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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Alnylam Pharmaceuticals, Inc.    ALNY

ALNYLAM PHARMACEUTICALS, INC.

(ALNY)
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ALNYLAM PHARMACEUTICALS : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-Q)

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08/06/2020 | 09:20am EDT

Overview

We are a global commercial-stage biopharmaceutical company developing novel
therapeutics based on RNA interference, or RNAi. RNAi is a naturally occurring
biological pathway within cells for sequence-specific silencing and regulation
of gene expression. By harnessing the RNAi pathway, we have developed a new
class of innovative medicines, known as RNAi therapeutics. RNAi therapeutics are
comprised of small interfering RNA, or siRNA, and function upstream of
conventional medicines by potently silencing messenger RNA, or mRNA, that encode
for disease-causing proteins, thus preventing them from being made. We believe
this is a revolutionary approach with the potential to transform the care of
patients with genetic and other diseases. To date, our efforts to advance this
revolutionary approach have yielded the approval of two first-in-class
RNAi-based medicines, ONPATTRO® (patisiran) and GIVLAARI® (givosiran).
Our research and development strategy is to target genetically validated genes
that have been implicated in the cause or pathway of human disease. We utilize a
lipid nanoparticle (LNP) or N-acetylgalactosamine (GalNAc) conjugate approach to
enable hepatic delivery of siRNAs. For delivery to the central nervous system,
or CNS, and the eye (ocular delivery), we are utilizing an alternative conjugate
approach. Our focus is on clinical indications where there is a high unmet need,
early biomarkers for the assessment of clinical activity in Phase 1 clinical
studies, and a definable path for drug development, regulatory approval, patient
access and commercialization.
We continue to execute on our Alnylam 2020 strategy of building a multi-product,
global, commercial biopharmaceutical company with a deep and sustainable
clinical pipeline of RNAi therapeutics for future growth and a robust, organic
research engine for sustainable innovation and great potential for patient
impact. Based on our accomplishments to-date, we are confident we will achieve
our Alnylam 2020 goals by the end of 2020. Specifically, our broad pipeline of
investigational RNAi therapeutics is focused in four Strategic Therapeutic
Areas, or "STArs:" Genetic Medicines; Cardio-Metabolic Diseases; Hepatic
Infectious Diseases; and CNS/Ocular Diseases. We now have two marketed products
that are within the Genetic Medicines STAr, ONPATTRO and GIVLAARI. ONPATTRO is
approved by the United States Food and Drug Administration, or FDA, for the
treatment of the polyneuropathy of hereditary transthyretin-mediated
amyloidosis, or hATTR amyloidosis, in adults and has also been approved in the
European Union, or EU, for the treatment of hATTR amyloidosis in adult patients
with stage 1 or stage 2 polyneuropathy, Japan for the treatment of
transthyretin, or TTR, type familial amyloidosis with polyneuropathy, and in
several additional countries. Regulatory filings in other territories are
pending and additional filings are planned for 2020. GIVLAARI is approved by the
FDA for the treatment of adults with acute hepatic porphyria, or AHP, and in
March 2020, GIVLAARI was granted marketing authorisation by the European
Commission, or EC, for the treatment of AHP in adults and adolescents aged 12
years and older. In July 2020, we received marketing authorisation approval for
GIVLAARI in Brazil for the treatment of AHP in adults. We have also filed a
marketing authorisation application, or MAA, for givosiran (the non-branded drug
name for GIVLAARI) in Switzerland and additional regulatory filings are planned
for 2020 and beyond.
We have six late-stage investigational programs, advancing toward potential
commercialization. These programs include our wholly owned programs: givosiran
for the treatment of adolescent patients with AHP, lumasiran for the treatment
of primary hyperoxaluria type 1, or PH1, patisiran (the non-branded drug name
for ONPATTRO) for the treatment of transthyretin amyloidosis, or ATTR
amyloidosis, with cardiomyopathy, and vutrisiran for the treatment of ATTR
amyloidosis. Inclisiran for the treatment of hypercholesterolemia and
atherosclerotic cardiovascular disease, or ASCVD, is being advanced by our
partner, The Medicines Company (acquired by Novartis AG in January 2020), or
MDCO, and fitusiran for the treatment of hemophilia is being advanced by our
partner Sanofi Genzyme, the specialty care global business unit of Sanofi.
In December 2019, we reported positive topline results from our ILLUMINATE-A
Phase 3 clinical trial for lumasiran, our investigational RNAi therapeutic
targeting glycolate oxidase, for the treatment of PH1, and in April 2020, based
on the positive ILLUMINATE-A data, we submitted a New Drug Application, or NDA,
which was accepted by the FDA and granted Priority Review. The FDA has set an
action date of December 3, 2020 under the Prescription Drug User Fee Act, and
has indicated that they are not currently planning an advisory committee meeting
as part of the NDA review. Additionally, in March 2020, we submitted an MAA for
lumasiran with the European Medicines Agency, or EMA, which has been validated
by the EMA. Lumasiran was previously granted an accelerated assessment by the
EMA.
Based on our expertise in RNAi therapeutics and broad intellectual property
estate, we have formed alliances with leading pharmaceutical and life sciences
companies to support our development and commercialization efforts, including
Regeneron Pharmaceuticals, Inc., or Regeneron, MDCO, Sanofi Genzyme, Vir
Biotechnology, Inc., or Vir, and Dicerna Pharmaceuticals, Inc., or Dicerna.
In March 2020, we announced an expansion of our exclusive licensing agreement
with Vir for the development and commercialization of RNAi therapeutics for
