is unsuccessful, Novartis terminates this
collaboration or this collaboration results in competition
between us and Novartis for the development of drugs
targeting the same diseases, our business could be adversely
affected.
In October 2005, we entered into a collaboration agreement with
Novartis. Under this agreement, Novartis can select up to 30
exclusive targets to include in the collaboration, which number
may be increased to 40 under certain circumstances and upon
additional payments. Novartis pays the costs to develop these
product candidates and will commercialize and market any
products derived from this collaboration. For RNAi therapeutic
products developed under the agreement, if any, we are entitled
to receive milestone payments upon achievement of certain
specified development and annual net sales events, up to an
aggregate of $75.0 million per therapeutic product, as well
as royalties on the annual net sales, if any. If Novartis fails
to successfully develop products using our technology, we may
not receive any additional milestone payments or any royalty
payments under this agreement. The Novartis agreement had an
initial term of three years, with an option for two additional
one-year extensions at the election of Novartis. In July 2009,
Novartis elected to further extend the term of our collaboration
agreement for the fifth and final planned year, through October
2010. Novartis may elect to terminate this collaboration prior
to expiration in the event of a material uncured breach by us.
Over the term of this agreement, we have received a substantial
amount of funding from Novartis. If this collaboration is
unsuccessful, if Novartis terminates this agreement prior to
expiration or if Novartis does not elect to exercise its
integration option described below, our business could be
adversely affected.
Our agreement with Novartis also provides Novartis with a
non-exclusive option to integrate into its operations our
intellectual property relating to RNAi technology, excluding any
technology related to delivery of nucleic acid based molecules.
Novartis may exercise this integration option at any point
during the research term, which term is currently expected to
expire in the fourth quarter of 2010. In connection with the
exercise of the integration option, Novartis would be required
to make additional payments to us totaling $100.0 million,
payable in full at the time of exercise, which payments would
include an option exercise fee, a milestone based on the overall
success of the collaboration and pre-paid milestones and
royalties that could become due as a result of future
development of products using our technology. This amount would
be offset by any license fees due to our licensors in accordance
with the applicable license agreements with those parties. In
addition, under this license grant, Novartis may be required to
make milestone and royalty payments to us in connection with the
development and commercialization of RNAi therapeutic products,
if any. The license grant under the integration option, if
exercised, would be structured similarly to our non-exclusive
platform licenses with Roche and Takeda. If Novartis elects to
exercise this option, Novartis could become a competitor of ours
in the development of RNAi-based drugs targeting the same
diseases that we choose to target. Novartis has significantly
greater financial resources and far more experience than we do
in developing and marketing drugs, which could put us at a
competitive disadvantage if we were to compete
46
with Novartis in the development of RNAi-based drugs targeting
the same disease. Accordingly, the exercise by Novartis of this
option could adversely affect our business.
Our agreement with Novartis allows us to continue to develop
products on an exclusive basis on our own with respect to
targets not selected by Novartis for inclusion in the
collaboration. We may need to form additional alliances to
develop products. However, our agreement with Novartis provides
Novartis with a right of first offer, for a defined term, in the
event that we propose to enter into an agreement with a third
party with respect to such targets. This right of first offer
may make it difficult for us to form future alliances around
specific targets with other parties.
Our
license and collaboration agreements with Roche and Takeda are
important to our business. If Roche and/or Takeda do not
successfully develop drugs pursuant to these agreements or these
agreements result in competition between us and Roche and/or
Takeda for the development of drugs targeting the same diseases,
our business could be adversely affected.
In July 2007, we entered into a license and collaboration
agreement with Roche. Under the license and collaboration
agreement we granted Roche a non-exclusive license to our
intellectual property to develop and commercialize therapeutic
products that function through RNAi, subject to our existing
contractual obligations to third parties. The license is limited
to the therapeutic areas of oncology, respiratory diseases,
metabolic diseases and certain liver diseases and may be
expanded to include up to 18 additional therapeutic areas,
comprising substantially all other fields of human disease, as
identified and agreed upon by the parties, upon payment to us by
Roche of an additional $50.0 million for each additional
therapeutic area, if any. In addition, in exchange for our
contributions under the collaboration agreement, for each RNAi
therapeutic product developed by Roche, its affiliates, or
sublicensees under the collaboration agreement, we are entitled
to receive milestone payments upon achievement of specified
development and sales events, totaling up to an aggregate of
$100.0 million per therapeutic target, together with
royalty payments based on worldwide annual net sales, if any. In
May 2008, we entered into a similar license and collaboration
agreement with Takeda, which is limited to the therapeutic areas
of oncology and metabolic diseases, and which may be expanded to
include up to 20 additional therapeutic areas, comprising
substantially all other fields of human disease, as identified
and agreed upon by the parties, upon payment to us by Takeda of
an additional $50.0 million for each additional therapeutic
area, if any. For each RNAi therapeutic product developed by
Takeda, its affiliates and sublicensees, we are entitled to
receive specified development and commercialization milestones,
totaling up to $171.0 million per product, together with
royalty payments based on worldwide annual net sales, if any. In
addition, we have agreed that for a period of five years, we
will not grant any other party rights to develop RNAi
therapeutics in the Asian territory.
If Roche or Takeda fails to successfully develop products using
our technology, we may not receive any milestone or royalty
payments under these agreements. In addition, even if Takeda is
not successful in its efforts, for a period of five years we
will be limited in our ability to form alliances with other
parties in the Asia territory. We also have the option under the
Takeda agreement, exercisable until the start of Phase III
development, to opt-in under a
50-50 profit
sharing agreement to the development and commercialization in
the United States of up to four Takeda licensed products, and
would be entitled to opt-in rights for two additional products
for each additional field expansion, if any, elected by Takeda
under the collaboration agreement. If Takeda fails to
successfully develop products, we may not realize any economic
benefit from these opt-in rights.
Finally, either Roche or Takeda could become a competitor of
ours in the development of RNAi-based drugs targeting the same
diseases that we choose to target. Each of these companies has
significantly greater financial resources than we do and has far
more experience in developing and marketing drugs, which could
put us at a competitive disadvantage if we were to compete with
either Roche or Takeda in the development of RNAi-based drugs
targeting the same disease.
47
We may
not be able to execute our business strategy if we are unable to
enter into alliances with other companies that can provide
business and scientific capabilities and funds for the
development and commercialization of our product candidates. If
we are unsuccessful in forming or maintaining these alliances on
favorable terms, our business may not succeed.
We do not have any capability for sales, marketing or
distribution and have limited capabilities for drug development.
In addition, we believe that other companies are expending
substantial resources in developing safe and effective means of
delivering siRNAs to relevant cell and tissue types.
Accordingly, we have entered into alliances with other companies
and collaborators that we believe can provide such capabilities,
and we intend to enter into additional alliances in the future.
For example, we intend to enter into (1) non-exclusive
platform alliances which will enable our collaborators to
develop RNAi therapeutics and will bring in additional funding
with which we can develop our RNAi therapeutics, and
(2) alliances to jointly develop specific product
candidates and to jointly commercialize RNAi therapeutics, if
they are approved,
and/or
ex-U.S. market geographic partnerships on specific RNAi
therapeutic programs. In such alliances, we may expect our
collaborators to provide substantial capabilities in delivery of
RNAi therapeutics to the relevant cell or tissue type, clinical
development, regulatory affairs,
and/or
marketing, sales and distribution. For example, under our
collaboration with Medtronic, we are jointly developing ALN-HTT,
an RNAi therapeutic for HD, which would be delivered using an
implanted infusion device developed by Medtronic. The success of
this collaboration will depend, in part, on Medtronics
expertise in the area of delivery of drugs by infusion device,
something that they have never done before with our product
candidates. In other alliances, we may expect our collaborators
to develop, market and sell certain of our product candidates.
We may have limited or no control over the development, sales,
marketing and distribution activities of these third parties.
Our future revenues may depend heavily on the success of the
efforts of these third parties. For example, we are jointly
developing and will commercialize certain RNAi products for RSV
with Cubist in North America. We will rely entirely on Cubist
for the development and commercialization of certain RNAi
products for RSV in the rest of the world outside of Asia, where
we will rely on Kyowa Hakko Kirin for development and
commercialization of any RNAi products for RSV. If Cubist and
Kyowa Hakko Kirin are not successful in their commercialization
efforts, our future revenues from RNAi therapeutics for RSV may
be adversely affected.
We may not be successful in entering into such alliances on
favorable terms due to various factors, including Novartis
right of first offer on our drug targets, our ability to
successfully demonstrate proof of concept for our technology in
man, our ability to demonstrate the safety and efficacy of our
specific drug candidates, and the strength of our intellectual
property. Even if we do succeed in securing such product
alliances, we may not be able to maintain them if, for example,
development or approval of a product candidate is delayed or
sales of an approved drug are disappointing. Furthermore, any
delay in entering into collaboration agreements could delay the
development and commercialization of our product candidates and
reduce their competitiveness even if they reach the market. Any
such delay related to our collaborations could adversely affect
our business.
For certain product candidates that we may develop, we have
formed collaborations to fund all or part of the costs of drug
development and commercialization, such as our collaborations
with Novartis, Roche, Takeda, Cubist, Medtronic and NIAID. We
may not, however, be able to enter into additional
collaborations, and the terms of any collaboration agreement we
do secure may not be favorable to us. If we are not successful
in our efforts to enter into future collaboration arrangements
with respect to a particular product candidate, we may not have
sufficient funds to develop that or any other product candidate
internally, or to bring any product candidates to market. If we
do not have sufficient funds to develop and bring our product
candidates to market, we will not be able to generate sales
revenues from these product candidates, and this will
substantially harm our business.
If any
collaborator terminates or fails to perform its obligations
under agreements with us, the development and commercialization
of our product candidates could be delayed or
terminated.
Our dependence on collaborators for capabilities and funding
means that our business could be adversely affected if any
collaborator terminates its collaboration agreement with us or
fails to perform its obligations under that agreement. Our
current or future collaborations, if any, may not be
scientifically or commercially successful. Disputes may arise in
the future with respect to the ownership of rights to technology
or products developed with collaborators, which could have an
adverse effect on our ability to develop and commercialize any
affected product candidate.
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Our current collaborations allow, and we expect that any future
collaborations will allow, either party to terminate the
collaboration for a material breach by the other party. Our
agreement with Kyowa Hakko Kirin for the development and
commercialization of RSV therapeutics for the treatment of RSV
infection in Japan and other major markets in Asia may be
terminated by Kyowa Hakko Kirin without cause upon
180-days
prior written notice to us, subject to certain conditions, and
our agreement with Cubist relating to the development and
commercialization of certain RSV therapeutics in territories
outside of Asia may be terminated by Cubist at any time upon as
little as three months prior written notice, if such
notice is given prior to the acceptance for filing of the first
application for regulatory approval of a licensed product. If we
were to lose a commercialization collaborator, we would have to
attract a new collaborator or develop internal sales,
distribution and marketing capabilities, which would require us
to invest significant amounts of financial and management
resources.
In addition, if a collaborator terminates its collaboration with
us, for breach or otherwise, it would be difficult for us to
attract new collaborators and could adversely affect how we are
perceived in the business and financial communities. A
collaborator, or in the event of a change in control of a
collaborator, the successor entity, could determine that it is
in its financial interest to:
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pursue alternative technologies or develop alternative products,
either on its own or jointly with others, that may be
competitive with the products on which it is collaborating with
us or which could affect its commitment to the collaboration
with us;
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pursue higher-priority programs or change the focus of its
development programs, which could affect the collaborators
commitment to us; or
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if it has marketing rights, choose to devote fewer resources to
the marketing of our product candidates, if any are approved for
marketing, than it does for product candidates developed without
us.
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If any of these occur, the development and commercialization of
one or more product candidates could be delayed, curtailed or
terminated because we may not have sufficient financial
resources or capabilities to continue such development and
commercialization on our own.
Regulus
is important to our business. If Regulus does not successfully
develop drugs pursuant to this license and collaboration
agreement or Regulus is sold to Isis or a third-party, our
business could be adversely affected.
In September 2007, we and Isis formed Regulus, of which we
currently own approximately 49%, to discover, develop and
commercialize microRNA-based therapeutics. Regulus is exploring
therapeutic opportunities that arise from abnormal expression or
mutations in microRNAs. Generally, we do not have rights to
pursue microRNA-based therapeutics independently of Regulus. If
Regulus is unable to discover, develop and commercialize
microRNA-based therapeutics, our business could be adversely
affected.
In addition, subject to certain conditions, we and Isis each
have the right to initiate a buy-out of Regulus assets,
including Regulus intellectual property and rights to
licensed intellectual property. Following the initiation of such
a buy-out, we and Isis will mutually determine whether to sell
Regulus to us, Isis or a third party. We may not have sufficient
funds to buy out Isis interest in Regulus and we may not
be able to obtain the financing to do so. In addition, Isis may
not be willing to sell their interest in Regulus. If Regulus is
sold to Isis or a third party, we may lose our rights to
participate in the development and commercialization of
microRNA-based therapeutics. If we and Isis are unable to
negotiate a sale of Regulus, Regulus will distribute and assign
its rights, interests and assets to us and Isis in accordance
with our percentage interests, except for Regulus
intellectual property and license rights, to which each of us
and Isis will receive co-exclusive rights, subject to certain
specified exceptions. In this event, we could face competition
from Isis in the development of microRNA-based therapeutics.
We
rely on third parties to conduct our clinical trials, and if
they fail to fulfill their obligations, our development plans
may be adversely affected.
We rely on independent clinical investigators, contract research
organizations and other third-party service providers to assist
us in managing, monitoring and otherwise carrying out our
clinical trials. We have and we plan to continue to contract
with certain third-parties to provide certain services,
including site selection, enrollment,
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monitoring and data management services. Although we depend
heavily on these parties, we do not control them and therefore,
we cannot be assured that these third-parties will adequately
perform all of their contractual obligations to us. If our
third-party service providers cannot adequately fulfill their
obligations to us on a timely and satisfactory basis or if the
quality and accuracy of our clinical trial data is compromised
due to failure to adhere to our protocols or regulatory
requirements or if such third-parties otherwise fail to meet
deadlines, our development plans may be delayed or terminated.
We
have very limited manufacturing experience or resources and we
must incur significant costs to develop this expertise or rely
on third parties to manufacture our products.
We have very limited manufacturing experience. Our internal
manufacturing capabilities are limited to small-scale production
of non-cGMP material for use in in vitro and in
vivo experiments. Some of our product candidates utilize
specialized formulations, such as liposomes or LNPs, whose
scale-up and
manufacturing could be very difficult. We also have very limited
experience in such
scale-up and
manufacturing, requiring us to depend on third parties, who
might not be able to deliver in a timely manner, or at all. In
order to develop products, apply for regulatory approvals and
commercialize our products, we will need to develop, contract
for, or otherwise arrange for the necessary manufacturing
capabilities. We may manufacture clinical trial materials
ourselves or we may rely on others to manufacture the materials
we will require for any clinical trials that we initiate. Only a
limited number of manufacturers supply synthetic siRNAs. We
currently rely on several contract manufacturers for our supply
of synthetic siRNAs. There are risks inherent in pharmaceutical
manufacturing that could affect the ability of our contract
manufacturers to meet our delivery time requirements or provide
adequate amounts of material to meet our needs. Included in
these risks are synthesis and purification failures and
contamination during the manufacturing process, which could
result in unusable product and cause delays in our development
process, as well as additional expense to us. To fulfill our
siRNA requirements, we may also need to secure alternative
suppliers of synthetic siRNAs. In addition to the manufacture of
the synthetic siRNAs, we may have additional manufacturing
requirements related to the technology required to deliver the
siRNA to the relevant cell or tissue type. In some cases, the
delivery technology we utilize is highly specialized or
proprietary, and for technical and legal reasons, we may have
access to only one or a limited number of potential
manufacturers for such delivery technology. Failure by these
manufacturers to properly formulate our siRNAs for delivery
could also result in unusable product and cause delays in our
discovery and development process, as well as additional expense
to us.
The manufacturing process for any products that we may develop
is subject to the FDA and foreign regulatory authority approval
process and we will need to contract with manufacturers who can
meet all applicable FDA and foreign regulatory authority
requirements on an ongoing basis. In addition, if we receive the
necessary regulatory approval for any product candidate, we also
expect to rely on third parties, including our commercial
collaborators, to produce materials required for commercial
supply. We may experience difficulty in obtaining adequate
manufacturing capacity for our needs. If we are unable to obtain
or maintain contract manufacturing for these product candidates,
or to do so on commercially reasonable terms, we may not be able
to successfully develop and commercialize our products.
To the extent that we enter into manufacturing arrangements with
third parties, we will depend on these third parties to perform
their obligations in a timely manner and consistent with
regulatory requirements, including those related to quality
control and quality assurance. The failure of a third-party
manufacturer to perform its obligations as expected could
adversely affect our business in a number of ways, including:
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we may not be able to initiate or continue clinical trials of
products that are under development;
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we may be delayed in submitting regulatory applications, or
receiving regulatory approvals, for our product candidates;
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we may lose the cooperation of our collaborators;
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we may be required to cease distribution or recall some or all
batches of our products; and
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ultimately, we may not be able to meet commercial demands for
our products.
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If a third-party manufacturer with whom we contract fails to
perform its obligations, we may be forced to manufacture the
materials ourselves, for which we may not have the capabilities
or resources, or enter into an agreement with a different
third-party manufacturer, which we may not be able to do with
reasonable terms, if at all. In some cases, the technical skills
required to manufacture our product may be unique to the
original manufacturer and we may have difficulty transferring
such skills to a
back-up nor
alternate supplier, or we may be unable to transfer such skills
at all. In addition, if we are required to change manufacturers
for any reason, we will be required to verify that the new
manufacturer maintains facilities and procedures that comply
with quality standards and with all applicable regulations and
guidelines. The delays associated with the verification of a new
manufacturer could negatively affect our ability to develop
product candidates in a timely manner or within budget.
Furthermore, a manufacturer may possess technology related to
the manufacture of our product candidate that such manufacturer
owns independently. This would increase our reliance on such
manufacturer or require us to obtain a license from such
manufacturer in order to have another third party manufacture
our products.
We
have no sales, marketing or distribution experience and would
have to invest significant financial and management resources to
establish these capabilities.
We have no sales, marketing or distribution experience. We
currently expect to rely heavily on third parties to launch and
market certain of our product candidates, if approved. However,
if we elect to develop internal sales, distribution and
marketing capabilities, we will need to invest significant
financial and management resources. For products where we decide
to perform sales, marketing and distribution functions
ourselves, we could face a number of additional risks, including:
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we may not be able to attract and build a significant marketing
or sales force;
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the cost of establishing a marketing or sales force may not be
justifiable in light of the revenues generated by any particular
product; and
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our direct sales and marketing efforts may not be successful.
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If we are unable to develop our own sales, marketing and
distribution capabilities, we will not be able to successfully
commercialize our products without reliance on third parties.
The
current credit and financial market conditions may exacerbate
certain risks affecting our business.
Due to the tightening of global credit, there may be a
disruption or delay in the performance of our third-party
contractors, suppliers or collaborators. We rely on third
parties for several important aspects of our business, including
significant portions of our manufacturing needs, development of
product candidates and conduct of clinical trials. If such third
parties are unable to satisfy their commitments to us, our
business could be adversely affected.
Risks
Related to Managing Our Operations
If we
are unable to attract and retain qualified key management and
scientists, staff consultants and advisors, our ability to
implement our business plan may be adversely
affected.
We are highly dependent upon our senior management and
scientific staff. The loss of the service of any of the members
of our senior management, including Dr. John Maraganore,
our Chief Executive Officer, may significantly delay or prevent
the achievement of product development and other business
objectives. Our employment agreements with our key personnel are
terminable without notice. We do not carry key man life
insurance on any of our employees.
Although we have generally been successful in our recruiting
efforts, as well as our retention of employees, we face intense
competition for qualified individuals from numerous
pharmaceutical and biotechnology companies, universities,
governmental entities and other research institutions, many of
which have substantially greater resources with which to reward
qualified individuals than we do. We may be unable to attract
and retain suitably qualified individuals, and our failure to do
so could have an adverse effect on our ability to implement our
business plan.
51
We
may have difficulty managing our growth and expanding our
operations successfully as we seek to evolve from a company
primarily involved in discovery and pre-clinical testing into
one that develops and commercializes drugs.
Since we commenced operations in 2002, we have grown
substantially. As of December 31, 2009, we had
179 employees in our facility in Cambridge, Massachusetts.
Our rapid and substantial growth may place a strain on our
administrative and operational infrastructure. If product
candidates we develop enter and advance through clinical trials,
we will need to expand our development, regulatory,
manufacturing, marketing and sales capabilities or contract with
other organizations to provide these capabilities for us. As our
operations expand, we expect that we will need to manage
additional relationships with various collaborators, suppliers
and other organizations. Our ability to manage our operations
and growth will require us to continue to improve our
operational, financial and management controls, reporting
systems and procedures. We may not be able to implement
improvements to our management information and control systems
in an efficient or timely manner and may discover deficiencies
in existing systems and controls.
Our
business and operations could suffer in the event of system
failures.
Despite the implementation of security measures, our internal
computer systems and those of our contractors and consultants
are vulnerable to damage from computer viruses, unauthorized
access, natural disasters, terrorism, war and telecommunication
and electrical failures. Such events could cause interruption of
our operations. For example, the loss of pre-clinical trial data
or data from completed or ongoing clinical trials for our
product candidates could result in delays in our regulatory
filings and development efforts and significantly increase our
costs. To the extent that any disruption or security breach were
to result in a loss of or damage to our data, or inappropriate
disclosure of confidential or proprietary information, we could
incur liability and the development of our product candidates
could be delayed.
Risks
Related to Our Industry
Risks
Related to Development, Clinical Testing and Regulatory Approval
of Our Product Candidates
Any
product candidates we develop may fail in development or be
delayed to a point where they do not become commercially
viable.
Pre-clinical testing and clinical trials of new product
candidates are lengthy and expensive and the historical failure
rate for product candidates is high. We are developing our most
advanced product candidate, ALN-RSV01, for the treatment of RSV
infection. In January 2008, we completed our GEMINI study, a
Phase II trial designed to evaluate the safety,
tolerability and anti-viral activity of ALN-RSV01 in adult
subjects experimentally infected with RSV. During 2009, we
completed a Phase IIa trial assessing the safety and
tolerability of ALN-RSV01 in adult lung transplant patients
naturally infected with RSV and we intend to continue the
ALN-RSV01 clinical development program for adult lung transplant
patients, and pursue jointly with Cubist the development of
ALN-RSV02, a second-generation RNAi therapeutic candidate,
intended for use in pediatric patients with RSV infection. In
February 2010, we initiated a Phase IIb clinical trial to
evaluate the clinical efficacy endpoints as well as safety of
aerosolized
ALN-RSV01 in
adult lung transplant patients naturally infected with RSV. The
objective of this Phase IIb study is to repeat and extend the
clinical results observed in the Phase IIa study. In addition,
in March 2009, we initiated a Phase I study of ALN-VSP, our
first systemically delivered RNAi therapeutic candidate. We are
developing
ALN-VSP for
the treatment of primary and secondary liver cancer. We have
also made regulatory filings to initiate a clinical trial for
ALN-TTR01, our second systemically delivered RNAi therapeutic
candidate, which targets the TTR gene for the treatment of ATTR.
However, we may not be able to further advance these or any
other product candidate through clinical trials. If we
successfully enter into clinical studies, the results from
pre-clinical testing or early clinical trials of a product
candidate may not predict the results that will be obtained in
subsequent human clinical trials. For example, ALN-RSV01 may not
demonstrate the same results in the Phase IIb study as it did in
our Phase IIa trial. In addition, ALN-VSP and our other
systemically delivered therapeutic candidates, such as
ALN-TTR,
employ novel delivery formulations that have yet to be evaluated
in human studies and have yet to be proven safe and effective in
clinical trials. We, the FDA or other applicable regulatory
authorities, or an IRB or
52
similar foreign review board or committee, may suspend clinical
trials of a product candidate at any time for various reasons,
including if we or they believe the subjects or patients
participating in such trials are being exposed to unacceptable
health risks. Among other reasons, adverse side effects of a
product candidate on subjects or patients in a clinical trial
could result in the FDA or foreign regulatory authorities
suspending or terminating the trial and refusing to approve a
particular product candidate for any or all indications of use.
Clinical trials of a new product candidate require the
enrollment of a sufficient number of patients, including
patients who are suffering from the disease the product
candidate is intended to treat and who meet other eligibility
criteria. Rates of patient enrollment are affected by many
factors, including the size of the patient population, the age
and condition of the patients, the nature of the protocol, the
proximity of patients to clinical sites, the availability of
effective treatments for the relevant disease, the seasonality
of infections and the eligibility criteria for the clinical
trial. Delays in patient enrollment or difficulties retaining
study participants can result in increased costs, longer
development times or termination of a clinical trial.
