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Item 7. Management’s Discussion and Analysis

2021-02-11 compared with 2020-02-13 · 129 added, 164 removed, 129 unchanged (69% of the section changed)

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We are a global commercial-stage biopharmaceutical company that discovers, develops, manufactures and commercializes novel therapeutics based on RNAi.

Our commercialized products and broad pipeline of investigational RNAi therapeutics are focused in four STArs:

Our commercial products and broad pipeline of investigational RNAi therapeutics are focused in four STArs:

Genetic Medicines, Cardio-Metabolic Diseases, Hepatic Infectious Diseases and CNS/Ocular Diseases.

As described in Part I, Item 1.

"Business," of this annual report on Form 10-K, we currently have two products that have received marketing approval and six late-stage investigational programs advancing towards potential commercialization.

Also refer to Part I, Item 1.

"Business" for a summary of key events in 2019 and 2020 to-date related to our marketed products and our clinical development programs.

We have incurred significant losses since we commenced operations in 2002 and expect such losses to continue for the foreseeable future.

As of December 31, 2019, we had an accumulated deficit of $3.73 billion.

"Business," of this annual report on Form 10-K, we currently have four products that have received marketing approval, including one partnered product, and six late-stage investigational programs advancing towards potential commercialization.

In Part I, Item 1.

"Business" you can also find a summary of key events in 2020 and 2021 to-date related to our marketed products and our clinical development programs.

We have incurred significant losses since we commenced operations in 2002 and as of December 31, 2020, we had an accumulated deficit of $4.59 billion.

Historically, we have generated losses principally from costs associated with research and development activities, acquiring, filing and expanding intellectual property rights, and selling, general and administrative costs.

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 commercial operations, continued management and growth of our patent portfolio, collaborations and general corporate activities, we expect to incur additional operating losses for the foreseeable future.

We also anticipate that our operating results will fluctuate 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 commercial operations, continued management and growth of our patent portfolio, collaborations and general corporate activities, we expect to incur additional operating losses, however we expect 2019 represents our peak

non-GAAP operating loss year as we transition towards a self-sustainable financial profile.

We anticipate that our operating results will continue to fluctuate for the foreseeable future.

Therefore, period-to-period comparisons should not be relied upon as predictive of the results in future periods.

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Furthermore, in November 2019 we received FDA approval for our second product, GIVLAARI, and began to generate net revenues from product sales during the fourth quarter of 2019.

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, 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 licensors, as well as proceeds from the sale of equity or debt.

In November 2020, we received FDA and EC approval for our third product, OXLUMO and began to generate net revenues from product sales during the fourth quarter of 2020.

A substantial portion of our total revenues in recent years has been derived from collaboration revenues from strategic alliances with Regeneron, Vir, Sanofi Genzyme and Novartis.

In addition to revenues from the commercial sales of ONPATTRO, GIVLAARI, OXLUMO 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, including our strategic financing collaboration with Blackstone.

Such alliances may include license and other fees, funded research and development, milestone payments and royalties on product sales by our licensors, including royalties on sales of Leqvio made by our partner Novartis, as well as proceeds from our term loan facility or the sale of equity or debt.

Critical Accounting Policies and Estimates

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Net Product Revenues

Our net product sales consist of sales of ONPATTRO and GIVLAARI and are recognized, net of variable consideration related to certain allowances and accruals, at the time the customer obtains control of our product.

Our net product revenues are recognized, net of variable consideration related to certain allowances and accruals, at the time the customer obtains control of our product.

We use the expected value method, which is the sum of probability-weighted amounts in a range of possible consideration amounts, or the most likely amount method, which is the single most likely amount in a range of possible considerations, to estimate variable consideration related to our product sales.

We use the expected value method to estimate variable consideration for certain rebates, chargebacks, product returns, and other incentives and we use the most likely amount method for certain rebates and trade discounts and allowances.

The following are the components of variable consideration related to product revenues.

We record reserves, based on contractual terms, for these components related to product sold during the reporting period, as well as our estimate of product that remains in the distribution channel inventory at the end of the reporting period that we expect will be sold to qualified healthcare providers.

We record reserves, based on contractual terms, for components related to product sold during the reporting period, as well as our estimate of product that remains in the distribution channel inventory at the end of the reporting period that we expect will be sold to qualified healthcare providers.

On a quarterly basis, we update our estimates and record any needed adjustments in the period we identify the adjustments.

The following are the components of variable consideration related to product revenues:

Chargebacks :

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Product returns:

We offer customers product return rights if products are damaged, defective or expired, with “expired” defined as within three months pre- or post-expiry.

We offer customers product return rights if products are damaged, defective or expired, with “expired” defined within each customer agreement.

