What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-02-11 compared with 2020-02-13 · 560 added, 603 removed, 898 unchanged (56% of the section changed)

2 unchanged sentences

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets a s of December 31, 201 9 and 201 8

Consolidated Balance Sheets as of December 31, 2020 and 2019

Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2020, 2019 and 2018

35 unchanged sentences

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Regeneron Collaboration Determination of Standalone Selling Price

As described in Note 4 to the consolidated financial statements, the Company entered into a collaboration with Regeneron Pharmaceuticals, Inc.

(the “Regeneron Collaboration”) in 2019.

The Company’s obligations under the Regeneron Collaboration include:

(i) a research license and research services, collectively referred to as the Research Services Obligation;

(ii) a worldwide license to cemdisiran for combination therapies, and manufacturing and supply, and development service obligations, collectively referred to as the C5 License Obligation;

and (iii) development, manufacturing and commercialization activities for cemdisiran monotherapies, referred to as the C5 Co-Co Obligation.

The initial transaction price of $521.6 million was allocated to the obligations based on the relative estimated standalone selling prices of each obligation, over which management has applied significant judgment.

Management developed the estimated standalone selling price for the licenses included in the Research Services Obligation and the C5 License Obligation primarily based on the probability-weighted present value of expected future cash flows associated with each license related to each specific program.

In developing this estimate, management applied judgment in the determination of the forecasted revenues, taking into consideration the applicable market conditions and relevant entity-specific factors, the expected number of targets or indications expected to be pursued under each license, the probability of success, the time needed to develop a product candidate pursuant to the associated license and the discount rate.

Management developed the estimated standalone selling price for the services and/or manufacturing and supply included in each of the obligations, as applicable, primarily based on the nature of the services to be performed and/or goods to be manufactured and estimates of the associated costs.

The estimated standalone selling price of the C5 Co-Co Obligation was developed by estimating the present value of expected future cash flows that Regeneron is entitled to receive.

In developing this estimate, management applied judgment in determining the indications that will be pursued, the forecasted revenues for such indications, the probability of success, and the discount rate.

The principal considerations for our determination that performing procedures relating to the Regeneron Collaboration determination of the standalone selling price is a critical audit matter are there was significant judgment by management in developing the estimates of standalone selling price, as the estimates are based on a number of assumptions, including the indications that will be pursued, the forecasted revenues for such indications, the probability of success, the discount rate, and estimates for manufacturing and supply costs.

This in turn led to a high degree of auditor judgment, effort and subjectivity in performing procedures relating to the assumptions used by management in developing the estimates of standalone selling price.

In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in evaluating the audit evidence obtained.

Liability Related to Sale of Future Royalties and Commercial Milestones

As described in Notes 2 and 5 to the consolidated financial statements, the liability related to the sale of future royalties and the related interest expense are based on management’s current estimates of future royalties and commercial milestones expected to be paid over the life of the arrangement.

Interest on the liability related to the sale of future royalties will be recognized using the effective interest rate method, resulting in the recognition of interest expense.

Management periodically assesses the expected payments and to the extent the amount or timing of the future estimated payments is materially different than the previous estimates, management accounts for any such change by adjusting the liability related to the sale of future royalties and prospectively recognizing the related non-cash interest expense.

Management’s estimate of the amount of expected future payments to Blackstone over the life of the arrangement is based on the estimated global net sales of inclisiran .

Th e Company recorded a liability related to the sale of future royalties of $1.07 billion as of December 31, 2020 and recognized interest expense on the liability related to the sale of future royalties of $84.5 million for the year ended December 31, 2020.

The principal considerations for our determination that performing procedures relating to the liability related to the sale of future royalties and commercial milestones is a critical audit matter are the significant judgment by management when developing the estimate of the timing and amount of future royalties and commercial milestones to be paid.

This in turn led to a high degree of auditor judgment and effort in performing procedures and in evaluating audit evidence relating to management’s estimate of the expected future royalties and commercial milestones to be paid and the selection of third party data used to estimate global net sales of inclisiran.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the estimation of the standalone selling price, including controls over the review of the methods used to develop standalone selling price, and controls over development of the assumptions related to the methods, including expected future cash flows, discount rates, probability of success and costs estimates for manufacturing and supply costs.

These procedures also included, among others, reading the contractual terms of the collaboration arrangement, understanding and testing management’s process for developing the standalone selling price, including evaluating the appropriateness of the method and the reasonableness of management’s assumptions relating to the indications that will be pursued, forecasted future revenues, probability of success, and estimates for manufacturing and supply costs, and testing the completeness, accuracy, and relevance of underlying data used.

Evaluating management’s assumptions related to the future revenue included in the expected future cash flows, probability of success, and cost estimates for manufacturing and supply costs involved evaluating whether the assumptions used by management were reasonable considering the consistency with data from internal and external sources including market and industry data, and performance of the clinical programs since inception of the collaboration.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s methods for determining the standalone selling price and certain assumptions in those methods, including the discount rate.

These procedures included testing the effectiveness of controls relating to the liability for future royalties and commercial milestones, including controls over management’s process for developing the estimate of timing and amount of future royalties and commercial milestones to be paid .

These procedures also included, among others (i) testing management’s process for developing the estimate of timing and amount of future royalties and commercial milestones to be paid and (ii) evaluating the reasonableness of significant assumptions used by management when developing the estimate of expected future royalties and commercial milestones to be paid related to the selection of third party data used to estimate global net sales of inclisiran.

Evaluating management’s assumption related to the selection of third-party data used to estimate global net sales of inclisiran involved evaluating whether the assumptions used by management were reasonable considering consistency with industry data.

/s/ PricewaterhouseCoopers LLP

12 unchanged sentences

Prepaid expenses and other current assets 62,767 80,343

Receivable related to the sale of future royalties 500,000 —

Total current assets 2,614,777 1,715,864

9 unchanged sentences

Operating lease liability 36,872 27,688

Deferred rent — 3,571

Deferred revenue 127,207 77,821

Liability related to the sale of future royalties 13,316 —

Total current liabilities 585,270 352,594

Operating lease liability, net of current portion 293,039 276,135

Deferred rent, net of current portion — 57,920

Deferred revenue, net of current portion 225,094 318,383

Long-term debt 191,278 —

Liability related to the sale of future royalties, net of current portion 1,058,225 —

Other liabilities 37,908 9,330

19 unchanged sentences

Net product revenues $ 361,520 $ 166,537 $ 12,535

Net revenues from collaborators 53,213 62,373 89,912

Net revenues from collaborations 131,333 53,213 62,373

Total revenues 492,853 219,750 74,908

5 unchanged sentences

Loss from operations ( 828,438 ) ( 939,431 ) ( 814,673 )

Other income (expense):

Other (expense) income:

Interest expense ( 84,496 ) — —

Interest income 11,809 33,448 29,262

Other income (expense) 11,308 4,173 ( 3,022 )

Change in fair value of liability obligation 9,422 — —

Gain on litigation settlement — 20,564 —

Total other income 54,178 53,999 9,214

Other income, net 45,525 20,730 24,737

Total other (expense) income ( 27,162 ) 54,178 53,999

Loss before income taxes ( 855,600 ) ( 885,253 ) ( 760,674 )

6 unchanged sentences

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

Other comprehensive (loss) income, net of tax:

Unrealized gain (loss) on marketable securities 558 1,220 ( 2,886 )

Foreign currency translations ( 343 ) — —

Defined benefit pension plans ( 3,520 ) — —

Reclassification adjustment for realized loss on marketable securities

included in net loss — — 1,894

Other comprehensive (loss) income:

Unrealized gain on marketable securities 211 558 1,220

Foreign currency translation loss ( 7,081 ) ( 343 ) —

Defined benefit pension plans, net of tax ( 234 ) ( 3,520 ) —

Comprehensive loss $ ( 865,385 ) $ ( 889,421 ) $ ( 760,277 )

10 unchanged sentences

Balance as of December 31, 2017 99,667 $ 997 $ 3,947,552 $ ( 34,433 ) $ ( 2,147,685 ) $ 1,766,431

Exercise of common stock options

Cumulative effect adjustment from the adoption of new revenue standard — — — — 68,210 68,210

Exercise of common stock options, net of tax withholdings

1,268 12 60,731 — — 60,743

Issuance of common stock under equity plans 212 2 5,044 — — 5,046

115 1 3,159 — — 3,160

Issuance of common stock under benefit plans 30 — 3,170 — — 3,170

31 1 2,039 — — 2,040

Issuance of common stock to Sanofi Genzyme 298 3 21,378 — — 21,381

Issuance of common stock, net of offering costs

11,440 114 1,139,511 — — 1,139,625

Stock-based compensation expense related to equity-classified awards — — 158,642 — — 158,642

— — 91,324 — — 91,324

Other comprehensive loss, net of tax — — — ( 992 ) — ( 992 )

Other comprehensive gain, net of tax — — — 1,220 — 1,220

Net loss — — — — ( 761,497 ) ( 761,497 )

Balance as of December 31, 2018 101,177 1,011 4,175,139 ( 33,213 ) ( 2,840,972 ) 1,301,965

Cumulative effect adjustment from the adoption of new revenue standard — — — — 68,210 68,210

Exercise of common stock options, net of tax withholdings 1,374 15 63,484 — — 63,499

Issuance of common stock under equity plans 132 1 7,908 — — 7,909

212 2 5,044 — — 5,046

Issuance of common stock under benefit plans 61 1 5,032 — — 5,033

30 — 3,170 — — 3,170

Issuance of common stock, net of offering costs 9,444 94 772,383 — — 772,477

Stock-based compensation expense related to equity-classified awards — — 177,230 — — 177,230

Other comprehensive gain, net of tax — — — 1,220 — 1,220

Other comprehensive loss, net of tax — — — ( 3,305 ) — ( 3,305 )

Net loss — — — — ( 886,116 ) ( 886,116 )

1 unchanged sentence

Exercise of common stock options, net of tax withholdings 2,926 28 189,343 — — 189,371

1,374 15 63,484 — — 63,499

Issuance of common stock under equity plans 350 4 11,079 — — 11,083

132 1 7,908 — — 7,909

Issuance of common stock under benefit plans

61 1 5,032 — — 5,033

Issuance of common stock, net of offering costs

9,444 94 772,383 — — 772,477

Issuance of common stock to strategic partners, net of closing costs 963 10 99,488 — — 99,498

Stock-based compensation expense related to equity-classified awards

— — 142,988 — — 142,988

Other comprehensive loss, net of tax — — — ( 3,305 ) — ( 3,305 )

Other comprehensive loss — — — ( 7,104 ) — ( 7,104 )

Net loss — — — — ( 858,281 ) ( 858,281 )

9 unchanged sentences

Non-cash adjustments to reconcile net loss to net cash used in operating activities:

Amortization and interest accretion related to operating leases 37,193 — —

Depreciation and amortization 34,772 17,175 15,248

Amortization and interest accretion related to operating leases 39,663 37,193 —

Non-cash interest expense on liability related to the sale of future royalties 84,496 — —

Stock-based compensation 139,873 174,841 157,752

Gain on litigation settlement — ( 10,000 ) —

Fair value adjustments on marketable equity securities ( 11,288 ) ( 3,564 ) 1,894

Realized and unrealized gain on marketable equity securities ( 54,042 ) ( 11,288 ) ( 3,564 )

Change in fair value of liability obligation — ( 9,422 ) —

Gain on litigation settlement — — ( 10,000 )

Other 11,259 ( 3,191 ) ( 5,654 )

Changes in operating assets and liabilities:

Proceeds from landlord lease incentive for tenant improvements 30,170 25,350 —

Accounts receivable, net ( 56,236 ) ( 24,238 ) 15,242

Proceeds from landlord lease incentive for tenant improvements 5,550 30,170 25,350

Inventory ( 35,426 ) ( 32,411 ) ( 22,645 )

Prepaid expenses and other assets 15,230 ( 22,042 ) ( 35,067 )

Accounts payable, accrued expenses and other 92,354 74,835 26,629

Operating lease liability ( 33,703 ) — —

Accounts payable, accrued expenses and other liabilities 143,732 92,354 74,835

Deferred revenue ( 43,965 ) 392,251 ( 12,616 )

Operating lease liability ( 41,586 ) ( 33,703 ) —

Net cash used in operating activities ( 614,961 ) ( 278,427 ) ( 562,616 )

1 unchanged sentence

Purchases of property, plant and equipment ( 70,361 ) ( 140,156 ) ( 126,887 )

Purchases of restricted investments — ( 14,825 ) —

Purchases of marketable securities ( 2,025,626 ) ( 2,075,925 ) ( 1,104,046 )

Sales and maturities of marketable securities 1,691,669 1,775,404 1,518,703

Proceeds from maturity of restricted investments — 30,000 —

Purchases of marketable debt securities ( 2,075,925 ) ( 1,104,046 ) ( 903,457 )

Sales and maturities of marketable debt securities 1,775,404 1,518,703 597,305

Purchases of restricted investments ( 25,900 ) — ( 14,825 )

Other ( 5,300 ) ( 7,000 ) —

2 unchanged sentences

Proceeds from exercise of stock options and other types of equity, net 200,484 71,284 65,470

Proceeds from the sale of future royalties 500,000 — —

Proceeds from development derivative 8,400 — —

Offering proceeds, net of costs — 381,900 —

Proceeds from issuance of common stock to Sanofi Genzyme — — 21,381

Proceeds from issuance of term loan 200,000 — —

Repayment of term loan — ( 30,000 ) —

Proceeds from issuance of common stock to Regeneron 400,000 — —

Proceeds from issuance of common stock to strategic partners, net of closing costs 99,498 400,000 —

Payment of transaction costs related to sale of future royalties and term loan ( 13,403 ) — —

Net cash provided by financing activities 994,979 823,184 65,470

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 549,628 422,631 646,832

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

Supplemental disclosure of cash flows:

Cash paid for interest $ 172 $ 775 $ 2,430

Cash paid for income taxes $ 2,566 $ 1,066 $ 114

Supplemental disclosure of noncash investing and financing activities:

Capital expenditures included in accounts payable and accrued expenses $ 14,518 $ 14,876 $ 33,274

Lease liabilities arising from obtaining right-of-use assets $ 34,435 $ 4,530 $ —

Receivable and liability related to the sale of future royalties $ 500,000 $ — $ —

The accompanying notes are an integral part of these consolidated financial statements.

6 unchanged sentences

Since inception, we have focused on discovering, developing and commercializing RNAi therapeutics by establishing and maintaining a strong intellectual property position in the RNAi field, establishing strategic alliances with leading pharmaceutical and life sciences companies, generating revenues through licensing agreements, and ultimately developing and commercializing RNAi therapeutics globally, either independently or with our strategic partners.

We have devoted substantially all of our efforts to business planning, research, development, manufacturing and early commercial efforts, acquiring, filing and expanding intellectual property rights, recruiting management and technical staff, and raising capital.

In August 2018, we received approval for ONPATTRO from the United States Food and Drug Administration, or FDA, and began commercializing and generating product revenues in the U.S.

As of December 31, 2019, we have launched ONPATTRO in the U.S., Japan, Canada and in several countries in Europe.

In November 2019, we received approval for GIVLAARI from the FDA and began commercializing and generating product revenues in the U.S.

in December 2019.

Regulatory filings in additional markets are pending or planned for 2020 and beyond for both commercial products.

We have devoted substantially all of our efforts to business planning, research, development, manufacturing and commercial efforts, acquiring, filing and expanding intellectual property rights, recruiting management and technical staff, and raising capital.

In August 2018, we received approval for ONPATTRO from the United States Food and Drug Administration, or FDA, and began commercializing and generating product revenues in the U.S., and also received marketing authorization for ONPATTRO from the European Commission, or EC.

As of December 31, 2020, we have launched ONPATTRO in the U.S., Europe, Japan, Canada and several additional countries.

In the fourth quarter of 2019, we received approval for GIVLAARI from the FDA and began commercializing and generating product revenues in the U.S.

In 2020, we obtained additional regulatory approval from the EC for GIVLAARI and expanded into European and other markets.

In the fourth quarter of 2020, we received regulatory approval from the FDA and EC for OXLUMO and began recording net product revenues subsequent to commercial launch.

Regulatory filings in additional markets are pending or planned for 2021 and beyond for each of our commercial products.

In 2020, we entered into a broad strategic financing collaboration with The Blackstone Group Inc.

and certain of its affiliates which includes a purchase and sale agreement, a credit agreement, a funding agreement for the clinical development of vutrisiran and ALN-AGT and a stock purchase agreement, under which The Blackstone Group Inc.

and certain of its affiliates will provide up to $ 2.00 billion to support our advancement of innovative RNAi therapeutics.

Each executed agreement is a separate unit of account and was recorded at fair value.

Please read Note 5, Note 7, Note 8 and Note 13, respectively, for additional information regarding each executed agreement set forth above.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

4 unchanged sentences

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, or GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

In our consolidated financial statements, there are significant estimates and assumptions related to our inventory valuation and related reserves, income taxes, revenue recognition, research and development expenses, and stock-based compensation.

In our consolidated financial statements, we use estimates and assumptions related to our inventory valuation and related reserves, liability related to the sale of future royalties, development derivative liability, income taxes, revenue recognition, research and development expenses, and stock-based compensation.

We base our estimates on historical experience and on various other assumptions that we believe to be reasonable.

Actual results could differ from those estimates.

The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including sales, expenses, reserves and allowances, the supply of our products and product candidates, clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and variants thereof, and the actions taken to contain or treat it or vaccinate against it, as well as the economic impact on local, regional, national and international customers and markets.

We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in future periods.

Actual results may differ from these estimates.

Reclassification

Certain prior period amounts in the consolidated financial statements have been reclassified to conform to the current period presentation.

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, 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.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, including 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.

Concentrations of Credit Risk and Significant Customers

Financial instruments that potentially expose us to concentrations of credit risk consist primarily of cash, cash equivalents and marketable debt securities.

As of December 31, 2019 and 2018, substantially all of our cash, cash equivalents and marketable debt securities were invested in money market funds, certificates of deposit, commercial paper, corporate notes, U.S.

Financial instruments that potentially expose us to concentrations of credit risk consist primarily of cash, cash equivalents and marketable securities.

As of December 31, 2020 and 2019, substantially all of our cash, cash equivalents and marketable securities were invested in money market funds, certificates of deposit, commercial paper, corporate notes, U.S.

government-sponsored enterprise securities and U.S.

2 unchanged sentences

Investments are restricted, in accordance with our investment policy, to a concentration limit per issuer.

During the years ended December 31, 2019 and 2018, our revenues were generated primarily from distributors for product sales and collaborations with strategic partners.

During the years ended December 31, 2020, 2019 and 2018, our revenues were generated primarily from product sales to distributors and collaborations with strategic partners.

