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, 2007
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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
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77-0602661
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(State or other jurisdiction
of
incorporation or organization)
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(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
(Title of Class)
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 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:
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(do not check if smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
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 29, 2007, was $561,228,166.
As of February 29, 2008, the registrant had
40,802,423 shares of Common Stock, $0.01 par value per
share, outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants definitive proxy statement for
its 2008 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, 2007, are incorporated by
reference into Part III of this
Form 10-K.
ALNYLAM
PHARMACEUTICALS, INC.
ANNUAL REPORT ON
FORM 10-K
For the Year Ended December 31, 2007
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 section and
elsewhere 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. 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 infection clinical trial, referred to as the GEMINI
study. The GEMINI study was designed to evaluate the safety,
tolerability and anti-viral activity of ALN-RSV01. In this
study, ALN-RSV01 was safe and well tolerated and demonstrated
statistically significant anti-viral activity, including an
approximately 40% reduction in viral infection and a 95%
increase in infection-free patients (p<0.01).
We have three RNAi therapeutic programs in pre-clinical
development, ALN-PCS, ALN-VSP and ALN-HTT, focused on the
treatment of hypercholesterolemia, liver cancer and
Huntingtons disease, respectively. We have additional
discovery programs for RNAi therapeutics for the treatment of a
broad range of diseases, including viral hemorrhagic fever,
including the Ebola virus, progressive multifocal
leukoencephalopathy, or PML, pandemic flu, Parkinsons
disease and cystic fibrosis, or CF, as well as other undisclosed
programs.
We also 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-RSV01 to the lungs, which we refer to as Direct
RNAitm.
In addition, we are working to extend our capabilities to
advance the development of RNAi therapeutics that are
administered by intravenous, subcutaneous or intramuscular
approaches, which we refer to as Systemic
RNAitm.
During 2007, we obtained an exclusive worldwide license to the
liposomal delivery formulation technology of Tekmira
Pharmaceuticals Corporation, or Tekmira, formerly know as Inex
Pharmaceuticals Corporation, for the discovery, development and
commercialization of lipid-based nanoparticle formulations for
the delivery of RNAi therapeutics. We also signed an agreement
with the Massachusetts Institute of Technology, or MIT, Center
for Cancer Research to sponsor an exclusive five-year research
program focused on the delivery of RNAi therapeutics. We have
other RNAi therapeutic delivery collaborations and intend to
continue to collaborate
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with academic and corporate third parties, to evaluate different
delivery options, including with respect to Direct RNAi and
Systemic RNAi.
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. We believe that no other company possesses a
portfolio of such broad and exclusive rights to the fundamental
RNAi patents and patent applications required for the
development and commercialization of RNAi therapeutics.
In addition, our expertise in RNAi therapeutics and broad
intellectual property estate have allowed us to form alliances
with leading companies, including F. Hoffmann-La Roche Ltd,
or Roche, Novartis Pharma AG, or Novartis, Medtronic, Inc., or
Medtronic, and Biogen Idec, Inc., or Biogen Idec. 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, and
the Defense Threat Reduction Agency, or DTRA, an agency of the
United States Department of Defense, or DoD. We have established
collaborations and in some instances, received funding from a
number of major medical and disease associations, including The
University of Texas Southwestern Medical Center, or UTSW, the
Mayo Clinic, The Michael J. Fox Foundation and the Cystic
Fibrosis Foundation Therapeutics, or CFTT. Finally, to further
enable the field and monetize our intellectual property rights,
we have also entered into approximately 20 license agreements
with other biotechnology companies interested in developing RNAi
therapeutic products and research companies that commercialize
RNAi reagents or services.
In 2007, we and Isis Pharmaceuticals, Inc., or Isis, established
Regulus Therapeutics LLC, or Regulus Therapeutics, as a joint
venture focused on the discovery, development and
commercialization of microRNA, or miRNA, therapeutics. Because
miRNAs are believed to regulate whole networks of genes that can
be involved in discrete disease processes, miRNA therapeutics
represent a new approach to target the pathways of human
disease. Regulus Therapeutics combines our and Isis
technologies, know-how and intellectual property relating to
miRNA therapeutics. In addition, we believe Regulus Therapeutics
has assembled a strong leadership team, as well as leading
authorities in the field of miRNA research to lead this new
venture.
RNA
Interference
RNAi is a biological pathway that occurs naturally 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.
Genes provide cells with instructions for producing proteins.
Proteins perform many of the vital functions of the cell and of
the human body. Although the roles they play are generally
beneficial, in certain circumstances, proteins can be harmful.
Many human diseases are caused by the inappropriate behavior of
proteins. A particular protein may, for example, be present in
too great a quantity, be too active or appear in the wrong place
or at the wrong time. In these circumstances, the ability to
stop or reduce production of the protein by selectively
silencing the gene that directs its synthesis could be very
beneficial for the treatment of the disease.
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. Because it
is possible, in theory, to design and synthesize siRNAs specific
to any gene of interest, we believe that RNAi therapeutics have
the potential to become a broad new class of drugs.
3
How
RNA Interference Works
RNA is a crucial intermediary in the process by which the cell
uses inherited genetic information. This information is passed
from one generation to the next in the form of genes, which are
made of a substance known as deoxyribonucleic acid, or DNA.
Generally, each gene contains the instructions that tell the
cell how to make one specific protein. These instructions are in
a coded form. The code is based on the four different chemical
building blocks from which DNA is made, usually designated by
the first letters of their chemical names, A, C, G and T. It is
the sequence in which these building blocks, or bases, occur in
a gene that tells the cell which protein to make. Most gene
sequences are thousands of bases long, and the variety possible
in such long sequences allows the cell to produce a large number
of different proteins.
One very important property of DNA is that it is
double-stranded, consisting of two separate strands intertwined
around each other in a double helix. The two strands are held
together by base pairs that form between bases on the opposite
strands. Strict rules govern the formation of these base pairs:
an A on one strand can pair with a T on the other, and a G can
pair with a C, but no other pairings are allowed. The
double-stranded nature of DNA and the strict rules governing
base-pairing are fundamental to ensuring that genetic
information is copied accurately when it is handed down from one
generation to the next.
Base-pairing rules are also fundamental to the process by which
the cell uses, or expresses, genetic information to make a
protein. To initiate this process, the cell makes a working copy
of the gene that encodes the protein. This working copy is made
not of DNA but of a closely related substance called ribonucleic
acid, or RNA. The working copy is known as messenger RNA, or
mRNA. Unlike DNA, mRNA has only one strand. However, the
application of base-pairing rules during synthesis of this
strand ensures that the sequence of bases in mRNA accurately
reflects the base sequence, and thus the genetic information, in
the gene being copied. This mRNA then associates with the
cells protein synthesis machinery, where it directs
synthesis of a protein in such a way that the structure of the
protein is directly determined by the sequence of bases in the
mRNA, and thus in the gene. The protein specified by a
particular gene or mRNA is said to be encoded by that gene or
mRNA. When this protein is made, the gene is said to be active
or expressed.
Although many RNA molecules, like mRNA, are single-stranded, RNA
is capable of forming double-stranded molecules analogous to
those formed by DNA. When it does so, base-pairing rules apply.
As a result, only RNA molecules with complementary sequences can
form double-stranded structures. Generally, every base on one
strand has to line up with its permitted base-pair partner on
the other strand, otherwise the double-stranded structure will
be unstable.
Double-stranded RNA, or dsRNA, is crucial to the phenomenon of
RNAi. A particular type of dsRNA interferes with the activity of
specific genes by triggering the breakdown of mRNAs copied from
these genes, preventing production of the proteins they encode.
Selection of mRNAs for breakdown is driven by base-pairing
between the target mRNAs and the separated strands of the dsRNA.
Thus, the mRNAs selected for breakdown are those which contain
base sequences identical to base sequences in one strand of the
dsRNA. As a result, RNAi leads to selective silencing of
specific genes with relatively little impact on other genes
whose mRNAs do not share base sequences with the dsRNA.
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In nature, the cell initiates RNAi by cutting longer dsRNAs into
smaller dsRNA pieces that have 25 or fewer base pairs. These
shorter dsRNAs are known as small interfering RNAs, or siRNAs.
siRNAs are double-stranded along most of their length but
naturally have unpaired bases, or overhangs, at each end, which
are important for their activity. siRNAs are the molecules that
actually trigger RNA interference. They do so by a process that
has three main steps as shown in the figure below.
Step 1. siRNAs associate with several proteins to
form an assembly known as the RNA-induced silencing complex, or
RISC. The two strands of the siRNA become separated as the RISC
is formed, so that RISC contains an unpaired single-stranded RNA.
Step 2. The RISC then looks for mRNA molecules that
contain base sequences complementary to the single-stranded RNA
it contains that is, sequences within the mRNA whose
bases can pair up exactly, using base-pairing rules, with the
bases in the single-stranded RNA.
Step 3. Once this pairing occurs, the RISC complex
cuts the mRNA into two separate pieces at the base-paired
region, destroying its ability to direct protein synthesis. The
RISC complex is then available to cut additional mRNA molecules
that contain the appropriate base sequence.
Repetitive cycles through steps two and three lead to catalytic
degradation of mRNAs that contain a sequence complementary to
the siRNA strand in the RISC. The ability of each RISC complex
to cut multiple mRNA molecules consecutively in a catalytic
manner is one of the reasons why we believe RNAi will be
effective at silencing gene activity.
Opportunity
for Therapeutics Based on RNAi
In May 2001, one of our scientific founders, Thomas
Tuschl, Ph.D., published the first scientific paper
demonstrating that the siRNAs required to trigger RNA
interference need not be generated inside the cell. Instead,
siRNAs can be synthesized in the laboratory using chemical or
biochemical methods and introduced into cells to silence the
activity of a specific gene. As a result of the human genome
project, complete base sequences are available for most human
genes. With the sophisticated bioinformatics tools that were
developed in conjunction with the genome project, it is possible
to scan through the gene that encodes a particular protein and
select base sequences that are of the appropriate length for
siRNAs and unique to that gene. Several siRNAs targeted to the
gene of interest can then be synthesized. Each synthesized siRNA
will contain a sequence capable of base-pairing exactly with a
short stretch of the sequence of the mRNA copied from the target
gene. The synthetic siRNAs can then be tested to determine
whether they silence the activity of this gene and suppress the
synthesis of the protein it encodes.
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The use of siRNAs has been broadly adopted by academic and
industrial researchers for the fundamental study of the function
of genes. Important information about the function of a gene can
often be deduced by suppressing, or knocking-down, its activity
and examining the effect this has on the behavior of a cell or
animal. There are now many examples in which such suppression of
gene activity has been achieved, in whole or in part, using
synthetic siRNAs. In just a few years after siRNAs were
discovered, they have become the tools of choice for the
selective knock-down of gene function by research scientists,
and have largely displaced other methods previously used for
this purpose. Reflecting this, siRNAs are a growing segment of
the market for research reagents and related products and
services.
One important application of such knock-down studies is to
confirm the role of a particular gene or protein in a disease, a
process often referred to as target identification or target
validation. If silencing a gene with an siRNA leads to
improvements in disease symptoms in an experimental disease
model, this implies that the target gene or protein plays an
important role in the disease. It also implies that the siRNA
that suppresses the gene in the model system may be a useful
starting point for the development of a drug. We believe that it
will be possible to develop these siRNAs into potent and
specific drugs.
Broad
Potential of siRNAs as Therapeutics
The success of siRNAs in silencing gene activity in experimental
systems suggests that siRNAs could potentially be developed into
a broad new class of human therapeutics. We believe this new
class of drugs has the potential to become a broad new class of
drugs because RNAi therapeutics could offer the following
benefits:
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Ability to treat a broad range of
diseases. Given the availability of the base
sequence of the entire human genome, it could be possible, in
theory, to design siRNAs to suppress the production of virtually
any human protein whose presence or activity causes disease.
This suggests that RNAi therapeutics could potentially be used
to treat a broad range of diseases.
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Ability to target proteins that cannot be targeted
effectively by existing drug classes. Many
proteins that play important roles in disease cannot be targeted
effectively with small molecules or with therapeutic proteins
such as monoclonal antibodies. These proteins are commonly
referred to as non-druggable targets. In the case of small
molecule drugs, many proteins are non-druggable because it has
proved difficult to synthesize drug candidates with appropriate
specificity, potency and safety. In the case of protein drugs,
the range of available targets is limited to targets on the
surface of or outside the cell. These limitations on small
molecule and protein drugs should not apply to siRNAs, which, in
theory, can be synthesized to target any gene in the genome.
Therefore, we believe RNAi therapeutics will be able to target
proteins that small molecule and protein drugs cannot currently
target effectively.
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Inherently potent mechanism of action. One
molecule of siRNA could potentially do the work of thousands of
molecules of conventional drugs. With conventional drugs, one
drug molecule is typically required for every protein molecule
whose activity needs to be blocked. Accordingly, to block
several thousand protein molecules, several thousand drug
molecules are required. In contrast, a single siRNA molecule can
potentially block the synthesis of many protein molecules. This
is because each siRNA within a RISC complex can trigger
destruction of multiple mRNA molecules, each of which could
otherwise direct the synthesis of many protein molecules. This
inherent potency of the RNAi mechanism suggests a potentially
high degree of potency for RNAi therapeutics.
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Simplified discovery of drug
candidates. Identification of small molecule and
protein drug candidates typically requires screening of a large
number of potential candidates to find prospective leads. These
leads must then undergo significant optimization in order to
become drug candidates. Particularly in the case of small
molecule drug candidates, the optimization procedure can be very
challenging, and has to be almost entirely repeated for each
candidate. Identification of siRNA drug candidates has the
potential to be much simpler and take considerably less time
because, in theory, it will involve relatively standard
processes that can be applied in a similar fashion to many
successive product candidates.
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For these potential benefits of RNAi therapeutics to be
realized, it will be necessary to create chemically synthesized
siRNAs that are potent, specific, stable and safe and also
capable of reaching, or achieving delivery
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into, the appropriate tissues and cells. The incorporation of
such properties into siRNAs is the focus of our product
platform. We have reported on our advances in developing siRNAs
as potential drugs in a number of peer-reviewed publications and
meetings, including publications by Alnylam scientists in the
journals Nature, Cell, Nature Medicine and Nature
Biotechnology.
Our
Product Platform
To realize the potential of RNAi therapeutics as a broad new
class of drugs, we are developing capabilities that we can apply
to any specific siRNA in a relatively standard fashion to endow
it with drug-like properties. We use the term product
platform to describe these capabilities because we believe
they will enable us to develop many products across a variety of
therapeutic areas. Our product platform provides a systematic
approach to identifying RNAi drug candidates. We believe that we
have made considerable progress in developing our product
platform, as documented in recent publications by our scientists
in Nature Chemical Biology and Nature Drug Discovery.
This progress has enabled us to initiate and advance a
number of development programs for RNAi therapeutics that will
be administered directly to diseased parts of the body. Our
progress in achieving delivery of RNAi therapeutics through
Systemic RNAi has enabled the initiation of pre-clinical
development programs for these applications as well. We
recognize, however, that considerable challenges remain with
respect to delivery of siRNAs to target cells and tissues, and
we therefore regard further development of our product platform
as a continuing high priority.
Our
Product Pipeline
The following is a summary of our product pipeline as of
February 29, 2008:
We consider a program to be a discovery program
while we are still at the stage of identifying and comparing
potential drug candidates but have not yet established the
timing for human clinical trials. Once such timing has been
established, we consider a program to have advanced to the
development stage, and to be a development program.
Our most advanced program is focused on RSV, a virus that
infects the respiratory tract. In January 2008, we completed a
Phase II human clinical trial of ALN-RSV01, an RNAi
therapeutic for the treatment of RSV infection, designed to
evaluate the safety, tolerability and anti-viral activity of
ALN-RSV01 in adult subjects experimentally infected with RSV. We
intend to initiate a second Phase II human clinical trial
of ALN-RSV01 in naturally infected adult patients during the
first half of 2008.
Our ALN-PCS program is focused on the treatment of
hypercholesterolemia with an RNAi therapeutic that targets a
gene called proprotein convertase subtilisn/kexin type 9, or
PCSK9. Other development programs include
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ALN-VSP, which is focused on the development of an RNAi
therapeutic for the treatment of liver cancer and potentially
other cancers designed to target both vascular endothelial
growth factor, or VEGF, and kinesin spindle protein, or KSP, and
ALN-HTT, a program targeting the huntingtin gene for the
treatment of Huntingtons disease.
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
$120.7 million in 2007, $49.3 million in 2006 and
$35.0 million in 2005, respectively. The increase in
research and development costs in 2007 was primarily the result
of $27.5 million in payments due to certain entities,
primarily Isis, in connection with the Roche alliance.
Development
Programs
Respiratory
Syncytial Virus 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. 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, RSV is responsible for more
than 125,000 pediatric hospitalizations and between 1,250 and
2,500 deaths each year. A study published in the New England
Journal of Medicine estimates that over 170,000 elderly
adults are hospitalized with RSV each year, resulting in more
than 14,000 deaths each year. As a result, there is a
significant need for novel therapeutics to treat patients who
become infected with RSV.
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. This
product has limited utilization, as it is approved only for
treatment of hospitalized infants and young children with severe
lower respiratory tract infections 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 products, a monoclonal antibody known as
Synagis®
and an immune globulin called
Respigam®,
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 1:1 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 approximately 40%
reduction in viral infection and a 95% increase in
infection-free patients (p<0.01).
We intend to initiate a second Phase II human clinical
trial of ALN-RSV01 in naturally infected adult patients during
the first half of 2008.
Prior to the GEMINI study, ALN-RSV01 was shown in pre-clinical
testing to be effective in both preventing and treating RSV
infection in mice when administered intranasally, or through the
nose. ALN-RSV01 also showed no significant toxicities in animal
toxicology studies performed to enable the filing of an
investigational new drug, or IND, application. 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 on this experimental drug
carried out in both the United States and Europe. The results
from these Phase I trials have been presented at medical
conferences. ALN-RSV01 was found to be safe and well tolerated
when administered intranasally or by nebulizer.
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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, a large number of patients do not achieve
adequate control of their high cholesterol level with existing
treatments, which include drugs known as statins. Studies have
shown that this occurs in as many as 45% of patients. 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), which reduces dietary cholesterol uptake from the
gut, is also used 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 5% 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 that 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. Pro-protein convertase
subtilisn/kexin 9, otherwise known as 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 then 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, a recent study has
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.
In July 2006, in collaboration with UTSW, we began our ALN-PCS
program focused on the development of an RNAi therapeutic
directed at PCSK9. As part of the UTSW collaboration, we and
UTSW are testing RNAi therapeutics 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
approximately 50%.
Liver
Cancer
Market Opportunity. There are an estimated
600,000 to 700,000 patients worldwide with primary liver
cancer and every year more than 600,000 patients die of
liver cancer. Hepatocellular carcinoma, or 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, there
are another 500,000 patients 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 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. 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.
9
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 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 3% 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. The ALN-VSP program is
focused on a dual targeting therapeutic drug candidate, which
targets the genes for both 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 and this is critical for tumor
proliferation. As such, it represents a potent target as an
anti-tumor mechanism. 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 studies have demonstrated potent anti-tumor
activity of our drug candidate. We believe that the dual
targeting mechanism of this therapeutic drug candidate is a
novel and potentially effective strategy.
Huntingtons
Disease
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 whose presence 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 only supportive care and symptomatic
therapy, with no drugs or therapies available that can slow the
underlying disease progress and the inexorable erosion of the
patients neuronal functionality.
Alnylam Program. In collaboration with
Medtronic, we are seeking to develop a novel drug-device product
incorporating an RNAi therapeutic targeting the huntingtin gene
that will protect these cells by suppressing huntingtin mRNA and
the disease causing protein. Alnylam scientists and
collaborators have published and presented in vivo data
demonstrating efficacy for an siRNA targeting the huntingtin
gene in a mouse model of the disease. The program, ALN-HTT, 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,
hypercholesterolemia, liver cancer and Huntingtons
disease, 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; progressive multifocal leukoencephalopathy,
or PML, which is a disease of the central nervous system caused
by viral infection in immune compromised patients; pandemic flu;
Parkinsons disease, a progressive brain disease which is
characterized by uncontrollable tremor, and in some cases, may
result in dementia; and cystic fibrosis, an inherited
respiratory disease, or CF.
In addition to these programs, as part of our collaboration with
Novartis, we have research activities to discover RNAi
therapeutics directed to a number of other undisclosed targets.
Our alliance with Roche also contemplates such research
activities.