We estimate the amount of product that will be returned using a probability-weighted estimate based on our sales history.

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We estimate the average co-payment assistance amounts for our products based on expected customer demographics and record any such amounts within accrued expenses on our consolidated balance sheet.

Revenues from Collaborators

Net Revenues from Collaborations

We earn revenue in connection with collaboration agreements which allow our collaboration partners to utilize our technology platforms and develop product candidates.

Our collaboration agreements are detailed in Note 4, Collaboration Agreements, to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this annual report on Form 10-K.

Our collaboration agreements are detailed in Note 4, Net Revenues from Collaborations, to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this annual report on Form 10-K.

For each collaboration partner, we discuss our revenue recognition, including our significant performance obligations under each agreement.

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We evaluate the measure of progress and related inputs each reporting period and any resulting adjustments to revenue are recorded on a cumulative catch-up basis.

Consideration received that does not meet the requirements to satisfy ASC 808 or ASC 606 revenue recognition criteria is recorded as deferred revenue in the accompanying consolidated balance sheets, classified as either short-term or long-term deferred revenue based on our best estimate of when, less than 12 months (short-term) or more than 12 months (long-term), such revenue will be recognized.

We capitalize inventory costs that are expected to be sold commercially once we determine it is probable that the inventory costs will be recovered through commercial sale based on the review of several factors, including (i) the likelihood that all required regulatory approvals will be received, considering any special filing status, (ii) the expected timing of validation (if not yet completed) of manufacturing processes in the associated facility, (iii) the expected expiration of the inventory, (iv) logistical or commercial constraints that may impede the timely distribution and sale of the product, including transport requirements and reimbursement status, (v) current market factors, including competitive landscape and pricing, (vi) threatened or anticipated litigation challenges, (vii) history of approvals of similar products or formulations and (viii) FDA (or other appropriate regulatory agencies) correspondence regarding the safety and efficacy of the product.

Prior to the capitalization of inventory costs, we record such costs as research and development expenses on our consolidated statements of operations and comprehensive loss.

On a quarterly basis, we evaluate the recoverability of capitalized inventory using significant judgments, estimates and assumptions, primarily those related to commercial sales forecasts and product shelf life.

We periodically review inventory levels to identify what may expire prior to expected sale or has a cost basis in excess of its estimated realizable value.

We write-down such inventories as appropriate.

Uncertain tax positions, for which management's assessment is that there is a more than 50% probability of sustaining the position upon challenge by a taxing authority based upon its technical merits, are subject to certain recognition and measurement criteria.

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.

We re-evaluate these uncertain tax positions on a quarterly basis based on a number of factors including, but not limited to, changes in facts or circumstances, changes in tax law, and effectively settled issues under audit and new audit activity.

Any change in these factors could result in the recognition of a tax benefit or an additional charge to the tax provision.

We account for income taxes under the asset and liability method.

Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis.

Deferred tax assets and liabilities are measured using enacted rates in effect for the year in which these temporary differences are expected to be recovered or settled.

Valuation allowances are provided if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Stock-Based Compensation

We recognize stock-based compensation expense for grants under our stock incentive plans and employee stock purchase plan, as well as inducement stock grants outside of our stock incentive plans.

We account for all stock-based awards granted to employees at their fair value and recognize compensation expense 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 of stock options using the Black-Scholes valuation model, which requires the input of subjective assumptions, including but not limited to expected stock price volatility over the term of the awards and the expected term of stock options.

The fair value of restricted stock awards granted to employees is based upon the quoted closing market price per share on the date of grant.

We have performance conditions included in certain of our stock option and restricted stock awards that are based upon the achievement of pre-specified clinical development, regulatory and/or commercial events.

As the outcome of each event has inherent risk and uncertainties, and a positive outcome may not be known until the event is achieved, we begin to recognize the value of the performance-based stock option and restricted stock awards when we determine the achievement of each performance condition is deemed probable, a determination which requires significant judgment by management.

At the probable date, we record a cumulative expense catch-up, with remaining expense amortized over the remaining service period.

Research and Development Accruals

We record accrued liabilities related to products we have received or services that we have incurred, specifically related to ongoing pre-clinical studies and clinical trials, for which service providers have not yet billed us, or when billing terms under these contracts do not coincide with the timing of when the work is performed, as of our period-end.

These costs primarily relate to third-party clinical management costs, laboratory and analysis costs, toxicology studies and investigator fees.

The assessment of these costs is a subjective process, requiring judgment based on our knowledge of the research and development programs, services performed for the period, experience with related activities and the expected duration of the third-party service contract, where applicable.

Upon settlement, these costs may differ materially from the amounts accrued in our consolidated financial statements.

Our historical accrual estimates have not been materially different from our actual costs.

