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Item 7. Management’s Discussion and Analysis

2022-02-10 compared with 2021-02-11 · 124 added, 155 removed, 103 unchanged (73% of the section changed)

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As described in Part I, Item 1.

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

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

In Part I, Item 1.

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

As a result of planned expenditures for research and development activities relating to our research platform, our drug development programs, including clinical trial and manufacturing costs, the establishment of late-stage clinical and commercial capabilities, including global commercial operations, continued management and growth of our patent portfolio, collaborations and general corporate activities, we expect to incur additional operating losses, however we expect 2019 represents our peak

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

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

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

We currently have programs focused on a number of therapeutic areas and in August 2018 received regulatory approval from the FDA and EC for our first product, ONPATTRO, and began to generate net revenues from product sales during the third quarter of 2018.

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

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

We currently have programs focused on a number of therapeutic areas and, as of December 31, 2021, we generate worldwide product revenues from three commercialized products, ONPATTRO, GIVLAARI and OXLUMO, primarily in the U.S., Europe and Japan.

However, our ongoing development efforts may not be successful and we may not be able to commence sales of any other products and/or successfully market and sell ONPATTRO, GIVLAARI, OXLUMO or any other approved products in the future.

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

In addition to revenues from the commercial sales of ONPATTRO, GIVLAARI, OXLUMO and potentially from sales of future products, we expect our sources of potential funding for the next several years to continue to be derived in part from existing and new strategic alliances, including our strategic financing collaboration with Blackstone.

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

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP.

The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities in our consolidated financial statements.

Actual results may differ from these estimates under different assumptions or conditions and could have a material impact on our reported results.

While our significant accounting policies are more fully described in the Notes to our consolidated financial statements included elsewhere in this annual report on Form 10-K, we believe the following accounting policies to be the most critical in understanding the judgments and estimates we use in preparing our consolidated financial statements:

Net Product Revenues

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.

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 :

We estimate obligations resulting from contractual commitments with the government and other entities to sell products to qualified healthcare providers at prices lower than the list prices charged to the customer who directly purchases from us.

The customer charges us for the difference between what it pays to us for the product and the selling price to the qualified healthcare providers.

We are subject to discount obligations under government programs, including Medicaid in the U.S.

and similar programs in certain other countries, including countries in which we are accruing for estimated rebates because final pricing has not yet been negotiated.

We are also subject to potential rebates in connection with our VBAs with certain commercial payors.

We record reserves for rebates in the same period the related product revenue is recognized, resulting in a reduction of product revenues and a current liability that is included in accrued expenses on our consolidated balance sheet.

Our estimate for rebates is based on statutory discount rates, expected utilization or an estimated number of patients on treatment, as applicable.

Trade discounts and allowances :

We provide customary invoice discounts on product sales to our customers for prompt payment and we pay fees for distribution services, such as fees for certain data that customers provide to us.

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.

Product returns:

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.

Other incentives:

Other incentives include co-payment assistance we provide to patients with commercial insurance that have coverage and reside in states that allow co-payment assistance.

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.

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

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

At contract inception, we assess whether the collaboration arrangements are within the scope of Accounting Standards Codification, or ASC, Topic 808, Collaborative Arrangements, or ASC 808, to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities.

This assessment is performed based on the responsibilities of all parties in the arrangement.

For collaboration arrangements within the scope of ASC 808 that contain multiple elements, we first determine which elements of the arrangement are within the scope of ASC 808 and which elements are within the scope of ASC Topic 606, Revenue from Contracts with Customers, or ASC 606.

For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently, either by analogy to authoritative accounting literature or by applying a reasonable and rational policy election.

For elements of collaboration arrangements that are accounted for pursuant to ASC 606, we identify the performance obligations and allocate the total consideration we expect to receive on a relative standalone selling price basis to each performance obligation.

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.

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.

Key assumptions to determine the standalone selling price may include forecasted revenues, development timelines, reimbursement rates for personnel costs, the expected number of targets or indications expected to be pursued under each license, discount rates and probabilities of technical and regulatory success.

We recognize revenue associated with each performance obligation as the control over the promised goods or services transfer to our collaboration partner which occurs either at a point in time or over time.

