Alnylam Pharmaceuticals, Inc. (ALNY - Analyst Report) and Tekmira Pharmaceuticals Corporation recently signed a new licensing agreement and settled all existing litigation.

As per the new licensing agreement, some intellectual property (IP) elements regarding lipid nanoparticle (LNP) technology for ribo nucleic acid interference (RNAi) therapeutics have been merged and clarified. Alnylam now has the full right to utilize this IP to advance its RNAi therapeutics products in the market.

The company will also have the right to sublicense IP on a product-by-product basis. However, the company has agreed to allow five extra non-exclusive therapeutics licenses to Tekmira.

Alnylam will be making a one-time payment of $30 million to Tekmira for acquiring tights to manufacture its LNP-based RNAi therapeutic products independently or through a third party contractor. Alnylam is expected to use its own Good Manufacturing Practice (GMP) capabilities to further its phase III clinical trial on ALN-TTR02. The company plans to initiate the trial by the end of next year.

The agreement also allows Alnylam to buy-down some future potential milestone payments along with a portion of future potential royalties for its ALN-VSP, ALN-PCS, and ALN-TTR02 programs. Alnylam will be making a one-time payment of $35 million to Tekmira relating to the termination of the previous license agreements between them. For Alnylam, this actually means a significant reduction in milestone and royalty payments for these programs.

Tekmira is also eligible to receive an additional $10 million (approximately) as contingent milestone payments for the advancement of ALN-VSP and ALN-TTR02 products. The payment of $10 million represents the only probable milestones for ALN-VSP, ALN-PCS and ALN-TTR02 products.

Alnylam will be required to pay Tekmira potential milestones and royalties on all other probable LNP-based products on terms identical to its previous license agreements. Meanwhile, Tekmira will be required to pay milestones and royalties to Alnylam for certain RNAi therapeutic products, which are developed under the licenses from Alnylam on the previous license terms.

The companies have agreed to settle all their current litigations including the resolution of interference proceeding related to the siRNA component in ALN-VSP and Massachusetts and British Columbia lawsuits. Along with signing the settlement agreement, the companies also agreed to settle all future disputes for the next three years with binding arbitration.

Alnylam also revised its financial guidance for the year considering the extra $65 million of operating expenses during the fourth quarter of 2012. The company now expects to exit 2012 with more than $215 million in cash.

Our Take

We believe that the companies’ decision to restructure their relationship will be beneficial for both. We remind investors that Alnylam generates revenues from research collaborations, grants, and licensing of the RNAi technology. Alnylam has formed major alliances with leading companies, such as Medtronic, Inc. (MDT - Analyst Report), Novartis (NVS - Snapshot Report), Biogen Idec (BIIB - Analyst Report) and Roche Holdings (RHHBY).

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