infectious diseases to include the development and commercialization of RNAi
therapeutics targeting SARS-CoV-2, the virus that causes the disease COVID-19.
In April 2020, we further expanded our collaboration with Vir to include up to
three human host factor targets relating to susceptibility to coronaviruses, for
use in connection with the treatment, palliation, diagnosis or prevention of
SARS-CoV-2 and other diseases caused by coronaviruses.
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  Table of     Contents
In April 2020, we and Dicerna formed a development and commercialization
collaboration on investigational RNAi therapeutics for the treatment of alpha-1
antitrypsin deficiency-associated liver disease, or alpha-1 liver disease. In
addition, in April 2020, we and Dicerna entered into a Patent Cross-License
Agreement, pursuant to which each party agreed to cross-license its respective
intellectual property related to our lumasiran and Dicerna's nedosiran
investigational programs for the treatment of primary hyperoxaluria.
In April 2020, we entered into a strategic financing collaboration with certain
affiliates of The Blackstone Group Inc., or Blackstone, to accelerate our
advancement of RNAi therapeutics. In connection with the collaboration,
Blackstone will provide us up to $2.00 billion in financing, including $1.00
billion in committed payments to acquire 50% of royalties and 75% of commercial
milestones payable to us in connection with sales of inclisiran, up to $750.0
million in a first lien senior secured term loan, and up to $150.0 million
towards the development of vutrisiran and ALN-AGT, subject to completion of a
definitive agreement. As part of the strategic financing collaboration,
Blackstone also purchased an aggregate of $100.0 million of our common stock.
We have incurred significant losses since we commenced operations in 2002 and
expect such losses to continue for the foreseeable future. As of June 30, 2020,
we had an accumulated deficit of $4.09 billion. Historically, we have generated
losses principally from costs associated with the establishment of late-stage
clinical and commercial capabilities, including global commercial operations,
research and development activities, acquiring, filing and expanding
intellectual property rights, and selling, general and administrative costs.
While we believe 2019 was our peak net loss year, and believe the funding
provided by our strategic financing collaboration with Blackstone should enable
us to achieve a self-sustainable financial profile without the need for future
equity financing, we expect to continue to incur annual net operating losses for
the foreseeable future as we expand our efforts to discover, develop and
commercialize RNAi therapeutics. We also 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.
We currently have programs focused on a number of therapeutic areas and as of
June 30, 2020, we are generating net revenue from product sales for two marketed
products, ONPATTRO and GIVLAARI. However, our ongoing development efforts may
not be successful and we may not be able to commence sales of any other products
and/or successfully market and sell ONPATTRO, GIVLAARI or any other approved
products in the future. A substantial portion of our total revenues in recent
years has been derived from collaboration revenues from strategic alliances with
Regeneron, Sanofi Genzyme and MDCO. In addition to revenues from the commercial
sales of ONPATTRO and GIVLAARI and potentially from sales of future products, we
expect our sources of potential funding for the next several years to continue
to be derived in part from existing and new strategic alliances, which may
include license and other fees, funded research and development, milestone
payments and royalties on product sales by our licensees, as well as funding due
or available to us under our strategic financing collaboration with Blackstone.
The COVID-19 Pandemic
In March 2020, the World Health Organization declared the outbreak of a novel
strain of coronavirus, or COVID-19, as a pandemic, which continues to spread
throughout the U.S. and worldwide. We could be materially and adversely affected
by the risks, or the public perception of the risks, related to an epidemic,
pandemic, outbreak, or other public health crisis, such as the current COVID-19
pandemic. We are continuing to monitor the global pandemic and spread of
COVID-19 and plan to continue taking steps to identify and mitigate the adverse
impacts on, and risks to, our business posed by its spread and actions taken by
governmental and health authorities to address the COVID-19 pandemic. The spread
of COVID-19 has caused us to modify our business practices, including
implementing a global work from home policy for all employees who are able to
perform their duties remotely and restricting all nonessential business travel,
and we expect to continue to take actions as may be required or recommended by
government authorities or as we determine are in the best interests of our
employees, the patients we serve and other business partners in light of
COVID-19. At this time, we cannot predict when certain restrictions that are in
place to protect our employees can be safely reduced or will no longer be
needed. Given the fluidity of the COVID-19 pandemic and the uncertainty on
whether a second wave of the COVID-19 pandemic will occur later in calendar year
2020 or 2021, we do not yet know the full extent of the impact of COVID-19 on
our business operations. The ultimate extent of the impact of any epidemic,
pandemic, outbreak, or other public health crisis on our business, financial
condition and results of operations will depend on future developments, which
are highly uncertain and cannot be predicted, including new information that may
emerge concerning the severity of such epidemic, pandemic, outbreak, or other
public health crisis and actions taken to contain or prevent the further spread,
among others. Accordingly, we cannot predict the extent to which our business,