If control transfers over time, revenue is recognized by using a method of measuring progress that best depicts the transfer of goods or services.

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 (less than 12 months) or long-term (more than 12 months) deferred revenue based on our best estimate of when such revenue will be recognized.

Liability Related to the Sale of Future Royalties

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

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

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

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

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

In addition to revenues from the commercial sales of our approved products and potentially from sales of future products, we expect our sources of potential funding for the next several years to continue to be derived in part from existing and new strategic alliances.

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

Results of Operations

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For discussion of our 2020 results and a comparison with 2019 results please refer to "Management's Discussion and Analysis of Financial Conditions and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 that was filed with the SEC on February 11, 2021.

The following table summarizes our total consolidated revenues:

Discussion of Results of Operations

Total revenues consist of the following:

Years Ended December 31, 2021 vs 2020 2020 vs 2019

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

(In thousands, except percentages) 2021 2020 2019 $ Change % Change $ Change % Change

Net product revenues $ 662,138 $ 361,520 $ 166,537 $ 300,618 83 % $ 194,983 117 %

Net revenues from collaborations 180,953 131,333 53,213 49,620 38 % 78,120 147 %

Royalty revenue 1,196 — — 1,196 N/A — N/A

Total $ 844,287 $ 492,853 $ 219,750 $ 351,434 71 % $ 273,103 124 %

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Year Ended December 31, 2021 vs 2020 2020 vs 2019

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

(In thousands, except percentages) 2021 2020 2019 $ Change % Change $ Change % Change

United States $ 213,210 $ 151,574 $ 116,302 $ 61,636 41 % $ 35,272 30 %

Europe 190,435 107,755 43,980 82,680 77 % 63,775 145 %

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

Rest of World (primarily Japan) 71,092 46,752 6,105 24,340 52 % 40,647 666 %

Total $ 474,737 $ 306,081 $ 166,387 $ 168,656 55 % $ 139,694 84 %

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

Europe 12,000 — — 12,000 N/A — N/A

United States $ 92,747 $ 42,797 $ 150 $ 49,950 117 % $ 42,647 28,431 %

Europe 30,895 12,000 — 18,895 157 % 12,000 N/A

Rest of World 4,173 309 — 3,864 1250 % 309 N/A

Total $ 127,815 $ 55,106 $ 150 $ 72,709 132 % $ 54,956 36,637 %

United States $ 18,876 $ — $ — $ 18,876 N/A $ — N/A

Europe 38,949 333 — 38,616 11,596 % 333 N/A

Rest of World 1,761 — — 1,761 N/A — N/A

Total $ 59,586 $ 333 $ — $ 59,253 17,794 % $ 333 N/A

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

Total net product revenues $ 662,138 $ 361,520 $ 166,537 $ 300,618 83 % $ 194,983 117 %

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

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

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

Net product revenues increased during the year ended December 31, 2021, compared to the year ended December 31, 2020, as a result of the continued, global expansion of ONPATTRO and GIVLAARI into additional major markets and increased patients on therapy, in addition to sales generated from our third commercial product, OXLUMO, following regulatory approvals in the fourth quarter of 2020.

We expect net product revenues to increase during 2022, as compared to 2021, as we continue to add new patients onto our commercial products, as well as launch vutrisiran in the U.S.

and our approved products into additional markets, assuming regulatory approvals.

Please read Note 3 to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K for balances and activity in each product revenue allowance and reserve category for the years ended December 31, 2021 and 2020.

Net Revenues from Collaborations

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

Net Revenues from Collaborations and Royalty Revenue

Net revenues from collaborations consist of the following:

Years Ended December 31, 2021 vs 2020 2020 vs 2019

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

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

(In thousands, except percentages) 2021 2020 2019 $ Change % Change $ Change % Change

Regeneron Pharmaceuticals $ 113,226 $ 74,072 $ 26,075 $ 39,154 53 % $ 47,997 184 %

Novartis AG 49,120 22,208 2,315 26,912 121 % 19,893 859 %

Vir Biotechnology 16,897 31,396 12,809 (14,499) (46) % 18,587 145 %

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

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

Other 1,710 3,657 12,014 (1,947) (53) % (8,357) (70) %

Total $ 180,953 $ 131,333 $ 53,213 $ 49,620 38 % $ 78,120 147 %

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

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

Net revenues from collaborations increased during the year ended December 31, 2021, as compared to the year ended December 31, 2020, primarily due to increased revenue recognized in connection with our collaboration agreements with Regeneron and Novartis, including the achievement of a $25 million regulatory milestone payment for Leqvio associated with FDA approval in Q4 2021.