Clinical trials also require the review and oversight of IRBs,
which approve and continually review clinical investigations and
protect the rights and welfare of human subjects. Inability to
obtain or delay in obtaining IRB approval can prevent or delay
the initiation and completion of clinical trials, and the FDA or
foreign regulatory authorities may decide not to consider any
data or information derived from a clinical investigation not
subject to initial and continuing IRB review and approval in
support of a marketing application.
Our product candidates that we develop may encounter problems
during clinical trials that will cause us, an IRB or regulatory
authorities to delay, suspend or terminate these trials, or that
will delay the analysis of data from these trials. If we
experience any such problems, we may not have the financial
resources to continue development of the product candidate that
is affected, or development of any of our other product
candidates. We may also lose, or be unable to enter into,
collaborative arrangements for the affected product candidate
and for other product candidates we are developing.
Delays in clinical trials could reduce the commercial viability
of our product candidates. Any of the following could, among
other things, delay our clinical trials:
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delays in filing INDs or comparable foreign applications or
delays or failure in obtaining the necessary approvals from
regulators or IRBs in order to commence a clinical trial at a
prospective trial site, or their suspension or termination of a
clinical trial once commenced;
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conditions imposed on us by the FDA or comparable foreign
authorities regarding the scope or design of our clinical trials;
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problems in engaging IRBs to oversee trials or problems in
obtaining or maintaining IRB approval of trials;
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delays in enrolling patients and volunteers into clinical
trials, and variability in the number and types of patients and
volunteers available for clinical trials;
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high drop-out rates for patients and volunteers in clinical
trials;
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negative or inconclusive results from our clinical trials or the
clinical trials of others for product candidates similar to ours;
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inadequate supply or quality of product candidate materials or
other materials necessary for the conduct of our clinical trials;
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serious and unexpected drug-related side effects experienced by
participants in our clinical trials or by individuals using
drugs similar to our product candidates;
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poor effectiveness of our product candidates during clinical
trials;
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unfavorable FDA or other regulatory agency inspection and review
of a clinical trial site or records of any clinical or
pre-clinical investigation;
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failure of our third party contractors or investigators to
comply with regulatory requirements or otherwise meet their
contractual obligations in a timely manner, or at all;
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governmental or regulatory delays and changes in regulatory
requirements, policy and guidelines, including the imposition of
additional regulatory oversight around clinical testing
generally or with respect to our technology in
particular; or
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varying interpretations of data by the FDA and similar foreign
regulatory agencies.
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Even if we successfully complete clinical trials of our product
candidates, any given product candidate may not prove to be a
safe and effective treatment for the diseases for which it was
being tested.
The
regulatory approval process may be delayed for any products we
develop that require the use of specialized drug delivery
devices, which may require us to incur additional costs and
delay receipt of any potential product revenue.
Some product candidates that we develop may need to be
administered using specialized drug delivery devices that
deliver RNAi therapeutics directly to diseased parts of the
body. For example, we believe that product candidates we develop
for HD, Parkinsons disease or other central nervous system
diseases may need to be administered using such a device. For
neurodegenerative diseases, we have entered into a collaboration
agreement with Medtronic to pursue potential development of
drug-device combinations incorporating RNAi therapeutics. We may
not achieve successful development results under this
collaboration and may need to seek other collaborations to
develop alternative drug delivery systems, or utilize existing
drug delivery systems, for the direct delivery of RNAi
therapeutics for these diseases. While we expect to rely on drug
delivery systems that have been approved by the FDA or other
regulatory agencies to deliver drugs like ours to diseased parts
of the body, we, or our collaborator, may need to modify the
design or labeling of such delivery device for some products we
may develop. In such an event, the FDA may regulate the product
as a combination product or require additional approvals or
clearances for the modified delivery device. Further, to the
extent the specialized delivery device is owned by another
company, we would need that companys cooperation to
implement the necessary changes to the device, or its labeling,
and to obtain any additional approvals or clearances. In cases
where we do not have an ongoing collaboration with the company
that makes the device, obtaining such additional approvals or
clearances and the cooperation of such other company could
significantly delay and increase the cost of obtaining marketing
approval, which could reduce the commercial viability of our
product candidate. In summary, we may be unable to find, or
experience delays in finding, suitable drug delivery systems to
administer RNAi therapeutics directly to diseased parts of the
body, which could negatively affect our ability to successfully
commercialize these RNAi therapeutics.
We may
be unable to obtain United States or foreign regulatory approval
and, as a result, be unable to commercialize our product
candidates.
Our product candidates are subject to extensive governmental
regulations relating to, among other things, research, testing,
development, manufacturing, safety, efficacy, recordkeeping,
labeling, storage, marketing and distribution of drugs. Rigorous
pre-clinical testing and clinical trials and an extensive
regulatory approval process are required to be successfully
completed in the United States and in many foreign jurisdictions
before a new drug can be marketed. Satisfaction of these and
other regulatory requirements is costly, time consuming,
uncertain and subject to unanticipated delays. It is possible
that none of the product candidates we may develop will obtain
the regulatory approvals necessary for us or our collaborators
to begin selling them.
We have very limited experience in conducting and managing the
clinical trials necessary to obtain regulatory approvals,
including approval by the FDA. The time required to obtain FDA
and other approvals is unpredictable but typically takes many
years following the commencement of clinical trials, depending
upon the type, complexity and novelty of the product candidate.
The standards that the FDA and its foreign counterparts use when
regulating us are not always applied predictably or uniformly
and can change. Any analysis we perform of data from
pre-clinical and clinical activities is subject to confirmation
and interpretation by regulatory authorities, which could delay,
limit or prevent regulatory approval. We may also encounter
unexpected delays or increased costs due to new government
regulations, for example, from future legislation or
administrative action, or from changes in FDA policy during the
period of product development, clinical trials and FDA
regulatory review. It is impossible to predict whether
legislative changes will be enacted, or whether FDA or foreign
regulations, guidance or interpretations will be changed, or
what the impact of such changes, if any, may be.
54
Because the drugs we are intending to develop may represent a
new class of drug, the FDA and its foreign counterparts have not
yet established any definitive policies, practices or guidelines
in relation to these drugs. While the product candidates that we
are currently developing are regulated as new drugs under the
Federal Food, Drug, and Cosmetic Act, the FDA could decide to
regulate them or other products we may develop as biologics
under the Public Health Service Act. The lack of policies,
practices or guidelines may hinder or slow review by the FDA of
any regulatory filings that we may submit. Moreover, the FDA may
respond to these submissions by defining requirements we may not
have anticipated. Such responses could lead to significant
delays in the clinical development of our product candidates. In
addition, because there may be approved treatments for some of
the diseases for which we may seek approval, in order to receive
regulatory approval, we will need to demonstrate through
clinical trials that the product candidates we develop to treat
these diseases, if any, are not only safe and effective, but
safer or more effective than existing products. Furthermore, in
recent years, there has been increased public and political
pressure on the FDA with respect to the approval process for new
drugs, and the number of approvals to market new drugs has
declined.
Any delay or failure in obtaining required approvals could have
a material adverse effect on our ability to generate revenues
from the particular product candidate for which we are seeking
approval. Furthermore, any regulatory approval to market a
product may be subject to limitations on the approved indicated
uses for which we may market the product or the labeling or
other restrictions. These limitations and restrictions may limit
the size of the market for the product and affect reimbursement
by third-party payors.
We are also subject to numerous foreign regulatory requirements
governing, among other things, the conduct of clinical trials,
manufacturing and marketing authorization, pricing and
third-party reimbursement. The foreign regulatory approval
process varies among countries and includes all of the risks
associated with FDA approval described above as well as risks
attributable to the satisfaction of local regulations in foreign
jurisdictions. Approval by the FDA does not ensure approval by
regulatory authorities outside the United States and vice versa.
If our
pre-clinical testing does not produce successful results or our
clinical trials do not demonstrate safety and efficacy in
humans, we will not be able to commercialize our product
candidates.
Before obtaining regulatory approval for the sale of our product
candidates, we must conduct, at our own expense, extensive
pre-clinical tests and clinical trials to demonstrate the safety
and efficacy in humans of our product candidates. Pre-clinical
and clinical testing is expensive, difficult to design and
implement, can take many years to complete and is uncertain as
to outcome. Success in pre-clinical testing and early clinical
trials does not ensure that later clinical trials will be
successful, and interim results of a clinical trial do not
necessarily predict final results.
A failure of one of more of our clinical trials can occur at any
stage of testing. We may experience numerous unforeseen events
during, or as a result of, pre-clinical testing and the clinical
trial process that could delay or prevent our ability to receive
regulatory approval or commercialize our product candidates,
including:
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regulators or IRBs may not authorize us to commence or continue
a clinical trial or conduct a clinical trial at a prospective
trial site;
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our pre-clinical tests or clinical trials may produce negative
or inconclusive results, and we may decide, or regulators may
require us, to conduct additional pre-clinical testing or
clinical trials, or we may abandon projects that we expect to be
promising;
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enrollment in our clinical trials may be slower than we
anticipate or participants may drop out of our clinical trials
at a higher rate than we anticipate, resulting in significant
delays;
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our third party contractors may fail to comply with regulatory
requirements or meet their contractual obligations to us in a
timely manner, or at all;
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we might have to suspend or terminate our clinical trials if the
participants are being exposed to unacceptable health risks;
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IRBs or regulators, including the FDA, may require that we hold,
suspend or terminate clinical research for various reasons,
including noncompliance with regulatory requirements, failure to
achieve established success criteria, or if, in their opinion,
the participants are being exposed to unacceptable health risks;
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the cost of our clinical trials may be greater than we
anticipate;
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the supply or quality of our product candidates or other
materials necessary to conduct our clinical trials may be
insufficient or inadequate;
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effects of our product candidates may not be the desired effects
or may include undesirable side effects or the product
candidates may have other unexpected characteristics; and
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effects of our product candidates may not be clear, or we may
disagree with regulatory authorities, including the FDA, about
how to interpret the data generated in our clinical trials.
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Even
if we obtain regulatory approvals, our marketed drugs will be
subject to ongoing regulatory review. If we fail to comply with
continuing United States and foreign regulations, we could lose
our approvals to market drugs and be subject to other penalties,
and our business would be seriously harmed.
Following any initial regulatory approval of any drugs we may
develop, we will also be subject to continuing regulatory
review, including the review of adverse drug experiences and
clinical results that are reported after our drug products are
made commercially available. This would include results from any
post-marketing tests or surveillance to monitor the safety and
efficacy of the drug product required as a condition of
approval. Any regulatory approvals that we receive for our
product candidates may also be subject to limitations on the
approved indicated uses for which the product may be marketed.
Other ongoing regulatory requirements include submissions of
safety and other post-marketing information and reports,
registration, as well as continued compliance with cGMP
requirements and GCP for any clinical trials that we conduct
post-approval. In addition, we intend to conduct clinical trials
for our product candidates, and to seek approval to market our
product candidates, in jurisdictions outside of the United
States, and therefore will be subject to, and must comply with,
regulatory requirements in those jurisdictions.
The manufacturer and manufacturing facilities we use to make any
of our product candidates will also be subject to periodic
review and inspection by the FDA and other regulatory agencies.
The discovery of any new or previously unknown problems with the
product, including adverse events of unanticipated severity or
frequency, or with our third-party manufacturers, manufacturing
processes or facilities, may result in restrictions on the drug
or manufacturer or facility, including withdrawal of the drug
from the market. We do not have, and currently do not intend to
develop, the ability to manufacture material for our clinical
trials or on a commercial scale. We may manufacture clinical
trial materials or we may contract a third party to manufacture
these materials for us. Reliance on third-party manufacturers
entails risks to which we would not be subject if we
manufactured products ourselves, including reliance on the
third-party manufacturer for regulatory compliance. Our product
promotion and advertising is also subject to regulatory
requirements and continuing regulatory review.
If we or our collaborators, manufacturers or service providers
fail to comply with applicable continuing regulatory
requirements in the United States or foreign jurisdictions in
which we may seek to market our products, we or they may be
subject to, among other things, fines, warning letters, holds on
clinical trials, refusal by the FDA to approve pending
applications or supplements to approved applications, suspension
or withdrawal of regulatory approval, product recalls and
seizures, refusal to permit the import or export of products,
operating restrictions, civil penalties and criminal prosecution.
Even
if we receive regulatory approval to market our product
candidates, the market may not be receptive to our product
candidates upon their commercial introduction, which will
prevent us from becoming profitable.
The product candidates that we are developing are based upon new
technologies or therapeutic approaches. Key participants in
pharmaceutical marketplaces, such as physicians, third-party
payors and consumers, may not accept a product intended to
improve therapeutic results based on RNAi technology. As a
result, it may be more difficult for us to convince the medical
community and third-party payors to accept and use our product,
or to provide favorable reimbursement.
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Other factors that we believe will materially affect market
acceptance of our product candidates include:
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the timing of our receipt of any marketing approvals, the terms
of any approvals and the countries in which approvals are
obtained;
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the safety and efficacy of our product candidates, as
demonstrated in clinical trials;
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relative convenience and ease of administration of our product
candidates;
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the willingness of patients to accept potentially new routes of
administration;
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the success of our physician education programs;
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the availability of adequate government and third-party payor
reimbursement;
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the pricing of our products, particularly as compared to
alternative treatments; and
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availability of alternative effective treatments for the
diseases that product candidates we develop are intended to
treat and the relative risks, benefits and costs of the
treatments.
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Even
if we develop an RNAi therapeutic product for the prevention or
treatment of infection by hemorrhagic fever viruses such as
Ebola, governments may not elect to purchase such a product,
which could adversely affect our business.
We expect that governments will be the only purchasers of any
products we may develop for the prevention or treatment of
hemorrhagic fever viruses such as Ebola. In the future, we may
also initiate additional programs for the development of product
candidates for which governments may be the only or primary
purchasers. However, governments will not be required to
purchase any such products from us and may elect not to do so,
which could adversely affect our business. For example, although
the focus of our Ebola program is to develop RNAi therapeutic
targeting gene sequences that are highly conserved across known
Ebola viruses, if the sequence of any Ebola virus that emerges
is not sufficiently similar to those we are targeting, any
product candidate that we develop may not be effective against
that virus. Accordingly, while we believe that any RNAi
therapeutic we develop for the treatment of Ebola could be
stockpiled by governments as part of their biodefense
preparations, they may not elect to purchase such product, or if
they purchase our products, they may not do so at prices and
volume levels that are profitable for us. In addition,
government contractors and subcontractors are generally subject
to contractual and regulatory requirements that differ from
typical commercial business arrangements. These requirements may
make it more costly for us to serve government customers and may
expose us to legal and regulatory liability risks that would not
arise in sales to non-governmental customers.
If we
or our collaborators, manufacturers or service providers fail to
comply with healthcare laws and regulations, we or they could be
subject to enforcement actions, which could affect our ability
to develop, market and sell our products and may harm our
reputation.
As a manufacturer of pharmaceuticals, we are subject to federal,
state, and foreign health care laws and regulations pertaining
to fraud and abuse and patients rights. These laws and
regulations include:
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The U.S. federal health care program anti-kickback law,
which prohibits, among other things, persons from soliciting,
receiving or providing remuneration, directly or indirectly, to
induce either the referral of an individual for a healthcare
item or service, or the purchasing or ordering of an item or
service, for which payment may be made under a federal
healthcare program such as Medicare or Medicaid;
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The U.S. federal false claims law, which prohibits, among
other things, individuals or entities from knowingly presenting
or causing to be presented, claims for payment by government
funded programs such as Medicare or Medicaid that are false or
fraudulent, and which may apply to us by virtue of statements
and representations made to customers or third parties;
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The U.S. federal Health Insurance Portability and
Accountability Act, or HIPAA, and Health Information Technology
for Economic and Clinical Health, or HITECH, Act, which prohibit
executing a scheme to defraud health care programs; impose
requirements relating to the privacy, security, and transmission
of
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individually identifiable health information; and require
notification to affected individuals and regulatory authorities
of certain breaches of security of individually identifiable
health information; and
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State laws comparable to each of the above federal laws, such
as, for example, anti-kickback and false claims laws applicable
to commercial insurers and other non-federal payors,
requirements for mandatory corporate regulatory compliance
programs, and laws relating to patient data privacy and security.
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If our operations are found to be in violation of any such
requirements, we may be subject to penalties, including civil or
criminal penalties, monetary damages, the curtailment or
restructuring of our operations, loss of eligibility to obtain
approvals from the FDA, or exclusion from participation in
government contracting or other government programs, any of
which could adversely our financial results. Although effective
compliance programs can mitigate the risk of investigation and
prosecution for violations of these laws, these risks cannot be
entirely eliminated. Any action against us for an alleged or
suspected violation could cause us to incur significant legal
expenses and could divert our managements attention from
the operation of our business, even if our defense is
successful. In addition, achieving and sustaining compliance
with applicable laws and regulations may be costly to us in
terms of money, time and resources.
If we or our collaborators, manufacturers or service providers
fail to comply with applicable federal, state or foreign laws or
regulations, we could be subject to enforcement actions, which
could affect our ability to develop, market and sell our
products successfully and could harm our reputation and lead to
reduced acceptance of our products by the market. These
enforcement actions include, among others:
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warning letters;
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voluntary or mandatory product recalls or public notification or
medical product safety alerts to healthcare professionals;
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restrictions on, or prohibitions against, marketing our products;
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restrictions on, or prohibitions against, importation or
exportation of our products;
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suspension of review or refusal to approve pending applications
or supplements to approved applications;
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exclusion from participation in government-funded healthcare
programs;
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exclusion from eligibility for the award of government contracts
for our products;
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suspension or withdrawal of product approvals;
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product seizures;
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injunctions; and
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civil and criminal penalties and fines.
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Any
drugs we develop may become subject to unfavorable pricing
regulations, third-party reimbursement practices or healthcare
reform initiatives, thereby harming our business.
The regulations that govern marketing approvals, pricing and
reimbursement for new drugs vary widely from country to country.
Some countries require approval of the sale price of a drug
before it can be marketed. In many countries, the pricing review
period begins after marketing or product licensing approval is
granted. In some foreign markets, prescription pharmaceutical
pricing remains subject to continuing governmental control even
after initial approval is granted. Although we intend to monitor
these regulations, our programs are currently in the early
stages of development and we will not be able to assess the
impact of price regulations for a number of years. As a result,
we might obtain regulatory approval for a product in a
particular country, but then be subject to price regulations
that delay our commercial launch of the product and negatively
impact the revenues we are able to generate from the sale of the
product in that country.
Our ability to commercialize any products successfully also will
depend in part on the extent to which reimbursement for these
products and related treatments will be available from
government health administration authorities, private health
insurers and other organizations. Even if we succeed in bringing
one or more products to
58
the market, these products may not be considered cost-effective,
and the amount reimbursed for any products may be insufficient
to allow us to sell our products on a competitive basis. Because
our programs are in the early stages of development, we are
unable at this time to determine their cost effectiveness or the
likely level or method of reimbursement. Increasingly, the
third-party payors who reimburse patients, such as government
and private insurance plans, are requiring that drug companies
provide them with predetermined discounts from list prices, and
are seeking to reduce the prices charged for pharmaceutical
products. If the price we are able to charge for any products we
develop is inadequate in light of our development and other
costs, our profitability could be adversely affected.
We currently expect that any drugs we develop may need to be
administered under the supervision of a physician. Under
currently applicable United States law, drugs that are not
usually self-administered may be eligible for coverage by the
Medicare program if:
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they are incident to a physicians services;
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they are reasonable and necessary for the diagnosis
or treatment of the illness or injury for which they are
administered according to accepted standards of medical practice;
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they are not excluded as immunizations; and
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they have been approved by the FDA.
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There may be significant delays in obtaining coverage for
newly-approved drugs, and coverage may be more limited than the
purposes for which the drug is approved by the FDA. Moreover,
eligibility for coverage does not imply that any drug will be
reimbursed in all cases or at a rate that covers our costs,
including research, development, manufacture, sale and
distribution. Interim payments for new drugs, if applicable, may
also not be sufficient to cover our costs and may not be made
permanent. Reimbursement may be based on payments allowed for
lower-cost drugs that are already reimbursed, may be
incorporated into existing payments for other services and may
reflect budgetary constraints or imperfections in Medicare data.
Net prices for drugs may be reduced by mandatory discounts or
rebates required by government health care programs or private
payors and by any future relaxation of laws that presently
restrict imports of drugs from countries where they may be sold
at lower prices than in the United States. Third party payors
often rely upon Medicare coverage policy and payment limitations
in setting their own reimbursement rates. Our inability to
promptly obtain coverage and profitable reimbursement rates from
both government-funded and private payors for new drugs that we
develop and for which we obtain regulatory approval could have a
material adverse effect on our operating results, our ability to
raise capital needed to commercialize products, and our overall
financial condition.
We believe that the efforts of governments and third-party
payors to contain or reduce the cost of healthcare and
legislative and regulatory proposals to broaden the availability
of healthcare will continue to affect the business and financial
condition of pharmaceutical and biopharmaceutical companies. A
number of legislative and regulatory changes in the healthcare
system in the United States and other major healthcare markets
have been proposed in recent years, and such efforts have
expanded substantially in the last year. These developments have
included prescription drug benefit legislation that was enacted
and took effect in January 2006, healthcare reform legislation
recently enacted by certain states, and major health care reform
legislation that is currently pending in Congress. Many such
proposals could, directly or indirectly, affect our ability to
sell our products, if approved, at a favorable price. We cannot
predict the initiatives that may be adopted in the future.
Further federal and state legislative and regulatory
developments are likely and we expect ongoing initiatives in the
United States to increase pressure on drug pricing. Such reforms
could have an adverse effect on anticipated revenues from
product candidates that we may successfully develop and for
which we may obtain regulatory approval and may affect our
overall financial condition and ability to develop drug
candidates.
There
is a substantial risk of product liability claims in our
business. If we are unable to obtain sufficient insurance, a
product liability claim against us could adversely affect our
business.
Our business exposes us to significant potential product
liability risks that are inherent in the development, testing,
manufacturing and marketing of human therapeutic products.
Product liability claims could delay or prevent completion of
our clinical development programs. If we succeed in marketing
products, such claims could
59
result in an FDA investigation of the safety and effectiveness
of our products, our manufacturing processes and facilities or
our marketing programs, and potentially a recall of our products
or more serious enforcement action, limitations on the approved
indications for which they may be used, or suspension or
withdrawal of approvals. Regardless of the merits or eventual
outcome, liability claims may also result in injury to our
reputation, costs to defend the related litigation, a diversion
of managements time and our resources, and substantial
monetary awards to trial participants or patients. We currently
have product liability insurance that we believe is appropriate
for our stage of development and may need to obtain higher
levels prior to marketing any of our product candidates. Any
insurance we have or may obtain may not provide sufficient
coverage against potential liabilities. Furthermore, clinical
trial and product liability insurance is becoming increasingly
expensive. As a result, we may be unable to obtain sufficient
insurance at a reasonable cost to protect us against losses
caused by product liability claims that could have a material
adverse effect on our business.
If we
do not comply with laws regulating the protection of the
environment and health and human safety, our business could be
adversely affected.
Our research and development involves the use of hazardous
materials, chemicals and various radioactive compounds. We
maintain quantities of various flammable and toxic chemicals in
our facilities in Cambridge that are required for our research
and development activities. We are subject to federal, state and
local laws and regulations governing the use, manufacture,
storage, handling and disposal of these hazardous materials. We
believe our procedures for storing, handling and disposing these
materials in our Cambridge facility comply with the relevant
guidelines of the City of Cambridge and the Commonwealth of
Massachusetts. Although we believe that our safety procedures
for handling and disposing of these materials comply with the
standards mandated by applicable regulations, the risk of
accidental contamination or injury from these materials cannot
be eliminated. If an accident occurs, we could be held liable
for resulting damages, which could be substantial. We are also
subject to numerous environmental, health and workplace safety
laws and regulations, including those governing laboratory
procedures, exposure to blood-borne pathogens and the handling
of biohazardous materials.
Although we maintain workers compensation insurance to
cover us for costs and expenses we may incur due to injuries to
our employees resulting from the use of these materials, this
insurance may not provide adequate coverage against potential
liabilities. We do not maintain insurance for environmental
liability or toxic tort claims that may be asserted against us
in connection with our storage or disposal of biological,
hazardous or radioactive materials. Additional federal, state
and local laws and regulations affecting our operations may be
adopted in the future. We may incur substantial costs to comply
with, and substantial fines or penalties if we violate, any of
these laws or regulations.