Consideration received that does not meet the requirements to satisfy ASC 808 or ASC 606 revenue recognition criteria is recorded as deferred revenue in the accompanying consolidated balance sheets, classified as either short-term (less than 12 months) or long-term (more than 12 months) deferred revenue based on our best estimate of when such revenue will be recognized.

Liability Related to the Sale of Future Royalties

We account for the liability related to the sale of future royalties as a debt financing, as we have significant continuing involvement in the generation of the cash flows.

Interest on the liability related to the sale of future royalties will be recognized using the effective interest rate method over the life of the related royalty stream.

The liability related to the sale of future royalties and the related interest expense are based on our current estimates of future royalties and commercial milestones expected to be paid over the life of the arrangement, which we determine by using third-party forecasts of inclisiran’s global net revenue.

We will periodically assess the expected payments and to the extent the amount or timing of our future estimated payments is materially different than our previous estimates, we will account for any such change by adjusting the liability related to the sale of future royalties and prospectively recognizing the related non-cash interest expense.

Results of Operations

The following data summarizes the results of our operations, in thousands:

Description Year Ended December 31,

2019 2018 2017 (1)

The following data summarizes the results of our operations:

Year Ended December 31,

(In thousands) 2020 2019 2018

Revenues $ 492,853 $ 219,750 $ 74,908

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Net loss $ (858,281) $ (886,116) $ (761,497)

(1) Periods prior to our adoption of ASC 606 have not been adjusted under the modified retrospective method.

Please read Note 2 to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this annual report on Form 10-K for further discussion of our adoption of the new revenue standard.

For discussion of our 2018 results and a comparison with 2017 results please refer to "Management's Discussion and Analysis of Financial Conditions and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

The following table summarizes our total consolidated revenues, in thousands:

Description Years Ended December 31, 2019 vs 2018 2018 vs 2017

2019 2018 2017 (1)

Dollar Change Percent Change Dollar Change Percent Change

Net product revenues $ 166,537 $ 12,535 $ — $ 154,002 1229 % $ 12,535 N/A

Net revenues from collaborators 53,213 62,373 89,912 (9,160) (15) % (27,539) (31) %

For discussion of our 2019 results and a comparison with 2018 results please refer to "Management's Discussion and Analysis of Financial Conditions and Results of Operations" in our annual report on Form 10-K for the fiscal year ended December 31, 2019 that was filed with the SEC on February 13, 2020.

The following table summarizes our total consolidated revenues:

Years Ended December 31, 2020 vs 2019 2019 vs 2018

(In thousands, except percentages) 2020 2019 2018 Dollar Change Percent Change Dollar Change Percent Change

Net product revenues $ 361,520 $ 166,537 $ 12,535 $ 194,983 117 % $ 154,002 1,229 %

Net revenues from collaborations 131,333 53,213 62,373 78,120 147 % (9,160) (15) %

Total $ 492,853 $ 219,750 $ 74,908 $ 273,103 124 % $ 144,842 193 %

(1) As noted above, prior period amounts have not been adjusted under the modified retrospective method.

Net Product Revenues

We began to record net product revenues following regulatory approval of ONPATTRO and its subsequent commercial launch in the U.S.

and several countries in Europe during the third and fourth quarters of 2018, respectively.

Net product sales increased during the year ended December 31, 2019, compared to the year ended December 31, 2018, as a result of an entire year of ONPATTRO sales activities and continued expansion into additional major markets.

In November 2019, we received FDA approval for GIVLAARI and in December 2019, we commercially launched GIVLAARI in the U.S.

Net product revenues consist of the following, in thousands:

Description Years Ended December 31, 2019 vs 2018 2018 vs 2017

2019 2018 2017 Dollar Change Percent Change Dollar Change Percent Change

Net product revenues consist of the following:

Year Ended December 31, 2020 vs 2019 2019 vs 2018

(In thousands, except percentages) 2020 2019 2018 Dollar Change Percent Change Dollar Change Percent Change

United States $ 151,574 $ 116,302 $ 8,589 $ 35,272 30 % $ 107,713 1,254 %

Europe 107,755 43,980 3,946 63,775 145 % 40,034 1,015 %

Rest of World (primarily Japan) 46,752 6,105 — 40,647 666 % 6,105 N/A

Total $ 306,081 $ 166,387 $ 12,535 $ 139,694 84 % $ 153,852 1,227 %

United States $ 42,797 $ 150 $ — $ 42,647 28,431 % $ 150 N/A

Rest of World 50,085 3,946 — 46,139 1169 % 3,946 N/A

Total net product revenues $ 166,537 $ 12,535 $ — $ 154,002 1229 % $ 12,535 N/A

We expect net product revenues to increase during 2020 as compared to 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.