These increases were offset by decreased activities in connection with our collaboration agreement with Vir.

We earn royalty revenue from global net sales of Leqvio by our partner, Novartis.

In December 2020, Leqvio received marketing authorization from the EC for the treatment of adults with hypercholesterolemia or mixed dyslipidemia, and in December 2021, Leqvio was approved by the FDA for the treatment of adults with HeFH or ASCVD.

During the year ended December 31, 2021, we earned $1.2 million in royalty revenue.

We expect combined net revenues from collaborations and royalty revenue to moderately increase in 2022, as compared to 2021, due to increased reimbursable activities, anticipated achievement of milestones under our collaboration agreements, and increased royalties associated with sales of Leqvio.

Operating Costs and Expenses

The following table summarizes our operating costs and expenses:

Operating costs and expenses consist of the following:

Year Ended December 31, 2021 vs 2020 2020 vs 2019

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

(In thousands, except percentages) 2021 2020 2019 $ Change % Change $ Change % Change

Cost of goods sold $ 115,005 $ 74,185 $ 25,062 $ 40,820 55 % $ 49,123 196 %

Cost of collaborations and royalties 25,139 3,867 — 21,272 550 % 3,867 N/A

Research and development 792,156 654,819 655,114 137,337 21 % (295) — %

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Cost of Goods Sold

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

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

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

Cost of goods sold as a percentage of net product revenues decreased to 17.4% for the year ended December 31, 2021, as compared to 20.5% for the year ended December 31, 2020, primarily due to decreased charges in 2021 as a result of manufacturing facilities operating at near full capacity compared to 2020.

We anticipate variability in our cost of goods sold as a percentage of net product revenues due to the timing of manufacturing runs and utilization and the depletion of zero-cost inventories, as well as future product launches.

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

We expect cost of goods sold will increase during 2022, as compared to 2021, primarily as a result of an expected increase in net product sales as well as the sale of capitalized inventory.

Cost of collaborations and royalties

Cost of collaborations and royalties increased during the year ended December 31, 2021, as compared to the year ended December 31, 2020, primarily due to an increase in GalNAc material supply to Novartis to support its continued, global launch of Leqvio, as well as its ongoing clinical trials.

We expect cost of collaborations and royalties to remain relatively consistent during 2022, as compared to 2021, due to variability of GalNAc material supplied to Novartis to support the manufacturing of Leqvio.

Research and Development

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

Research and development expenses consist of the following:

Year Ended December 31, 2021 vs 2020 2020 vs 2019

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

(In thousands, except percentages) 2021 2020 2019 $ Change % Change $ Change % Change

Clinical trial and manufacturing $ 313,753 $ 218,752 $ 203,897 $ 95,001 43 % $ 14,855 7 %

Compensation and related 196,134 190,705 157,001 5,429 3 % 33,704 21 %

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

Facilities-related 81,462 69,769 54,650 11,693 17 % 15,119 28 %

External services 70,679 70,120 75,448 559 1 % (5,328) (7) %

Stock-based compensation 68,415 60,464 88,930 7,951 13 % (28,466) (32) %

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$ 792,156 $ 654,819 $ 655,114 $ 137,337 21 % $ (295) — %

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

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

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

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

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

During the years ended December 31, 2020 and 2019, in connection with advancing activities under our collaboration agreements, we incurred research and development expenses, primarily related to external development and manufacturing services.

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

Research and development expenses increased during the year ended December 31, 2021, as compared to the year ended December 31, 2020, primarily due to the following:

• Increased clinical trial and manufacturing expenses primarily related to increased expenses associated with activities related to the advancement of our HELIOS B, APOLLO B, KARDIA-1 and KARDIA-2 clinical programs;

• Increased license fees expense resulting from upfront payments due upon the execution of certain collaboration agreements.