10
microRNA
Technology Program and Regulus Therapeutics LLC
In September 2007, we and Isis established Regulus Therapeutics,
a joint venture focused on the discovery, development and
commercialization of miRNA therapeutics. Regulus Therapeutics
combines our and Isis technologies, know-how and
intellectual property relating to miRNA therapeutics. In
addition, we believe that Regulus Therapeutics has assembled a
strong leadership team, as well as leading authorities in the
field of miRNA research to lead this new venture. In December
2007, Kleanthis G. Xanthopoulos, Ph.D. was appointed as
President and Chief Executive Officer of Regulus Therapeutics.
Dr. Xanthopoulos was the co-founder and former President
and Chief Executive Officer of Anadys Pharmaceuticals, Inc. In
February 2008, Peter S. Linsley, Ph.D. was appointed as
Chief Scientific Officer of Regulus Therapeutics.
Dr. Linsley was an Executive Director of Cancer Biology at
Merck Research Laboratories and the former Vice President of
Research and Development at Rosetta Inpharmatics LLC.
Regulus Therapeutics is exploring therapeutic opportunities that
arise from alterations in miRNA expression. Since miRNAs are
believed to regulate the expression of broad networks of genes
and biological pathways, miRNA 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 miRNAs do not
instruct creation of proteins but instead regulate the
expression of other genes. There are approximately 600 miRNAs
that have been identified in the human genome, and these are
believed to regulate the expression of up to 30% of all human
genes. Thus, miRNAs may act as master regulators for
physiological pathways or genetic networks to achieve integrated
biological functions. This ability to affect the expression of
multiple genes in the pathway of disease makes miRNAs an
exciting new platform for drug discovery and development.
To date, miRNAs have been implicated in several disease areas
such as cancer, viral infection, inflammatory diseases and
metabolic disorders. Regulus Therapeutics most advanced
program is an miRNA therapeutic that targets miR-122 for the
treatment of hepatitis C virus, or HCV, infection, a
significant disease worldwide, for which emerging therapies
target viral genes and, therefore, are prone to viral
resistance. Regulus Therapeutics is targeting miR-122, an
endogenous host gene required for viral infection by HCV. In
addition to the miR-122 program, Regulus Therapeutics is also
actively exploring additional areas for development of miRNA
therapeutics, including cancer, other viral diseases, metabolic
disorders and inflammatory diseases.
We and Isis own 49% and 51%, respectively, of Regulus
Therapeutics. Regulus Therapeutics is operated as an independent
company with a separate board of directors, scientific advisory
board and management team. In connection with the execution of
the limited liability company agreement, we, Isis and Regulus
Therapeutics entered into a license and collaboration agreement
to pursue the discovery, development and commercialization of
therapeutic products directed to miRNAs. Under the terms of the
license and collaboration agreement, we and Isis assigned to
Regulus Therapeutics specified patents and contracts covering
miRNA-specific technology. In addition, each of us granted to
Regulus Therapeutics an exclusive, worldwide license under our
rights to other miRNA-related patents and know-how to develop
and commercialize therapeutic products containing compounds that
are designed to interfere with or inhibit a particular miRNA,
subject to our and Isis existing contractual obligations
to third parties. Regulus Therapeutics also has the right to
request a license from us and Isis to develop and commercialize
therapeutic products directed to other miRNA compounds, which
license is subject to our and Isis approval and to each
such partys existing contractual obligations to third
parties. Regulus Therapeutics granted to us and Isis an
exclusive license to technology developed or acquired by Regulus
Therapeutics 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 Therapeutics. In addition, we made an
initial cash contribution to Regulus Therapeutics of
$10.0 million, resulting in us and Isis making initial
capital contributions to Regulus Therapeutics of approximately
equal aggregate value.
After a sufficient portfolio of data is obtained with respect to
each miRNA drug candidate developed by Regulus Therapeutics,
Regulus Therapeutics may elect to continue to pursue the
development and commercialization of products directed to such
miRNA compound and related miRNA compounds, in which event
Regulus Therapeutics would be obligated to pay us and Isis a
royalty on net sales of any such resulting products. If Regulus
Therapeutics decides not to continue to pursue the development
and commercialization of products directed to
11
particular miRNA compounds, either we or Isis may pursue
development and commercialization of such Regulus Therapeutics
products. Development and commercialization of such products by
either party would be subject to the payment to Regulus
Therapeutics of a specified upfront fee, royalties on net sales,
milestone payments upon achievement of specified regulatory
events and a portion of income received from sublicensing rights.
In connection with the execution of the limited liability
company agreement and the license and collaboration agreement,
we also executed a services agreement with Isis and Regulus
Therapeutics. Under the terms of the services agreement, we and
Isis agreed to provide to Regulus Therapeutics, for the benefit
of Regulus Therapeutics, 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 generally will be paid by Regulus
Therapeutics for these services.
Our
Collaboration and Licensing Strategy
Our business plan is to develop and commercialize a pipeline of
RNAi therapeutic products. As part of this business plan, we
enter into collaboration and licensing agreements as a means of
obtaining resources and funding to advance our RNAi therapeutics
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 a broad,
non-exclusive platform license agreement with Roche, under which
we and Roche also will collaborate on RNAi drug discovery for
one or more disease targets. We also have discovery and
development alliances with Novartis and Medtronic. Two of the
programs we are pursuing under our alliances with Novartis and
Medtronic are 50/50 co-development programs.
One of the key factors in our ability to form significant
alliances with pharmaceutical companies is the strength of our
intellectual property relating to the development and
commercialization of 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, their use and manufacture. Our patent estate
also includes access to a broad portfolio of intellectual
property relating to chemical modifications of oligonucleotides
and siRNAs, including access to a substantial patent estate
licensed from Isis, and a number of issued patents related to
the formulation and delivery of siRNAs, including patents
licensed from MIT and Tekmira. Finally, our patent estate also
includes patents and pending patent applications claiming siRNAs
directed to specific targets as treatments for particular
diseases.
To generate revenues from our intellectual property rights, we
also grant licenses to biotechnology companies under our
InterfeRxtm
program for the development and commercialization of RNAi
therapeutics for specified targets in which we have no direct
strategic interest. InterfeRx licensees include GeneCare
Research Institute Co., Ltd., or GeneCare, Quark Biotech, Inc.,
or Quark, Calando Pharmaceuticals, Inc., or Calando, and Nastech
Pharmaceutical Company Inc., or Nastech. Tekmira and Benitec
Ltd., or Benitec, have options to take InterfeRx licenses,
subject to certain conditions. 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 February 29, 2008, we had granted such
licenses, on both an exclusive and nonexclusive basis, to
approximately 20 companies, and options to take such licenses to
two additional companies.
We also seek opportunities to form new ventures in areas outside
our core strategic interest. For example, our joint venture with
Isis, Regulus Therapeutics, was formed to capitalize on our
technology and intellectual property in the field of miRNA
therapeutics. Given the broad applications for RNAi technology,
we believe additional opportunities exist for new ventures to be
formed.
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. During
2007, we formed agreements with Tekmira and MIT, among others.
12
We also seek funding for the development of our proprietary RNAi
therapeutics pipeline from foundations and government sources.
In 2006, NIAID 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 against hemorrhagic
fever virus, including the Ebola virus. In 2007, DTRA awarded us
a contract to advance the development of a broad spectrum RNAi
anti-viral therapeutic for hemorrhagic fever virus. This federal
contract is expected to provide us with up to $38.6 million
through the first half of 2010. We have also obtained initial
government support for our pandemic flu program from the Defense
Advanced Research Projects Agency of the DoD. In addition, we
have obtained funding for pre-clinical discovery programs from
CFFT and 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, equity
investments, research and development funding, license fees,
milestone payments
and/or
royalties or profit sharing based on sales of RNAi therapeutics.
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 other therapeutic areas
upon payment of an additional specified amount.
In consideration for the rights granted to Roche under the
license and collaboration agreement, Roche paid us
$273.5 million in upfront cash payments. Roche is also
required to make payments to us upon achievement of specified
development and sales milestones set forth in the license and
collaboration agreement and royalty payments based on worldwide
annual net sales, if any, of RNAi therapeutic products by Roche,
its affiliates and sublicensees.
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. The collaboration
between Roche and us will be governed by a joint steering
committee for a period of five years that is comprised of an
equal number of representatives from each party. In exchange for
our contributions to the collaboration, Roche will be required
to make additional milestone and royalty payments.
The term of the license and collaboration agreement generally
ends upon the later of the expiration of the
last-to-expire
patent covering a licensed product and ten years from the first
commercial sale of a licensed product. After the first
anniversary of the effective date, 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 5% 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
13
directors or policies, subject to specified exceptions. Roche
Finance also agreed that neither it nor any specified affiliates
will sell or transfer any of our equity securities during the
period prior to August 9, 2009 and 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 2.5% 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 also includes transition services to be
performed by Roche Kulmbach employees at various levels through
August 2008. We will reimburse Roche for these services at an
agreed-upon
rate.
In connection with the license and collaboration agreement and
the common stock purchase agreement, we incurred
$27.5 million of license fees payable to our licensors,
primarily Isis, in accordance with the applicable license
agreements with those parties.
Novartis. We have formed two alliances with
Novartis. We refer to the first of these, which was initiated in
September 2005, as the broad Novartis alliance, and to the
second, which was initiated in February 2006, as the Novartis
flu alliance.
In connection with the broad Novartis alliance, we entered into
a series of transactions with Novartis beginning in September
2005. 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. 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, immediately after such issuance,
represented 19.9% of our then outstanding common stock. Novartis
owned approximately 13% of our common stock as of
December 31, 2007.
Under the terms of the collaboration and license agreement
governing the broad Novartis alliance, we agreed with Novartis
to work together on selected targets, as defined in the
collaboration and license agreement, to discover and develop
therapeutics based on RNAi. The collaboration and license
agreement has an initial term of three years and may be extended
for two additional one-year terms at the election of Novartis.
In addition, 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. 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. In addition, the collaboration and license agreement
includes terms under which Novartis will provide us with
research funding and milestone payments as well as royalties on
annual net sales of products resulting from the collaboration.
The collaboration and license agreement also provides Novartis
with a non-exclusive option to integrate our intellectual
property relating to RNAi technology into Novartis
operations under specified circumstances. In connection with the
exercise of the integration option, Novartis would be required
to make additional payments to us. Under the terms of the
collaboration and license agreement, we retain the right to
discover, develop, commercialize or 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 in the event
that we propose to enter into an agreement with a third party
with respect to any such target.
Under the terms of the investor rights agreement, we granted
Novartis demand and piggyback registration rights under the
Securities Act of 1933 for the shares of our common stock held
by Novartis. We also granted to Novartis rights to acquire
additional equity securities in the event that we propose to
sell or issue any equity
14
securities, subject to specified exceptions, as described in the
investor rights agreement, such that Novartis would be able to
maintain its ownership percentage in us. Novartis agreed, until
the later of (1) October 12, 2008 and (2) the
date of termination or expiration of the selection term, as
defined in the collaboration and license agreement, 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 February 2006, we entered into the Novartis flu alliance. The
agreement governing the flu alliance is structured as an
addendum to the collaboration and license agreement for the
broad Novartis alliance. This addendum supplements and, to the
extent described therein, supersedes in relevant part the
collaboration and license agreement for the broad Novartis
alliance. Under the terms of the addendum, we and Novartis have
joint responsibility for the development of RNAi therapeutics
for pandemic flu. Novartis will have primary responsibility for
commercialization of any such RNAi therapeutics worldwide, but
we will be actively involved, and may in certain circumstances
take the lead, in commercialization in the United States. We are
eligible to receive significant funding from Novartis for our
efforts on RNAi therapeutics for pandemic flu, and to receive a
significant share of any profits. During 2007, we and Novartis
agreed to focus on additional pre-clinical research prior to
advancing this program into development.
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 will continue our existing
development program focused on developing a combination
drug-device product for the treatment of Huntingtons
disease. In addition, as provided for in our initial
collaboration agreement with Medtronic, the parties 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
will be responsible for supplying the siRNA component and
Medtronic will be 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, the parties will each
fund 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
any such products, 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.
Unlike the initial collaboration agreement, the amended and
restated collaboration agreement does not require Medtronic to
make any equity investment in us.
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
15
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.
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 collaboration agreement with Biogen Idec,
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 also 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 and royalty payments. The pace and
scope of future development of this program is the
responsibility of Biogen Idec. We expect limited resources to be
expended on this program in 2008.
Isis. In March 2004, we entered into a
collaboration and license agreement with Isis, a leading
developer of antisense oligonucleotide drugs that target RNA.
The agreement enhanced our intellectual property position with
respect to RNA-based therapeutic products and our ability to
develop siRNAs for RNAi therapeutic products, and provided us
with the opportunity to defer investment in manufacturing
technology. 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 and
commercialization of siRNA 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 any siRNA products
designed to work through an RNAi mechanism, except in the
context of a collaboration in which Isis plays an active role.
The licenses that we have granted to Isis are non-exclusive
licenses to our current and future patents and patent
applications relating to RNA-targeting mechanisms and to
chemistry for research use. We have also granted Isis the
non-exclusive right to develop and commercialize siRNA products
against a limited number of targets. In addition, we have
granted Isis non-exclusive rights to our patents and patent
applications for research, development and commercialization of
antisense RNA products.
Under the terms of our agreement, we agreed to pay Isis an
upfront license fee of $5.0 million, milestone payments
payable upon the occurrence of specified development and
regulatory events and royalties for each product that we or a
collaborator develops utilizing 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. In conjunction
with the agreement, Isis made a $10.0 million equity
investment in us. Isis also agreed to pay us a license fee,
milestone payments payable upon the occurrence of specified
development and regulatory events and royalties for each product
developed by Isis or a collaborator that utilizes our
intellectual property. The agreement also gives us an option to
use Isis manufacturing services for RNA-based therapeutic
products.
Our agreement with Isis also gives us the exclusive right to
grant sub-licenses for Isis technology to third parties with
whom we are not collaborating. We may include these sub-licenses
in our InterfeRx licenses. If a license includes rights to
Isis intellectual property, we will share revenues from
that license equally with Isis.
NIH. In September 2006, we were awarded a
contract to advance the development of a broad spectrum RNAi
anti-viral therapeutic against hemorrhagic fever virus,
including the Ebola virus, with NIAID, a component of NIH. The
federal contract will provide us with up to $23.0 million
in funding over a four-year period to develop RNAi therapeutics
as anti-viral drugs targeting the Ebola virus. The Ebola virus
can cause a severe, often fatal infection, and poses a potential
biological safety risk and bioterrorism threat. Of the
$23.0 million in funding, the government has committed to
pay us $14.2 million over the first two years of the
contract and, subject to the progress of the program and
budgetary considerations in future years, the remaining
$8.8 million over the last two years of the contract.
Department of Defense. In August 2007, we were
awarded a contract to advance the development of a broad
spectrum RNAi anti-viral therapeutic for hemorrhagic fever virus
by DTRA, a DoD agency. This federal contract is expected to
provide us with up to $38.6 million in funding through the
second quarter of 2010 to develop RNAi therapeutics for
hemorrhagic fever virus. Viral hemorrhagic fevers are considered
by federal agencies to be high priority agents that pose a
potential risk to national security because they can be easily
transmitted from person to person, result in high mortality
rates and require special action for public health preparedness.
This contract is
16
with the DTRA 2007 Medical Science and Technology Chemical and
Biological Defense Transformational Medical Technologies
Initiative, whose mission is to provide state-of-the-art defense
capabilities to United States military personnel by addressing
traditional and non-traditional biological threats. Of the
$38.6 million in funding, the government has committed to
pay us up to $7.2 million through April 2008 and, subject
to the progress of the program and budgetary considerations in
future years, the remaining $31.4 million over the last two
years of the contract.
Delivery Technology. We are working to extend
our capabilities in developing technology to achieve efficacious
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. In connection with one such agreement
with Tekmira, we issued 361,990 shares of common stock in a
private placement in January 2007, valued at $7.9 million.
Merck. In September 2007, we and
Merck & Co., Inc., or Merck, terminated our amended
and restated research collaboration and license agreement.
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. We have no remaining deliverables under the amended
and restated research collaboration and license agreement.
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 have granted InterfeRx
licenses to a number of companies, including GeneCare, Nastech,
Calando and Quark. 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, Tekmira and Benitec have options to take InterfeRx
licenses, subject to certain conditions. We have granted
InterfeRx licenses to fewer than 15 gene targets in total, under
both exclusive and non-exclusive licenses.
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.
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; and
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delivery technologies, such as in the field of cationic
liposomes.
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Intellectual
Property Related to Fundamental Aspects and Uses of siRNA and
RNAi-related Mechanisms
In this category, we include 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, double-stranded RNAs of particular
lengths and particular structural features, such as blunt
and/or
overhanging ends. Our strategy has been to secure rights on an
exclusive basis where possible or appropriate to the key patents
and patent applications we believe cover the fundamental aspects
of siRNAs. 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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Licensor/Patent
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First
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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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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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Issued in the U.S. (U.S. Patent Nos. 5,898,031 &
6,107,094), EU (EP 0928290), additional applications pending in
the U.S. and several foreign jurisdictions
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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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Issued in the U.S. (U.S. Patent No. 6,506,559), additional
applications pending in the U.S. and several foreign
jurisdictions
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Non-exclusive
rights for
therapeutic
purposes
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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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Granted in the EU (EP 1144623 & EP 1214945), Canada ( CA
2359180), Australia (AU 778474), South Africa (2001/5909),
Germany (DE 20023125 U1, DE 10066235 & DE 10080167),
additional applications pending in the U.S. and several foreign
jurisdictions
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Owned
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Cancer
Research
Technology
Limited
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RNAi uses in
mammalian 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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Granted in the EU (EP 1230375), Singapore (89569) and Australia
(AU 774285), additional applications pending in the U.S. and
several foreign jurisdictions
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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
siRNAs
containing 21-23
base pairs
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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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Pending in the U.S. and many countries worldwide
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Non-exclusive
rights for
therapeutic
purposes***
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Max Planck
Gesellschaft
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Synthetic
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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Issued in the U.S. (U.S. Patent Nos. 7,056,704 &
7,078,196), EU (EP 1407044), South Africa (2003/3929), Singapore
(96891), New Zealand (52588), Japan (Application No.
2002/546670), additional applications pending in the U.S. and
many countries worldwide
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Exclusive rights
for therapeutic
purposes
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Licensor/Patent
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First
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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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Alnylam Rights
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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 many countries worldwide
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Non-exclusive
rights for
therapeutic
purposes
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Stanford
University
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RNAi uses
in vivo
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7/23/2001
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M.A. Kay,
A.P. McCaffrey
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Pending in the U.S. and many countries worldwide
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Co-exclusive
rights for
therapeutic
purposes
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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. |
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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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We hold exclusive rights to the interest owned by three
co-owners. A separate entity, the University of Massachusetts,
has licensed its purported interest separately to third parties. |
We believe that we have a strong portfolio of broad rights to
fundamental siRNA patents and patent applications that gives us
broad freedom to operate. In addition, many of these rights are
exclusive, which we believe prevents potential competitors from
entering 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 so-called Crooke patent, 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 patent through a license
agreement with Isis. Under the terms of our license agreement,
Isis agreed not to grant licenses under this patent to any other
organization for siRNA 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. We believe that the
Kreutzer-Limmer patent (EP 1144623), granted in Europe in 2002,
was the first patent granted that specifically covers the use of
small dsRNAs as therapeutics. The patent claims embrace
therapeutic dsRNAs which are 15 to 21 nucleotide pairs in
length. This patent survived an opposition challenge in amended
form and the decision is now being appealed by, among others,
Merck. The Kreutzer-Limmer series also includes a German Utility
Model covering RNAi compositions. A German Utility Model is a
form of patent that is directed only to physical matter, such as
medicines, and does not cover methods. The Utility Model, which
branched off the first European patent application, was
registered by the German Patent and Trademark Office in 2003. In
2004, the Kreutzer-Limmer patent was granted in Australia (AU
778474). The second European Kreutzer-Limmer patent (EP
1214945) in the series was granted in Europe in 2005. This
patent originated as a divisional application from the first
Kreutzer-Limmer patent and extends the coverage of the first
patent by covering critical aspects of dsRNA structure 15 to
49 nucleotide pairs in length. We have received a decision
to grant two patents stemming from the Kreutzer-Limmer EP
1144623 patent from the German Patent Office. The first, DE
10080167, which we received in October 2007, covers
pharmaceutical compositions and uses of siRNAs with a length
between 15 and 49 nucleotides that target certain broad
categories of mammalian genes. The second, DE 10066235, which we
received in November 2007, covers methods, uses and medicaments
for siRNAs with a length of 15 to 49 nucleotide pairs expressed
via vectors. Finally, the Canadian Intellectual Property Office
has granted the Kreutzer-Limmer patent (CA
2359180) covering dsRNA structures of 15 to 49 nucleotide
pairs in length.
