ALNYLAM PHARMACEUTICALS, INC. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) 91 Consolidated Balance Sheets as of December 31, 2021 and 2020 93 Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2021, 2020 and 2019 94 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2021, 2020 and 2019 95 Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019 96 Notes to Consolidated Financial Statements 97 90 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Alnylam Pharmaceuticals, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Alnylam Pharmaceuticals, Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive loss, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated 91 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. 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 Leqvio . Th e Company recorded a liability related to the sale of future royalties of $1.19 billion as of December 31, 2021 and recognized interest expense on the liability related to the sale of future royalties of $116.9 million for the year ended December 31, 2021. 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 Leqvio. 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 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 Leqvio. Evaluating management’s assumption related to the selection of third-party data used to estimate global net sales of Leqvio involved evaluating whether the assumptions used by management were reasonable considering consistency with industry data. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts February 10, 2022 We have served as the Company’s auditor since 2003. 92 Table of Contents ALNYLAM PHARMACEUTICALS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts) December 31, 2021 2020 ASSETS Current assets: Cash and cash equivalents $ 819,975 $ 496,580 Marketable debt securities 1,548,617 1,333,182 Marketable equity securities 66,972 44,633 Accounts receivable, net 198,571 102,413 Inventory 86,363 75,202 Prepaid expenses and other current assets 88,078 62,767 Receivable related to the sale of future royalties — 500,000 Total current assets 2,808,576 2,614,777 Property, plant and equipment, net 501,958 465,029 Operating lease right-of-use assets 231,675 241,485 Restricted investments 40,891 40,725 Other assets 60,204 45,045 Total assets $ 3,643,304 $ 3,407,061 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 73,426 $ 51,966 Accrued expenses 395,174 355,909 Operating lease liability 40,548 36,872 Deferred revenue 149,483 127,207 Liability related to the sale of future royalties 37,079 13,316 Total current liabilities 695,710 585,270 Operating lease liability, net of current portion 281,347 293,039 Deferred revenue, net of current portion 152,360 225,094 Long-term debt, net 675,697 191,278 Liability related to the sale of future royalties, net of current portion 1,151,024 1,058,225 Other liabilities 98,963 37,908 Total liabilities 3,055,101 2,390,814 Commitments and contingencies (Note 12) Stockholders’ equity: Preferred stock, $ 0.01 par value per share, 5,000 shares authorized and no shares issued and outstanding as of December 31, 2021 and December 31, 2020 — — Common stock, $ 0.01 par value per share, 250,000 shares authorized as of December 31, 2021 and December 31, 2020, respectively; 120,182 shares issued and outstanding as of December 31, 2021; 116,427 shares issued and outstanding as of December 31, 2020 1,202 1,164 Additional paid-in capital 6,058,453 5,644,074 Accumulated other comprehensive loss ( 33,259 ) ( 43,622 ) Accumulated deficit ( 5,438,193 ) ( 4,585,369 ) Total stockholders’ equity 588,203 1,016,247 Total liabilities and stockholders’ equity $ 3,643,304 $ 3,407,061 The accompanying notes are an integral part of these consolidated financial statements. 93 Table of Contents ALNYLAM PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except per share amounts) Year Ended December 31, 2021 2020 2019 Statements of Operations Revenues: Net product revenues $ 662,138 $ 361,520 $ 166,537 Net revenues from collaborations 180,953 131,333 53,213 Royalty revenue 1,196 — — Total revenues 844,287 492,853 219,750 Operating costs and expenses: Cost of goods sold 115,005 74,185 25,062 Cost of collaborations and royalties 25,139 3,867 — Research and development 792,156 654,819 655,114 Selling, general and administrative 620,639 588,420 479,005 Total operating costs and expenses 1,552,939 1,321,291 1,159,181 Loss from operations ( 708,652 ) ( 828,438 ) ( 939,431 ) Other (expense) income: Interest expense ( 143,021 ) ( 84,496 ) — Interest income 1,579 11,809 33,448 Other (expense) income, net ( 2,050 ) 45,525 20,730 Total other (expense) income, net ( 143,492 ) ( 27,162 ) 54,178 Loss before income taxes ( 852,144 ) ( 855,600 ) ( 885,253 ) Benefit (provision) for income taxes ( 680 ) ( 2,681 ) ( 863 ) Net loss $ ( 852,824 ) $ ( 858,281 ) $ ( 886,116 ) Net loss per common share — basic and diluted $ ( 7.20 ) $ ( 7.46 ) $ ( 8.11 ) Weighted-average common shares used to compute basic and diluted net loss per common share 118,451 114,986 109,264 Statements of Comprehensive Loss Net loss $ ( 852,824 ) $ ( 858,281 ) $ ( 886,116 ) Other comprehensive income (loss): Unrealized (loss) gain on marketable securities ( 1,978 ) 211 558 Foreign currency translation gain (loss) 11,398 ( 7,081 ) ( 343 ) Defined benefit pension plans, net of tax 943 ( 234 ) ( 3,520 ) Total other comprehensive income (loss) 10,363 ( 7,104 ) ( 3,305 ) Comprehensive loss $ ( 842,461 ) $ ( 865,385 ) $ ( 889,421 ) The accompanying notes are an integral part of these consolidated financial statements. 94 Table of Contents ALNYLAM PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands, except share amounts) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive (Loss) Income Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance as of December 31, 2018 101,177 $ 1,011 $ 4,175,139 $ ( 33,213 ) $ ( 2,840,972 ) $ 1,301,965 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 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 Stock-based compensation expense — — 177,230 — — 177,230 Other comprehensive loss, net of tax — — — ( 3,305 ) — ( 3,305 ) Net loss — — — — ( 886,116 ) ( 886,116 ) Balance as of December 31, 2019 112,188 1,122 5,201,176 ( 36,518 ) ( 3,727,088 ) 1,438,692 Exercise of common stock options, net of tax withholdings 2,926 28 189,343 — — 189,371 Issuance of common stock under equity plans 350 4 11,079 — — 11,083 Issuance of common stock to strategic partners, net of closing costs 963 10 99,488 — — 99,498 Stock-based compensation expense — — 142,988 — — 142,988 Other comprehensive loss — — — ( 7,104 ) — ( 7,104 ) Net loss — — — — ( 858,281 ) ( 858,281 ) Balance as of December 31, 2020 116,427 1,164 5,644,074 ( 43,622 ) ( 4,585,369 ) 1,016,247 Exercise of common stock options, net of tax withholdings 2,978 30 232,456 — — 232,486 Issuance of common stock under equity plans 777 8 13,623 — — 13,631 Stock-based compensation expense — — 168,300 — — 168,300 Other comprehensive gain — — — 10,363 — 10,363 Net loss — — — — ( 852,824 ) ( 852,824 ) Balance as of December 31, 2021 120,182 $ 1,202 $ 6,058,453 $ ( 33,259 ) $ ( 5,438,193 ) $ 588,203 The accompanying notes are an integral part of these consolidated financial statements. 95 Table of Contents ALNYLAM PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2021 2020 2019 Cash flows from operating activities: Net loss $ ( 852,824 ) $ ( 858,281 ) $ ( 886,116 ) Non-cash adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 47,567 34,772 17,175 Amortization and interest accretion related to operating leases 42,127 39,663 37,193 Non-cash interest expense on liability related to the sale of future royalties 116,562 84,496 — Stock-based compensation 165,717 139,873 174,841 Realized and unrealized gain on marketable equity securities ( 55,695 ) ( 54,042 ) ( 11,288 ) Other 57,676 11,259 ( 12,613 ) Changes in operating assets and liabilities: Accounts receivable, net ( 101,799 ) ( 56,236 ) ( 24,238 ) Inventory ( 26,415 ) ( 35,426 ) ( 32,411 ) Prepaid expenses and other assets ( 32,093 ) 13,017 ( 9,530 ) Accounts payable, accrued expenses and other liabilities 88,240 143,732 92,354 Deferred revenue ( 50,404 ) ( 43,965 ) 392,251 Operating lease liability ( 40,352 ) ( 33,823 ) ( 16,045 ) Net cash used in operating activities ( 641,693 ) ( 614,961 ) ( 278,427 ) Cash flows from investing activities: Purchases of property, plant and equipment ( 76,372 ) ( 70,361 ) ( 140,156 ) Purchases of marketable securities ( 1,656,114 ) ( 2,025,626 ) ( 2,075,925 ) Sales and maturities of marketable securities 1,463,550 1,691,669 1,775,404 Proceeds from maturity of restricted investments 41,975 — 30,000 Purchases of restricted investments ( 42,141 ) ( 25,900 ) — Other investing activities ( 4,198 ) ( 5,300 ) ( 7,000 ) Net cash used in investing activities ( 273,300 ) ( 435,518 ) ( 417,677 ) Cash flows from financing activities: Proceeds from exercise of stock options and other types of equity, net 246,268 200,484 71,284 Proceeds from the sale of future royalties 500,000 500,000 — Proceeds from development derivative 19,600 8,400 — Offering proceeds, net of costs — — 381,900 Proceeds from term loan facility 500,000 200,000 — Proceeds from issuance of common stock to strategic partners, net of closing costs — 99,498 400,000 Other financing activities ( 18,750 ) ( 13,403 ) ( 30,000 ) 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 increase (decrease) in cash, cash equivalents and restricted cash 323,107 ( 50,582 ) 126,997 Cash, cash equivalents and restricted cash, beginning of period 499,046 549,628 422,631 Cash, cash equivalents and restricted cash, end of period $ 822,153 $ 499,046 $ 549,628 Supplemental disclosure of cash flows: Cash paid for interest $ 24,657 $ — $ 172 Supplemental disclosure of noncash investing and financing activities: Capital expenditures included in accounts payable and accrued expenses $ 13,599 $ 14,518 $ 14,876 Lease liabilities arising from obtaining right-of-use assets $ 7,932 $ 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. 96 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS Alnylam Pharmaceuticals, Inc. (also referred to as Alnylam, we, our or us) commenced operations on June 14, 2002 as a biopharmaceutical company seeking to develop and commercialize novel therapeutics based on ribonucleic acid interference, or RNAi. We are committed to the advancement of our company strategy of building a multi-product, global, commercial biopharmaceutical company with a deep and sustainable clinical pipeline of RNAi therapeutics for future growth and a robust, organic research engine for sustainable innovation and great potential for patient impact. 