Europe 12,000 — — 12,000 N/A — N/A

Rest of World 309 — — 309 N/A — N/A

Total $ 55,106 $ 150 $ — $ 54,956 36,637 % $ 150 N/A

Europe $ 333 $ — $ — $ 333 N/A $ — N/A

Total net product revenues $ 361,520 $ 166,537 $ 12,535 $ 194,983 117 % $ 154,002 1,229 %

Net product revenues increased during the year ended December 31, 2020, compared to the year ended December 31, 2019, as a result of the continued, global expansion of ONPATTRO and GIVLAARI into additional major markets, an entire year of GIVLAARI revenues following commercial launch in the U.S.

in the fourth quarter of 2019, and net product revenues from OXLUMO sales following regulatory approval in the fourth quarter of 2020.

We expect net product revenues to increase during 2021 as compared to 2020 as we continue to add new patients onto our commercial products, as well as launch our approved products into additional markets, assuming regulatory approvals.

Please read Note 3 to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this annual report on Form 10-K for balances and activity in each product revenue allowance and reserve category for the years ended December 31, 2020 and 2019.

Net Revenues from Collaborators

The following table summarizes our total consolidated net revenues from collaborators under our research and development collaborations, in thousands:

Description Years Ended December 31, 2019 vs 2018 2018 vs 2017

2019 2018 2017 (1)

Dollar Change Percent Change Dollar Change Percent Change

Regeneron Pharmaceuticals $ 26,075 $ — $ — $ 26,075 N/A $ — N/A

Net Revenues from Collaborations

The following table summarizes our total consolidated net revenues from collaborations under our research and development collaboration agreements:

Years Ended December 31, 2020 vs 2019 2019 vs 2018

(In thousands, except percentages) 2020 2019 2018 Dollar Change Percent Change Dollar Change Percent Change

Regeneron Pharmaceuticals $ 74,072 $ 26,075 $ — $ 47,997 184 % $ 26,075 N/A

Vir Biotechnology 31,396 12,809 12,778 18,587 145 % 31 — %

The Medicines Company (acquired by Novartis AG) 22,208 2,315 2,789 19,893 859 % (474) (17) %

Sanofi Genzyme 995 10,976 46,000 (9,981) (91) % (35,024) (76) %

The Medicines Company 2,315 2,789 30,217 (474) (17) % (27,428) (91) %

Other 2,662 1,038 806 1,624 156 % 232 29 %

Total $ 131,333 $ 53,213 $ 62,373 $ 78,120 147 % $ (9,160) (15) %

(1) As noted above, prior period amounts have not been adjusted under the modified retrospective method.

Net revenues from collaborators decreased during the year ended December 31, 2019, as compared to the year ended December 31, 2018, primarily due to a decrease in reimbursable activities in connection with our collaboration agreements with Sanofi Genzyme, offset by an increase in revenues in connection with our collaboration agreement with Regeneron.

We expect net revenues from collaborators to increase during 2020 as compared to 2019 due primarily to increased reimbursable activities and milestones under our existing collaborations, as well as an increase in revenues in connection with our collaboration with Regeneron.

Net revenues from collaborations increased during the year ended December 31, 2020, as compared to the year ended December 31, 2019, primarily due to an increase in revenue recognized in connection with our collaboration agreements with Regeneron and Vir as a result of increased activities and with Novartis, as well as of the achievement of certain milestones, partially offset by a decrease in activities in connection with our collaboration agreements with Sanofi.

We expect net revenues from collaborations to increase during 2021, as compared to 2020, primarily due to increased reimbursable activities, the anticipated achievement of milestones under our collaboration agreements with Regeneron, Vir and Novartis in addition to royalty revenues recognized under our Novartis agreement associated with the commercialization of Leqvio ® (inclisiran) in the EU and potentially other geographies assuming regulatory approval.

Operating Costs and Expenses

The following table summarizes our operating costs and expenses, in thousands:

Description Year Ended December 31, 2019 vs 2018 2018 vs 2017

2019 2018 2017 Dollar Change Percent Change Dollar Change Percent Change

Cost of goods sold $ 25,062 $ 1,802 $ — $ 23,260 1291 % $ 1,802 N/A

The following table summarizes our operating costs and expenses:

Year Ended December 31, 2020 vs 2019 2019 vs 2018

(In thousands, except percentages) 2020 2019 2018 Dollar Change Percent Change Dollar Change Percent Change

Cost of goods sold $ 78,052 $ 25,062 $ 1,802 $ 52,990 211 % $ 23,260 1,291 %

Research and development 654,819 655,114 505,420 (295) — % 149,694 30 %

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Cost of Goods Sold

Cost of goods sold includes the cost of producing and distributing inventories that are related to product revenues, third-party royalties, and amortization of licensing rights.