The Glover patent series has resulted in several patent grants
including in Europe (EP 1230375). This patent series stems from
pioneering work of Zernicka-Goetz and co-workers who showed that
dsRNAs can mediate RNAi
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in mammalian cells. 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 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
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 European Patent Office, or EPO, granted broad claims
for the Tuschl II patent in Europe (EP 1407044). In
February 2008, the Japanese Patent Office notified us of their
intent to grant the Tuschl II patent in Japan (JP
Application Number 2002/546670). 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.
Intellectual
Property Related to Chemical Modifications
Our collaboration and license agreement with Isis provides us
with rights to practice the inventions covered by over 180
issued patents worldwide, as well as rights based on future
chemistry patent applications through March of 2009. These
inventions cover chemical modifications we may wish to
incorporate into our RNAi therapeutic products. Under the terms
of our 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.
In conjunction with the internally developed and licensed
technology from Isis, U.S. Patent No. 7,078,196, a
patent in the Tuschl II patent series that recently issued
in the United States, includes 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 achievement of 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 also filed a number of patent applications claiming
specific siRNAs directed to certain attractive gene targets as
treatments for specific diseases. We recognize, however, that
there may be a significant number of competing applications
filed by other organizations claiming siRNAs to treat the same
gene target. Because we were among the first companies to focus
on RNAi therapeutics, 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, which we call the Kreutzer-Limmer II patent,
with 103 allowed claims on therapeutic compositions, methods and
uses comprising siRNAs that are complementary to all mRNA
sequences in over 125 disease target genes. These genes include
targets that are part of our development and pre-clinical
programs, such as those
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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 which mediate cleavage of an mRNA in mammalian
cells and, therefore, covers methods of making siRNAs directed
toward any and all target genes, including those derived from
viruses, expressed in mammalian cells. 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 have expanded our internal research efforts to encompass
several approaches regarding the delivery of siRNAs to mammalian
cells, including 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 the University of British Columbia 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 U.S. Patent Nos. 5,976,567,
6,815,432 and 6,858,225, cover compositions, methods of making
and methods of using cationic liposomes to deliver agents, such
as nucleic acid molecules, to cells.
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.
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 disease 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, Roche, Opko Corporation, Nastech, Calando, Quark, Silence
Therapeutics plc, or Silence Therapeutics, RXi Pharmaceuticals
Corporation, a subsidiary of CytRx Corporation, Tekmira, Protiva
Biotherapeutics, Inc., Intradigm, Inc. and Dicerna
Pharmaceuticals, Inc. Many of these companies have licensed our
intellectual property.
Companies working on gene therapy approaches to RNAi
therapeutics include Nucleonics, Inc., Benitec and Cequent, Inc.
21
Companies working on miRNA 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 drug
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. However, 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
potential harmful effects on health care personnel exposed to
the drug. According to published reports by Valeant, sales of
Virazole were $14.3 million in 2007. 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, Inc.
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 greater than
$1.0 billion in 2007. 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. Phase I and II studies have been reported
showing that motavizumab appears to have a similar safety and
pharmacokinetic profile to Synagis in infants. In addition,
Novartis has a small molecule drug, RSV604, licensed from Arrow
Therapeutics Ltd, which is in Phase II clinical trials.
RSV604 is an oral drug that targets the viral N protein.
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, function by blocking
cholesterol uptake from the diet and are utilized on their own
or in combination with statins. Each of these competing drugs
had sales of greater than $1.0 billion during 2007,
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
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in collaboration with Genzyme Corporation. Currently in
Phase III development, mipomersen has been shown in
Phase II trials to reduce cholesterol and other atherogenic
lipids more than 40% beyond reductions achieved with current
standard lipid-lowering drugs. 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 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-ressectable liver cancer. Nexavar is the
product of Onyx Pharmaceuticals, Inc. developed in collaboration
with Bayer Pharmaceuticals Corporation.
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 Huntingtons Disease
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.
Amarin Corporation plcs Miraxion, or AMR 101, is a
semi-synthetic, ultra-pure derivative of eicosapentaenoic acid,
or EPA, a fish oil, and is currently in Phase III
development. The Avicena Group Inc.s HD-02, an ultra-pure
creatine, is a candidate for prophylactic use for
Huntingtons disease. A Phase III trial of HD-02 is
expected to start in the second half of 2008. 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 drug is currently being
investigated as a treatment for HD in a Phase II trial and
results are expected in the second quarter of 2008.
In addition, 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.
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
23
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. 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
such as the GEMINI study, 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 application 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 the
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, 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
application. 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, hypercholesterolemia, liver cancer, HD, or the various
indications targeted in our preclinical 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
24
substantial application user fees and the sponsor of an approved
NDA is also subject to annual product and establishment user
fees.
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 or an approvable letter. An approvable letter
generally contains a statement of specific conditions that must
be met in order to secure final approval of the NDA. Such
conditions may include significant new studies which could delay
any final approval. If and when those conditions have been met
to the FDAs satisfaction, the FDA will typically issue an
approval letter. An approval letter 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.
25
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 not approvable letter. The not
approvable letter outlines the deficiencies in the submission
and often requires additional testing or information in order
for the FDA to reconsider the application. Even after submitting
this additional 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 drug 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 drug 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
26
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
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. For example, on September 27, 2007, the
President signed the Food and Drug Administration Amendments Act
of 2007, or FDAAA. The new legislation grants significant new
powers to the FDA, many of which are aimed at improving the
safety of drug products before and after approval. In
particular, the new law authorizes the FDA to, among other
things, require post-approval studies and clinical trials,
mandate changes to drug labeling to reflect new safety
information, and require risk evaluation and mitigation
strategies, or REMS, for certain drugs, including certain
currently approved drugs. In addition, it significantly expands
the federal governments clinical trial registry and
results databank and creates new restrictions on the advertising
and promotion of drug products. Under the FDAAA, companies that
violate these and other provisions of the new law are subject to
substantial civil monetary penalties.
While we expect these provisions of the FDAAA, among others, to
have a substantial effect on the pharmaceutical industry, the
extent of that effect is not yet known. As the FDA issues
regulations, guidance and interpretations relating to the new
legislation, the impact on the industry, as well as our
business, will become clearer. The new requirements and other
changes that the FDAAA imposes may make it more difficult, and
likely more costly, to obtain approval of new pharmaceutical
products and to produce, market and distribute existing 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
Approval of a drug or biologic product by comparable regulatory
authorities will be necessary in all or most foreign countries
prior to the commencement of marketing of the product in those
countries, whether or not FDA approval has been obtained. The
approval procedure varies among countries and can involve
requirements for additional testing. The time required may
differ from that required for FDA approval. Although there are
some procedures for unified filings in the European Union, 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 European
Union 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 will 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.
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.
27
Manufacturing
We have no commercial manufacturing capabilities. We may
manufacture material for use in IND-enabling toxicology studies
in animals at our own facilities, but we do not anticipate
manufacturing the substantial portion of material for human
clinical use ourselves. We have contracted with several
third-party contract manufacturing organizations for the supply
of certain amounts of material 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. We plan to rely on third parties to manufacture
commercial quantities of any product that we successfully
develop. Under our agreement with Isis, at our request, we may
negotiate a manufacturing services agreement with Isis for
double-stranded RNA products designated to work through an RNAi
mechanism.
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
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Fritz Eckstein, Ph.D.
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Professor/Max Planck Institute
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Edward E. Harlow, Ph.D.
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Chair/Harvard Medical School
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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
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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
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Edward M. Scolnick, M.D.
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Director of the Psychiatry Initiative/Broad Institute
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Phillip A. Sharp, Ph.D.
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Institute Professor/MIT Center for Cancer Research
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Markus Stoffel, M.D., Ph.D.
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Professor/Institute of Molecular Systems Biology at the ETH
Zurich
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Thomas H. Tuschl, Ph.D.
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Associate Professor/Rockefeller University
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Phillip D. Zamore, Ph.D.
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Professor/University of Massachusetts Medical School
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Dr. Oesterle participates as an observer on our scientific
advisory board. |
Employees
As of February 29, 2008, we had 129 employees, 102 of
whom were engaged in research and development. None of our
employees is 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.
28
Financial
Information About Geographic Areas
See Note 2 to our Consolidated Financial Statements,
entitled Segment Information, for financial
information about geographic areas. The Notes to our
consolidated financial statements are contained herein in
Item 8.
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 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, 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.
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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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 also served 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.
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 the Director of Finance.
Ms. Allen is a certified public accountant.
29
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. 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 acceptance for the development of our product candidates
and 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 drugs
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 RNAi technology. 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.
Relatively few drug 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
30
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. If we
do not successfully develop and commercialize drugs based upon
our technological approach, 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 be
profitable.
We have experienced significant operating losses since our
inception. As of December 31, 2007, we had an accumulated
deficit of $226.0 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 companies or funding from
contracts with the government, but cannot be certain that we
will be able to secure or maintain these alliances or contracts,
meet the obligations or achieve any milestones that we may be
required to meet or achieve to receive payments.
To become and remain consistently profitable, we must succeed in
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 drug 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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31
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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 establish and maintain 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, protect our intellectual property and obtain and
maintain licenses to third-party intellectual property;
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the cost of preparing, filing, prosecuting, maintaining and
enforcing patent claims; 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.
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. While the exercise of these rights may
provide us with additional funding under some circumstances, the
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. 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. 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.
The
investment of our cash balance and our investments in marketable
debt securities are subject to risks which may cause losses and
affect the liquidity of these investments.
At December 31, 2007, we had $455.6 million in cash,
cash equivalents and marketable securities. We have historically
invested these amounts in corporate bonds, commercial paper,
securities issued by the United States, 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, which may be affected by
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.
These market risks associated with our investment portfolio may
have a negative adverse effect on our results of operations,
liquidity and financial condition.
32
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 will select a defined
but limited number of disease targets on an exclusive basis
towards which the parties will collaborate to develop drug
candidates. Novartis will pay a portion of the costs to develop
these drug candidates and will commercialize and market any
products derived from this collaboration. In addition, Novartis
will pay us certain pre-determined amounts based on the
achievement of pre-clinical and clinical milestones as well as
royalties on the annual net sales of any products derived from
this collaboration. The initial term of this collaboration
expires in October 2008 but may be extended by Novartis for two
additional one-year terms. Novartis may elect to terminate this
collaboration in the event of a material uncured breach by us.
We expect that a substantial amount of funding will come from
this collaboration. If this collaboration is unsuccessful, or if
it is terminated, our business could be adversely affected.
This agreement also provides Novartis with a non-exclusive
option to a broad platform license to integrate our intellectual
property into Novartis operations and develop products
without our involvement for a pre-determined fee. 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. 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 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 agreement with Roche is important to
our business. If Roche does not successfully develop drugs
pursuant to this agreement or it results in competition between
us and Roche for the development of drugs targeting the same
diseases, our business could be adversely
affected.
In July 2007, we and, for limited purposes, Alnylam Europe,
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 as well as our collaboration agreements. The license is
initially limited to the therapeutic areas of oncology,
respiratory diseases, metabolic diseases and certain liver
diseases, which may be expanded to include other therapeutic
areas under certain circumstances. As such, Roche could become a
competitor of ours in the development of RNAi-based drugs
targeting the same diseases. Roche 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 Roche in the
development of RNAi-based drugs targeting the same disease.
Roche is required to make payments to us upon achievement of
specified development and sales milestones set forth in the
license and collaboration agreement and royalty payments based
on worldwide annual net sales, if any, of RNAi therapeutic
products by Roche, its affiliates and sublicensees. If Roche
fails to successfully develop products using this technology, we
may not receive any such milestone or royalty payments.
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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 drug 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
that we believe can provide such capabilities and 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 drug 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, marketing and sales. We may not be successful in
entering into any such alliances on favorable terms due to
various factors, including Novartis right of first offer
on our drug targets. Even if we do succeed in securing such
alliances, we may not be able to maintain them if, for example,
development or approval of a drug 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 drug 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 drug 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, as well as collaborations with Medtronic, NIAID
and DTRA. 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 drug candidate, we may not have
sufficient funds to develop this or any other drug candidate
internally, or to bring any drug candidates to market. If we do
not have sufficient funds to develop and bring our drug
candidates to market, we will not be able to generate sales
revenues from these drug 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 drug 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.
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. 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. In addition, 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 drug 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.
We
depend on government contracts to partially fund our research
and development efforts and may enter into additional government
contracts in the future. If current or future government
funding, if any, is reduced or delayed, our drug development
efforts may be negatively affected.
In September 2006, NIAID 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. Of the
$23.0 million, the government has committed to pay us
$14.2 million over the first two years of the contract and,
subject to budgetary considerations in future years, the
remaining $8.8 million over the last two years of the
contract. We cannot be certain that the government will
appropriate the funds necessary for this contract in future
budgets. In addition, the government can terminate the agreement
in specified circumstances. If we do not receive the
$23.0 million we expect to receive under this contract, we
may not be able to develop therapeutics to treat Ebola.
In August 2007, DTRA awarded us a contract to advance the
development of a broad spectrum RNAi anti-viral therapeutic for
hemorrhagic fever virus infection. This federal contract is
expected to provide us with up to $38.6 million in funding
through the second quarter of 2010 to develop RNAi therapeutics
for hemorrhagic fever virus infection. This contract is with
DTRA under its 2007 Medical Science and Technology Chemical and
Biological Defense Transformational Medical Technologies
Initiative, the mission of which is to provide state-of-the-art
defense capabilities to United States military personnel by
addressing traditional and non-traditional biological threats.
Of the $38.6 million in funding, the government has
committed to pay us up to $7.2 million through April 2008
and, subject to the progress of the program and budgetary
considerations in future years, the remaining $31.4 million
over the last two years of the contract. If we do not receive
the $38.6 million we expect to receive under this contract,
we may not be able to develop therapeutics to treat hemorrhagic
fever virus infection.
Regulus
Therapeutics, our joint venture with Isis, is important to our
business. If Regulus Therapeutics does not successfully develop
drugs pursuant to this license and collaboration agreement or
Regulus Therapeutics is sold to Isis or a third-party, our
business could be adversely affected.
In September 2007, we and Isis created Regulus Therapeutics to
discover, develop and commercialize microRNA therapeutics.
Formed as a joint venture, Regulus Therapeutics intends to
address therapeutic opportunities that arise from abnormal
expression or mutations in miRNAs. Generally, we do not have
rights to pursue miRNA therapeutics independently of Regulus
Therapeutics. If Regulus Therapeutics is unable to discover,
develop and commercialize microRNA 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
Therapeutics assets, including Regulus Therapeutics
intellectual property and rights to licensed intellectual
property. The limited liability company agreement provides that
following such initiation of a buy-out, we and Isis will
mutually determine whether to sell Regulus Therapeutics to us,
Isis or a third party. We may not have sufficient funds to buy
out Isis interest in Regulus Therapeutics 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 Therapeutics.
If Regulus Therapeutics is sold to Isis or a third party, we may
lose our rights to participate in the development and
commercialization of miRNA therapeutics. If we and Isis are
unable to negotiate a sale of Regulus Therapeutics, Regulus
Therapeutics will distribute and assign its rights, interests
and assets to us and Isis in accordance with our percentage
interests, except for Regulus Therapeutics 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 miRNA therapeutics.
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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-good manufacturing practice material for use in
in vitro and in vivo experiments. Our
products utilize specialized formulations, such as liposomes,
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 at all or in a timely manner. 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. In addition, to fulfill our siRNA requirements we may
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.
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 products 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
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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 expect
to depend significantly on third parties who may not
successfully commercialize our products.
We have no sales, marketing or distribution experience. We
expect to rely heavily on third parties to launch and market
certain of our product candidates, if approved. We may have
limited or no control over the 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.
To develop internal sales, distribution and marketing
capabilities, we will have to invest significant amounts of
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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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, 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.
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. Prior to our sale of our Kulmbach facility to
Roche, we employed approximately 140 full time equivalent
employees, with offices and laboratory space in both Cambridge,
Massachusetts and Kulmbach, Germany. As of December 31,
2007, we had approximately 120 employees in our facility in
Cambridge, Massachusetts. We have access to our former employees
in our Kulmbach facility who currently work for Roche for a
transition period, after which we will no longer have access to
the employees in that facility.
In addition, our rapid and substantial growth may place a strain
on our administrative and operational infrastructure. If drug
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.
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Risks
Related to Our Industry
Risks
Related to Development, Clinical Testing and Regulatory Approval
of Our Drug Candidates
Any
drug 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 drug candidates
are lengthy and expensive and the historical failure rate for
drug candidates is high. We are developing our most advanced
product candidate, ALN-RSV01, for the treatment of RSV
infection. In January 2008, we completed a Phase II trial
designed to evaluate the safety, tolerability and anti-viral
activity of ALN-RSV01 in adult subjects experimentally infected
with RSV, and we intend to continue the clinical development of
ALN-RSV01. However, we may not be able to further advance this
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 drug
candidate may not predict the results that will be obtained in
subsequent human clinical trials. We, the FDA or other
applicable regulatory authorities, or an IRB may suspend
clinical trials of a drug 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 drug 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 drug candidate for any or all indications
of use.
Clinical trials of a new drug candidate require the enrollment
of a sufficient number of patients, including patients who are
suffering from the disease the drug 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 can result in increased costs and longer development
times.
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
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 drug 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 drug candidate that is
affected, or development of any of our other drug candidates. We
may also lose, or be unable to enter into, collaborative
arrangements for the affected drug candidate and for other drug
candidates we are developing.
Delays in clinical trials could reduce the commercial viability
of our drug candidates. Any of the following could, among other
things, delay our clinical trials:
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delays in filing initial drug applications;
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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;
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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 drug candidates similar to ours;
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inadequate supply or quality of drug 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; or
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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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Even if we successfully complete clinical trials of our drug
candidates, any given drug candidate may not prove to be an
effective treatment for the diseases for which it was being
tested.
The
FDA approval process may be delayed for any drugs we develop
that require the use of specialized drug delivery
devices.
Some drug 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
Parkinsons disease, HD 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 collaboration partners
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 similar
physiological sites, 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
drug 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 drug
candidates.
Our drug candidates are subject to extensive governmental
regulations relating to, among other things, research, testing,
development, manufacturing, safety, efficacy, recordkeeping,
labeling, 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 drug candidates we may develop will obtain the
appropriate 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 complexity of the drug candidate. 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. For example, the recently
enacted Food and Drug Administration Amendments Act of 2007, or
FDAAA, may make it more difficult and costly for us to obtain
regulatory approval of our product candidates and to produce,
market and distribute products after approval. The FDAAA grants
a variety
39
of new powers to the FDA, many of which are aimed at improving
the safety of drug products before and after approval. In
particular, it authorizes the FDA to, among other things,
require post-approval studies and clinical trials, mandate
changes to drug labeling to reflect new safety information, and
require risk evaluation and mitigation strategies, or REMS, for
certain drugs, including certain currently approved drugs. In
addition, it significantly expands the federal governments
clinical trial registry and results databank and creates new
restrictions on the advertising and promotion of drug products.
Under the FDAAA, companies that violate the new law are subject
to substantial civil monetary penalties.
Because the drugs we are intending to develop may represent a
new class of drug, the FDA has 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 a new drug 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 drug candidate. Furthermore, any regulatory
approval to market a product may be subject to limitations on
the indicated uses for which we may market the product. These
limitations 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 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 assure 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 drug
candidates.
Before obtaining regulatory approval for the sale of our drug
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 drug 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 drug 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;
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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;
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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 drug candidates or other materials
necessary to conduct our clinical trials may be insufficient or
inadequate;
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effects of our drug candidates may not be the desired effects or
may include undesirable side effects or the drug candidates may
have other unexpected characteristics; and
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effects of our drug 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 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 vigilance required as a condition of
approval. The manufacturer and manufacturing facilities we use
to make any of our drug candidates will also be subject to
periodic review and inspection by the FDA. The discovery of any
new or previously unknown problems with the product,
manufacturer or facility 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 fail to comply with applicable continuing regulatory
requirements, we may be subject to fines, suspension or
withdrawal of regulatory approval, product recalls and seizures,
operating restrictions 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.
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, efficacy 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 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 RNAi therapeutic products for the prevention or
treatment of infection by hemorrhagic fever viruses such as
Ebola and/or pandemic flu virus, governments may not elect to
purchase such products, 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 or the pandemic flu. 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 expect 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.
If we
or our collaborators, manufacturers or service providers fail to
comply with regulatory laws and regulations, we or they could be
subject to enforcement actions, which could affect our ability
to market and sell our products and may harm our
reputation.