For the years ended December 31, 2020, 2019 and 2018, our gross accounts receivable balance was comprised of payments primarily due from distributors for product sales and our strategic partners.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes customers that represent 10% or greater of our consolidated total gross revenues for the periods indicated:

The following table summarizes customers that represent 10% or greater of our consolidated total gross revenues:

Year Ended December 31,

2020 2019 2018

Distributor A 44 % 13 % N/A

Distributor A 31 % 44 % 13 %

Regeneron Pharmaceuticals 12 % * *

Sanofi Genzyme * * 58 %

Vir Biotechnology * * 16 %

The Medicines Company * * 34 %

__________________________________________

* Represents less than 10%

The following table summarizes customers with amounts due that represent 10% or greater of our consolidated gross accounts receivable balance, at the periods indicated:

The following table summarizes customers with amounts due that represent 10% or greater of our consolidated gross accounts receivable balance:

As of December 31,

Distributor A 19 % 28 %

Sanofi Genzyme 14 % 29 %

Vir Biotechnology 13 % *

Novartis AG 16 % *

Distributor B 14 % 10 %

Regeneron Pharmaceuticals 11 % *

Sanofi Genzyme * 14 %

__________________________________________

10 unchanged sentences

We report available-for-sale debt securities at fair value at each balance sheet date and include any unrealized holding gains and losses (the adjustment to fair value) in accumulated other comprehensive (loss) income, a component of stockholders’ equity.

Realized gains and losses are determined using the specific identification method and are included in other income (expense).

If any adjustment to fair value reflects a decline in the value of the marketable debt securities, we consider all available evidence to evaluate the extent to which the decline is “other than temporary,” including our intention to sell and, if so, mark the investment to market through a charge to our consolidated statements of operations and comprehensive loss.

Realized gains and losses are determined using the specific

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

identification method and are included in other income (expense).

If any adjustment to fair value reflects a decline in the value of the marketable debt securities, we consider all available evidence to evaluate if an impairment loss exists, and if so, mark the investment to market through a charge to our consolidated statements of operations and comprehensive loss.

We did not record any impairment charges related to our marketable debt securities during the years ended December 31, 2020, 2019 or 2018.

8 unchanged sentences

For our marketable debt securities, we perform our own review of prices received from the independent pricing services by comparing these prices to other sources and for our marketable equity securities, we confirm those securities are trading in active markets.

Prior to January 1, 2018, we recognized unrealized gains and losses on our marketable equity securities through accumulated other comprehensive income (loss) on our consolidated balance sheets.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounts Receivable

We record accounts receivable net of customer allowances for distribution services, prompt payment discounts and chargebacks based on contractual terms.

As of December 31, 2019 and 2018, we determined an allowance for doubtful accounts was not required based upon our review of contractual payment terms and individual customer circumstances.

As of December 31, 2020 and 2019, based on our estimation of expected write-offs, we determined an allowance for doubtful accounts was not material.

We have standard payment terms that generally require payment within approximately 30 to 90 days.

Accounts receivable, net on our consolidated balance sheets also includes billed and unbilled collaboration receivables.

Inventory is measured at the lower of cost or estimated net realizable value.

Inventory is measured at the lower of cost or estimated net realizable value and classified based on the anticipation of when it will be consumed either within our normal operating cycle (short-term) or beyond (long-term).

We use a standard cost basis, which approximates cost determined on a first-in, first-out basis.

14 unchanged sentences

During the years ended December 31, 2020, 2019 and 2018, we recorded $ 30.2 million, $ 16.6 million and $ 12.8 million, respectively, of depreciation expense related to our property, plant and equipment.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The estimated useful lives of property, plant and equipment are as follows:

6 unchanged sentences

Buildings 40 years

Construction in progress —

Research and Development Accruals

Effective January 1, 2019, we adopted Accounting Standards Update, or ASU, 2016-02, Leases Topic 842, or ASC 842, using a modified retrospective basis and utilizing the effective date as the date of initial application.

We determine if an arrangement is a lease at contract inception based on the facts and circumstances present in the arrangement.

All our leases are classified as operating leases under the new leasing standard.

W e record operating lease assets and lease liabilities in our consolidated balance sheets.

Operating lease assets represent our right to use an underlying asset for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the leasing arrangement.

Operating lease assets and operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

As most of our leases do not provide an implicit rate, in determining the operating lease liabilities, we use an estimate of our incremental borrowing rate based on the information available at commencement.

Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Short-term leases, or leases that have a lease term of 12 months or less at commencement date, are excluded from this treatment and are recognized on a straight-line basis over the term of the lease.

Clinical 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.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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.

16 unchanged sentences

We expense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that we would have recognized is one year or less or the amount is immaterial.

As of December 31, 2019 and 2018, we had not capitalized any costs to obtain any of our contracts.

As of December 31, 2020 and 2019, we had no t capitalized any costs to obtain any of our contracts.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 :

9 unchanged sentences

We estimate our customers will earn these discounts and fees, and deduct these discounts and fees in full from gross product revenues and accounts receivable at the time we recognize the related revenues.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

2 unchanged sentences

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.

Our collaboration agreements are detailed in Note 4, Net Revenues from Collaborations.

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

5 unchanged sentences

Variable consideration such as performance-based milestones will be included in the total consideration if we expect to receive such consideration and if it is probable that the inclusion of the variable consideration will not result in a significant reversal in the cumulative amount of revenue recognized under the arrangement.

Our estimate of the total consideration we expect to receive under each collaboration arrangement is updated for each reporting period, and any adjustments to revenue are recorded on a cumulative catch-up basis.

Our estimate of the total consideration we expect to receive under each collaboration arrangement is updated for each reporting period, and any

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

adjustments to revenue are recorded on a cumulative catch-up basis.

We exclude sales-based royalty and milestone payments from the total consideration we expect to receive until the underlying sales occur because the license to our intellectual property is deemed to be the predominant item to which the royalties or milestones relate as it is the primary driver of value in our collaboration arrangements.

3 unchanged sentences

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.

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.

Cost of Goods Sold

Cost of goods sold includes the cost of producing and distributing inventories that are related to product revenues during the respective period (including salary-related and stock-based compensation expenses for employees involved with production and distribution, freight and indirect overhead costs), third-party royalties payable on our net product revenues and amortization of intangible assets associated with the sale of our products.

Cost of goods sold includes the cost of producing and distributing inventories that are related to product revenues during the respective period (including salary-related and stock-based compensation expenses for employees involved with production and distribution, freight and indirect overhead costs), third-party royalties payable on our net product revenues, amortization of intangible assets associated with the sale of our products and costs related to sales of product supply under our collaboration agreements.

Cost of goods sold may also include costs related to excess or obsolete inventory adjustment charges, abnormal costs, unabsorbed manufacturing and overhead costs, and manufacturing variances.

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

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

2 unchanged sentences

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.

As of December 31, 2019, we have recorded no interest and penalty expense related to uncertain tax positions.

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 have recorded no interest and penalty expense related to uncertain tax positions for the years ended December 31, 2020, 2019 or 2018.

Research and Development Expenses

We record research and development expenses as incurred.

Included in research and development expenses are wages, stock-based compensation expenses, benefits and other operating costs, facilities, supplies, external services, clinical trial and manufacturing costs, costs related to our collaboration arrangements, and overhead directly related to our research and development operations, as well as costs to acquire technology licenses.

Included in research and development expenses are wages, stock-based compensation expenses, benefits and other operating costs, facilities, supplies, external services, clinical trial and manufacturing costs, certain costs related to our collaboration arrangements, and overhead directly related to our research and development operations, as well as costs to acquire technology licenses.

We have entered into several license agreements for rights to utilize certain technologies.

5 unchanged sentences

We account for all stock-based awards granted to employees at their fair value and generally 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.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

3 unchanged sentences

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

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.

Development Derivative Liability

Development derivative liability is recorded at fair value based on the probability weighted present value of the estimated cash flows pursuant to contractual terms of the funding agreement.

The liability is remeasured quarterly with any change in fair value recorded in other income (expense) on the consolidated statements of operations and comprehensive loss.

Comprehensive Loss

8 unchanged sentences

Because the inclusion of potential common shares would be anti-dilutive for all periods presented, diluted net loss per common share is the same as basic net loss per common share.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth for the periods presented the potential common shares (prior to consideration of the treasury stock method) excluded from the calculation of net loss per common share because their inclusion would be anti-dilutive, in thousands:

The following table sets forth the potential common shares (prior to consideration of the treasury stock method) excluded from the calculation of net loss per common share because their inclusion would be anti-dilutive:

As of December 31,

2019 2018 2017

(In thousands) 2020 2019 2018

Options to purchase common stock 11,692 13,069 12,573

5 unchanged sentences

As of December 31, 2020 and 2019, substantially all of our consolidated property, plant and equipment, net was from U.S.

For the years ended December 31, 2019, 2018 and 2017, net revenues from collaborators were attributed to the U.S.

For the years ended December 31, 2020, 2019 and 2018, net revenues from collaborations were attributed to the U.S.

Please read Note 3 for information regarding our net product sales by geography.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board, or FASB, issued a new leasing standard, ASC 842, which generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use assets on the consolidated balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements.

We adopted the new standard on January 1, 2019, using a modified retrospective basis and did not restate comparative periods.

In addition, we did not elect the package of practical expedients permitted under the transition guidance that permits companies to carry forward prior conclusions related to (1) whether any expired or existing contracts are, or contain, leases, (2) the lease classification for expired or existing leases, and (3) initial direct costs for existing leases.

All our leases have been classified as operating leases under the new leasing standard.

We elected to combine lease and non-lease components for our facility leases and to keep leases with an initial term of 12 months or less off the consolidated balance sheets and recognize the associated lease payments in the consolidated statements of operations and comprehensive loss on a straight-line basis over the lease term.

Please read Note 8 for additional disclosures related to accounting for leases under this new standard.

The adoption of ASC 842 had a material impact on our consolidated balance sheet as the standard requires us to measure and recognize a right of use asset and lease liability.

As most leases do not provide an implicit rate, our incremental borrowing rate was determined based on the information available at the date of adoption to measure our lease liability.

Costs determined to be variable and not based on an index or rate were not included in the measurement of the lease liability.

We recognized approximately $ 290.0 million of operating lease liabilities and approximately $ 230.0 million of operating lease right-of-use assets on our consolidated balance sheet as of January 1, 2019.

The adoption of the standard did not have a material impact on our consolidated statement of operations and comprehensive loss and there was no impact to cash from or used in operating, financing or investing activities on our consolidated statement of cash flows.

In May 2014, the FASB issued new accounting guidance related to revenue recognition (ASC 606), which outlines a comprehensive revenue recognition model and supersedes most current revenue recognition accounting guidance and requires increased disclosures.

The new accounting guidance defines a five-step approach that requires a company to recognize revenue as control of goods or services transfers to a customer at an amount that reflects the expected consideration to be received in exchange for those goods or services.

We adopted ASC 606 in the first quarter of 2018 using the modified retrospective method to all contracts that were not completed as of January 1, 2018.

We recognized the cumulative effect of initially applying the new revenue accounting guidance as an adjustment to opening retained earnings.

Prior period results have not been restated and continue to be reported in accordance with the accounting guidance in effect for those periods.

There was no impact to cash from or used in operating, financing or investing activities on our consolidated statement of cash flows as a result of the adoption of the new revenue standard.

The following table summarizes the cumulative effect to our consolidated balance sheet upon the adoption of the new revenue standard on January 1, 2018, in thousands:

Consolidated Balance Sheet Balance as of December 31,

2017 Adjustments Balance as of January 1, 2018

Deferred revenue, current portion $ 41,705 $ ( 34,463 ) $ 7,242

Deferred revenue, net of current portion $ 43,075 $ ( 33,747 ) $ 9,328

Accumulated deficit $ ( 2,147,685 ) $ 68,210 $ ( 2,079,475 )

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The adoption of the new revenue standard resulted in a cumulative reduction of $ 68.2 million of deferred revenue with a corresponding adjustment to the opening balance of accumulated deficit recorded in the first quarter of 2018.

As a result of the cumulative reduction in deferred revenue, our corresponding deferred tax asset was reduced by $ 13.6 million, which was offset by a corresponding decrease to our valuation allowance.

These offsetting adjustments were recorded to our accumulated deficit in the first quarter of 2018.

In accordance with the new revenue standard requirements, the following tables summarize the impact of adoption on our consolidated balance sheet and consolidated statement of operations and comprehensive loss, in thousands:

At December 31, 2018

Consolidated Balance Sheet As Reported Balances

Standard Effect of

Higher/(Lower)

Deferred revenue, current portion $ 3,496 $ 3,496 $ —

Deferred revenue, net of current portion $ 458 $ 18,451 $ ( 17,993 )

Accumulated deficit $ ( 2,840,972 ) $ ( 2,859,049 ) $ ( 18,077 )

Year Ended December 31, 2018

Consolidated Statement of Operations and Comprehensive Loss As Reported Balances

Standard Effect of

Higher/(Lower)

Net revenues from collaborators $ 62,373 $ 112,506 $ ( 50,133 )

Net loss $ ( 761,497 ) $ ( 711,364 ) $ 50,133

Net loss per common share - basic and diluted $ ( 7.57 ) $ ( 7.07 ) $ 0.50

The impact of our adoption of the new revenue standard did not have a material impact on the amount of net product revenues recognized during the year ended December 31, 2018 .

In March 2017, the FASB issued a new standard that amends the amortization period for certain purchased callable debt securities held at a premium by shortening the amortization period for the premium to the earliest call date.

The new standard became effective for us on January 1, 2019.

This standard did not have a significant impact on our consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements, Not Yet Adopted

In June 2016, the FASB issued new accounting guidance which requires entities to record expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board, or FASB, issued ASU 2016-13 which requires entities to record expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred.

For available-for-sale debt securities in unrealized loss positions, the new standard requires allowances to be recorded instead of reducing the amortized cost of the investment.

The new standard became effective for us on January 1, 2020.

We currently do not expect this guidance to have a significant impact on our consolidated financial statements and related disclosures.

In August 2018, the FASB issued amendments to accounting guidance that eliminate, add and modify certain disclosure requirements on fair value measurements.

The new standard became effective for us on January 1, 2020.

We currently do not expect this guidance to have a significant impact on our consolidated financial statements and related disclosures.

In August 2018, the FASB issued new accounting guidance to clarify the accounting for implementation costs in cloud computing arrangements (hosting arrangements).

The new standard became effective for us on January 1, 2020 and did not have a significant impact on our consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13 amending accounting guidance that eliminate, add and modify certain disclosure requirements on fair value measurements.

The new standard became effective for us on January 1, 2020 and did not have a significant impact on our consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-15 to clarify the accounting for implementation costs in cloud computing arrangements (hosting arrangements).

The new standard requires a customer in a cloud computing arrangement to determine which implementation costs to capitalize as assets or expense as incurred.

Capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use.

The new standard became effective for us on January 1, 2020.

We currently do not expect this guidance to have a significant impact on our consolidated financial statements and related disclosures.

In August 2018, the FASB issued amendments to accounting guidance to modify the disclosure requirements for employers that sponsor a defined benefit pension plan.

The amendments become effective for our fiscal year, on a retrospective basis, beginning January 1, 2021, however early adoption is permitted.

We are currently evaluating the timing of our adoption and the expected impact this guidance could have on our consolidated financial statements and related disclosures.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In November 2018, the FASB issued new accounting guidance to clarify the interaction between the accounting guidance for collaborative arrangements and revenue from contracts with customers.

The new standard became effective for us on January 1, 2020 and did not have a significant impact on our consolidated financial statements and related disclosures.

In November 2018, the FASB issued ASU 2018-18 to clarify the interaction between the accounting guidance for collaborative arrangements and revenue from contracts with customers.

The new standard became effective for us on January 1, 2020 using a retrospective transition method.

We currently do not expect this guidance to have a significant impact on our consolidated financial statements and related disclosures.

In December 2019, the FASB issued amendments to accounting guidance that simplifies the accounting for income taxes, as part of its initiative to reduce complexity in the accounting standards.

This standard did not have a significant impact on our consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12 amending accounting guidance that simplify the accounting for income taxes, as part of its initiative to reduce complexity in the accounting standards.

The amendments eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

The amendments also clarify and simplify other aspects of the accounting for income taxes.

The amendments become effective for our fiscal year, including interim periods, beginning January 1, 2021, however early adoption is permitted.

We are currently evaluating the timing of our adoption and the expected impact this guidance could have on our consolidated financial statements and related disclosures.

Subsequent Events

We did not have any material recognized or unrecognized subsequent events.

We early adopted the amendments as of January 1, 2020, on a prospective basis.

The amendments did not have a significant impact on our consolidated financial statements and related disclosures.

We adopted ASC 606 in the first quarter of 2018 and recognized the cumulative effect of initially applying ASC 606 as an adjustment to opening retained earnings for the year ended December 31, 2018.

NET PRODUCT REVENUES

Net product revenues by geography consist of the following, in thousands:

Years Ended December 31,

2019 2018 2017

Net product revenues by geography consist of the following:

Year Ended December 31,

(In thousands) 2020 2019 2018

United States $ 151,574 $ 116,302 $ 8,589

Europe 107,755 43,980 3,946

Rest of World (primarily Japan) 46,752 6,105 —

Total $ 306,081 $ 166,387 $ 12,535

United States $ 42,797 $ 150 $ —

Europe 12,000 — —

Rest of World 309 — —

Total $ 55,106 $ 150 $ —

Europe $ 333 $ — $ —

Total net product revenues $ 361,520 $ 166,537 $ 12,535

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2020 and 2019, net product revenue-related receivables of $ 68.9 million and $ 28.1 million , respectively, were included in “Accounts receivable, net.”

The following table summarizes balances and activity in each product revenue allowance and reserve category during the years ended December 31, 2019 and 2018, in thousands:

The following table summarizes balances and activity in each product revenue allowance and reserve category:

As of December 31, 2020

Chargebacks and Rebates Trade Discounts and Allowances Returns Reserve and Other Incentives Total

(In thousands) Chargebacks and Rebates Trade Discounts and Allowances Returns Reserve and Other Incentives Total

Beginning balance $ 32,487 $ 410 $ 1,978 $ 34,875

4 unchanged sentences

As of December 31, 2019

Chargebacks and Rebates Trade Discounts and Allowances Returns Reserve and Other Incentives Total

(In thousands) Chargebacks and Rebates Trade Discounts and Allowances Returns Reserve and Other Incentives Total

Beginning balance $ 3,441 $ 218 $ 321 $ 3,980

1 unchanged sentence

Credit or payments made during the period for current year sales ( 15,216 ) ( 2,817 ) ( 3,231 ) ( 21,264 )

Credit or payments made

during the period for prior period sales ( 109 ) ( 218 ) ( 220 ) ( 547 )

Total $ 32,487 $ 410 $ 1,978 $ 34,875

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

COLLABORATION AGREEMENTS

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

NET REVENUES FROM COLLABORATIONS

The following table summarizes our total consolidated net revenues from collaborations:

Year Ended December 31,

Description 2019 2018 2017 (1)

(In thousands) 2020 2019 2018

Regeneron Pharmaceuticals $ 74,072 $ 26,075 $ —

Vir Biotechnology 31,396 12,809 12,778

22,208 2,315 2,789

Sanofi Genzyme 995 10,976 46,000

The Medicines Company 2,315 2,789 30,217

Other 2,662 1,038 806

Total net revenues from collaborators $ 53,213 $ 62,373 $ 89,912

(1) As described in Note 2 above, prior period amounts have not been adjusted under the modified retrospective method.