During the years ended December 31, 2021 and 2020, in connection with advancing activities under our collaboration agreements, we incurred research and development expenses, primarily related to external development and clinical expenses, including the manufacture of clinical product.

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

Year Ended December 31,

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Vir Biotechnology 13,349 30,644 15,479

Sanofi Genzyme 2,957 13,856 43,219

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

Other 2,226 4,656 16,577

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Selling, General and Administrative

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

Selling, general and administrative expenses consist of the following:

Year Ended December 31, 2021 vs 2020 2020 vs 2019

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

(In thousands, except percentages) 2021 2020 2019 $ Change % Change $ Change % Change

Compensation and related

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Selling, general and administrative expenses increased during the year ended December 31, 2021, as compared to the year ended December 31, 2020, primarily due to the following:

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

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

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

• Increased compensation and related expenses and stock-based compensation expense as a result of increased commercial and medical affairs headcount to support our Alnylam P 5 x25 strategy;

• Increased consulting and professional services expenses as a result of increased commercial-related services as well as the continued expansion of our commercial products into additional major markets.

• Decreased other expenses due to a change in an estimate of contingent liabilities related to our arbitration with Ionis in 2020.

We expect that research and development expenses combined with selling, general and administrative expenses will increase during 2022, as compared to 2021, as we continue to advance and develop our platform and pipeline, advance our product candidates, including partnered programs, into later-stage development, prepare regulatory submissions and continue to build-out our global commercial and compliance infrastructure and field team to support ONPATTRO, GIVLAARI, OXLUMO and potentially additional product launches, including vutrisiran.

However, we expect that certain expenses will be variable depending on the timing of manufacturing batches, clinical trial enrollment and results, regulatory review of our product candidates and programs, and stock-based compensation expenses due to our determination regarding the probability of vesting for performance-based awards.

Total Other (Expense) Income

Total other (expense) income consists of the following:

Other (Expense) Income

Other (expense) income consists of the following:

Year Ended December 31, 2021 vs 2020 2020 vs 2019

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

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

(In thousands, except percentages) 2021 2020 2019 $ Change % Change $ Change % Change

Interest expense $ (143,021) $ (84,496) $ — $ (58,525) 69 % $ (84,496) N/A

Interest income 1,579 11,809 33,448 (10,230) (87) % (21,639) (65) %

Other income:

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

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

Other (expense) income, net

Realized and unrealized gains on marketable equity securities 55,695 54,042 11,288 1,653 3 % 42,754 379 %

Change in fair value of development derivative liability (38,433) (17,185) — (21,248) 124 % (17,185) N/A

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

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

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

Other (expense) income (19,312) 8,668 20 (27,980) (323) % 8,648 43,240 %

Total $ (143,492) $ (27,162) $ 54,178 $ (116,330) 428 % $ (81,340) (150) %

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

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

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

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

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

Total other expense increased during the year ended December 31, 2021, as compared to the year ended December 31, 2020, primarily due to increased interest expense associated with the sale of future royalties and the drawdown of our credit facility beginning in December 2020, increased expense associated with the mark-to-market adjustment related to the development derivative liability and increased other expense as a result of unfavorable foreign currency remeasurement.

Liquidity and Capital Resources

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Net cash used in operating activities (641,693) (614,961) (278,427)

Net cash (used in) provided by investing activities (435,518) (417,677) 272,945

Net cash used in investing activities (273,300) (435,518) (417,677)

Net cash provided by financing activities 1,247,118 994,979 823,184

Effect of exchange rate changes on cash, cash equivalents and restricted cash (9,018) 4,918 (83)

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

Net increase (decrease) in cash, cash equivalents and restricted cash 323,107 (50,582) 126,997

Cash, cash equivalents and restricted cash, beginning of period

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Cash, cash equivalents and restricted cash, end of period $ 822,153 $ 499,046 $ 549,628

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

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

Operating Activities

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

Net cash used in operating activities increased during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to increased cash disbursements related to working capital payments partially offset by stronger cash receipts from increased product sales.

Investing Activities

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

Net cash used in investing activities decreased during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to decreased purchases, sales and maturities of our marketable securities.