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:
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warning letters;
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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 importation or exportation of our products;
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suspension of review or refusal to approve pending 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
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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 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 standard 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 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 will continue
to affect the business and financial condition of pharmaceutical
and biopharmaceutical companies. A number of legislative and
regulatory proposals to change the healthcare system in the
United States and other major healthcare markets have been
proposed in recent years. These proposals have included
prescription drug benefit legislation that was enacted and took
effect in January 2006 and healthcare reform legislation
recently enacted by certain states. Further federal and state
legislative and regulatory developments are possible 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 drug candidates that we may
successfully develop.
Another development that may affect the pricing of drugs is
Congressional action regarding drug reimportation into the
United States. Recent proposed legislation has been introduced
in Congress that, if enacted, would permit more widespread
re-importation of drugs from foreign countries into the United
States. This could include re-
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importation from foreign countries where the drugs are sold at
lower prices than in the United States. Such legislation, or
similar regulatory changes, could lead to a decrease in the
price we receive for any approved products, which, in turn,
could impair our ability to generate revenue. Alternatively, in
response to legislation such as this, we might elect not to seek
approval for or market our products in foreign jurisdictions in
order to minimize the risk of re-importation, which could also
reduce the revenue we generate from our product sales.
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,
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 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 indications for which they may be
used, or suspension or withdrawal of approvals. 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 drug 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 and, until recently, in Germany 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 and the
procedures we employed in our German facility complied with the
standards mandated by applicable German laws and guidelines.
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
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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 will rely
on third-party collaborators to file patent applications
relating to proprietary technology that 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.
Moreover, 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. Adding
to the uncertainty of our current intellectual property
portfolio and our ability to secure and enforce future patent
rights are the outcome of a legal dispute surrounding the
implementation of certain continuation and claims rules
promulgated by the USPTO, which were scheduled to take effect
November 1, 2007, but which are now enjoined), and the
outcome of Congressional efforts to reform the Patent Act of
1952. 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 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 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, Isis, MIT, the Whitehead Institute for Biomedical
Research, Max Planck Innovation, Stanford University, and
Tekmira. 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.
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Other
companies or organizations may assert patent rights that prevent
us from developing and commercializing our
products.
RNA interference is a relatively new scientific field that has
generated many different patent applications from organizations
and individuals seeking to obtain important patents in the
field. We have obtained important grants and issuances of RNAi
patents and have licensed many of these patents on an exclusive
basis. Our patents and patent applications claim many different
methods, compositions and processes relating to the discovery,
development and commercialization of RNAi therapeutics. As the
field is maturing, patent applications are being fully processed
by national patent offices around the world. There is
uncertainty about which patents will issue, 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. Others may
attempt to invalidate our intellectual property rights. Even if
our rights are not directly challenged, disputes among third
parties could lead to the weakening or invalidation of our
intellectual property rights. Any attempt to circumvent or
invalidate our intellectual property rights would be costly,
would require significant time and attention of our management
and could have a material adverse effect on our business.
After the grant by the European Patent Office, or EPO, of the
Kreutzer-Limmer patent, published under publication number EP
1144623, several oppositions to the issuance of the European
patent were filed with the EPO, a practice that is allowed under
the European Patent Convention, or EPC. In oral proceedings in
September 2006, the EPO opposition division upheld the patent
with amended claims. This decision has been appealed by two of
the opponents, including Merck and Silence Therapeutics. Based
on the appeal, the Boards of Appeal of the EPO may choose to
uphold, further amend or revoke the patent it in its entirety.
However, because a European Patent represents a bundle of
national patents for each of the designated member states and
must be enforced on a country-by country-basis, even if upheld,
a National Court in one or more of the EPC member states could
subsequently rule the patent invalid or unenforceable. In
addition, National Courts in different countries could come to
differing conclusions in interpreting the scope of the upheld
claims.
In addition, four parties have filed Notices of Opposition in
the EPO against a second Kreutzer-Limmer patent, published under
the publication number EP 1214945, and one party has given
notice to the Australian Patent Office, IP Australia, that it
opposes the grant of our patent AU 778474, which derives from
the same parent international patent application that gave rise
to EP 1144623 and EP 1214945. Furthermore, one party has filed a
notice of opposition regarding the European Patent EP 1352061,
the European regional phase of a patent family commonly referred
to as Kreutzer-Limmer II. The proceedings in the EPO and
Australian Patent Office may take several years before an
outcome becomes final.
In addition, five parties have filed Notices of Opposition in
the EPO against the Glover patent. A hearing for this opposition
will be held in July 2008, after which the Opposition Division
will render a decision, which may include upholding the patent
claims as granted or in amended form or cancelling the claims
altogether. Either party may appeal the decision by the
Opposition Division.
There are also many issued and pending patents that claim
aspects of oligonucleotide chemistry that we may need to apply
to our siRNA drug candidates. There are also many issued patents
that claim genes or portions of genes that may be relevant for
siRNA drugs we wish to develop. Thus, it is possible that one or
more 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 will 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
46
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 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
47
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 and marketing 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.
|
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, hypercholesterolemia, liver cancer 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
hypercholesterolemia, liver cancer 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 drug 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.
|
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 drug
candidates. 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 drug 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 several companies that
are working in the field of RNAi. In addition, we granted
licenses or options for
48
licenses to Isis, GeneCare, Benitec, Nastech, 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 has 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 product candidates, antisense
drugs target messenger RNAs, or mRNAs, in order to suppress the
activity of specific genes. Isis is currently marketing an
antisense drug and has several antisense drug 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.
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.
Novartis held approximately 13% of our outstanding common stock
as of December 31, 2007. 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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49
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|
|
discouraging a potential acquirer from making a tender offer or
otherwise attempting to obtain control of our company.
|
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:
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a classified board of directors;
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|
a prohibition on actions by our stockholders by written consent;
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|
limitations on the removal of directors; and
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|
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.
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ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS.
|
We have not received written comments from the staff of the SEC
regarding our periodic or current reports that remain unresolved.
Our operations are based primarily in Cambridge, Massachusetts.
As of February 29, 2008, we lease approximately
84,000 square feet of office and laboratory space in
Cambridge, Massachusetts. The two leases for this property
expire in September 2011. We believe that the total space
available to us under our current leases and options will meet
our needs for the foreseeable future, and that additional space
would be available to us on commercially reasonable terms if it
were required.
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ITEM 3.
|
LEGAL
PROCEEDINGS
|
We are currently not a party to any material legal proceedings.
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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, 2007.
50
PART II
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|
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:
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Year Ended December 31, 2006:
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High
|
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|
Low
|
|
First Quarter
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|
$
|
18.39
|
|
|
$11.48
|
Second Quarter
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|
$
|
17.63
|
|
|
$12.82
|
Third Quarter
|
|
$
|
15.52
|
|
|
$11.29
|
Fourth Quarter
|
|
$
|
24.46
|
|
|
$13.77
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007:
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|
High
|
|
|
Low
|
|
|
First Quarter
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|
$
|
22.94
|
|
|
$
|
16.66
|
|
Second Quarter
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|
$
|
20.68
|
|
|
$
|
15.06
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|
Third Quarter
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|
$
|
34.85
|
|
|
$
|
14.87
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|
Fourth Quarter
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|
$
|
37.35
|
|
|
$
|
26.84
|
|
Holders
of record
As of February 29, 2008, there were approximately 62
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
Information relating to our equity compensation plans will be
included in our proxy statement in connection with our 2008
Annual Meeting of Stockholders, under the caption Equity
Compensation Plan Information. That portion of our proxy
statement is incorporated herein by reference.
51
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
cumulative total stockholder return (assuming reinvestment of
dividends, if any) from investing $100 on May 28, 2004, the
date on which our common stock was first publicly traded, to the
close of the last trading day of 2007, in each of (i) our
common stock, (ii) the NASDAQ Stock Market (U.S.) Index and
(iii) the NASDAQ Pharmaceutical Index.
Comparison
of Cumulative Total Return*
Among Alnylam Pharmaceuticals, Inc.,
NASDAQ Stock Market (U.S.) Index and NASDAQ Pharmaceuticals
Index
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|
|
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|
5/28/2004
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12/31/2004
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12/30/2005
|
|
|
12/29/2006
|
|
|
12/31/2007
|
Alnylam Pharmaceuticals, Inc.
|
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$
|
100.00
|
|
|
|
$
|
124.29
|
|
|
|
$
|
222.30
|
|
|
|
$
|
356.07
|
|
|
|
$
|
483.86
|
|
Nasdaq Stock Market (U.S.) Index
|
|
|
$
|
100.00
|
|
|
|
$
|
109.70
|
|
|
|
$
|
112.03
|
|
|
|
$
|
123.08
|
|
|
|
$
|
133.48
|
|
Nasdaq Pharmaceutical Index
|
|
|
$
|
100.00
|
|
|
|
$
|
103.32
|
|
|
|
$
|
113.77
|
|
|
|
$
|
111.36
|
|
|
|
$
|
117.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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* |
|
$100 invested on May 28, 2004, the date on which our common
stock was first publicly traded, in our common stock, the NASDAQ
Stock Market (U.S.) Index or the NASDAQ Pharmaceutical Index,
including reinvestment of dividends. |
52
|
|
ITEM 6.
|
SELECTED
CONSOLIDATED FINANCIAL DATA
|
The following selected consolidated financial data for each of
the five years in the period ended December 31, 2007 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)
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|
|
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|
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|
|
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|
|
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|
Year Ended December 31,
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
50,897
|
|
|
$
|
26,930
|
|
|
$
|
5,716
|
|
|
$
|
4,278
|
|
|
$
|
176
|
|
Operating expenses(1)
|
|
|
144,074
|
|
|
|
66,431
|
|
|
|
49,188
|
|
|
|
36,542
|
|
|
|
25,233
|
|
Loss from operations
|
|
|
(93,177
|
)
|
|
|
(39,501
|
)
|
|
|
(43,472
|
)
|
|
|
(32,264
|
)
|
|
|
(25,057
|
)
|
Net loss
|
|
|
(85,466
|
)
|
|
|
(34,608
|
)
|
|
|
(42,914
|
)
|
|
|
(32,654
|
)
|
|
|
(25,033
|
)
|
Net loss attributable to common stockholders
|
|
$
|
(85,466
|
)
|
|
$
|
(34,608
|
)
|
|
$
|
(42,914
|
)
|
|
$
|
(35,367
|
)
|
|
$
|
(27,939
|
)
|
Net loss per common share basic and diluted
|
|
$
|
(2.21
|
)
|
|
$
|
(1.09
|
)
|
|
$
|
(1.96
|
)
|
|
$
|
(2.98
|
)
|
|
$
|
(29.64
|
)
|
Weighted average common shares outstanding basic and
diluted
|
|
|
38,657
|
|
|
|
31,890
|
|
|
|
21,949
|
|
|
|
11,886
|
|
|
|
943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Non-cash stock-based
compensation included in
operating expenses
|
|
$
|
14,472
|
|
|
$
|
8,304
|
|
|
$
|
4,597
|
|
|
$
|
4,106
|
|
|
$
|
3,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and marketable securities
|
|
$
|
455,602
|
|
|
$
|
217,260
|
|
|
$
|
80,002
|
|
|
$
|
46,046
|
|
|
$
|
23,193
|
|
Working capital
|
|
|
381,468
|
|
|
|
199,859
|
|
|
|
63,930
|
|
|
|
41,606
|
|
|
|
20,345
|
|
Total assets
|
|
|
493,791
|
|
|
|
240,006
|
|
|
|
98,348
|
|
|
|
66,107
|
|
|
|
35,183
|
|
Notes payable
|
|
|
6,758
|
|
|
|
9,136
|
|
|
|
7,395
|
|
|
|
7,201
|
|
|
|
1,859
|
|
Redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,189
|
|
Total stockholders equity (deficit)
|
|
|
199,168
|
|
|
|
201,174
|
|
|
|
61,779
|
|
|
|
46,142
|
|
|
|
(26,707
|
)
|
53
|
|
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 expect to 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. 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 infection clinical trials, referred to as the
GEMINI study. The GEMINI study was designed to evaluate the
safety, tolerability and anti-viral activity of ALN-RSV01. In
this study, ALN-RSV01 was safe and well tolerated and
demonstrated statistically significant anti-viral activity,
including an approximately 40% reduction in viral infection and
a 95% increase in infection-free patients (p<0.01). We
intend to initiate a second Phase II human clinical trial
of ALN-RSV01 in naturally infected adult patients during the
first half of 2008. We submitted an investigational new drug, or
IND, application 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 on this
experimental drug carried out in both the United States and
Europe. The results from these Phase I trials and the initial
Phase II trial have been presented at medical conferences.
ALN-RSV01 was found to be safe and well tolerated when
administered intranasally or by nebulizer.
In pre-clinical development programs, which are programs for
which we have established targeted timing for human clinical
trials, we are working on a number of programs including
ALN-PCS, an RNAi therapeutic targeting a gene called proprotein
convertase subtilisn/kexin type 9, or PCSK9, for the treatment
of hypercholesterolemia, ALN-VSP, an RNAi therapeutic being
developed for the treatment of liver cancer and potentially
other cancers that is designed to target both vascular
endothelial growth factor, or VEGF, and kinesin spindle protein,
or KSP, and ALN-HTT, an RNAi therapeutic that is designed to
target Huntingtons disease, which we are developing in
collaboration with Medtronic, Inc., or Medtronic.
We have pre-clinical discovery programs, which are programs for
which we have yet to establish targeted timing for human
clinical trials, for RNAi therapeutics for the treatment of a
broad range of diseases, including viral hemorrhagic fever,
including the Ebola virus, progressive multifocal
leukoencephalopathy, or PML, a CNS disease caused by viral
infection in immune compromised patients, pandemic flu,
Parkinsons disease and cystic fibrosis, the inherited
respiratory disease, or CF, as well as other undisclosed
programs.
We also are working internally and with third-party
collaborators to develop the capabilities to deliver our RNAi
therapeutics directly to specific sites of disease, such as the
delivery of ALN-RSV01 to the lungs, which we refer to as Direct
RNAitm.
In addition, we are working to extend our capabilities to
advance the development of RNAi therapeutics that are
administered by intravenous, subcutaneous or intramuscular
approaches, which we refer to as Systemic
RNAitm.
During 2007, we obtained an exclusive worldwide license to the
liposomal delivery formulation technology of Tekmira
Pharmaceuticals Corporation, or Tekmira, formerly know as Inex
Pharmaceuticals Corporation, for the discovery, development and
commercialization of lipid-based nanoparticle formulations for
the delivery of RNAi therapeutics. We also signed an agreement
with the Massachusetts Institute of Technology, or MIT, Center
for Cancer Research to sponsor an exclusive five-year research
program focused on the delivery of RNAi therapeutics. We have
other RNAi therapeutic delivery collaborations and intend to
continue to collaborate with academic and corporate third
parties, to evaluate different delivery options, including with
respect to Direct RNAi and Systemic RNAi.
54
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. We believe that no other company possesses a
portfolio of such broad and exclusive rights to the fundamental
RNAi patents and patent applications required for the
development and commercialization of RNAi therapeutics.
In addition, our expertise in RNAi therapeutics and broad
intellectual property estate have allowed us to form alliances
with leading companies, including F. Hoffmann-La Roche Ltd,
or Roche, Novartis Pharma AG, or Novartis, Medtronic and Biogen
Idec, Inc., or Biogen Idec. 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, and the Defense Threat
Reduction Agency, or DTRA, an agency of the United States
Department of Defense, or DoD. We have established
collaborations and, in some instances, received funding from a
number of major medical and disease associations, including The
University of Texas Southwestern Medical Center, or UTSW, the
Mayo Clinic, The Michael J. Fox Foundation and the Cystic
Fibrosis Foundation Therapeutics, or CFTT. Finally, to further
enable the field and monetize our intellectual property rights,
we have also entered into approximately 20 license agreements
with other biotechnology companies interested in developing RNAi
therapeutic products and research companies that commercialize
RNAi reagents or services.
In September 2007, we and Isis Pharmaceuticals, Inc., or Isis,
established Regulus Therapeutics LLC, or Regulus Therapeutics, a
joint venture focused on the discovery, development and
commercialization of microRNA, or miRNA, therapeutics. Because
miRNAs are believed to regulate whole networks of genes that can
be involved in discrete disease processes, miRNA therapeutics
represent a new approach to target the pathways of human
disease. Regulus Therapeutics combines our and Isis
technologies, know-how and intellectual property relating to
miRNA therapeutics.
We 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, 2007, we had an
accumulated deficit of $226.0 million. Through
December 31, 2007, we have funded our operations primarily
through the net proceeds from the sale of equity securities and
payments under strategic alliances. Through December 31,
2007, a substantial portion of our total net revenues have been
collaboration revenues derived from our strategic alliances with
Roche, Novartis and Merck & Co., Inc., or Merck, and
from the United States government in connection with our
development of treatments for hemorrgagic 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
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 primarily due 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. Our other development programs are focused on
the treatment of hypercholesterolemia, liver cancer and
potentially other cancers, and Huntingtons disease. We
also have discovery programs to develop RNAi therapeutics for
the treatment of a broad range of diseases, including viral
hemorrhagic fever, including the Ebola virus, PML, pandemic flu,
Parkinsons disease, CF, several other diseases that are
the subject of our collaboration with Novartis, and other
undisclosed programs. In addition, we are working internally
55
and with external collaborators to develop the capabilities to
deliver our RNAi therapeutics both directly to the specific
sites of disease and systemically and we intend to continue to
collaborate with academic and corporate third parties to
evaluate different delivery options.
There is a risk that any drug discovery and 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 in which material net cash inflows are expected to
commence from, any potential product candidate. These risks
include the uncertainty of:
|
|
|
|
|
our ability to progress any product candidates into pre-clinical
and clinical trials;
|
|
|
|
the scope, rate and progress of our pre-clinical trials and
other research and development activities, particularly those
related to developing safe and effective ways of delivering
siRNAs into cells and tissues;
|
|
|
|
the scope, rate of progress and cost of any clinical trials we
commence;
|
|
|
|
clinical trial results;
|
|
|
|
the cost of filing, prosecuting, defending and enforcing any
patent claims and other intellectual property rights;
|
|
|
|
the terms, timing and success of any collaborative, licensing
and other arrangements that we may establish;
|
|
|
|
the cost, timing and success of regulatory filings and approvals;
|
|
|
|
the cost and timing of establishing sales, marketing and
distribution capabilities;
|
|
|
|
the cost of establishing clinical and commercial supplies of any
products that we may develop; and
|
|
|
|
the effect of competing technological and market developments.
|
Any failure to complete any stage of the development of any
potential products in a timely manner could have a material
adverse effect on our operations, financial position and
liquidity. A discussion of some of the risks and uncertainties
associated with completing our projects on schedule, or at all,
and the potential consequences of failing to do so, are set
forth in Item 1A above 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, technical resources and intellectual property to
further our development efforts and to generate revenues. We
have entered into license agreements with Max Planck Innovation,
Tekmira, MIT and Isis, as well as a number of other entities, to
obtain rights to important intellectual property in the field of
RNAi. In addition, 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 a broad,
non-exclusive platform license agreement with Roche, under which
we and Roche also will collaborate on RNAi drug discovery for
one or more disease targets. We also have discovery and
development alliances with Novartis and Medtronic. Two of the
programs we are pursuing under our alliances with Novartis and
Medtronic are 50/50 co-development programs.
We have also entered into contracts with government agencies,
including NIAID and DTRA. We have established collaborations and
in some instances, received funding from, a number of major
medical and disease associations including UTSW, the Mayo
Clinic, The Michael J. Fox Foundation and the CFTT. To further
enable the field and monetize our intellectual property rights,
we also grant licenses to biotechnology companies under our
InterfeRxtm
program for the development and commercialization of RNAi
therapeutics for specified targets in which we have no direct
strategic interest. As of February 29, 2008, we had granted
such licenses, on both an
56
exclusive and nonexclusive basis, to approximately
20 companies, and options to take such licenses to two
additional companies.
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 other therapeutic areas
upon payment of an additional specified amount.
In consideration for the rights granted to Roche under the
license and collaboration agreement, Roche paid us
$273.5 million in upfront cash payments. Roche is also
required to make payments to us upon achievement of specified
development and sales milestones set forth in the license and
collaboration agreement and royalty payments based on worldwide
annual net sales, if any, of RNAi therapeutic products by Roche,
its affiliates and sublicensees.
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. The collaboration
between Roche and us will be governed by a joint steering
committee for a period of five years that is comprised of an
equal number of representatives from each party. In exchange for
our contributions to the collaboration, Roche will be required
to make additional milestone and royalty payments.