The following table presents the balance of our receivables and contract liabilities related to our collaboration agreements, in thousands:

Total $ 131,333 $ 53,213 $ 62,373

The following table presents the balance of our receivables and contract liabilities related to our collaboration agreements:

As of December 31,

(In thousands) 2020 2019

Receivables included in "Accounts receivable, net" $ 33,542 $ 14,929

Contract liabilities included in "Deferred revenue" 120,021 153,117

The following table presents revenue recognized as a result of changes in contract liability related to our collaboration agreements, in thousands:

Included in Deferred Revenue

Contract liability as of January 1, 2018 $ 16,570

Consideration earned, not yet recognized as revenue 3,954

Revenue recognized on contract liability as of January 1, 2018 ( 16,570 )

Contract liability as of December 31, 2018 3,954

Consideration earned, not yet recognized as revenue 153,117

Revenue recognized on contract liability as of December 31, 2018 ( 3,954 )

Contract liability as of December 31, 2019 $ 153,117

We recognized revenue of $ 54.4 million and $ 4.0 million in the years ended December 31, 2020 and 2019, respectively, that was included in the contract liability balance at the beginning of the period.

In order to determine revenue recognized in the period from contract liabilities, we first allocate revenue to the individual contract liability balance outstanding at the beginning of the period until the revenue exceeds that balance.

If additional consideration is received on those contracts in subsequent periods, we assume all revenue recognized in the reporting period first applies to the beginning contract liability as opposed to a portion applying to the new consideration for the period.

The following table provides the research and development expenses incurred by type, for which we recognize net revenue, that are directly attributable to our collaboration agreements by collaboration partner, in thousands:

If additional

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

consideration is received on those contracts in subsequent periods, we assume all revenue recognized in the reporting period first applies to the beginning contract liability as opposed to a portion applying to the new consideration for the period.

Year Ended December 31,

2020 2019 2018

Clinical Trial and Manufacturing External Services Other Clinical Trial and Manufacturing External Services Other Clinical Trial and Manufacturing External Services Other

(In thousands) Clinical Trial and Manufacturing External Services Other Clinical Trial and Manufacturing External Services Other Clinical Trial and Manufacturing External Services Other

Regeneron $ 13,302 $ 171 $ 44,360 $ 2,793 $ 344 $ 21,779 $ — $ — $ —

Sanofi 11,505 334 2,017 36,600 5,340 1,279 174,901 4,475 5,327

Sanofi Genzyme 644 181 2,132 11,505 334 2,017 36,600 5,340 1,279

Vir 18,470 584 11,590 10,353 381 4,745 7,272 8,251 548

MDCO 2,025 — 696 1,664 2 203 5,421 — 106

Ionis — — — — 2,150 1,097 — 3,250 —

Novartis 999 — 700 2,025 — 696 1,664 2 203

Other — — — — — — — 2,150 1,097

Total $ 33,415 $ 936 $ 58,782 $ 26,676 $ 1,059 $ 29,237 $ 45,536 $ 15,743 $ 3,127

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(iii) other expenses, including professional services, facilities and overhead allocations, and a reasonable estimate of compensation and related costs as billed to our counterparties for which we recognize net revenue from collaborations.

As part of our revenue recognition policy adopted January 1, 2018, the costs in the above table are considered an input in our determination of transaction price when they relate to consideration received for the delivery of goods or services.

The research and development expenses incurred for each agreement listed in the table above consist of costs incurred for (i) clinical and manufacturing expenses, (ii) external services including consulting services and lab supplies and services, and (iii) other expenses, including professional services, facilities and overhead allocations, and a reasonable estimate of compensation and related costs as billed to our counterparties for which we recognize net revenues from collaborations.

For the years ended December 31, 2020, 2019 and 2018, we did not incur material selling, general and administrative expenses related to our collaboration agreements.

Product Alliances

Regeneron Collaboration

Regeneron Pharmaceuticals, Inc.

On April 8, 2019, we entered into a global, strategic collaboration with Regeneron Pharmaceuticals, Inc., or Regeneron, to discover, develop and commercialize RNAi therapeutics for a broad range of diseases by addressing therapeutic targets expressed in the eye and central nervous system, or CNS, in addition to a select number of targets expressed in the liver, which we refer to as the Regeneron Collaboration.

The Regeneron Collaboration is governed by a Master Agreement, referred to as the Regeneron Master Agreement, which became effective on May 21, 2019, or the Effective Date.

Upon closing of the Stock Purchase Agreement dated April 8, 2019, referred to as the Regeneron SPA, we issued 4,444,445 shares of common stock to Regeneron for aggregate cash consideration of $ 400.0 million, or $ 90.00 per share.

Please read Note 10 for a full discussion regarding the Regeneron SPA.

In connection with the Regeneron Master Agreement, we and Regeneron entered into (i) a binding co-co collaboration term sheet covering the continued development of cemdisiran, our C5 small interfering RNA, or siRNA, currently in Phase 2 development for C5 complement-mediated diseases, as a monotherapy and (ii) a binding license term sheet to evaluate anti-C5 antibody-siRNA combinations for C5 complement-mediated diseases including evaluating the combination of Regeneron’s pozelimab (REGN3918), currently in Phase 2 development, and cemdisiran.

9 unchanged sentences

If the non-lead party elects to not enter into a co-co collaboration agreement with respect to a given CNS or liver program, we and Regeneron will enter into a license agreement with respect to such program and the lead party will be the “Licensee” for the purposes of the license agreement.

If the lead party for a CNS or liver program elects to not enter into the co-co collaboration agreement, then we and Regeneron will enter into a license agreement with respect to such program and leadership of the program will transfer to the other party and the former non-lead party will be the “Licensee” for the purposes of the license agreement.

If the lead party for a CNS or liver program elects to not enter into the co-co collaboration agreement, then we and Regeneron will enter into a license agreement

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

with respect to such program and leadership of the program will transfer to the other party and the former non-lead party will be the “Licensee” for the purposes of the license agreement.

With respect to the programs directed to C5 complement-mediated diseases, we retain control of cemdisiran monotherapy development, and Regeneron is leading combination product development.

6 unchanged sentences

For each program, Regeneron will provide us with $ 2.5 million in funding at program initiation and an additional $ 2.5 million at lead candidate identification, with the potential for approximately $ 30.0 million in annual discovery funding to us as the Regeneron Collaboration reaches steady state.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Regeneron has the right to terminate the Regeneron Master Agreement for convenience upon ninety days ’ notice.

7 unchanged sentences

For any co-co collaboration agreement subsequently entered into, we and Regeneron will share equally all costs of, and profits from, development and commercialization activities.

Reimbursement of our share of costs will be recognized as a reduction to research and development expense in the consolidated statements of operations and comprehensive loss.

During the year ended December 31, 2020 and 2019, we recognized $ 5.4 million and $ 0.0 million, respectively, as a reduction to research and development expense.

In the event that a party exercises its opt-out right, the lead party will be responsible for all costs and expenses incurred in connection with the development and commercialization of the collaboration products under the applicable co-co collaboration agreement, subject to continued sharing of costs through defined points.

7 unchanged sentences

Similarly, the worldwide license to cemdisiran for combination therapies is not distinct from the manufacturing and supply and development service obligations, as Regeneron cannot benefit on its own from the value of the license without receipt of supply.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Separately, the cemdisiran monotherapy co-co collaboration agreement is under the scope of ASC 808 as we and Regeneron are both active participants in the development and manufacturing activities and are exposed to significant risks and rewards that are dependent on commercial success of the activities of the arrangement.

8 unchanged sentences

We allocated the initial transaction price to each unit of account based on the applicable accounting guidance as follows, in thousands:

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Performance Obligations Standalone Selling Price Transaction Price Allocated Accounting Guidance

12 unchanged sentences

Any changes to these estimates will be recognized in the period in which they change as a cumulative catch up.

We re-evaluate the transaction price as of the end of each reporting period and during the period from the execution of the Regeneron Master Agreement through December 31, 2019, the transaction price increased $ 33.5 million from $ 521.6 million upon execution of the Regeneron Master Agreement to $ 555.1 million as of December 31, 2019, resulting from additional variable consideration we expect to receive.

We re-evaluate the transaction price as of the end of each reporting period and as of December 31, 2020, the total transaction price was determined to be $ 531.8 million, a decrease of $ 23.3 million from December 31, 2019.

As of December 31, 2020, the transaction price is comprised of the upfront payment and variable consideration related to development, manufacture and supply activities.

For the C5 Co-Co Obligation accounted for under ASC 808, the transaction price allocated to this obligation is recognized using a proportional performance method.

Revenue recognized under this agreement, inclusive of the amount allocated to the C5 Co-Co Obligation and future cost reimbursements, is accounted for as collaboration revenue.

The following table provides a summary of the transaction price allocated to each unit of account based on the applicable accounting guidance, in addition to revenue activity during the period, in thousands:

Revenue Recognized During Deferred Revenue

Performance Obligations Transaction Price Allocated Year Ended December 31, 2019 As of December 31, 2019 Accounting Guidance

Revenue recognized under this agreement, inclusive of the amount allocated to the C5 Co-Co Obligation, is accounted for as collaboration revenue.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables provide a summary of the transaction price allocated to each unit of account based on the applicable accounting guidance, in addition to revenue activity during the period, in thousands:

Transaction Price Allocated Deferred Revenue

Performance Obligations As of December 31, 2020 As of December 31, 2020 As of December 31, 2019 Accounting Guidance

Research Services Obligation $ 200,600 $ 54,900 $ 84,800 ASC 606

2 unchanged sentences

Total $ 531,800 $ 345,000 $ 393,600

Revenue Recognized During

Performance Obligations Year Ended December 31, 2020 Year Ended December 31, 2019 Accounting Guidance

Research Services Obligation $ 44,800 $ 21,000 ASC 606

C5 License Obligation 7,100 — ASC 606

C5 Co-Co Obligation 11,700 2,900 ASC 808

$ 63,600 $ 23,900

As of December 31, 2020, the aggregate amount of the transaction price allocated to the remaining Research Services Obligation and C5 License Obligation that was unsatisfied was $ 212.9 million, which is expected to be recognized through the term of the Regeneron Collaboration as the services are performed.

1 unchanged sentence

Deferred revenue related to the Regeneron Collaboration is classified as either current or non-current in the consolidated balance sheets based on the period the revenue is expected to be recognized.

Sanofi Genzyme Collaboration

Sanofi Genzyme

2014 Sanofi Genzyme Collaboration, as amended in January 2018 and further amended in April 2019

In January 2014, we entered into the 2014 Sanofi Genzyme collaboration.

The 2014 Sanofi Genzyme collaboration superseded and replaced the 2012 Sanofi Genzyme agreement and was amended in January 2018, at which time we also entered into an Exclusive License Agreement, referred to as the Exclusive TTR License, as well as the ALN-AT3 Global License

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Terms, referred to as the AT3 License Terms, as described below.

The 2014 Sanofi Genzyme collaboration and the AT3 License Terms were further amended in April 2019.

12 unchanged sentences

Sanofi Genzyme was also obligated to pay us a milestone of $ 25.0 million upon the dosing of the first patient in our ATLAS Phase 3 program for fitusiran.

In addition, Sanofi Genzyme was required to pay tiered double-digit royalties up to 20 % for each co-development/co-commercialization product based on annual net sales, if any, in the Sanofi Genzyme Territory for such product by Sanofi Genzyme, its affiliates and sublicensees.

In addition, Sanofi Genzyme was required to pay tiered double-digit royalties up to 20 % for each co-development/co-

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

commercialization product based on annual net sales, if any, in the Sanofi Genzyme Territory for such product by Sanofi Genzyme, its affiliates and sublicensees.

The parties were to share profits equally and we expected to book product sales in the Alnylam Territory.

13 unchanged sentences

As a result, we are funding all development and commercialization costs for ONPATTRO and vutrisiran.

We also funded development and commercialization costs for

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

fitusiran through the transition period, up to a cap of $ 50.0 million, after which Sanofi Genzyme became responsible for funding all development and commercialization costs for fitusiran.

We also funded development and commercialization costs for fitusiran through the transition period, up to a cap of $ 50.0 million, after which Sanofi Genzyme became responsible for funding all development and commercialization costs for fitusiran.

We completed the transition period relating to the transition of the fitusiran program to Sanofi Genzyme in 2018.

Each party was responsible for its costs associated with the transfer of the respective program to the other party.

Under the 2018 amendment and the Exclusive TTR License, Sanofi Genzyme is eligible to receive (i) royalties up to 25 %, increasing over time, based on annual net sales of ONPATTRO in territories excluding the U.S., Canada and Western Europe, provided royalties on annual net sales of ONPATTRO in Japan will be 25 % beginning as of the effective date of the Exclusive TTR License, (ii) tiered royalties of 15 % to 30 % based on global annual net sales of vutrisiran (consistent with the royalties due to us from Sanofi Genzyme on fitusiran), and (iii) tiered royalties of up to 15 % based on global annual net sales of any back-up products, in each case by us, our affiliates and our sublicensees.

Under the 2018 amendment and the Exclusive TTR License, Sanofi Genzyme is eligible to receive (i) royalties up to 25 %, increasing over time, based on annual net sales of ONPATTRO in territories excluding the U.S., Canada and Western Europe, provided royalties on annual net sales of ONPATTRO in Japan were set at 25 % beginning as of the effective date of the Exclusive TTR License, (ii) tiered royalties of 15 % to 30 % based on global annual net sales of vutrisiran (consistent with the royalties due to us from Sanofi Genzyme on fitusiran), and (iii) tiered royalties of up to 15 % based on global annual net sales of any back-up products, in each case by us, our affiliates and our sublicensees.

The Collaboration Amendment entered into in April 2019 made no changes to the terms described in clauses (i)-(iii) above, which remain in full force and effect.

9 unchanged sentences

If this asset is developed and approved, we will be eligible to receive tiered double-digit royalties on global net sales.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development, we may not receive any royalty payments under the A&R AT3 License Terms.

9 unchanged sentences

or (z) the twelfth anniversary of the first commercial sale of the licensed product in such country.

As noted above, the Sanofi Genzyme collaboration originally entered into in 2012 was materially modified during its term when the agreement was amended in 2014, prior to our adoption of the new revenue standard on January 1, 2018.

In accordance with the new revenue standard, we evaluated the Sanofi Genzyme collaboration with the aggregate effect of all modifications when identifying performance obligations, determining the transaction price and allocating the transaction price.

We determined that certain promises included in these agreements are within the scope of the new revenue standard since Sanofi Genzyme is a customer with respect to the license of the rights to its territories.

We determined that certain promises included in these agreements are within the scope of ASC 606 since Sanofi Genzyme is a customer with respect to the license of the rights to its territories.

We also determined, however, that certain aspects of these agreements are within the scope of the collaboration accounting guidance with respect to co-commercialization activities as these activities are joint risk-sharing and are not reflective of a vendor-customer relationship.

We apply the new revenue standard to all promises associated with the transfer of goods and services to a customer.

We concluded that Sanofi Genzyme meets the definition of a customer as we were delivering intellectual property and know-how rights as well as research and development activities for the TTR programs and fitusiran programs in support of

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

territories in which we are not jointly sharing the risks and rewards.

We apply ASC 606 to all promises associated with the transfer of goods and services to a customer.

We concluded that the accounting for the original 2014 Sanofi Genzyme collaboration, and the collaboration, as amended in 2018, should be assessed as separate contracts for (i) the patisiran and revusiran (TTR) programs, upon the initiation of the 2014 Sanofi Genzyme collaboration, and (ii) the subsequent opt-in by Sanofi Genzyme for the fitusiran program.

1 unchanged sentence

We identified contract promises or deliverables for licenses to our intellectual property and know-how rights, associated development activities, joint steering committee participation and information exchange.

We determined that, pursuant to the new revenue standard (and consistent with our accounting prior to the adoption of the new revenue standard), the performance obligations were not separately identifiable and were not distinct (and did not have standalone value) due to the specialized nature of the services to be provided by us and the dependent relationship between the performance obligations.

We determined that, pursuant to ASC 606 (and consistent with our accounting prior to the adoption of the new revenue standard), the performance obligations were not separately identifiable and were not distinct (and did not have standalone value) due to the specialized nature of the services to be provided by us and the dependent relationship between the performance obligations.

Given this fact pattern, we concluded each of the TTR and fitusiran contracts have a single identified or combined performance obligation.

2 unchanged sentences

The amounts recorded as a reduction of our selling, general and administrative activities were not material.

The transaction price as of January 1, 2018 of $ 127.6 million for the 2014 Sanofi Genzyme collaboration related to the license to the TTR programs included the $ 22.5 million upfront payment and $ 11.0 million of development milestone payments earned under the now superseded 2012 Sanofi Genzyme agreement, a $ 25.0 million development milestone payment for revusiran achieved in 2014, the estimated patisiran and revusiran cost-share reimbursements, net of payments to Sanofi Genzyme, of $ 63.6 million and $ 57.0 million, respectively, and the $ 51.5 million equity discount related to the stock purchase agreement, described below.

The transaction price as of January 1, 2018 of $ 127.6 million for the 2014 Sanofi Genzyme collaboration related to the license to the TTR programs included the $ 22.5 million upfront payment and $ 11.0 million of development milestone payments earned under the now superseded 2012 Sanofi Genzyme agreement, a $ 25.0 million development milestone payment for revusiran achieved in 2014, the estimated patisiran and revusiran cost-share reimbursements, net of payments to Sanofi Genzyme, of $ 63.6 million and $ 57.0 million, respectively, and a $ 51.5 million equity discount related to the stock purchase agreement pursuant to which Sanofi Genzyme purchased 8,766,338 shares of our common stock and paid $ 700 million in aggregate cash consideration to us.

Since the fair value of the stock at the time of closing was more than the consideration received by us by $ 51.5 million, we reduced the transaction price of the license and collaboration contract, treating the equity discount in a manner consistent with a payment to the customer.

The transaction price related to our license to the fitusiran program as of January 1, 2018, accounted for as a separate agreement, included estimated fitusiran development cost-share reimbursements of $ 147.3 million, net of payments to Sanofi Genzyme.