Risks
Related to Patents, Licenses and Trade Secrets
If we
are not able to obtain and enforce patent protection for our
discoveries, our ability to develop and commercialize our
product candidates will be harmed.
Our success depends, in part, on our ability to protect
proprietary methods and technologies that we develop under the
patent and other intellectual property laws of the United States
and other countries, so that we can prevent others from
unlawfully using our inventions and proprietary information.
However, we may not hold proprietary rights to some patents
required for us to commercialize our proposed products. Because
certain U.S. patent applications are confidential until the
patents issue, such as applications filed prior to
November 29, 2000, or applications filed after such date
which will not be filed in foreign countries, third parties may
have filed patent applications for technology covered by our
pending patent applications without our being aware of those
applications, and our patent applications may not have priority
over those applications. For this and other reasons, we may be
unable to secure desired patent rights, thereby losing desired
exclusivity. Further, we may be required to obtain licenses
under third-party patents to market our proposed products or
conduct our research and development or other activities. If
licenses are not available to us on acceptable terms, we will
not be able to market the affected products or conduct the
desired activities.
Our strategy depends on our ability to rapidly identify and seek
patent protection for our discoveries. In addition, we may rely
on third-party collaborators to file patent applications
relating to proprietary technology that
60
we develop jointly during certain collaborations. The process of
obtaining patent protection is expensive and time-consuming. If
our present or future collaborators fail to file and prosecute
all necessary and desirable patent applications at a reasonable
cost and in a timely manner, our business will be adversely
affected. Despite our efforts and the efforts of our
collaborators to protect our proprietary rights, unauthorized
parties may be able to obtain and use information that we regard
as proprietary. While issued patents are presumed valid, this
does not guarantee that the patent will survive a validity
challenge or be held enforceable. Any patents we have obtained,
or obtain in the future, may be challenged, invalidated,
adjudged unenforceable or circumvented by parties attempting to
design around our intellectual property. Moreover, third parties
or the USPTO may commence interference proceedings involving our
patents or patent applications. Any challenge to, finding of
unenforceability or invalidation or circumvention of, our
patents or patent applications would be costly, would require
significant time and attention of our management and could have
a material adverse effect on our business.
Our pending patent applications may not result in issued
patents. The patent position of pharmaceutical or biotechnology
companies, including ours, is generally uncertain and involves
complex legal and factual considerations. The standards that the
USPTO and its foreign counterparts use to grant patents are not
always applied predictably or uniformly and can change. In
addition, there are periodic discussions in the Congress of the
United States and in international jurisdictions about modifying
various aspects of patent law. If any such changes are enacted
and do not provide adequate protection for discoveries,
including our ability to pursue infringers of our patents for
substantial damages, our business could be adversely affected.
There is also no uniform, worldwide policy regarding the subject
matter and scope of claims granted or allowable in
pharmaceutical or biotechnology patents. Accordingly, we do not
know the degree of future protection for our proprietary rights
or the breadth of claims that will be allowed in any patents
issued to us or to others.
We also rely to a certain extent on trade secrets, know-how and
technology, which are not protected by patents, to maintain our
competitive position. If any trade secret, know-how or other
technology not protected by a patent were to be disclosed to or
independently developed by a competitor, our business and
financial condition could be materially adversely affected.
We
license patent rights from third party owners. If such owners do
not properly or successfully obtain, maintain or enforce the
patents underlying such licenses, our competitive position and
business prospects will be harmed.
We are a party to a number of licenses that give us rights to
third party intellectual property that is necessary or useful
for our business. In particular, we have obtained licenses from,
among others, Cancer Research Technology Limited, Isis, MIT,
Whitehead, Max Planck, Stanford University, Tekmira and UTSW. We
also intend to enter into additional licenses to third party
intellectual property in the future.
Our success will depend in part on the ability of our licensors
to obtain, maintain and enforce patent protection for our
licensed intellectual property, in particular, those patents to
which we have secured exclusive rights. Our licensors may not
successfully prosecute the patent applications to which we are
licensed. Even if patents issue in respect of these patent
applications, our licensors may fail to maintain these patents,
may determine not to pursue litigation against other companies
that are infringing these patents, or may pursue such litigation
less aggressively than we would. Without protection for the
intellectual property we license, other companies might be able
to offer substantially identical products for sale, which could
adversely affect our competitive business position and harm our
business prospects. In addition, we sublicense our rights under
various third-party licenses to our collaborators. Any
impairment of these sublicensed rights could result in reduced
revenues under our collaboration agreements or result in
termination of an agreement by one or more of our collaborators.
In June 2009, we joined with Max Planck in taking legal action
against Whitehead, MIT and UMass. The complaint, initially filed
in Suffolk County Superior Court in Boston, Massachusetts and
subsequently removed to the U.S. District Court for the
District of Massachusetts, alleges, among other things, that the
defendants have improperly prosecuted the Tuschl I patent
applications and wrongfully incorporated inventions covered by
the Tuschl II patent applications into the Tuschl I patent
applications, thereby potentially damaging the value of
inventions reflected in the Tuschl I and Tuschl II patent
applications. In the field of RNAi therapeutics, we are the
61
exclusive licensee of the Tuschl I patent applications from Max
Planck, MIT and Whitehead and of the Tuschl II patent
applications from Max Planck.
The complaint seeks to enjoin the defendants from taking any
further action in connection with the prosecution of any Tuschl
I application, a declaratory judgment and unspecified monetary
damages. In August 2009, the court denied our motion for a
preliminary injunction. In addition, in August 2009, Whitehead
and UMass filed counterclaims against us and Max Planck,
including for breach of contract. A trial on the merits was
originally scheduled to begin in February 2010. In January 2010,
we and Max Planck filed a motion for leave to file an amended
complaint expanding upon the allegations in the original
complaint. In January 2010, the court granted this motion
allowing our amended complaint and postponed the start of the
trial. We currently expect the trial to start in June 2010.
In addition, in September 2009, the USPTO granted Max
Plancks petition to revoke power of attorney in connection
with the prosecution of the Tuschl I patent application. This
action prevents the defendants from filing any papers with the
USPTO in connection with further prosecution of the Tuschl I
patent application without the agreement of Max Planck.
Whiteheads petition to overturn the ruling on Max
Plancks petition was denied.
Although we, along with Max Planck, are vigorously asserting our
rights in this case, litigation is subject to inherent
uncertainty and a court could ultimately rule against us. In
addition, litigation is costly and may divert the attention of
our management and other resources that would otherwise be
engaged in running our business.
Other
companies or organizations may challenge our patent rights or
may assert patent rights that prevent us from developing and
commercializing our products.
RNAi is a relatively new scientific field, the commercial
exploitation of which has resulted in many different patents and
patent applications from organizations and individuals seeking
to obtain patent protection in the field. We have obtained
grants and issuances of RNAi patents and have licensed many of
these patents from third parties on an exclusive basis. The
issued patents and pending patent applications in the United
States and in key markets around the world that we own or
license claim many different methods, compositions and processes
relating to the discovery, development, manufacture and
commercialization of RNAi therapeutics. Specifically, we have a
portfolio of patents, patent applications and other intellectual
property covering: fundamental aspects of the structure and uses
of siRNAs, including their manufacture and use as therapeutics,
and RNAi-related mechanisms; chemical modifications to siRNAs
that improve their suitability for therapeutic uses; siRNAs
directed to specific targets as treatments for particular
diseases; and delivery technologies, such as in the field of
cationic liposomes.
As the field of RNAi therapeutics is maturing, patent
applications are being fully processed by national patent
offices around the world. There is uncertainty about which
patents will issue, and, if they do, as to when, to whom, and
with what claims. It is likely that there will be significant
litigation and other proceedings, such as interference,
reexamination and opposition proceedings, in various patent
offices relating to patent rights in the RNAi field. For
example, various third parties have initiated oppositions to
patents in our Kreutzer-Limmer and Tuschl II series in the
EPO and in other jurisdictions. We expect that additional
oppositions will be filed in the EPO and elsewhere, and other
challenges will be raised relating to other patents and patent
applications in our portfolio. In many cases, the possibility of
appeal exists for either us or our opponents, and it may be
years before final, unappealable rulings are made with respect
to these patents in certain jurisdictions. The timing and
outcome of these and other proceedings is uncertain and may
adversely affect our business if we are not successful in
defending the patentability and scope of our pending and issued
patent claims. In addition, third parties may attempt to
invalidate our intellectual property rights. Even if our rights
are not directly challenged, disputes could lead to the
weakening of our intellectual property rights. Our defense
against any attempt by third parties to circumvent or invalidate
our intellectual property rights could be costly to us, could
require significant time and attention of our management and
could have a material adverse effect on our business and our
ability to successfully compete in the field of RNAi.
There are many issued and pending patents that claim aspects of
oligonucleotide chemistry that we may need to apply to our siRNA
therapeutic candidates. There are also many issued patents that
claim targeting genes or portions of genes that may be relevant
for siRNA drugs we wish to develop. Thus, it is possible that
one or more
62
organizations will hold patent rights to which we will need a
license. If those organizations refuse to grant us a license to
such patent rights on reasonable terms, we may not be able to
market products or perform research and development or other
activities covered by these patents.
If we
become involved in patent litigation or other proceedings
related to a determination of rights, we could incur substantial
costs and expenses, substantial liability for damages or be
required to stop our product development and commercialization
efforts.
Third parties may sue us for infringing their patent rights.
Likewise, we may need to resort to litigation to enforce a
patent issued or licensed to us or to determine the scope and
validity of proprietary rights of others. In addition, a third
party may claim that we have improperly obtained or used its
confidential or proprietary information. Furthermore, in
connection with a license agreement, we have agreed to indemnify
the licensor for costs incurred in connection with litigation
relating to intellectual property rights. The cost to us of any
litigation or other proceeding relating to intellectual property
rights, even if resolved in our favor, could be substantial, and
the litigation would divert our managements efforts. Some
of our competitors may be able to sustain the costs of complex
patent litigation more effectively than we can because they have
substantially greater resources. Uncertainties resulting from
the initiation and continuation of any litigation could limit
our ability to continue our operations.
If any parties successfully claim that our creation or use of
proprietary technologies infringes upon their intellectual
property rights, we might be forced to pay damages, potentially
including treble damages, if we are found to have willfully
infringed on such parties patent rights. In addition to
any damages we might have to pay, a court could require us to
stop the infringing activity or obtain a license. Any license
required under any patent may not be made available on
commercially acceptable terms, if at all. In addition, such
licenses are likely to be non-exclusive and, therefore, our
competitors may have access to the same technology licensed to
us. If we fail to obtain a required license and are unable to
design around a patent, we may be unable to effectively market
some of our technology and products, which could limit our
ability to generate revenues or achieve profitability and
possibly prevent us from generating revenue sufficient to
sustain our operations. Moreover, we expect that a number of our
collaborations will provide that royalties payable to us for
licenses to our intellectual property may be offset by amounts
paid by our collaborators to third parties who have competing or
superior intellectual property positions in the relevant fields,
which could result in significant reductions in our revenues
from products developed through collaborations.
If we
fail to comply with our obligations under any licenses or
related agreements, we could lose license rights that are
necessary for developing and protecting our RNAi technology and
any related product candidates that we develop, or we could lose
certain exclusive rights to grant sublicenses.
Our current licenses impose, and any future licenses we enter
into are likely to impose, various development,
commercialization, funding, royalty, diligence, sublicensing,
insurance and other obligations on us. If we breach any of these
obligations, the licensor may have the right to terminate the
license or render the license non-exclusive, which could result
in us being unable to develop, manufacture and sell products
that are covered by the licensed technology or enable a
competitor to gain access to the licensed technology. In
addition, while we cannot currently determine the amount of the
royalty obligations we will be required to pay on sales of
future products, if any, the amounts may be significant. The
amount of our future royalty obligations will depend on the
technology and intellectual property we use in products that we
successfully develop and commercialize, if any. Therefore, even
if we successfully develop and commercialize products, we may be
unable to achieve or maintain profitability.
Confidentiality
agreements with employees and others may not adequately prevent
disclosure of trade secrets and other proprietary
information.
In order to protect our proprietary technology and processes, we
rely in part on confidentiality agreements with our
collaborators, employees, consultants, outside scientific
collaborators and sponsored researchers, and other advisors.
These agreements may not effectively prevent disclosure of
confidential information and may not provide an adequate remedy
in the event of unauthorized disclosure of confidential
information. In addition, others may independently discover
trade secrets and proprietary information, and in such cases we
could not assert any trade
63
secret rights against such party. Costly and time-consuming
litigation could be necessary to enforce and determine the scope
of our proprietary rights, and failure to obtain or maintain
trade secret protection could adversely affect our competitive
business position.
Risks
Related to Competition
The
pharmaceutical market is intensely competitive. If we are unable
to compete effectively with existing drugs, new treatment
methods and new technologies, we may be unable to commercialize
successfully any drugs that we develop.
The pharmaceutical market is intensely competitive and rapidly
changing. Many large pharmaceutical and biotechnology companies,
academic institutions, governmental agencies and other public
and private research organizations are pursuing the development
of novel drugs for the same diseases that we are targeting or
expect to target. Many of our competitors have:
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much greater financial, technical and human resources than we
have at every stage of the discovery, development, manufacture
and commercialization of products;
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more extensive experience in pre-clinical testing, conducting
clinical trials, obtaining regulatory approvals, and in
manufacturing, marketing and selling pharmaceutical products;
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product candidates that are based on previously tested or
accepted technologies;
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products that have been approved or are in late stages of
development; and
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collaborative arrangements in our target markets with leading
companies and research institutions.
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We will face intense competition from drugs that have already
been approved and accepted by the medical community for the
treatment of the conditions for which we may develop drugs. We
also expect to face competition from new drugs that enter the
market. We believe a significant number of drugs are currently
under development, and may become commercially available in the
future, for the treatment of conditions for which we may try to
develop drugs. For instance, we are currently evaluating RNAi
therapeutics for RSV, liver cancers, ATTR, hypercholesterolemia
and HD, and have a number of additional discovery programs
targeting other diseases. Virazole and Synagis are currently
marketed for the treatment of certain RSV patients, and numerous
drugs are currently marketed or used for the treatment of liver
cancer, hypercholesterolemia and HD as well. These drugs, or
other of our competitors products, may be more effective,
safer, less expensive or marketed and sold more effectively,
than any products we develop.
If we successfully develop product candidates, and obtain
approval for them, we will face competition based on many
different factors, including:
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the safety and effectiveness of our products;
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the ease with which our products can be administered and the
extent to which patients accept relatively new routes of
administration;
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the timing and scope of regulatory approvals for these products;
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the availability and cost of manufacturing, marketing and sales
capabilities;
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price;
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reimbursement coverage; and
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patent position.
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Our competitors may develop or commercialize products with
significant advantages over any products we develop based on any
of the factors listed above or on other factors. Our competitors
may therefore be more successful in commercializing their
products than we are, which could adversely affect our
competitive position and business. Competitive products may make
any products we develop obsolete or noncompetitive before we can
recover the expenses of developing and commercializing our
product candidates. Such competitors could also
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recruit our employees, which could negatively impact our level
of expertise and the ability to execute on our business plan.
Furthermore, we also face competition from existing and new
treatment methods that reduce or eliminate the need for drugs,
such as the use of advanced medical devices. The development of
new medical devices or other treatment methods for the diseases
we are targeting could make our product candidates
noncompetitive, obsolete or uneconomical.
We
face competition from other companies that are working to
develop novel drugs using technology similar to ours. If these
companies develop drugs more rapidly than we do or their
technologies, including delivery technologies, are more
effective, our ability to successfully commercialize drugs will
be adversely affected.
In addition to the competition we face from competing drugs in
general, we also face competition from other companies working
to develop novel drugs using technology that competes more
directly with our own. We are aware of multiple companies that
are working in the field of RNAi. In addition, we granted
licenses or options for licenses to Isis, GeneCare, Benitec,
Calando, Tekmira, Quark and others under which these companies
may independently develop RNAi therapeutics against a limited
number of targets. Any of these companies may develop its RNAi
technology more rapidly and more effectively than us. Merck was
one of our collaborators and a licensee under our intellectual
property for specified disease targets until September 2007, at
which time we and Merck agreed to terminate our collaboration.
As a result of its acquisition of Sirna in December 2006, and in
light of the mutual termination of our collaboration, Merck,
which has substantially more resources and experience in
developing drugs than we do, may become a direct competitor.
In addition, as a result of agreements that we have entered
into, Roche and Takeda have obtained, and Novartis has the right
to obtain, broad, non-exclusive licenses to certain aspects of
our technology that give them the right to compete with us in
certain circumstances.
We also compete with companies working to develop
antisense-based drugs. Like RNAi therapeutics, antisense drugs
target mRNAs in order to suppress the activity of specific
genes. Isis is currently marketing an antisense drug and has
several antisense product candidates in clinical trials. The
development of antisense drugs is more advanced than that of
RNAi therapeutics, and antisense technology may become the
preferred technology for drugs that target mRNAs to silence
specific genes.
In addition to competition with respect to RNAi and with respect
to specific products, we face substantial competition to
discover and develop safe and effective means to deliver siRNAs
to the relevant cell and tissue types. Safe and effective means
to deliver siRNAs to the relevant cell and tissue types may be
developed by our competitors, and our ability to successfully
commercialize a competitive product would be adversely affected.
In addition, substantial resources are being expended by third
parties in the effort to discover and develop a safe and
effective means of delivering siRNAs into the relevant cell and
tissue types, both in academic laboratories and in the corporate
sector. Some of our competitors have substantially greater
resources than we do, and if our competitors are able to
negotiate exclusive access to those delivery solutions developed
by third parties, we may be unable to successfully commercialize
our product candidates.
Risks
Related to Our Common Stock
If our
stock price fluctuates, purchasers of our common stock could
incur substantial losses.
The market price of our common stock may fluctuate significantly
in response to factors that are beyond our control. The stock
market in general has recently experienced extreme price and
volume fluctuations. The market prices of securities of
pharmaceutical and biotechnology companies have been extremely
volatile, and have experienced fluctuations that often have been
unrelated or disproportionate to the operating performance of
these companies. These broad market fluctuations could result in
extreme fluctuations in the price of our common stock, which
could cause purchasers of our common stock to incur substantial
losses.
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We may
incur significant costs from class action litigation due to our
expected stock volatility.
Our stock price may fluctuate for many reasons, including as a
result of public announcements regarding the progress of our
development efforts, the addition or departure of our key
personnel, variations in our quarterly operating results and
changes in market valuations of pharmaceutical and biotechnology
companies. Recently, when the market price of a stock has been
volatile as our stock price may be, holders of that stock have
occasionally brought securities class action litigation against
the company that issued the stock. If any of our stockholders
were to bring a lawsuit of this type against us, even if the
lawsuit is without merit, we could incur substantial costs
defending the lawsuit. The lawsuit could also divert the time
and attention of our management.
Novartis
ownership of our common stock could delay or prevent a change in
corporate control or cause a decline in our common stock should
Novartis decide to sell all or a portion of its
shares.
As of December 31, 2009, Novartis held 13.3% of our
outstanding common stock and has the right to maintain its
ownership percentage through the expiration or termination of
our broad alliance. This concentration of ownership may harm the
market price of our common stock by:
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delaying, deferring or preventing a change in control of our
company;
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impeding a merger, consolidation, takeover or other business
combination involving our company; or
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discouraging a potential acquirer from making a tender offer or
otherwise attempting to obtain control of our company.
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In addition, if Novartis decides to sell all or a portion of its
shares in a rapid or disorderly manner, our stock price could be
negatively impacted.
Anti-takeover
provisions in our charter documents and under Delaware law and
our stockholder rights plan could make an acquisition of us,
which may be beneficial to our stockholders, more difficult and
may prevent attempts by our stockholders to replace or remove
our current management.
Provisions in our certificate of incorporation and our bylaws
may delay or prevent an acquisition of us or a change in our
management. In addition, these provisions may frustrate or
prevent any attempts by our stockholders to replace or remove
our current management by making it more difficult for
stockholders to replace members of our board of directors.
Because our board of directors is responsible for appointing the
members of our management team, these provisions could in turn
affect any attempt by our stockholders to replace current
members of our management team. These provisions include:
|
|
|
|
|
a classified board of directors;
|
|
|
|
a prohibition on actions by our stockholders by written consent;
|
|
|
|
limitations on the removal of directors; and
|
|
|
|
advance notice requirements for election to our board of
directors and for proposing matters that can be acted upon at
stockholder meetings.
|
In addition, our board of directors has adopted a stockholder
rights plan, the provisions of which could make it difficult for
a potential acquirer of Alnylam to consummate an acquisition
transaction.
Moreover, because we are incorporated in Delaware, we are
governed by the provisions of Section 203 of the Delaware
General Corporation Law, which prohibits a person who owns in
excess of 15% of our outstanding voting stock from merging or
combining with us for a period of three years after the date of
the transaction in which the person acquired in excess of 15% of
our outstanding voting stock, unless the merger or combination
is approved in a prescribed manner. These provisions would apply
even if the proposed merger or acquisition could be considered
beneficial by some stockholders.
66
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
Not applicable.
Our operations are based primarily in Cambridge, Massachusetts.
As of January 31, 2010, we lease approximately
95,000 square feet of office and laboratory space in
Cambridge, Massachusetts. The lease for this property expires in
September 2016. We believe that the total space available to us
under our current lease will meet our needs for the foreseeable
future and that additional space would be available to us on
commercially reasonable terms if required.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
In June 2009, we joined with Max Planck in taking legal action
against Whitehead, MIT and UMass. The complaint, initially filed
in Suffolk County Superior Court in Boston, Massachusetts and
subsequently removed to the U.S. District Court for the
District of Massachusetts, alleges, among other things, that the
defendants have improperly prosecuted the Tuschl I patent
applications and wrongfully incorporated inventions covered by
the Tuschl II patent applications into the Tuschl I patent
applications, thereby potentially damaging the value of
inventions reflected in the Tuschl I and Tuschl II patent
applications. In the field of RNAi therapeutics, we are the
exclusive licensee of the Tuschl I patent applications from Max
Planck, MIT and Whitehead and of the Tuschl II patent
applications from Max Planck.
The complaint seeks to enjoin the defendants from taking any
further action in connection with the prosecution of any Tuschl
I application, a declaratory judgment and unspecified monetary
damages. In August 2009, the court denied our motion for a
preliminary injunction. In addition, in August 2009, Whitehead
and UMass filed counterclaims against us and Max Planck,
including for breach of contract. A trial on the merits was
originally scheduled to begin in February 2010. In January 2010,
we and Max Planck filed a motion for leave to file an amended
complaint expanding upon the allegations in the original
complaint. In January 2010, the court granted this motion
allowing our amended complaint and postponed the start of the
trial. We currently expect the trial to start in June 2010.
In addition, in September 2009, the USPTO granted Max
Plancks petition to revoke power of attorney in connection
with the prosecution of the Tuschl I patent application. This
action prevents the defendants from filing any papers with the
USPTO in connection with further prosecution of the Tuschl I
patent application without the agreement of Max Planck.
Whiteheads petition to overturn the ruling on Max
Plancks petition was denied.
Although we, along with Max Planck, are vigorously asserting our
rights in this case, litigation is subject to inherent
uncertainty and a court could ultimately rule against us. In
addition, litigation is costly and may divert the attention of
our management and other resources that would otherwise be
engaged in running our business.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
No matters were submitted to a vote of our security holders
during the fourth quarter of the fiscal year ended
December 31, 2009.
67
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market
Information
Our common stock began trading on The NASDAQ Global Market on
May 28, 2004 under the symbol ALNY. Prior to
that time, there was no established public trading market for
our common stock. The following table sets forth the high and
low sale prices per share for our common stock on The NASDAQ
Global Market for the periods indicated:
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008:
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
35.19
|
|
|
$
|
22.25
|
|
Second Quarter
|
|
$
|
30.74
|
|
|
$
|
22.55
|
|
Third Quarter
|
|
$
|
36.37
|
|
|
$
|
25.07
|
|
Fourth Quarter
|
|
$
|
28.95
|
|
|
$
|
16.37
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009:
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
26.36
|
|
|
$
|
14.82
|
|
Second Quarter
|
|
$
|
23.10
|
|
|
$
|
16.29
|
|
Third Quarter
|
|
$
|
24.75
|
|
|
$
|
19.00
|
|
Fourth Quarter
|
|
$
|
22.87
|
|
|
$
|
15.45
|
|
Holders
of record
As of January 31, 2010, there were approximately 52 holders
of record of our common stock. Because many of our shares are
held by brokers and other institutions on behalf of
stockholders, we are unable to estimate the total number of
individual stockholders represented by these record holders.