financial condition and results of operations will be affected. We remain
focused on maintaining a strong balance sheet, liquidity and financial
flexibility and continue to monitor developments as we deal with the disruptions
and uncertainties from a business and financial perspective relating to
COVID-19. We will continue to work diligently with our partners and stakeholders
to continue supporting patient access to our approved medicines, advancing our
product candidates under regulatory review as well as in our clinical studies to
the extent safe to do so for patients, caregivers and healthcare practitioners,
and ensuring the continuity of our manufacturing and supply chain. For
additional information related to the actual or potential impacts of COVID-19 on
our business, please read Part II, Item 1A, "Risk Factors" of this Quarterly
Report on Form 10-Q.
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  Table of     Contents
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, as reflected by our broad pipeline of clinical
development programs, which includes multiple programs in late-stage
development.
Our broad pipeline, including two approved products and multiple investigational
RNAi therapeutics across all stages of development, is focused in four STArs:
Genetic Medicines; Cardio-Metabolic Diseases; Hepatic Infectious Diseases; and
CNS/Ocular Diseases.
Commercial Products and Late-Stage Clinical Development Pipeline
The chart below is a summary of our commercial products and late-stage
development programs as of August 5, 2020. It identifies those programs for
which we have received marketing approval, those programs for which we have
received Breakthrough Therapy Designation from the FDA, the stage of these
programs and our commercial rights to such programs:
                    [[Image Removed: alny-20200630_g1.jpg]]
Early-Stage Clinical Development Pipeline
The chart below is a summary of our early-stage development programs as of
August 5, 2020. It identifies those programs in which we have achieved human
proof-of-concept, or POC, by demonstrating target gene knockdown and/or
additional evidence of activity in clinical studies, the stage of these
programs, and our commercial rights to such programs, as well as programs which
we believe could result in an IND or CTA filing in 2020:
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                    [[Image Removed: alny-20200630_g2.jpg]]
During the second quarter of 2020 and recent period, we reported the following
updates from ONPATTRO and GIVLAARI commercialization and our late-stage clinical
programs:
Commercial
ONPATTRO
•We achieved ONPATTRO global net product revenues for the second quarter of 2020
of $66.5 million, and continued progress with market access efforts with recent
launches in Spain and Italy.
GIVLAARI
•We achieved GIVLAARI global net product revenues for the second quarter of 2020
of $11.0 million, received marketing authorization approval for GIVLAARI in
Brazil, and continued progress with market access efforts with a launch in
Germany.
Late-Stage Clinical Development
•We continued to advance the development of patisiran for the potential
treatment of the cardiomyopathy of both hereditary and wild-type ATTR
amyloidosis, and continued enrollment in the APOLLO-B Phase 3 study in ATTR
amyloidosis patients with cardiomyopathy.
•We submitted an MAA for givosiran in Switzerland and Israel.
•We continued to advance lumasiran for the treatment of PH1:
•Completed the rolling submission of an NDA to the FDA and submitted an MAA to
the EMA, with both applications now accepted;
•Presented complete results from the ILLUMINATE-A Phase 3 study;
•Continued treating patients in ILLUMINATE-B, a global Phase 3 pediatric study
of lumasiran in PH1 patients less than six years of age with preserved renal
function, and remain on track to report topline results in mid-2020; and
•Continued enrollment in the ILLUMINATE-C Phase 3 study of lumasiran for the
treatment of advanced PH1 in patients of all ages.
•We continued to advance vutrisiran, a subcutaneously administered
investigational RNAi therapeutic in development for the treatment of ATTR
amyloidosis:
•Continued treating patients in the fully enrolled HELIOS-A Phase 3 study of
vutrisiran in hATTR amyloidosis patients with polyneuropathy, and remain on
track to report topline results in early 2021;
•Received Fast Track Designation from the FDA for the treatment of the
polyneuropathy of hATTR amyloidosis; and
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•Continued enrollment in the HELIOS-B Phase 3 study in ATTR amyloidosis patients
with cardiomyopathy.
•Inclisiran continued to advance under our partner, MDCO (which was acquired by
Novartis AG in January 2020), and is undergoing review for approval in the U.S.
and EU.
•Our partner, Sanofi Genzyme, continued enrollment in the ATLAS Phase 3 program
for fitusiran in patients with hemophilia A or B with and without inhibitors,
with topline results expected in the first half of 2021.
There is a risk that any drug discovery or development program may not produce
revenue for a variety of reasons, including the possibility that we will not be
able to adequately demonstrate the safety and effectiveness of the product
candidate. Moreover, there are uncertainties specific to any new field of drug
discovery, including RNAi. The success of ONPATTRO, GIVLAARI or any other
product candidate we develop is highly uncertain. Due to the numerous risks
associated with developing drugs, including those risks associated with the
COVID-19 pandemic, we cannot reasonably estimate or know the nature, timing and
estimated costs of the efforts necessary to complete the development of any
potential product candidate or indication, or the period, if any, in which
material net cash inflows will commence from any approved product or indication.
Any failure to complete any stage of the development of any potential products
or any approved product for an expanded indication in a timely manner or