The transaction price related to our license to the fitusiran

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

program as of January 1, 2018, accounted for as a separate agreement, included estimated fitusiran development cost-share reimbursements of $ 147.3 million, net of payments to Sanofi Genzyme.

There are no refund provisions in the agreement and, therefore, none of the consideration received to date has been excluded from the transaction price calculation.

6 unchanged sentences

The other promises included in the performance obligation, however, are enhancing the controlled asset, and thus the combined performance obligation is being satisfied over time.

The new revenue standard requires a single method of measuring performance for each performance obligation satisfied over time.

ASC 606 requires a single method of measuring performance for each performance obligation satisfied over time.

Since we do not have a reliable method of estimating progress based upon its outputs, it was determined that the most reliable method of estimating progress would be using a cost-to-cost input method.

4 unchanged sentences

Historically, we have been unable to reliably measure our performance based upon our lack of historical experience in completing the development of a drug candidate and have, as a result, defaulted to straight-line attribution for many of our licensing agreements.

At the time of adoption of the new revenue standard, however, we had completed a substantial portion of our development obligations and determined we had sufficient information to estimate the remaining development costs for the fitusiran program and sufficient experience to reasonably estimate our development costs, the effect of which comprises the majority of the adjustment to retained earnings as a result of initially applying the new revenue accounting guidance.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We determined that the 2018 amendment, together with the Exclusive TTR License and the original AT3 License Terms, referred to as the 2018 restructured agreement, were included in the scope of the modification provisions of the new revenue standard.

At the time of adoption of ASC 606, however, we had completed a substantial portion of our development obligations and determined we had sufficient information to estimate the remaining development costs for the fitusiran program and sufficient experience to reasonably estimate our development costs, the effect of which comprises the majority of the adjustment to retained earnings as a result of initially applying the new revenue accounting guidance.

We had identified that the agreement for the TTR programs under the 2014 Sanofi Genzyme collaboration should be accounted for separately from any subsequent option exercises, including with respect to fitusiran.

1 unchanged sentence

one related to the TTR programs and one related to the fitusiran program.

Our conclusions related to scoping under the prior revenue standard were consistent with the new revenue standard.

Our conclusions related to scoping under the prior revenue standard were consistent with ASC 606.

As noted above, the 2018 amendment, together with the Exclusive TTR License, provided us with the exclusive right to pursue the further global development and commercialization of all TTR products, including ONPATTRO.

4 unchanged sentences

At the time of the 2018 amendment, we had $ 2.9 million in revenue deferred as a contract liability on our consolidated balance sheet related to this contract for TTR programs, all of which we recognized in the first quarter of 2018 under a cost-to-cost input model as we no longer expected to incur costs associated with the delivery of goods or services.

If we had not adopted the new revenue standard, at the time of the 2018 restructured agreement, we would have had $ 25.8 million of deferred revenue on our consolidated balance sheet that would have been recognized in full upon the date of the 2018 restructured agreement as we would have similarly concluded there were no ongoing deliverables under the 2018 restructured agreement related to the TTR programs.

We expect to record future royalties payable to Sanofi Genzyme with respect to any sales of ONPATTRO within cost of goods sold on our consolidated statements of operations and comprehensive loss as Sanofi Genzyme is no longer considered our customer after the 2018 restructured agreement for sales of all TTR products, including ONPATTRO, and as such, these royalty payments are outside of the scope of the new revenue standard, including with respect to principal versus agent guidance.

We record royalties payable to Sanofi Genzyme with respect to sales of ONPATTRO within cost of goods sold on our consolidated statements of operations and comprehensive loss as Sanofi Genzyme is no longer considered our customer after the 2018 restructured agreement for sales of all TTR products, including ONPATTRO, and as such, these royalty payments are outside of the scope of ASC 606, including with respect to principal versus agent guidance.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The 2018 amendment, together with the original AT3 License Terms, as noted above, provided Sanofi Genzyme the exclusive right to pursue the further global development and commercialization of fitusiran and any back-up products and terminated the previous co-development and co-commercialization rights related to fitusiran under the 2014 Sanofi Genzyme collaboration.

13 unchanged sentences

We measured our performance based on a percentage of our costs expected to be incurred in connection with the transition.

During the transition,

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

we incurred a total cost of $ 38.0 million.

During the transition, we incurred a total cost of $ 38.0 million.

During the year ended December 31, 2018, under a cost-to-cost input model, we recognized revenues of $ 37.6 million related to the 2018 restructured agreement for fitusiran.

If we had not adopted the new revenue standard, at the time of the 2018 restructured agreement, we would have had $ 23.4 million of deferred revenue on our consolidated balance sheet related to the Sanofi Genzyme agreements, that would have represented an incremental $ 22.8 million to the transaction price.

Similar to under the new revenue standard, we consider the 2018 restructured agreement related to fitusiran to include a combined performance obligation.

Under the prior revenue standard and our historical practice to account for contract modifications, we would apply a separate model to the consideration.

Historically, we have measured our performance under our models based on the passage of time due to our inability to estimate performance under another method.

However, as a result of the 2018 restructured agreement related to fitusiran, we had the ability to measure our performance under the prior revenue standard based on costs expected to be incurred, and therefore measured performance under the prior standard consistent with that of the new revenue standard.

Under the prior revenue standard, we would have recorded revenues of $ 60.3 million in the year ended December 31, 2018 related to fitusiran.

We have determined that Sanofi Genzyme’s right to purchase additional clinical and commercial material from us reflects optional purchases that are distinct from other performance obligations.

Revenues associated with these purchases will be recognized in accordance with the right to invoice practical expedient and as Sanofi Genzyme obtains control of any purchased material.

Accounting for Equity Purchases in Connection with our 2014 Sanofi Genzyme Collaboration

Upon the closing of the equity transaction in February 2014, we sold to Sanofi Genzyme 8,766,338 shares of our common stock and Sanofi Genzyme paid $ 700 million in aggregate cash consideration to us.

As a condition to the closing of the equity transaction, Sanofi Genzyme entered into an investor agreement with us, such agreement referred to as the 2014 Investor Agreement.

Under the 2014 Investor Agreement, until the earlier of the fifth anniversary of the expiration or earlier termination of the 2014 Sanofi Genzyme collaboration and the date on which Sanofi Genzyme and its affiliates ceased to beneficially own at least 5 % of our outstanding common stock, Sanofi Genzyme and its affiliates were bound by certain “standstill” provisions.

The standstill provisions included agreements not to acquire more than 30 % of our outstanding common stock, call stockholder meetings, nominate directors other than those approved by our board of directors, subject to certain limited exceptions, or propose or support a proposal to acquire us.

Further, Sanofi Genzyme agreed to vote, and cause its affiliates to vote, all shares of our voting securities they are entitled to vote, up to a maximum of 20 % of our outstanding common stock, in a manner either as recommended by our board of directors or proportionally with the votes cast by our other stockholders, except with respect to certain change of control transactions or our liquidation or dissolution.

Under the 2014 Investor Agreement, Sanofi Genzyme also agreed not to dispose of any shares of common stock beneficially owned by it immediately after the closing of the stock purchase until the earlier of (i) December 31, 2019 (subject to extension by up to 2 years if Sanofi Genzyme’s option to select additional compounds under the master agreement was extended beyond December 31, 2019) and (ii) six months after the expiration or earlier valid termination of the collaboration, in each case subject to earlier termination in the event certain clinical activities under the collaboration failed to occur.

Following the expiration of this lock-up period, Sanofi Genzyme would be permitted to sell such shares of common stock subject to certain limitations, including volume and manner of sale restrictions.

Finally, under the 2014 Investor Agreement, in the event Sanofi Genzyme and its affiliates acquired at least 20 % or more of our outstanding common stock, Sanofi Genzyme would be entitled to appoint one individual to our board of directors.

The rights and restrictions under the 2014 Investor Agreement were subject to termination upon the occurrence of certain events.

In 2014, we recorded the issuance of 8,766,338 shares of our common stock under the stock purchase agreement using the price of our common stock on the date the shares were issued to Sanofi Genzyme.

Based on the common stock price of $ 85.72 , the fair value of the shares issued was $ 751.5 million, which was $ 51.5 million in excess of the proceeds received from Sanofi Genzyme for the issuance of our common stock.

This $ 51.5 million has been reflected as a reduction of the transaction price for the TTR programs.

In addition, due to intraperiod tax allocation rules, upon closing of the equity transaction we recorded a benefit from income taxes of $ 15.2 million due to the Sanofi Genzyme equity purchase being recorded in additional paid-in capital, net of tax.

In accordance with the 2014 Investor Agreement, in connection with our public offering in May 2017, Sanofi Genzyme exercised its right to purchase directly from us, in a concurrent private placement, 297,501 shares of common stock at the public offering price resulting in $ 21.4 million in proceeds to us.

The sales of common stock to Sanofi Genzyme was not registered as part of these public offerings, though they were consummated simultaneously with the public offering.

In April 2019, in connection with the Collaboration Amendment, we and Sanofi Genzyme also entered into an Amended and Restated Investor Agreement, referred to as the A&R Investor Agreement, which amends and restates the 2014 Investor Agreement.

Pursuant to the A&R Investor Agreement, Sanofi Genzyme was released from the lock-up restrictions under the 2014 Investor Agreement, as more fully described above, and was permitted to sell shares of our common stock in transactions approved by us or in fully bought block sale transactions satisfying the conditions set forth in the A&R Investor Agreement.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of January 17, 2019, Sanofi Genzyme owned 10,554,134 shares of our common stock and as of May 3, 2019, Sanofi Genzyme reported owning no shares of our common stock.

Under the A&R Investor Agreement, until the earlier of (i) the fifth anniversary of the expiration of the last to expire royalty term or the earlier termination of the collaboration agreement, as amended by the Collaboration Amendment, and (ii) the date after December 31, 2021 on which the beneficial ownership of Sanofi Genzyme and its affiliates no longer represents at least 5 % of the outstanding shares of common stock, Sanofi Genzyme and its affiliates will be bound by certain “standstill” provisions, including an agreement not to propose or support a proposal to acquire us.

Under the A&R Investor Agreement, Sanofi Genzyme no longer has registration rights or the conditional right to appoint one individual to our board of directors.

We applied the guidance in the equity accounting standard for the stock purchase arrangement since the sale of our equity is not part of our ordinary activities and, therefore, does not qualify as a contract with a customer that is within the scope of the new revenue standard.

The Medicines Company Alliance

In February 2013, we and The Medicines Company, or MDCO, entered into a license and collaboration agreement pursuant to which we granted to MDCO an exclusive, worldwide license to develop, manufacture and commercialize RNAi therapeutics targeting proprotein convertase subtilisin/kexin type 9, or PCSK9, for the treatment of hypercholesterolemia and other human diseases, including inclisiran.

MDCO paid us an upfront cash payment of $ 25.0 million.

Upon achievement of certain events, we will be entitled to receive milestone payments, up to an aggregate of $ 180.0 million, including up to $ 30.0 million in specified development milestones, $ 50.0 million in specified regulatory milestones and $ 100.0 million in specified commercialization milestones.

In addition, we will be entitled to royalties ranging from the low- to high- teens based on annual worldwide net sales, if any, of licensed products by MDCO, its affiliates and sublicensees, subject to reduction under specified circumstances.

To date, we have earned two development milestones totaling $ 30.0 million under the MDCO agreement.

We could potentially earn the next development milestone payment of $ 25.0 million based upon regulatory approval of the New Drug Application for inclisiran in the U.S., which MDCO submitted to the FDA in December 2019.

Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development, we may not receive any additional milestone payments or any royalty payments under the MDCO agreement.

Under the MDCO agreement, we had responsibility for the development of inclisiran until Phase 1 Completion, as defined in the MDCO agreement, at our cost, up to an agreed upon initial development cost cap.

We refer to this agreement, as amended through the date hereof, as the MDCO License Agreement.

On January 6, 2020, Novartis AG, or Novartis, completed its acquisition of MDCO and assumed all rights and obligations under the MDCO License Agreement.

As of December 31, 2020, we have earned $ 45.0 million of milestones and upon achievement of certain events, we will be entitled to receive additional milestones, up to an aggregate of $ 135.0 million, including $ 25.0 million associated with the U.S.

regulatory approval milestone, $ 10.0 million in other specified regulatory milestones and $ 100.0 million in specified commercialization milestones.

In addition, we will be entitled to royalties ranging from 10 % up to 20 % based on annual worldwide net sales of licensed products by Novartis, its affiliates and sublicensees, subject to reduction under specified circumstances.

Under the MDCO License Agreement, we had responsibility for the development of inclisiran until Phase 1 Completion, as defined in the MDCO License Agreement, at our cost, up to an agreed upon initial development cost cap.

In late 2015, MDCO assumed responsibility for all development and commercialization of inclisiran, at its sole cost.

The collaboration between us and MDCO is governed by a joint steering committee comprised of an equal number of representatives from each party.

We were solely responsible for obtaining supply of finished product reasonably required for the conduct of our obligations under the initial development plan through Phase 1 Completion, and for supplying MDCO with finished product reasonably required for the first Phase 2 clinical trial of inclisiran conducted by MDCO, at our expense, subject to certain caps.

In April 2016, we and MDCO entered into a supply and technical transfer agreement to provide for our supply of inclisiran to MDCO, in accordance with the terms of the MDCO agreement.

MDCO now has the sole right and responsibility to manufacture and supply inclisiran for development and commercialization under the MDCO development plan, subject to the terms of the MDCO agreement and the supply and technical transfer agreement.

Unless terminated earlier in accordance with the terms of the agreement, the MDCO agreement expires on a licensed product-by-licensed product and country-by-country basis upon expiration of the last royalty term for any licensed product in any country, where a royalty term is defined as the latest to occur of (1) the expiration of the last valid claim of patent rights covering a licensed product, (2) the expiration of the Regulatory Exclusivity, as defined in the MDCO agreement, and (3) the twelfth anniversary of the first commercial sale of the licensed product in such country.

We estimate that our fundamental RNAi patents covering licensed products under the MDCO agreement will expire both in and outside of the U.S.

The collaboration is governed by a joint steering committee comprised of an equal number of representatives from each party.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We were solely responsible for obtaining supply of finished product reasonably required for the conduct of our obligations under the initial development plan through Phase 1 Completion, and for supplying finished product reasonably required for the first Phase 2 clinical trial of inclisiran conducted by MDCO, at our expense, subject to certain caps.

In April 2016, we and MDCO entered into a supply and technical transfer agreement to provide for our supply of inclisiran to MDCO, in accordance with the terms of the MDCO License Agreement.

Novartis has the sole right and responsibility to manufacture and supply inclisiran for development and commercialization, subject to the terms of the MDCO License Agreement and the supply and technical transfer agreement.

Unless terminated earlier in accordance with the terms of the agreement, the MDCO License Agreement expires on a licensed product-by-licensed product and country-by-country basis upon expiration of the last royalty term for any licensed product in any country, where a royalty term is defined as the latest to occur of (1) the expiration of the last valid claim of patent rights covering a licensed product, (2) the expiration of the Regulatory Exclusivity, as defined in the MDCO License Agreement, and (3) the twelfth anniversary of the first commercial sale of the licensed product in such country.

We estimate that our fundamental RNAi patents covering licensed products under the MDCO License Agreement will expire both in and outside of the U.S.

generally between 2016 and 2028.

We also estimate that our inclisiran product-specific patents covering licensed products under the MDCO agreement will expire in the U.S.

in 2034 and elsewhere at the end of 2033.

We also estimate that our inclisiran product-specific patents covering licensed products under the MDCO License Agreement will expire in the U.S., Europe, China and Japan in 2036 and elsewhere at the end of 2033.

These patent rights are subject to potential patent term extensions and/or supplemental protection certificates extending such terms in countries where such extensions may become available due to regulatory delay.

In addition, more patent filings relating to the collaboration may be made in the future.

Either party may terminate the MDCO agreement in the event the other party fails to cure a material breach or upon patent-related challenges by the other party.

In addition, MDCO has the right to terminate the agreement without cause at any time upon four months’ prior written notice.

During the term of the MDCO agreement, neither party will, alone or with an affiliate or third party, research, develop or commercialize, or grant a license to any third party to research, develop or commercialize, in any country, any product directed to the PCSK9 gene, other than a licensed product, without the prior written agreement of the other party, subject to the terms of the MDCO agreement.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In accordance with the new revenue standard, we evaluated the MDCO agreement and concluded that MDCO meets the definition of a customer and that the MDCO agreement is a contract.

Either party may terminate the MDCO License Agreement in the event the other party fails to cure a material breach or upon patent-related challenges by the other party.

In addition, Novartis has the right to terminate the agreement without cause at any time upon four months’ prior written notice.

During the term of the MDCO License Agreement, neither party will, alone or with an affiliate or third party, research, develop or commercialize, or grant a license to any third party to research, develop or commercialize, in any country, any product directed to the PCSK9 gene, other than a licensed product, without the prior written agreement of the other party, subject to the terms of the MDCO License Agreement.

We evaluated the MDCO License Agreement and concluded that Novartis meets the definition of a customer and that the MDCO License Agreement is a contract.

We determined the transaction price, identified the performance obligations and allocated the transaction price to each performance obligation.

We also determined that substantially all of our performance obligations are within the scope of the new revenue standard as they relate to the delivery of goods and services to a customer for that customer’s use in monetizing an asset.

Specifically, we concluded that MDCO meets the definition of a customer as we are delivering intellectual property and know-how rights as well as research and development activities.

In addition, we determined that the MDCO agreement met the requirements to be accounted for as a contract, including that it is probable that we will collect the consideration to which we are entitled in exchange for the goods or services that will be delivered to MDCO.

We identified contract promises or deliverables for licenses to our intellectual property development and manufacturing know-how rights, associated development activities, joint steering committee participation and information exchange.

In connection with the supply and technical transfer agreement, we assessed the new revenue standard to conclude if this modification should be accounted for as a separate contract or as a modification to the existing contract.

We determined that the modification should not be treated as a separate agreement as the related performance obligations are not distinct as the value produced by these promises are highly dependent on the other promises in the contract.

Given this fact pattern, we have concluded the MDCO agreement has a single identified or combined performance obligation.

The transaction price as of January 1, 2018 of $ 72.9 million for the MDCO agreement included the $ 25.0 million upfront payment, $ 30.0 million of development milestones and $ 17.9 million of cost reimbursement.

There are no refund provisions in the MDCO agreement and, therefore, none of the consideration received to date has been excluded from the transaction price calculation.

None of the unearned milestones as of January 1, 2018 were included in the transaction price, as all unearned milestone amounts were not considered likely of achievement and therefore constrained.

We also determined that substantially all of our performance obligations are within the scope of the revenue standard as they relate to the delivery of goods and services to a customer for that customer’s use in monetizing an asset.