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 early 2021, we launched our Alnylam P 5 x25 strategy, which focuses on our planned transition to a top five biotech company by the end of 2025. With Alnylam P 5 x25 , we aim to deliver transformative rare and prevalent disease medicines for patients around the world through sustainable innovation, delivering exceptional financial performance and driving profitability. As of December 31, 2021, we have four products that have received marketing approval, including one partnered product, and five late-stage investigational programs advancing towards potential commercialization. We currently generate worldwide product revenues from three commercialized products, ONPATTRO, GIVLAARI and OXLUMO, primarily in the United States, or U.S., Europe and Japan. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements reflect the operations of Alnylam and our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. Use of Estimates 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, 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 ongoing 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. Liquidity 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 Alnylam P 5 x25 strategy 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 primarily consist of cash, cash equivalents and marketable securities. As of December 31, 2021 and 2020, 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. treasury securities through highly rated financial institutions. Corporate notes may also 97 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS include foreign bonds denominated in U.S. dollars. Investments are restricted, in accordance with our investment policy, to a concentration limit per issuer. During the years ended December 31, 2021, 2020 and 2019, our revenues were generated primarily from product sales to distributors and collaborations with strategic partners. For the years ended December 31, 2021, 2020 and 2019, our gross accounts receivable balance was comprised of payments primarily due from distributors for product sales and our strategic partners. The following table summarizes customers that represent 10% or greater of our consolidated total gross revenues: Year Ended December 31, 2021 2020 2019 Distributor A 27 % 31 % 44 % Regeneron Pharmaceuticals 11 % 12 % * __________________________________________ * Represents less than 10% The following table summarizes customers with amounts due that represent 10% or greater of our consolidated gross accounts receivable balance: As of December 31, 2021 2020 Novartis AG 20 % 16 % Distributor A 14 % 19 % Regeneron Pharmaceuticals 12 % 11 % Distributor B 10 % 14 % Fair Value Measurements The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable, such as quoted prices (adjusted), interest rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. The fair value hierarchy level is determined by the lowest level of significant input. Investments in Marketable Securities and Cash Equivalents We invest our excess cash balances in marketable debt securities and classify our investments as either held-to-maturity or available-for-sale based on facts and circumstances present at the time we purchased the securities. At each balance sheet date presented, we classified all of our investments in debt securities as available-for-sale and as current assets as they represent the investment of funds available for current operations. 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 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, 2021, 2020 or 2019. Our marketable debt securities are classified as cash equivalents if the original maturity, from the date of purchase, is 90 days or less, and as marketable debt securities if the original maturity, from the date of purchase, is in excess of 90 days. Our cash equivalents are generally composed of commercial paper, corporate notes, U.S. government-sponsored enterprise securities, U.S. treasury securities and money market funds. We measure marketable equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of an investee), which have readily available prices, at fair value with changes in fair value recognized in other income (expense) on our consolidated statements of operations and comprehensive loss. We obtain fair value measurement data for our marketable debt securities from independent pricing services. We perform validation procedures to ensure the reasonableness of this data. This includes meeting with the independent pricing services to understand the methods and data sources used. 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. 98 Table of Contents 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, 2021 and 2020, 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 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. Inventory costs include all raw materials, direct conversion costs and overhead. Raw and intermediate materials that may be used for either research and development or commercial purposes are classified as inventory until the material is consumed or otherwise allocated for research and development. If the material is used for research and development, it is expensed as research and development once that determination is made. We capitalize inventory costs that are expected to be sold commercially once we determine it is probable that the inventory costs will be recovered through commercial sale based on the review of several factors, including (i) the likelihood that all required regulatory approvals will be received, considering any special filing status, (ii) the expected timing of validation (if not yet completed) of manufacturing processes in the associated facility, (iii) the expected expiration of the inventory, (iv) logistical or commercial constraints that may impede the timely distribution and sale of the product, including transport requirements and reimbursement status, (v) current market factors, including competitive landscape and pricing, (vi) threatened or anticipated litigation challenges, (vii) history of approvals of similar products or formulations, and (viii) FDA (or other appropriate regulatory agencies) correspondence regarding the safety and efficacy of the product. Prior to the capitalization of inventory costs, we record such costs as research and development expenses on our consolidated statements of operations and comprehensive loss. We reduce our inventory to net realizable value for potentially excess, dated or obsolete inventory based on our quarterly assessment of the recoverability of our capitalized inventory. We periodically review inventory levels to identify what may expire prior to expected sale or has a cost basis in excess of its estimated realizable value and write-down such inventories as appropriate. Property, Plant and Equipment Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation expense is recorded on a straight-line basis over the estimated useful life of the asset. Construction in progress reflects amounts incurred for construction or improvements of property, plant or equipment that have not been placed in service. Costs of construction of certain long-lived assets include capitalized interest, which is amortized over the estimated useful life of the related asset. The cost and accumulated depreciation of assets retired or sold are removed from the respective asset category, and any gain or loss is recognized in our consolidated statements of operations and comprehensive loss. During the years ended December 31, 2021, 2020 and 2019, we recorded $ 36.8 million, $ 30.2 million and $ 16.6 million, respectively, of depreciation expense related to our property, plant and equipment. The estimated useful lives of property, plant and equipment are as follows: Asset Category Useful Life Laboratory equipment 5 Computer equipment and software 3 - 10 years Furniture and fixtures 5 Leasehold improvements Shorter of asset life or lease term Manufacturing Equipment 7 - 15 years Buildings 40 years Leases We determine if an arrangement is a lease at contract inception based on the facts and circumstances present in the arrangement. All of our leases are classified as operating leases. 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 99 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. The assessment of these costs is a subjective process, requiring judgment based on our knowledge of the research and development programs, services performed for the period, experience with related activities and the expected duration of the third-party service contract, where applicable. Upon settlement, these costs may differ materially from the amounts accrued in our consolidated financial statements. Our historical accrual estimates have not been materially different from our actual costs. Revenue Recognition We recognize revenue when control of promised goods or services is transferred to a customer at an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. To determine revenue recognition, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when collectability of the consideration to which we are entitled in exchange for the goods or services we transfer to the customer is determined to be probable. At contract inception, once the contract is determined to be within the scope of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, or ASC 606, we assess whether the goods or services promised within each contract are distinct and, therefore, represent a separate performance obligation. Goods and services that are determined not to be distinct are combined with other promised goods and services until a distinct bundle is identified. We then allocate the transaction price (the amount of consideration we expect to be entitled to from a customer in exchange for the promised goods or services) to each performance obligation and recognize the associated revenue when (or as) each performance obligation is satisfied. Our estimate of the transaction price for each contract includes all variable consideration to which we expect to be entitled. Amounts are recorded as accounts receivable when our right to consideration is unconditional. We do not assess whether a contract has a significant financing component if the expectation at contract inception is that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less. 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, 2021 and 2020, we had no t capitalized any costs to obtain any of our contracts. 