Cost of goods sold increased during the year ended December 31, 2019, as compared to the year ended December 31, 2018, primarily due to the increase in net product revenues and a charge for excess and obsolete ONPATTRO inventories.

Based on our policy, we record costs associated with the manufacturing of our products as research and development expense prior to FDA approval or until we expect that these costs will be recoverable through commercialization of our products (zero-cost inventory).

Certain units of product sold and recognized as revenue during the years ended December 31, 2019 and 2018 were zero-cost inventory and therefore the cost of goods sold for the years ended December 31, 2019 and 2018 reflects only a portion of the manufacturing cost of our commercial products.

As of December 31, 2019, we had sold substantially all zero-cost inventory of ONPATTRO.

Cost of goods sold increased during the year ended December 31, 2020, as compared to the year ended December 31, 2019, primarily due to increased third-party royalties and increased sales of capitalized inventory associated with both our net product revenues and product supply under our collaboration agreements.

During the year ended December 31, 2020, product sold and recognized as revenue was substantially from capitalized inventory, whereas during 2019, the majority of the units of product sold and recognized as revenue were zero-cost inventory.

We will continue to sell our zero-cost inventory of GIVLAARI in 2021.

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 during 2020 as compared to 2019 primarily as a result of an expected increase in net product sales.

We expect that cost of goods sold will increase during 2021, as compared to 2020, primarily as a result of an increase in net product revenues and net revenues from collaborations, as well as an increase in sales of capitalized inventory.

Research and Development

The following table summarizes the components of our research and development expenses, in thousands:

Description Year Ended December 31, 2019 vs 2018 2018 vs 2017

2019 2018 2017 Dollar Change Percent Change Dollar Change Percent Change

The following table summarizes the components of our research and development expenses:

Year Ended December 31, 2020 vs 2019 2019 vs 2018

(In thousands, except percentages) 2020 2019 2018 Dollar Change Percent Change Dollar Change Percent Change

Clinical trial and manufacturing $ 218,752 $ 203,897 $ 173,271 $ 14,855 7 % $ 30,626 18 %

Compensation and related 190,705 157,001 116,350 33,704 21 % 40,651 35 %

Stock-based compensation 88,930 80,509 51,872 8,421 10 % 28,637 55 %

External services 70,120 75,448 55,165 (5,328) (7) % 20,283 37 %

Facilities-related 69,769 54,650 42,159 15,119 28 % 12,491 30 %

License fees 37,030 7,959 7,651 29,071 365 % 308 4 %

Stock-based compensation 60,464 88,930 80,509 (28,466) (32) % 8,421 10 %

Lab supplies, materials and other 42,229 38,158 30,007 4,071 11 % 8,151 27 %

$ 655,114 $ 505,420 $ 390,635 $ 149,694 30 % $ 114,785 29 %

Research and development expenses increased during the year ended December 31, 2019, as compared to the year ended December 31, 2018, primarily due to the following:

• Increased clinical trial and manufacturing and external services expenses as a result of increased pre-clinical and clinical services related to the advancement of our early and late-stage programs to support our long-term strategic goals;

• Increased compensation and related expenses and facilities-related expenses, as a result of growth in headcount to support our goals for 2020;

• Increased license fees resulting from our collaboration agreement with Regeneron.

During the years ended December 31, 2019 and 2018, in connection with advancing activities under our collaboration agreements, we incurred research and development expenses, primarily related to external development and manufacturing

The following table summarizes the expenses incurred, for which we recognize net revenue, under our collaboration agreements by collaboration partner, in thousands:

Description Year Ended December 31,

License fees 2,780 37,030 7,959 (34,250) (92) % 29,071 365 %

$ 654,819 $ 655,114 $ 505,420 $ (295) — % $ 149,694 30 %

Research and development expenses were relatively consistent during the year ended December 31, 2020, as compared to the year ended December 31, 2019, primarily due to offsetting increases and decreases of expenses, as follows:

• Increased compensation and related expenses and facilities-related expenses, as a result of increased headcount to support long-term strategic growth;

• Increased clinical trial and manufacturing expenses as a result of increased services related to the advancement of our early and late-stage programs to support long-term strategic growth.

• Decreased stock-based compensation primarily due to the achievement of certain performance-based milestones in 2019;

• Decreased license fees relative to license fees associated with the execution of our collaboration agreement with Regeneron in 2019 and certain regulatory milestones achieved in 2019.