In connection with the execution of the license and
collaboration agreement, in August 2007, we executed a common
stock purchase agreement with Roche Finance, pursuant to which
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 Germany. 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.
In connection with the license and collaboration agreement and
the common stock purchase agreement, we incurred
$27.5 million of license fees payable to our licensors,
primarily Isis, in accordance with the applicable license
agreements with those parties.
Novartis. We have formed two alliances with
Novartis. We refer to the first of these, which was initiated in
September 2005, as the broad Novartis alliance, and to the
second, which was initiated in February 2006, as the Novartis
flu alliance. 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, immediately after such issuance,
represented 19.9% of our then outstanding common stock. Novartis
owned approximately 13% of our common stock as of
December 31, 2007.
Under the terms of the collaboration and license agreement
governing the broad Novartis alliance, the parties agreed to
work together on 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. In addition, the
collaboration and license agreement includes terms under which
Novartis agreed to provide us with research funding and
milestone payments as well as royalties on annual net sales of
products resulting from the collaboration. The collaboration and
license agreement also provides Novartis with a non-exclusive
option to integrate our intellectual property relating to RNAi
technology into Novartis operations under specified
circumstances. In connection with the exercise of the
integration option, Novartis will be required to make additional
payments to us.
57
In February 2006, we entered into the Novartis flu alliance. The
agreement governing the flu alliance is structured as an
addendum to the collaboration and license agreement for the
broad Novartis alliance. Under the terms of the Novartis flu
agreement, we and Novartis have joint responsibility for
development of RNAi therapeutics for pandemic flu. We are
eligible to receive significant funding from Novartis for our
efforts on RNAi therapeutics for pandemic flu, and to receive a
significant share of any profits. During 2007, we and Novartis
agreed to focus on additional pre-clinical research prior to
advancing this program into development.
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 will continue our existing
development program focused on developing a combination
drug-device product for the treatment of Huntingtons
disease. In addition, as provided for in our initial
collaboration agreement with Medtronic, the parties 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 small interfering RNAs, or
siRNAs, discovered and developed using our RNAi therapeutics
platform, to the human nervous system through implantable
infusion devices developed by Medtronic. We will be responsible
for supplying the siRNA component and Medtronic will be
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, the parties will each
fund 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
any such products, 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.
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 collaboration agreement with Biogen Idec,
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 also 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 and royalty payments. The pace and
scope of future development of this program is the
responsibility of Biogen Idec. We expect limited resources to be
expended on this program in 2008.
Isis. In March 2004, we entered into a
collaboration and license agreement with Isis, a leading
developer of single-stranded antisense oligonucleotide drugs
that target RNA. The agreement enhanced our intellectual
property position with respect to RNA-based therapeutic products
and our ability to develop double-stranded RNA for RNAi
therapeutic products, and provided us with the opportunity to
defer investment in manufacturing technology. We also agreed to
pay milestone payments, payable upon the occurrence of specified
development and regulatory events, and royalties to Isis for
each product that we or a collaborator develops utilizing 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 also agreed to pay us a license fee, milestone
payments, payable upon the occurrence of specified development
and regulatory events, and royalties for each product developed
by Isis or a collaborator that utilizes our intellectual
property. The agreement also gives us an option to use
Isis manufacturing services for RNA-based therapeutic
products. In August 2007, as a result of certain payments
58
received by us in connection with the Roche alliance, we made
payments totaling $26.5 million to Isis. In October 2005,
as a result of certain payments received by us in connection
with the Novartis agreements, we made payments totaling
$3.7 million to Isis. These license fees were charged to
research and development expenses in their respective periods.
Our agreement with Isis also gives us the exclusive right to
grant sub-licenses for Isis technology to third parties with
whom we are not collaborating. We may include these sub-licenses
in our InterfeRx licenses. If a license includes rights to
Isis intellectual property, we will share revenues from
that license equally with Isis.
NIH. In September 2006, we were awarded a
contract to advance the development of a broad spectrum RNAi
anti-viral therapeutic against hemorrhagic fever virus,
including the Ebola virus, with NIAID. The federal contract will
provide us with up to $23.0 million in funding over a
four-year period to develop, as anti-viral drugs targeting the
Ebola virus. Of the $23.0 million, the government has
committed to pay us $14.2 million over the first two years
of the contract and, subject to the progress of the program and
budgetary considerations in future years, the remaining
$8.8 million over the last two years of the contract.
Department of Defense. In August 2007, we were
awarded a contract to advance the development of a broad
spectrum RNAi anti-viral therapeutic for hemorrhagic fever virus
by DTRA. This federal contract is expected to provide us with up
to $38.6 million in funding through the second quarter of
2010 to develop RNAi therapeutics for hemorrhagic fever virus.
Viral hemorrhagic fevers are considered by federal agencies to
be high priority agents that pose a potential risk to national
security because they can be easily transmitted from person to
person, result in high mortality rates and require special
action for public health preparedness. This contract is with the
DTRA 2007 Medical Science and Technology Chemical and Biological
Defense Transformational Medical Technologies Initiative, whose
mission is to provide state-of-the-art defense capabilities to
United States military personnel by addressing traditional and
non-traditional biological threats. Of the $38.6 million in
funding, the government has committed to pay us up to
$7.2 million through April 2008 and, subject to the
progress of the program and budgetary considerations in future
years, the remaining $31.4 million over the last two years
of the contract.
Delivery Technology. We are working to extend
our capabilities in developing technology to achieve efficacious
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.
Merck. In September 2007, we terminated our
amended and restated research collaboration and license
agreement with 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. We have no remaining deliverables under the amended
and restated research collaboration and license agreement.
Joint
Venture (Regulus Therapeutics LLC)
In September 2007, we and Isis established Regulus Therapeutics,
a joint venture focused on the discovery, development and
commercialization of miRNA therapeutics. Because miRNAs are
believed to regulate whole networks of genes that can be
involved in discrete disease processes, miRNA therapeutics
represent a new approach to target the pathways of human
disease. Regulus Therapeutics combines the strengths and assets
of our and Isis technologies, know-how and intellectual
property relating to miRNA therapeutics. In addition, we believe
Regulus Therapeutics has assembled a strong leadership team, as
well as leading authorities in the field of miRNA research to
lead this new venture.
Regulus Therapeutics most advanced program is an miRNA
therapeutic that targets miR-122 for the treatment of
hepatitis C virus, or HCV, infection, a significant disease
worldwide for which emerging therapies target viral genes and,
therefore, are prone to viral resistance. Regulus Therapeutics
is targeting miR-122, an endogenous host gene required for viral
infection by HCV. In addition to the miR-122 program, Regulus
Therapeutics is also actively
59
exploring additional areas for development of miRNA
therapeutics, including cancer, other viral diseases, metabolic
disorders and inflammatory diseases.
We and Isis own 49% and 51%, respectively, of Regulus
Therapeutics. Regulus Therapeutics is operated as an independent
company with a separate board of directors, scientific advisory
board and management team. In connection with the execution of
the limited liability company agreement, we, Isis and Regulus
Therapeutics entered into a license and collaboration agreement
to pursue the discovery, development and commercialization of
therapeutic products directed to miRNAs. Under the terms of the
license and collaboration agreement, we and Isis assigned to
Regulus Therapeutics specified patents and contracts covering
miRNA-specific technology. In addition, each of us granted to
Regulus Therapeutics an exclusive, worldwide license under our
rights to other miRNA-related patents and know-how to develop
and commercialize therapeutic products containing compounds that
are designed to interfere with or inhibit a particular miRNA,
subject to our and Isis existing contractual obligations
to third parties. Regulus Therapeutics also has the right to
request a license from us and Isis to develop and commercialize
therapeutic products directed to other miRNA compounds, which
license is subject to our and Isis approval and to each
such partys existing contractual obligations to third
parties. Regulus Therapeutics also grants to us and Isis an
exclusive license to technology developed or acquired by Regulus
Therapeutics 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 Therapeutics. In addition, we made an
initial cash contribution to Regulus Therapeutics of
$10.0 million, resulting in us and Isis making initial
capital contributions to Regulus Therapeutics of approximately
equal aggregate value.
After a sufficient portfolio of data is obtained with respect to
each miRNA compound drug candidate developed by Regulus
Therapeutics, Regulus Therapeutics may elect to continue to
pursue the development and commercialization of products
directed to such miRNA compound and related miRNA compounds, in
which event Regulus Therapeutics would be obligated to pay us
and Isis a royalty on net sales of any such resulting products.
If Regulus Therapeutics decides not to continue to pursue the
development and commercialization of products directed to
particular miRNA compounds, either we or Isis may pursue
development and commercialization of such Regulus Therapeutics
products. Development and commercialization of such products by
either party would be subject to the payment to Regulus
Therapeutics of a specified upfront fee, royalties on net sales,
milestone payments upon achievement of specified regulatory
events and a portion of income received from sublicensing rights.
In connection with the execution of the limited liability
company agreement and the license and collaboration agreement,
we also executed a services agreement with Isis and Regulus
Therapeutics. Under the terms of the services agreement, we and
Isis agreed to provide to Regulus Therapeutics, for the benefit
of Regulus Therapeutics, 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 generally will be paid by Regulus
Therapeutics for these 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.
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.
60
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 and royalties on product sales. We follow the
provisions of the Securities and Exchange Commissions
Staff Accounting Bulletin No. 104, Revenue
Recognition, Emerging Issues Task Force Issue
No. 00-21,
Accounting for Revenue Arrangements with Multiple
Deliverables, or
EITF 00-21,
Emerging Issues Task Force Issue
No. 99-19,
Reporting Revenue Gross as a Principal Versus Net as an
Agent, and Emerging Issues Task Force Issue
No. 01-9,
Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendors
Products), or
EITF 01-9.
Non-refundable license fees are recognized as revenue when 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 in accordance with
EITF 00-21.
We recognize up-front 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 standalone 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. 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 each
reporting period.
If we cannot reasonably estimate the level of effort required to
complete our performance obligations under an arrangement, then
revenue under the arrangement would 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 basis,
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.
For revenue generating arrangements where we, as a vendor,
provide consideration to a licensor or collaborator, as a
customer, we apply the provisions of
EITF 01-9.
EITF 01-9
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
61
both cumulative revenue recorded to date and of 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.
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 twelve months are classified as
long-term deferred revenue. As of December 31, 2007, we
have short-term and long-term deferred revenue of
$59.2 million and $204.1 million, respectively,
related to our collaborations.
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 twelve months. Amounts that we expect will
not be recognized prior to the next twelve 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 twelve-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.
Roche. We recorded $278.2 million as
deferred revenue in connection with the Roche alliance. This
amount represents the aggregate proceeds received from Roche,
$331.0 million, net of the amount allocated for financial
statement purposes to the common stock issuance of
$51.3 million, and the net book value of Alnylam Europe of
$1.5 million. Roche is also required to make payments to us
upon achievement of specified development and sales milestones
set forth in the license and collaboration agreement and royalty
payments based on worldwide annual net sales, if any, of RNAi
therapeutic products by Roche, its affiliates and sublicensees.
In addition, we have agreed with Roche to collaborate on the
discovery of RNAi therapeutic products directed to one or more
disease targets, referred to as the Discovery Collaboration,
subject to our existing contractual obligations to third
parties. The collaboration between Roche and us will be governed
by a joint steering committee for a period of five years that is
comprised of an equal number of representatives from each party.
Our performance obligations under the license and collaboration
agreement, including participation in the steering committee and
research conducted as part of the Discovery Collaboration, are
expected to cease five years from the effective date of the
license and collaboration agreement.
The proceeds allocated to the common stock issuance of
$51.3 million were based on the fair value on the date the
shares were issued. We have concluded that the license issued to
Roche, the steering committee services and the services we will
be required to perform under the Discovery Collaboration should
be treated as a single unit of accounting. Accordingly, the
remaining consideration received has been recorded as deferred
revenue and will be amortized into revenue over the five-year
period during which we are required to provide services under
the license and collaboration agreement. We are initially
recording revenue on a straight-line basis over five years
because we are unable to reasonably estimate the total level of
effort required under the license and collaboration agreement.
When, and if, we are able to make reasonable estimates of our
remaining efforts under the collaboration, we will modify the
method of recognition and utilize the proportional performance
method. As future milestones are achieved, and to the extent
they are within the five year term, the amounts will be
recognized as revenue prospectively over the remaining period of
performance.
Novartis. In consideration for rights granted
to Novartis under the collaboration and license agreement,
Novartis made an up-front payment of $10.0 million to us in
October 2005 to partly reimburse costs previously incurred by us
to develop in vivo RNAi technology. In addition, the
collaboration and license agreement includes terms under which
Novartis agreed to provide us with research funding and
milestone payments as well as royalties
62
on annual net sales of products resulting from the collaboration
and license agreement. We initially recorded as deferred revenue
the non-refundable $10.0 million up-front payment and
$6.4 million premium that represents 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
will be amortized into revenue using the proportional
performance method over the estimated duration of the Novartis
agreement, or ten years. We only include milestone payments that
we believe are probable of being received. 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.
We believe the estimated term of the Novartis agreement includes
the three-year term of the agreement, two one-year extensions at
the election of Novartis and limited support as part of a
technology transfer until the fifth anniversary of the
termination of the agreement. Therefore, an expected term of ten
years is used in the proportional performance model. We will
evaluate the expected term when new information is known that
could affect our estimate. In the event our period of
involvement is different than we estimated, revenue recognition
will be adjusted on a prospective basis.
Government Contracts. Revenue under government
cost reimbursement contracts is recognized as we perform the
underlying research and development activities.
Accounting
for Income Taxes
Effective January 1, 2007, we adopted the provisions of
Financial Accounting Standards Board, or FASB, Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement 109,
or FIN 48, which 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. FIN 48 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
FIN 48, 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.
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.
At December 31, 2007, we had federal and state net
operating loss, or NOL, carryforwards of $132.7 million and
$145.5 million, respectively, available to reduce future
taxable income, that will expire at various dates beginning in
2008 through 2027. At December 31, 2007, federal and state
research and development and other credit carryforwards were
$2.3 million and $1.9 million, respectively, available
to reduce future tax liabilities, that will expire at various
dates beginning in 2018 through 2027. At December 31, 2007,
foreign tax credits were $3.1 million, available to reduce
future tax liabilities, that expire in 2017. We have concluded
that it is more likely than not that our deferred tax assets,
including those associated with these carryforwards, will not be
realized and, accordingly, have recorded a full valuation
allowance. This assessment was based on our estimates of future
taxable income which involve significant judgment.
63
Accounting
for Stock-Based Compensation
Effective January 1, 2006, we adopted the fair value
recognition provisions of FASB Statement of Financial Accounting
Standards, or SFAS, No. 123R, Share-Based
Payment, or SFAS 123R, using the modified prospective
transition method. Under that transition method, stock-based
compensation expense is recognized beginning in 2006 for all
stock-based payments granted prior to, but not yet vested as of,
January 1, 2006, based on the grant-date fair value
estimated in accordance with the original provisions of
SFAS No. 123, Accounting for Stock Based
Compensation, or SFAS 123, and compensation cost for
all stock-based payments granted subsequent to January 1,
2006, based on the grant-date fair value estimated in accordance
with the provisions of SFAS 123R. Such amounts are reduced
by our estimate of forfeitures of all unvested awards. Results
for prior periods have not been restated.
Prior to January 1, 2006, we accounted for employee stock
awards granted under our compensation plans in accordance with
Accounting Principles Board, or APB, Opinion No. 25,
Accounting for Stock Issued to Employees, or APB 25,
and related interpretations. Under APB 25, when the exercise
price of options granted to employees under these plans equals
the market price of the common stock on the date of grant, no
compensation expense is recorded. When the exercise price of
options granted to employees under these plans is less than the
market price of the common stock on the date of grant,
compensation expense is recognized on a straight-line basis over
the vesting period. All stock-based awards granted to
non-employees are accounted for at their fair value in
accordance with SFAS 123, as amended, and EITF Issue
No. 96-18,
Accounting for Equity Instruments that are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services, or
EITF 96-18,
under which 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 implied volatilities of similar entities whose
share or option prices are publicly available as well as the
historical volatility of our publicly traded stock. For stock
option grants issued during the year ended December 31,
2007, we used a weighted-average expected stock-price volatility
assumption of 64%. Due to our short history of being a public
company, after adopting SFAS 123R, we estimated the
expected life of option grants made through September 30,
2007 using the simplified method prescribed under
Staff Accounting Bulletin No. 107 since the grants
qualify as plain-vanilla options. This method
averages the contractual term of the stock options
(10 years) with the vesting term (2.2 years). During
the three months ended December 31, 2007, we changed our
expected life assumption to be based on the equal weighting of
the historical data of (i) our stock price and
(ii) the stock prices of our pharmaceutical and
biotechnology peers. Our weighted average expected term was
6.0 years for the year ended December 31, 2007. 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, 2007, the estimated fair value of
unvested employee awards was $36.8 million, net of
estimated forfeitures. This amount will be recognized over the
weighted average remaining vesting period of approximately
1.6 years for these awards. Stock-based employee
compensation expense was $11.9 million for the year ended
December 31, 2007. 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. SFAS 123R
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 80% of our options will actually
vest, and therefore have applied an annual forfeiture rate of
5.4% to all unvested options as of December 31, 2007.
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 Therapeutics using the
equity method of accounting. We have concluded that Regulus
Therapeutics qualifies as a variable interest entity under FASB
Interpretation No. 46R,
64
Consolidation of Variable Interest Entities an
interpretation of Accounting Research
Bulletin No. 51, or FIN 46R. The limited
liability company agreement contains transfer restrictions on
each of Isis and our interests and, as a result, we and
Isis are considered related parties under
paragraph 16(d)(1) of FIN 46R. Because we and Isis are
related parties and collectively own 100% of Regulus
Therapeutics, the determination of which entity would be
considered the primary beneficiary is based on which entity is
most closely associated with Regulus Therapeutics. Following the
guidance in paragraph 17 of FIN 46R, we have concluded
that Isis is the primary beneficiary and, accordingly, we have
not consolidated Regulus Therapeutics and account for our
investment under the equity method of accounting.
Results
of Operations
The following data summarizes the results of our operations for
the periods indicated, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net revenues
|
|
$
|
50,897
|
|
|
$
|
26,930
|
|
|
$
|
5,716
|
|
Operating expenses
|
|
|
144,074
|
|
|
|
66,431
|
|
|
|
49,188
|
|
Loss from operations
|
|
|
(93,177
|
)
|
|
|
(39,501
|
)
|
|
|
(43,472
|
)
|
Net loss
|
|
$
|
(85,466
|
)
|
|
$
|
(34,608
|
)
|
|
$
|
(42,914
|
)
|
Discussion
of Results of Operations for 2007 and 2006
The following table summarizes our total consolidated net
revenues from research collaborators, for the periods indicated,
in thousands:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Roche
|
|
$
|
17,571
|
|
|
$
|
|
|
Novartis
|
|
|
14,670
|
|
|
|
21,775
|
|
Government contract
|
|
|
8,989
|
|
|
|
786
|
|
Other research collaborator
|
|
|
8,261
|
|
|
|
2,508
|
|
InterfeRx program, research reagent licenses and other
|
|
|
1,406
|
|
|
|
1,861
|
|
|
|
|
|
|
|
|
|
|
Total net revenues from research collaborators
|
|
$
|
50,897
|
|
|
$
|
26,930
|
|
|
|
|
|
|
|
|
|
|
Revenues increased significantly for the year ended
December 31, 2007 as compared to the year ended
December 31, 2006, primarily as a result of our August 2007
alliance with Roche. We received upfront payments totaling
$331.0 million under the Roche alliance, of which
$51.3 million was allocated to the purchase of
1,975,000 shares of our common stock and
$278.2 million is being recognized as revenue on a
straight-line basis over five years under the Roche alliance.
The Alnylam Europe stock purchase agreement also includes
transition services to be performed by Roche Kulmbach employees
at various levels through August 2008. We reimburse Roche for
these services at an
agreed-upon
rate. We recorded $4.2 million of these services as contra
revenue (a reduction of revenues) during 2007.
The decrease in Novartis revenues during the year ended
December 31, 2007 compared to the year ended
December 31, 2006 was due to a decrease in the number of
resources allocated to the broad Novartis alliance. The decrease
in Novartis revenues was also due to a decrease in the number of
resources allocated to, as well as lower external expense
reimbursement under, our Novartis flu alliance, as a result of
the shift in focus during 2007 on additional pre-clinical
research prior to advancing the pandemic flu program into
development.
For the year ended December 31, 2007, government contract
revenues increased as a result of our collaboration with NIAID,
which began in the fourth quarter of 2006, and our collaboration
with DTRA, which began in the third quarter of 2007.