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. Rebates : 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 value-based agreements with certain commercial payors. We record reserves for rebates in the same period the related product revenue is recognized, resulting in a 100 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. 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 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 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, 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. 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, amortization of intangible assets associated with the sale of our products and costs related to sales of product supply under our collaboration 101 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Cost of Collaborations and Royalties Cost of collaborations and royalties includes costs we incur in connection with providing commercial drug supplies, such as GalNAc material, to collaborators, in addition to royalties we owe to third parties on the net sales of licensed products by Novartis. Income Taxes We account for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted rates in effect for the year in which these temporary differences are expected to be recovered or settled. Valuation allowances are provided if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Uncertain tax positions, for which management's assessment is that there is a more than 50% probability of sustaining the position upon challenge by a taxing authority based upon its technical merits, are subject to certain recognition and measurement criteria. The nature of the uncertain tax positions is often very complex and subject to change, and the amounts at issue can be substantial. We develop our cumulative probability assessment of the measurement of uncertain tax positions using internal experience, judgment and assistance from professional advisors. We re-evaluate these uncertain tax positions on a quarterly basis based on a number of factors including, but not limited to, changes in facts or circumstances, changes in tax law, and effectively settled issues under audit and new audit activity. Any change in these factors could result in the recognition of a tax benefit or an additional charge to the tax provision. We have recorded no interest and penalty expense related to uncertain tax positions for the years ended December 31, 2021, 2020 or 2019. 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, 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. The terms of the licenses may provide for upfront payments, annual maintenance payments, milestone payments based upon certain specified events being achieved and royalties on product sales. We charge costs to acquire and maintain licensed technology that has not reached technological feasibility and does not have alternative future use to research and development expense as incurred. During the years ended December 31, 2021, 2020 and 2019, we charged to research and development expense costs associated with license fees of $ 16.8 million, $ 2.8 million and $ 37.0 million, respectively. Stock-Based Compensation We recognize stock-based compensation expense for grants under our stock incentive plans and employee stock purchase plan. We account for all stock-based awards granted to employees at their fair value and recognize compensation expense over the vesting period of the award. Determining the amount of stock-based compensation to be recorded requires us to develop estimates of fair values of stock options as of the grant date. We calculate the grant date fair values of stock options using the Black-Scholes valuation model, which requires the input of subjective assumptions, including but not limited to expected stock price volatility over the term of the awards and the expected term of stock options. The fair value of restricted stock awards granted to employees is based upon the quoted closing market price per share on the date of grant. We have performance conditions included in certain of our restricted stock awards that are based upon the achievement of pre-specified clinical development, regulatory, commercial and/or financial performance events. As the outcome of each event has inherent risk and uncertainties, and a positive outcome may not be known until the event is achieved, we begin to recognize the value of the performance-based restricted stock awards when we determine the achievement of each performance condition is deemed probable, a determination which requires significant judgment by management. At the probable date, we record a cumulative expense catch-up, with remaining expense amortized over the remaining service period. 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. 102 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 Leqvio’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 Comprehensive loss is comprised of net loss and certain changes in stockholders’ equity that are excluded from net loss. We include foreign currency translation adjustments in other comprehensive loss if the functional currency is not the U.S. dollar. We include unrealized gains and losses on certain marketable securities in other comprehensive loss, including changes in the value of our marketable debt securities. We include certain changes in the fair value of the plan assets and projected benefit obligation attributed to our defined benefit pension plan in other comprehensive loss. Net Loss per Common Share We compute basic net loss per common share by dividing net loss by the weighted-average number of common shares outstanding. We compute diluted net loss per common share by dividing net loss by the weighted-average number of common shares and dilutive potential common share equivalents then outstanding. Potential common shares consist of shares issuable upon the exercise of stock options (the proceeds of which are then assumed to have been used to repurchase outstanding shares using the treasury stock method). 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. 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, (In thousands) 2021 2020 2019 Options to purchase common stock 10,015 11,692 13,069 Unvested restricted common stock 1,210 1,160 749 Total 11,225 12,852 13,818 Segment Information We operate in a single reporting segment, the discovery, development and commercialization of RNAi therapeutics. Consistent with our management reporting, results of our operations are reported on a consolidated basis for purposes of segment reporting. As of December 31, 2021 and 2020, substantially all of our consolidated property, plant and equipment, net was from U.S. operations. For the years ended December 31, 2021, 2020 and 2019, 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 December 2019, the Financial Accounting Standards Board, or FASB, issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Taxes, 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. 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. 103 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. NET PRODUCT REVENUES Net product revenues consist of the following: Year Ended December 31, (In thousands) 2021 2020 2019 ONPATTRO United States $ 213,210 $ 151,574 $ 116,302 Europe 190,435 107,755 43,980 Rest of World (primarily Japan) 71,092 46,752 6,105 Total $ 474,737 $ 306,081 $ 166,387 GIVLAARI United States $ 92,747 $ 42,797 $ 150 Europe 30,895 12,000 — Rest of World 4,173 309 — Total $ 127,815 $ 55,106 $ 150 OXLUMO United States $ 18,876 $ — $ — Europe 38,949 333 — Rest of World 1,761 — — Total $ 59,586 $ 333 $ — Total net product revenues $ 662,138 $ 361,520 $ 166,537 As of December 31, 2021 and 2020, net product revenue-related receivables of $ 124.9 million and $ 68.9 million , respectively, were included in “Accounts receivable, net.” 104 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes balances and activity in each product revenue allowance and reserve category: As of December 31, 2021 (In thousands) Chargebacks and Rebates Trade Discounts and Allowances Returns Reserve and Other Incentives Total Beginning balance $ 90,705 $ 639 $ 3,763 $ 95,107 Provision related to current period sales 167,691 8,064 12,223 187,978 Credit or payments made during the period for current year sales ( 75,073 ) ( 7,665 ) ( 5,190 ) ( 87,928 ) Credit or payments made during the period for prior year sales ( 62,641 ) ( 516 ) ( 684 ) ( 63,841 ) Total $ 120,682 $ 522 $ 10,112 $ 131,316 As of December 31, 2020 (In thousands) Chargebacks and Rebates Trade Discounts and Allowances Returns Reserve and Other Incentives Total Beginning balance $ 32,487 $ 410 $ 1,978 $ 34,875 Provision related to current period sales 103,706 4,650 5,702 114,058 Credit or payments made during the period for current year sales ( 42,493 ) ( 4,388 ) ( 2,704 ) ( 49,585 ) Credit or payments made during the period for prior period sales ( 2,995 ) ( 33 ) ( 1,213 ) ( 4,241 ) Total $ 90,705 $ 639 $ 3,763 $ 95,107 During the year ended December 31, 2021 , we paid $ 56.4 million attributed to the finalization of pricing and reimbursement for the sale of ONPATTRO in France. 4. NET REVENUES FROM COLLABORATIONS Net revenues from collaborations consist of the following: Year Ended December 31, (In thousands) 2021 2020 2019 Regeneron Pharmaceuticals $ 113,226 $ 74,072 $ 26,075 Novartis AG 49,120 22,208 2,315 Vir Biotechnology 16,897 31,396 12,809 Other 1,710 3,657 12,014 Total $ 180,953 $ 131,333 $ 53,213 The following table presents the balance of our receivables and contract liabilities related to our collaboration agreements: As of December 31, (In thousands) 2021 2020 Receivables included in "Accounts receivable, net" $ 73,266 $ 33,542 Contract liabilities included in "Deferred revenue" $ 88,627 $ 120,021 We recognized revenue of $ 62.9 million and $ 54.4 million in the years ended December 31, 2021 and 2020, 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 105 Table of Contents 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. The following table provides research and development expenses incurred by type, for which we recognize net revenue, that are directly attributable to our collaboration agreements, by collaboration partner: Year Ended December 31, 2021 2020 2019 (In thousands) Clinical Trial and Manufacturing External Services Other Clinical Trial and Manufacturing External Services Other Clinical Trial and Manufacturing External Services Other Regeneron $ 24,989 $ 840 $ 47,582 $ 13,302 $ 171 $ 44,360 $ 2,793 $ 344 $ 21,779 Vir 9,546 723 3,080 18,470 584 11,590 10,353 381 4,745 Other 765 52 1,409 1,643 181 2,832 13,530 334 2,713 Total $ 35,300 $ 1,615 $ 52,071 $ 33,415 $ 936 $ 58,782 $ 26,676 $ 1,059 $ 29,237 The research and development expenses incurred for each agreement listed in the table above consist of costs incurred for (i) clinical expenses, including manufacturing of clinical product, (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, 2021, 2020 and 2019, we did not incur material selling, general and administrative expenses related to our collaboration agreements. In addition, we recognized a reduction to our research and development expenses of $ 17.1 million, $ 11.1 million, and $ 1.1 million for the years ended December 31, 2021, 2020 and 2019, respectively, from cost reimbursement due under certain of our collaboration agreements accounted for under ASC 808. Product Alliances Regeneron Pharmaceuticals, Inc. In April 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. 