successfully launch, market and sell any approved product, including ONPATTRO
and GIVLAARI, 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 research and development programs within the
planned timeline, or at all, and the potential consequences of failing to do so,
are set forth in Part II, Item 1A below under the heading "Risk Factors."
Strategic Alliances
Our business strategy is to develop and commercialize a broad pipeline of RNAi
therapeutic products directed towards our four STArs. As part of this strategy,
we have entered into, and expect to enter into additional, collaboration and
licensing agreements as a means of obtaining resources, capabilities and funding
to advance our investigational RNAi therapeutic programs.
Our collaboration strategy is to form alliances that create significant value
for ourselves and our collaborators in the advancement of RNAi therapeutics as a
new class of innovative medicines. Specifically, with respect to our CNS/Ocular
Disease pipeline, in April 2019, we entered into a global, strategic
collaboration with Regeneron to discover, develop and commercialize RNAi
therapeutics for a broad range of diseases by addressing disease targets
expressed in the eye and CNS, in addition to a select number of targets
expressed in the liver. In July 2020, Regeneron exercised its
co-development/co-commercialization option on our first CNS-targeted development
candidate, ALN-APP, an investigational RNAi therapeutic in development for the
treatment of hereditary cerebral amyloid angiopathy and autosomal dominant
Alzheimer's Disease, which we will lead.
With respect to our Cardio-Metabolic pipeline, in March 2013, we entered into an
exclusive, worldwide license with MDCO (acquired by Novartis AG in January 2020)
pursuant to which MDCO was granted the right to develop, manufacture and
commercialize RNAi therapeutics targeting PCSK9 for the treatment of
hypercholesterolemia and other human diseases, including inclisiran. In March
2018, we entered into a discovery collaboration with Regeneron to identify RNAi
therapeutics for nonalcoholic steatohepatitis, or NASH, and potentially other
related diseases, and in November 2018, we and Regeneron entered into a
separate, fifty-fifty collaboration to further research, co-develop and
commercialize any therapeutic product candidates that emerge from these
discovery efforts. In April 2020, we entered into a development and
commercialization collaboration with Dicerna to advance investigational RNAi
therapeutics for the treatment of alpha-1 liver disease.
With respect to our Hepatic Infectious Disease pipeline, in October 2017, we
announced an exclusive licensing agreement with Vir for the development and
commercialization of RNAi therapeutics for infectious diseases, including
chronic hepatitis B virus, or HBV, infection. In March 2020, we announced an
expansion of our exclusive licensing agreement with Vir to include the
development and commercialization of RNAi therapeutics targeting SARS-CoV-2, the
virus that causes the disease COVID-19. In April 2020, we further expanded our
broad multi-target existing collaboration for the development and
commercialization of RNAi therapeutics for infectious diseases to include up to
three additional targets focused on host factors for SARS-CoV-2, including
angiotensin converting enzyme-2, or ACE2, and transmembrane protease, serine 2,
or TMPRSS2.
With respect to our Genetic Medicine pipeline, we formed a broad strategic
alliance with Sanofi Genzyme in 2014. In January 2018, we and Sanofi Genzyme
amended our 2014 collaboration and entered into the Exclusive License Agreement,
referred to as the Exclusive TTR License, under which we have the exclusive
right to pursue the further global development and commercialization of all TTR
products, including ONPATTRO, vutrisiran and any back-up products, and the
ALN-AT3 Global License Terms, referred to as the AT3 License Terms, under which
Sanofi Genzyme has the exclusive right to pursue the further global development
and commercialization of fitusiran and any back-up products. In April 2019, we
and Sanofi Genzyme agreed to further amend the 2014 Sanofi Genzyme collaboration
to conclude the research and option phase and to amend and restate the AT3
License Terms to modify certain of the business terms.
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Critical Accounting Policies and Estimates
Liability Related to the Sale of Future Royalties
In April 2020, we entered into a purchase and sale agreement with Blackstone,
prompting our adoption of a new accounting policy associated with the liability
related to the sale of future royalties. Please read Note 1 and Note 5 to our
condensed consolidated financial statements included in Part I, Item 1,
"Financial Statements (Unaudited)," of this Quarterly Report on Form 10-Q for a
discussion of the policy and the accounting implications of this agreement,
respectively.
Our critical accounting policies are described in the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" section of our
Annual Report on Form 10-K for the year ended December 31, 2019, which we filed
with the SEC on February 13, 2020. There have been no significant changes to our
critical accounting policies since the beginning of this fiscal year other than
with respect to the liability related to the sale of future royalties described
above.
Results of Operations
The following data summarizes the results of our operations:
                                                             Three Months Ended June 30,                                                                                                   Six Months Ended June 30,
(In thousands, except percentages)     2020                2019             Dollar Change            % of Change              2020                2019             Dollar Change         % of Change
Total revenues                     $  103,962$   44,714$      59,248                     133  %       $  203,438$   78,008$     125,430                161  %