65
Other research collaborator revenues consisted primarily of
research funding and amortization of upfront payments or license
fees from Biogen Idec and Merck. The increase in other research
collaborator revenues in 2007 is primarily the result of our
collaboration with Biogen Idec, which began in the fourth
quarter of 2006 and the termination of our 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.
The decrease in InterfeRx program, research reagent licenses and
other revenues for the year ended December 31, 2007
compared to the prior year was due to upfront payments pursuant
to license agreements entered into under our InterfeRx program
in the prior year.
Total deferred revenues of $263.3 million at
December 31, 2007 consists of payments received from
collaborators, primarily Roche, 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 strategic alliances,
collaborations, government contracts and licensing activities
and to continue to increase significantly as a result of our
August 2007 alliance with Roche.
Operating
Expenses
The following tables summarize 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
|
|
|
|
2007
|
|
|
Expenses
|
|
|
2006
|
|
|
Expenses
|
|
|
$
|
|
|
%
|
|
|
Research and development
|
|
$
|
120,686
|
|
|
|
84
|
%
|
|
$
|
49,260
|
|
|
|
74
|
%
|
|
$
|
71,426
|
|
|
|
145
|
%
|
General and administrative
|
|
|
23,388
|
|
|
|
16
|
%
|
|
|
17,171
|
|
|
|
26
|
%
|
|
|
6,217
|
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
144,074
|
|
|
|
100
|
%
|
|
$
|
66,431
|
|
|
|
100
|
%
|
|
$
|
77,643
|
|
|
|
117
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain reclassifications have been made to prior years
financial statements to conform to the 2007 presentation.
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
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense
|
|
|
|
|
|
Expense
|
|
|
Increase
|
|
|
|
2007
|
|
|
Category
|
|
|
2006
|
|
|
Category
|
|
|
$
|
|
|
%
|
|
|
Research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License fees
|
|
$
|
42,207
|
|
|
|
35
|
%
|
|
$
|
4,040
|
|
|
|
8
|
%
|
|
$
|
38,167
|
|
|
|
945
|
%
|
Clinical trial and manufacturing
|
|
|
20,662
|
|
|
|
17
|
%
|
|
|
10,019
|
|
|
|
20
|
%
|
|
|
10,643
|
|
|
|
106
|
%
|
External services
|
|
|
18,292
|
|
|
|
15
|
%
|
|
|
6,001
|
|
|
|
12
|
%
|
|
|
12,291
|
|
|
|
205
|
%
|
Compensation and related
|
|
|
13,201
|
|
|
|
11
|
%
|
|
|
10,666
|
|
|
|
22
|
%
|
|
|
2,535
|
|
|
|
24
|
%
|
Non-cash stock-based compensation
|
|
|
9,363
|
|
|
|
8
|
%
|
|
|
5,006
|
|
|
|
10
|
%
|
|
|
4,357
|
|
|
|
87
|
%
|
Facilities-related
|
|
|
8,511
|
|
|
|
7
|
%
|
|
|
6,315
|
|
|
|
13
|
%
|
|
|
2,196
|
|
|
|
35
|
%
|
Lab supplies and materials
|
|
|
6,154
|
|
|
|
5
|
%
|
|
|
5,462
|
|
|
|
11
|
%
|
|
|
692
|
|
|
|
13
|
%
|
Other
|
|
|
2,296
|
|
|
|
2
|
%
|
|
|
1,751
|
|
|
|
4
|
%
|
|
|
545
|
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development expenses
|
|
$
|
120,686
|
|
|
|
100
|
%
|
|
$
|
49,260
|
|
|
|
100
|
%
|
|
$
|
71,426
|
|
|
|
145
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2007, our research and
development expenses increased compared to the year ended
December 31, 2006 primarily as a result of an increase in
license fees consisting of $27.5 million in
66
payments due to certain entities, primarily Isis, in connection
with the Roche alliance and $14.7 million in charges for
licenses for certain delivery technologies. The increase was
also due to an increase in clinical trial and manufacturing
expenses in support of our clinical program for RSV, for which
we began Phase II trials in June 2007, as well as higher
manufacturing expenses related to our pre-clinical development
programs. The increase in external services was due to higher
expenses related to our pre-clinical programs for the treatment
of hypercholesterolemia, liver cancer and Ebola, as well as
higher expenses associated with our delivery-related
collaborations. The increase in compensation-related expenses
and facilities-related expenses was due to additional research
and development headcount over the past year to support our
alliances and expanding product pipeline. The increase in
non-cash stock-based compensation was due primarily to one-time
charges of $2.9 million from restricted stock grants and
stock option modifications in August 2007 relating to the
transfer of our former German employees to Roche Kulmbach as
part of our alliance with Roche.
We expect to continue to devote a substantial portion of our
resources to research and development expenses and, excluding
the impact of the license fees we paid as a result of the Roche
alliance in 2007, we expect that research and development
expenses will increase in 2008 as we continue development of our
and our collaborators product candidates and focus on
delivery-related technologies.
We do not track most of our research and development costs or
our personnel and personnel-related costs on a
project-by-project
basis because all of our programs are in the early stages of
development. In addition, a significant portion of our research
and development costs is not tracked by project as it benefits
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.
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)
|
|
|
|
2007
|
|
|
Category
|
|
|
2006
|
|
|
Category
|
|
|
$
|
|
|
%
|
|
|
General and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting and professional services
|
|
$
|
8,248
|
|
|
|
35
|
%
|
|
$
|
5,162
|
|
|
|
30
|
%
|
|
$
|
3,086
|
|
|
|
60
|
%
|
Non-cash stock-based compensation
|
|
|
5,109
|
|
|
|
22
|
%
|
|
|
3,298
|
|
|
|
19
|
%
|
|
|
1,811
|
|
|
|
55
|
%
|
Compensation and related
|
|
|
4,647
|
|
|
|
20
|
%
|
|
|
3,546
|
|
|
|
21
|
%
|
|
|
1,101
|
|
|
|
31
|
%
|
Facilities-related
|
|
|
2,486
|
|
|
|
10
|
%
|
|
|
2,736
|
|
|
|
16
|
%
|
|
|
(250
|
)
|
|
|
(9
|
)%
|
Insurance
|
|
|
654
|
|
|
|
3
|
%
|
|
|
652
|
|
|
|
4
|
%
|
|
|
2
|
|
|
|
0
|
%
|
Other
|
|
|
2,244
|
|
|
|
10
|
%
|
|
|
1,777
|
|
|
|
10
|
%
|
|
|
467
|
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative expenses
|
|
$
|
23,388
|
|
|
|
100
|
%
|
|
$
|
17,171
|
|
|
|
100
|
%
|
|
$
|
6,217
|
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in general and administrative expenses in 2007
compared to the prior year was due primarily to professional
service fees, which were the result of increased business
development activities, including work related to our alliance
with Roche and our Regulus Therapeutics joint venture with Isis.
The increase in compensation and related expenses was due
primarily to an increase in headcount to support the overall
corporate growth of the company. The increase in non-cash
stock-based compensation was due primarily to one-time charges
of $0.9 million from restricted stock grants and stock
option modifications in August 2007 relating to the transfer of
our former German employees to Roche Kulmbach as part of our
alliance with Roche.
67
Interest income was $15.4 million in 2007 compared to
$6.2 million in 2006. The increase was due to our higher
average cash, cash equivalent and marketable securities
balances, primarily from the $331.0 million in proceeds we
received in August 2007 from our alliance with Roche.
Interest expense was $1.1 million in 2007 and
$1.0 million in 2006. Interest expense in each year related
to borrowings under our lines of credit used to finance capital
equipment purchases.
Discussion
of Results of Operations for 2006 and 2005
The following table summarizes our total consolidated net
revenues for the periods indicated, in thousands:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Novartis
|
|
$
|
21,775
|
|
|
$
|
746
|
|
Other research collaborator
|
|
|
3,294
|
|
|
|
4,423
|
|
InterfeRx program and research reagent licenses
|
|
|
1,439
|
|
|
|
422
|
|
Other
|
|
|
422
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
26,930
|
|
|
$
|
5,716
|
|
|
|
|
|
|
|
|
|
|
The increase in revenues relates to a full year of activity for
our main collaboration with Novartis compared to only one
quarter of activity during 2005. In addition, the increase also
resulted from our February 2006 alliance with Novartis for the
development of RNAi therapeutics for pandemic flu which provides
for the reimbursement of research costs incurred under this
agreement as well as a share of any future profits.
Other research collaborator revenues consist of revenues from
Biogen Idec, Merck, NIAID and other government and foundation
revenues. The decrease in revenues from other research
collaborators was related to a $2.7 million decrease in
revenues related primarily to our Merck ocular disease
collaboration, for which development was suspended in September
2005 based on portfolio management and commercial factors. The
decrease in other research collaborator revenues was partially
offset by NIAID revenues as well as Biogen Idec revenues during
2006, which consisted of research and development funding and
amortization revenues of the $5.0 million up-front payment.
In addition to our collaboration agreements, we have an
InterfeRx program under which we have licensed our intellectual
property to others for the development and commercialization of
RNAi therapeutics in narrowly defined therapeutic areas in which
we are not currently engaged. We have also granted licenses to
our intellectual property to others for the development and
commercialization of research reagents and services. We expect
these programs to provide revenues from license fees and
royalties on sales by the licensees, subject to limitations
under our agreements with Novartis. The increase in InterfeRx
revenues and research reagent licenses revenue was due primarily
to $0.8 million payment from Quark during 2006.
Operating
Expenses
The following tables summarize 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
|
|
|
|
2006
|
|
|
Expenses
|
|
|
2005
|
|
|
Expenses
|
|
|
$
|
|
|
%
|
|
|
Research and development
|
|
$
|
49,260
|
|
|
|
74
|
%
|
|
$
|
34,977
|
|
|
|
71
|
%
|
|
$
|
14,283
|
|
|
|
41
|
%
|
General and administrative
|
|
|
17,171
|
|
|
|
26
|
%
|
|
|
14,211
|
|
|
|
29
|
%
|
|
|
2,960
|
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
66,431
|
|
|
|
100
|
%
|
|
$
|
49,188
|
|
|
|
100
|
%
|
|
$
|
17,243
|
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain reclassifications have been made to prior years
financial statements to conform to the 2007 presentation.
68
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)
|
|
|
|
2006
|
|
|
Category
|
|
|
2005
|
|
|
Category
|
|
|
$
|
|
|
%
|
|
|
Research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and related
|
|
$
|
10,666
|
|
|
|
22
|
%
|
|
$
|
6,895
|
|
|
|
20
|
%
|
|
$
|
3,771
|
|
|
|
55
|
%
|
Clinical trial and manufacturing
|
|
|
10,019
|
|
|
|
20
|
%
|
|
|
537
|
|
|
|
2
|
%
|
|
|
9,482
|
|
|
|
1766
|
%
|
Facilities-related
|
|
|
6,315
|
|
|
|
13
|
%
|
|
|
4,668
|
|
|
|
13
|
%
|
|
|
1,647
|
|
|
|
35
|
%
|
External services
|
|
|
6,001
|
|
|
|
12
|
%
|
|
|
8,924
|
|
|
|
25
|
%
|
|
|
(2,923
|
)
|
|
|
(33
|
)%
|
Lab supplies and materials
|
|
|
5,462
|
|
|
|
11
|
%
|
|
|
3,672
|
|
|
|
10
|
%
|
|
|
1,790
|
|
|
|
49
|
%
|
Non-cash stock-based compensation
|
|
|
5,006
|
|
|
|
10
|
%
|
|
|
2,431
|
|
|
|
7
|
%
|
|
|
2,575
|
|
|
|
106
|
%
|
License and other fees
|
|
|
4,040
|
|
|
|
8
|
%
|
|
|
6,904
|
|
|
|
20
|
%
|
|
|
(2,864
|
)
|
|
|
(41
|
)%
|
Other
|
|
|
1,751
|
|
|
|
4
|
%
|
|
|
946
|
|
|
|
3
|
%
|
|
|
805
|
|
|
|
85
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development expenses
|
|
$
|
49,260
|
|
|
|
100
|
%
|
|
$
|
34,977
|
|
|
|
100
|
%
|
|
$
|
14,283
|
|
|
|
41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2006, our research and
development expenses increased due primarily to the expansion of
our research and development organization in support of the
growth of our programs.
As indicated in the table above, the increase in research and
development expenses during the year ended December 31,
2006 as compared to the year ended December 31, 2005 was
due primarily to clinical trial and manufacturing expenses in
support of our RSV clinical program, which began in December
2005. The increase in compensation and related expenses, and lab
supplies and materials expenses was due to additional research
and development headcount during 2006 to support our alliances
and expanding product pipeline. The increase in stock-based
compensation for the year ended December 31, 2006 was due
primarily to our adoption of SFAS 123R on January 1,
2006.
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)
|
|
|
|
2006
|
|
|
Category
|
|
|
2005
|
|
|
Category
|
|
|
$
|
|
|
%
|
|
|
General and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting and professional services
|
|
$
|
5,162
|
|
|
|
30
|
%
|
|
$
|
4,122
|
|
|
|
29
|
%
|
|
$
|
1,040
|
|
|
|
25
|
%
|
Compensation and related
|
|
|
3,546
|
|
|
|
21
|
%
|
|
|
3,339
|
|
|
|
23
|
%
|
|
|
207
|
|
|
|
6
|
%
|
Non-cash stock-based compensation
|
|
|
3,298
|
|
|
|
19
|
%
|
|
|
2,166
|
|
|
|
15
|
%
|
|
|
1,132
|
|
|
|
52
|
%
|
Facilities-related
|
|
|
2,736
|
|
|
|
16
|
%
|
|
|
1,893
|
|
|
|
14
|
%
|
|
|
843
|
|
|
|
45
|
%
|
Insurance
|
|
|
652
|
|
|
|
4
|
%
|
|
|
616
|
|
|
|
4
|
%
|
|
|
36
|
|
|
|
6
|
%
|
Other
|
|
|
1,777
|
|
|
|
10
|
%
|
|
|
2,075
|
|
|
|
15
|
%
|
|
|
(298
|
)
|
|
|
(14
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative expenses
|
|
$
|
17,171
|
|
|
|
100
|
%
|
|
$
|
14,211
|
|
|
|
100
|
%
|
|
$
|
2,960
|
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As indicated in the table above, the increase in general and
administrative expenses in 2006 was due primarily to higher
stock-based compensation expenses related to our adoption of
SFAS 123R on January 1, 2006, higher
facilities-related costs due to the expansion of our facilities
during 2006, as well as an increase in legal and professional
service fees due to increased business activities during 2006.
69
Interest income was $6.2 million in 2006 compared to
$1.5 million in 2005. The increase was due to our higher
average cash, cash equivalent and marketable securities
balances, primarily from our January and December 2006 public
offerings of common stock, as well as higher average interest
rates during 2006.
Interest expense was $1.0 million in each of 2006 and 2005.
Interest expense in each year related to borrowings under our
lines of credit used to finance capital equipment purchases.
Liquidity
and Capital Resources
The following table summarizes our cash flow activities for the
periods indicated, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net loss
|
|
$
|
(85,466
|
)
|
|
$
|
(34,608
|
)
|
|
$
|
(42,914
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities
|
|
|
29,834
|
|
|
|
12,633
|
|
|
|
9,672
|
|
Changes in operating assets and liabilities
|
|
|
252,151
|
|
|
|
(2,655
|
)
|
|
|
16,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
196,519
|
|
|
|
(24,630
|
)
|
|
|
(16,485
|
)
|
Net cash used in investing activities
|
|
|
(277,425
|
)
|
|
|
(30,046
|
)
|
|
|
(40,418
|
)
|
Net cash provided by financing activities
|
|
|
58,635
|
|
|
|
166,631
|
|
|
|
52,617
|
|
Effect of exchange rate on cash
|
|
|
(527
|
)
|
|
|
243
|
|
|
|
(229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(22,798
|
)
|
|
|
112,198
|
|
|
|
(4,515
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
127,955
|
|
|
|
15,757
|
|
|
|
20,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
105,157
|
|
|
$
|
127,955
|
|
|
$
|
15,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Since we commenced operations in 2002, we have generated
significant losses. As of December 31, 2007, we had an
accumulated deficit of $226.0 million. As of
December 31, 2007, we had cash, cash equivalents and
marketable securities of $455.6 million, compared to cash,
cash equivalents and marketable securities of
$217.3 million as of December 31, 2006. The increase
in our cash, cash equivalents and marketable securities at
December 31, 2007 was due primarily to our receipt of
$331.0 million of up-front cash payments under our Roche
alliance. We invest primarily in cash equivalents,
U.S. government 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.
Operating
activities
We have required significant amounts of cash to fund our
operating activities as a result of net losses since our
inception. The increase in net cash provided by operating
activities for the year ended December 31, 2007 compared to
the year ended December 31, 2006 was due primarily to the
proceeds received from our August 2007 alliance with Roche.
Offsetting the proceeds from the Roche alliance, the main
components of our use of cash in operating activities for the
year ended December 31, 2007 consisted of the net loss and
changes in our working capital. Cash used in operating
activities is adjusted for non-cash items to reconcile net loss
to net cash used in operating activities. These non-cash
adjustments consist primarily of non-cash license fees,
stock-based compensation and depreciation and amortization. We
had an increase in deferred revenue of $245.0 million for
the year ended December 31, 2007 due to the proceeds
received from our Roche alliance. Additionally, accrued expenses
and collaboration receivables increased $7.2 million and
$1.2 million, respectively, for the year ended
December 31, 2007. 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.
70
Investing
activities
For the year ended December 31, 2007, net cash used in
investing activities of $277.4 million resulted primarily
from purchases of marketable securities of $544.4 million
due primarily to the investments made with the proceeds from the
Roche alliance, partially offset by sales and maturities of
marketable securities of $283.3 million. Also included in
our investing activities for the year ended December 31,
2007 was a $10.0 million cash contribution made to Regulus
Therapeutics in connection with its formation, as well as
purchases of property and equipment of $7.8 million related
to the expansion of our Cambridge facility. For the year ended
December 31, 2006, net cash used in investing activities of
$30.0 million resulted from net purchases of marketable
securities of $25.1 million, as well as purchases of
property and equipment of $5.0 million related to the
expansion of our Cambridge facility.
Financing
activities
For the year ended December 31, 2007, net cash provided by
financing activities was $58.6 million compared to
$166.6 million for the year ended December 31, 2006.
The main components of net cash provided by financing activities
for the year ended December 31, 2007 consisted primarily of
proceeds of $42.5 million from our sale of
1,975,000 shares of common stock to Roche in connection
with the establishment of the Roche alliance. For the year ended
December 31, 2006, net cash provided by financing
activities was primarily a result of the aggregate net proceeds
of $163.3 million from our follow-on public offerings in
January and December 2006.
In March 2006, we entered into an agreement with Oxford Finance
Corporation, 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. These amounts are being repaid in 36
to 48 monthly installments. As of December 31, 2007,
we are no longer able to draw down funds under the Oxford line
of credit.
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. All draw-downs began to be repaid over
48 months beginning September 30, 2005. On the
maturity of each equipment advance under the line of credit, we
are required to pay, in addition to the principal and interest
due, an additional amount of 11.5% of the original principal.
This amount is being accrued over the applicable borrowing
period as additional interest expense.
At December 31, 2007, we had an aggregate outstanding
principal balance of $6.8 million under all of our loan
agreements.
Based on our current operating plan, we believe that our
existing resources, together with the cash we expect to generate
under our current alliances, including our Roche alliance, 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, extend the capabilities
of our technology platform, conduct clinical trials 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, commence 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.