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 3 development, and cemdisiran. The C5 co-co collaboration and license agreements were executed in August 2019. Under the terms of the Regeneron Collaboration, we are working exclusively with Regeneron to discover RNAi therapeutics for eye and CNS diseases for an initial five-year research period, which we refer to as the Initial Research Term. Regeneron has an option to extend the Initial Research Term (referred to as the Research Term Extension Period, and together with the Initial Research Term, the Research Term) for up to an additional five years , for a research term extension fee of up to $ 400.0 million. The Regeneron Collaboration also covers a select number of RNAi therapeutic programs designed to target genes expressed in the liver, including our previously announced collaboration with Regeneron to identify RNAi therapeutics for the chronic liver disease nonalcoholic steatohepatitis. We retain broad global rights to all of our other unpartnered liver-directed clinical and pre-clinical pipeline programs. The Regeneron Collaboration is governed by a joint steering committee that is comprised of an equal number of representatives from each party. Regeneron will lead development and commercialization for all programs targeting eye diseases (subject to limited exceptions), entitling us to certain potential milestone and royalty payments pursuant to the terms of a license agreement, the form of which has been agreed upon by the parties. We and Regeneron will alternate leadership on CNS and liver programs covered by the Regeneron Collaboration, with the lead party retaining global development and commercial responsibility. For such CNS and liver programs, both we and Regeneron will have the option at lead candidate selection to enter into a co-co collaboration agreement, the form of which has been agreed upon by the parties, whereby both companies will share equally all costs of, and profits from, all development and commercialization activities under the program. 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 106 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. 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. Under the C5 co-co collaboration agreement, we and Regeneron equally share costs and potential future profits on any monotherapy program. Under the C5 license agreement, for cemdisiran to be used as part of a combination product, Regeneron is solely responsible for all development and commercialization costs and we will receive low double-digit royalties and commercial milestones of up to $ 325.0 million on any potential combination product sales. The C5 co-co collaboration agreement, the C5 license agreement, and the Master Agreement have been combined for accounting purposes and treated as a single agreement. In connection with the Regeneron Master Agreement, Regeneron made an upfront payment of $ 400.0 million. We are also eligible to receive up to an additional $ 200.0 million in milestone payments upon achievement of certain criteria during early clinical development for eye and CNS programs. We and Regeneron plan to advance programs directed to up to 30 targets under the Regeneron Collaboration during the Initial Research Term. 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. Regeneron has the right to terminate the Regeneron Master Agreement for convenience upon ninety days ’ notice. The termination of the Regeneron Master Agreement does not affect the term of any license agreement or co-co collaboration agreement then in effect. In addition, either party may terminate the Regeneron Master Agreement for a material breach by, or insolvency of, the other party. Unless earlier terminated pursuant to its terms, the Regeneron Master Agreement will remain in effect with respect to each program until (a) such program becomes a terminated program or (b) the parties enter into a license agreement or co-co collaboration agreement with respect to such program. The Regeneron Master Agreement includes various representations, warranties, covenants, dispute escalation and resolution mechanisms, indemnities and other provisions customary for transactions of this nature. For any license agreement subsequently entered into, the licensee will generally be responsible for its own costs and expenses incurred in connection with the development and commercialization of the collaboration products. The licensee will pay to the licensor certain development and/or commercialization milestone payments totaling up to $ 150.0 million for each collaboration product. In addition, following the first commercial sale of the applicable collaboration product under a license agreement, the licensee is required to make certain tiered royalty payments, ranging from low double-digits up to 20 %, to the licensor based on the aggregate annual net sales of the collaboration product, subject to customary reductions. 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. 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. If a party exercises its opt-out right, following the first commercial sale of the applicable collaboration product under a co-co collaboration agreement, the lead party is required to make certain tiered royalty payments, ranging from low double-digits up to 20 %, to the other party based on the aggregate annual net sales of the collaboration product and the timing of the exercise of the opt-out right, subject to customary reductions and a reduction for opt-out transition costs. Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development, we may not receive any milestone or royalty payments from Regeneron under the Regeneron Master Agreement, the C5 license agreement, or any future license agreement, or under any co-co collaboration agreement in the event we exercise our opt-out right. Our 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 research license is not distinct from the research services primarily as a result of Regeneron being unable to benefit on its own or with other resources reasonably available, as the license is providing access to specialized expertise, particularly as it relates to RNAi technology that is not available in the marketplace. 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. 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 107 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS rewards that are dependent on commercial success of the activities of the arrangement. The development and manufacturing activities are a combined unit of account under the scope of ASC 808 and are not deliverables under ASC 606. The total transaction price is comprised of the $ 400.0 million upfront payment and additional variable consideration related to research, development, manufacturing and supply activities related to the Research Services Obligation and the C5 License Obligation. We utilized the expected value method to determine the amount of reimbursement for these activities. We determined that any variable consideration related to sales-based royalties and milestones related to the worldwide license to cemdisiran for combination therapies is deemed to be constrained and therefore has been excluded from the transaction price. In addition, we are eligible to receive future milestones upon the achievement of certain criteria during early clinical development for the eye and CNS programs. We are also eligible to receive royalties on future commercial sales for certain eye, CNS or liver targets, if any; however, these amounts are excluded from variable consideration under the Regeneron Collaboration as we are only eligible to receive such amounts if, after a drug candidate is identified, the form of license agreement is subsequently executed resulting in a license that is granted to Regeneron. Any such subsequently granted license would represent a separate transaction under ASC 606. We allocated the initial transaction price to each unit of account based on the applicable accounting guidance as follows, in thousands: Performance Obligations Standalone Selling Price Transaction Price Allocated Accounting Guidance Research Services Obligation $ 130,700 $ 183,100 ASC 606 C5 License Obligation 97,600 92,500 ASC 606 C5 Co-Co Obligation 364,600 246,000 ASC 808 $ 521,600 The transaction price was allocated to the obligations based on the relative estimated standalone selling prices of each obligation, over which management has applied significant judgment. We 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 such estimate, we 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. We 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 such estimate, we applied judgment in determining the indications that will be pursued, the forecasted revenues for such indications, the probability of success and the discount rate. For the Research Services Obligation and the C5 License Obligation accounted for under ASC 606, we measure proportional performance over time using an input method based on cost incurred relative to the total estimated costs for each of the identified obligations, 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 transaction price allocated to each obligation. 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. We re-evaluate the transaction price as of the end of each reporting period and as of December 31, 2021, the total transaction price was determined to be $ 538.4 million, an increase of $ 6.6 million from December 31, 2020. As of December 31, 2021, 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, is accounted for as collaboration revenue. 