Operating costs and expenses $ 302,821$ 280,985$ 21,836

                       8  %       $  612,455$  503,067$     109,388                 22  %
Loss from operations               $ (198,859)$ (236,271)$      37,412                     (16) %       $ (409,017)$ (425,059)$      16,042                 (4) %
Total other income                 $   20,956$   17,750$       3,206                      18  %       $   49,468$   25,318$      24,150                 95  %
Net loss                           $ (179,229)$ (219,481)$      40,252                     (18) %       $ (361,450)$ (401,396)$      39,946                (10) %


Discussion of Results of Operations
Revenues
Total revenues consist of the following:
                                                            Three Months Ended June 30,                                                                                              Six Months Ended June 30,
(In thousands, except percentages)     2020              2019            Dollar Change            % of Change              2020              2019            Dollar Change         % of Change
Net product revenues               $  77,533$ 38,231$      39,302                     103  %       $ 149,471$ 64,522$      84,949                132  %
Net revenues from collaborations      26,429             6,483                 19,946                     308  %          53,967            13,486                 40,481                300  %
Total                              $ 103,962$ 44,714$      59,248                     133  %       $ 203,438$ 78,008$     125,430                161  %


Net product revenues
Net product revenues consist of the following, by region:
                                                   Three Months Ended June 30,                                                                                              Six Months Ended June 30,
(In thousands, except
percentages)                  2020              2019            Dollar Change            % of Change              2020              2019            Dollar Change         % of Change
United States              $ 40,929$ 28,192$      12,737                      45  %       $  83,399$ 46,952$      36,447                 78  %
Europe                       25,357            10,039                 15,318                     153  %          46,523            17,570                 28,953                165  %
Rest of World (primarily
Japan)                       11,247                 -                 11,247                        N/A          19,549                 -                 19,549                   N/A
Total                      $ 77,533$ 38,231$      39,302                     103  %       $ 149,471$ 64,522$      84,949                132  %

Net product revenues consist of the following, by product:

                                                   Three Months Ended June 30,                                                                                              Six Months Ended June 30,
(In thousands, except
percentages)                  2020              2019            Dollar Change            % of Change              2020              2019            Dollar Change         % of Change
ONPATTRO                   $ 66,535$ 38,231$      28,304                      74  %       $ 133,199$ 64,522$      68,677                106  %
GIVLAARI                     10,998                 -                 10,998                        N/A          16,272                 -                 16,272                   N/A
Total                      $ 77,533$ 38,231$      39,302                     103  %       $ 149,471$ 64,522$      84,949                132  %