Specifically, we concluded that Novartis meets the definition of a customer as we are delivering intellectual property and know-how rights as well as research and development activities.

In addition, we determined that the MDCO License Agreement met the requirements to be accounted for as a contract, including that it is probable that we will collect the consideration to which we are entitled in exchange for the goods or services that will be delivered to Novartis.

We determined that, pursuant to ASC 606, the performance obligations were not separately identifiable and were not distinct (and did not have standalone value) due to the specialized nature of the services to be provided by us and the dependent relationship between the performance obligations.

Given this fact pattern, we have concluded the MDCO License Agreement has a single identified or combined performance obligation.

None of the unearned milestones are included in the transaction price, as all unearned milestone amounts are not considered likely of achievement and therefore constrained.

We considered several factors, including that achievement of the milestones is outside our control and contingent upon success in clinical trials and regulatory decisions and the licensee’s efforts.

Any consideration related to sales-based royalties (including milestones) will be recognized when the related sales occur as they were determined to relate predominantly to the license granted to MDCO and as a result have also been excluded from the transaction price.

Under the previous accounting standard, the initial upfront payment of $ 25.0 million from MDCO was initially recorded as deferred revenue.

During the fourth quarter of 2014, we recognized as revenue a portion of the $ 10.0 million milestone payment earned in December 2014 equal to the percentage of the performance period completed when the milestone was earned.

During the fourth quarter of 2017, we recognized as revenue a portion of the $ 20.0 million milestone payment earned in November 2017 equal to the percentage of the performance period completed when the milestone was earned.

We allocated the transaction price to the combined performance obligation.

We determined that this combined performance obligation is satisfied over time based on our performance that is creating or enhancing an asset that MDCO controls.

In this instance, MDCO received control over the asset, or the licensed intellectual property, and know-how, at the time the contract was executed since the licensed intellectual property and know-how meet the definition of functional intellectual property per the new revenue standard, which defines functional intellectual property in that it derives a substantial portion of its utility from its standalone functionality rather than the entity’s ongoing activities (thus, once the asset is fully developed, our ongoing involvement is not required for the licensee to derive value).

The other promises included in the performance obligation, however, are enhancing the controlled asset, and thus the combined performance obligation is being satisfied over time.

The new revenue standard requires a single method of measuring performance for each performance obligation satisfied over time.

Since we did not have a reliable method of estimating progress based upon its outputs, it was determined that the most reliable method of estimating progress would be using a cost-to-cost input method.

We determined that our completion of certain clinical and regulatory development tasks was relevant and directly related to our progress in completing the combined performance obligation.

As such, we measured our progress upon adoption and continued to measure our progress during each reporting period based upon the amount of development costs incurred divided by the total amount of development costs expected to be incurred over the course of the agreement.

We excluded costs that were not related to our completion of this performance obligation, such as the completion of tasks (and incurring of costs) associated with the marketing and commercialization of the drug.

We estimated our internal costs, excluding non-reimbursable costs that were not deemed to directly relate to the delivery of the development services to MDCO.

At the time of adoption of the new revenue standard we had completed a substantial portion of our development obligations and determined we had sufficient information to estimate the remaining development costs for the inclisiran program and sufficient experience to reasonably estimate our development costs.

We recognized the transaction price as we satisfied our performance obligations over time.

Beginning with the inception of the MDCO agreement and through the year end December 31, 2017, we incurred $ 17.8 million of the $ 17.9 million of total costs expected.

If we had not adopted the new revenue standard, we would have had $ 5.7 million of deferred revenue related to

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the MDCO agreement on our consolidated balance sheet as of January 1, 2018.

We completed the performance obligations identified in the MDCO agreement, including the supply and technical transfer agreement, during 2018, and we continue to receive additional orders for supply.

We consider such orders as promised goods to be distinct from the other performance obligations since MDCO now has the ability to begin manufacturing on its own through its own vendors.

During 2018, we completed the performance obligations identified in the MDCO License Agreement, including the supply and technical transfer agreement, however, we continue to receive additional orders for supply of certain material.

We consider such orders as promised goods to be distinct from the other performance obligations since Novartis now has the ability to manufacture on its own through its own vendors.

Such option orders will be treated as separate agreements and any associated revenue will be recognized upon transfer of control.

On January 6, 2020, Novartis AG completed the acquisition of MDCO.

Vir Biotechnology, Inc.

3 unchanged sentences

Under the terms of the Vir Agreement, for each product arising from the HBV program, including ALN-HBV02, we retained the right to opt into a profit-sharing arrangement prior to the start of a Phase 3 clinical trial.

In addition, we have the right on a product-by-product basis with respect to each additional infectious disease program that Vir elects to pursue, to opt into a profit-sharing arrangement for each such product at any time during a specified period prior to the initiation of a Phase 3 clinical trial for each such product.

In addition, we have the right on a

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

product-by-product basis with respect to each additional infectious disease program that Vir elects to pursue, to opt into a profit-sharing arrangement for each such product at any time during a specified period prior to the initiation of a Phase 3 clinical trial for each such product.

Pursuant to the Vir Agreement, Vir paid us an upfront fee of $ 10.0 million and issued to us 1,111,111 shares of its common stock.

Under the Vir Agreement, we may also receive milestone payments upon the achievement of certain development, regulatory and commercial milestones, as well as royalties on the net sales of licensed products ranging from high-single-digit to sub-teen double-digit percentages.

Upon the achievement of a certain development milestone, we will also receive shares of Vir’s common stock equal to the lesser of (i) 1,111,111 shares or (ii) a certain number of shares based on Vir’s stock price at the time such milestone is achieved.

As of December 31, 2019, such milestone had not yet been achieved.

In March 2020, we achieved a development milestone relating to ALN-HBV02 and earned a $ 15.0 million cash milestone and 1,111,111 shares of Vir's common stock, which were received in the second quarter of 2020.

In June 2020, we earned and received a $ 10.0 million payment from Vir related to Vir's sublicense for ALN-HBV02 in China.

In March and April 2020, we entered into amendments to the Vir Agreement to expand our collaboration to include the development and commercialization of RNAi therapeutics targeting SARS-CoV-2, the virus that causes the disease COVID-19, along with three additional targets focused on human host factors for SARS-CoV-2, including angiotensin converting enzyme-2 and transmembrane protease, serine 2 and potentially a third mutually selected host factor target.

Under the Vir amendments, we and Vir were each responsible for our own pre-clinical development costs incurred in performing our allocated responsibilities under an agreed-upon initial pre-clinical development plan.

Under the original agreements, we and Vir agreed to equally share certain costs incurred in connection with the manufacture of non-GMP drug product required for pre-clinical development prior to filing an IND for the first product in the coronavirus program.

We also agreed that Vir would lead all development and commercialization of any selected development candidates.

In December 2020, we signed a letter agreement to amend the Vir Agreement such that we are solely responsible for conducting pre-clinical research activities under the pre-clinical development plan, related to the COVID-19 activities in the March and April 2020 amendments, at our discretion and sole expense and effective as of July 1, 2020, we are responsible for all pre-clinical development costs incurred under such plan for such COVID-19 related activities.

Unless terminated earlier in accordance with the terms of the agreement, the Vir Agreement expires on a licensed product-by-product and country-by-country basis upon expiration of all royalty payment obligations under the agreement.

3 unchanged sentences

In addition, Vir has the right to terminate the agreement on a program-by-program basis or in its entirety for any reason on 90 days’ written notice.

Other Strategic License Agreements

Ionis Collaboration and License Agreement

In January 2015, we and Ionis Pharmaceuticals, Inc., or Ionis, entered into a second amended and restated strategic collaboration and license agreement, which we further amended in July 2015, or the 2015 Ionis Agreement.

The 2015 Ionis agreement provides for certain new exclusive target cross-licenses of intellectual property on eight disease targets, providing each company with exclusive RNA therapeutic license rights for four programs, and extends the parties’ existing non-exclusive technology cross-license, which was originally entered into in 2004 and was amended and restated in 2009, through April 2019.

Pursuant to the 2015 Ionis agreement, Ionis granted to us an exclusive, low single-digit royalty-bearing license to its chemistry, motif, mechanism and target-specific intellectual property for oligonucleotide therapeutics against four targets.

In exchange, we granted to Ionis an exclusive, low single-digit royalty-bearing license to our chemistry, motif, mechanism and target-specific intellectual property for oligonucleotide therapeutics against four targets.

In addition, under the 2015 Ionis agreement, the parties agreed to extend the existing non-exclusive technology cross-license through April 2019.

Specifically, Ionis granted us a low single-digit royalty-bearing, non-exclusive license to new platform technology arising from May 2014 through April 2019 for double-stranded RNAi therapeutics.

In turn, we granted Ionis a low single-digit royalty-bearing, non-exclusive license to new platform technology arising from May 2014 through April 2019 for single-stranded antisense therapeutics.

This broad, non-exclusive cross-license includes chemistry, motif and mechanism patents, but excludes patent claims on formulations, manufacturing and specific targets.

Under the original 2004 agreement, Ionis licensed to us its patent estate related to antisense motifs and mechanisms and oligonucleotide chemistry for double-stranded RNAi products in exchange for a previously disclosed technology access fee,

We identified one performance obligation under the Vir Agreement, as amended, comprised of:

i) the exclusive license to develop, manufacture and commercialize RNAi therapeutics (including ALN-HBV02);

ii) the obligation to deliver four additional development candidates and supply product for each such RNAi therapeutic program;

and iii) the obligation to deliver up to four development candidates and supply product for RNAi therapeutic programs targeting SARS-CoV-2.

The license is not distinct from the services, including the obligation to deliver development candidates and supply product, as Vir cannot benefit on its own from the value of the license without receipt of such services and supply.

We measure proportional performance over time using an input method based on cost incurred relative to the total estimated costs for the identified performance obligation, on a quarterly basis, by determining the proportion of effort incurred as a percentage of total effort we expect to expend.

This ratio is applied to the total transaction price.

Management has applied significant judgment in the process of developing our estimates.

Any changes to these estimates will be recognized in the period in which they change as a cumulative catch up.

As of December 31, 2020, the total transaction price was determined to be $ 110.1 million, an increase of $ 72.4 million from December 31, 2019 as a result of additional cash and shares received from Vir in 2020, as well as an increase in our estimated variable consideration.

As of December 31, 2020, the transaction price is comprised of the upfront payment, fair value of non-cash equity consideration at contract inception, milestones achieved, and variable consideration related to development, manufacture and supply activities.

We utilized the expected value method to determine the amount of reimbursement for these activities.

The total transaction price is allocated entirely to the single performance obligation.

We determined any variable consideration related to sales-based royalties and milestones related to the exclusive license to be constrained and therefore excluded such consideration from the transaction price.

As of December 31, 2020, the aggregate amount of the transaction price allocated to the performance obligation that was unsatisfied was $ 51.7 million, which is expected to be recognized through the term of the Vir Agreement as the services are performed.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

participation in fees for our partnering programs and future milestone and royalty payments from us for programs that incorporate Ionis’ intellectual property.

We have the right to use Ionis’ intellectual property in our development programs or in collaborations and Ionis agreed not to grant licenses under these patents to any other organization for the discovery, development and commercialization of double-stranded RNA products designed to work through an RNAi mechanism, except in the context of a collaboration in which Ionis plays an active role.

In turn, under the original 2004 agreement, we non-exclusively licensed to Ionis our patent estate relating to antisense motifs and mechanisms and oligonucleotide chemistry to research, develop and commercialize single-stranded antisense therapeutics, single stranded RNAi therapeutics and to research double-stranded RNAi compounds.

Ionis also received a license to develop and commercialize double-stranded RNAi drugs targeting a limited number of therapeutic targets on a non-exclusive basis.

We granted these licenses for RNAi therapeutics in exchange for option fees, and future milestone and royalty payments from Ionis for RNAi programs that incorporate certain of our intellectual property.

In August 2012, we and Ionis amended the agreement to provide certain terms for the discovery, development and commercialization of double-stranded RNA products by us or our sublicensees in the field of agriculture.

As set forth in the 2015 Ionis agreement, under the original 2004 agreement, we paid Ionis an upfront license fee of $ 5.0 million and we agreed to pay Ionis milestone payments, totaling up to approximately $ 3.4 million, upon the occurrence of specified development and regulatory events, and low single-digit royalties on sales, if any, for each product that we or a collaborator develop using Ionis intellectual property.

In addition, we agreed to pay to Ionis a percentage of specified fees from strategic collaborations we may enter into that include access to Ionis’ intellectual property.

During the year ended December 31, 2019, as a result of certain payments received by us in connection with our partnered programs, we paid Ionis $ 21.9 million in license fees, recognized in research and development expense on our consolidated statement of operations and comprehensive loss.

Similar payments to Ionis during the years ended December 31, 2018 and 2017 were not material.

Ionis has the right to elect up to ten non-exclusive target licenses under the agreement and has the right to purchase one additional non-exclusive target per year during the term of the collaboration.

Ionis agreed to pay us, per therapeutic target, a license fee of $ 0.5 million, milestone payments for double-stranded RNAi products totaling approximately $ 3.4 million, payable upon the occurrence of specified development and regulatory events, and low single-digit royalties on sales, if any, for each double-stranded RNAi or single-stranded RNAi product developed by Ionis or a collaborator that utilizes our intellectual property.

The term of the 2015 Ionis agreement generally ends upon the expiration of the last-to-expire patent licensed thereunder, whether such patent is a patent licensed by us to Ionis, or vice versa.

Either party may terminate the 2015 Ionis agreement on 90 days’ prior written notice if the other party materially breaches the agreement and fails to cure the breach within the 90-day notice period and no substantial steps have otherwise been taken to cure the breach, provided, however, that neither party may terminate licenses granted to the other party to the extent necessary to develop or sell products that have at least reached investigational new drug-enabling studies (except for a party’s uncured failure of its payment obligations).

Either party may also terminate the agreement in the event the other party undergoes specified bankruptcy events.

LIABILITY RELATED TO THE SALE OF FUTURE ROYALTIES

On April 10, 2020, we entered into a purchase and sale agreement, or Purchase Agreement, with BX Bodyguard Royalties L.P.

(an affiliate of The Blackstone Group Inc.), or Blackstone Royalties, under which Blackstone Royalties acquired 50 % of royalties payable, or Royalty Interest, with respect to net sales by MDCO, its affiliates or sublicensees of inclisiran and any other licensed products under the MDCO License Agreement, and 75 % of the commercial milestone payments payable under the MDCO License Agreement, together with the Royalty Interest, referred to as the Purchased Interest.

If Blackstone Royalties does not receive payments in respect of the Royalty Interest by December 31, 2029, equaling at least $ 1.00 billion, Blackstone Royalties will receive 55 % of the Royalty Interest beginning on January 1, 2030.

In consideration for the sale of the Purchased Interest, Blackstone Royalties paid us $ 500.0 million in April 2020 and has an unconditional obligation to pay us an additional $ 500.0 million on September 30, 2021, which was recorded as a receivable upon execution of the Purchase Agreement.

We continue to own or control all inclisiran intellectual property rights and are responsible for certain ongoing manufacturing and supply obligations related to the generation of the Purchased Interest.

Due to our continuing involvement, we will continue to account for any royalties and commercial milestones due to us under the MDCO License Agreement as revenue on our consolidated statement of operations and comprehensive loss and record the proceeds from this transaction as a liability, net of closing costs, on our consolidated balance sheet.

In order to determine the amortization of the liability related to the sale of future royalties, we are required to estimate the total amount of future payments to Blackstone Royalties over the life of the Purchase Agreement.

The $ 1.00 billion liability, recorded at execution of the agreement, will be accreted to the total of these royalty and commercial milestone payments as interest expense over the life of the Purchase Agreement.

At execution and as of December 31, 2020, our estimate of this total interest expense resulted in an effective annual interest rate of 11 %.

This estimate contains assumptions that impact both the amount recorded at execution and the interest expense that will be recognized in future periods.

As payments are made to Blackstone Royalties, the balance of the liability will be effectively repaid over the life of the Purchase Agreement.

The exact timing and amount of repayment is likely to change each reporting period.

A significant increase or decrease in net sales of inclisiran will materially impact the liability related to the sale of future royalties, interest expense and the time period for repayment.

We will periodically assess the expected payments to Blackstone Royalties and to the extent the amount or timing of such payments is materially different than our initial estimates, we will prospectively adjust the amortization of the liability related to the sale of future royalties and the related interest expense.

As of December 31, 2020, the carrying value of the liability related to the sale of future royalties was $ 1.07 billion, net of closing costs of $ 13.0 million.

The carrying value of the liability related to the sale of future royalties approximates fair value as of December 31, 2020 and is based on our current estimates of future royalties and commercial milestones expected to be paid to Blackstone Royalties over the life of the arrangement, which are considered Level 3 inputs.

For the year ended December 31, 2020, we recognized interest expense of $ 84.5 million.

The following table shows the activity with respect to the liability related to the sale of future royalties, in thousands:

Liability related to the sale of future royalties as of April 10, 2020 $ 1,000,000

Capitalized closing costs ( 12,955 )

Interest expense recognized 84,496

Carrying value of liability related to sale of future royalties as of December 31, 2020

OTHER BALANCE SHEET DETAILS

The following table presents our inventory as of December 31, 2019 and 2018, in thousands:

The components of inventory are summarized as follows:

As of December 31,

(In thousands) 2020 2019

Raw materials $ 63,460 $ 15,418

4 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property, plant and equipment, net consist of the following as of December 31, 2019 and 2018, in thousands:

As of December 31, 2020, we had long-term inventory of $ 17.1 million in other assets in our consolidated balance sheet as we anticipate such inventory being consumed beyond our normal operating cycle.

As of December 31, 2019, we had no long-term inventory.

As of December 31, 2020 and 2019, there was no capitalized inventory for products awaiting regulatory approval.