108 Table of Contents 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, 2021 As of December 31, 2021 As of December 31, 2020 Accounting Guidance Research Services Obligation $ 200,680 $ 42,300 $ 54,900 ASC 606 C5 License Obligation 91,700 26,900 58,700 ASC 606 C5 Co-Co Obligation 246,000 212,500 231,400 ASC 808 Total $ 538,380 $ 281,700 $ 345,000 Revenue Recognized During Performance Obligations Year Ended December 31, 2021 Year Ended December 31, 2020 Year Ended December 31, 2019 Accounting Guidance Research Services Obligation $ 37,600 $ 44,800 $ 21,000 ASC 606 C5 License Obligation 44,600 7,100 — ASC 606 C5 Co-Co Obligation 18,900 11,700 2,900 ASC 808 $ 101,100 $ 63,600 $ 23,900 As of December 31, 2021, the aggregate amount of the transaction price allocated to the remaining Research Services Obligation and C5 License Obligation that was unsatisfied was $ 137.3 million, which is expected to be recognized through the term of the Regeneron Collaboration as the services are performed. This amount excludes the transaction price allocated to the C5 Co-Co Obligation accounted for under ASC 808. 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. Novartis AG 2013 Collaboration with The Medicines Company 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. 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, 2021, we have earned $ 70.0 million of milestones and upon achievement of certain events, we will be entitled to receive additional milestones, up to an aggregate of $ 110.0 million, including $ 100.0 million in specified commercialization milestones and $ 10.0 million in other specified regulatory milestones. In addition, we are 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. 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 under the MDCO License 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 core technology patents covering licensed products under the MDCO License Agreement will expire in most countries by 2029. 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, Japan and elsewhere between 2027 and 2036. Certain of 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 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 109 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS product (for Alnylam) and any siRNA product (for Novartis) 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 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. 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 orders will be treated as separate agreements and any associated revenue will be recognized upon transfer of control. Novartis License Agreement In December 2021, we and Novartis entered into a collaboration and license agreement, or the Novartis License Agreement, pursuant to which we granted to Novartis an exclusive, worldwide license to develop, manufacture and commercialize siRNAs targeting end-stage liver disease, or ESLD, potentially leading to the development of a treatment designed to promote the regrowth of functional liver cells and to provide an alternative to transplantation for patients with liver failure. Pursuant to the Novartis License Agreement, we will receive an upfront fee of $ 12.5 million. 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. Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development, we may not receive any milestone or royalty payments under the Novartis License Agreement. Under the Novartis License Agreement, we will develop and test potential siRNAs using target-specific assays developed by Novartis pursuant to an agreed upon research plan for a specified period referred to as the Collaboration Term. Novartis will reimburse us for the cost of our activities under the research plan, referred to as the DC Workplan, subject to an agreed upon cap. Once a lead candidate is identified, further development and clinical research will be conducted by Novartis. The collaboration is governed by a joint steering committee comprised of an equal number of representatives from each party. Unless terminated earlier in accordance with the terms of the Novartis License Agreement, the Collaboration Term expires at the earlier of (1) 180 days after completion of the development activities assigned to us as agreed upon between the parties, or (2) December 17, 2024. Either party may terminate the Novartis 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 three months ’ prior written notice. During the term of the Novartis 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 a liver target identified by Novartis, other than a licensed product, without the prior written agreement of the other party, subject to the terms of the Novartis License Agreement. We identified one performance obligation under the Novartis License Agreement comprised of: i) the exclusive license to develop, manufacture and commercialize siRNAs targeting ESLD; and ii) the obligation to perform work under the DC Workplan. The license is not distinct from the services, including the obligation to deliver development candidates, as Novartis cannot benefit on its own from the value of the license without receipt of such services. We measure proportional performance over time using an input method based on cost incurred relative to the total estimated costs for the identified performance 110 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2021, the total transaction price was determined to be approximately $ 17.0 million, comprised of the $ 12.5 million upfront payment and estimated variable consideration attributed to work to be performed under the DC Workplan. 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, 2021, no revenue was recognized under the Novartis License Agreement and the aggregate amount of the transaction price allocated to the performance obligation that was unsatisfied was $ 17.0 million, which is expected to be recognized through the term of the DC Workplan as the services are performed. Vir Biotechnology, Inc. In October 2017, we and Vir Biotechnology, Inc., or Vir, entered into a collaboration and license agreement, or the Vir Agreement, for the development and commercialization of RNAi therapeutics for infectious diseases, including chronic hepatitis B virus, or HBV, infection. Pursuant to the Vir Agreement, we granted to Vir an exclusive license to develop, manufacture and commercialize ALN-HBV02 (VIR-2218), for all uses and purposes other than certain excluded fields, as set forth in the Vir Agreement. In addition, we granted Vir an exclusive option for up to 4 additional RNAi therapeutic programs for the treatment of infectious diseases. 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. 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. 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. 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 Vir Agreement. 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 would be 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, were responsible for all pre-clinical development costs incurred under such plan for such COVID-19 related activities. In July 2021, we notified Vir that we elected to discontinue ALN-COV, in development for the treatment of COVID-19, and all other COVID-19 research and development activities, based on a portfolio prioritization decision in view of the availability of highly effective vaccines and alternative treatment options, in accordance with our rights under the letter agreement with Vir. Following such discontinuation of COVID-19 related activities, we have no further obligations to work on the COVID-related targets and Vir will have no further rights to such targets under the Vir Agreement. 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. If Vir does not exercise its option for an infectious disease program, the Vir Agreement will expire upon the expiration of the applicable option period with respect to such program. However, if we exercise our profit-sharing option for any product, the term of the agreement will continue until the expiration of the profit-sharing arrangement for such product. 111 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Either party may terminate the agreement in the event the other party fails to cure a material breach, or upon patent-related challenges by the other party. 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. 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 (through July 2021). 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, 2021, the total transaction price was determined to be $ 111.0 million, 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, 2021, the aggregate amount of the transaction price allocated to the performance obligation that was unsatisfied was $ 36.5 million, which is expected to be recognized through the term of the Vir Agreement as the services are performed. Other Strategic License Agreements PeptiDream, Inc. In July 2021, we entered into a license and collaboration agreement with PeptiDream, Inc., or PeptiDream, to discover and develop peptide-siRNA conjugates to create multiple opportunities to deliver RNAi therapeutics to tissues outside the liver. Through this collaboration, the companies will collaborate to select and optimize peptides for targeted delivery of small siRNA molecules to a wide range of cell types and tissues via specific interactions with receptors expressed on the target cells. Under the terms of the agreement, PeptiDream received an upfront payment from us of $ 10.0 million and we will provide research and development funding over the term of the research collaboration, according to the terms of the PeptiDream agreement. Due to the early stage of these assets, we recorded research and development expense for the upfront payment of $ 10.0 million during the third quarter of 2021. PeptiDream may also receive payments based on the achievement of specified development, regulatory, and commercial milestones potentially totaling up to $ 247.0 million for each product developed by us that utilizes PeptiDream’s technology, as well as low-to-mid single digit royalties on sales, if any, of any such products. 5. LIABILITY RELATED TO THE SALE OF FUTURE ROYALTIES In April 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, 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 $ 500.0 million in September 2021. 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, 2021, 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. 