Financing Activities

Net cash provided by financing activities increased during the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to $500.0 million received from our sale to Blackstone of one-half of our royalty interest under the MDCO agreement in April 2020, increased net proceeds of $129.2 million from the issuance of common stock in connection with stock option exercises and other types of equity and proceeds of $200.0 million in connection with the first draw down on our credit agreement, compared to the prior year proceeds of $400.0 million from our issuance of common stock to Regeneron in April 2019 and $381.9 million received from our January 2019 underwritten public offering.

Operating Capital Requirements

Net cash provided by financing activities increased during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to proceeds of $500.0 million in connection with drawdown on our credit agreement and increased net proceeds of $45.8 million from the issuance of common stock in connection with stock option exercises and other types of equity, compared to the prior year proceeds of $200.0 million in connection with the first drawdown on our credit facility and net proceeds of $99.5 million from our issuance of common stock to certain affiliates of The Blackstone Group Inc.

Additional Capital Requirements

We currently have programs focused on a number of therapeutic areas and, as of December 31, 2021, have received regulatory approval and commercially launched three products:

ONPATTRO, GIVLAARI and OXLUMO.

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

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

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

However, our ongoing development efforts may not be successful and we may not be able to commence sales of any other products in the future.

In addition, we anticipate that we will continue to generate losses as a result of planned expenditures for research and development activities relating to our research platform, our drug development programs, including clinical trial and manufacturing costs, the establishment of late-stage clinical, manufacturing and commercial capabilities, including global operations, continued management and growth of our intellectual property including our patent portfolio, collaborations and general corporate activities.

Based on our current operating plan, we believe that our cash, cash equivalents and marketable securities as of December 31, 2020, together with the cash we expect to generate from product sales and under our current alliances, in addition to our strategic financing collaboration with The Blackstone Group Inc.

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

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

Off-Balance Sheet Arrangements

In connection with license agreements we may enter with companies to obtain rights to intellectual property, we may be required to indemnify such companies for certain damages arising in connection with the intellectual property rights licensed under the agreements.

Under such indemnification agreements we may be responsible for paying the costs of any litigation relating to the license agreements or the underlying intellectual property rights, including the costs associated with certain litigation regarding the licensed intellectual property.

In addition, we are 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.

These indemnification costs are charged to selling, general and administrative expense and are considered off-balance sheet arrangements in accordance with GAAP.

To date, other than certain costs associated with certain previously settled litigation, we have not encountered material costs as a result of such obligations and have not accrued any liabilities related to such obligations in our consolidated financial statements.

Contractual Obligations

In the table below, we set forth our enforceable and legally binding obligations and future commitments as of December 31, 2020.

Some of the figures that we include in this table are based on management’s estimates and assumptions about these obligations, including their duration, the possibility of renewal, anticipated actions by third parties and other factors.

Because these estimates and assumptions are necessarily subjective, the obligations we will actually pay in future periods may vary from those reflected in the table.

Payments Due by Period

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

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

Long-term debt — — — 200,000 200,000

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

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

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

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

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

Pursuant to these agreements, we will be required to make additional payments, including in some cases, milestone payments if and when we achieve specified development, regulatory and commercialization events, as well as royalty payments on sales of our approved products.

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 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.

However, our ongoing development efforts may not be successful and we may not be able to commence sales of any other products, including vutrisiran, or successfully expand the indication for our approved products, including ONPATTRO (and vutrisiran, if approved), in the future.

In addition, we anticipate that we will continue to generate losses as a result of planned expenditures for research and development activities relating to our research platform, our drug development programs, including clinical trial and manufacturing costs, the establishment of late-stage clinical, manufacturing, commercial and compliance capabilities, including global operations, continued management and growth of our intellectual property including our patent portfolio, collaborations and general corporate activities.

Based on our current operating plan, we believe that our cash, cash equivalents and marketable securities as of December 31, 2021, together with the cash we expect to generate from product sales and under our current alliances, including milestones and royalties on Leqvio sales, 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.

Recent and expected working and other capital requirements, in addition to the above matters, also include the items described below:

• Amounts related to future lease payments for operating lease obligations at December 31, 2021 totaled $503.6 million, with$41.8 million expected to be paid within the next 12 months.