Property, Plant and Equipment, Net

Property, plant and equipment, net consist of the following:

As of December 31,

(In thousands) 2020 2019

Buildings $ 262,637 $ 250,380

Leasehold improvements 149,505 132,632

Construction in progress 54,195 260,975

Laboratory equipment 48,930 29,755

Manufacturing equipment 41,089 —

Construction in progress 28,005 54,195

Computer equipment and software 19,064 14,956

4 unchanged sentences

Total $ 465,029 $ 425,179

Accrued expenses consist of the following as of December 31, 2019 and 2018, in thousands:

Accrued Expenses

Accrued expenses consist of the following:

As of December 31,

(In thousands) 2020 2019

Compensation and related $ 97,433 $ 68,304

Product rebates and discounts 94,242 32,670

Pre-clinical, clinical trial and manufacturing 46,506 34,269

Product revenue allowances 32,670 2,696

Contingent liabilities 41,216 —

Licensing and collaboration agreements 15,424 20,622

2 unchanged sentences

Total $ 355,909 $ 197,201

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within our consolidated balance sheets that sum to the total of these amounts shown in the consolidated statements of cash flows, in thousands:

Cash, Cash Equivalents and Restricted Cash

As of December 31,

2019 2018 2017

(In thousands) 2020 2019 2018

Cash and cash equivalents $ 496,580 $ 547,178 $ 420,146

Restricted cash included in prepaid expenses and other current assets 4 225 —

Restricted cash included in long-term other assets 2,446 2,260 1,471

Total restricted cash included in prepaid expenses, other current assets and long-term other assets 2,466 2,450 2,485

Total cash, cash equivalents, and restricted cash shown in the consolidated

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the changes in accumulated other comprehensive (loss) income, by component, for the years ended December 31, 2019 and 2018, in thousands:

Loss on Investment in Joint Venture Defined Benefit Pension

Accumulated Other Comprehensive (Loss) Income

The following table summarizes the changes in accumulated other comprehensive (loss) income, by component:

(In thousands) Loss on Investment in Joint Venture Defined Benefit Pension

Plans, Net of Tax Unrealized (Losses) Gains from Debt

3 unchanged sentences

Balance as of December 31, 2018

Other comprehensive loss before reclassifications — — ( 411 ) — ( 411 )

$ ( 32,792 ) $ — $ ( 421 ) $ — $ ( 33,213 )

Other comprehensive (loss) income before reclassifications — ( 3,661 ) 22 ( 343 ) ( 3,982 )

Amounts reclassified from other comprehensive income — 141 536 — 677

Net other comprehensive income — — 1,220 — 1,220

Net other comprehensive (loss) income — ( 3,520 ) 558 ( 343 ) ( 3,305 )

Balance as of December 31, 2019

( 32,792 ) ( 3,520 ) 137 ( 343 ) ( 36,518 )

Other comprehensive (loss) income before reclassifications — ( 531 ) ( 14 ) ( 7,081 ) ( 7,626 )

2 unchanged sentences

Balance as of December 31, 2020

$ ( 32,792 ) $ ( 3,754 ) $ 348 $ ( 7,424 ) $ ( 43,622 )

CREDIT AGREEMENT

On April 10, 2020, we entered into a credit agreement, or Credit Agreement, among us, certain of our subsidiaries (such subsidiaries, together with us, the Loan Parties), funds or accounts managed or advised by GSO Capital Partners LP (now Blackstone Alternative Credit Advisors LP) and certain other affiliates of T he Blackstone Group Inc.

, and the other lenders from time to time parties thereto, collectively, the Lenders, and Wilmington Trust, National Association, as the administrative agent for the Lenders.

The Credit Agreement provides for a senior secured delayed draw term loan facility, referred to as the Term Loans, which consists of three tranches providing funding up to $ 700.0 million.

The Tranche 1 Loan of $ 200.0 million was drawn as of December 31, 2020 and is included in long-term debt in the consolidated balance sheets.

The remaining two tranches will provide funds as follows:

Tranche Requested No Later Than Aggregate Principal Amount, up to (in thousands)

Tranche 2 Loan June 30, 2021 $ 250,000

Tranche 3 Loan December 31, 2021 $ 250,000

In addition, we may (a) at any time following April 10, 2021, request an increase in respect of the unfunded commitments in an amount not to exceed $ 50.0 million on terms to be agreed and subject to the consent of the Lenders providing such increase and/or (b) at any time prior to April 10, 2021, cancel the unfunded commitments or reallocate the unfunded commitments in respect of the Tranche 2 Loan or Tranche 3 Loan to the Tranche 1 Loan and/or the Tranche 2 Loan in an amount not to exceed $ 100.0 million in the aggregate for all such cancellations or reallocations.

The Tranche 2 Loan will be requested no later than June 30, 2021 and the Tranche 3 Loan will be requested no later than December 31, 2021, in each case, subject to customary terms and conditions, including, in the case of the Tranche 2 Loan and Tranche 3 Loan, either (a) the first sale of inclisiran in the U.S.

for end use or consumption after FDA regulatory approval thereof or (b) revenue attributable to ONPATTRO and GIVLAARI equal to or greater than $ 300.0 million as of the last day of the most recently ended twelve month period, referred to as the Subsequent Borrowing Conditions.

As of December 31, 2020, the Subsequent Borrowing Conditions have been satisfied.

The Term Loans mature in December 2027.

We can elect an interest rate of either LIBOR plus 7 %, subject to a floor of 1 %, referred to as the LIBOR Rate, or a base rate plus 6 %, subject to a floor of 2 %.

We may, at our option, pay interest in kind on interest due through 2023 at a rate that is 1 % higher than the interest rate otherwise applicable to such Term Loan .

We drew the Tranche 1 Loan in December 2020, elected a LIBOR Rate plus 7 %, and paid a $ 5.0 million funding fee.

On the date the Tranche 2 Loan or Tranche 3 Loan is funded, we will pay a funding fee equal to 2.5 % of the principal amount of the Term Loans funded on such date.

In addition, we will pay an exit fee equal to 1 % of the

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

commitments in respect of the Term Loans, payable upon any repayment of the Term Loans or termination of the unfunded Term Loan commitments.

As of December 31, 2020, our interest rate was 8 %.

We are obligated to pay interest due on the Term Loans from 2021 to 2022 which will be calculated without regard to the Term Loans being prepaid or an unfunded tranche being terminated during this period (in whole or in part).

Any prepayments of Term Loans or terminations of unfunded tranches that occur between 2023 and 2025 are subject to a fee of up to 5 % of the loan principal that is prepaid or the amount of the unfunded tranche that is terminated.

All obligations under the Credit Agreement are secured, subject to certain exceptions, by security interests in the following assets:

(1) intellectual property owned by us relating to ONPATTRO, GIVLAARI and vutrisiran, (2) the equity interests held by the Loan Parties in their subsidiaries, (3) all of our ownership of the inclisiran royalty remaining after the royalty purchase under the Purchase Agreement, and (4) material real property, and certain personal property, including, without limitation, cash held in certain deposit accounts of the Loan Parties and equipment.

The Credit Agreement contains negative covenants that, among other things and subject to certain exceptions, could restrict our ability to, incur additional liens, incur additional indebtedness, make investments, including acquisitions, engage in fundamental changes, sell or dispose of assets that constitute collateral, including certain intellectual property, pay dividends or make any distribution or payment on or redeem, retire or purchase any equity interests, amend, modify or waive certain material agreements or organizational documents and make payments of certain subordinated indebtedness.

Additionally, the Credit Agreement contains certain customary representations and warranties, affirmative covenants and provisions relating to events of default, including nonpayment of principal, interest and other amounts;

failure to comply with covenants;

the rendering of judgments or orders or default by us in respect of other material indebtedness;

and certain insolvency and ERISA events.

The Credit Agreement also requires us to have consolidated liquidity of at least $ 100.0 million as of the last day of each fiscal quarter.

As of December 31, 2020, we were in compliance with the applicable terms and conditions of the covenants under the Credit Agreement.

DEVELOPMENT DERIVATIVE LIABILITY

On August 15, 2020, we entered into a co-development agreement, referred to as the Funding Agreement, with BXLS V Bodyguard – PCP L.P.

and BXLS Family Investment Partnership V – ESC L.P., collectively referred to as Blackstone Life Sciences, pursuant to which Blackstone Life Sciences will provide up to $ 150.0 million in funding for the clinical development of vutrisiran and ALN-AGT, two of our cardiometabolic programs.

With respect to vutrisiran, Blackstone Life Sciences has committed to provide up to $ 70.0 million to fund development costs related to the HELIOS-B Phase 3 clinical trial.

In addition, Blackstone Life Sciences has the right, but is not obligated, to fund up to $ 26.0 million for development costs related to a Phase 2 clinical trial of ALN-AGT and up to $ 54.0 million for development costs related to a Phase 3 clinical trial of ALN-AGT.

The amount of funding ultimately provided by Blackstone Life Sciences is dependent on us achieving specified development milestones with respect to each clinical trial.

We retain sole responsibility for the development and commercialization of both vutrisiran and ALN-AGT.

As consideration for Blackstone Life Sciences’ funding for vutrisiran clinical development costs, we have agreed to pay Blackstone Life Sciences a 1 % royalty on net sales of vutrisiran for a 10 -year term beginning upon the first commercial sale following regulatory approval of vutrisiran for ATTR-cardiomyopathy, as well as fixed payments of up to 2.5 times their investment over a two-year period upon regulatory approval of vutrisiran for ATTR-cardiomyopathy in specified countries, unless it is later withdrawn from the market following a mandatory recall.

As consideration for Blackstone Life Sciences’ funding for Phase 2 clinical development costs of ALN-AGT, we have agreed to pay Blackstone Life Sciences fixed payments of up to 3.25 times their Phase 2 investment over a four-year period upon the successful completion of the ALN-AGT Phase 2 clinical trial, unless certain regulatory events affecting the continued development of ALN-AGT occur.

As consideration for Blackstone Life Sciences’ funding for Phase 3 clinical development costs of ALN-AGT, we have agreed to pay Blackstone Life Sciences fixed payments of up to 4.5 times their Phase 3 investment over a four-year period upon regulatory approval of ALN-AGT in specified countries, unless it is later withdrawn from the market following a mandatory recall.

Our payment obligations under the Funding Agreement will be secured, subject to certain exceptions, by security interests in intellectual property owned by us relating to vutrisiran and ALN-AGT, as well as in our bank account in which the funding deposits will be made.

We and Blackstone Life Sciences each have the right to terminate the Funding Agreement in its entirety in the event of the other party’s bankruptcy or similar proceedings.

We and Blackstone Life Sciences may each terminate the Funding Agreement in its entirety or with respect to either product in the event of an uncured material breach by the other party, or with respect to a product for certain patient health and safety reasons, or if regulatory approval in specified major market countries is not obtained for the product following the completion of clinical trials for the product.

In addition, Blackstone Life Sciences has the right to terminate the Funding Agreement in its entirety upon the occurrence of certain events affecting our ability to make payments under the agreement or to develop or commercialize the products, or upon a change of control of us.

Blackstone Life Sciences may also terminate the Funding Agreement with respect to a product if the joint steering committee elects to terminate

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the development program for that product in its entirety, if certain clinical endpoints are not achieved for that product or, with respect to vutrisiran only, if our right to develop or commercialize vutrisiran is enjoined in a specified major market as a result of an alleged patent infringement.

In certain termination circumstances, we will be obligated to pay Blackstone Life Sciences an amount that is equal to, or a multiplier of, the development funding received from Blackstone Life Sciences, and we may remain obligated under certain circumstances to make the payments to Blackstone Life Sciences described above, or the royalty described above in the case of vutrisiran, should we obtain regulatory approval for vutrisiran or ALN-AGT following termination.

We account for the Funding Agreement under ASC 815 as a derivative liability, measured at fair value, within other liabilities on our consolidated balance sheets.

The liability was initially recorded at $ 4.2 million upon receipt of funding in the third quarter of 2020, pursuant to the contractual terms, and then subsequently increased in the fourth quarter of 2020 upon receipt of additional funding.

The change in fair value due to the remeasurement of the development derivative liability resulted in a $ 17.2 million loss for the year ended December 31, 2020, recorded within other income, net on our consolidated statements of operations and comprehensive loss.

As of December 31, 2020, the derivative liability is classified as a Level 3 financial liability in the fair value hierarchy.

The valuation method incorporates certain unobservable Level 3 key inputs including (i) the probability and timing of achieving stated development milestones to receive payments from Blackstone Life Sciences, (ii) the probability and timing of achieving regulatory approval and payments to Blackstone Life Sciences, (iii) an estimate of the amount and timing of the royalty payable on net sales of vutrisiran, assuming regulatory approval, (iv) our cost of borrowing ( 15 %), and (v) Blackstone Life Sciences' cost of borrowing ( 4 %).

The following table presents the activity with respect to the development derivative liability, in thousands:

Development derivative liability as of August 15, 2020 $ —

Amount received under the Funding Agreement 8,400

Loss recorded from remeasurement of development derivative liability 17,185

Development derivative liability as of December 31, 2020

FAIR VALUE MEASUREMENTS

The following tables present information about our assets that are measured at fair value on a recurring basis as of December 31, 2019 and 2018, and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair value, in thousands:

Description As of December 31,

The following tables present information about our assets that are measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair value:

(In thousands) As of December 31,

2020 Quoted Prices in Active Markets

1 unchanged sentence

(Level 2) Significant Unobservable Inputs

Financial assets

Cash equivalents:

Commercial paper $ 3,439 $ — $ 3,439 $ —

treasury securities $ 20,000 $ — $ 20,000 $ —

1 unchanged sentence

Marketable debt securities:

Certificates of deposit 4,301 — 4,301 —

Commercial paper 36,474 — 36,474 —

Corporate notes 146,040 — 146,040 —

government-sponsored enterprise securities 245,214 — 245,214 —

2 unchanged sentences

Restricted cash (money market funds) 1,483 1,483 — —

Total $ 1,450,480 $ 135,331 $ 1,315,149 $ —

Total financial assets $ 1,475,024 $ 121,842 $ 1,353,182 $ —

Financial liabilities

Development derivative liability $ 25,585 $ — $ — $ 25,585

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Description As of December 31,

(In thousands) As of December 31,

2019 Quoted Prices in Active Markets

1 unchanged sentence

(Level 2) Significant Unobservable Inputs

Financial assets

Cash equivalents:

Commercial paper $ 3,439 $ — $ 3,439 $ —

treasury securities 336,693 — 336,693 —

8 unchanged sentences

Restricted cash (money market funds) 1,482 1,482 — —

Total $ 989,212 $ 105,128 $ 884,084 $ —

For the years ended December 31, 2019 and 2018, there were no transfers between Level 1 and Level 2 financial assets.

Total financial assets $ 1,450,480 $ 135,331 $ 1,315,149 $ —

For the year ended December 31, 2019, there were no transfers between Level 1 and Level 2 financial assets.

During the year ended December 31, 2020, we transferred one financial asset from Level 2 to Level 1 as a result of the expiration of a securities' holding restriction on a marketable equity security.

There were no other transfers between Level 1 and Level 2 financial assets or liabilities during the year ended December 31, 2020.

The carrying amounts reflected in our consolidated balance sheets for cash, accounts receivable, net, other current assets, accounts payable and accrued expenses approximate fair value due to their short-term maturities.

The fair value of our long-term debt as of December 31, 2018, computed pursuant to a discounted cash flow technique using a market interest rate, was $ 30.1 million and is considered a Level 3 fair value measurement.

The effective interest rate reflects the current market rate.

As of December 31, 2019, we had no outstanding long-term debt.

In October 2017, when we entered into the Vir agreement, described above, Vir was a private clinical-stage immunology company.

As part of the upfront consideration, we received 5,000,000 shares of Vir common stock.

On September 27, 2019, Vir implemented a 1-for-4.5 reverse split of its common stock, converting our 5,000,000 shares to 1,111,111 shares.

On October 10, 2019, Vir completed its initial public offering, or IPO.

As a result of the IPO, our Vir common stock is now publicly traded and subject to a 180-day lock-up period from the effective date of Vir's IPO.

During the fourth quarter of 2019, we recognized a gain of $ 11.3 million to record the fair market value of our Vir common stock as of December 31, 2019.

The carrying amount of our debt as of December 31, 2020 approximates fair value as the debt was drawn on December 31, 2020 and has a variable interest rate.

MARKETABLE DEBT SECURITIES

The following tables summarize our marketable debt securities as of December 31, 2019 and 2018, in thousands:

The following tables summarize our marketable debt securities:

As of December 31, 2020

(In thousands) Amortized

Losses Fair Value

Certificates of deposit $ 4,303 $ — $ ( 2 ) $ 4,301

Commercial paper 39,913 — — 39,913

Corporate notes 146,016 58 ( 34 ) 146,040

government-sponsored enterprise securities $ 245,113 $ 135 $ ( 34 ) $ 245,214

1 unchanged sentence

Total $ 1,352,834 $ 463 $ ( 115 ) $ 1,353,182

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2019

(In thousands) Amortized

Losses Fair Value

5 unchanged sentences

Total $ 1,315,012 $ 246 $ ( 109 ) $ 1,315,149

The fair values of our marketable debt securities by classification in the consolidated balance sheets were as follows, in thousands:

December 31, 2019 December 31, 2018

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair values of our marketable debt securities by classification in the consolidated balance sheets were as follows:

(In thousands) December 31, 2020 December 31, 2019

Cash and cash equivalents $ 20,000 $ 340,132

5 unchanged sentences

675 West Kendall Street

We lease office and laboratory space located at 675 West Kendall Street, Cambridge, Massachusetts from BMR-675 West Kendall Street, LLC, or BMR, under a non-cancelable real property lease.

In September 2019, we moved our corporate headquarters and research facility to this location from our 300 Third Street location.

We lease office and laboratory space located at 675 West Kendall Street, Cambridge, Massachusetts for our corporate headquarters from BMR-675 West Kendall Street, LLC, or BMR, under a non-cancelable real property lease.

The lease commenced on May 1, 2018 and monthly rent payments became due commencing on February 1, 2019 upon substantial completion of the building improvements, and continue for 15 years, with options to renew for two five-year terms each.

Exercise of these options was not determined to be reasonably certain and thus was not included in the operating lease liability on the consolidated balance sheet as of December 31, 2020.

Under the terms of the 675 West Kendall Lease, BMR agreed to contribute a total of $ 56.1 million toward the cost of base building and tenant improvements.

As of December 31, 2019, in connection with base building and tenant improvements to date, we received substantially all of the funds from BMR.

In connection with the 675 West Kendall Lease, we were required to provide a $ 14.8 million security deposit that is recorded as restricted investments on our consolidated balance sheet as of December 31, 2020.

6 unchanged sentences

We lease office space on several floors at 101 Main Street, Cambridge, Massachusetts under non-cancelable real property lease agreements by and between us and RREEF America REIT II CORP.

PPP, or RREEF, entered into in March 2015 and May 2015 that will expire in March 2024 and June 2021, respectively, each with an option to renew for one five-year term .

PPP, or RREEF, entered into in March 2015 and May 2015, as amended in September 2020, that will expire in March 2024 and June 2026, respectively, each with an option to renew for one five-year term.

Exercise of these options was not determined to be reasonably certain and thus was not included in the operating lease liability on the consolidated balance sheet as of December 31, 2020.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Lease Disclosures

1 unchanged sentence

The leases do not include any restrictions or covenants that had to be accounted for under the lease guidance.

Total rent expense, including operating expenses, under our real property leases was $ 52.4 million, $ 40.6 million and $ 18.7 million for the years ended December 31, 2019, 2018 and 2017, respectively.