112 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 Leqvio global net revenue 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, 2021, the carrying value of the liability related to the sale of future royalties was $ 1.19 billion, net of closing costs of $ 11.6 million. The carrying value of the liability related to the sale of future royalties approximates fair value as of December 31, 2021 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. The following table shows the activity with respect to the liability related to the sale of future royalties, in thousands: Carrying value as of January 1, 2020 $ — Sale of future royalties 1,000,000 Interest expense recognized 84,496 Capitalized closing costs ( 12,955 ) Carrying value as of December 31, 2020 1,071,541 Interest expense recognized 116,940 Payments ( 378 ) Carrying value as of December 31, 2021 $ 1,188,103 6. OTHER BALANCE SHEET DETAILS Inventory The components of inventory are summarized as follows: As of December 31, (In thousands) 2021 2020 Raw materials $ 14,754 $ 63,460 Work in process 100,942 16,149 Finished goods 7,005 12,693 Total inventory $ 122,701 $ 92,302 As of December 31, 2021 and 2020, we had $ 36.3 million and $ 17.1 million of long-term inventory, respectively, included within other assets in our consolidated balance sheet as we anticipate it being consumed beyond our normal operating cycle. As of December 31, 2021, we had $ 7.1 million of capitalized inventory produced for commercial sale for products awaiting regulatory approval. As of December 31, 2020, there was no capitalized inventory for products awaiting regulatory approval. 113 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Property, Plant and Equipment, Net Property, plant and equipment, net consist of the following: As of December 31, (In thousands) 2021 2020 Buildings $ 262,637 $ 262,637 Leasehold improvements 152,045 149,505 Construction in progress 80,753 28,005 Laboratory equipment 61,351 48,930 Manufacturing equipment 43,739 41,089 Computer equipment and software 21,885 19,064 Furniture and fixtures 10,883 11,066 Land 9,080 9,080 642,373 569,376 Less: accumulated depreciation ( 140,415 ) ( 104,347 ) Total $ 501,958 $ 465,029 Accrued Expenses Accrued expenses consist of the following: As of December 31, (In thousands) 2021 2020 Product rebates and discounts $ 131,279 $ 94,242 Compensation and related 93,583 97,433 Pre-clinical, clinical trial and manufacturing 83,534 46,506 Licensing and collaboration agreements 22,843 15,424 Consulting and professional services 17,784 11,501 Contingent liabilities — 41,216 Other 46,151 49,587 Total $ 395,174 $ 355,909 Cash, Cash Equivalents and Restricted Cash 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: As of December 31, (In thousands) 2021 2020 2019 Cash and cash equivalents $ 819,975 $ 496,580 $ 547,178 Total restricted cash included in other assets 2,178 2,466 2,450 Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 822,153 $ 499,046 $ 549,628 114 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 Gains (Losses) from Debt Securities Foreign Currency Translation Adjustment Total Accumulated Other Comprehensive (Loss) Income Balance as of December 31, 2019 $ ( 32,792 ) $ ( 3,520 ) $ 137 $ ( 343 ) $ ( 36,518 ) Other comprehensive loss before reclassifications — ( 531 ) ( 14 ) ( 7,081 ) ( 7,626 ) Amounts reclassified from other comprehensive income — 297 225 — 522 Net other comprehensive (loss) income — ( 234 ) 211 ( 7,081 ) ( 7,104 ) Balance as of December 31, 2020 ( 32,792 ) ( 3,754 ) 348 ( 7,424 ) ( 43,622 ) Other comprehensive income before reclassifications — 899 — 11,398 12,297 Amounts reclassified from other comprehensive income — 44 ( 1,978 ) — ( 1,934 ) Net other comprehensive income (loss) — 943 ( 1,978 ) 11,398 10,363 Balance as of December 31, 2021 $ ( 32,792 ) $ ( 2,811 ) $ ( 1,630 ) $ 3,974 $ ( 33,259 ) 7. CREDIT AGREEMENT In April 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 of $ 700.0 million. The Tranche 1 Loan of $ 200.0 million, the Tranche 2 loan of $ 250.0 million and the Tranche 3 Loan of $ 250.0 million were drawn as of December 31, 2020, June 30, 2021, and December 31, 2021 respectively, and are included in long-term debt in the consolidated balance sheets. In addition to the $ 700.0 million previously drawn under the Credit Agreement, we may also request an increase 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. The Term Loans mature in December 2027. 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 . As of December 31, 2021, we had elected a LIBOR Rate plus 7 %, and paid $ 17.5 million in total funding fees in connection with such Term Loans. Our interest rate was 8 % as of December 31, 2021 and 2020. We are obligated to pay interest due on the Term Loans from 2021 through 2022 which will be calculated without regard to the Term Loans being prepaid. Any prepayments of Term Loans that occur between 2023 and 2025 are subject to a fee of up to 5 % of the loan principal that is prepaid. All obligations under the Credit Agreement are secured, subject to certain exceptions, by security interests in the following assets: (i) intellectual property owned by us relating to ONPATTRO, GIVLAARI and vutrisiran, (ii) the equity interests held by the Loan Parties in their subsidiaries, (iii) all of our ownership of the inclisiran royalty remaining after the royalty purchase under the Purchase Agreement, and (iv) 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 115 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS quarter. As of December 31, 2021 and 2020, we were in compliance with the applicable terms and conditions of the covenants under the Credit Agreement. 8. 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 (formerly 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 November 2021, Blackstone Life Sciences opted in to Phase 2 clinical trial funding of zilebesiran, committing to fund, upon meeting certain patient enrollment thresholds, up to $ 26.0 million. Furthermore, Blackstone Life Sciences has the right, but is not obligated, to fund up to $ 54.0 million for development costs related to a Phase 3 clinical trial of zilebesiran. 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 zilebesiran. 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 zilebesiran, 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 zilebesiran Phase 2 clinical trial, unless certain regulatory events affecting the continued development of zilebesiran occur. As consideration for Blackstone Life Sciences’ funding for Phase 3 clinical development costs of zilebesiran, 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 zilebesiran 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 zilebesiran, 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 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 zilebesiran 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 change in fair value due to the remeasurement of the development derivative liability is recorded as other expense on our consolidated statements of operations and comprehensive loss. As of December 31, 2021 and 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 116 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS royalty payable on net sales of vutrisiran, assuming regulatory approval, (iv) our cost of borrowing ( 14 %), and (v) Blackstone Life Sciences' cost of borrowing ( 4 %). The following table presents the activity with respect to the development derivative liability, in thousands: Carrying value as of January 1, 2020 $ — Amount received under the Funding Agreement 8,400 Loss recorded from remeasurement 17,185 Carrying value as of December 31, 2020 25,585 Amount received under the Funding Agreement 19,600 Loss recorded from remeasurement 38,433 Carrying value as of December 31, 2021 $ 83,618 9. FAIR VALUE MEASUREMENTS The following tables present information about our financial assets and liabilities 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, 2021 Quoted Prices in Active Markets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial assets Cash equivalents: Money market funds $ 255,869 $ 255,869 $ — $ — U.S. treasury securities 54,998 — 54,998 — Marketable debt securities: U.S. treasury securities 1,030,578 — 1,030,578 — Corporate notes 253,239 — 253,239 — U.S. government-sponsored enterprise securities 177,741 — 177,741 — Commercial paper 78,543 — 78,543 — Certificates of deposit 7,501 — 7,501 — Municipal securities 1,015 — 1,015 — Marketable equity securities 66,972 66,972 — — Restricted cash (money market funds) 1,195 1,195 — — Total financial assets $ 1,927,651 $ 324,036 $ 1,603,615 $ — Financial liabilities Development derivative liability $ 83,618 $ — $ — $ 83,618 117 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands) As of December 31, 2020 Quoted Prices in Active Markets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial assets Cash equivalents: Money market funds $ 75,726 $ 75,726 $ — $ — U.S. treasury securities 20,000 — 20,000 — Marketable debt securities: U.S. treasury securities 1,087,968 — 1,087,968 — U.S. government-sponsored enterprise securities 245,214 — 245,214 — Marketable equity securities 44,633 44,633 — — Restricted cash (money market funds) 1,483 1,483 — — Total financial assets $ 1,475,024 $ 121,842 $ 1,353,182 $ — Financial liabilities Development derivative liability $ 25,585 $ — $ — $ 25,585 For the year ended December 31, 2021, 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 carrying amount of our debt as of December 31, 2021 and 2020 is subject to variable interest rates, which are based on current market rates, and as such, approximates fair value. 10. MARKETABLE DEBT SECURITIES The following tables summarize our marketable debt securities: As of December 31, 2021 (In thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. treasury securities $ 1,086,232 $ 6 $ ( 662 ) $ 1,085,576 Corporate notes 253,926 1 ( 688 ) 253,239 U.S. government-sponsored enterprise securities 178,027 2 ( 288 ) 177,741 Commercial paper 78,543 — — 78,543 Certificates of deposit 7,501 — — 7,501 Municipal securities 1,016 — ( 1 ) 1,015 Total $ 1,605,245 $ 9 $ ( 1,639 ) $ 1,603,615 118 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2020 (In thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. treasury securities $ 1,107,721 $ 328 $ ( 81 ) $ 1,107,968 U.S. government-sponsored enterprise securities 245,113 135 ( 34 ) 245,214 Total $ 1,352,834 $ 463 $ ( 115 ) $ 1,353,182 The fair values of our marketable debt securities by classification in the consolidated balance sheets were as follows: (In thousands) December 31, 2021 December 31, 2020 Cash and cash equivalents $ 54,998 $ 20,000 Marketable debt securities 1,548,617 1,333,182 Total $ 1,603,615 $ 1,353,182 11. LEASES Overview of Significant Leases We lease three facilities for office and laboratory space in Cambridge, Massachusetts that represent substantially all of our significant lease obligations. An overview of these significant leases are as follows: 675 West Kendall Street 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, 2021. 