71
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 the following:
|
|
|
|
|
our progress in demonstrating that siRNAs can be active as drugs;
|
|
|
|
our ability to develop relatively standard procedures for
selecting and modifying siRNA drug 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;
|
|
|
|
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, protect our intellectual property and
obtain and maintain licenses to third-party intellectual
property;
|
|
|
|
the cost of preparing, filing, prosecuting, maintaining and
enforcing patent claims;
|
|
|
|
progress in the research and development programs of Regulus
Therapeutics; and
|
|
|
|
the timing, receipt and amount of sales and royalties, if any,
from our potential products.
|
Off-Balance
Sheet Arrangements
In connection with a certain license agreement, we are required
to indemnify the licensor for certain damages arising in
connection with the intellectual property rights licensed under
the agreement. In addition, we are a party to a number of
agreements entered into in the ordinary course of business,
which contain typical provisions, which 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 FASB
Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. To date, we have not
encountered material costs as a result of such obligations and
have not accrued any liabilities related to such obligations and
have not accrued any liabilities related to such obligations in
our financial statements. See Note 6 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 well as
obligations related to contracts that we are likely to continue,
regardless of the fact that they were cancelable as of
December 31, 2007. 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
|
|
|
|
|
|
|
2009 and
|
|
|
2011 and
|
|
|
|
|
|
|
|
Contractual Obligations
|
|
2008
|
|
|
2010
|
|
|
2012
|
|
|
After 2012
|
|
|
Total
|
|
|
Operating lease obligations(1)
|
|
$
|
3,296
|
|
|
$
|
6,592
|
|
|
$
|
2,472
|
|
|
$
|
|
|
|
$
|
12,360
|
|
Short and long-term debt(2)
|
|
|
4,268
|
|
|
|
3,993
|
|
|
|
79
|
|
|
|
|
|
|
|
8,340
|
|
Purchase commitments(3)
|
|
|
3,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,045
|
|
Technology-related commitments(4)
|
|
|
6,193
|
|
|
|
6,192
|
|
|
|
4,056
|
|
|
|
4,687
|
|
|
|
21,128
|
|
Loan commitment(5)
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
21,802
|
|
|
$
|
16,777
|
|
|
$
|
6,607
|
|
|
$
|
4,687
|
|
|
$
|
49,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
|
|
|
(1) |
|
Relates to our Cambridge, Massachusetts non-cancelable operating
lease agreements. |
|
(2) |
|
Relates to our lines of credit with Oxford and Lighthouse.
Includes a balloon interest payment of $0.9 million that we
are required to pay in 2009 under the Lighthouse line of credit. |
|
(3) |
|
Includes commitments related to non-cancelable purchase orders,
clinical and pre-clinical agreements and other significant
purchase commitments for good or services. |
|
(4) |
|
Relates to our fixed payment obligations under license
agreements, as well as other payments related to technology
research and development. |
|
(5) |
|
Relates to a loan commitment to Tekmira for capital equipment
expenditures. |
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. Because we cannot reasonable predict
the likelihood, timing or amount of such payments, we have
excluded them from the table above.
Recent
Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements, or SFAS 157.
SFAS 157 clarifies the principle that fair value should be
based on the assumptions market participants would use when
pricing an asset or liability and establishes a fair value
hierarchy that prioritizes the information used to develop those
assumptions. Under the standard, fair value measurements would
be separately disclosed by level within the fair value
hierarchy. In November 2007, the FASB deferred the effective
date of SFAS 157 for certain nonfinancial and nonrecurring
assets and liabilities. Other than the partial deferral,
SFAS 157 is effective for us beginning in 2008. We do not
expect SFAS 157 to have a material impact on our
consolidated financial statements. We are evaluating the impact
of SFAS 157 on our nonfinancial assets and liabilities
within the scope of SFAS 157.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities-including an amendment of FAS 115, or
SFAS 159. The new statement allows entities to choose, at
specified election dates, to measure eligible financial assets
and liabilities at fair value that are not otherwise required to
be measured at fair value. If a company elects the fair value
option for an eligible item, changes in that items fair
value in subsequent reporting periods must be recognized in
current earnings. SFAS 159 is effective for fiscal years
beginning after November 15, 2007. We do not anticipate the
adoption of SFAS 159 will have a material impact on our
consolidated financial statements.
In June 2007, the FASB reached a consensus on Emerging Issues
Task Force Issue
No. 07-03,
Accounting for Nonrefundable Advance Payments for Goods or
Services to Be Used in Future Research and Development
Activities, or
EITF 07-03.
EITF 07-03
requires companies to defer and capitalize, until the goods have
been delivered or the related services have been rendered,
non-refundable advance payments for goods that will be used or
services that will be performed in future research and
development activities.
EITF 07-03
is effective for fiscal years beginning after December 15,
2007. We do not expect
EITF 07-03
will have a material impact on our consolidated financial
statements.
In December 2007, the FASB reached a consensus on Emerging
Issues Task Force Issue
07-1,
Accounting for Collaborative Arrangements, or
EITF 07-1.
EITF 07-1
requires collaborators to present the results of activities for
which they 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, based on analogy to authoritative accounting literature or
a reasonable, rational, and consistently applied accounting
policy election. Further,
EITF 07-1
clarifies that the determination of whether transactions within
a collaborative arrangement are part of a vendor-customer (or
analogous) relationship subject to
EITF 01-9.
EITF 07-1
will be effective beginning on January 1, 2009. We are
evaluating the potential impact of
EITF 07-1
on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations, or SFAS 141R.
SFAS 141R establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill
acquired. SFAS 141R also establishes disclosure
requirements to enable the evaluation of the nature and
financial
73
effects of the business combination. SFAS 141R is effective
for fiscal years beginning after December 15, 2008. We are
evaluating the potential impact of SFAS 141R on our
consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51, or
SFAS 160. SFAS 160 changes the accounting for and
reporting of noncontrolling or minority interests (now called
noncontrolling interest) in consolidated financial statements.
We do not anticipate the adoption of SFAS 160 will have a
material impact on our consolidated financial statements.
|
|
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 obligations, corporate debt 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. A 10% decrease in market
interest rates at December 31, 2007 would impact the net
fair value of such interest-sensitive financial instruments by
$1.4 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
instrument. We have not recorded any significant impairment
charges to our marketable securities as of December 31,
2007.
74
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
76
|
|
|
|
|
77
|
|
|
|
|
78
|
|
|
|
|
79
|
|
|
|
|
80
|
|
|
|
|
81
|
|
|
|
|
82
|
|
75
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, 2007. 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, 2007, 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, 2007 has been
audited by PricewaterhouseCoopers LLP, an independent registered
public accounting firm, as stated in their report. This report
appears on page 77.
76
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Alnylam
Pharmaceuticals, Inc:
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of Alnylam Pharmaceuticals, Inc. and its
subsidiaries at December 31, 2007 and 2006, and the results
of their operations and their cash flows for each of the three
years in the period ended December 31, 2007 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, 2007, 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 and for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the
accompanying 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 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
provide a reasonable basis for our opinions.
As discussed in Note 8 to the consolidated financial
statements, the Company changed the manner in which it accounts
for share-based compensation in 2006.
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
March 7, 2008
77
ALNYLAM
PHARMACEUTICALS, INC.
CONSOLIDATED
BALANCE SHEETS
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
105,157
|
|
|
$
|
127,955
|
|
Marketable securities
|
|
|
350,445
|
|
|
|
89,305
|
|
Collaboration receivables
|
|
|
5,031
|
|
|
|
3,829
|
|
Prepaid expenses and other current assets
|
|
|
2,926
|
|
|
|
1,695
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
463,559
|
|
|
|
222,784
|
|
Property and equipment, net
|
|
|
13,810
|
|
|
|
12,173
|
|
Intangible assets, net
|
|
|
968
|
|
|
|
1,933
|
|
Restricted cash
|
|
|
6,152
|
|
|
|
2,313
|
|
Other assets
|
|
|
173
|
|
|
|
803
|
|
Investment in joint venture (Regulus Therapeutics LLC)
|
|
|
9,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
493,791
|
|
|
$
|
240,006
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,826
|
|
|
$
|
4,085
|
|
Accrued expenses
|
|
|
11,724
|
|
|
|
4,479
|
|
Income taxes payable
|
|
|
3,497
|
|
|
|
|
|
Current portion of notes payable
|
|
|
3,795
|
|
|
|
3,217
|
|
Deferred revenue
|
|
|
59,249
|
|
|
|
11,144
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
82,091
|
|
|
|
22,925
|
|
Deferred revenue, net of current portion
|
|
|
204,067
|
|
|
|
6,786
|
|
Deferred rent
|
|
|
5,200
|
|
|
|
3,202
|
|
Notes payable, net of current portion
|
|
|
2,963
|
|
|
|
5,919
|
|
Other long-term liabilities
|
|
|
302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
294,623
|
|
|
|
38,832
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 6)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 5,000,000 shares
authorized and no shares issued and outstanding at
December 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 125,000,000 shares
authorized; 40,772,967 shares issued and outstanding at
December 31, 2007; 37,050,631 shares issued and
outstanding at December 31, 2006
|
|
|
408
|
|
|
|
371
|
|
Additional paid-in capital
|
|
|
424,453
|
|
|
|
340,779
|
|
Deferred stock-based compensation
|
|
|
|
|
|
|
(89
|
)
|
Accumulated other comprehensive income
|
|
|
300
|
|
|
|
640
|
|
Accumulated deficit
|
|
|
(225,993
|
)
|
|
|
(140,527
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
199,168
|
|
|
|
201,174
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
493,791
|
|
|
$
|
240,006
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
78
ALNYLAM
PHARMACEUTICALS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net revenues from research collaborators
|
|
$
|
50,897
|
|
|
$
|
26,930
|
|
|
$
|
5,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development(1)
|
|
|
120,686
|
|
|
|
49,260
|
|
|
|
34,977
|
|
General and administrative(1)
|
|
|
23,388
|
|
|
|
17,171
|
|
|
|
14,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
144,074
|
|
|
|
66,431
|
|
|
|
49,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(93,177
|
)
|
|
|
(39,501
|
)
|
|
|
(43,472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in loss of joint venture (Regulus Therapeutics LLC)
|
|
|
(1,075
|
)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
15,393
|
|
|
|
6,177
|
|
|
|
1,549
|
|
Interest expense
|
|
|
(1,083
|
)
|
|
|
(1,029
|
)
|
|
|
(969
|
)
|
Other expense
|
|
|
(279
|
)
|
|
|
(255
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
12,956
|
|
|
|
4,893
|
|
|
|
558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(80,221
|
)
|
|
|
(34,608
|
)
|
|
|
(42,914
|
)
|
Provision for income taxes
|
|
|
(5,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(85,466
|
)
|
|
$
|
(34,608
|
)
|
|
$
|
(42,914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(85,466
|
)
|
|
$
|
(34,608
|
)
|
|
$
|
(42,914
|
)
|
Foreign currency translation
|
|
|
(598
|
)
|
|
|
665
|
|
|
|
(534
|
)
|
Unrealized gain (loss) on marketable securities
|
|
|
258
|
|
|
|
117
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(85,806
|
)
|
|
$
|
(33,826
|
)
|
|
$
|
(43,476
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share basic and diluted
|
|
$
|
(2.21
|
)
|
|
$
|
(1.09
|
)
|
|
$
|
(1.96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares used to compute basic and diluted
net loss per common share
|
|
|
38,657
|
|
|
|
31,890
|
|
|
|
21,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Non-cash stock-based compensation expenses included in operating
expenses are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
9,363
|
|
|
$
|
5,006
|
|
|
$
|
2,431
|
|
General and administrative
|
|
|
5,109
|
|
|
|
3,298
|
|
|
|
2,166
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
79
ALNYLAM
PHARMACEUTICALS, INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Deferred
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Stock-based
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Income (Loss)
|
|
|
Deficit
|
|
|
Equity
|
|
|
Balance at December 31, 2004
|
|
|
20,848,848
|
|
|
$
|
208
|
|
|
$
|
112,216
|
|
|
$
|
(3,697
|
)
|
|
$
|
420
|
|
|
$
|
(63,005
|
)
|
|
$
|
46,142
|
|
Exercise of common and restricted stock options and warrants
|
|
|
199,750
|
|
|
|
2
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186
|
|
Issuance of common stock
|
|
|
5,589,657
|
|
|
|
57
|
|
|
|
54,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,330
|
|
Deferred compensation related to stock options and restricted
stock
|
|
|
|
|
|
|
|
|
|
|
2,661
|
|
|
|
(2,661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation expense related to stock
options and restricted stock
|
|
|
|
|
|
|
|
|
|
|
699
|
|
|
|
3,898
|
|
|
|
|
|
|
|
|
|
|
|
4,597
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(534
|
)
|
|
|
|
|
|
|
(534
|
)
|
Unrealized loss on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
(28
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,914
|
)
|
|
|
(42,914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
26,638,255
|
|
|
|
267
|
|
|
|
170,033
|
|
|
|
(2,460
|
)
|
|
|
(142
|
)
|
|
|
(105,919
|
)
|
|
|
61,779
|
|
Exercise of common stock options and warrants
|
|
|
539,425
|
|
|
|
5
|
|
|
|
998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,003
|
|
Issuance of common stock
|
|
|
56,990
|
|
|
|
1
|
|
|
|
591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
592
|
|
Deferred compensation related to stock options and restricted
stock
|
|
|
|
|
|
|
|
|
|
|
1,614
|
|
|
|
(467
|
)
|
|
|
|
|
|
|
|
|
|
|
1,147
|
|
Amortization of deferred compensation expense related to stock
options and restricted stock
|
|
|
|
|
|
|
|
|
|
|
4,318
|
|
|
|
2,838
|
|
|
|
|
|
|
|
|
|
|
|
7,156
|
|
Issuance of common stock upon public offerings, net of offering
costs of $6,586
|
|
|
9,815,961
|
|
|
|
98
|
|
|
|
163,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163,323
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
665
|
|
|
|
|
|
|
|
665
|
|
Unrealized gain on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117
|
|
|
|
|
|
|
|
117
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,608
|
)
|
|
|
(34,608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
37,050,631
|
|
|
|
371
|
|
|
|
340,779
|
|
|
|
(89
|
)
|
|
|
640
|
|
|
|
(140,527
|
)
|
|
|
201,174
|
|
Exercise of common stock options
|
|
|
1,247,808
|
|
|
|
12
|
|
|
|
9,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,244
|
|
Issuance of common stock
|
|
|
2,474,528
|
|
|
|
25
|
|
|
|
59,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,899
|
|
Stock based compensation expense
|
|
|
|
|
|
|
|
|
|
|
14,364
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
14,453
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(598
|
)
|
|
|
|
|
|
|
(598
|
)
|
Joint venture stock compensation (Regulus Therapeutics LLC)
|
|
|
|
|
|
|
|
|
|
|
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
204
|
|
Unrealized gain on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258
|
|
|
|
|
|
|
|
258
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(85,466
|
)
|
|
|
(85,466
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
40,772,967
|
|
|
$
|
408
|
|
|
$
|
424,453
|
|
|
$
|
|
|
|
$
|
300
|
|
|
$
|
(225,993
|
)
|
|
$
|
199,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
80
ALNYLAM
PHARMACEUTICALS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(85,466
|
)
|
|
$
|
(34,608
|
)
|
|
$
|
(42,914
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,082
|
|
|
|
4,070
|
|
|
|
2,982
|
|
Deferred income tax provision
|
|
|
1,889
|
|
|
|
|
|
|
|
|
|
Non-cash stock-based compensation
|
|
|
14,472
|
|
|
|
8,304
|
|
|
|
4,597
|
|
Non-cash license expense
|
|
|
7,909
|
|
|
|
130
|
|
|
|
2,093
|
|
Charge for 401(k) company stock match
|
|
|
407
|
|
|
|
129
|
|
|
|
|
|
Equity in loss of joint venture (Regulus Therapeutics LLC)
|
|
|
1,075
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from landlord tenant improvements
|
|
|
2,621
|
|
|
|
1,106
|
|
|
|
|
|
Collaboration receivables
|
|
|
(1,194
|
)
|
|
|
(3,220
|
)
|
|
|
243
|
|
Prepaid expenses and other assets
|
|
|
(4,348
|
)
|
|
|
(336
|
)
|
|
|
(256
|
)
|
Accounts payable
|
|
|
(264
|
)
|
|
|
2,088
|
|
|
|
1,025
|
|
Income taxes payable
|
|
|
3,497
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other
|
|
|
6,843
|
|
|
|
611
|
|
|
|
(12
|
)
|
Deferred revenue
|
|
|
244,996
|
|
|
|
(2,904
|
)
|
|
|
15,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
196,519
|
|
|
|
(24,630
|
)
|
|
|
(16,485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(7,788
|
)
|
|
|
(4,986
|
)
|
|
|
(1,947
|
)
|
Disposals of property and equipment
|
|
|
2,342
|
|
|
|
|
|
|
|
|
|
Increase in restricted cash
|
|
|
(839
|
)
|
|
|
|
|
|
|
|
|
Investment in Regulus Therapeutics LLC
|
|
|
(10,000
|
)
|
|
|
|
|
|
|
|
|
Purchases of marketable securities
|
|
|
(544,394
|
)
|
|
|
(172,303
|
)
|
|
|
(70,882
|
)
|
Sales and maturities of marketable securities
|
|
|
283,254
|
|
|
|
147,243
|
|
|
|
32,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(277,425
|
)
|
|
|
(30,046
|
)
|
|
|
(40,418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock, net of issuance costs
|
|
|
61,011
|
|
|
|
164,890
|
|
|
|
52,423
|
|
Proceeds from notes payable
|
|
|
957
|
|
|
|
4,000
|
|
|
|
1,037
|
|
Repayments of notes payable
|
|
|
(3,333
|
)
|
|
|
(2,259
|
)
|
|
|
(843
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
58,635
|
|
|
|
166,631
|
|
|
|
52,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate on cash
|
|
|
(527
|
)
|
|
|
243
|
|
|
|
(229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(22,798
|
)
|
|
|
112,198
|
|
|
|
(4,515
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
127,955
|
|
|
|
15,757
|
|
|
|
20,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
105,157
|
|
|
$
|
127,955
|
|
|
$
|
15,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
890
|
|
|
$
|
726
|
|
|
$
|
633
|
|
Supplemental disclosure of non-cash financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in connection with license agreements
|
|
$
|
7,909
|
|
|
$
|
130
|
|
|
$
|
2,093
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
81
ALNYLAM
PHARMACEUTICALS, INC.
Alnylam Pharmaceuticals, Inc. (the Company or
Alnylam) commenced operations on June 14, 2002
as a biopharmaceutical company seeking to develop and
commercialize novel therapeutics based on RNA interference
(RNAi). Alnylam is focused on discovering,
developing and commercializing RNAi therapeutics by establishing
strategic alliances with leading pharmaceutical and
biotechnology companies, establishing and maintaining a strong
intellectual property position in the RNAi field, generating
revenues through licensing agreements and ultimately developing
and commercializing RNAi therapeutics for its own account. The
Company has devoted substantially all of its efforts to business
planning, research and development, acquiring, filing and
expanding intellectual property rights, recruiting management
and technical staff, and raising capital.
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis
of Presentation and Principles of Consolidation
The Company comprises four entities, Alnylam Pharmaceuticals,
Inc. (the parent company) and three wholly-owned subsidiaries
(Alnylam U.S., Inc., Alnylam Europe AG (Alnylam
Europe) and Alnylam Securities Corporation). Alnylam
Pharmaceuticals, Inc. is a Delaware corporation that was formed
on May 8, 2003. Alnylam U.S., Inc. is also a Delaware
corporation that was formed on June 14, 2002. Alnylam
Securities Corporation is a Massachusetts corporation that was
formed on December 19, 2006.
The accompanying consolidated financial statements reflect the
operations of the Company and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated. The Company uses the equity method of accounting to
account for its investment in Regulus Therapeutics LLC
(Regulus Therapeutics).
Reclassifications
Certain reclassifications have been made to prior years
financial statements to conform to the 2007 presentation.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Concentrations
of Credit Risk and Significant Customers
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of cash, cash
equivalents and marketable securities. As of December 31,
2007 and 2006, substantially all of the Companys cash,
cash equivalents and marketable securities were invested in
money market mutual funds, commercial paper, corporate notes and
government securities through highly rated financial
institutions.
To date, the Companys revenues from collaborations have
been generated from primarily Novartis Pharma AG and one of its
affiliates (collectively, Novartis), F.
Hoffmann-La Roche Ltd and certain of its affiliates
(collectively, Roche), and Merck & Co.,
Inc. (Merck). Novartis owned approximately 13% of
the Companys outstanding common stock as of
December 31, 2007. In 2007, the Company had revenue from
Roche, Novartis and the National Institute of Allergy and
Infectious Diseases (NIAID), a component of the
National Institutes of Health (NIH), which accounted
for 35%, 29% and 15%, respectively, of the Companys total
revenue. In 2006 the Company had revenue from Novartis and
Merck, which accounted for 81% and 3%, respectively, of the
Companys
82
ALNYLAM
PHARMACEUTICALS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
total revenue. In 2005, the Company had significant revenue from
Merck and Novartis, which accounted for 63% and 13%,
respectively, of the Companys total revenue. Receivables
from Novartis, NIAID and the Defense Threat Reduction Agency
(DTRA), an agency of the United States Department of
Defense (DoD), represented approximately 43%, 36%
and 15%, respectively of the Companys collaboration
receivables balance at December 31, 2007. Receivables from
Novartis represented approximately 70% of the Companys
collaboration receivables balance at December 31, 2006.