Dividends
We have never paid or declared any cash dividends on our common
stock. We currently intend to retain any earnings for future
growth and, therefore, do not expect to pay cash dividends in
the foreseeable future.
Securities
Authorized for Issuance Under Equity Compensation
Plans
We will file with the SEC a definitive Proxy Statement, which we
refer to herein as the Proxy Statement, not later than
120 days after the close of the fiscal year ended
December 31, 2009. The information required by this item
relating to our equity compensation plans is incorporated herein
by reference to the information contained under the section
captioned Equity Compensation Plan Information of
the Proxy Statement.
68
Stock
Performance Graph
The following performance graph and related information shall
not be deemed soliciting material or to be
filed with the SEC, nor shall such information be
incorporated by reference into any future filing under the
Securities Act of 1933 or Securities Exchange Act of 1934, each
as amended, except to the extent that we specifically
incorporate it by reference into such filing.
The comparative stock performance graph below compares the
five-year cumulative total stockholder return (assuming
reinvestment of dividends, if any) from investing $100 on
December 31, 2004, to the close of the last trading day of
2009, in each of (i) our common stock, (ii) the NASDAQ
Stock Market (U.S.) Index and (iii) the NASDAQ
Pharmaceutical Index. The stock price performance reflected in
the graph below is not necessarily indicative of future price
performance.
Comparison
of Five-Year Cumulative Total Return
Among Alnylam Pharmaceuticals, Inc.,
NASDAQ Stock Market (U.S.) Index and NASDAQ Pharmaceuticals
Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2004
|
|
|
12/30/2005
|
|
|
12/29/2006
|
|
|
12/31/2007
|
|
|
12/31/2008
|
|
|
12/31/2009
|
Alnylam Pharmaceuticals, Inc.
|
|
|
$
|
100.00
|
|
|
|
$
|
178.85
|
|
|
|
$
|
286.48
|
|
|
|
$
|
389.29
|
|
|
|
$
|
331.06
|
|
|
|
$
|
235.88
|
|
Nasdaq Stock Market (U.S.) Index
|
|
|
$
|
100.00
|
|
|
|
$
|
102.13
|
|
|
|
$
|
112.19
|
|
|
|
$
|
121.68
|
|
|
|
$
|
58.64
|
|
|
|
$
|
84.28
|
|
Nasdaq Pharmaceutical Index
|
|
|
$
|
100.00
|
|
|
|
$
|
110.12
|
|
|
|
$
|
107.79
|
|
|
|
$
|
113.36
|
|
|
|
$
|
105.48
|
|
|
|
$
|
118.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
|
|
ITEM 6.
|
SELECTED
CONSOLIDATED FINANCIAL DATA
|
The following selected consolidated financial data for each of
the five years in the period ended December 31, 2009 are
derived from our audited consolidated financial statements. The
selected consolidated financial data set forth below should be
read in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations
and the financial statements, and the related Notes, included
elsewhere in this annual report on
Form 10-K.
Historical results are not necessarily indicative of future
results.
Selected
Consolidated Financial Data
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues from research collaborators
|
|
$
|
100,533
|
|
|
$
|
96,163
|
|
|
$
|
50,897
|
|
|
$
|
26,930
|
|
|
$
|
5,716
|
|
Operating expenses(1)
|
|
|
148,644
|
|
|
|
123,998
|
|
|
|
144,074
|
|
|
|
66,431
|
|
|
|
49,188
|
|
Loss from operations
|
|
|
(48,111
|
)
|
|
|
(27,835
|
)
|
|
|
(93,177
|
)
|
|
|
(39,501
|
)
|
|
|
(43,472
|
)
|
Net loss
|
|
|
(47,590
|
)
|
|
|
(26,249
|
)
|
|
|
(85,466
|
)
|
|
|
(34,608
|
)
|
|
|
(42,914
|
)
|
Net loss per common share basic and diluted
|
|
$
|
(1.14
|
)
|
|
$
|
(0.64
|
)
|
|
$
|
(2.21
|
)
|
|
$
|
(1.09
|
)
|
|
$
|
(1.96
|
)
|
Weighted average common shares outstanding basic and
diluted
|
|
|
41,633
|
|
|
|
41,077
|
|
|
|
38,657
|
|
|
|
31,890
|
|
|
|
21,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Non-cash stock-based compensation expenses
included in operating expenses
|
|
$
|
19,727
|
|
|
$
|
16,382
|
|
|
$
|
14,472
|
|
|
$
|
8,304
|
|
|
$
|
4,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and marketable securities
|
|
$
|
435,316
|
|
|
$
|
512,709
|
|
|
$
|
455,602
|
|
|
$
|
217,260
|
|
|
$
|
80,002
|
|
Working capital
|
|
|
182,801
|
|
|
|
343,672
|
|
|
|
314,427
|
|
|
|
199,859
|
|
|
|
63,930
|
|
Total assets
|
|
|
481,385
|
|
|
|
554,676
|
|
|
|
493,791
|
|
|
|
240,006
|
|
|
|
98,348
|
|
Notes payable
|
|
|
|
|
|
|
|
|
|
|
6,758
|
|
|
|
9,136
|
|
|
|
7,395
|
|
Total stockholders equity
|
|
|
177,965
|
|
|
|
202,125
|
|
|
|
199,168
|
|
|
|
201,174
|
|
|
|
61,779
|
|
70
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
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.
We are applying our technological expertise to build a pipeline
of RNAi therapeutics to address significant medical needs, many
of which cannot effectively be addressed with small molecules or
antibodies, the current major classes of drugs. We are working
to develop RNAi therapeutics that are delivered directly to
specific sites of disease, as well as RNAi therapeutics that are
administered systemically through the bloodstream by
intravenous, subcutaneous or intramuscular approaches. Our lead
RNAi therapeutic program, ALN-RSV01, is in Phase II
clinical trials for the treatment of human respiratory syncytial
virus, or RSV, infection, which is reported to be the leading
cause of hospitalization in infants in the United States and
also occurs in the elderly and in immune compromised adults. In
February 2008, we reported positive results from our
Phase II experimental RSV infection clinical trial,
referred to as the GEMINI study. In July 2009, we and Cubist
Pharmaceuticals, Inc., or Cubist, reported results from a Phase
IIa clinical trial assessing the safety and tolerability of
aerosolized
ALN-RSV01
versus placebo in adult lung transplant patients naturally
infected with RSV. In February 2010, we initiated a
multi-center, global, randomized, double-blind,
placebo-controlled Phase IIb clinical trial to evaluate the
clinical efficacy endpoints, as well as safety of aerosolized
ALN-RSV01 in adult lung transplant patients naturally infected
with RSV.
We have formed collaborations with Cubist and Kyowa Hakko Kirin
Co., Ltd., or Kyowa Hakko Kirin, for the development and
commercialization of RNAi products for RSV. We have an agreement
to jointly develop and commercialize certain RNAi products for
RSV with Cubist in North America. Cubist has responsibility for
developing and commercializing any such products in the rest of
the world outside of Asia, and Kyowa Hakko Kirin has the
responsibility for developing and commercializing any RNAi
products for RSV in Asia. In November 2009, we and Cubist agreed
that Alnylam would move forward with the development of
ALN-RSV01, and together we would focus our collaboration and
joint development efforts on ALN-RSV02, a second-generation
compound, intended for use in pediatric patients. We and Cubist
each bears one-half of the related development costs for
ALN-RSV02.
We are also continuing to develop ALN-RSV01 for adult transplant
patients at our sole discretion and expense. Cubist has the
right to resume the collaboration on ALN-RSV01 in the future,
which right may be exercised for a specified period of time
following the completion of our Phase IIb trial of ALN-RSV01,
subject to the payment by Cubist of an opt-in fee representing
reimbursement of an agreed upon percentage of certain of our
development expenses for ALN-RSV01.
In March 2009, we initiated a Phase I study for ALN-VSP, our
second clinical program and our first systemically delivered
RNAi therapeutic candidate. We are developing ALN-VSP for the
treatment of liver cancers, including hepatocellular carcinoma,
or HCC, and other solid tumors with liver involvement. The Phase
I study is a multi-center, open label, dose escalation study to
evaluate the safety, tolerability, pharmacokinetics and
pharmacodynamics of intravenous ALN-VSP in up to approximately
55 patients with advanced solid tumors with liver
involvement, including HCC.
In December 2009, we filed regulatory applications to initiate a
clinical trial for ALN-TTR01, our second systemically delivered
RNAi therapeutic candidate. We are developing ALN-TTR, which
targets the transthyretin, or TTR, gene, for the treatment of
TTR-mediated amyloidosis, or ATTR. We plan to initiate a Phase I
trial of
ALN-TTR01 in
ATTR patients in the first half of 2010. ALN-TTR01 employs a
first generation lipid nanoparticle, or LNP, formulation. In
parallel, we are also advancing ALN-TTR02 utilizing
second-generation LNPs.
71
In January 2010, we announced that we expect ALN-PCS, a
systemically delivered RNAi therapeutic candidate for the
treatment of hypercholesterolemia, to be our next clinical
candidate. ALN-PCS targets a gene called proprotein convertase
subtilisin/kexin type 9, or PCSK9.
We are also working on a number of programs in pre-clinical
development, including ALN-HTT, an RNAi therapeutic candidate
targeting the huntingtin gene, for the treatment of
Huntingtons disease, or HD, which we are developing in
collaboration with Medtronic, Inc., or Medtronic. We have
additional discovery programs for RNAi therapeutics for the
treatment of a broad range of diseases.
In addition, we are working internally and with third-party
collaborators to develop capabilities to deliver our RNAi
therapeutics directly to specific sites of disease, such as the
delivery of ALN-RSV to the lungs. We are also working to extend
our capabilities to advance the development of RNAi therapeutics
that are administered systemically by intravenous, subcutaneous
or intramuscular approaches. Over the past 12 to 18 months,
we have made several of what we believe to be major advances
relating to the delivery of RNAi therapeutics, both internally
and together with our collaborators. 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 rely on the strength of our intellectual property portfolio
relating to the development and commercialization of small
interfering RNAs, or siRNAs, as therapeutics. This 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 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,
Takeda Pharmaceutical Company Limited, or Takeda, Kyowa Hakko
Kirin and Cubist. We have also entered 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 established collaborations
with and, in some instances, received funding from major medical
and disease associations. 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 opportunities to form new ventures in areas outside
our core strategic focus. For example, during 2009, we presented
new data regarding the application of RNAi technology to improve
the manufacturing processes for biologics, which is comprised of
recombinant proteins, monoclonal antibodies and vaccines. This
initiative, which we are advancing in an internal effort
referred to as Alnylam Biotherapeutics, has the potential to
create new business opportunities. Additionally, in 2007, we and
Isis established Regulus Therapeutics Inc., formerly Regulus
Therapeutics LLC, or Regulus, a company focused on the
discovery, development and commercialization of microRNA-based
therapeutics. Because microRNAs are believed to regulate whole
networks of genes that can be involved in discrete disease
processes, microRNA-based therapeutics represent a possible new
approach to target the pathways of human disease. Given the
broad applications for RNAi technology, we believe additional
opportunities exist for new ventures.
Alnylam commenced operations in June 2002. We have focused our
efforts since inception primarily on business planning, research
and development, acquiring, filing and expanding intellectual
property rights, recruiting management and technical staff, and
raising capital. Since our inception, we have generated
significant losses. As of December 31, 2009, we had an
accumulated deficit of $299.8 million. Through
December 31, 2009, we have funded our operations primarily
through the net proceeds from the sale of equity securities and
payments we have received under strategic alliances. Through
December 31, 2009, a substantial portion of our total net
revenues have been collaboration revenues derived from our
strategic alliances with Roche,
72
Takeda and Novartis, and from the United States government in
connection with our development of treatments for hemorrhagic
fever viruses, including Ebola. We expect our revenues to
continue to be derived primarily from new and existing strategic
alliances, government and foundation funding, and license fee
revenues.
We currently have programs focused in a number of therapeutic
areas. However, we are unable to predict when, if ever, we will
successfully develop or be able to commence sales of any
product. We have never achieved profitability on an annual basis
and we expect to incur additional losses over the next several
years. We expect our net losses to continue due primarily to
research and development activities relating to our drug
development programs, collaborations and other general corporate
activities. 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. Our sources of potential funding for
the next several years are expected to be derived primarily from
payments under new and existing strategic alliances, which may
include license and other fees, funded research and development
payments and milestone payments, government and foundation
funding, and proceeds from the sale of equity.
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. Our most advanced program is focused on the treatment
of RSV infection and is in Phase II clinical studies. In
March 2009, we initiated a Phase I study for ALN-VSP, our second
clinical program and our first systemically delivered RNAi
therapeutic candidate for the treatment of primary and secondary
liver cancer. In December 2009, we filed regulatory applications
to initiate a clinical trial for ALN-TTR01, our second
systemically delivered RNAi therapeutic candidate. We are
developing ALN-TTR, which targets the TTR gene, for the
treatment of ATTR. We plan to initiate a Phase I trial of
ALN-TTR01 in ATTR patients in the first half of 2010. ALN-TTR01
employs a first generation LNP formulation. In parallel, we are
also advancing ALN-TTR02 utilizing second-generation LNPs. In
January 2010, we announced that we expect ALN-PCS, a
systemically delivered RNAi therapeutic candidate for the
treatment of hypercholesterolemia, to be our next clinical
candidate. We also have a development program focused on the
treatment of HD. In addition, we have discovery programs to
develop RNAi therapeutics for the treatment of a broad range of
diseases, such as viral hemorrhagic fever, including the Ebola
virus, Parkinsons disease, progressive multifocal
leukoencephalopathy, or PML, and other undisclosed programs, as
well as several other diseases that are the subject of our
strategic alliances. We are working internally and with
third-party collaborators to develop capabilities to deliver our
RNAi therapeutics both directly to the specific sites of disease
and systemically, and we intend to continue to collaborate with
government, academic and corporate third parties to evaluate
different delivery options.
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:
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our ability to progress product candidates into pre-clinical and
clinical trials;
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the scope, rate and progress 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;
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the scope, rate of progress and cost of any clinical trials we
commence;
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clinical trial results;
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the cost of filing, prosecuting, defending and enforcing any
patent claims and other intellectual property rights;
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the terms, timing and success of any collaborative, licensing
and other arrangements that we may establish;
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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;
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the cost and timing of establishing sufficient sales, marketing
and distribution capabilities;
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the cost and timing of establishing sufficient clinical and
commercial supplies of any products that we may develop; and
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the effect of competing technological and market developments.
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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 I, Item 1A of this annual report on
Form 10-K
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. Our collaboration strategy is to form
(1) non-exclusive platform alliances where our
collaborators obtain access to our capabilities and intellectual
property to develop their own RNAi therapeutic products; and
(2) 50-50
co-development
and/or
ex-U.S. market geographic partnerships on specific RNAi
therapeutic programs. We have entered into broad, non-exclusive
platform license agreements with Roche and Takeda, under which
we are also collaborating with each of Roche and Takeda on RNAi
drug discovery for one or more disease targets. We are pursuing
50-50
co-development programs with Cubist and Medtronic for the
development and commercialization of ALN-RSV02 and ALN-HTT,
respectively. In addition, we have entered into a product
alliance with Kyowa Hakko Kirin for the development and
commercialization of ALN-RSV in territories not covered by the
Cubist agreement, which include Japan and other markets in Asia.
We also have discovery and development alliances with Isis,
Novartis and Biogen Idec.
We also seek opportunities to form new ventures in areas outside
our core strategic focus. For example, during 2009, we
established Alnylam Biotherapeutics, an internal effort
regarding the application of RNAi technology to improve the
manufacturing processes for biologics, an approach that has the
potential to create new business opportunities. This initiative
is focused on applying RNAi technologies to the biologics
marketplace, which is comprised of recombinant proteins,
monoclonal antibodies, and vaccines. In addition, during 2007,
we formed Regulus, together with Isis, to capitalize on our
technology and intellectual property in the field of
microRNA-based therapeutics. Given the broad applications for
RNAi technology, we believe additional opportunities exist for
new ventures.
To generate revenues from our intellectual property rights, we
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. Our InterfeRx and research product licenses
aim to generate modest near-term revenues that we can re-invest
in the development of our proprietary RNAi therapeutics
pipeline. As of January 31, 2010, 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 agreements with other companies and academic
institutions to gain access to delivery technologies. For
example, we have entered into agreements with 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, Tekmira and MIT, as well as a number of other
entities, to obtain rights to important intellectual property in
the field of RNAi. In April 2009, we established a new
collaboration with Isis focused on the development of
single-stranded RNAi, or ssRNAi, technology.
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Additionally, we seek funding for the development of our
proprietary RNAi therapeutics pipeline from the government and
foundations. In 2006, NIAID awarded us a contract to advance the
development of a broad spectrum RNAi anti-viral therapeutic
against hemorrhagic fever virus, including the Ebola virus. In
2007, the Defense Threat Reduction Agency, or DTRA, an agency of
the United States Department of Defense, awarded us a contract
to advance the development of a broad spectrum RNAi anti-viral
therapeutic for hemorrhagic fever virus, which contract ended in
February 2009. In addition, we have obtained funding for
pre-clinical discovery programs from organizations such as The
Michael J. Fox Foundation.
In September 2007, we terminated our amended and restated
research collaboration and license agreement with
Merck & Co., Inc., or Merck. Pursuant to the
termination agreement, all license grants of intellectual
property to develop, manufacture
and/or
commercialize RNAi therapeutic products under the amended and
restated research collaboration and license agreement ceased as
of the date of the termination agreement, subject to certain
specified exceptions. The termination agreement further provides
that, subject to certain conditions, we and Merck will each
retain sole ownership and rights in our own intellectual
property.
Platform
Alliances.
Roche. In July 2007, we and, for limited
purposes, Alnylam Europe AG, or Alnylam Europe, entered into a
license and collaboration agreement with Roche. Under the
license and collaboration agreement, which became effective in
August 2007, we granted Roche a non-exclusive license to our
intellectual property to develop and commercialize therapeutic
products that function through RNAi, subject to our existing
contractual obligations to third parties. The license is
initially limited to the therapeutic areas of oncology,
respiratory diseases, metabolic diseases and certain liver
diseases, and may be expanded to include up to 18 additional
therapeutic areas, comprising substantially all other fields of
human disease, as identified and agreed upon by the parties,
upon payment to us by Roche of an additional $50.0 million
for each additional therapeutic area, if any.
In consideration for the rights granted to Roche under the
license and collaboration agreement, Roche paid us
$273.5 million in upfront cash payments. In addition, in
exchange for our contributions under the collaboration
agreement, for each RNAi therapeutic product developed by Roche,
its affiliates or sublicensees under the collaboration
agreement, we are entitled to receive milestone payments upon
achievement of specified development and sales events, totaling
up to an aggregate of $100.0 million per therapeutic
target, together with royalty payments based on worldwide annual
net sales, if any. Due to the uncertainty of pharmaceutical
development and the high historical failure rates generally
associated with drug development, we may not receive any
milestone or royalty payments from Roche.
Under the license and collaboration agreement, we and Roche also
agreed to collaborate on the discovery of RNAi therapeutic
products directed to one or more disease targets, subject to our
contractual obligations to third parties. In October 2009, we
and Roche advanced our alliance to initiate this therapeutic
collaboration stage, referred to as the Discovery Collaboration.
Under the Discovery Collaboration, we and Roche are
collaborating on the discovery and development of specific RNAi
therapeutic products and each party contributes key delivery
technologies in the effort, which is focused on specific disease
targets. We and Roche intend to co-develop and co-commercialize
RNAi therapeutic products in the U.S. market and we are
eligible to receive additional milestone and royalty payments
for products developed in the rest of the world, if any. After a
pre-specified period of collaborative activities, each party
will have the option to opt-out of the
day-to-day
development activities in exchange for reduced milestones and
royalty payments in the future. The Discovery Collaboration is
governed by the joint steering committee that is comprised of an
equal number of representatives from each party.
In connection with the execution of the license and
collaboration agreement, we executed a common stock purchase
agreement with Roche Finance Ltd, or Roche Finance, an affiliate
of Roche. Under the terms of the common stock purchase
agreement, in August 2007, Roche Finance purchased
1,975,000 shares of our common stock at $21.50 per share,
for an aggregate purchase price of $42.5 million.
In connection with the execution of the license and
collaboration agreement and the common stock purchase agreement,
we also executed a stock purchase agreement with Alnylam Europe
and Roche Beteiligungs GmbH, or Roche Germany, an affiliate of
Roche. Under the terms of the Alnylam Europe stock purchase
agreement, we created a new, wholly-owned German limited
liability company, Roche Kulmbach, into which substantially all
of
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the non-intellectual property assets of Alnylam Europe were
transferred, and Roche Germany purchased from us all of the
issued and outstanding shares of Roche Kulmbach for an aggregate
purchase price of $15.0 million. The Alnylam Europe stock
purchase agreement included transition services that were
performed by Roche Kulmbach employees at various levels through
August 2008. We reimbursed Roche for these services at an
agreed-upon
rate.
In connection with the license and collaboration agreement and
the common stock purchase agreement, during 2007, we paid
$27.5 million in license fees to our licensors, primarily
Isis, in accordance with the applicable license agreements with
those parties. These fees were charged to research and
development expense.
Takeda. In May 2008, we entered into a license
and collaboration agreement with Takeda to pursue the
development and commercialization of RNAi therapeutics. Under
the Takeda agreement, we granted to Takeda a non-exclusive,
worldwide, royalty-bearing license to our intellectual property
to develop, manufacture, use and commercialize RNAi
therapeutics, subject to our existing contractual obligations to
third parties. The license initially is limited to the fields of
oncology and metabolic disease and may be expanded at
Takedas option to include other therapeutic areas, subject
to specified conditions. Under the Takeda agreement, Takeda will
be our exclusive platform partner in the Asian territory, as
defined in the agreement, for a period of five years.
In consideration for the rights granted to Takeda under the
Takeda agreement, Takeda agreed to pay us $150.0 million in
upfront and near-term technology transfer payments. In addition,
we have the option, exercisable until the start of
Phase III development, to opt-in under a
50-50 profit
sharing agreement to the development and commercialization in
the United States of up to four Takeda licensed products, and
would be entitled to opt-in rights for two additional products
for each additional field expansion, if any, elected by Takeda
under the Takeda agreement. In June 2008, Takeda paid us an
upfront payment of $100.0 million. Takeda is also required
to make the additional $50.0 million in payments to us upon
achievement of specified technology transfer milestones,
$20.0 million of which was achieved in September 2008 and
paid in October 2008, $20.0 million of which is due upon
achievement of specified technology transfer activities, but no
later than May 2010, and $10.0 million of which is due upon
the achievement of specified technology transfer activities
within 24 to 36 months after execution of the agreement. If
Takeda elects to expand its license to additional therapeutic
areas, Takeda will be required to pay us $50.0 million for
each of up to approximately 20 total additional fields selected,
if any, comprising substantially all other fields of human
disease, as identified and agreed upon by the parties. In
addition, for each RNAi therapeutic product developed by Takeda,
its affiliates and sublicensees, we are entitled to receive
specified development and commercialization milestones, totaling
up to $171.0 million per product, together with royalty
payments based on worldwide annual net sales, if any. Due to the
uncertainty of pharmaceutical development and the high
historical failure rates generally associated with drug
development, we may not receive any milestone or royalty
payments from Takeda.
Pursuant to the Takeda agreement, we and Takeda are also
collaborating on the research of RNAi therapeutics directed to
one or two disease targets agreed to by the parties, subject to
our existing contractual obligations with third parties. Takeda
also has the option, subject to certain conditions, to
collaborate with us on the research and development of RNAi drug
delivery technology for targets agreed to by the parties. In
addition, Takeda has a right of first negotiation for the
development and commercialization of our RNAi therapeutic
products in the Asian territory, excluding our ALN-RSV program.
In addition to our
50-50 profit
sharing option, we have a similar right of first negotiation to
participate with Takeda in the development and commercialization
in the United States of licensed products. The collaboration is
governed by a joint technology transfer committee, or JTTC, a
joint research collaboration committee, or JRCC, and a joint
delivery collaboration committee, or JDCC, each of which is
comprised of an equal number of representatives from each party.
In connection with the Takeda agreement, during 2008, we paid
$5.0 million of license fees to our licensors, primarily
Isis, in accordance with the applicable license agreements with
those parties. These fees were charged to research and
development expense.
Discovery and Development Alliances.