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Net product sales increased during the three and six months ended June 30, 2020,
as compared to the same periods in the prior year, as a result of the continued,
global expansion of ONPATTRO, in addition to sales generated from our second
marketed product, GIVLAARI, following commercial launch in the U.S. in November
and December 2019, respectively, and initial European launch of GIVLAARI in the
second quarter of 2020.
We expect net product revenues to increase for the twelve-month period ending
December 31, 2020, as compared to the same period in 2019, as we continue to add
new patients onto ONPATTRO and GIVLAARI therapy, as well as launch our approved
products into additional markets, assuming regulatory approvals.
Net revenues from collaborations
Net revenues from collaborations consist of the following:
                                                        Three Months Ended June 30,                                                                                             Six Months Ended June 30,
(In thousands, except
percentages)                       2020              2019           Dollar Change            % of Change             2020              2019            Dollar Change          % of Change
Regeneron                       $ 15,413$   700$      14,713                   2,102  %       $ 34,916$    700$      34,216               4,888  %
Vir                                6,448            1,091                  5,357                     491  %         12,964             2,019                 10,945                 542  %
MDCO                               3,878                -                  3,878                        N/A          4,938             1,745                  3,193                 183  %
Sanofi                               373            4,383                 (4,010)                    (91) %            373             8,500                 (8,127)                (96) %
Other                                317              309                      8                       3  %            776               522                    254                  49  %
Total                           $ 26,429$ 6,483$      19,946                     308  %       $ 53,967$ 13,486$      40,481                 300  %


Net revenues from collaborations increased during the three and six months ended
June 30, 2020, as compared to the same periods in the prior year, primarily due
to an increase in revenues recognized in connection with our collaboration
agreement with Regeneron.
We expect net revenues from collaborations to increase for the twelve-month
period ending December 31, 2020, as compared to the same period in 2019,
primarily due to increased reimbursable activities and milestones under our
collaborations with Regeneron and Vir.
Operating Costs and Expenses
Operating costs and expenses consist of the following:
                                                              Three Months Ended June 30,                                                                                                Six Months Ended June 30,
(In thousands, except percentages)       2020               2019            Dollar Change            % of Change              2020               2019            Dollar Change         % of Change
Cost of goods sold                   $  19,929$   4,326$      15,603                     361  %       $  33,231$   7,673$      25,558                333  %
Research and development               154,996            163,890                 (8,894)                     (5) %         324,567            293,017                 31,550                 11  %
Selling, general and administrative    127,896            112,769                 15,127                      13  %         254,657            202,377                 52,280                 26  %
Total                                $ 302,821$ 280,985$      21,836                       8  %       $ 612,455$ 503,067$     109,388                 22  %


Cost of goods sold. Cost of goods sold includes the cost of producing and
distributing inventories that are related to product revenues, costs related to
sales of product supply under our collaboration agreements, third-party
royalties and amortization of licensing rights. Based on our inventory policy,
we record costs associated with the manufacturing of our products as research
and development expense until we determine it is probable that these costs will
be recovered through commercial sale (zero-cost inventory).
Cost of goods sold increased during the three and six months ended June 30,
2020, as compared to the same periods in the prior year, due to the increase in
third-party royalties and sales of capitalized inventory. During the three and
six months ended June 30, 2020, product sold and recognized as revenue was
substantially from capitalized inventory, whereas during the three and six
months ended June 30, 2019, all units of product sold and recognized as revenue
were zero-cost inventory. We will continue to sell our zero-cost inventory of
GIVLAARI throughout 2020.
We anticipate variability in our cost of goods sold as a percentage of net
product revenues due to the timing of manufacturing runs and utilization and the
depletion of zero-cost inventories, as well as future product launches. We
expect that cost of goods sold will increase for the twelve-month period ending
December 31, 2020, as compared to the same period in 2019, primarily as a result
of an expected increase in net product sales as well as the sale of capitalized
inventory.
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Table of Contents Research and development. Research and development expenses consist on the following:

                                                                  Three Months Ended June 30,                                                                                                Six Months Ended June 30,
(In thousands, except percentages)           2020               2019            Dollar Change            % of Change              2020               2019            Dollar Change         % of Change
Compensation and related                 $  49,314$  35,310$      14,004                      40  %       $  97,477$  71,687$      25,790                 36  %
Clinical trial and manufacturing            44,527             52,046                 (7,519)                    (14) %         101,052             86,647                 14,405                 17  %
External services                           18,277             17,078                  1,199                       7  %          35,938             30,608                  5,330                 17  %
Facilities-related                          17,701             13,178                  4,523                      34  %          33,402             25,405                  7,997                 31  %
Stock-based compensation                    15,790             15,282                    508                       3  %          31,839             31,407                    432                  1  %
Lab supplies, materials, and other           9,387             10,765                 (1,378)                    (13) %          22,446             19,432                  3,014                 16  %
License Fees                                     -             20,231                (20,231)                   (100) %           2,413             27,831                (25,418)               (91) %
Total                                    $ 154,996$ 163,890$      (8,894)                     (5) %       $ 324,567$ 293,017$      31,550                 11  %