• Our cash operating expenditures were $641.7 million in 2021 and $615.0 million in 2020, and we expect to increase our investment in operations in 2022.

• Cash outflows for capital expenditures were $76.4 million in 2021 and $70.4 million in 2020.

We expect capital expenditures to increase in 2022 to support the increase in our manufacturing and production capacity needs.

• Amounts related to future long-term debt total $675.7 million, of which we do not expect to make payments on principal within the next 12 months.

• Payments associated with the liability related to the sale of future royalties were approximately $0.4 million in 2021, with $37.1 million to be paid within the next 12 months.

Since we commenced operations in 2002, we have generated significant losses and as of December 31, 2021, we had an accumulated deficit of $5.44 billion.

As of December 31, 2021, we had cash, cash equivalents and marketable securities of $2.44 billion, compared to $1.87 billion as of December 31, 2020.

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

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP.

Actual results may differ from these estimates under different assumptions or conditions and could have a material impact on our reported results.

While our significant accounting policies are more fully described in the Notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be the most critical in understanding the judgments and estimates we use in preparing our consolidated financial statements:

Net Product Revenues

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.

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

The estimates for our product revenue allowances and accruals are most significantly affected by chargebacks, which are contractual commitments with the government and other entities to sell products to qualified healthcare providers at prices lower than the list prices charged to the customer who directly purchases from us, and rebates that represent discount obligations under government programs, including Medicaid in the U.S.

and similar programs in certain other countries, including countries in which we are accruing for estimated rebates because final pricing has not yet been negotiated.

We are also subject to potential rebates in connection with our VBAs with certain commercial payors.

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

A 10% increase or decrease in these estimates impacts net sales by a corresponding increase or decrease of approximately $5.0 million.

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.

For elements of collaboration arrangements that are accounted for pursuant to ASC Topic 606, Revenue from Contracts with Customers, or ASC 606, we identify the performance obligations and allocate the total consideration we expect to receive on a relative standalone selling price basis to each performance obligation.

If control transfers over time, revenue is recognized by using a method of measuring progress that best depicts the transfer of goods or services, for example based on actual costs incurred relative to total forecasted costs to be incurred over the period the transfer of goods or services occurs.

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.

Revenue to be recognized is equal to the total transaction price multiplied by the ratio of actual expense incurred divided by total forecasted expense.

A 10% increase or decrease in the transaction price impacts net revenues from collaborators by a corresponding increase or decrease of approximately $26.0 million.

A 10% increase or decrease in the total forecasted costs to be incurred over the period the transfer of goods or services occurs impacts net revenues from collaborators by a corresponding decrease or increase of approximately $24.0 million.

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.

Third-party forecasts are updated periodically as new data is obtained with regards to Leqvio's global launch progress or as sales information becomes available.

Increases, decreases or a shift in timing of estimated revenues affects the interest rate utilized in the calculation of the liability related to the sale of future royalties.

An increase or decrease of 5% to the interest rate would result in an increase or decrease to our liability related to the sale of future royalties of approximately $14.5 million.

Development Derivative Liability

In August 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 zilebesiran, two of our cardiometabolic programs.

As consideration for Blackstone Life Sciences’ funding for certain vutrisiran and zilebesiran clinical development costs, we have agreed to pay Blackstone Life Sciences fixed success-based payments upon achievement of specific milestones for vutrisiran and zilebesiran as well as a 1% royalty on net sales of vutrisiran for ten years.

The development derivative liability is recorded at fair value and represents our current estimate of the expected future payments to Blackstone Life Sciences.

The development derivative liability is based on the probability weighted present value of the estimated cash flows pursuant to contractual terms of the Funding Agreement.

The most significant assumptions in determining the development derivative liability are the probability of success for the clinical development and regulatory approval of vutrisiran and zilebesiran and our current cost of borrowing.

Estimates of the probability of success and our cost of borrowing are based on what we believe to be reasonable and supportable assumptions and require management’s judgment.

Actual results could vary materially from these estimates.

Recent Accounting Pronouncements

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What changed 10-K

Item 7. Management’s Discussion and Analysis