Alnylam Delivers In-Line Numbers

Alnylam Pharmaceuticals Inc.’s (ALNY - Analyst Report) fourth quarter 2011 loss of 33 cents per share was in line with the Zacks Consensus Estimate. The loss was however wider than the year-ago loss of 16 cents per share. Lower revenues and higher general and administrative (G&A) expenses led to widening losses.

Revenues for the reported quarter fell 3.3% from the prior year to $20.5 million. Revenues were almost in line with the Zacks Consensus Estimate of $21 million.

In 2011, Alnylam reported total revenue of $82.8 million, below 2010 revenue of $100.0 million. In 2011, adjusted loss per share was $1.36 versus a loss of $1.04 per share in 2010. The Zacks Consensus Estimates were $83 million for revenue and $1.35 for loss per share.

Quarterly Details

Revenues in the quarter included $14 million from the company’s alliance with Roche (RHHBY), $5.5 million from Alnylam‘s partnership with Takeda Pharmaceuticals, in addition to $1.0 million of expense reimbursement, amortization revenues and license fees from Cubist Pharmaceuticals (CBST - Snapshot Report), Novartis (NVS - Snapshot Report) and other sources.

Research and development (R&D) costs declined approximately 10.3% to $23.4 million. The lower R&D was primarily due to reduced spending on pre-clinical costs concerning the ALN-PCS programs and presence of restructuring costs in prior-year results related to the September 2010 corporate restructuring.

General and administrative (G&A) expenses in the reported quarter were up 42.7% over the prior-year quarter to $10.7 million due to higher legal costs.

2012 Guidance

Alnylam expects to exit 2012 with a cash balance of more than $180 million. Alnylam ended 2011 with a cash balance of $261 million, slightly more than its expectations of $260 million.

Pipeline Update

Alnylam, which currently has no product on the market, develops novel therapeutics based on a biological breakthrough technology known as RNA (Ribo Nucleic Acid) interference (RNAi). The company wants to focus its resources on its core product strategy, Alnylam 5x15, which is aimed at developing five RNAi therapeutic products for the treatment of genetically defined diseases addressing major unmet medical needs. These include ALN-PCS (for hypercholesterolemia), second generation ALN-TTR (transthyretin (TTR) mediated amyloidosis or ATTR), ALN-HPN (refractory anemia), ALN-APC (hemophilia) and ALN-TMP (hemoglobinopathies like beta-thalassemia and sickle cell anemia). Among these, Alnylam aims to accelerate development of ALN-TTR and ALN-APC which it believes holds the most promise.

Under the ATTR program, Alnylam is developing ALN-TTR01 (a systemically delivered RNAi therapeutic that employs a first-generation lipid nanoparticles (LNP) formulation) as well as ALN-TTR02 (second generation delivery formulation). In late November 2011, Alnylam presented encouraging preliminary data from a phase I study of ALN-TTR01 which showed that it led to statistically significant reductions in serum TTR protein levels for the treatment of ATTR. Final data is expected to be reported in the first half of 2012. For ALN-TTR02, Alnylam filed an Investigational New Drug (IND) application in early January 2012 and expects to start a phase I study in the UK in the first half of 2012. Alnylam has chosen ALN-TTR02 as its go-to market product over ALN-TTR01.

Additionally preliminary data presented in early-January 2012 from the phase I study of ALN-PCS showed that the candidate led to robust and statistically significant silencing of the protein target PCSK9 and over 50% reduction in levels of LDL (bad) cholesterol. Additional data from the study is expected in the first half of 2012.

Alnylam management separately announced that its scientists have discovered a new method of monitoring RNai activity in blood samples. The new method is called circulating extracellular RNA detection (cERD). Management believes that cERD will be transformative for RNai product development. Alnylam intends to provide a broad license to the industry to support development of RNai therapeutics. The initial cERD license has been provided to Isis Pharmaceuticals (ISIS - Analyst Report).

Our Recommendation

We currently have a Neutral recommendation on Alnylam. The stock carries a Zacks #3 Rank (“Hold”) in the short term.

We like the company’s “5X15” initiative and the pipeline progress. Moreover, Alnylam has collaborated with some of the big pharmaceutical players to further develop and utilize its core technology. These partnerships validate the potential and viability of the RNAi approach. We believe the year 2012 is important for the company with a number of programs expected to report data. We therefore prefer to wait and see how the year shapes up for Alnylam.

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