Fair
Value of Financial Instruments
The carrying amounts of the Companys financial
instruments, which include cash equivalents, collaboration
receivables, accounts payable, accrued expenses and notes
payable, approximate their fair values at December 31, 2007
and 2006.
Investments
in Marketable Securities
The Company invests its excess cash balances in short-term and
long-term marketable debt securities. The Company accounts for
its investments in debt securities under Statement of Financial
Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity
Securities. The Company classifies its investments in
marketable debt securities as either held-to-maturity or
available-for-sale based on facts and circumstances present at
the time it purchased the securities. As of each balance sheet
date presented, the Company classified all of its investments in
debt securities as available-for-sale. The Company reports
available-for-sale investments at fair value as of each balance
sheet date and includes any unrealized holding gains and losses
(the adjustment to fair value) in stockholders equity.
Realized gains and losses are determined on the specific
identification method and are included in investment income. If
any adjustment to fair value reflects a decline in the value of
the investment, the Company considers all available evidence to
evaluate the extent to which the decline is other than
temporary and, if so, marks the investment to market
through a charge to its consolidated statement of operations.
The Company did not record any significant impairment charges
related to its marketable securities during the years ended
December 31, 2007, 2006 or 2005. The Companys
marketable securities are classified as cash equivalents if the
original maturity, from the date of purchase, is ninety days or
less, and as marketable securities if the original maturity,
from the date of purchase, is in excess of ninety days.
The following table summarizes the Companys marketable
securities at December 31, 2007 and 2006, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Commercial paper (Due within 1 year)
|
|
$
|
210,213
|
|
|
$
|
177
|
|
|
$
|
(1
|
)
|
|
$
|
210,389
|
|
Municipal notes (Due within 1 year)
|
|
|
61,605
|
|
|
|
|
|
|
|
|
|
|
|
61,605
|
|
Municipal notes (Due after 1 year through 2 years)
|
|
|
7,340
|
|
|
|
12
|
|
|
|
|
|
|
|
7,352
|
|
Corporate notes (Due within 1 year)
|
|
|
6,452
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
6,440
|
|
Corporate notes (Due after 1 year through 2 years)
|
|
|
37,345
|
|
|
|
108
|
|
|
|
(41
|
)
|
|
|
37,412
|
|
U.S. Government obligations (Due after 1 year through
2 years)
|
|
|
27,193
|
|
|
|
54
|
|
|
|
|
|
|
|
27,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
350,148
|
|
|
$
|
351
|
|
|
$
|
(54
|
)
|
|
$
|
350,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
ALNYLAM
PHARMACEUTICALS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Commercial paper (Due within 1 year)
|
|
$
|
69,787
|
|
|
$
|
33
|
|
|
$
|
|
|
|
$
|
69,820
|
|
Corporate notes (Due within 1 year)
|
|
|
19,483
|
|
|
|
2
|
|
|
|
|
|
|
|
19,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
89,270
|
|
|
$
|
35
|
|
|
$
|
|
|
|
$
|
89,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
Recognition
The Company has entered into collaboration agreements with
biotechnology and pharmaceutical companies, including Roche,
Novartis, Merck and Biogen Idec, Inc. (Biogen Idec).
The terms of the Companys collaboration agreements
typically include non-refundable license fees, funding of
research and development, payments based upon achievement of
clinical and pre-clinical development milestones and royalties
on product sales. The Company follows the provisions of the
Securities and Exchange Commissions (SEC)
Staff Accounting Bulletin (SAB) No. 104,
Revenue Recognition in Financial Statements,
Emerging Issues Task Force (EITF) Issue
No. 00-21,
Revenue Arrangements with Multiple Deliverables
(EITF 00-21),
EITF
No. 99-19,
Reporting Revenue Gross as a Principal Versus Net as an
Agent, and EITF
No. 01-9,
Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendors
Products)
(EITF 01-9).
Non-refundable license fees are recognized as revenue when the
Company has a contractual right to receive such payment, the
contract price is fixed or determinable, the collection of the
resulting receivable is reasonably assured and the Company has
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 in accordance with
EITF 00-21.
The Company recognizes up-front 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 are accounted for separately as
such obligations are fulfilled. If the license is considered to
either not have stand-alone value or have standalone 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 the Company determines that an arrangement should be
accounted for as a single unit of accounting, the Company
determines 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. The Company recognizes revenue using the
proportional performance method when the level of effort
required to complete its performance obligations under an
arrangement can be reasonably estimated 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. 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 its 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 each reporting period.
If the level of effort to complete its performance obligations
under an arrangement cannot be reasonably estimated, then
revenue under the arrangement would be recognized as revenue on
a straight-line basis over the
84
ALNYLAM
PHARMACEUTICALS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
period the Company is expected to complete its 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 basis, as of the
period ending date.
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 the Company expects to complete its
aggregate performance obligations.
For revenue generating arrangements where the Company, as a
vendor, provides consideration to a licensor or collaborator, as
a customer, the Company applies the provisions of
EITF 01-9.
EITF 01-9
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 the Company receives an identifiable
benefit for the payment and it 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 of 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.
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 twelve months are classified as
long-term deferred revenue. As of December 31, 2007, the
Company has short-term and long-term deferred revenue of
$59.2 million and $204.1 million, respectively,
related to its collaborations.
Income
Taxes
The Company uses the asset and liability method of accounting
for income taxes. Under the liability method, deferred tax
assets and liabilities reflect the impact of temporary
differences between amounts of assets and liabilities for
financial reporting purposes and such amounts as measured under
enacted tax laws. A valuation allowance is required to offset
any net deferred tax assets if, based upon the available
evidence, it is more likely than not that some or all of the
deferred tax asset will not be realized.
Research
and Development Costs
Research and development costs are expensed as incurred.
Included in research and development costs are wages, benefits
and other operating costs, facilities, supplies, external
services, clinical trial and manufacturing costs and overhead
directly related to the Companys research and development
department as well as costs to acquire technology licenses.
In 2007, the Company reclassified $0.5 million and
$0.3 million of patent costs that were recorded as research
and development costs to general and administrative expenses for
the years ended December 31, 2006 and 2005, respectively.
The Company has entered into several license agreements for
rights to utilize certain technologies. The terms of the
licenses may provide for upfront payments, annual maintenance
payments, milestone payments based upon certain specified events
being achieved and royalties on product sales. Costs to acquire
and maintain licensed technology that has not reached
technological feasibility and does not have alternative future
use are charged to research and development expense as incurred.
During the years ended December 31, 2007, 2006 and 2005,
the Company charged to research and development expense
$42.2 million, $4.0 million and $6.1 million,
respectively, of costs associated with license fees. The
increase in license fees for 2007 was primarily the result of
$27.5 million in payments due to certain entities,
primarily Isis Pharmaceuticals, Inc. (Isis), in
connection with the Roche alliance and $14.7 million in
charges for licenses for certain delivery technologies.
85
ALNYLAM
PHARMACEUTICALS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accounting
for Stock-Based Compensation
Effective January 1, 2006, the Company adopted the fair
value recognition provisions of SFAS No. 123R,
Share-Based Payment, an amendment of FASB Statements
Nos. 123 and 95 (SFAS 123R), using
the modified-prospective-transition method. Under that
transition method, stock-based compensation expense recognized
for the year ended December 31, 2006 includes compensation
for all stock-based payments granted prior to, but not yet
vested as of, January 1, 2006, based on the grant date fair
value estimated in accordance with the original provisions of
SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS 123), and
compensation cost for all stock-based payments granted
subsequent to January 1, 2006, based on the grant-date fair
value estimated in accordance with the provisions of
SFAS 123R. Such amounts have been reduced by the
Companys estimate of forfeitures of all unvested awards.
Results for prior periods have not been restated.
Prior to January 1, 2006, the Company accounted for all
awards granted to employees under its stock-based compensation
plans under the recognition and measurement provisions of
Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to
Employees (APB 25) and related
interpretations. Under APB 25, when the exercise price of
options granted to employees under these plans equals the market
price of the common stock on the date of grant, no compensation
expense is recorded. When the exercise price of options granted
to employees under these plans is less than the market price of
the common stock on the date of grant, compensation expense is
recognized over the vesting period of the award.
For stock options granted to non-employees, the Company
recognizes compensation expense in accordance with the
requirements of SFAS 123 and EITF Issue
No. 96-18,
Accounting for Equity Instruments that are Issued to
Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services under which compensation
expense is generally recognized over the vesting period of the
award, which is generally the period during which services are
rendered by such non-employees. At the end of each financial
reporting period prior to vesting, the value of these options
(as calculated using the Black-Scholes option-pricing model) is
re-measured using the then-current fair value of the
Companys common stock. Stock options granted by the
Company to non-employees, other than members of the
Companys Board of Directors, generally vest over a
four-year service period. The Company has two equity instruments
that are required to be evaluated under SFAS 123R, stock
option plans and an employee stock purchase plan. The Company
accounts for non-employee grants as an expense over the vesting
period of the underlying stock options using the method
prescribed by Financial Accounting Standards Board
(FASB) Interpretation No. 28,
Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plans.
Foreign
Currency
The Companys foreign subsidiary, Alnylam Europe (a
German-based company), has designated its local currency, the
Euro, as its functional currency. Financial statements of this
foreign subsidiary are translated to United States dollars for
consolidation purposes using current rates of exchange for
assets and liabilities; equity is translated using historical
exchange rates; and revenue and expense amounts are translated
using the average exchange rate for the period. Net unrealized
gains and losses resulting from foreign currency translation are
included in other comprehensive income (loss) which is a
separate component of stockholders equity. Net realized
gains and losses from foreign currency transactions are included
in the consolidated statements of operations. The Company
recognized a gain of $0.1 million during 2007, a loss of
$0.3 million during 2006 and a gain of $0.1 million
during 2005 from foreign currency transactions.
Comprehensive
Loss
Comprehensive loss is comprised of net loss and certain changes
in stockholders equity that are excluded from net loss.
The Company includes foreign currency translation adjustments in
other comprehensive loss for Alnylam Europe as the functional
currency is not the United States dollar. The Company also
includes unrealized gains and losses on certain marketable
securities in other comprehensive loss.
86
ALNYLAM
PHARMACEUTICALS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Net
Loss Per Common Share
The Company accounts for and discloses net loss per common share
in accordance with SFAS No. 128, Earnings per
Share. Basic net loss per common share is computed by
dividing net loss attributable to common stockholders by the
weighted average number of common shares outstanding. Diluted
net loss per common share is computed by dividing net loss
attributable to common stockholders by the weighted average
number of common shares and dilutive potential common share
equivalents then outstanding. Potential common shares consist of
shares issuable upon the exercise of stock options and warrants
(using the treasury stock method), and unvested restricted stock
awards. Because the inclusion of potential common shares would
be anti-dilutive for all periods presented, diluted net loss per
common share is the same as basic net loss per common share.
The following table sets forth the potential common shares
excluded from the calculation of net loss per common share
because their inclusion would be anti-dilutive, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Options to purchase common stock
|
|
|
5,304
|
|
|
|
4,650
|
|
|
|
3,907
|
|
Warrants to purchase common stock
|
|
|
|
|
|
|
|
|
|
|
53
|
|
Unvested restricted common stock
|
|
|
57
|
|
|
|
|
|
|
|
55
|
|
Options that were exercised before vesting
|
|
|
11
|
|
|
|
40
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,372
|
|
|
|
4,690
|
|
|
|
4,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Information
The Company operates in a single reporting segment, the
discovery, development and commercialization of RNAi
therapeutics. The majority of the Companys net revenues
from research collaborators was derived in the United States.
The following table presents total long-lived tangible assets by
geographic area at December 31, 2007 and 2006, in thousands:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Long-lived tangible assets:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
13,810
|
|
|
$
|
10,077
|
|
Germany
|
|
|
|
|
|
|
2,096
|
|
|
|
|
|
|
|
|
|
|
Total long-lived tangible assets
|
|
$
|
13,810
|
|
|
$
|
12,173
|
|
|
|
|
|
|
|
|
|
|
Recent
Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS 157), which addresses how companies
should measure fair value when they are required to do so for
recognition or disclosure purposes. The standard provides a
common definition of fair value and is intended to make the
measurement of fair value more consistent and comparable as well
as to improve disclosures about those measures. This standard
formalizes the measurement principles to be utilized in
determining fair value for purposes such as derivative valuation
and impairment analysis. In November 2007, the FASB deferred the
effective date of SFAS 157 for certain nonfinancial and
nonrecurring assets and liabilities. Other than the partial
deferral, SFAS 157 is effective for the Company beginning
in 2008. The Company does not expect SFAS 157 to have a
material impact on its consolidated financial statements. The
Company is evaluating the impact of SFAS 157 on its
nonfinancial assets and liabilities within the scope of
SFAS 157.
87
ALNYLAM
PHARMACEUTICALS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities-including an amendment of
SFAS 115 (SFAS 159). The new
statement allows entities to choose, at specified election
dates, to measure at fair value eligible financial assets and
liabilities that are not otherwise required to be measured at
fair value. If a company elects the fair value option for an
eligible item, changes in that items fair value in
subsequent reporting periods must be recognized in current
earnings. SFAS 159 is effective for fiscal years beginning
after November 15, 2007. The Company does not anticipate
the adoption of SFAS 159 will have a material impact on its
consolidated financial statements.
In June 2007, the FASB reached a consensus on EITF Issue
No. 07-03,
Accounting for Nonrefundable Advance Payments for Goods
or Services to Be Used in Future Research and Development
Activities
(EITF 07-03).
EITF 07-03
requires companies to defer and capitalize, until the goods have
been delivered or the related services have been rendered,
non-refundable advance payments for goods that will be used or
services that will be performed in future research and
development activities.
EITF 07-03
is effective for fiscal years beginning after December 15,
2007. The Company does not expect
EITF 07-03
will have a material impact on its consolidated financial
statements.
In December 2007, the FASB reached a consensus on EITF Issue
07-1,
Accounting for Collaborative Arrangements
(EITF 07-1).
EITF 07-1
requires collaborators to present the results of activities for
which they 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, based on analogy to authoritative accounting literature or
a reasonable, rational, and consistently applied accounting
policy election. Further,
EITF 07-1
clarifies that the determination of whether transactions within
a collaborative arrangement are part of a vendor-customer (or
analogous) relationship subject to
EITF 01-9.
EITF 07-1
will be effective for the Company beginning on January 1,
2009. The Company is evaluating the potential impact of
EITF 07-1
on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations
(SFAS 141R). SFAS 141R establishes
principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any noncontrolling interest
in the acquiree and the goodwill acquired. SFAS 141R also
establishes disclosure requirements to enable the evaluation of
the nature and financial effects of the business combination.
SFAS 141R is effective for fiscal years beginning after
December 15, 2008. The Company is evaluating the potential
impact of SFAS 141R on its consolidated financial
statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51
(SFAS 160). SFAS 160 changes the
accounting for and reporting of noncontrolling or minority
interests (now called noncontrolling interest) in consolidated
financial statements. The Company does not anticipate the
adoption of SFAS 160 will have a material impact on its
consolidated financial statements.
88
ALNYLAM
PHARMACEUTICALS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Intangible assets at December 31, 2007 and 2006 are as
follows, in thousands:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Core Technology
|
|
$
|
2,410
|
|
|
$
|
3,054
|
|
Workforce
|
|
|
437
|
|
|
|
437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,847
|
|
|
|
3,491
|
|
|
|
|
|
|
|
|
|
|
Less accumulated amortization:
|
|
|
|
|
|
|
|
|
Core Technology
|
|
|
(1,442
|
)
|
|
|
(1,185
|
)
|
Workforce
|
|
|
(437
|
)
|
|
|
(373
|
)
|
|
|
|
|
|
|
|
|
|
Total accumulated amortization
|
|
|
(1,879
|
)
|
|
|
(1,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
968
|
|
|
$
|
1,933
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2007, 2006 and 2005,
the Company recorded $0.3 million, $0.4 million and
$0.5 million, respectively, of amortization expense related
to its core technology and workforce intangibles, of which the
entire amount is included in research and development expenses.
Workforce intangibles were fully amortized during 2007. Core
technology is being amortized over its estimated useful life of
ten years through 2013. During 2007, the Company reduced its
intangible assets by $0.6 million as a result of the
realization of pre-acquisition deferred tax assets associated
with net operating loss carryforwards.
In connection with the establishment of the Roche alliance
described in Note 11, the Company also executed a Share
Purchase Agreement (the Alnylam Europe Purchase
Agreement) with Alnylam Europe and Roche Beteiligungs
GmbH, an affiliate of Roche Basel and Roche Finance (Roche
Germany). Under the terms of the Alnylam Europe Purchase
Agreement, which became effective in August 2007, the Company
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 the Company all of
the issued and outstanding shares of Roche Kulmbach for an
aggregate purchase price of $15.0 million.
|
|
4.
|
PROPERTY
AND EQUIPMENT
|
Property and equipment consist of the following at
December 31, 2007 and 2006, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Useful Life
|
|
|
2007
|
|
|
2006
|
|
|
Laboratory equipment
|
|
|
5 years
|
|
|
$
|
7,963
|
|
|
$
|
9,903
|
|
Computer equipment and software
|
|
|
3 years
|
|
|
|
2,080
|
|
|
|
2,065
|
|
Furniture and fixtures
|
|
|
5 years
|
|
|
|
1,271
|
|
|
|
914
|
|
Leasehold improvements
|
|
|
|
*
|
|
|
9,172
|
|
|
|
7,056
|
|
Construction in progress
|
|
|
|
|
|
|
3,702
|
|
|
|
1,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,188
|
|
|
|
21,065
|
|
Less: accumulated depreciation and amortization
|
|
|
|
|
|
|
(10,378
|
)
|
|
|
(8,892
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,810
|
|
|
$
|
12,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
shorter of asset life or lease term |
89
ALNYLAM
PHARMACEUTICALS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Depreciation expense was $3.8 million, $3.4 million
and $2.6 million for the years ended December 31,
2007, 2006 and 2005, respectively.
Equipment
Lines of Credit
In March 2006, the Company entered into an agreement with Oxford
Finance Corporation (Oxford) to establish an
equipment line of credit for up to $7.0 million to help
support capital expansion of the Companys facility in
Cambridge, Massachusetts and capital equipment purchases. The
agreement allowed the Company to draw down amounts under the
line of credit through December 31, 2007 upon adherence to
certain conditions. All borrowings under this line of credit are
collateralized by the assets financed and the agreement contains
certain provisions that restrict the Companys ability to
dispose of or transfer these assets. During 2006 and 2007, the
Company borrowed an aggregate of $5.2 million from Oxford
pursuant to the agreement at fixed rates ranging from 10.0% to
10.4%. As of December 31, 2007, there was $3.3 million
outstanding under this line of credit with Oxford.
In March 2004, the Company entered into an agreement with
Lighthouse Capital Partners V, L.P.
(Lighthouse) to establish an equipment line of
credit for $10.0 million. In June 2005, the parties amended
the agreement to allow the Company the ability to draw down
amounts under the line of credit through December 31, 2005
upon adherence to certain conditions. All borrowings under the
line of credit are collateralized by the assets financed and the
agreement contains certain provisions that restrict the
Companys ability to dispose of or transfer these assets.
The outstanding principal bears interest at fixed rates of 9.25%
to 10.25%, and matures at various dates through December 2009.
On the maturity of each equipment advance under the line of
credit, the Company is required to pay, in addition to the
principal and interest due, an additional amount of 11.5% of the
original principal. This amount is being accrued over the
applicable borrowing period as additional interest expense. As
of December 31, 2007, there was $3.5 million
outstanding under this line of credit with Lighthouse.
At December 31, 2007, future cash payments under the notes
payable to Lighthouse and Oxford, including interest, are as
follows, in thousands:
|
|
|
|
|
Year Ending December 31,
|
|
|
|
|
2008
|
|
$
|
4,268
|
|
2009
|
|
|
3,513
|
|
2010
|
|
|
480
|
|
2011
|
|
|
79
|
|
|
|
|
|
|
Total through 2011
|
|
|
8,340
|
|
Less: portion representing interest
|
|
|
1,582
|
|
|
|
|
|
|
Principal
|
|
|
6,758
|
|
Less: current portion
|
|
|
3,795
|
|
|
|
|
|
|
Long-term notes payable
|
|
$
|
2,963
|
|
|
|
|
|
|
|
|
6.
|
COMMITMENTS
AND CONTINGENCIES
|
Indemnifications
Licensor indemnification In connection with a
certain license agreement, the Company is required to indemnify
the licensor for certain damages arising in connection with the
intellectual property rights licensed under the agreement. The
Company believes that the probability of receiving a claim is
remote and, as such, no amounts have been accrued related to
this indemnification at December 31, 2007 and 2006.