300 Third Street We lease office and laboratory space located at 300 Third Street, Cambridge, Massachusetts under a non-cancelable real property lease agreement by and between us and ARE-MA Region No. 28, LLC, or ARE-MA, dated as of September 26, 2003, as amended. The term of the lease expires on January 31, 2034 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, 2021. 101 Main Street 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, 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, 2021. Other Lease Disclosures Our facility leases described above generally contain customary provisions allowing the landlords to terminate the leases if we fail to remedy a breach of any of our obligations under any such lease within specified time periods, or upon our bankruptcy or insolvency. 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 all of our real property leases was $ 59.5 million, $ 50.7 million and $ 52.4 million for the years ended December 31, 2021, 2020 and 2019, respectively. 119 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes our costs included in operating expenses related to right of use lease assets we have entered into through December 31, 2021: (In thousands) Year Ended December 31, 2021 Year Ended December 31, 2020 Operating lease cost $ 45,359 $ 42,271 Variable lease cost 18,271 11,049 Total $ 63,630 $ 53,320 Short-term lease costs were not material for the years ended December 31, 2021 and 2020. 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 $ 41.9 million and $ 38.0 million for the years ended December 31, 2021 and 2020, respectively. The weighted-average remaining lease term and weighted-average discount rate for all leases as of December 31, 2021 was 11 years and 8 %, respectively, and as of December 31, 2020 was 12 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, 2021 were as follows, in thousands: Year Ending December 31 2022 $ 41,783 2023 47,188 2024 44,421 2025 42,936 2026 40,246 2026 and thereafter 287,013 Total undiscounted lease liability 503,587 Less imputed interest ( 181,692 ) Total discounted lease liability $ 321,895 Current operating lease liability $ 40,548 Non-current operating lease liability 281,347 Total $ 321,895 12. COMMITMENTS AND CONTINGENCIES Technology License and Other Commitments We have licensed from third parties the rights to use certain technologies and information in our research processes as well as in any other products we may develop. In accordance with the related license or technology agreements, we are required to make certain fixed payments to the licensor or a designee of the licensor over various agreement terms. Many of these agreement terms are consistent with the remaining lives of the underlying intellectual property that we have licensed. As of December 31, 2021, our commitments over the next five years to make fixed and cancellable payments under existing license agreements were not material. Legal Matters 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. In addition, litigation and related matters are costly and may divert the attention of our management and other resources that would otherwise be engaged in other activities. If we were unable to prevail in any such legal proceedings, our business, results of operations, liquidity and financial condition could be adversely affected. Our accounting policy for accrual of legal costs is to recognize such expenses as incurred. 120 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Securities Litigation 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. On November 7, 2019, plaintiff filed an amended complaint, or the New York Complaint. The New York Complaint is brought on behalf of an alleged class of those who purchased our securities pursuant and/or traceable to our November 14, 2017 public stock offering. The New York Complaint purports to allege claims arising under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended, and generally alleges that the defendants violated the federal securities laws by, among other things, making material misstatements or omissions concerning the results of our APOLLO Phase 3 clinical trial of patisiran. The plaintiff seeks, among other things, the designation of the action as a class action, an award of unspecified compensatory damages, rescissory damages, interest, costs and expenses, including counsel fees and expert fees, and other relief as the court deems appropriate. All defendants filed a joint motion to dismiss the New York Complaint in its entirety on December 20, 2019. On November 2, 2020, the Supreme Court of the State of New York entered a Decision and Order denying defendants’ motion to dismiss. In November 2020, defendants filed a notice of appeal of the Supreme Court's decision to the Appellate Division of the Supreme Court of the State of New York for the First Department. In April 2021, the First Department entered a Decision and Order affirming in part and reversing in part the Supreme Court’s decision. In June 2021, defendants filed a motion in the First Department seeking reargument or, in the alternative, for leave to appeal to the New York Court of Appeals. In August 2021, the parties reached an agreement in principle to resolve the matter. A hearing is scheduled for April 12, 2022 in the Supreme Court of the State of New York regarding final approval of the settlement. Proceedings in the First Department are adjourned until February 2022, subject to further adjournment, pending final approval of any settlement. Government Investigation We have previously disclosed that, on or about April 9, 2021, we received a subpoena from the U.S. Department of Justice, U.S. Attorney’s Office for the District of Massachusetts, requiring production of documents pertaining to our marketing and promotion of ONPATTRO (patisiran) in the U.S. We are cooperating with the U.S. Attorney’s Office and producing documents in response to the subpoena. Current and former officers and employees also have received subpoenas in connection with the preservation and production of related materials. Given the ongoing nature of the investigation, it is possible that the U.S. Attorney’s Office for the District of Massachusetts or other government entities may request other information from, or issue other subpoenas, findings or similar documents to, us, our related entities and their respective directors, officers and employees. In light of the relatively early stage and ongoing nature of the investigation, no determination has been made that a loss, if any, arising from this matter is probable or that the amount of any such loss, or range of loss, is reasonably estimable. We also previously disclosed that since learning of this federal government investigation, our nominating and corporate governance committee is directing our review of and response to the matter. Indemnifications 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 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. 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 or other legal proceedings. In addition, we have agreed to indemnify our officers and directors for expenses, judgments, fines, penalties, excise taxes, and settlement amounts paid in connection with any threatened, pending or completed litigation proceedings, including, for example, the current government investigation, in which an officer or director was, is or will be involved as a party, on account of such person’s status as an officer or director, or by reason of any action taken by the officer or director while acting in such capacity, subject to certain limitations. These indemnification costs are charged to selling, general and administrative expense. Our maximum potential future liability under any such indemnification provisions is uncertain. We have determined that the estimated aggregate fair value of our potential liabilities under all such indemnification provisions is minimal and had not recorded any liability related to such indemnification provisions as of December 31, 2021 or 2020. 13. STOCKHOLDERS’ EQUITY Preferred Stock We have authorized up to 5,000,000 shares of preferred stock, $ 0.01 par value per share, for issuance. The preferred stock will have such rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be determined by our board of directors upon its issuance. As of December 31, 2021 and 2020, there were no shares of preferred stock outstanding. 121 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 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. On May 21, 2019, subsequent to the expiration of the applicable pre-merger waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, Regeneron purchased 4,444,445 shares of our common stock for aggregate cash consideration of $ 400.0 million. 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 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. 14. STOCK-BASED COMPENSATION Stock Plans 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 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, 2021, an aggregate of 18,863,133 shares of common stock were reserved for issuance under our stock plans, including outstanding stock options to purchase 10,015,050 shares of common stock, 1,209,560 outstanding restricted stock units, 6,802,466 of common stock available for additional equity awards and 836,057 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. 