The below table summarizes our costs included in operating expenses related to right of use lease assets we have entered into through December 31, 2019, in thousands:

Description Year Ended

December 31, 2019

Total rent expense, including operating expenses, under all of our real property leases was $ 50.7 million, $ 52.4 million and $ 40.6 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The following table summarizes our costs included in operating expenses related to right of use lease assets we have entered into through December 31, 2020:

(In thousands) Year Ended December 31, 2020 Year Ended December 31, 2019

Operating lease cost $ 42,271 $ 38,613

1 unchanged sentence

Total $ 53,320 $ 53,822

Short-term lease costs were not material for the year ended December 31, 2019.

Net cash paid for the amounts included in the measurement of the operating lease liability in our consolidated balance sheet and included in operating lease liability within operating activities in our consolidated statement of cash flow was $ 33.7 million for the year ended December 31, 2019.

The weighted-average remaining lease term and weighted-average discount rate for all leases as of December 31, 2019 was 13.2 years and 8.2 %, respectively.

Short-term lease costs were not material for the years ended December 31, 2020 and 2019.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net cash paid for the amounts included in the measurement of the operating lease liability in our consolidated balance sheet and included in change in operating lease liability within operating activities in our consolidated statement of cash flow was $ 38.0 million and $ 33.7 million for the years ended December 31, 2020 and 2019, respectively.

The weighted-average remaining lease term and weighted-average discount rate for all leases as of December 31, 2020 was 12 years and 8 %, respectively, and as of December 31, 2019 was 13 years and 8 %, respectively.

Future lease payments for non-cancellable operating leases and a reconciliation to the carrying amount of the operating lease liability presented in the consolidated balance sheet as of December 31, 2020 were as follows, in thousands:

4 unchanged sentences

Less imputed interest ( 206,419 )

Less impact of future leases not yet commenced ( 3,010 )

Total discounted lease liability $ 329,911

2 unchanged sentences

Total $ 329,911

Under the prior lease guidance, minimum payments under our non-cancelable facility leases, as of December 31, 2018, were as follows, in thousands:

Year Ending December 31

2019 $ 32,228

Thereafter 390,455

Total $ 562,015

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

COMMITMENTS AND CONTINGENCIES

4 unchanged sentences

As of December 31, 2020, our commitments over the next five years to make fixed and cancellable payments under existing license agreements were not material.

We in-license technology from a number of sources, including Ionis and Merck Sharp & Dohme Corp, or Merck.

We in-license technology from a number of sources, including Ionis Pharmaceuticals, Inc., or Ionis, and Merck Sharp & Dohme Corp, or Merck.

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

1 unchanged sentence

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.

Because the achievement of these milestones was not considered probable as of December 31, 2020, such contingencies have not been recorded in our consolidated financial statements.

Credit Agreements

On April 29, 2016, we entered into a Credit Agreement, or the Credit Agreement, by and among Alnylam U.S., Inc., as the borrower, us, as a guarantor, and Wells Fargo Bank, National Association, as the lender.

The Credit Agreement was entered into in connection with the planned build out of our new drug substance manufacturing facility.

The Credit Agreement provided for a $ 30.0 million term loan facility and was scheduled to mature on April 29, 2021 .

On September 27, 2019, we repaid in full the $ 30.0 million outstanding principal amount under the Credit Agreement and the Credit Agreement terminated in accordance with its terms upon repayment of the outstanding indebtedness.

Interest on borrowings under the Credit Agreement was calculated based on LIBOR plus 0.45 %, except in the event of default.

The obligations of the borrower and us under the Credit Agreement were secured by cash collateral in an amount equal to, at any given time, at least 100 % of the principal amount of all term loans outstanding under such Credit Agreement at such time.

As of December 31, 2018, we recorded $ 30.0 million of cash collateral in connection with the Credit Agreement as restricted investments on our consolidated balance sheets.

From time to time, we are a party to legal proceedings in the course of our business, including the matters described below.

The claims and legal proceedings in which we could be involved include challenges to the scope, validity or enforceability of patents relating to our commercially approved products and other product candidates, and challenges by us to the scope, validity or enforceability of the patents held by others.

These include claims by third parties that we infringe their patents.

From time to time, we may be a party to litigation, arbitration or other legal proceedings in the course of our business, including the matters described below.

The claims and legal proceedings in which we could be involved include challenges to the scope, validity or enforceability of patents relating to our products or product candidates, and challenges by us to the scope, validity or enforceability of the patents held by others.

These include claims by third parties that we infringe their patents or breach our license or other agreements with such third parties.

The outcome of any such legal proceedings, regardless of the merits, is inherently uncertain.

2 unchanged sentences

Our accounting policy for accrual of legal costs is to recognize such expenses as incurred.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Ionis Arbitration

In June 2018, Ionis claimed it was owed payments under our second amended and restated strategic collaboration and license agreement as a result of the January 2018 restructuring of our Sanofi Genzyme collaboration and the related Exclusive TTR License and AT3 License Terms described above.

We disputed this and in November 2018, Ionis filed a Demand for Arbitration with the American Arbitration Association against us.

The hearing portion of the arbitration process was completed in June 2020, and in October 2020, a partial award was issued by the arbitration panel seeking additional information from us.

The arbitration panel issued its final award in December 2020 and required us to pay $ 41.2 million to Ionis.

For the year ended December 31, 2020, we increased our contingent liability related to our arbitration with Ionis by $ 38.2 million due to the issuance of this final award, and in January 2021 we paid $ 41.2 million to Ionis.

Securities Litigation

2 unchanged sentences

On May 8, 2019, the Court entered an order appointing a lead plaintiff, and on July 3, 2019, lead plaintiff filed a consolidated class action complaint, or the Complaint.

In addition to the originally named defendants, the Complaint also names as defendants certain of our other executive officers, and purports to be brought on behalf of a class of persons who acquired our securities between September 20, 2017 and September 12, 2018 and seeks to recover damages caused by defendants’ alleged violations of the federal securities laws and to pursue remedies under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder.

The Complaint alleges, among other things, that the defendants made materially false and misleading statements related to the efficacy and safety of our product, ONPATTRO.

The plaintiff seeks, among other things, the designation of this action as a class action, an award of unspecified compensatory damages, interest, costs and expenses, including counsel fees and expert fees, and other relief as the court deems appropriate.

All defendants filed

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

a motion to dismiss the Complaint in its entirety on July 31, 2019.

The motion to dismiss was fully briefed on September 30, 2019.

In addition to the originally named defendants, the Complaint also named as defendants certain of our other executive officers, and purported to be brought on behalf of a class of persons who acquired our securities between September 20, 2017 and September 12, 2018 and sought to recover damages caused by defendants’ alleged violations of the federal securities laws and to pursue remedies under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder.

The Complaint alleged, among other things, that the defendants made materially false and misleading statements related to the efficacy and safety of our product, ONPATTRO.

The plaintiff sought, among other things, the designation of this action as a class action, an award of unspecified compensatory damages, interest, costs and expenses, including counsel fees and expert fees, and other relief as the court deems appropriate.

All defendants filed a motion to dismiss the Complaint in its entirety on July 31, 2019.

On March 23, 2020, the Court granted our motion and dismissed the Complaint without prejudice.

Pursuant to a prior Order of the Court, on June 1, 2020, plaintiff filed a motion seeking leave to file a further amended complaint.

We opposed the motion which was fully briefed on June 22, 2020, and remains pending with the Court.

On September 12, 2019, the Chester County Employees Retirement Fund, individually and on behalf of all others similarly situated, filed a purported securities class action complaint for violation of federal securities laws against us, certain of our current and former directors and officers, and the underwriters of our November 14, 2017 public stock offering, in the Supreme Court of the State of New York, New York County.

4 unchanged sentences

All defendants filed a joint motion to dismiss the New York Complaint in its entirety on December 20, 2019.

Plaintiff’s response to that motion was filed on February 3, 2020.

On November 2, 2020, the Court entered a Decision and Order denying defendants’ motion to dismiss.

Defendants filed a notice of appeal of that decision on November 12, 2020, and filed their opening appellate brief on January 4, 2021.

Plaintiff’s responsive appellate brief is due to be filed on or before March 3, 2021.

We believe that the allegations contained in these complaints are without merit and intend to defend the cases vigorously.

We cannot predict at this point the length of time that these actions will be ongoing or the liabilities, if any, which may arise therefrom.

Dicerna Litigation

On June 10, 2015, we filed a trade secret misappropriation lawsuit against Dicerna in the Superior Court of Middlesex County, Massachusetts seeking to stop misappropriation by Dicerna of our confidential, proprietary and trade secret information related to the RNAi assets we purchased from Merck, including certain N-acetylgalactosamine conjugate technology.

In addition to permanent injunctive relief, we were also seeking monetary damages from Dicerna.

On April 18, 2018, we and Dicerna entered into a Settlement Agreement resolving all ongoing litigation between the companies.

Under the terms of the Settlement Agreement, Dicerna was required to pay us an aggregate of $ 25.0 million, all of which we had received as of January 2019.

Indemnifications

2 unchanged sentences

We are also a party to a number of agreements entered into in the ordinary course of business, which contain typical provisions that obligate us to indemnify the other parties to such agreements upon the occurrence of certain events, including litigation.

For example, under the underwriting agreement entered into in connection with our November 2017 public offering, we have an obligation to indemnify the underwriters and each person, if any, who controls the underwriters, for certain costs and expenses arising in connection with the class action complaint filed against us and such underwriters in New York state court, described above.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

underwriters in New York state court, described above.

These indemnification costs are charged to selling, general and administrative expense.

7 unchanged sentences

As of December 31, 2020 and 2019, there were no shares of preferred stock outstanding.

Public Offerings

In January 2019, we sold an aggregate of 5,000,000 shares of our common stock through an underwritten public offering at a price to the public of $ 77.50 per share.

As a result of the offering, we received aggregate net proceeds of $ 381.9 million, after deducting underwriting discounts and commissions and other estimated offering expenses of $ 5.6 million.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In November 2017, we sold an aggregate of 6,440,000 shares of our common stock through an underwritten public offering at a price to the public of $ 125.00 per share.

As a result of the offering, which included the full exercise of the underwriters’ option to purchase additional shares, we received aggregate net proceeds of $ 784.5 million, after deducting underwriting discounts and commissions and other offering expenses of $ 20.5 million.

In May 2017, we sold an aggregate of 5,000,000 shares of our common stock through an underwritten public offering at a price to the public of $ 71.87 per share.

As a result of the offering, we received aggregate net proceeds of $ 355.2 million, after deducting underwriting discounts and commissions and other offering expenses of $ 4.2 million.

Blackstone Equity Placement

In April 2020, we entered into a stock purchase agreement, or Investors SPA, with certain affiliates of The Blackstone Group Inc., or Investors, pursuant to which we sold 963,486 shares of our common stock to the Investors for aggregate cash consideration of $ 100.0 million, or $ 103.79 per share, as part of the broad strategic financing collaboration with The Blackstone Group Inc.

The Investors SPA contains customary representations, warranties, and covenants of each of the parties thereto.

Regeneron Equity Placement

On April 8, 2019, we executed the Regeneron SPA with Regeneron to sell 4,444,445 shares of our common stock for aggregate cash consideration of $ 400.0 million, or $ 90.00 per share, which we refer to as the Equity Transaction.

As a condition to consummating the transactions contemplated by the Regeneron SPA, we and Regeneron entered into an Investor Agreement dated April 8, 2019 , or the Investor Agreement.

Under the Investor Agreement, until the expiration or termination of the Research Term under the Regeneron Master Agreement subject to extension by one year if the Research Term or Regeneron Master Agreement is terminated by Regeneron at will, or by up to two years if as of the expiration or termination of the Research Term Regeneron owns more than 19.99 % of our outstanding shares, Regeneron and its affiliates will be bound by certain “standstill” provisions.

The standstill provisions include agreements not to acquire more than 30 % of our outstanding shares of common stock, call stockholder meetings, nominate directors other than those approved by our board of directors, subject to certain limited exceptions, or propose or support a proposal to acquire us.

Further, under the Investor Agreement, Regeneron agreed to vote, and cause its affiliates to vote, all shares of our voting securities Regeneron is entitled to vote in a manner as recommended by our board of directors, except with respect to certain change of control transactions, liquidation or dissolution of our company, or, after the standstill term, any contested election of directors.

Under the Investor Agreement, Regeneron agreed not to dispose of any of the purchased shares or any shares of common stock beneficially owned by it immediately after the closing of the Regeneron Master Agreement, until the earlier of (i) the four-year anniversary of the closing of the Equity Transaction and (ii) the termination of the Regeneron Collaboration, subject to limited exceptions, which we refer to as the Lock-Up Period.

Following the expiration of the Lock-Up Period, if at any time Regeneron beneficially owns at least 9.9 % of our outstanding shares, then until such time as Regeneron beneficially owns less than 5 % of our outstanding shares, Regeneron will not dispose of any shares except (a) pursuant to a registered underwritten public offering pursuant to the Investor Agreement, (b) in a manner consistent with the volume limitations set forth in Rule 144 under the Securities Act, or (c) as otherwise approved by us.

Under the Investor Agreement, following the Lock-Up Period, Regeneron will have three demand rights to require us to conduct a registered underwritten public offering with respect to the shares of common stock beneficially owned by Regeneron immediately after the closing of the Equity Transaction.

In addition, following the Lock-Up Period, subject to certain conditions, Regeneron will be entitled to participate in registered underwritten public offerings by us if other selling stockholders are included in the registration.

The rights and restrictions under the Investor Agreement are subject to termination upon the occurrence of certain events.

Under the terms of the Regeneron SPA, if at the time of closing of the Equity Transaction a sufficient number of authorized shares of common stock under our Restated Certificate of Incorporation was not available, the Equity Transaction would have been settled in the form of our Series A redeemable convertible preferred stock.

In April 2019, we executed a stock purchase agreement, or Regeneron SPA, with Regeneron to sell 4,444,445 shares of our common stock for aggregate cash consideration of $ 400.0 million, or $ 90.00 per share, which we refer to as the Equity Transaction.

Under the terms of the Regeneron SPA, if at the time of closing of the Equity Transaction a sufficient number of authorized shares of common stock under our Restated Certificate of Incorporation was not available, the $ 400.0 million of equity under the Regeneron SPA would instead have been issued in the form of 1,481,482 shares of our Series A redeemable convertible preferred stock, par value $ 0.01 per share, at a purchase price of $ 270.00 per share, that would have converted automatically into common stock on a 1-for- 3 basis upon stockholder approval of additional authorized shares of common stock.

On April 25, 2019, following the receipt of stockholder approval at our annual meeting, a Certificate of Amendment was filed to our Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 125,000,000 to 250,000,000 shares, providing for a sufficient number of authorized shares of common stock available to be issued to Regeneron pursuant to the Equity Transaction.

1 unchanged sentence

Because we had an obligation to Regeneron as of April 8, 2019 that may have resulted in the issuance of redeemable convertible preferred stock, we were required to follow the guidance in ASC 480 and mark-to-market the obligation to potentially issue this redeemable security until April 25, 2019, when it became known that the obligation would be fulfilled in common stock.

The final mark-to-market adjustment of this obligation under ASC 480 resulted in us recording a gain of $ 9.4 million included in other income in the consolidated statements of operations and comprehensive loss with the offsetting adjustment to equity netting against the $ 400.0 million proceeds that were received upon closing.

The final mark-to-market adjustment of this obligation under ASC 480 resulted in us recording a gain of $ 9.4 million included in other income in the consolidated statements of comprehensive loss during the year ended December 31, 2019, with the offsetting adjustment to equity netting against the $ 400.0 million proceeds that were received upon closing.

Public Offering

In January 2019, we sold an aggregate of 5,000,000 shares of our common stock through an underwritten public offering at a price to the public of $ 77.50 per share.

As a result of the offering, we received aggregate net proceeds of $ 381.9 million, after deducting underwriting discounts and commissions and other estimated offering expenses of $ 5.6 million.

STOCK-BASED COMPENSATION

In May 2017, our stockholders approved a second amendment and restatement of the 2009 Stock Incentive Plan, or the Amended 2009 Plan, pursuant to which 15,480,000 shares of common stock were authorized for issuance.

In May 2020, our stockholders approved a second amendment to the 2018 Stock Incentive Plan, as amended, or the Amended 2018 Plan, to increase the number of shares authorized for issuance thereunder by 7,000,000 shares.

The Amended 2018 Plan provides for the

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In May 2017, our stockholders approved a second amendment and restatement of the 2009 Stock Incentive Plan, or the Amended 2009 Plan, which increased the number of shares of common stock authorized for issuance from 11,700,000 to 15,480,000 .

On May 10, 2018, our stockholders approved our 2018 Stock Incentive Plan, or the 2018 Plan, which provided for the issuance of up to 3,500,000 shares in addition to the shares that remained available for grant under our Amended 2009 Plan as of the date of approval of the 2018 Plan by stockholders, and any shares underlying any awards granted under the Amended 2009 Plan that expire, or are terminated, surrendered or canceled without having been fully exercised or are forfeited in whole or in part after the date of our 2018 annual meeting.

In 2019, we amended the 2018 Plan to increase the shares of common stock authorized for issuance thereunder by 3,290,000 .

The 2018 Plan, as amended, provides for the granting of stock options, restricted stock and restricted stock units (together, restricted stock awards), stock appreciation rights and other stock-based awards, and has a fungible share pool.

granting of stock options, restricted stock and restricted stock units (together, restricted stock awards), stock appreciation rights and other stock-based awards, and has a fungible share pool.

Any award that is not a full value award is counted against the authorized share limits specified as one share for each share of common stock subject to the award, and all full value awards, defined as restricted stock awards or other stock-based awards, are counted as one and a half shares for each one share of common stock subject to such full value award.

As of December 31, 2019, an aggregate of 18,887,759 shares of common stock were reserved for issuance under our stock plans, including outstanding stock options to purchase 13,069,165 shares of common stock, 749,071 outstanding restricted stock units, 4,729,971 of common stock available for additional equity awards and 339,552 shares available for future grant under our Amended and Restated 2004 Employee Stock Purchase Plan, or the Amended and Restated ESPP.

As of December 31, 2020, an aggregate of 23,035,819 shares of common stock were reserved for issuance under our stock plans, including outstanding stock options to purchase 11,692,209 shares of common stock, 1,160,427 outstanding restricted stock units, 9,223,025 of common stock available for additional equity awards and 960,158 shares available for future grant under our Amended and Restated 2004 Employee Stock Purchase Plan, as amended, or the Amended and Restated ESPP.

Each stock option shall expire within 10 years of issuance.

Time-based stock options granted to employees generally vest as to 25 % of the shares on the first anniversary of the grant date and 6.25 % of the shares at the end of each successive three-month period thereafter until fully vested.

Change in Control Agreements

On November 7, 2017, we entered into a Change in Control, or CIC, Agreement with each member of our management board.