Isis. In April 2009, we and Isis amended and
restated our existing strategic collaboration and license
agreement, originally entered into in March 2004, to extend the
broad cross-licensing arrangement regarding double-stranded RNAi
that was established in 2004, pursuant to which Isis granted us
licenses to its current and
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future patents and patent applications relating to chemistry and
to RNA-targeting mechanisms for the research, development and
commercialization of double-stranded RNA, or dsRNA products. We
have the right to use Isis technologies in our development
programs or in collaborations, and Isis has agreed not to grant
licenses under these patents to any other organization for the
discovery, development or commercialization of dsRNA products
designed to work through an RNAi mechanism, except in the
context of a collaboration in which Isis plays an active role.
We granted Isis non-exclusive licenses to our current and future
patents and patent applications relating to RNA-targeting
mechanisms and to chemistry for research use. We also granted
Isis the non-exclusive right to develop and commercialize dsRNA
products developed using RNAi technology against a limited
number of targets. In addition, we granted Isis non-exclusive
rights to research, develop and commercialize single-stranded
RNA products.
We agreed to pay Isis milestone payments, totaling up to
approximately $3.4 million, upon the occurrence of
specified development and regulatory events, and royalties on
sales, if any, for each product that we or a collaborator
develops using Isis intellectual property. In addition, we
agreed to pay to Isis a percentage of specified fees from
strategic collaborations we may enter into that include access
to the Isis intellectual property.
Isis agreed to pay us, per therapeutic target, a license fee of
$0.5 million, and milestone payments totaling approximately
$3.4 million, payable upon the occurrence of specified
development and regulatory events, and royalties on sales, if
any, for each product developed by Isis or a collaborator that
utilizes our intellectual property. Isis has the right to elect
up to ten non-exclusive target licenses under the agreement and
has the right to purchase one additional non-exclusive target
per year during the term of the collaboration.
As part of the amended and restated Isis agreement, we and Isis
established a new collaborative effort focused on the
development of ssRNAi technology. Under the amended and restated
Isis agreement, we obtained from Isis a co-exclusive, worldwide
license to Isis current and future patents and patent
applications relating to chemistry and RNA-targeting mechanisms
to research, develop and commercialize ssRNAi products. Each
party has the opportunity to discover and develop drugs
employing the ssRNAi technology. Under the terms of the amended
and restated Isis agreement, we will potentially pay Isis up to
an aggregate of $31.0 million in license fees, payable in
four tranches, that include $11.0 million paid on signing,
$10.0 million payable in October 2010, or if and when in
vivo efficacy in rodents is demonstrated if sooner,
$5.0 million upon achievement of in vivo efficacy in
non-human primates, and $5.0 million upon initiation of the
first clinical trial with an ssRNAi drug, subject to our right
to unilaterally terminate the research program. We are funding
research activities at a minimum of $3.0 million each year
for three years with research and development activities
conducted by both us and Isis. If we develop and commercialize
drugs utilizing ssRNAi technology on our own or with a partner,
we would be required to make milestone payments to Isis,
totaling up to $18.5 million per product, as well as
royalties. Also, Isis initially is eligible to receive up to 50%
of any sublicense payments due to us from a third party based on
our partnering of ssRNAi products, which amount will decline
over time as our investment in the technology and drugs
increases. In turn, we are eligible to receive up to five
percent of any sublicense payments due to Isis from a third
party based on Isis partnering of ssRNAi products.
We have the unilateral right to terminate the ssRNAi research
program before September 30, 2010, in which event any licenses
to ssRNAi products granted by Isis to us under the amended and
restated Isis agreement, and any obligation thereunder by us to
pay milestone payments, royalties or sublicense payments to Isis
for such ssRNAi products, would also terminate.
Novartis. Beginning in September 2005, we
entered into a series of transactions with Novartis which we
refer to as our broad Novartis alliance. At that time, we and
Novartis executed a stock purchase agreement and an investor
rights agreement. When the transactions contemplated by the
stock purchase agreement closed in October 2005, the investor
rights agreement became effective and we and Novartis executed a
research collaboration and license agreement. The collaboration
and license agreement had an initial term of three years, with
an option for two additional one-year extensions at the election
of Novartis. In July 2009, Novartis elected to further extend
the term for the fifth and final planned year, through October
2010.
Under the terms of the collaboration and license agreement, we
and Novartis work together on a defined number of selected
targets, as defined in the collaboration and license agreement,
to discover and develop therapeutics based on RNAi. In
consideration for rights granted to Novartis under the
collaboration and license agreement, Novartis made an upfront
payment of $10.0 million to us in October 2005, partly to
reimburse prior
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costs incurred by us to develop in vivo RNAi technology.
The collaboration and license agreement also includes terms
under which Novartis has been providing us with research funding
and development milestone payments, and may provide us in the
future with sales milestone payments as well as royalties on
annual net sales of products resulting from the collaboration,
if any. The amount of research funding provided by Novartis
under the collaboration and license agreement during the
research term is dependent upon the number of active programs on
which we are collaborating with them at any given time and the
number of our employees that are working on those programs, in
respect of which Novartis reimburses us at an agreed upon rate.
Under the terms of the collaboration and license agreement,
Novartis has the right to select up to 30 exclusive targets to
include in the collaboration, which number may be increased to
40 under certain circumstances and upon additional payments. For
RNAi therapeutic products developed under the agreement, if any,
we would be entitled to receive milestone payments upon
achievement of certain specified development and annual net
sales events, up to an aggregate of $75.0 million per
therapeutic product. Due to the uncertainty of pharmaceutical
development and the high historical failure rates generally
associated with drug development, we may not receive additional
milestone payments or any royalty payments from Novartis.
The collaboration and license agreement also provides Novartis
with a non-exclusive option to integrate into its operations our
intellectual property relating to RNAi technology, excluding any
technology related to delivery of nucleic acid based molecules.
Novartis may exercise this integration option at any point
during the research term, which term is currently expected to
expire in the fourth quarter of 2010. In connection with the
exercise of the integration option, Novartis would be required
to make additional payments to us totaling $100.0 million,
payable in full at the time of exercise, which payments would
include an option exercise fee, a milestone based on the overall
success of the collaboration and pre-paid milestones and
royalties that could become due as a result of future
development of products using our technology. This amount would
be offset by any license fees due to our licensors in accordance
with the applicable license agreements with those parties. In
addition, under this license grant, Novartis may be required to
make milestone and royalty payments to us in connection with the
development and commercialization of RNAi therapeutic products,
if any. The license grant under the integration option, if
exercised by Novartis, would be structured similarly to our
non-exclusive platform licenses with Roche and Takeda.
Under the terms of the stock purchase agreement, in October
2005, Novartis purchased 5,267,865 shares of our common
stock at a purchase price of $11.11 per share for an aggregate
purchase price of $58.5 million, which, after such
issuance, represented 19.9% of our outstanding common stock as
of the date of issuance. In addition, under the investor rights
agreement, we granted Novartis rights to acquire additional
equity securities in the event that we propose to sell or issue
any equity securities, subject to specified exceptions, as
described in the investor rights agreement, such that Novartis
would be able to maintain its then-current ownership percentage
in our outstanding common stock. Pursuant to terms of the
investor rights agreement, in May 2008, Novartis purchased
213,888 shares of our common stock at a purchase price of
$25.29 per share resulting in a payment to us of
$5.4 million. In May 2009, Novartis purchased
65,922 shares of our common stock at a purchase price of
$17.50 per share, resulting in an aggregate payment to us of
$1.2 million. This purchase allowed Novartis to maintain
its ownership position of 13.4% of our outstanding common stock.
The exercises of this right did not result in any changes to
existing rights or any additional rights to Novartis. Further,
during the term described in the investor rights agreement,
Novartis is permitted to own no more than 19.9% of our
outstanding shares. At December 31, 2009, Novartis owned
13.3% of our outstanding common stock.
In addition to the broad Novartis alliance, in February 2006, we
entered into the Novartis flu alliance. Under the terms of the
Novartis flu alliance, we and Novartis had joint responsibility
for the development of RNAi therapeutics for pandemic flu. This
program was stopped during 2008 and currently there are no
specific resource commitments for this program.
Biogen Idec. In September 2006, we entered
into a collaboration and license agreement with Biogen Idec. The
collaboration is focused on the discovery and development of
therapeutics based on RNAi for the potential treatment of PML.
Under the terms of the Biogen Idec agreement, we granted Biogen
Idec an exclusive license to distribute, market and sell certain
RNAi therapeutics to treat PML and Biogen Idec has agreed to
fund all related research and development activities. We
received an upfront $5.0 million payment from Biogen Idec.
In addition, upon the successful development and utilization of
a product resulting from the collaboration, if any, Biogen Idec
would be required to pay us milestone payments, totaling
$51.0 million, and royalty payments on sales, if any. Due
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to the uncertainty of pharmaceutical development and the high
historical failure rates generally associated with drug
development, we may not receive any milestone or royalty
payments from Biogen Idec. The pace and scope of future
development of this program is the responsibility of Biogen
Idec. We expect to expend limited resources on this program in
2010.
Product Alliances.
Medtronic. In July 2007, we entered into an
amended and restated collaboration agreement with Medtronic to
pursue the development of therapeutic products for the treatment
of neurodegenerative disorders. The amended and restated
collaboration agreement supersedes the collaboration agreement
entered into by the parties in February 2005, and continues the
existing collaboration between the parties focusing on the
delivery of RNAi therapeutics to specific areas of the brain
using implantable infusion systems.
Under the terms of the amended and restated collaboration
agreement, we and Medtronic are continuing our existing
development program focused on developing a combination
drug-device product for the treatment of Huntingtons
disease. 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 discovered and developed
using our RNAi therapeutics platform to the human nervous system
through implantable infusion devices developed by Medtronic. We
are responsible for supplying the siRNA component and Medtronic
is responsible for supplying the device component of any product
resulting from the collaboration.
With respect to the initial product development program focused
on Huntingtons disease, each party is funding 50% of the
development efforts for the United States while Medtronic is
responsible for funding development efforts outside the United
States. Medtronic will commercialize any resulting products and
pay royalties to us based on net sales of such products, if any,
which royalties in the United States are designed to approximate
50% of the profit associated with the sale of such product and
which royalties in Europe are similar to more traditional
pharmaceutical royalties, in that they are intended to reflect
each partys contribution.
Each party has the right to opt-out of its obligation to fund
the program under the agreement at certain stages, and the
agreement provides for revised economics based on the timing of
any such opt-out. Other than pursuant to the initial product
development program, and subject to specified exceptions,
neither party may research, develop, manufacture or
commercialize products that use implanted infusion devices for
the direct delivery of siRNAs to the human nervous system to
treat Huntingtons disease during the term of such program.
Kyowa Hakko Kirin. In June 2008, we entered
into a license and collaboration agreement with Kyowa Hakko
Kirin. Under the Kyowa Hakko Kirin agreement, we granted Kyowa
Hakko Kirin an exclusive license to our intellectual property in
Japan and other markets in Asia for the development and
commercialization of an RNAi therapeutic for the treatment of
RSV infection. The Kyowa Hakko Kirin agreement covers ALN-RSV01,
as well as additional RSV-specific RNAi therapeutic compounds
that comprise the ALN-RSV program. We retain all development and
commercialization rights worldwide outside of the licensed
territory, subject to our agreement with Cubist, described below.
Under the terms of the Kyowa Hakko Kirin agreement, in June
2008, Kyowa Hakko Kirin paid us an upfront cash payment of
$15.0 million. In addition, Kyowa Hakko Kirin is required
to make payments to us upon achievement of specified development
and sales milestones totaling up to $78.0 million, and
royalty payments based on annual net sales, if any, of RNAi
therapeutics for RSV by Kyowa Hakko Kirin, its affiliates and
sublicensees in the licensed territory. Due to the uncertainty
of pharmaceutical development and the high historical failure
rates generally associated with drug development, we may not
receive any milestone or royalty payments from Kyowa Hakko Kirin.
Our collaboration with Kyowa Hakko Kirin is governed by a joint
steering committee that is comprised of an equal number of
representatives from each party. Under the agreement, Kyowa
Hakko Kirin is establishing a development plan for the ALN-RSV
program relating to the development activities to be undertaken
in the licensed territory, with the initial focus on Japan.
Kyowa Hakko Kirin is responsible, at its expense, for all
development activities under the development plan that are
reasonably necessary for the regulatory approval and
commercialization of an RNAi therapeutic for the treatment of
RSV in Japan and the rest of the licensed
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territory. We are responsible for supply of the product to Kyowa
Hakko Kirin under a supply agreement unless Kyowa Hakko Kirin
elects, prior to the first commercial sale of the product in the
licensed territory, to manufacture the product itself or arrange
for a third party to manufacture the product.
Cubist. In January 2009, we entered into a
license and collaboration agreement with Cubist to develop and
commercialize therapeutic products based on certain of our RNAi
technology for the treatment of RSV. Licensed products initially
included ALN-RSV01, as well as several other second-generation
RNAi-based RSV inhibitors. In November 2009, we and Cubist
entered into an amendment to our license and collaboration
agreement, which provides that we and Cubist will focus our
collaboration and joint development efforts on ALN-RSV02, a
second-generation compound, intended for use in pediatric
patients. Consistent with the original license and collaboration
agreement, we and Cubist each bears one-half of the related
development costs for ALN-RSV02. Pursuant to the terms of the
amendment, we are also continuing to develop ALN-RSV01 for adult
transplant patients at our sole discretion and expense. Cubist
has the right to resume the collaboration on ALN-RSV01 in the
future, which right may be exercised for a specified period of
time following the completion of our Phase IIb trial of
ALN-RSV01 in adult lung transplant patients infected with RSV,
subject to the payment by Cubist of an opt-in fee representing
reimbursement of an agreed upon percentage of certain of our
development expenses for ALN-RSV01.
Under the terms of the Cubist agreement, we and Cubist share
responsibility for developing licensed products in North America
and each bears one-half of the related development costs,
subject to the terms of the November 2009 amendment. Our
collaboration with Cubist for the development of licensed
products in North America is governed by a joint steering
committee comprised of an equal number of representatives from
each party. Cubist will have the sole right to commercialize
licensed products in North America with costs associated with
such activities and any resulting profits or losses to be split
equally between us and Cubist. Throughout the rest of the world,
referred to as the Royalty Territory, excluding Asia, where we
have previously partnered our ALN-RSV program with Kyowa Hakko
Kirin, Cubist has an exclusive, royalty-bearing license to
develop and commercialize licensed products.
In consideration for the rights granted to Cubist under the
agreement, in January 2009, Cubist paid us an upfront cash
payment of $20.0 million. Cubist also has an obligation
under the agreement to pay us milestone payments, totaling up to
an aggregate of $82.5 million, upon the achievement of
specified development and sales events in the Royalty Territory.
In addition, if licensed products are successfully developed,
Cubist will be required to pay us double digit royalties on net
sales of licensed products in the Royalty Territory, if any,
subject to offsets under certain circumstances. Upon achievement
of certain development milestones, we will have the right to
convert the North American co-development and profit sharing
arrangement into a royalty-bearing license and, in addition to
royalties on net sales in North America, will be entitled to
receive additional milestone payments totaling up to an
aggregate of $130.0 million upon achievement of specified
development and sales events in North America, subject to
the timing of the conversion by us and the regulatory status of
a licensed product at the time of conversion. If we make the
conversion to a royalty-bearing license with respect to North
America, then North America becomes part of the Royalty
Territory. Due to the uncertainty of pharmaceutical development
and the high historical failure rates generally associated with
drug development, we may not receive any milestone or royalty
payments from Cubist.
In connection with the Cubist agreement, during 2009, we paid
$1.0 million of license fees to our licensors, primarily
Isis, in accordance with the applicable license agreements with
those parties. These fees were charged to research and
development expense.
Delivery
Initiatives
We are working internally and with third-party collaborators to
extend our capabilities in developing technology to achieve
effective and safe delivery of RNAi therapeutics to a broad
spectrum of organ and tissue types. In connection with these
efforts, we have entered into a number of agreements to evaluate
and gain access to certain delivery technologies. In some
instances, we are also providing funding to support the
advancement of these delivery technologies. We believe that we
have made considerable progress in developing our product
platform. Over the past 12 to 18 months, we have made
several of what we believe to be major advances relating to the
delivery of RNAi therapeutics, both internally and together with
our collaborators. The first relates to the discovery of new LNP
compositions that provide dramatic improvements in the potency
of gene silencing as compared to first generation
80
LNPs. Additionally, we believe we have discovered an important
in vivo mechanism for delivery relating to the role of
endogenous apolipoprotein E, or ApoE, a plasma protein involved
in lipoprotein metabolism, in the delivery of certain LNPs into
the cytoplasm of certain cells. The latter discovery has allowed
the specific targeting of LNPs and allows the possibility of
delivery beyond the liver. We discuss these advances and our
overall delivery efforts in more detail in the section entitled
Delivery Initiatives found in Part I,
Item 1 of this annual report on
Form 10-K.
In May 2007, we entered into an agreement with the David H. Koch
Institute for Integrative Cancer Research at MIT, under which we
are sponsoring an exclusive five-year research program focused
on the delivery of RNAi therapeutics. In addition, during 2007,
we obtained an exclusive worldwide license to the liposomal
delivery formulation technology of Tekmira for the discovery,
development and commercialization of LNP formulations for the
delivery of RNAi therapeutics and a non-exclusive worldwide
license to certain liposomal delivery formulation technology of
Protiva Biotherapeutics Inc., or Protiva, for the discovery,
development and commercialization of certain LNP formulations
for the delivery of RNAi therapeutics. In May 2008, Tekmira
acquired Protiva. In connection with this acquisition, we
entered into new agreements with Tekmira and Protiva, which
provide us access to key existing and future technology and
intellectual property for the systemic delivery of RNAi
therapeutics with liposomal delivery technologies. Under these
agreements, we continue to have exclusive rights to the Semple
(U.S. Patent No. 6,858,225) and Wheeler
(U.S. Patent Nos. 5,976,567 and 6,815,432) patents for
RNAi, which we believe are critical for the use of LNP delivery
technology. In July 2009, we and Tekmira agreed to jointly
participate in a new research collaboration with scientists at
UBC and AlCana focused on the discovery of novel lipids for use
in LNPs for the systemic delivery of RNAi therapeutics. We are
funding the collaborative research over a two-year period, and
the work is being conducted by our scientists together with
scientists at UBC and AlCana. We will receive exclusive rights
to all new inventions as well as sole rights to sublicense any
resulting intellectual property to our current and future
collaborators. Tekmira will receive rights to use new inventions
for their own RNAi therapeutic programs that are licensed under
our InterfeRx program.
We are developing ALN-VSP, a systemically delivered RNAi
therapeutic candidate, for the treatment of primary and
secondary liver cancer. ALN-VSP contains two siRNAs formulated
using the first generation LNP formulation known as stable
nucleic acid-lipid particles, or SNALP, developed in
collaboration with Tekmira. We also have rights to use SNALP
technology in the advancement of our other systemically
delivered RNAi therapeutic programs, and are advancing
ALN-TTR01, for the treatment of ATTR, utilizing a first
generation SNALP formulation. In parallel with ALN-TTR01, we are
advancing ALN-TTR02 utilizing second-generation LNPs. In
addition, we have published pre-clinical results from
development programs for other systemically delivered RNAi
therapeutic candidates, including ALN-PCS, for the treatment of
hypercholesterolemia, which we recently identified as our next
clinical candidate. ALN-PCS is being advanced using
second-generation LNPs for systemic delivery.
In connection with Tekmiras acquisition of Protiva, in May
2008 we made an equity investment of $5.0 million in
Tekmira, purchasing 2,083,333 shares of Tekmira common
stock at a price of $2.40 per share, which represented a premium
of $1.00 per share, or an aggregate of $2.1 million. This
premium was calculated on the difference between the purchase
price and the closing price of Tekmiras common stock on
the effective date of the acquisition. We allocated this
$2.1 million premium to the expansion of our access to key
technology and intellectual property rights and, accordingly,
recorded a charge to research and development expense during the
year ended December 31, 2008. During 2008, we recorded an
impairment charge of $1.6 million related to our investment
in Tekmira, as the decrease in the fair value of this investment
was deemed to be other than temporary.
We are pursuing additional approaches for delivery that include
other LNP formulations, mimetic lipoprotein particles, or MLPs,
siRNA conjugation strategies and ssRNAi, among others. In
addition, we have other RNAi therapeutic delivery collaborations
and intend to continue to collaborate with government, academic
and corporate third parties to evaluate and gain access to
different delivery technologies.
Government
Funding
NIH. In September 2006, the NIAID, a component
of NIH, awarded us a contract for up to $23.0 million over
four years to advance the development of a broad spectrum RNAi
anti-viral therapeutic for hemorrhagic fever virus, including
the Ebola virus. As a result of the continued progress of this
program, the NIAID has appropriated the entire
$23.0 million over the four-year term of the contract,
which will be completed in September 2010.
81
Department of Defense. In August 2007, DTRA
awarded us a contract to advance the development of a broad
spectrum RNAi anti-viral therapeutic for hemorrhagic fever
virus. The government initially committed to pay us up to
$10.9 million through February 2009, which included a
six-month extension granted by DTRA in July 2008. Following a
program review in early 2009, we and DTRA determined not to
continue this program and accordingly, the remaining funds of up
to $27.7 million were not accessed.
microRNAi-based
Therapeutics
Regulus. In September 2007, we and Isis
established Regulus, a company focused on the discovery,
development and commercialization of microRNA-based
therapeutics. Regulus combines our and Isis technologies,
know-how and intellectual property relating to microRNA-based
therapeutics. Since microRNAs are believed to regulate the
expression of broad networks of genes and biological pathways,
microRNA-based therapeutics define a new and potentially
high-impact strategy to target multiple points on disease
pathways.
Regulus, which initially was established as a limited liability
company, converted to a C corporation as of January 2, 2009
and changed its name to Regulus Therapeutics Inc. In
consideration for our and Isis initial interests in
Regulus, we and Isis each granted Regulus exclusive licenses to
our intellectual property for certain microRNA-based
therapeutics as well as certain patents in the microRNA field.
In addition, we made an initial cash contribution to Regulus of
$10.0 million, resulting in us and Isis making initial
capital contributions to Regulus of approximately equal
aggregate value. In addition, in March 2009, we and Isis each
purchased $10.0 million of Series A preferred stock of
Regulus. We and Isis currently own approximately 49% and 51%,
respectively, of Regulus and there are currently no other third
party investors in Regulus. Regulus continues to operate as an
independent company with a separate board of directors,
scientific advisory board and management team, some of whom have
options to purchase common stock of Regulus. Members of the
board of directors of Regulus who are our employees or
Isis employees are not eligible to receive options to
purchase Regulus common stock.
Regulus most advanced program, which is in pre-clinical
research, is a microRNA-based therapeutic candidate that targets
miR-122.
miR-122 is a
liver-expressed microRNA that has been shown to be a critical
endogenous host factor for the replication of HCV, and anti-miRs
targeting
miR-122 have
been shown to block HCV infection. HCV infection is a
significant disease worldwide, for which emerging therapies
target viral genes and, therefore, are prone to viral
resistance. Regulus is also pursuing a program that targets
miR-21. Pre-clinical studies by Regulus and collaborators have
shown that miR-21 is implicated in several therapeutic areas,
including heart failure and fibrosis. In addition to these
programs, Regulus is also actively exploring additional areas
for development of microRNA-based therapeutics, including
cancer, other viral diseases, metabolic disorders and
inflammatory diseases.
In April 2008, Regulus entered into a worldwide strategic
alliance with GlaxoSmithKline, or GSK, to discover, develop and
market novel microRNA-targeted therapeutics to treat
inflammatory diseases such as rheumatoid arthritis and
inflammatory bowel disease. In connection with this alliance,
Regulus received $20.0 million in upfront payments from
GSK, including a $15.0 million option fee and a loan of
$5.0 million evidenced by a promissory note (guaranteed by
us and Isis) that will convert into Regulus common stock under
certain specified circumstances. Regulus could be eligible to
receive development, regulatory and sales milestone payments for
each of the four microRNA-targeted therapeutics discovered and
developed as part of the alliance, and would also receive
royalty payments on worldwide sales of products resulting from
the alliance, if any. In May 2009, Regulus achieved the first
demonstration of a pharmacological effect in immune cells by
specific microRNA inhibition, the initial discovery milestone
under the GSK alliance, which triggered a payment under the
agreement.
In February 2010, Regulus and GSK established a new
collaboration to develop and commercialize microRNA-based
therapeutics targeting
miR-122 in
all fields, with HCV infection as the lead indication. This new
collaboration includes the potential for Regulus to earn more
than $150.0 million in upfront and milestone payments, in
addition to royalties, on worldwide sales of products, if any,
as Regulus and GSK advance microRNA-based therapeutics targeting
miR-122.