For the three months ended June 30, 2020, the decrease in research and
development expenses, as compared to the same period in the prior year, was
primarily related to the following:
•Decreased license fees due to the execution of our collaboration agreement with
Regeneron in April 2019; and
•Decreased clinical trial and manufacturing expenses associated with material
manufactured for clinical trials.
Partially offset by:
•Increased compensation and related expenses as a result of increased headcount
to support long-term strategic growth.
For the six months ended June 30, 2020, the increase in research and development
expenses, as compared to the same period in the prior year, was primarily
related to the following:
•Increased compensation and related expenses as a result of increased headcount
to support long-term strategic growth;
•Increased clinical trials and manufacturing and lab supplies, materials and
other expenses as a result of increased preclinical and clinical services
related to the advancement of our early- and late-stage programs to support our
long-term strategic goals; and
•Increased facilities-related expenses as a result of costs recognized in
connection with placing portions of our cGMP manufacturing facility into
service.
Partially offset by:
•Decreased license fees related to the execution of our collaboration agreement
with Regeneron in April 2019 and regulatory milestones deemed probable in 2019.
During the three and six months ended June 30, 2020 and 2019, in connection with
advancing activities under our collaboration agreements, we incurred research
and development expenses, primarily related to external development and
manufacturing services. The following table summarizes research and development
expenses incurred, for which we recognize net revenue, that are directly
attributable to our collaboration agreements, by collaboration partner:
                                     Three Months Ended June 30,                                    Six Months Ended June 30,
(In thousands)                        2020                   2019                  2020                    2019
Regeneron                      $       15,440$        991$     31,543          $          991
Vir                                     4,795                    471                 6,879                   1,130
MDCO                                      278                     75                 1,542                   1,747
Sanofi                                    376                  3,060                   624                   8,080
Total                          $       20,889$      4,597$     40,588$       11,948


                                       34

--------------------------------------------------------------------------------

Table of Contents Selling, general and administrative. Selling, general and administrative expenses consist of the following:

                                                                   Three Months Ended June 30,                                                                                                Six Months Ended June 30,
(In thousands, except percentages)            2020               2019            Dollar Change            % of Change              2020               2019            Dollar Change         % of Change

Compensation and related                  $  48,141$  40,592$       7,549                      19  %       $  94,970$  70,715$      24,255                 34  %
Consulting and professional services         41,318             34,811                  6,507                      19  %          80,310             60,637                 19,673                 32  %
Facilities-related and other                 20,472             22,045                 (1,573)                     (7) %          42,883             39,797                  3,086                  8  %
Stock-based compensation                     17,965             15,321                  2,644                      17  %          36,494             31,228                  5,266                 17  %
Total                                     $ 127,896$ 112,769$      15,127                      13  %       $ 254,657$ 202,377$      52,280                 26  %


For the three and six months ended June 30, 2020, the increase in selling,
general and administrative expenses, as compared to the same periods in the
prior year, was primarily related to the following:
•Increased compensation and related and consulting and professional services
expenses as a result of increased headcount to support long-term strategic
growth and potential additional product launches in 2020 and thereafter, as well
as the continued commercialization of ONPATTRO and GIVLAARI.
We expect that research and development expenses combined with selling, general
and administrative expenses will increase for the twelve-month period ending
December 31, 2020, as compared to the same period in 2019, as we continue to
develop our pipeline, advance our product candidates, including partnered
programs, into later-stage development, prepare regulatory submissions and
build-out of our global commercial infrastructure and field team to support
ONPATTRO, GIVLAARI and potentially additional product launches. However, we
expect that certain expenses will be variable depending on the timing of
manufacturing batches, clinical trial enrollment and results, regulatory review
of our product candidates and programs, and stock-based compensation expenses
due to our determination regarding the probability of vesting for
performance-based awards.
Total Other Income. For the three and six months ended June 30, 2020, total
other income increased, as compared to the same periods in the prior year,
primarily due to unrealized gains in marketable equity securities of $45.5
million and $69.6 million, respectively, offset by $27.2 million of interest
expense due to the sale of future royalties.
Liquidity and Capital Resources
The following table summarizes our cash flow activities:
                                                                   Six Months Ended June 30,
(In thousands)                                                     2020                  2019
Net loss                                                     $    (361,450)