If a member of our management board is terminated by us without Cause, as defined in the CIC Agreement, or if a management board member terminates his or her employment for Good Reason, as defined in the CIC Agreement, in either case, within 12 months following a CIC, such management board member will be entitled to receive certain benefits, including the immediate acceleration of all outstanding unvested stock options and other stock-based awards.

In accordance with accounting guidance for stock-based compensation expense, we expect to record the modification date fair value for any equity grants that were not considered probable of vesting as of November 7, 2017 that ultimately vest.

During the years ended December 31, 2019, 2018, and 2017, we recorded $ 2.2 million, $ 20.8 million and $ 1.1 million, respectively, related to this modification.

Inducement Equity Grants

In May 2017, our compensation committee approved the grant of 125,000 non-qualified stock options and 25,000 performance-based stock options to a newly hired executive.

In February 2017, our compensation committee approved the grant of 50,000 non-qualified stock options to a newly hired vice president.

The non-qualified stock options vest as to 25 % of the shares on the first anniversary of the respective grant date and as to 6.25 % of the shares at the end of each successive three-month period thereafter until fully vested.

The performance-based stock options vested upon the later of the one-year anniversary of the respective grant date and the launch of our first internally developed product, the achievement of which occurred in the third quarter of 2018.

These awards were made as inducement grants outside of our stockholder approved stock plans in accordance with Nasdaq Listing Rule 5635(c)(4).

Stock-Based Compensation

The following table summarizes stock-based compensation expenses included in operating costs and expenses, in thousands:

The following table summarizes stock-based compensation expenses included in operating costs and expenses:

Year Ended December 31,

2019 2018 2017

(In thousands) 2020 2019 2018

Research and development $ 60,464 $ 88,930 $ 80,509

1 unchanged sentence

Total $ 139,873 $ 174,841 $ 157,752

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes stock-based compensation expense, in thousands:

The following table summarizes stock-based compensation expense:

Year Ended December 31,

2019 2018 2017

(In thousands) 2020 2019 2018

Stock-based compensation expense by type of award:

3 unchanged sentences

Performance-based restricted stock units 11,162 22,123 13,144

ESPP share issuances 3,482 2,842 2,155

Other equity programs 3,062 6,466 5,672

Non-employee stock options 1,275 1,485 3,115

Stock-based compensation expense capitalized to inventory ( 571 ) ( 3,403 ) ( 1,424 )

Total $ 139,873 $ 174,841 $ 157,752

The following table summarizes our unrecognized stock-based compensation expense, net of estimated forfeitures, as of December 31, 2019 by type of awards, and the weighted-average period over which that expense is expected to be recognized:

At December 31, 2019

Forfeitures Weighted-

(in thousands) (in years)

The following table summarizes our unrecognized stock-based compensation expense, net of estimated forfeitures, by type of awards, and the weighted-average period over which that expense is expected to be recognized:

As of December 31, 2020

(in thousands) Weighted-

Type of award:

Time-based stock options $ 183,700 2.44

Performance-based stock options 5,997 *

Time-based restricted stock units 1,593 0.2

Performance-based restricted stock units 1,286 *

ESPP share issuances 903 0.33

Other equity programs 8,159 2.57

__________________________________________

2 unchanged sentences

The fair value of stock options, at date of grant, based on the following assumptions, was estimated using the Black-Scholes option-pricing model.

Our expected stock-price volatility assumption is based on the historical volatility of our publicly traded stock.

Our expected stock-price volatility assumption is based on the historical volatility of our publicly

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

traded stock.

The expected life assumption is based on our historical data.

1 unchanged sentence

The risk-free interest rate used for each grant is equal to the zero coupon rate for instruments with a similar expected life.

The following table summarizes the Black-Scholes valuation assumption inputs for stock options granted during the years indicated:

The following table summarizes the Black-Scholes valuation assumption inputs for employee stock options granted:

Year Ended December 31,

2020 2019 2018

6 unchanged sentences

Stock Option Activity

The following table summarizes the activity of our stock option plans and the inducement grants described above, excluding performance-based stock options:

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the activity of our stock option plans, excluding performance-based stock options:

(in thousands) Weighted-

2 unchanged sentences

(in thousands)

Outstanding, December 31, 2018 9,829 $ 72.48

Outstanding as of December 31, 2019 10,878 $ 76.92

Granted 2,086 119.96

1 unchanged sentence

Cancelled ( 506 ) 94.53

Outstanding, December 31, 2019 10,878 $ 76.92 6.67 $ 428,124

Outstanding as of December 31, 2020 10,068 $ 88.18 6.56 $ 423,864

Exercisable as of December 31, 2020 5,835 $ 76.79 5.19 $ 310,933

4 unchanged sentences

Performance-Based Stock Options

With respect to the performance-based portion of the annual stock option awards, a portion of the shares subject to the performance-based stock option will vest upon the later of the one-year anniversary of the date of grant and the achievement of specific clinical development, regulatory and/or commercial events, as approved by our compensation committee.

During each of the years ended December 31, 2018 and 2017, we also granted an option to purchase 25,000 shares of common stock to a newly hired executive that were subject to vest upon the later of the one -year anniversary of the grant date and the achievement of a commercial event.

The following table summarizes the activity of our performance-based stock options granted under our equity plans and the performance-based portion of the inducement grants described above:

The following table summarizes the activity of our performance-based stock options granted under our equity plans:

(in thousands) Weighted-

2 unchanged sentences

(in thousands)

Outstanding, December 31, 2018 2,744 $ 84.75

Outstanding as of December 31, 2019 2,191 $ 86.77

Exercised ( 538 ) 71.28

Cancelled ( 28 ) 118.62

Outstanding, December 31, 2019 2,191 $ 86.77 6.35 $ 65,009

Outstanding as of December 31, 2020 1,625 $ 91.35 5.14 $ 62,740

Exercisable as of December 31, 2020 1,414 $ 87.22 4.88 $ 60,458

2 unchanged sentences

We satisfy performance-based stock option exercises with newly issued shares of our common stock.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restricted Stock Units and Awards

The following table summarizes the activity of our restricted stock units and awards, excluding performance-based stock units:

The following table summarizes the activity of our restricted stock units and awards, excluding performance-based restricted stock units:

(in thousands) Weighted-

Grant Date Fair Value

Outstanding, December 31, 2018 15 $ 89.44

Granted 127 78.01

Vested ( 14 ) 95.66

Outstanding as of December 31, 2019 127 $ 77.23

Awarded 17 134.34

Released ( 16 ) 92.97

Cancelled ( 11 ) 76.98

Outstanding, December 31, 2019 127 $ 77.23

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Outstanding as of December 31, 2020 117 $ 83.66

Performance-Based Restricted Stock Units

2 unchanged sentences

Grant Date Fair Value

Outstanding, December 31, 2018 22 $ 91.72

Granted 685 85.01

Vested ( 13 ) 79.14

Outstanding as of December 31, 2019 623 $ 85.36

Awarded 715 119.11

Released ( 206 ) 85.67

Cancelled ( 89 ) 99.08

Outstanding, December 31, 2019 623 $ 85.36

The performance-based restricted stock units granted in 2019 will vest upon the later of the one-year anniversary of the date of grant and the achievement of specific clinical development, regulatory and/or commercial events, as approved by our compensation committee.

During the year ended December 31, 2019, we recognized $ 20.7 million in expense related to these performance awards.

In August 2018, we recorded stock-based compensation expense of $ 11.8 million for 124,833 performance-based restricted stock units that fully vested upon the launch of ONPATTRO.

The total fair value of these performance-based restricted stock units that vested (measured on the date of vesting) was $ 11.4 million.

Outstanding as of December 31, 2020 1,043 $ 107.26

The performance-based restricted stock units granted in 2020 and 2019 will vest upon the later of the one-year anniversary of the date of grant and the achievement of specific clinical development, regulatory and/or commercial events, as approved by our people, culture and compensation committee.

Employee Stock Purchase Plan

In 2004, we adopted the 2004 Employee Stock Purchase Plan and in May 2017, our stockholders approved the Amended and Restated ESPP, providing the authorization of 1,215,789 shares for issuance.

Under the Amended and Restated ESPP, each offering period is six months , at the end of which employees may purchase shares of common stock through payroll deductions made over the term of the offering.

In May 2020 our stockholders approved an amendment to the Amended and Restated ESPP, to further increase the number of shares authorized for issuance thereunder from 1,215,789 shares to 1,965,789 shares.

Under the Amended and Restated ESPP, as amended, each offering period is six months , at the end of which employees may purchase shares of common stock through payroll deductions made over the term of the offering.

The per-share purchase price at the end of each offering period is equal to the lesser of 85 % of the closing price of our common stock at the beginning or end of the offering period.

We issued 109,590 , 78,085 and 103,666 shares during the years ended December 31, 2019, 2018 and 2017, respectively, and as of December 31, 2019, we had 339,552 shares available for issuance under the Amended and Restated ESPP.

We estimate the fair value of shares to be issued under the Amended and Restated ESPP using the Black-Scholes option-pricing model on the date of grant, or first day of the offering period.

The following table summarizes information pertaining to stock purchase rights granted under the employee stock purchase plan, during the years indicated:

We issued 129,394 , 109,590 and 78,085 shares during the years ended December 31, 2020, 2019 and 2018, respectively, and as of December 31, 2020, we had 960,158 shares available for issuance under the Amended and Restated ESPP, as amended.

We estimate the fair value of shares to be issued under the Amended and Restated ESPP, as amended, using the Black-Scholes option-pricing model on the date of grant, or first day of the offering period, using the same methodology approach as the employee stock option grants.

The following table summarizes the Black-Scholes valuation assumption inputs for stock purchase rights granted under the employee stock purchase plan:

Year Ended December 31,

2020 2019 2018

Weighted-average fair value, per share $ 25.51 $ 35.67 $ 17.10

Weighted-average stock price volatility 52 % 63 % 91 %

Expected option life 6 months 6 months 6 months

Risk-free interest rate 0.1 % - 0.1 %

The domestic and foreign components of loss before income taxes are as follows, in thousands:

1.6 % - 2.4 %

2.0 % - 2.5 %

Expected dividend yield — — —

Expected option life 6 months 6 months 6 months

Expected volatility 40 % - 50 %

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The domestic and foreign components of loss before income taxes are as follows:

(In thousands) 2020 2019 2018

Domestic $ ( 682,859 ) $ ( 597,602 ) $ ( 573,245 )

1 unchanged sentence

Loss before income taxes $ ( 855,600 ) $ ( 885,253 ) $ ( 760,674 )

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The provision for income taxes for each of the years ended December 31, 2019, 2018 and 2017 consisted of the following:

2019 2018 2017

The provision for income taxes consisted of the following:

Year Ended December 31,

(In thousands) 2020 2019 2018

Current provision:

3 unchanged sentences

Deferred benefit:

Federal 394 ( 788 ) —

Domestic 393 394 ( 788 )

Foreign ( 3,610 ) ( 2,369 ) —

3 unchanged sentences

We establish a valuation allowance when uncertainty exists as to whether all or a portion of the net deferred tax assets will be realized.

Components of the net deferred tax (liability) asset as of December 31, 2019 and 2018 are as follows, in thousands:

Components of the net deferred tax (liability) asset are as follows:

As of December 31,

(In thousands) 2020 2019

Deferred tax assets:

1 unchanged sentence

Research and development and ODC credits 301,792 261,616

AMT credits 394 788

Sale of future royalties 259,014 —

Lease liability 70,402 69,334

Deferred revenue 84,946 —

Deferred compensation 67,530 75,058

6 unchanged sentences

Right of use assets ( 50,323 ) ( 50,294 )

Deferred revenue tax accounting method change ( 71,812 ) —

Deferred tax asset valuation allowance ( 1,349,729 ) ( 1,046,013 )

Net deferred tax asset $ 6,517 $ 3,433

Our effective income tax rate differs from the statutory federal income tax rate as follows for the years ended December 31, 2019, 2018 and 2017:

2019 2018 2017

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our effective income tax rate differs from the statutory federal income tax rate, as follows:

Year Ended December 31,

(In thousands) 2020 2019 2018

federal statutory rate 21.0 % 21.0 % 21.0 %

2 unchanged sentences

Tax credits 3.3 3.7 4.2

Orphan drug credit — — ( 3.4 )

Other permanent items ( 1.5 ) ( 0.3 ) ( 0.3 )

Foreign rate differential ( 3.5 ) ( 6.9 ) ( 5.3 )

Tax reform change — — ( 46.5 )

Internal reorganization of certain intellectual property rights 12.3 — —

Revaluation of deferred credits due to rate change — — ( 3.5 )

2 unchanged sentences

Effective income tax rate ( 0.3 ) % — % — %

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We have evaluated the positive and negative evidence bearing upon the realizability of our deferred tax assets.

We have concluded, in accordance with the applicable accounting standards, that it is more likely than not that we may not realize the benefit of all of our deferred tax assets, with the exception of the deferred assets related to certain foreign subsidiaries, and alternative minimum tax credits as these have become refundable through 2021.

Accordingly, we have recorded a valuation allowance against the deferred tax assets that management believes will not be realized.

We re-evaluate the positive and negative evidence on a quarterly basis.

The valuation allowance increased by $ 185.9 million, $ 171.8 million and $ 112.9 million for the years ended December 31, 2019, 2018 and 2017, respectively, primarily due to additional operating losses.

The valuation allowance increased by $ 303.7 million, $ 185.9 million and $ 171.8 million for the years ended December 31, 2020, 2019 and 2018, respectively, primarily due to the liability related to the sale of future royalties for the year ended December 31, 2020 and additional net operating losses for the years ended December 31, 2019 and 2018.

During the year ended December 31, 2020, we recorded a net provision for income taxes of $ 2.7 million.

This is comprised of $ 3.2 million in current foreign tax expense offset by $ 2.4 million in deferred tax benefit in the foreign jurisdictions.

This is primarily comprised of $ 5.8 million of foreign current provision offset by $ 3.6 million of deferred provision, primarily related to foreign jurisdictions.

As of December 31, 2020, we had federal and state net operating loss carryforwards of $ 2.0 billion and $ 1.9 billion, respectively, to reduce future taxable income.

1 unchanged sentence

As of December 31, 2020, we had federal and state research and development, including Orphan Drug, and state investment tax credit carryforwards of $ 272.5 million and $ 43.1 million, respectively, available to reduce future tax liabilities that expire at various dates through 2040.

As of December 31, 2019, we had alternative minimum tax credits of $ 0.4 million that will either be available to reduce future regular tax liabilities or be fully refundable in 2021 .

We have a valuation allowance against the net operating loss and deferred tax assets related to tax credits as it is unlikely that we will realize these assets.

We have a valuation allowance against the net operating loss and credit carryforwards as it is unlikely that we will realize these assets.

Ownership changes, as defined in the Internal Revenue Code, including those resulting from the issuance of common stock in connection with our public offerings, may limit the amount of net operating loss and tax credit carryforwards that can be utilized to offset future taxable income or tax liability.

3 unchanged sentences

We apply the accounting guidance in ASC 740 related to accounting for uncertainty in income taxes.

Our reserves related to taxes are based on a determination of whether, and how much of, a tax benefit taken by us in our tax filings or positions is more likely than not to be realized following resolution of any potential contingencies present related to tax benefit.

The following table presents our unrecognized tax benefits activity for the years ended December 31, 2019 and 2018, in thousands:

Description 2019 2018

Unrecognized tax benefits at the beginning of the year $ — $ —

Gross increases - current period tax positions 305 —

Unrecognized tax benefits at the end of the year $ 305 $ —

The uncertain tax position does not impact our effective income tax rate due to the full valuation allowance.

The tax years 2016 through 2019 remain open to examination by major taxing jurisdictions to which we are subject, which are primarily in the U.S., although carryforward attributes generated prior to 2016 may still be adjusted upon examination by the Internal Revenue Service or state tax authorities if they have or will be used in a future period.

Our reserves related to income taxes are based on a determination of whether, and how much of, a tax benefit taken by us in our tax filings or positions is more likely than not to be realized following resolution of any potential contingencies present related to tax benefit.

We recognize potential interest and penalties related to unrecognized tax benefits in our provision for income taxes.

Our reserve related to income taxes, including potential interest and penalties, was not material as of December 31, 2020 and 2019.

Our uncertain income tax positions do not impact our effective tax rate due to our full valuation allowance in the U.S.

As of December 31, 2020, the unremitted earnings of our foreign subsidiaries are not material.

We have not provided for U.S.

income taxes or foreign withholding taxes on these earnings as it is our current intention to permanently reinvest these earnings outside the U.S.

The tax liability on these earnings is also not material.

Events that could trigger a tax liability include, but are not limited to, distributions, reorganizations or restructurings and/or tax law changes.

The tax years 2017 through 2020 remain open to examination by major taxing jurisdictions, which are primarily in the U.S., although net operating loss and credit carryforwards generated prior to 2017 may still be adjusted upon examination by the Internal Revenue Service or state tax authorities if they have or will be used in a future period.

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DEFINED BENEFIT PLANS

1 unchanged sentence

The unfunded benefit obligation corresponds to the projected benefit obligations of which the discounted net present value is calculated based on years of employment, expected salary increases and pension adjustments, offset by the fair value of the assets held by the plan.

The unfunded benefit obligation was approximately $ 4.3 million as of December 31, 2019 and is recorded in other liabilities on the consolidated balance sheet.

The unfunded benefit obligation as of December 31, 2018 and the total net periodic benefit cost for the years ended December 31, 2019, 2018 and 2017 were not material.

The unfunded benefit obligation was approximately $ 5.2 million and $ 4.3 million as of December 31, 2020 and 2019, respectively, and is recorded in other liabilities on the consolidated balance sheet.

The total net periodic benefit cost for the years ended December 31, 2020, 2019 and 2018 were not material.

QUARTERLY FINANCIAL DATA (UNAUDITED)

The following information has been derived from unaudited consolidated financial statements that, in the opinion of management, include all recurring adjustments necessary for a fair statement of such information:

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended

March 31, 2020

June 30, 2020

September 30, 2020

2019 December 31,

(In thousands, except per share data)

Revenues $ 33,294 $ 44,714 $ 70,061 $ 71,681

Total revenues $ 99,476 $ 103,962 $ 125,853 $ 163,562

Operating costs and expenses 309,634 302,821 351,052 357,784

3 unchanged sentences

Three Months Ended

March 31, 2019

June 30, 2019

September 30, 2019

2018 December 31,

(In thousands, except per share data)

Revenues $ 21,899 $ 29,907 $ 2,069 $ 21,033

Total revenues $ 33,294 $ 44,714 $ 70,061 $ 71,681

Operating costs and expenses 222,082 280,985 286,360 369,754

4 unchanged sentences

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 8. Financial Statements and Supplementary Data