82
Alnylam
Biotherapeutics
During 2009, we presented new data regarding the application of
RNAi technology to improve the manufacturing processes for
biologics, which is comprised of recombinant proteins,
monoclonal antibodies, and vaccines. This initiative, which we
are advancing in an internal effort referred to as Alnylam
Biotherapeutics, has the potential to create new business
opportunities. In particular, we are advancing RNAi technologies
to improve the quantity and quality of biologics manufacturing
processes using mammalian cell culture, such as Chinese hamster
ovary cells, or CHO cells. This RNAi technology potentially
could be applied to the improvement of manufacturing processes
for existing marketed drugs, new drugs in development and for
the emerging biosimilars market. We have developed proprietary
delivery lipids that enable the efficient transfection of siRNAs
into CHO cells when grown in suspension culture. As Alnylam
Biotherapeutics advances the technology, it plans to seek
partnerships with established biologic manufacturers, selling
licenses, products and services.
Critical
Accounting Policies and Estimates
Our discussion and analysis of our financial condition and
results of operations is based on our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of
America, or GAAP. The preparation of our consolidated financial
statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and
expenses and disclosure of contingent liabilities in our
consolidated financial statements. Actual results may differ
from these estimates under different assumptions or conditions
and could have a material impact on our reported results. While
our significant accounting policies are more fully described in
the Notes to our consolidated financial statements included
elsewhere in this annual report on
Form 10-K,
we believe the following accounting policies to be the most
critical in understanding the judgments and estimates we use in
preparing our consolidated financial statements:
Revenue
Recognition
Our business strategy includes entering into collaborative
license and development agreements with biotechnology and
pharmaceutical companies for the development and
commercialization of our product candidates. The terms of the
agreements typically include non-refundable license fees,
funding of research and development, payments based upon
achievement of clinical and pre-clinical development milestones,
manufacturing services and royalties on product sales.
Non-refundable license fees are recognized as revenue upon
delivery of the license only if we have a contractual right to
receive such payment, the contract price is fixed or
determinable, the collection of the resulting receivable is
reasonably assured and we have no further performance
obligations under the license agreement. Multiple element
arrangements, such as license and development arrangements, are
analyzed to determine whether the deliverables, which often
include a license and performance obligations such as research
and steering committee services, can be separated or whether
they must be accounted for as a single unit of accounting. We
recognize upfront license payments as revenue upon delivery of
the license only if the license has stand-alone value and the
fair value of the undelivered performance obligations, typically
including research
and/or
steering committee services, can be determined. If the fair
value of the undelivered performance obligations can be
determined, such obligations would then be accounted for
separately as performed. If the license is considered to either
not have stand-alone value or have stand-alone value but the
fair value of any of the undelivered performance obligations
cannot be determined, the arrangement would then be accounted
for as a single unit of accounting and the license payments and
payments for performance obligations are recognized as revenue
over the estimated period of when the performance obligations
are performed.
Whenever we determine that an arrangement should be accounted
for as a single unit of accounting, we must determine the period
over which the performance obligations will be performed and
revenue will be recognized. Revenue will be recognized using
either a proportional performance or straight-line method. We
recognize revenue using the proportional performance method when
we can reasonably estimate the level of effort required to
complete our performance obligations under an arrangement and
such performance obligations are provided on a best-efforts
basis. Direct labor hours or full-time equivalents are typically
used as the measure of performance.
83
Revenue recognized under the proportional performance method
would be determined by multiplying the total payments under the
contract, excluding royalties and payments contingent upon
achievement of substantive milestones, by the ratio of level of
effort incurred to date to estimated total level of effort
required to complete our performance obligations under the
arrangement. Revenue is limited to the lesser of the cumulative
amount of payments received or the cumulative amount of revenue
earned, as determined using the proportional performance method,
as of the period ending date.
If we cannot reasonably estimate the level of effort required to
complete our performance obligations under an arrangement, then
revenue under the arrangement will be recognized as revenue on a
straight-line basis over the period we expect to complete our
performance obligations. Revenue is limited to the lesser of the
cumulative amount of payments received or the cumulative amount
of revenue earned, as determined using the straight-line method,
as of the period ending date.
Significant management judgment is required in determining the
level of effort required under an arrangement and the period
over which we are expected to complete our performance
obligations under an arrangement. Steering committee services
that are not inconsequential or perfunctory and that are
determined to be performance obligations are combined with other
research services or performance obligations required under an
arrangement, if any, in determining the level of effort required
in an arrangement and the period over which we expect to
complete our aggregate performance obligations.
Many of our collaboration agreements entitle us to additional
payments upon the achievement of performance-based milestones.
If the achievement of a milestone is considered probable at the
inception of the collaboration, the related milestone payment is
included with other collaboration consideration, such as upfront
fees and research funding, in our revenue model. Milestones that
involve substantial effort on our part and the achievement of
which are not considered probable at the inception of the
collaboration are considered substantive milestones.
Substantive milestones are included in our revenue model when
achievement of the milestone is considered probable. As future
substantive milestones are achieved, a portion of the milestone
payment, equal to the percentage of the performance period
completed when the milestone is achieved, multiplied by the
amount of the milestone payment, will be recognized as revenue
upon achievement of such milestone. The remaining portion of the
milestone will be recognized over the remaining performance
period using the proportional performance or straight-line
method. Milestones that are tied to regulatory approval are not
considered probable of being achieved until such approval is
received. Milestones tied to counter-party performance are not
included in our revenue model until the performance conditions
are met.
Steering committee services that are not inconsequential or
perfunctory and that are determined to be performance
obligations are combined with other research services or
performance obligations required under an arrangement, if any,
in determining the level of effort required in an arrangement
and the period over which we expect to complete our aggregate
performance obligations.
For revenue generating arrangements where we, as a vendor,
provide consideration to a licensor or collaborator, as a
customer, we apply the accounting standard that governs such
transactions. This standard addresses the accounting for revenue
arrangements where both the vendor and the customer make cash
payments to each other for services
and/or
products. A payment to a customer is presumed to be a reduction
of the selling price unless we receive an identifiable benefit
for the payment and we can reasonably estimate the fair value of
the benefit received. Payments to a customer that are deemed a
reduction of selling price are recorded first as a reduction of
revenue, to the extent of both cumulative revenue recorded to
date and probable future revenues, which include any unamortized
deferred revenue balances, under all arrangements with such
customer, and then as an expense. Payments that are not deemed
to be a reduction of selling price would be recorded as an
expense.
We evaluate our collaborative agreements for proper
classification in our consolidated statements of operations
based on the nature of the underlying activity. Transactions
between collaborators recorded in our consolidated statements of
operations are recorded on either a gross or net basis,
depending on the characteristics of the collaborative
relationship. We generally reflect amounts due under our
collaborative agreements related to cost-sharing of development
activities as a reduction of research and development expense.
84
Amounts received prior to satisfying the above revenue
recognition criteria are recorded as deferred revenue in the
accompanying consolidated balance sheets. Amounts not expected
to be recognized within the next 12 months are classified
as long-term deferred revenue.
Although we follow detailed guidelines in measuring revenue,
certain judgments affect the application of our revenue policy.
For example, in connection with our existing collaboration
agreements, we have recorded on our balance sheet short-term and
long-term deferred revenue based on our best estimate of when
such revenue will be recognized. Short-term deferred revenue
consists of amounts that are expected to be recognized as
revenue in the next 12 months. Amounts that we expect will
not be recognized prior to the next 12 months are
classified as long-term deferred revenue. However, this estimate
is based on our current operating plan and, if our operating
plan should change in the future, we may recognize a different
amount of deferred revenue over the next
12-month
period.
The estimate of deferred revenue also reflects managements
estimate of the periods of our involvement in certain of our
collaborations. Our performance obligations under these
collaborations consist of participation on steering committees
and the performance of other research and development services.
In certain instances, the timing of satisfying these obligations
can be difficult to estimate. Accordingly, our estimates may
change in the future. Such changes to estimates would result in
a change in revenue recognition amounts. If these estimates and
judgments change over the course of these agreements, it may
affect the timing and amount of revenue that we recognize and
record in future periods.
As of December 31, 2009, we had short-term and long-term
deferred revenue of $81.9 million and $189.9 million,
respectively, related to our collaborations.
Novartis. In consideration for rights granted
to Novartis under the collaboration and license agreement,
Novartis made an upfront payment of $10.0 million to us in
October 2005 to partly reimburse costs previously incurred by us
to develop in vivo RNAi technology. The collaboration and
license agreement includes terms under which Novartis is
providing us with research funding. In addition, for RNAi
therapeutic products developed under the agreement, if any, we
are entitled to receive milestone payments upon achievement of
certain specified development and annual net sales events, up to
an aggregate of $75.0 million per therapeutic product. We
initially recorded as deferred revenue the non-refundable
$10.0 million upfront payment and the $6.4 million
premium that represented the difference between the purchase
price and the closing price of our common stock on the date of
the stock purchase from Novartis. In addition to these payments,
research funding and certain milestone payments, the receipt of
which is considered probable, are being amortized into revenue
using the proportional performance method over the estimated
duration of the collaboration and license agreement, or ten
years. Under this method, we estimate the level of effort to be
expended over the term of the agreement and recognize revenue
based on the lesser of the amount calculated based on the
proportional performance of total expected revenue or the amount
of non-refundable payments earned.
As future substantive milestones are achieved, and to the extent
they are within the period of performance, milestone payments
will be recognized as revenue on a proportional performance
basis over the contracts entire performance period,
starting with the contracts commencement. A portion of the
milestone payment, equal to the percentage of total performance
completed when the milestone is achieved, multiplied by the
milestone payment, will be recognized as revenue upon
achievement of the milestone. The remaining portion of the
milestone will be recognized over the remaining performance
period under the proportional performance method.
We believe our estimated period of performance under the
Novartis collaboration and license agreement is ten years, which
includes the three-year initial term of the agreement, the two
one-year extensions elected by Novartis and limited support as
part of a technology transfer until 2015, the fifth anniversary
of the termination of the collaboration and license agreement.
We continue to use an expected term of ten years in our
proportional performance model. We reevaluate the expected term
when new information is known that could affect our estimate. In
the event our period of performance is different than we
estimated, revenue recognition will be adjusted on a prospective
basis.
Roche. We received aggregate proceeds from
Roche of $331.0 million in August 2007. We initially
recorded $278.2 million of these proceeds as deferred
revenue in connection with this alliance. We allocated
$51.3 million
85
and $1.5 million for financial statement purposes related
to the common stock issuance and the net book value of Alnylam
Europe, respectively. In exchange for our contributions under
the collaboration agreement, for each RNAi therapeutic product
developed by Roche, its affiliates or sublicensees under the
collaboration agreement, we are entitled to receive milestone
payments upon achievement of specified development and sales
events, totaling up to an aggregate of $100.0 million per
therapeutic target, together with royalty payments based on
worldwide annual net sales, if any. In addition, we agreed with
Roche to collaborate on the discovery of RNAi therapeutic
products directed to one or more disease targets, subject to our
existing contractual obligations to third parties. In October
2009, we and Roche advanced our alliance to initiate this
therapeutic collaboration stage. Under this Discovery
Collaboration, we and Roche are collaborating on the discovery
and development of specific RNAi therapeutic products and each
party contributes key delivery technologies in the effort, which
is focused on specific disease targets. The Discovery
Collaboration is governed by the joint steering committee that
is comprised of an equal number of representatives from each
party.
We have determined that the deliverables under the Roche
alliance include the license, the Alnylam Europe assets and
employees, the steering committees (joint steering committee and
future technology committee) and the services that we are
performing under the Discovery Collaboration. We have determined
that, pursuant to the accounting guidance governing revenue
recognition on multiple element arrangements, the license and
assets of Alnylam Europe are not separable from the undelivered
services (i.e., the steering committees and Discovery
Collaboration) and, accordingly, the license and the services
are being treated as a single unit of accounting. When multiple
deliverables are accounted for as a single unit of accounting,
we base our revenue recognition pattern on the final
deliverable. Under the Roche alliance, the steering committee
services and the Discovery Collaboration services are the final
deliverables and all such services will end, contractually, five
years from the effective date of the license and collaboration
agreement. We are recognizing the Roche-related revenue on a
straight-line basis over five years because we cannot reasonably
estimate the total level of effort required to complete our
service obligations under the license and collaboration
agreement in order to utilize a proportional performance model.
As future substantive milestones are achieved, a portion of the
milestone payment, equal to the percentage of the performance
period completed when the milestone is achieved, multiplied by
the amount of the milestone payment, will be recognized as
revenue upon achievement of such milestone. The remaining
portion of the milestone will be recognized over the remaining
performance period on a straight-line basis.
Takeda. In consideration for the rights
granted to Takeda under the Takeda agreement, Takeda agreed to
pay us $150.0 million in upfront and near-term technology
transfer payments. In June 2008, Takeda paid us an upfront
payment of $100.0 million. Takeda is also required to make
an additional $50.0 million in payments to us upon
achievement of specified technology transfer milestones,
$20.0 million of which was paid in October 2008,
$20.0 million of which is due upon achievement of specified
technology transfer activities, but no later than May 2010, and
$10.0 million of which is due upon achievement of specified
technology transfer activities within 24 to 36 months after
execution of the agreement. If Takeda elects to expand its
license to additional therapeutic areas, Takeda will be required
to pay us $50.0 million for each of up to approximately 20
total additional fields selected, if any, comprising
substantially all other fields of human disease, as identified
and agreed upon by the parties. In addition, for each RNAi
therapeutic product developed by Takeda, its affiliates and
sublicensees, we are entitled to receive specified development
and commercialization milestones, totaling up to
$171.0 million per product, together with royalty payments
based on worldwide annual net sales, if any.
Pursuant to the Takeda agreement, we and Takeda have also agreed
to collaborate on the research of RNAi therapeutics directed to
one or two disease targets agreed to by the parties, subject to
our existing contractual obligations with third parties. Takeda
also has the option, subject to certain conditions, to
collaborate with us on the research and development of RNAi drug
delivery technology for targets agreed to by the parties. In
addition, Takeda has a right of first negotiation for the
development and commercialization of our RNAi therapeutic
products in the Asian territory, excluding our ALN-RSV program.
In addition to our
50-50 profit
sharing option, we have a similar right of first negotiation to
participate with Takeda in the development and commercialization
in the United States of licensed products. The collaboration is
governed by a JTTC, a JRCC and a JDCC, each of which is
comprised of an equal number of representatives from each party.
We have determined that the deliverables under the Takeda
agreement include the license, the joint committees (the JTTC,
JRCC and JDCC), the technology transfer activities and the
services that we will be obligated to perform
86
under the research collaboration with Takeda. We have determined
that, pursuant to the accounting guidance governing revenue
recognition on multiple element arrangements, the license and
undelivered services (i.e., the joint committees and the
research collaboration) are not separable and, accordingly, the
license and services are being treated as a single unit of
accounting. Under the Takeda agreement, the last elements to be
delivered are the JDCC and JTTC services, each of which has a
life of no more than seven years. We are recognizing the upfront
payment of $100.0 million, the first technology transfer
milestone of $20.0 million and the $30.0 million of
remaining technology transfer milestones, the receipt of which
we believe is probable, on a straight-line basis over seven
years because we are unable to reasonably estimate the level of
effort to fulfill these obligations, primarily because the
effort required under the research collaboration is largely
unknown, in order to utilize a proportional performance model.
As future substantive milestones are achieved, a portion of the
milestone payment, equal to the percentage of the performance
period completed when the milestone is achieved, multiplied by
the amount of the milestone payment, will be recognized as
revenue upon achievement of such milestone. The remaining
portion of the milestone will be recognized over the remaining
performance period on a straight-line basis.
Kyowa Hakko Kirin. Under the terms of the
Kyowa Hakko Kirin agreement, in June 2008, Kyowa Hakko Kirin
paid us an upfront cash payment of $15.0 million. In
addition, Kyowa Hakko Kirin is required to make payments to us
upon achievement of specified development and sales milestones
totaling up to $78.0 million, and royalty payments based on
annual net sales, if any, of RNAi therapeutics for RSV by Kyowa
Hakko Kirin, its affiliates and sublicenses in the licensed
territory.
Our collaboration with Kyowa Hakko Kirin is governed by a joint
steering committee that is comprised of an equal number of
representatives from each party. Kyowa Hakko Kirin is
responsible, at its expense, for all development activities
under the development plan that are reasonably necessary for the
regulatory approval and commercialization of an RNAi therapeutic
for the treatment of RSV in Japan and the rest of the licensed
territory. We are responsible for supply of the product to Kyowa
Hakko Kirin under a supply agreement unless Kyowa Hakko Kirin
elects, prior to the first commercial sale of the product in the
licensed territory, to manufacture the product itself or arrange
for a third party to manufacture the product.
We have determined that the deliverables under the Kyowa Hakko
Kirin agreement include the license, the joint steering
committee, the manufacturing services and any additional
RSV-specific RNAi therapeutic compounds that comprise the
ALN-RSV program. We have determined that, pursuant to the
accounting guidance governing revenue recognition on multiple
element arrangements, the individual deliverables are not
separable and, accordingly, must be accounted for as a single
unit of accounting. We are currently unable to reasonably
estimate our period of performance under the Kyowa Hakko Kirin
agreement, as we are unable to estimate the timeline of our
deliverables related to the fixed-price option granted to Kyowa
Hakko Kirin for any additional compounds. We are deferring all
revenue under the Kyowa Hakko Kirin agreement until we are able
to reasonably estimate our period of performance. We will
continue to reassess whether we can reasonably estimate the
period of performance to fulfill our obligations under the Kyowa
Hakko Kirin agreement.
Cubist. Under the terms of the Cubist
agreement, we and Cubist share responsibility for developing
licensed products in North America and each bears one-half of
the related development costs, subject to the terms of the
November 2009 amendment. Our collaboration with Cubist for the
development of licensed products in North America is
governed by a joint steering committee comprised of an equal
number of representatives from each party. Cubist will have the
sole right to commercialize licensed products in North America
with costs associated with such activities and any resulting
profits or losses to be split equally between us and Cubist.
Throughout the rest of the world, referred to as the Royalty
Territory, excluding Asia, where we have previously partnered
our ALN-RSV program with Kyowa Hakko Kirin, Cubist has an
exclusive, royalty-bearing license to develop and commercialize
licensed products.
In consideration for the rights granted to Cubist under the
agreement, in January 2009, Cubist paid us an upfront cash
payment of $20.0 million. Cubist also has an obligation
under the agreement to pay us milestone payments, totaling up to
an aggregate of $82.5 million, upon the achievement of
specified development and sales events in the Royalty Territory.
In addition, if licensed products are successfully developed,
Cubist will be required to pay us double digit royalties on net
sales of licensed products in the Royalty Territory, if any,
subject to offsets under certain circumstances. Upon achievement
of certain development milestones, we will have the right to
87
convert the North American co-development and profit sharing
arrangement into a royalty-bearing license and, in addition to
royalties on net sales in North America, will be entitled to
receive additional milestone payments totaling up to an
aggregate of $130.0 million upon achievement of specified
development and sales events in North America, subject to the
timing of the conversion by us and the regulatory status of a
licensed product at the time of conversion. If we make the
conversion to a royalty-bearing license with respect to North
America, then North America becomes part of the Royalty
Territory. Due to the uncertainty of pharmaceutical development
and the high historical failure rates generally associated with
drug development, we may not receive any milestone or royalty
payments from Cubist.
We have determined that the deliverables under the Cubist
agreement include the licenses, technology transfer related to
the ALN-RSV program, the joint steering committee and the
development and manufacturing services that we are obligated to
perform during the development period. We have determined that,
pursuant to the accounting guidance governing revenue
recognition on multiple element arrangements, the licenses and
undelivered services are not separable and, accordingly, the
licenses and services are being treated as a single unit of
accounting. Under the Cubist agreement, the last element to be
delivered is the development and manufacturing services, which
have an expected life of approximately eight years. We are
recognizing the upfront payment of $20.0 million on a
straight-line basis over approximately eight years because we
are unable to reasonably estimate the level of effort to fulfill
our performance obligations in order to utilize a proportional
performance model. As future substantive milestones are
achieved, a portion of the milestone payment, equal to the
percentage of the performance period completed when the
milestone is achieved, multiplied by the amount of the milestone
payment, will be recognized as revenue upon achievement of such
milestone. The remaining portion of the milestone will be
recognized over the remaining performance period on a
straight-line basis.
Under the terms of the Cubist agreement, we and Cubist share
responsibility for developing licensed products in North America
and each bears one-half of the related development costs,
provided that under the terms of the November 2009 amendment, we
are funding the advancement of ALN-RSV01 for adult lung
transplant patients and Cubist retains an opt-in right. For
revenue generating arrangements that involve cost sharing
between both parties, we present the results of activities for
which we act as the principal on a gross basis and report any
payments received from (made to) other collaborators based on
other applicable GAAP, or, in the absence of other applicable
GAAP, analogy to authoritative accounting literature or a
reasonable, rational and consistently applied accounting policy
election. As we are not considered the principal under the
Cubist agreement, we record any amounts due from Cubist as a
reduction of research and development expense.
Government Contracts. Revenue under government
cost reimbursement contracts is recognized as we perform the
underlying research and development activities.
Accounting
for Income Taxes
In January 2007, we adopted a newly issued accounting standard
which requires additional accounting and disclosure about
uncertain tax positions. This standard clarifies the accounting
for income tax positions by prescribing a minimum recognition
threshold that a tax position is required to meet before being
recognized in the financial statements. It also provides
guidance on the derecognition of previously recognized deferred
tax items, measurement, classification, interest and penalties,
accounting in interim periods, disclosure and transition. Under
this standard, we recognize the tax benefit from an uncertain
tax position only if it is more likely than not that the tax
position will be sustained upon examination by the taxing
authorities, based on the technical merits of the tax position.
The tax benefits recognized in our financial statements from
such a position are measured based on the largest benefit that
has a greater than 50% likelihood of being realized upon
ultimate resolution.
We operate in the United States and Germany where our income tax
returns are subject to audit and adjustment by local tax
authorities. The nature of the uncertain tax positions is often
very complex and subject to change and the amounts at issue can
be substantial. We develop our cumulative probability assessment
of the measurement of uncertain tax positions using internal
experience, judgment and assistance from professional advisors.
Estimates are refined as additional information becomes known.
Any outcome upon settlement that differs from our current
estimate may result in additional tax expense in future periods.
88
We recognize income taxes when transactions are recorded in our
consolidated statements of operations, with deferred taxes
provided for items that are recognized in different periods for
financial statement and tax reporting purposes. We record a
valuation allowance to reduce the deferred tax assets to the
amount that is more likely than not to be realized. In addition,
we estimate our exposures relating to uncertain tax positions
and establish reserves for such exposures when they become
probable and reasonably estimable.
For the years ended December 31, 2009 and 2008, we recorded
a provision for income taxes of $0.6 million and
$0.7 million, respectively. We provide income tax expense
for federal alternative minimum tax, state and foreign taxes. We
generated U.S. taxable income during 2009 and 2008 due to
the recognition of certain proceeds received from the Roche and
Takeda alliances. Our 2009 and 2008 U.S. taxable income
will be offset by net operating loss carryforwards and other
deferred tax attributes. However, we were subject to federal
alternative minimum tax and state income taxes in 2009 and 2008.
At December 31, 2009, we had a valuation allowance against
our net deferred tax assets to the extent it is more likely than
not that the assets will not be realized. At December 31,
2009, we had utilized all federal and Massachusetts state net
operating loss carryforwards and all foreign tax credits. At
December 31, 2009, we had $2.2 million of state
research and development tax credit carryforwards derived from
stock option exercises that are available to reduce future
Massachusetts tax liabilities. At December 31, 2009, the
California state net operating loss carryforward was
$8.6 million (related to Regulus, located in California).
We have placed a valuation allowance against the state net
operating loss and state credit deferred tax assets as it is
unlikely that we will realize these assets. Ownership changes,
as defined in the Internal Revenue Code, including those
resulting from the issuance of common stock in connection with
our public offerings, may limit the amount of net operating loss
and tax credit carryforwards that can be utilized to offset
future taxable income or tax liability. The amount of the
limitation is determined in accordance with Section 382 of
the Internal Revenue Code. We have determined that there is no
limitation on the utilization of net operating loss and tax
credit carryforwards in accordance with Section 382 of the
Internal Revenue Code in 2009.