$ (401,396) Non-cash adjustments to reconcile net loss to net cash (used in) provided by operating activities

                                65,094                77,567
Changes in operating assets and liabilities                        (85,135)              424,014
Net cash (used in) provided by operating activities               (381,491)              100,185
Net cash used in investing activities                             (327,542)             (186,750)
Net cash provided by financing activities                          742,882               803,541

Effect of exchange rate changes on cash, cash equivalents and restricted cash

                                                   (196)                   (3)

Net increase in cash, cash equivalents and restricted cash 33,653

              716,973

Cash, cash equivalents and restricted cash, beginning of period

                                                             549,628               422,631

Cash, cash equivalents and restricted cash, end of period $ 583,281

$ 1,139,604



Since we commenced operations in 2002, we have generated significant losses. As
of June 30, 2020, we had an accumulated deficit of $4.09 billion. As of June 30,
2020, we had cash, cash equivalents and marketable debt and equity securities of
$1.93 billion, compared to $1.54 billion as of December 31, 2019.
Operating activities
Net cash used in operating activities increased during the six months ended
June 30, 2020, compared to the same period in 2019, primarily due to the receipt
of $400 million in May 2019 for the upfront payment associated with our
strategic collaboration with Regeneron. In addition, cash used in operating
activities during the six months ended June 30, 2020 increased as a result of
changes in working capital to support corporate growth.
                                       35

--------------------------------------------------------------------------------

  Table of     Contents
Investing activities
Net cash used in investing activities increased during the six months ended
June 30, 2020, compared to the same period in the prior year, primarily due to
the purchase of marketable debt securities.
Financing activities
Net cash provided by financing activities decreased during the six months ended
June 30, 2020, compared to the same period in the prior year, primarily due to
proceeds of $400.0 million from our issuance of common stock to Regeneron in
April 2019 and $381.9 million received from our January 2019 underwritten public
offering, offset by $500.0 million received from our sale of the MDCO royalty
interest in April 2020 and net proceeds of $151.5 million from the issuance of
common stock in connection with stock option exercises and other types of equity
during the six months ended June 30, 2020.
Operating Capital Requirements
We currently have programs focused on a number of therapeutic areas and, as of
June 30, 2020, have two globally marketed products, ONPATTRO and GIVLAARI.
However, our ongoing development efforts may not be successful and we may not be
able to commence sales of any other products in the future. In addition, we
anticipate that we will continue to generate significant losses for the
foreseeable future as a result of planned expenditures for research and
development activities relating to our research platform, our drug development
programs, including clinical trial and manufacturing costs, the establishment of
late-stage clinical and commercial capabilities, including global operations,
continued management and growth of our intellectual property including our
patent portfolio, collaborations and general corporate activities.
Based on our current operating plan, we believe that our cash, cash equivalents
and marketable debt and equity securities as of June 30, 2020, together with the
cash we expect to generate from product sales, and under our current alliances,
as well as the funds due or available to us as a result of the strategic
financing collaboration with Blackstone, will be sufficient to enable us to
advance our long-term strategic goals for multiple years from the filing of this
Quarterly Report on Form 10-Q.
Although we believe the strategic financing collaboration with Blackstone will
enable us to achieve a self-sustainable financial profile without the need for
further equity financing, in the future, we may seek additional funding through
new collaborative arrangements, public or private debt financings, royalty or
other monetization transactions or a combination of one or more of these funding
sources. Additional funding may not be available to us on acceptable terms or at
all. Moreover, the terms of any additional financing may adversely affect the
holdings or the rights of our stockholders.
Contractual Obligations and Commitments
The disclosure of our contractual obligations and commitments is set forth under
the heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Contractual Obligations" in our Annual Report on Form 10-K
for the year ended December 31, 2019. In April 2020, we entered into a purchase
and sale agreement with Blackstone, resulting in an initial recognition of $1.00
billion liability related to the sale of future royalties. Please read Note 5 to
our condensed consolidated financial statements included in Part I, Item 1,
"Financial Statements (Unaudited)" of this Quarterly Report on Form 10-Q for a
description of this agreement. As a result, we expect our contractual
obligations through 2036 will increase from the amounts previously disclosed in
our 2019 Annual Report on Form 10-K due to payments under this agreement.
Recent Accounting Pronouncements
Please read Note 2 to our condensed consolidated financial statements included
in Part I, Item 1, "Financial Statements (Unaudited)," of this Quarterly Report
on Form 10-Q for a description of recent accounting pronouncements applicable to
our business.

© Edgar Online, source Glimpses


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