During the years ended December 31, 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 the expenses incurred, for which we recognize net revenue, under our collaboration agreements by collaboration partner:

Year Ended December 31,

(In thousands) 2020 2019 2018

Regeneron Pharmaceuticals $ 57,833 $ 24,916 $ —

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Sanofi Genzyme 2,957 13,856 43,219

The Medicines Company 2,721 1,869 5,527

Ionis Pharmaceuticals — 3,247 3,250

The Medicines Company (acquired by Novartis AG) 1,699 2,721 1,869

Other — — 3,247

Total $ 93,133 $ 56,972 $ 64,406

We expect to continue to devote a substantial portion of our resources to research and development expenses to support our long-term strategic goals.

We expect that research and development expenses will increase during 2020 as compared to 2019 as we continue to develop our pipeline and advance our product candidates, including partnered programs, into later-stage development, hire additional employees and prepare regulatory submissions.

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.

Selling, General and Administrative

The following table summarizes the components of our selling, general and administrative expenses, in thousands:

Description Year Ended December 31, 2019 vs 2018 2018 vs 2017

2019 2018 2017 Dollar Change Percent Change Dollar Change Percent Change

Consulting and professional services

$ 155,843 $ 137,201 $ 68,847 $ 18,642 14 % $ 68,354 99 %

The following table summarizes the components of our selling, general and administrative expenses:

Year Ended December 31, 2020 vs 2019 2019 vs 2018

(In thousands, except percentages) 2020 2019 2018 Dollar Change Percent Change Dollar Change Percent Change

Compensation and related

$ 200,071 $ 148,271 $ 107,376 $ 51,800 35 % $ 40,895 38 %

Consulting and professional services

176,097 155,843 137,201 20,254 13 % 18,642 14 %

Stock-based compensation

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Selling, general and administrative expenses increased during the year ended December 31, 2020, as compared to the year ended December 31, 2019, primarily due to the following:

• Increased compensation and related, consulting and professional services, and facilities-related expenses, as a result of increased commercial and medical affairs headcount and increased commercial-related services to support long-term strategic goals, the continued expansion of ONPATTRO into additional major markets, and the launch of GIVLAARI in December 2019.

We expect that selling, general and administrative expenses will increase during 2020 as compared to 2019 as we continue to grow our operations, including the continued build-out of our global commercial infrastructure and field team to support ONPATTRO, GIVLAARI and potentially additional product launches, but expect that stock-based compensation expenses will be variable due to our determination regarding the probability of vesting for performance-based awards.

• Increased compensation and related, consulting and professional services, and facilities-related expenses as a result of increased commercial and medical affairs headcount and increased commercial-related services to support long-term strategic growth, as well as the continued expansion of our commercial products into additional major markets;

• Increased other expenses primarily due to a change in an estimated accrual for a contingent liability related to our arbitration with Ionis.

We expect that research and development expenses combined with selling, general and administrative expenses will increase during 2021, as compared to 2020, as we continue to develop our pipeline, advance our product candidates, including partnered programs, into later-stage development, prepare regulatory submissions and continue to build-out our global commercial infrastructure and field team to support ONPATTRO, GIVLAARI, OXLUMO and potentially additional product launches.

Total Other (Expense) Income

Total other (expense) income consists of the following:

Year Ended December 31, 2020 vs 2019 2019 vs 2018

(In thousands, except percentages) 2020 2019 2018 Dollar Change Percent Change Dollar Change Percent Change

Interest expense $ (84,496) $ — $ — $ (84,496) N/A $ — N/A

Interest income 11,809 33,448 29,262 (21,639) (65) % 4,186 14 %

Other income:

Realized and unrealized gains on marketable equity securities 54,042 11,288 3,564 42,754 379 % 7,724 N/A

Change in fair value of development derivative liability (17,185) — — (17,185) N/A — N/A

Change in fair value of liability obligation — 9,422 — (9,422) (100) % 9,422 N/A

Gain on litigation settlement — — 20,564 — N/A (20,564) (100) %

Other income 8,668 20 609 8,648 43,240 % (589) (97) %

Total $ (27,162) $ 54,178 $ 53,999 $ (81,340) (150) % $ 179 — %

Total other expense increased during the year ended December 31, 2020, as compared to the year ended December 31, 2019, primarily due to the following:

• $84.5 million of interest expense associated with the sale of future royalties;

• Decreased interest income of $21.6 million as a result of lower interest rates;

• Loss of $17.2 million as a result of a mark-to-market adjustment related to the development derivative liability;

• Increased other income due to realized and unrealized gains in marketable equity securities.

Liquidity and Capital Resources

Since we commenced operations in 2002, we have generated significant losses.

As of December 31, 2019, we had an accumulated deficit of $3.73 billion.

As of December 31, 2019, we had cash, cash equivalents and marketable debt and equity securities of $1.54 billion, compared to $1.08 billion as of December 31, 2018.