122 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Stock-Based Compensation The following table summarizes stock-based compensation expenses included in operating costs and expenses: Year Ended December 31, (In thousands) 2021 2020 2019 Research and development $ 68,415 $ 60,464 $ 88,930 Selling, general and administrative 97,302 79,409 85,911 Total $ 165,717 $ 139,873 $ 174,841 The following table summarizes stock-based compensation expense: Year Ended December 31, (In thousands) 2021 2020 2019 Stock-based compensation expense by type of award: Time-based stock options $ 118,635 $ 112,971 $ 99,097 Time-based restricted stock units 4,231 6,909 2,351 Performance-based restricted stock units 39,943 11,162 22,123 Other equity programs 6,235 9,402 54,673 Less: Stock-based compensation expense capitalized to inventory ( 3,327 ) ( 571 ) ( 3,403 ) Total $ 165,717 $ 139,873 $ 174,841 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, 2021 Unrecognized Expense, Net of Estimated Forfeitures (in thousands) Weighted- average Recognition Period (in years) Type of award: Time-based stock options $ 181,281 2.40 Time-based restricted stock units $ 7,439 1.70 Performance-based restricted stock units $ — * Other equity programs $ 9,060 2.75 __________________________________________ * Performance-based restricted stock units are recorded as expense beginning when vesting events are determined to be probable. Valuation Assumptions for Stock Options 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. The expected life assumption is based on our historical data. The dividend yield assumption is based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends. The risk-free interest rate used for each grant is equal to the zero coupon rate for instruments with a similar expected life. 123 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the Black-Scholes valuation assumption inputs for employee stock options granted: Year Ended December 31, 2021 2020 2019 Risk-free interest rate 0.4 - 1.4 % 0.3 - 1.7 % 1.4 - 2.6 % Expected dividend yield — — — Expected option life 5.4 - 6.8 years 5.4 - 7.2 years 5.6 - 7.3 years Expected volatility 58 - 63 % 61 - 63 % 63 - 66 % Stock Option Activity The following table summarizes the activity of our stock option plans, excluding performance-based stock options: Number of Options (in thousands) Weighted- average Exercise Price Weighted- average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Outstanding as of December 31, 2020 10,068 $ 88.18 Granted 1,893 154.31 Exercised ( 2,534 ) 76.40 Cancelled ( 587 ) 115.95 Outstanding as of December 31, 2021 8,840 $ 103.87 6.21 $ 582,964 Exercisable as of December 31, 2021 5,223 $ 87.39 4.93 $ 429,323 Vested or expected to vest as of December 31, 2021 8,494 $ 102.59 6.13 $ 570,805 The weighted-average fair value of stock options granted was $ 82.59 , $ 66.28 and $ 49.27 per share for the years ended December 31, 2021, 2020 and 2019, respectively. The intrinsic value of stock options exercised was $ 247.8 million, $ 177.8 million and $ 55.4 million for the years ended December 31, 2021, 2020 and 2019, respectively. We satisfy stock option exercises with newly issued shares of our common stock. Performance-Based Stock Options The following table summarizes the activity of our performance-based stock options granted under our equity plans: Number of Options (in thousands) Weighted- average Exercise Price Weighted- average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Outstanding as of December 31, 2020 1,625 $ 91.35 Granted — — Exercised ( 446 ) 88.62 Cancelled ( 4 ) 119.13 Outstanding as of December 31, 2021 1,175 $ 92.31 3.65 $ 90,823 Exercisable as of December 31, 2021 1,175 $ 92.31 3.65 $ 90,823 During the years ended December 31, 2021, 2020 and 2019, there were 197,102 , 0 and 889,896 performance-based stock options that vested, respectively. The intrinsic value of performance-based stock options exercised was $ 40.2 million, $ 34.1 million and $ 11.0 million for the years ended December 31, 2021, 2020 and 2019, respectively. We satisfy performance-based stock option exercises with newly issued shares of our common stock. 124 Table of Contents 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 granted under our equity plans, excluding performance-based restricted stock units: Number of Units (in thousands) Weighted- average Grant Date Fair Value Outstanding as of December 31, 2020 117 $ 83.66 Awarded 79 159.18 Released ( 110 ) 81.94 Cancelled ( 11 ) 131.01 Outstanding as of December 31, 2021 75 $ 158.87 Performance-Based Restricted Stock Units The following table summarizes the activity of our performance-based restricted stock units granted under our equity plans: Number of Units (in thousands) Weighted- average Grant Date Fair Value Outstanding as of December 31, 2020 1,043 $ 107.26 Awarded 813 153.76 Released ( 544 ) 97.73 Cancelled ( 176 ) 126.45 Outstanding as of December 31, 2021 1,136 $ 143.13 The performance-based restricted stock units granted in 2021 and 2020 will vest upon the later of the one-year anniversary of the date of grant and the achievement of specific clinical development, regulatory, commercial and/or financial performance 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 2017, our stockholders approved the Amended and Restated ESPP. In 2020, our stockholders approved an amendment to the Amended and Restated ESPP, to increase the number of shares authorized for issuance 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 124,101 and 129,394 shares during the years ended December 31, 2021 and 2020, respectively. 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, 2021 2020 2019 Risk-free interest rate 0.03 % - 0.06 % 0.1 % - 0.1 % 1.6 % - 2.4 % Expected dividend yield — — — Expected option life 6 months 6 months 6 months Expected volatility 41 % - 46 % 40 % - 50 % 37 % - 56 % 125 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. INCOME TAXES The domestic and foreign components of loss before income taxes are as follows: (In thousands) 2021 2020 2019 Domestic $ ( 794,729 ) $ ( 682,859 ) $ ( 597,602 ) Foreign ( 57,415 ) ( 172,741 ) ( 287,651 ) Loss before income taxes $ ( 852,144 ) $ ( 855,600 ) $ ( 885,253 ) The provision for income taxes consisted of the following: Year Ended December 31, (In thousands) 2021 2020 2019 Current provision: Domestic $ 293 $ 61 $ ( 394 ) Foreign 3,154 5,837 3,232 Total current provision 3,447 5,898 2,838 Deferred benefit: Domestic — 393 394 Foreign ( 2,767 ) ( 3,610 ) ( 2,369 ) Total deferred benefit ( 2,767 ) ( 3,217 ) ( 1,975 ) Total provision for income taxes $ 680 $ 2,681 $ 863 During the year ended December 31, 2021, we recorded a net provision for income taxes of $ 0.7 million. This is primarily comprised of $ 3.2 million of foreign current provision offset by $ 2.8 million of deferred provision, primarily related to foreign jurisdictions. Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. 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 asset are as follows: As of December 31, (In thousands) 2021 2020 Deferred tax assets: Net operating loss carryforwards $ 745,985 $ 537,382 Research and development and other credit carryforwards 342,431 301,792 Sale of future royalties 302,217 259,014 Lease liability 71,859 70,402 Deferred revenue 76,612 84,946 Deferred compensation 59,349 67,530 Intangible assets 302,121 148,168 Other 48,242 32,725 Total deferred tax assets 1,948,816 1,501,959 Deferred tax liabilities: Property, plant and equipment, net ( 13,170 ) ( 10,812 ) Unrealized gain on marketable securities ( 16,693 ) ( 12,766 ) Right of use assets ( 50,562 ) ( 50,323 ) Deferred revenue tax accounting method change ( 50,380 ) ( 71,812 ) Deferred tax asset valuation allowance ( 1,808,992 ) ( 1,349,729 ) Net deferred tax asset $ 9,019 $ 6,517 126 Table of Contents 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) 2021 2020 2019 At U.S. federal statutory rate 21.0 % 21.0 % 21.0 % State taxes, net of federal effect 5.2 4.5 3.6 Stock-based compensation 4.6 2.2 — Tax credits 4.5 3.3 3.7 Other permanent items ( 1.0 ) ( 1.5 ) ( 0.3 ) Foreign rate differential ( 1.7 ) ( 3.5 ) ( 6.9 ) Internal reorganization of certain intellectual property rights 20.1 12.3 — Other ( 0.1 ) ( 2.7 ) ( 0.1 ) Revaluation of deferred due to rate change 1.1 — — Valuation allowance ( 53.8 ) ( 35.9 ) ( 21.0 ) Effective income tax rate ( 0.1 ) % ( 0.3 ) % — % 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. 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 $ 459.3 million, $ 303.7 million and $ 185.9 million for the years ended December 31, 2021, 2020 and 2019, respectively. The increase in our valuation allowance is primarily due to additional net operating losses for the years ended December 31, 2021 and 2019 and primarily due to the liability related to the sale of future royalties for the year ended December 31, 2020. As of December 31, 2021, we had federal and state net operating loss carryforwards of $ 2.8 billion and $ 2.5 billion, respectively, to reduce future taxable income. Federal NOLs of $ 1.1 billion, generated before 2018, will begin expiring in varying amounts through 2037 unless utilized. The remaining federal NOLs of $ 1.7 billion, generated after 2017, will be carried forward indefinitely and could be used to offset up to 100% of taxable income of each future tax year for tax years before January 1, 2021 and up to 80% of taxable income in all other future tax years. As of December 31, 2021, we had federal and state research and development, including Orphan Drug, and state investment tax credit carryforwards of $ 312.2 million and $ 50.5 million, respectively, available to reduce future tax liabilities that expire at various dates through 2041. 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. The amount of the limitation is determined in accordance with Section 382 of the Internal Revenue Code. We have performed an analysis of ownership changes through December 31, 2021. Based on this analysis, we do not believe that any of our tax attributes will expire unutilized due to Section 382 limitations. We apply the accounting guidance in ASC 740 related to accounting for uncertainty in income taxes. 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 and ultimately sustained upon challenge by a taxing authority based upon its technical merits and subject to certain recognition and measurement criteria. 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, 2021 and 2020. 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, 2021, 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 2018 through 2021 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 2018 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. 127 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 16. DEFINED BENEFIT PLANS We maintain defined benefit plans for employees in certain countries outside the U.S., including retirement benefit plans required by applicable local law. 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 and $ 5.2 million as of December 31, 2021 and 2020, respectively, and is recorded in other liabilities on the consolidated balance sheet. The total net periodic benefit cost for the years ended December 31, 2021, 2020 and 2019 were not material. 128 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.