Accounting
for Stock-Based Compensation
Effective January 1, 2006, we adopted a newly issued
accounting standard addressing recognition and disclosure of
stock compensation. We adopted the fair value recognition
provisions of this standard, using the modified prospective
transition method. All stock-based awards granted to
non-employees are accounted for at their fair value and
compensation expense is generally recognized over the vesting
period of the award. Determining the amount of stock-based
compensation to be recorded requires us to develop estimates of
fair values of stock options as of the grant date. We calculate
the grant date fair values using the Black-Scholes valuation
model. Our expected stock price volatility assumption is based
on a combination of the historical and implied volatility of our
publicly traded stock. For stock option grants issued during the
year ended December 31, 2009, we used a weighted-average
expected stock-price volatility assumption of 56%. Our expected
life assumption is based on the equal weighting of our
historical data and the historical data of our pharmaceutical
and biotechnology peers. Our weighted average expected term was
6.2 years for the year ended December 31, 2009. We
utilize a dividend yield of zero based on the fact that we have
never paid cash dividends and have no present intention to pay
cash dividends. The risk-free interest rate used for each grant
is based on the U.S. Treasury yield curve in effect at the
time of grant for instruments with a similar expected life.
As of December 31, 2009, the estimated fair value of
unvested employee awards was $44.7 million, net of
estimated forfeitures. This amount will be recognized over the
weighted average remaining vesting period of approximately
1.5 years for these awards. Stock-based employee
compensation expense was $18.9 million for the year ended
December 31, 2009. However, the total amount of stock-based
compensation expense recognized in any future period cannot be
predicted at this time because it will depend on levels of
stock-based payments granted in the future as well as the
portion of the awards that actually vest. The stock compensation
accounting standard requires forfeitures to be estimated at the
time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates. The term
forfeitures is distinct from
cancellations or expirations and
represents only the unvested portion of the surrendered option.
We currently expect, based on an analysis of our historical
forfeitures, that approximately 83% of our options will actually
vest, and therefore have applied an annual
89
forfeiture rate of 4.5% to all unvested options as of
December 31, 2009. Ultimately, the actual expense
recognized over the vesting period will only be for those shares
that vest.
Accounting
for Joint Venture
We account for our interest in Regulus using the equity method
of accounting. We reviewed the consolidation guidance that
defines a variable interest entity, or VIE, and concluded that
Regulus currently qualifies as a VIE. The founding investor
rights agreement contains transfer restrictions on each of
Isis and our interests and, as a result, we and Isis are
considered related parties. Because we and Isis are related
parties and collectively own 100% of Regulus, the determination
of which entity would be considered the primary beneficiary is
based on which entity is most closely associated with Regulus.
Following consolidation guidance, we have concluded that Isis is
the primary beneficiary and, accordingly, we have not
consolidated Regulus and account for our investment under the
equity method of accounting. Under new consolidation guidance
effective January 1, 2010, we do not expect Isis to
continue to consolidate Regulus.
Estimated
Liability for Development Costs
We record accrued liabilities related to expenses for which
service providers have not yet billed us with respect to
products or services that we have received, specifically related
to ongoing pre-clinical studies and clinical trials. These costs
primarily relate to third-party clinical management costs,
laboratory and analysis costs, toxicology studies and
investigator fees. We have multiple product candidates in
concurrent pre-clinical studies and clinical trials at multiple
clinical sites throughout the world. In order to ensure that we
have adequately provided for ongoing pre-clinical and clinical
development costs during the period in which we incur such
costs, we maintain an accrual to cover these expenses. We update
our estimate for this accrual on at least a quarterly basis. The
assessment of these costs is a subjective process that requires
judgment. Upon settlement, these costs may differ materially
from the amounts accrued in our consolidated financial
statements. Our historical accrual estimates have not been
materially different from our actual amounts.
Results
of Operations
The following data summarizes the results of our operations for
the periods indicated, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net revenues from research collaborators
|
|
$
|
100,533
|
|
|
$
|
96,163
|
|
|
$
|
50,897
|
|
Operating expenses
|
|
|
148,644
|
|
|
|
123,998
|
|
|
|
144,074
|
|
Loss from operations
|
|
|
(48,111
|
)
|
|
|
(27,835
|
)
|
|
|
(93,177
|
)
|
Net loss
|
|
$
|
(47,590
|
)
|
|
$
|
(26,249
|
)
|
|
$
|
(85,466
|
)
|
Discussion
of Results of Operations for 2009 and 2008
The following table summarizes our total consolidated net
revenues from research collaborators, for the periods indicated,
in thousands:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Roche
|
|
$
|
56,884
|
|
|
$
|
54,427
|
|
Takeda
|
|
|
21,732
|
|
|
|
12,794
|
|
Novartis
|
|
|
9,811
|
|
|
|
11,635
|
|
Government contract
|
|
|
7,471
|
|
|
|
14,172
|
|
Other research collaborator
|
|
|
3,593
|
|
|
|
928
|
|
InterfeRx program, research reagent license and other
|
|
|
1,042
|
|
|
|
2,207
|
|
|
|
|
|
|
|
|
|
|
Total net revenues from research collaborators
|
|
$
|
100,533
|
|
|
$
|
96,163
|
|
|
|
|
|
|
|
|
|
|
90
Revenues increased for the year ended December 31, 2009 as
compared to the year ended December 31, 2008 primarily as a
result of a full year of revenues from our May 2008 alliance
with Takeda. We are recognizing as revenue the
$150.0 million in upfront and technology transfer milestone
payments made or due to us under the Takeda alliance on a
straight-line basis over seven years, which equates to
approximately $5.0 million per quarter. Also contributing
to the increase in 2009 were higher revenues under the Roche
alliance related primarily to a development milestone achieved
in 2009. Under the Roche alliance, we are recognizing revenue on
a straight-line basis over five years, which equates to
approximately $14.0 million per quarter.
The decrease in Novartis revenues during the year ended
December 31, 2009 as compared to the year ended
December 31, 2008 was due in part to a reduction in the
number of resources allocated to the broad Novartis alliance.
The Novartis collaboration and related portion of Novartis
revenues are currently expected to end in the fourth quarter of
2010. The Novartis collaboration and license agreement provides
Novartis with a non-exclusive option to integrate into its
operations our intellectual property relating to RNAi
technology, excluding any technology related to delivery of
nucleic acid based molecules. Novartis may exercise this
integration option at any point during the research term. In
connection with the exercise of the integration option, Novartis
would be required to make additional payments to us totaling
$100.0 million, payable in full at the time of exercise,
which payments would include an option exercise fee, a milestone
based on the overall success of the collaboration, and pre-paid
milestones and royalties that could become due as a result of
future development of products using our technology.
Novartis exercise of this integration option would
increase revenues substantially.
For the year ended December 31, 2009 as compared to the
year ended December 31, 2008, government contract revenues
decreased primarily as a result of the wind down of our
collaboration with DTRA. Following a program review, in February
2009, we and DTRA determined not to continue this program and
accordingly, the remaining funds were not accessed.
Other research collaborator revenues increased in the year ended
December 31, 2009 as compared to the year ended
December 31, 2008 due primarily to our alliance with
Cubist. In consideration for the rights granted to Cubist under
the agreement, in January 2009, Cubist paid us an upfront cash
payment of $20.0 million. We are recognizing this
$20.0 million payment as revenue on a straight-line basis
over approximately eight years.
The decrease in InterfeRx program, research reagent license and
other revenues for the year ended December 31, 2009
compared to the prior year was due to milestone payments from
certain InterfeRx licensees received in 2008.
Total deferred revenue of $271.8 million at
December 31, 2009 consists of payments received from
collaborators, primarily Roche, Takeda, Kyowa Hakko Kirin and
Cubist, that we have yet to recognize pursuant to our revenue
recognition policies.
For the foreseeable future, we expect our revenues to continue
to be derived primarily from our alliances with Roche, Takeda,
Novartis and Cubist, as well as other strategic alliances,
collaborations, government and foundation funding, and licensing
activities.
Operating
Expenses
The following table summarizes our operating expenses for the
periods indicated, in thousands and as a percentage of total
operating expenses, together with the changes, in thousands and
percentages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
|
|
|
Operating
|
|
|
Increase
|
|
|
|
2009
|
|
|
Expenses
|
|
|
2008
|
|
|
Expenses
|
|
|
$
|
|
|
%
|
|
|
Research and development
|
|
$
|
108,730
|
|
|
|
73
|
%
|
|
$
|
96,883
|
|
|
|
78
|
%
|
|
$
|
11,847
|
|
|
|
12
|
%
|
General and administrative
|
|
|
39,914
|
|
|
|
27
|
%
|
|
|
27,115
|
|
|
|
22
|
%
|
|
|
12,799
|
|
|
|
47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
148,644
|
|
|
|
100
|
%
|
|
$
|
123,998
|
|
|
|
100
|
%
|
|
$
|
24,646
|
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
Research and development. The following table
summarizes the components of our research and development
expenses for the periods indicated, in thousands and as a
percentage of total research and development expenses, together
with the changes, in thousands and percentages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Increase
|
|
|
|
|
|
|
Expense
|
|
|
|
|
|
Expense
|
|
|
(Decrease)
|
|
|
|
2009
|
|
|
Category
|
|
|
2008
|
|
|
Category
|
|
|
$
|
|
|
%
|
|
|
Research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and related
|
|
$
|
21,632
|
|
|
|
20
|
%
|
|
$
|
17,664
|
|
|
|
18
|
%
|
|
$
|
3,968
|
|
|
|
22
|
%
|
External services
|
|
|
20,642
|
|
|
|
19
|
%
|
|
|
22,852
|
|
|
|
24
|
%
|
|
|
(2,210
|
)
|
|
|
(10
|
)%
|
Clinical trial and manufacturing
|
|
|
18,880
|
|
|
|
17
|
%
|
|
|
13,342
|
|
|
|
14
|
%
|
|
|
5,538
|
|
|
|
42
|
%
|
License fees
|
|
|
13,632
|
|
|
|
13
|
%
|
|
|
12,624
|
|
|
|
13
|
%
|
|
|
1,008
|
|
|
|
8
|
%
|
Facilities-related
|
|
|
11,612
|
|
|
|
11
|
%
|
|
|
10,439
|
|
|
|
11
|
%
|
|
|
1,173
|
|
|
|
11
|
%
|
Non-cash stock-based compensation
|
|
|
11,415
|
|
|
|
10
|
%
|
|
|
9,575
|
|
|
|
10
|
%
|
|
|
1,840
|
|
|
|
19
|
%
|
Lab supplies and materials
|
|
|
8,106
|
|
|
|
7
|
%
|
|
|
8,095
|
|
|
|
8
|
%
|
|
|
11
|
|
|
|
|
*
|
Other
|
|
|
2,811
|
|
|
|
3
|
%
|
|
|
2,292
|
|
|
|
2
|
%
|
|
|
519
|
|
|
|
23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development expenses
|
|
$
|
108,730
|
|
|
|
100
|
%
|
|
$
|
96,883
|
|
|
|
100
|
%
|
|
$
|
11,847
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses increased during the year
ended December 31, 2009 due primarily to increased clinical
program and manufacturing expenses associated with our ALN-TTR
pre-clinical program and our ALN-VSP clinical trial. Also
contributing to the increase in research and development
expenses for the year ended December 31, 2009 was an
increase in compensation and related, non-cash stock-based
compensation and facilities-related expenses due primarily to
additional research and development headcount to support our
alliances and expanding product pipeline. Partially offsetting
these increases, external services expenses decreased during the
year ended December 31, 2009 as a result of lower
pre-clinical activities due primarily to the wind down of our
collaboration with DTRA. In addition, under the terms of our
January 2009 agreement with Cubist, we and Cubist each were
responsible for one-half of the development costs for our
ALN-RSV program through November 2009. In November 2009, we and
Cubist agreed to focus our collaboration and joint development
efforts on ALN-RSV02 for use in pediatric patients. In turn,
Alnylam is funding the advancement of ALN-RSV01 for adult lung
transplant patients and Cubist retains an opt-in right. For the
year ended December 31, 2009, we recorded amounts due from
Cubist of $5.3 million as a reduction to research and
development expenses.
We expect to continue to devote a substantial portion of our
resources to research and development expenses and we expect
that research and development expenses will remain consistent or
increase slightly in 2010 as we continue development of our and
our collaborators product candidates and focus on
continuing to develop drug delivery-related technologies.
We do not track actual costs for most of our research and
development programs or our personnel and personnel-related
costs on a
project-by-project
basis because our most-advanced programs are in the early stages
of clinical development. In addition, a significant portion of
our research and development costs are not tracked by project as
they benefit multiple projects or our technology platform.
However, our collaboration agreements contain cost-sharing
arrangements whereby certain costs incurred under the project
are reimbursed. Costs reimbursed under the agreements typically
include certain direct external costs and a negotiated full-time
equivalent labor rate for the actual time worked on the project.
In addition, we are reimbursed under our government contracts
for certain allowable costs including direct internal and
external costs. As a result, although a significant portion of
our research and development expenses are not tracked on a
project-by-project
basis, we do track direct external costs attributable to, and
the actual time our employees worked on, our collaborations and
government contracts.
92
General and administrative. The following
table summarizes the components of our general and
administrative expenses for the periods indicated, in thousands
and as a percentage of total general and administrative
expenses, together with the changes, in thousands and
percentages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Increase
|
|
|
|
|
|
|
Expense
|
|
|
|
|
|
Expense
|
|
|
(Decrease)
|
|
|
|
2009
|
|
|
Category
|
|
|
2008
|
|
|
Category
|
|
|
$
|
|
|
%
|
|
|
General and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting and professional services
|
|
$
|
19,903
|
|
|
|
50
|
%
|
|
$
|
9,281
|
|
|
|
34
|
%
|
|
$
|
10,622
|
|
|
|
114
|
%
|
Non-cash stock-based compensation
|
|
|
8,312
|
|
|
|
21
|
%
|
|
|
6,807
|
|
|
|
25
|
%
|
|
|
1,505
|
|
|
|
22
|
%
|
Compensation and related
|
|
|
6,383
|
|
|
|
16
|
%
|
|
|
5,763
|
|
|
|
21
|
%
|
|
|
620
|
|
|
|
11
|
%
|
Facilities-related
|
|
|
2,634
|
|
|
|
7
|
%
|
|
|
2,401
|
|
|
|
9
|
%
|
|
|
233
|
|
|
|
10
|
%
|
Insurance
|
|
|
747
|
|
|
|
2
|
%
|
|
|
682
|
|
|
|
3
|
%
|
|
|
65
|
|
|
|
10
|
%
|
Other
|
|
|
1,935
|
|
|
|
4
|
%
|
|
|
2,181
|
|
|
|
8
|
%
|
|
|
(246
|
)
|
|
|
(11
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative expenses
|
|
$
|
39,914
|
|
|
|
100
|
%
|
|
$
|
27,115
|
|
|
|
100
|
%
|
|
$
|
12,799
|
|
|
|
47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in general and administrative expenses during the
year ended December 31, 2009 was due primarily to higher
consulting and professional services expenses related to
business activities, primarily legal activities, a description
of which is set forth in Part I, Item 3 of this annual
report on
Form 10-K.
Also contributing to the increase were higher non-cash
stock-based compensation and compensation and related expenses
due to a modest increase in general and administrative headcount
over the past year to support our growth. We expect that general
and administrative expenses, excluding expenses associated with
legal activities, will remain consistent or increase slightly in
2010.
Other
income (expense)
We incurred $4.9 million equity in loss of joint venture
(Regulus Therapeutics Inc.) for the year ended December 31,
2009 as compared to $9.3 million for the year ended
December 31, 2008 related to our share of the net losses
incurred by Regulus. Through December 31, 2008, we were
recognizing the first $10.0 million of losses of Regulus as
equity in loss of joint venture (Regulus Therapeutics Inc.) in
our consolidated statements of operations because we were
responsible for funding those losses through our initial
$10.0 million cash contribution. Beginning in January 2009,
in connection with the conversion of Regulus to a C corporation,
we are recognizing approximately 49% of the income and losses of
Regulus. The carrying value of our investment in joint venture
(Regulus Therapeutics Inc.) immediately prior to the conversion
to a C corporation exceeded 49% of the net assets of Regulus by
approximately $0.8 million. Upon conversion, this amount
was allocated to the intellectual property of Regulus and,
because the intellectual property was determined to be
in-process research and development, the $0.8 million was
recorded as a charge to expense. This charge is included in
equity in loss of joint venture (Regulus Therapeutics Inc.) in
the consolidated statements of operations for the year ended
December 31, 2009. Separate financial information for
Regulus is included in Exhibit 99.1 to this annual report
on
Form 10-K.
Interest income was $5.4 million in 2009 as compared to
$14.4 million in 2008. The decrease in 2009 was due
primarily to significantly lower average interest rates.
Interest expense was zero in 2009 as compared to
$0.9 million in 2008. Interest expense in 2008 was related
to borrowings under our lines of credit used to finance capital
equipment purchases. In December 2008, we repaid the aggregate
outstanding balance under these credit lines.
Other income was $0.6 million in 2009 as compared to other
expense of $1.9 million in 2008. Other income in 2009
consisted primarily of realized gains on sales of marketable
securities. Included in other expense in 2008 was an impairment
charge of $1.6 million related to our May 2008 investment
in Tekmira, as the decrease in the fair value of this investment
was deemed to be other than temporary.
Income taxes, primarily as a result of our alliances with Roche
and Takeda, was a provision for income taxes of
$0.6 million and $0.7 million for the years ended
December 31, 2009 and 2008, respectively.
93
Discussion
of Results of Operations for 2008 and 2007
The following table summarizes our total consolidated net
revenues from research collaborators, for the periods indicated,
in thousands:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Roche
|
|
$
|
54,427
|
|
|
$
|
17,571
|
|
Government contract
|
|
|
14,172
|
|
|
|
9,800
|
|
Takeda
|
|
|
12,794
|
|
|
|
|
|
Novartis
|
|
|
11,635
|
|
|
|
14,670
|
|
InterfeRx program, research reagent license and other
|
|
|
2,207
|
|
|
|
1,526
|
|
Other research collaborator
|
|
|
928
|
|
|
|
7,330
|
|
|
|
|
|
|
|
|
|
|
Total net revenues from research collaborators
|
|
$
|
96,163
|
|
|
$
|
50,897
|
|
|
|
|
|
|
|
|
|
|
Revenues increased significantly for the year ended
December 31, 2008 as compared to the year ended
December 31, 2007 primarily as a result of our August 2007
alliance with Roche, as well as our May 2008 alliance with
Takeda. Under the Roche alliance, $278.2 million was being
recognized as revenue on a straight-line basis over five years,
which equates to approximately $14.0 million per quarter.
In connection with the Roche alliance, Roche Kulmbach employees
performed certain transition services for us at various levels
through August 2008. We reimbursed Roche for these services at
an
agreed-upon
rate. We recorded as contra revenue (a reduction of revenues)
$1.0 million and $4.2 million for these services
during the years ended December 31, 2008 and 2007,
respectively. Under the Takeda alliance, the $150.0 million
in upfront and technology transfer milestone payments made or
due to us are being recognized as revenue on a straight-line
basis over seven years, which equates to approximately
$5.0 million per quarter.
For the year ended December 31, 2008 as compared to the
year ended December 31, 2007, government contract revenues
increased primarily as a result of our collaboration with DTRA,
which began in the third quarter of 2007.
The increase in InterfeRx program, research reagent license and
other revenues for the year ended December 31, 2008
compared to the prior year was due to milestone payments from
certain InterfeRx licensees received in 2008.
The decrease in Novartis revenues during the year ended
December 31, 2008 as compared to the year ended
December 31, 2007 was due in part to the wind down of the
Novartis flu alliance.
Other research collaborator revenues decreased in the year ended
December 31, 2008 as compared to the year ended
December 31, 2007 due primarily to our termination of the
Merck collaboration agreement in September 2007. We were
recognizing the remaining deferred revenue under the Merck
agreement on a straight-line basis over the remaining period of
expected performance of four years. As a result of the
termination, we recognized an aggregate of $3.5 million
during the third quarter of 2007, which represented all of the
remaining deferred revenue under the Merck agreement. In
addition, during 2008, we reduced the number of resources
allocated to, and received lower external expense reimbursement
under, our collaboration with Biogen Idec. The pace and scope of
future development under this collaboration is the
responsibility of Biogen Idec.
94
Operating
Expenses
The following table summarizes our operating expenses for the
periods indicated, in thousands and as a percentage of total
operating expenses, together with the changes, in thousands and
percentages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
Increase
|
|
|
|
|
|
|
Operating
|
|
|
|
|
|
Operating
|
|
|
(Decrease)
|
|
|
|
2008
|
|
|
Expenses
|
|
|
2007
|
|
|
Expenses
|
|
|
$
|
|
|
%
|
|
|
Research and development
|
|
$
|
96,883
|
|
|
|
78
|
%
|
|
$
|
120,686
|
|
|
|
84
|
%
|
|
$
|
(23,803
|
)
|
|
|
(20
|
)%
|
General and administrative
|
|
|
27,115
|
|
|
|
22
|
%
|
|
|
23,388
|
|
|
|
16
|
%
|
|
|
3,727
|
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
123,998
|
|
|
|
100
|
%
|
|
$
|
144,074
|
|
|
|
100
|
%
|
|
$
|
(20,076
|
)
|
|
|
(14
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development. The following table
summarizes the components of our research and development
expenses for the periods indicated, in thousands and as a
percentage of total research and development expenses, together
with the changes, in thousands and percentages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Increase
|
|
|
|
|
|
|
Expense
|
|
|
|
|
|
Expense
|
|
|
(Decrease)
|
|
|
|
2008
|
|
|
Category
|
|
|
2007
|
|
|
Category
|
|
|
$
|
|
|
%
|
|
|
Research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External services
|
|
$
|
22,852
|
|
|
|
24
|
%
|
|
$
|
18,417
|
|
|
|
15
|
%
|
|
$
|
4,435
|
|
|
|
24
|
%
|
Compensation and related
|
|
|
17,664
|
|
|
|
18
|
%
|
|
|
13,201
|
|
|
|
11
|
%
|
|
|
4,463
|
|
|
|
34
|
%
|
Clinical trial and manufacturing
|
|
|
13,342
|
|
|
|
14
|
%
|
|
|
20,662
|
|
|
|
17
|
%
|
|
|
(7,320
|
)
|
|
|
(35
|
)%
|
License fees
|
|
|
12,624
|
|
|
|
13
|
%
|
|
|
42,207
|
|
|
|
35
|
%
|
|
|
(29,583
|
)
|
|
|
(70
|
)%
|
Facilities-related
|
|
|
10,439
|
|
|
|
11
|
%
|
|
|
8,511
|
|
|
|
7
|
%
|
|
|
1,928
|
|
|
|
23
|
%
|
Non-cash stock-based compensation
|
|
|
9,575
|
|
|
|
10
|
%
|
|
|
9,363
|
|
|
|
8
|
%
|
|
|
212
|
|
|
|
2
|
%
|
Lab supplies and materials
|
|
|
8,095
|
|
|
|
8
|
%
|
|
|
6,154
|
|
|
|
5
|
%
|
|
|
1,941
|
|
|
|
32
|
%
|
Other
|
|
|
2,292
|
|
|
|
2
|
%
|
|
|
2,171
|
|
|
|
2
|
%
|
|
|
121
|
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development expenses
|
|
$
|
96,883
|
|
|
|
100
|
%
|
|
$
|
120,686
|
|
|
|
100
|
%
|
|
$
|
(23,803
|
)
|
|
|
(20
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses decreased during the year
ended December 31, 2008 as compared to the year ended
December 31, 2007 due primarily to higher license fees
during the prior period consisting of $27.5 million in
payments to certain entities, primarily Isis, as a result of our
alliance with Roche, a non-cash license fee of $7.9 million
and a cash license fee of $0.4 million related to the
issuance of our stock to Tekmira during 2007 in connection with
our original license agreement with Tekmira, and
$6.0 million in payments for drug delivery-related
activities. Partially offsetting this decrease was
$5.0 million in payments made in 2008 to certain entities,
primarily Isis, as a result of the Takeda alliance, as well as a
charge of $2.1 million in connection with our Tekmira
license agreement and $3.2 million associated with various
intellectual property assets.
Clinical trial and manufacturing expenses decreased during the
year ended December 31, 2008 as compared to the year ended
December 31, 2007 as a result of higher clinical trial and
manufacturing expenses in the prior period in support of our
clinical program for RSV, for which we began Phase II
trials in June 2007.
Partially offsetting these decreases, external services expenses
increased during the year ended December 31, 2008 as
compared to the year ended December 31, 2007 as a result of
higher expenses related to our government programs, our RSV
program and our pre-clinical programs for the treatment of liver
cancer and HD, as well as higher expenses associated with our
drug delivery-related collaborations. In addition, compensation
and related, lab supplies and materials, and facilities-related
expenses increased during the year ended December 31, 2008
as compared to the prior year due to additional research and
development headcount to support our alliances and expanding
product pipeline.