We have required significant amounts of cash to fund our operating activities as a result of net losses since our inception and we expect that we will continue to require significant amounts of cash to fund our operating activities for the foreseeable future as we continue to execute on our long-term strategic goals through the advancement of our research, development, pre-commercial and commercial initiatives.

The actual amount of overall expenditures will depend on numerous factors, including the timing of net product revenues and expenses, the timing and terms of collaboration agreements or other strategic transactions, if any, and the timing and progress of our research, development and commercialization efforts.

The following table summarizes our cash flow activities, in thousands:

The following table summarizes our cash flow activities:

Year Ended December 31,

2019 2018 2017

(In thousands) 2020 2019 2018

Net loss $ (858,281) $ (886,116) $ (761,497)

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Effect of exchange rate changes on cash, cash equivalents and restricted cash 4,918 (83) —

Net increase (decrease) in cash, cash equivalents and restricted cash 126,997 (224,201) 451,744

Net (decrease) increase in cash, cash equivalents and restricted cash (50,582) 126,997 (224,201)

Cash, cash equivalents and restricted cash, beginning of period

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Cash, cash equivalents and restricted cash, end of period $ 499,046 $ 549,628 $ 422,631

Since we commenced operations in 2002, we have generated significant losses and as of December 31, 2020, we had an accumulated deficit of $4.59 billion.

As of December 31, 2020, we had cash, cash equivalents and marketable securities of $1.87 billion, compared to $1.54 billion as of December 31, 2019.

Operating Activities

Net cash used in operating activities decreased during the year ended December 31, 2019, compared to the year ended December 31, 2018, primarily due to the increase of deferred revenue associated with consideration of $400.0 million received under our strategic collaboration with Regeneron in May 2019, partially offset by an increase in our net loss attributable to increased operating expenses to support overall growth.

Net cash used in operating activities increased during the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to the receipt of $400.0 million in May 2019 for the upfront payment associated with our strategic collaboration with Regeneron resulting in an increase to deferred revenue.

Investing Activities

Net cash used in investing activities increased during the year ended December 31, 2019, compared to the year ended December 31, 2018, primarily due to net activities related to our marketable debt securities, partially offset from cash provided by proceeds of $30.0 million from the release of our restricted cash collateral in connection with termination of our outstanding credit agreement.

Net cash used in investing activities increased during the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to a net increase in our marketable debt securities and restricted investment activities offset by a decrease in capital expenditures primarily related to our Norton manufacturing facility.

Financing Activities

Net cash provided by financing activities increased during the year ended December 31, 2019, compared to the year ended December 31, 2018, primarily due to proceeds of $400.0 million received from our issuance of common stock to Regeneron and aggregate net proceeds of $381.9 million received from our January 2019 underwritten public offering.

Net cash provided by financing activities increased during the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to $500.0 million received from our sale to Blackstone of one-half of our royalty interest under the MDCO agreement in April 2020, increased net proceeds of $129.2 million from the issuance of common stock in connection with stock option exercises and other types of equity and proceeds of $200.0 million in connection with the first draw down on our credit agreement, compared to the prior year 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.

Operating Capital Requirements

We currently have programs focused on a number of therapeutic areas and, in August 2018, received our first product approvals in the U.S.

and EU for ONPATTRO.

As a result, we began to generate net revenues from product sales during the third quarter of 2018.

In November 2019, we received FDA approval for our second product, GIVLAARI, and launched the product in the U.S.

in December 2019.

We currently have programs focused on a number of therapeutic areas and, as of December 31, 2020, have received regulatory approval and commercially launched three products:

ONPATTRO, GIVLAARI and OXLUMO.

In early 2021, we announced Alnylam P 5 x25, which is aimed at our planned transition to a top 5 biotech in market capitalization.

As part of this strategy, our goal is to achieve sustainable non-GAAP profitability by the end of 2025.

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.

In addition, we are expanding our manufacturing capabilities, including through construction of a drug substance manufacturing facility in Norton, Massachusetts.

Based on our current operating plan, we believe that our cash, cash equivalents and marketable debt and equity securities as of December 31, 2019, together with the cash we expect to generate from product sales and under our current alliances, including our 2019 collaboration with Regeneron, will be sufficient to enable us to advance our long-term strategic goals for at least the next 12 months from the filing of this annual report on Form 10-K.

For reasons discussed below, we may require significant additional funds earlier than we currently expect in order to continue to commercialize ONPATTRO and GIVLAARI, and to develop, conduct clinical trials for, manufacture and, if approved, commercialize additional product candidates.

In the future, we may seek additional funding through new collaborative arrangements, public or private equity offerings or debt financings, 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.