95
General and administrative. The following
table summarizes the components of our general and
administrative expenses for the periods indicated, in thousands
and as a percentage of total general and administrative
expenses, together with the changes, in thousands and
percentages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Increase
|
|
|
|
|
|
|
Expense
|
|
|
|
|
|
Expense
|
|
|
(Decrease)
|
|
|
|
2008
|
|
|
Category
|
|
|
2007
|
|
|
Category
|
|
|
$
|
|
|
%
|
|
|
General and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting and professional services
|
|
$
|
9,281
|
|
|
|
34
|
%
|
|
$
|
8,547
|
|
|
|
36
|
%
|
|
$
|
734
|
|
|
|
9
|
%
|
Non-cash stock-based compensation
|
|
|
6,807
|
|
|
|
25
|
%
|
|
|
5,109
|
|
|
|
22
|
%
|
|
|
1,698
|
|
|
|
33
|
%
|
Compensation and related
|
|
|
5,763
|
|
|
|
21
|
%
|
|
|
4,647
|
|
|
|
20
|
%
|
|
|
1,116
|
|
|
|
24
|
%
|
Facilities-related
|
|
|
2,401
|
|
|
|
9
|
%
|
|
|
2,486
|
|
|
|
11
|
%
|
|
|
(85
|
)
|
|
|
(3
|
)%
|
Insurance
|
|
|
682
|
|
|
|
3
|
%
|
|
|
654
|
|
|
|
3
|
%
|
|
|
28
|
|
|
|
4
|
%
|
Other
|
|
|
2,181
|
|
|
|
8
|
%
|
|
|
1,945
|
|
|
|
8
|
%
|
|
|
236
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative expenses
|
|
$
|
27,115
|
|
|
|
100
|
%
|
|
$
|
23,388
|
|
|
|
100
|
%
|
|
$
|
3,727
|
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in general and administrative expenses during the
year ended December 31, 2008 as compared to the prior year
was due primarily to an increase in general and administrative
headcount during 2008 to support our growth and higher non-cash
stock-based compensation.
Other
income (expense)
Equity in loss of joint venture (Regulus Therapeutics Inc.) was
$9.3 million and $1.1 million during the years ended
December 31, 2008 and 2007, respectively, related to our
share of the net losses incurred by Regulus, which was formed in
September 2007. The increase was a result of Regulus ramping up
its operations throughout 2008. Separate financial information
for Regulus is included in Exhibit 99.1 to this annual
report on
Form 10-K.
Interest income was $14.4 million in 2008 as compared to
$15.4 million in 2007. The decrease was due to lower
average interest rates during the year ended December 31,
2008, partially offset by higher average cash, cash equivalent
and marketable securities balances.
Interest expense was $0.9 million in 2008 as compared to
$1.1 million in 2007. Interest expense in each period was
related to borrowings under our lines of credit used to finance
capital equipment purchases. In December 2008, we repaid the
aggregate outstanding balance under these credit lines.
Included in other expense during the year ended
December 31, 2008 was an impairment charge of
$1.6 million related to our May 2008 investment in Tekmira,
as the decrease in the fair value of this investment was deemed
to be other than temporary.
Our provision for income taxes was $0.7 million for year
ended December 31, 2008 primarily as a result of our 2007
alliance with Roche. Income tax expense was $5.2 million
for the prior year primarily as a result of the sale of our
German operations to Roche in August 2007 for $15.0 million.
96
Liquidity
and Capital Resources
The following table summarizes our cash flow activities for the
periods indicated, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net loss
|
|
$
|
(47,590
|
)
|
|
|
$(26,249
|
)
|
|
$
|
(85,466
|
)
|
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities
|
|
|
25,857
|
|
|
|
27,840
|
|
|
|
29,834
|
|
Changes in operating assets and liabilities
|
|
|
(50,412
|
)
|
|
|
63,900
|
|
|
|
252,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(72,145
|
)
|
|
|
65,491
|
|
|
|
196,519
|
|
Net cash provided by (used in) investing activities
|
|
|
14,433
|
|
|
|
17,936
|
|
|
|
(277,425
|
)
|
Net cash provided by financing activities
|
|
|
3,509
|
|
|
|
3,155
|
|
|
|
58,635
|
|
Effect of exchange rate on cash
|
|
|
(121
|
)
|
|
|
53
|
|
|
|
(527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(54,324
|
)
|
|
|
86,635
|
|
|
|
(22,798
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
191,792
|
|
|
|
105,157
|
|
|
|
127,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
137,468
|
|
|
|
$191,792
|
|
|
$
|
105,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Since we commenced operations in 2002, we have generated
significant losses. As of December 31, 2009, we had an
accumulated deficit of $299.8 million. As of
December 31, 2009, we had cash, cash equivalents and
marketable securities of $435.3 million, compared to cash,
cash equivalents and marketable securities of
$512.7 million as of December 31, 2008. We invest
primarily in cash equivalents, U.S. government and
municipal obligations, high-grade corporate notes and commercial
paper. Our investment objectives are, primarily, to assure
liquidity and preservation of capital and, secondarily, to
obtain investment income. All of our investments in debt
securities are recorded at fair value and are
available-for-sale.
Fair value is determined based on quoted market prices and
models using observable data inputs. We have not recorded any
impairment charges to our fixed income marketable securities as
of December 31, 2009.
Operating
activities
We have required significant amounts of cash to fund our
operating activities as a result of net losses since our
inception. The decrease in net cash provided by operating
activities for the year ended December 31, 2009 compared to
the year ended December 31, 2008 was due primarily to our
net loss and other changes in our working capital. We had a
decrease in deferred revenue of $58.2 million for year
ended December 31, 2009, partially offset by an increase in
accounts payable of $9.9 million. We had an increase in
deferred revenue of $66.7 million for the year ended
December 31, 2008 due primarily to the proceeds received
from our Takeda and Kyowa Hakko Kirin alliances. Cash used in
operating activities is adjusted for non-cash items to reconcile
net loss to net cash provided by or used in operating
activities. These non-cash adjustments consist primarily of
stock-based compensation, equity in loss of joint venture
(Regulus Therapeutics Inc.) and depreciation and amortization.
We expect that we will require significant amounts of cash to
fund our operating activities for the foreseeable future as we
continue to develop and advance our research and development
initiatives. The actual amount of overall expenditures will
depend on numerous factors, including the timing of expenses,
the timing and terms of collaboration agreements or other
strategic transactions, if any, and the timing and progress of
our research and development efforts.
Investing
activities
For the year ended December 31, 2009, net cash provided by
investing activities of $14.4 million resulted primarily
from net sales and maturities of marketable securities of
$23.2 million and a decrease in restricted cash of
$6.2 million resulting from the release of letters of
credit in connection with the amendment of our facility lease
and the termination of our sublease agreement. Offsetting these
amounts was a $10.0 million investment in Regulus and
purchases of property and equipment of $4.9 million. For
the year ended December 31, 2008, net cash provided by
97
investing activities of $17.9 million resulted primarily
from net sales and maturities of marketable securities of
$28.8 million. Offsetting this amount was purchases of
property and equipment of $10.8 million.
Financing
activities
For the year ended December 31, 2009, net cash provided by
financing activities of $3.5 million was due to proceeds of
$1.2 million from our issuance of common stock to Novartis
in May 2009, as well as proceeds of $2.4 million from the
issuance of common stock in connection with stock option
exercises. For the year ended December 31, 2008, net cash
provided by financing activities was $3.2 million due to
proceeds of $5.4 million from our issuance of common stock
to Novartis in May 2008, as well as proceeds of
$4.5 million from the issuance of common stock in
connection with stock option exercises, offset by
$6.8 million for repayments of notes payable.
In March 2006, we entered into an agreement with Oxford Finance
Corp., or Oxford, to establish an equipment line of credit for
up to $7.0 million to help support capital expansion of our
facility in Cambridge, Massachusetts and capital equipment
purchases. During 2006, we borrowed an aggregate of
$4.2 million from Oxford pursuant to the agreement. In May
2007, we borrowed an aggregate of $1.0 million from Oxford
pursuant to the agreement. In March 2004, we entered into an
equipment line of credit with Lighthouse Capital
Partners V, L.P., or Lighthouse, to finance leasehold
improvements and equipment purchases of up to
$10.0 million. On the maturity of each equipment advance
under the Lighthouse line of credit, we were required to pay, in
addition to the principal and interest due, an additional amount
of 11.5% of the original principal. This amount was being
accrued over the applicable borrowing period as additional
interest expense. In December 2008, we repaid the aggregate
outstanding balance under the Oxford and Lighthouse credit lines.
During the current downturn in global financial markets, some
companies have experienced difficulties accessing their cash
equivalents, investment securities and raising capital
generally, which have had a material adverse impact on their
liquidity. In addition, the current economic downturn has
severely diminished the availability of capital and may limit
our ability to access these markets to obtain financing in the
future. Based on our current operating plan, we believe that our
existing cash, cash equivalents and fixed income marketable
securities, for which we have not recognized any impairment
charges, together with the cash we expect to generate under our
current alliances, including our Novartis, Roche, Takeda and
Cubist alliances, will be sufficient to fund our planned
operations for at least the next several years, during which
time we expect to further the development of our product
candidates, conduct clinical trials, extend the capabilities of
our technology platform and continue to prosecute patent
applications and otherwise build and maintain our patent
portfolio. However, we may require significant additional funds
earlier than we currently expect in order to develop, conduct
clinical trials for and commercialize any product candidates.
In the longer term, we may seek additional funding through
additional collaborative arrangements and public or private
financings. Additional funding may not be available to us on
acceptable terms or at all. In addition, the terms of any
financing may adversely affect the holdings or the rights of our
stockholders. For example, if we raise additional funds by
issuing equity securities, further dilution to our existing
stockholders may result. If we are unable to obtain funding on a
timely basis, we may be required to significantly curtail one or
more of our research or development programs. We also could be
required to seek funds through arrangements with collaborators
or others that may require us to relinquish rights to some of
our technologies or product candidates that we would otherwise
pursue.
Even if we are able to raise additional funds in a timely
manner, our future capital requirements may vary from what we
expect and will depend on many factors, including:
|
|
|
|
|
our progress in demonstrating that siRNAs can be active as drugs;
|
|
|
|
our ability to develop relatively standard procedures for
selecting and modifying siRNA product candidates;
|
|
|
|
progress in our research and development programs, as well as
the magnitude of these programs;
|
|
|
|
the timing, receipt and amount of milestone and other payments,
if any, from present and future collaborators, if any;
|
|
|
|
the timing, receipt and amount of funding under current and
future government contracts, if any;
|
98
|
|
|
|
|
our ability to maintain and establish additional collaborative
arrangements;
|
|
|
|
the resources, time and costs required to successfully initiate
and complete our pre-clinical and clinical trials, obtain
regulatory approvals, and obtain and maintain licenses to
third-party intellectual property;
|
|
|
|
the resources, time and cost required for the preparation,
filing, prosecution, maintenance and enforcement of patent
claims;
|
|
|
|
the costs associated with legal activities arising in the course
of our business activities;
|
|
|
|
progress in the research and development programs of
Regulus; and
|
|
|
|
the timing, receipt and amount of sales and royalties, if any,
from our potential products.
|
Off-Balance
Sheet Arrangements
In connection with our license agreements with
Max-Planck-Gesellschaft Zur Forderung Der Wissenschaften E.V.
and Max-Planck-Innovation GmbH, collectively, Max Planck,
relating to the Tuschl I and II patent applications, we are
required to indemnify Max Planck for certain damages arising in
connection with the intellectual property rights licensed under
the agreements. Under this indemnification agreement with Max
Planck, we are responsible for paying the costs of any
litigation relating to the license agreements or the underlying
intellectual property rights. These amounts are charged to
general and administrative expense. In addition, we are a party
to a number of agreements entered into in the ordinary course of
business, which contain typical provisions that obligate us to
indemnify the other parties to such agreements upon the
occurrence of certain events. These indemnification obligations
are considered off-balance sheet arrangements in accordance with
GAAP. To date, other than the costs associated with the
litigation described in Part I, Item 3 of this annual
report on
Form 10-K,
which we are responsible for under our indemnification agreement
with Max Planck, we have not encountered material costs as a
result of such obligations and have not accrued any liabilities
related to such obligations in our consolidated financial
statements. See Note 7 to our consolidated financial
statements included in this annual report on
Form 10-K
for further discussion of these indemnification agreements.
Contractual
Obligations
In the table below, we set forth our enforceable and legally
binding obligations and future commitments as of
December 31, 2009, as well as obligations related to
contracts that we are likely to continue, regardless of the fact
that they were cancelable as of December 31, 2009. Some of
the figures that we include in this table are based on
managements estimate and assumptions about these
obligations, including their duration, the possibility of
renewal, anticipated actions by third parties, and other
factors. Because these estimates and assumptions are necessarily
subjective, the obligations we will actually pay in future
periods may vary from those reflected in the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
2011 and
|
|
|
2013 and
|
|
|
|
|
|
|
|
Contractual Obligations
|
|
2010
|
|
|
2012
|
|
|
2014
|
|
|
After 2014
|
|
|
Total
|
|
|
Operating lease obligations(1)
|
|
$
|
3,727
|
|
|
$
|
7,725
|
|
|
$
|
8,385
|
|
|
$
|
7,878
|
|
|
$
|
27,715
|
|
Purchase commitments(2)
|
|
|
12,273
|
|
|
|
3,782
|
|
|
|
|
|
|
|
|
|
|
|
16,055
|
|
Technology-related commitments(3)
|
|
|
18,225
|
|
|
|
6,558
|
|
|
|
1,041
|
|
|
|
6,823
|
|
|
|
32,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
34,225
|
|
|
$
|
18,065
|
|
|
$
|
9,426
|
|
|
$
|
14,701
|
|
|
$
|
76,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Relates to our Cambridge, Massachusetts non-cancelable operating
lease agreement. |
|
(2) |
|
Includes commitments related to purchase orders, clinical and
pre-clinical agreements, and other purchase commitments for
goods or services. |
|
(3) |
|
Relates to our fixed payment obligations under license
agreements, as well as other payments related to technology
research and development. Includes a potential
$10.0 million milestone payable to Isis during the fourth
quarter. A description of the amended and restated Isis
agreement is included above under Strategic
Alliances Isis in this annual report on
Form 10-K. |
99
We in-license technology from a number of sources. Pursuant to
these in-license agreements, we will be required to make
additional payments if and when we achieve specified development
and regulatory milestones. To the extent we are unable to
reasonably predict the likelihood, timing or amount of such
payments, we have excluded them from the table above.
Recent
Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board, or FASB,
issued the FASB Accounting Standards Codification, or ASC.
Effective in the third quarter of 2009, the ASC became the
single source for all authoritative GAAP recognized by the FASB,
and is required to be applied to financial statements issued for
interim and annual periods ending after September 15, 2009.
The ASC does not change GAAP and did not impact our consolidated
financial statements.
In October 2009, the FASB issued a new accounting standard,
which amends existing revenue recognition accounting
pronouncements and provides accounting principles and
application guidance on whether multiple deliverables exist, how
the arrangement should be separated and the consideration
allocated. This standard eliminates the requirement to establish
the fair value of undelivered products and services and instead
provides for separate revenue recognition based upon
managements estimate of the selling price for an
undelivered item when there is no other means to determine the
fair value of that undelivered item. Previously, accounting
principles required that the fair value of the undelivered item
be the price of the item either sold in a separate transaction
between unrelated third parties or the price charged for each
item when the item is sold separately by the vendor. This was
difficult to determine when the product was not individually
sold because of its unique features. If the fair value of all of
the elements in the arrangement was not determinable, then
revenue was deferred until all of the items were delivered or
fair value was determined. This new approach is effective
prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after
June 15, 2010. We are currently evaluating the potential
impact of this accounting standard on our consolidated financial
statements.
In June 2009, the FASB issued a new accounting standard, which
has not yet been integrated into the ASC. Accordingly, it will
remain authoritative until integrated. Statement of Financial
Accounting Standards, or SFAS, No. 167, Amendments to
FASB Interpretation No. 46(R), or SFAS 167,
amends previously issued accounting guidance for the
consolidation of a VIE to require an enterprise to determine
whether its variable interest or interests give it a controlling
financial interest in a VIE. This amended consolidation guidance
for VIEs also replaces the existing quantitative approach for
identifying which enterprise should consolidate a VIE, which was
based on which enterprise was exposed to a majority of the risks
and rewards, with a qualitative approach, based on which
enterprise has both (1) the power to direct the
economically significant activities of the entity and
(2) the obligation to absorb losses of the entity that
could potentially be significant to the VIE or the right to
receive benefits from the entity that could potentially be
significant to the VIE. This new accounting standard has broad
implications and may affect how we account for the consolidation
of common structures, such as joint ventures, equity method
investments, collaboration and other agreements, and purchase
arrangements. Under this revised consolidation guidance, more
entities may meet the definition of a VIE, and the determination
about who should consolidate a VIE is required to be evaluated
continuously. We have completed our evaluation of the impact of
adopting this standard and determined that the adoption will not
have an impact on our consolidated financial statements.
100
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
As part of our investment portfolio, we own financial
instruments that are sensitive to market risks. The investment
portfolio is used to preserve our capital until it is required
to fund operations, including our research and development
activities. Our marketable securities consist of
U.S. government and municipal obligations, high-grade
corporate notes and commercial paper. All of our investments in
debt securities are classified as
available-for-sale
and are recorded at fair value. Our
available-for-sale
investments in debt securities are sensitive to changes in
interest rates and changes in the credit ratings of the issuers.
Interest rate changes would result in a change in the net fair
value of these financial instruments due to the difference
between the market interest rate and the market interest rate at
the date of purchase of the financial instrument. If market
interest rates were to increase immediately and uniformly by
50 basis points, or one-half of a percentage point, from
levels at December 31, 2009, the net fair value of our
interest-sensitive financial instruments would have resulted in
a hypothetical decline of $1.6 million. A downgrade in the
credit rating of an issuer of a debt security or further
deterioration of the credit markets could result in a decline in
the fair value of the debt instruments. Our investment
guidelines prohibit investment in auction rate securities and we
do not believe we have any direct exposure to losses relating
from mortgage-based securities or derivatives related thereto
such as credit-default swaps. We have not recorded any
impairment charges to our fixed income marketable securities as
of December 31, 2009.
101
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
103
|
|
|
|
|
104
|
|
|
|
|
105
|
|
|
|
|
106
|
|
|
|
|
107
|
|
|
|
|
108
|
|
|
|
|
109
|
|
102
Managements
Annual Report on Internal Control Over Financial
Reporting
The management of the Company is responsible for establishing
and maintaining adequate internal control over financial
reporting. Internal control over financial reporting is defined
in
Rule 13a-15(f)
or 15d-15(f)
promulgated under the Securities Exchange Act of 1934 as a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers and effected by the companys board of directors,
management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and
includes those policies and procedures that:
|
|
|
|
|
Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions
of the assets of the Company;
|
|
|
|
Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and
directors of the Company; and
|
|
|
|
Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the
financial statements.
|
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
The Companys management assessed the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2009. In making this assessment, the
Companys management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework.
Based on our assessment, management concluded that, as of
December 31, 2009, the Companys internal control over
financial reporting is effective based on those criteria.
The effectiveness of the Companys internal control over
financial reporting as of December 31, 2009 has been
audited by PricewaterhouseCoopers LLP, an independent registered
public accounting firm, as stated in their report. This report
appears on page 104.
103
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Alnylam
Pharmaceuticals, Inc.:
In our opinion, based on our audits and the report of other
auditors, the accompanying consolidated balance sheets and the
related consolidated statements of operations and comprehensive
loss, stockholders equity and cash flows present fairly,
in all material respects, the financial position of Alnylam
Pharmaceuticals, Inc. and its subsidiaries at December 31,
2009 and 2008, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 2009 in conformity with accounting principles
generally accepted in the United States of America. Also in our
opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2009, based on criteria established in
Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
The Companys management is responsible for these financial
statements, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in
Managements Annual Report on Internal Control over
Financial Reporting. Our responsibility is to express opinions
on these financial statements and on the Companys internal
control over financial reporting based on our integrated audits.
We did not audit the financial statements of Regulus
Therapeutics Inc., an approximate 49 percent-owned equity
investment, which were audited by other auditors whose report
thereon has been furnished to us. Our opinion expressed herein,
insofar as it relates to the Companys net investment in
(approximately $6.4 million and $1.6 million at
December 31, 2009 and 2008, respectively) and equity in the
net loss (approximately $4.9 million, $9.3 million and
$1.1 million for the year ended December 31, 2009 and 2008
and for the period from September 6, 2007 (inception) to
December 31, 2007, respectively) of Regulus Therapeutics Inc.,
is based solely on the report of the other auditors. We
conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits and the report of other auditors provide
a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers
LLP
Boston, Massachusetts
February 26, 2010
104
ALNYLAM
PHARMACEUTICALS, INC.
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except share and per share amounts)
|
|
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|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
137,468
|
|
|
$
|
191,792
|
|
Marketable securities
|
|
|
143,934
|
|
|
|
238,596
|
|
Collaboration receivables
|
|
|
6,044
|
|
|
|
4,188
|
|
Prepaid expenses and other current assets
|
|
|
4,151
|
|
|
|
4,674
|
|
Deferred tax assets
|
|
|
1,937
|
|
|
|
875
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
|
|
|
|
2,999
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
293,534
|
|
|
|
443,124
|
|
Marketable securities
|
|
|
153,914
|
|
|
|
82,321
|
|
Property and equipment, net
|
|
|
18,324
|
|
|
|
19,194
|
|
Deferred tax assets, net of current portion
|
|
|
8,556
|
|
|
|
4,507
|
|
Investment in joint venture (Regulus Therapeutics Inc.)
|
|
|
6,435
|
|
|
|
1,583
|
|
Intangible assets, net
|
|
|
622
|
|
|
|
795
|
|
Restricted cash, net of current portion
|
|
|
|
|
|
|
3,152
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
481,385
|
|
|
$
|
554,676
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
12,489
|
|
|
$
|
2,588
|
|
Accrued expenses
|
|
|
9,833
|
|
|
|
9,328
|
|
Income taxes payable
|
|
|
5,644
|
|
|
|
6,111
|
|
Deferred rent
|
|
|
838
|
|
|
|
1,561
|
|
Deferred revenue
|
|
|
81,929
|
|
|
|
79,864
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
110,733
|
|
|
|
99,452
|
|
Deferred rent, net of current portion
|
|
|
2,609
|
|
|
|
2,732
|
|
Deferred revenue, net of current portion
|
|
|
189,884
|
|
|
|
250,121
|
|
Other long-term liabilities
|
|
|
194
|
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
303,420
|
|
|
|
352,551
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 7 and 12)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 5,000,000 shares
authorized and no shares issued and outstanding at
December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 125,000,000 shares
authorized; 41,837,427 shares issued and outstanding at
December 31, 2009; 41,413,828 shares issued and
outstanding at December 31, 2008
|
|
|
418
|
|
|
|
414
|
|
Additional paid-in capital
|
|
|
476,663
|
|
|
|
452,767
|
|
Accumulated other comprehensive income
|
|
|
716
|
|
|
|
1,186
|
|
Accumulated deficit
|
|
|
(299,832
|
)
|
|
|
(252,242
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
177,965
|
|
|
|
202,125
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
481,385
|
|
|
$
|
554,676
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
105
ALNYLAM
PHARMACEUTICALS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net revenues from research collaborators
|
|
$
|
100,533
|
|
|
$
|
96,163
|
|
|
$
|
50,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development(1)
|
|
|
108,730
|
|
|
|
96,883
|
|
|
|
120,686
|
|
General and administrative(1)
|
|
|
39,914
|
|
|
|
27,115
|
|
|
|
23,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
148,644
|
|
|
|
123,998
|
|
|
|
144,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(48,111
|
)
|
|
|
(27,835
|
)
|
|
|
(93,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in loss of joint venture (Regulus Therapeutics Inc.)
|
|
|
(4,910
|
)
|
|
|
(9,290
|
)
|
|
|
(1,075
|
)
|
Interest income
|
|
|
5,385
|
|
|
|
14,414
|
|
|
|
15,393
|
|
Interest expense
|
|
|
|
|
|
|
(872
|
)
|
|
|
(1,083
|
)
|
Other income (expense)
|
|
|
628
|
|
|
|
(1,947
|
)
|
|
|
(279
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
1,103
|
|
|
|
2,305
|
|
|
|
12,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(47,008
|
)
|
|
|
(25,530
|
)
|
|
|
(80,221
|
)
|
Provision for income taxes
|
|
|
(582
|
)
|
|
|
(719
|
)
|
|
|
(5,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(47,590
|
)
|
|
$
|
(26,249
|
)
|
|
$
|
(85,466
|
)
|
|
|
|
|
|
|
|
|
|
|