For example, if we raise additional funds by issuing equity securities, further dilution to our existing stockholders

In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders.

Moreover, any debt financing, if available, may involve restrictive covenants that could limit our flexibility in conducting future business activities and, in the event of insolvency, would be paid before holders of equity securities received any distribution of corporate assets.

If an event of default were to occur under any such financing, the interest rate could increase and the lenders could be entitled to take various actions, including the acceleration of amounts due under the loan.

Our ability to satisfy and meet any future debt service obligations will depend upon our future performance, which will be subject to financial, business and other factors affecting our operations, many of which are beyond our control.

If we are unable to obtain funding on a timely basis, we may be required to significantly delay or curtail one or more of our research or development programs and our ability to achieve our long-term strategic goals may be delayed or diminished.

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.

Even if we are able to raise additional funds in a timely manner, our future capital requirements may vary from what we expect and will depend on many factors, including:

• our continued progress in demonstrating that siRNAs can be active as drugs and achieve desired clinical effects;

• progress in our research and development programs, as well as what may be required by regulatory bodies to advance these programs;

• the timing, receipt and amount of milestone and other payments, if any, from present and future collaborators, if any;

• our ability to maintain and establish additional collaborative arrangements and/or new business initiatives;

• the resources, time and costs required to successfully initiate and complete our pre-clinical and clinical trials, obtain regulatory approvals, prepare for global commercialization of our product candidates and obtain and maintain licenses to third-party intellectual property;

• our ability to establish, maintain and operate our own manufacturing facilities in a timely and cost-effective manner;

• our ability to manufacture, or contract with third-parties for the manufacture of, our product candidates for clinical testing and commercial sale;

• the resources, time and cost required for the preparation, filing, prosecution, maintenance and enforcement of patent claims;

• the costs associated with legal activities, including litigation, arising in the course of our business activities and our ability to prevail in any such legal disputes;

• the timing, receipt and amount of sales and royalties, if any, from ONPATTRO, GIVLAARI and our other potential products.

In addition, we anticipate that we will continue to generate losses 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, manufacturing 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 securities as of December 31, 2020, together with the cash we expect to generate from product sales and under our current alliances, in addition to our strategic financing collaboration with The Blackstone Group Inc.

and certain of its affiliates, will be sufficient to enable us to advance our long-term strategic goals for at least the next 12 months from the filing of this annual report on Form 10-K.

However, due to numerous factors described in more detail under the caption Part I, Item 1A, "Risk Factors" of this annual report on Form 10-K, we may require significant additional funds earlier than we currently expect in order to continue to commercialize ONPATTRO, GIVLAARI and OXLUMO, and to develop, conduct clinical trials for, manufacture and, if approved, commercialize additional product candidates.

Off-Balance Sheet Arrangements

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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.

Contractual Obligations Payments Due by Period

2020 2021 and 2022 2023 and 2024 After 2024 Total

Payments Due by Period

(In thousands) 2021 2022 and 2023 2024 and 2025 After 2025 Total

Facility lease obligations (1) $ 38,593 $ 90,156 $ 84,108 $ 323,473 $ 536,330

Technology license commitments (2) 795 1,290 600 — 2,685

Long-term debt — — — 200,000 200,000

Total contractual cash obligations $ 38,593 $ 90,156 $ 84,108 $ 523,473 $ 736,330

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(1) Relates primarily to our Cambridge, Massachusetts non-cancelable facility lease agreements.

(2) Relates to our fixed payment obligations under license agreements.

The table above excludes approximately $441.2 million of commitments related to clinical and manufacturing-related agreements and approximately $13.6 million of commitments related to manufacturing-related agreements executed in January 2020, as they are cancellable.

We in-license technology from a number of sources, including Ionis and Merck.

The table above excludes approximately $441.4 million of commitments related to clinical and manufacturing-related agreements, as they are cancellable.

The table above also excludes payments under our purchase and sale and funding agreements with Blackstone, as such payments are contingent on either future sales or the successful achievement of certain development and regulatory events.

In addition, we have collaboration agreements relating to the research, development and commercialization of certain of our product candidates.

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Amounts related to contingent milestone payments are not considered contractual obligations as they are contingent upon the successful achievement of such milestones.

Based on our current development plans, during the next 12 months from the filing of this annual report on Form 10-K, potential milestone payments due to third parties, could be approximately $18.4 million, including $12.8 million in regulatory and development milestones and $5.6 million in commercial milestones, in connection with our various collaborations and license agreements.

Based on our current development plans, during the next 12 months from the filing of this annual report on Form 10-K, potential milestone payments due to third parties are immaterial in connection with our various collaboration and license agreements.

These milestones generally become due and payable upon achievement.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis