ALNYLAM PHARMACEUTICALS, INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS (Unaudited) ALNYLAM PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts) (Unaudited) June 30, 2022 December 31, 2021 ASSETS Current assets: Cash and cash equivalents $ 575,558 $ 819,975 Marketable debt securities 1,504,154 1,548,617 Marketable equity securities 30,901 66,972 Accounts receivable, net 142,271 198,571 Inventory 88,976 86,363 Prepaid expenses and other current assets 129,778 88,078 Total current assets 2,471,638 2,808,576 Property, plant and equipment, net 508,201 501,958 Operating lease right-of-use assets 223,921 231,675 Restricted investments 49,390 40,891 Other assets 77,267 60,204 Total assets $ 3,330,417 $ 3,643,304 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 52,418 $ 73,426 Accrued expenses 421,243 395,174 Operating lease liability 41,236 40,548 Deferred revenue 114,292 149,483 Liability related to the sale of future royalties 28,496 37,079 Total current liabilities 657,685 695,710 Operating lease liability, net of current portion 272,016 281,347 Deferred revenue, net of current portion 175,341 152,360 Long-term debt 677,723 675,697 Liability related to the sale of future royalties, net of current portion 1,214,311 1,151,024 Other liabilities 157,301 98,963 Total liabilities 3,154,377 3,055,101 Commitments and contingencies (Note 13) Stockholders’ equity: Preferred stock, $ 0.01 par value per share, 5,000 shares authorized and no shares issued and outstanding as of June 30, 2022 and December 31, 2021 — — Common stock, $ 0.01 par value per share, 250,000 shares authorized; 120,992 shares issued and outstanding as of June 30, 2022; 120,182 shares issued and outstanding as of December 31, 2021 1,210 1,202 Additional paid-in capital 6,172,990 6,058,453 Accumulated other comprehensive loss ( 42,224 ) ( 33,259 ) Accumulated deficit ( 5,955,936 ) ( 5,438,193 ) Total stockholders’ equity 176,040 588,203 Total liabilities and stockholders’ equity $ 3,330,417 $ 3,643,304 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents ALNYLAM PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except per share amounts) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Statements of Operations Revenues: Net product revenues $ 213,515 $ 160,811 $ 400,387 $ 296,580 Net revenues from collaborations 9,025 59,395 34,970 101,192 Royalty revenue 2,278 347 2,720 347 Total revenues 224,818 220,553 438,077 398,119 Operating costs and expenses: Cost of goods sold 34,038 30,256 57,495 53,279 Cost of collaborations and royalties 6,770 8,499 18,940 16,538 Research and development 205,712 182,635 375,605 368,534 Selling, general and administrative 169,984 145,323 324,455 292,182 Total operating costs and expenses 416,504 366,713 776,495 730,533 Loss from operations ( 191,686 ) ( 146,160 ) ( 338,418 ) ( 332,414 ) Other (expense) income: Interest expense ( 42,609 ) ( 33,416 ) ( 84,971 ) ( 65,931 ) Other (expense) income, net ( 40,378 ) ( 8,755 ) ( 90,640 ) 10,739 Total other expense, net ( 82,987 ) ( 42,171 ) ( 175,611 ) ( 55,192 ) Loss before income taxes ( 274,673 ) ( 188,331 ) ( 514,029 ) ( 387,606 ) Provision for income taxes ( 2,729 ) ( 1,228 ) ( 3,714 ) ( 2,244 ) Net loss $ ( 277,402 ) $ ( 189,559 ) $ ( 517,743 ) $ ( 389,850 ) Net loss per common share - basic and diluted $ ( 2.29 ) $ ( 1.61 ) $ ( 4.29 ) $ ( 3.32 ) Weighted-average common shares used to compute basic and diluted net loss per common share 120,896 117,772 120,646 117,428 Statements of Comprehensive Loss Net loss $ ( 277,402 ) $ ( 189,559 ) $ ( 517,743 ) $ ( 389,850 ) Other comprehensive (loss) income: Unrealized loss on marketable securities ( 1,734 ) ( 247 ) ( 8,951 ) ( 248 ) Foreign currency translation (loss) gain ( 2,459 ) 825 ( 83 ) 7,673 Defined benefit pension plans, net of tax 34 58 69 116 Total other comprehensive (loss) income ( 4,159 ) 636 ( 8,965 ) 7,541 Comprehensive loss $ ( 281,561 ) $ ( 188,923 ) $ ( 526,708 ) $ ( 382,309 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents ALNYLAM PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) (Unaudited) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance as of December 31, 2021 120,182 $ 1,202 $ 6,058,453 $ ( 33,259 ) $ ( 5,438,193 ) $ 588,203 Exercise of common stock options, net of tax withholdings 524 5 28,054 — — 28,059 Issuance of common stock under equity plans 23 — — — — — Stock-based compensation expense — — 30,051 — — 30,051 Other comprehensive loss — — — ( 4,806 ) — ( 4,806 ) Net loss — — — — ( 240,341 ) ( 240,341 ) Balance as of March 31, 2022 120,729 $ 1,207 $ 6,116,558 $ ( 38,065 ) $ ( 5,678,534 ) $ 401,166 Exercise of common stock options, net of tax withholdings 192 2 13,890 — — 13,892 Issuance of common stock under equity plans 71 1 8,089 — — 8,090 Stock-based compensation expense — — 34,453 — — 34,453 Other comprehensive loss — — — ( 4,159 ) — ( 4,159 ) Net loss — — — — ( 277,402 ) ( 277,402 ) Balance as of June 30, 2022 120,992 $ 1,210 $ 6,172,990 $ ( 42,224 ) $ ( 5,955,936 ) $ 176,040 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents ALNYLAM PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) (Unaudited) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive (Loss) Income Accumulated Deficit Total Stockholders’ Equity Shares Amount 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 614 6 47,028 — — 47,034 Issuance of common stock under equity plans 280 3 ( 3 ) — — — Stock-based compensation expense — — 56,295 — — 56,295 Other comprehensive income — — — 6,905 — 6,905 Net loss — — — — ( 200,291 ) ( 200,291 ) Balance as of March 31, 2021 117,321 $ 1,173 $ 5,747,394 $ ( 36,717 ) $ ( 4,785,660 ) $ 926,190 Exercise of common stock options, net of tax withholdings 993 10 75,439 — — 75,449 Issuance of common stock under equity plans 282 3 7,715 — — 7,718 Stock-based compensation expense — — 32,928 — — 32,928 Other comprehensive income — — — 636 — 636 Net loss — — — — ( 189,559 ) ( 189,559 ) Balance as of June 30, 2021 118,596 $ 1,186 $ 5,863,476 $ ( 36,081 ) $ ( 4,975,219 ) $ 853,362 The accompanying notes are an integral part of these condensed consolidated financial statements. 8 Table of Contents ALNYLAM PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six Months Ended June 30, 2022 2021 Cash flows from operating activities: Net loss $ ( 517,743 ) $ ( 389,850 ) Non-cash adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 19,557 24,406 Amortization and interest accretion related to operating leases 20,458 20,617 Non-cash interest expense on liability related to the sale of future royalties 54,704 57,020 Stock-based compensation 59,764 87,768 Realized and unrealized loss (gain) on marketable equity securities 32,258 ( 42,582 ) Other 63,522 32,352 Changes in operating assets and liabilities: Accounts receivable, net 46,095 ( 46,020 ) Inventory ( 7,274 ) ( 2,021 ) Prepaid expenses and other assets ( 51,159 ) ( 30,621 ) Accounts payable, accrued expenses and other liabilities 19,407 2,374 Operating lease liability ( 21,434 ) ( 19,217 ) Deferred revenue ( 12,167 ) ( 51,742 ) Net cash used in operating activities ( 294,012 ) ( 357,516 ) Cash flows from investing activities: Purchases of property, plant and equipment ( 33,914 ) ( 28,424 ) Purchases of marketable securities ( 1,096,275 ) ( 514,815 ) Sales and maturities of marketable securities 1,134,138 775,978 Other investing activities ( 8,575 ) ( 4,363 ) Net cash (used in) provided by investing activities ( 4,626 ) 228,376 Cash flows from financing activities: Proceeds from exercise of stock options and other types of equity, net 49,626 128,838 Proceeds from development derivative 15,667 8,400 Proceeds from term loan facility — 250,000 Other financing activities — ( 6,250 ) Net cash provided by financing activities 65,293 380,988 Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 11,073 ) ( 2,829 ) Net decrease in cash, cash equivalents and restricted cash ( 244,418 ) 249,019 Cash, cash equivalents and restricted cash, beginning of period 822,153 499,046 Cash, cash equivalents and restricted cash, end of period $ 577,735 $ 748,065 Supplemental disclosure of cash flows: Cash paid for interest $ 29,060 $ 8,350 Supplemental disclosure of noncash investing activities: Capital expenditures included in accounts payable and accrued expenses $ 6,518 $ 11,796 The accompanying notes are an integral part of these condensed consolidated financial statements. 9 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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 June 30, 2022, we have five products that have received marketing approval, including one partnered product, and five late-stage investigational programs advancing towards potential commercialization. As of June 30, 2022, we generated worldwide product revenues from three commercialized products, ONPATTRO, GIVLAARI and OXLUMO, primarily in the U.S., Europe and Japan. 2. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION The accompanying condensed consolidated financial statements of Alnylam are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, applicable to interim periods and, in the opinion of management, include all normal and recurring adjustments that are necessary to state fairly the results of operations for the reported periods. Our condensed consolidated financial statements have also been prepared on a basis substantially consistent with, and should be read in conjunction with, our audited consolidated financial statements for the year ended December 31, 2021, which were included in our Annual Report on Form 10-K that was filed with the Securities and Exchange Commission on February 10, 2022. The year-end condensed consolidated balance sheet data was derived from our audited financial statements but does not include all disclosures required by GAAP. The results of our operations for any interim period are not necessarily indicative of the results of our operations for any other interim period or for a full fiscal year. The accompanying condensed consolidated financial statements reflect the operations of Alnylam and our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. Our significant accounting policies are described in Note 2 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021. Use of Estimates The preparation of financial statements in conformity with 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. In our condensed 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. 10 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Liquidity Based on our current operating plan, we believe that our cash, cash equivalents and marketable securities as of June 30, 2022, 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 Quarterly Report on Form 10-Q. 3. NET PRODUCT REVENUES Net product revenues consist of the following: Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2022 2021 2022 2021 ONPATTRO United States $ 71,085 $ 52,391 $ 133,392 $ 101,862 Europe 56,787 44,904 109,968 85,557 Rest of World 25,556 16,544 47,077 28,371 Total $ 153,428 $ 113,839 $ 290,437 $ 215,790 GIVLAARI United States $ 29,661 $ 22,368 $ 53,336 $ 40,130 Europe 13,894 8,020 23,582 14,893 Rest of World 1,595 242 3,509 280 Total $ 45,150 $ 30,630 $ 80,427 $ 55,303 OXLUMO United States $ 7,121 $ 6,512 $ 12,533 $ 7,920 Europe 7,593 9,830 15,751 17,567 Rest of World 223 — 1,239 — Total $ 14,937 $ 16,342 $ 29,523 $ 25,487 Total net product revenues $ 213,515 $ 160,811 $ 400,387 $ 296,580 The following table presents the balance of our receivables related to our net product revenues: (In thousands) As of June 30, 2022 As of December 31, 2021 Receivables included in “Accounts receivable, net” $ 131,269 $ 124,906 11 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 4. NET REVENUES FROM COLLABORATIONS Net revenues from collaborations consist of the following: Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2022 2021 2022 2021 Regeneron Pharmaceuticals $ 14 $ 46,404 $ 12,426 $ 76,747 Novartis AG 8,533 8,908 21,669 17,019 Vir Biotechnology 433 3,978 696 6,800 Other 45 105 179 626 Total $ 9,025 $ 59,395 $ 34,970 $ 101,192 The following table presents the balance of our receivables and contract liabilities related to our collaboration agreements: (In thousands) As of June 30, 2022 As of December 31, 2021 Receivables included in “Accounts receivable, net” $ 9,074 $ 73,266 Contract liabilities included in “Deferred revenue” $ 80,647 $ 88,627 We recognized revenue of $ 5.3 million in the six months ended June 30, 2022 and revenue of $ 29.2 million and $ 54.5 million in the three and six months ended June 30, 2021, respectively, that was included in the contract liability balance at the beginning of the period. Revenue recognized from amounts included in the contract liability balance at the beginning of the period was immaterial for the three months ended June 30, 2022. In order to determine revenue recognized in the period from contract liabilities, we first allocate revenue to the individual contract liability balance outstanding at the beginning of the period until the revenue exceeds that balance. If additional consideration is received on those contracts in subsequent periods, we assume all revenue recognized in the reporting period first applies to the beginning contract liability as opposed to a portion applying to the new consideration for the period. The following table provides research and development expenses incurred by type, for which we recognize net revenue, that are directly attributable to our collaboration agreements, by collaboration partner: Three Months Ended June 30, 2022 2021 (In thousands) Clinical Trial and Manufacturing External Services Other Clinical Trial and Manufacturing External Services Other Regeneron Pharmaceuticals $ 1,677 $ 365 $ 9,645 $ 9,392 $ 168 $ 10,883 Other — 280 177 1,364 497 899 Total $ 1,677 $ 645 $ 9,822 $ 10,756 $ 665 $ 11,782 Six Months Ended June 30, 2022 2021 (In thousands) Clinical Trial and Manufacturing External Services Other Clinical Trial and Manufacturing External Services Other Regeneron Pharmaceuticals $ 3,114 $ 987 $ 18,953 $ 14,191 $ 262 $ 23,118 Other 156 322 337 2,404 708 3,116 Total $ 3,270 $ 1,309 $ 19,290 $ 16,595 $ 970 $ 26,234 The research and development expenses incurred for the agreements included 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 three and six months ended June 30, 2022 and 2021, we did not incur material selling, general and administrative expenses related to our collaboration agreements. 12 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) In addition, we recognized a reduction to our research and development expenses of $ 3.5 million and $ 7.4 million for the three and six months ended June 30, 2022, respectively, and of $ 4.0 million and $ 9.4 million for the three and six months ended June 30, 2021, respectively, from cost reimbursement due under certain of our collaboration agreements with Regeneron Pharmaceuticals, Inc., or Regeneron, accounted for under Accounting Standards Codification, or ASC, Topic 808, Collaborative Arrangements, or ASC 808. Product Alliances Regeneron Pharmaceuticals, Inc. In April 2019, we entered into a global, strategic collaboration with 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 research period of approximately five years , 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 leads 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 are alternating 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 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 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 in the first five years 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 13 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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 condensed 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 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 Topic 606, Revenue from Contracts with Customers, or 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. 14 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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 June 30, 2022, the total transaction price was determined to be $ 557.0 million, an increase of $ 18.6 million from December 31, 2021. As of June 30, 2022, 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. 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 June 30, 2022 As of June 30, 2022 As of December 31, 2021 Accounting Guidance Research Services Obligation $ 215,600 $ 38,500 $ 42,300 ASC 606 C5 License Obligation 95,400 30,800 26,900 ASC 606 C5 Co-Co Obligation 246,000 208,500 212,500 ASC 808 $ 557,000 $ 277,800 $ 281,700 Revenue Recognized During Performance Obligations Three Months Ended June 30, 2022 Three Months Ended June 30, 2021 Six Months Ended June 30, 2022 Six Months Ended June 30, 2021 Accounting Guidance Research Services Obligation $ 1,600 $ 10,200 $ 8,800 $ 20,000 ASC 606 C5 License Obligation ( 4,800 ) 15,700 ( 3,500 ) 29,200 ASC 606 C5 Co-Co Obligation 1,700 11,400 4,000 13,900 ASC 808 $ ( 1,500 ) $ 37,300 $ 9,300 $ 63,100 As of June 30, 2022, the aggregate amount of the transaction price allocated to the remaining Research Services Obligation and C5 License Obligation that was unsatisfied was $ 150.6 million, which is expected to be recognized through the term of the 15 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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 condensed 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 June 30, 2022, 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 and future royalty payments may be less than anticipated. 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 Leqvio (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 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 16 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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 received 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 are developing and testing 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 siRNA 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 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 June 30, 2022, 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 June 30, 2022, the aggregate amount of the transaction price allocated to the performance obligation that was unsatisfied was $ 15.0 million, which is expected to be recognized through the term of the DC Workplan as the services are performed. 17 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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 four 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. Under the Vir Agreement, we have earned and received certain upfront and development milestone payments in the form of cash and Vir common stock, as well as sublicense revenue. We may receive additional 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 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 has 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. 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 18 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) in which they change as a cumulative catch up. As of June 30, 2022, the total transaction price was determined to be $ 111.1 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 June 30, 2022, the aggregate amount of the transaction price allocated to the performance obligation that was unsatisfied was $ 36.3 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 condensed consolidated statement of operations and comprehensive loss and record the proceeds from this transaction as a liability, net of closing costs, on our condensed 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 June 30, 2022, our estimate of this total interest expense resulted in an effective annual interest rate of 11 % and 9 %, respectively. These estimates contain assumptions that impact both the amount recorded at execution and the interest expense that will be recognized in future periods. As payments are made to Blackstone Royalties, the balance of the liability will be effectively repaid over the life of the Purchase Agreement. The exact timing and amount of repayment is likely to change each reporting period. A significant increase or decrease in 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 June 30, 2022, the carrying value of the liability related to the sale of future royalties was $ 1.24 billion, net of closing costs of $ 11.2 million. The carrying value of the liability related to the sale of future royalties approximates fair value as of June 30, 2022 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. 19 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The following table shows the activity with respect to the liability related to the sale of future royalties, in thousands: Carrying value as of December 31, 2021 $ 1,188,103 Interest expense recognized 55,300 Payments ( 596 ) Carrying value as of June 30, 2022 $ 1,242,807 6. 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 June 30, 2022 Quoted Prices in Active Markets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial assets Cash equivalents: Money market funds $ 179,730 $ 179,730 $ — $ — U.S. treasury securities 54,978 — 54,978 — Commercial paper 1,497 — 1,497 — U.S. government-sponsored enterprise securities 33,099 — 33,099 — Marketable debt securities: U.S. treasury securities 1,095,636 — 1,095,636 — Corporate notes 192,690 — 192,690 — U.S. government-sponsored enterprise securities 175,840 — 175,840 — Commercial paper 37,488 — 37,488 — Certificates of deposit 2,500 — 2,500 — Marketable equity securities 30,901 30,901 — — Restricted cash (money market funds) 1,195 1,195 — — Total financial assets $ 1,805,554 $ 211,826 $ 1,593,728 $ — Financial liabilities Development derivative liability $ 144,977 $ — $ — $ 144,977 20 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (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 The carrying amounts reflected on our condensed 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 June 30, 2022 is subject to variable interest rates, which are based on current market rates, and as such, approximates fair value. 7. MARKETABLE DEBT SECURITIES We invest our excess cash balances in marketable debt securities and at each balance sheet date presented, we classify 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 did not record any impairment charges related to our marketable debt securities during the three or six months ended June 30, 2022 or 2021. The following tables summarize our marketable debt securities: As of June 30, 2022 (In thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. treasury securities $ 1,155,599 $ 20 $ ( 5,005 ) $ 1,150,614 Corporate notes 195,725 — ( 3,035 ) 192,690 U.S. government-sponsored enterprise securities 211,500 3 ( 2,564 ) 208,939 Commercial paper 38,985 — — 38,985 Certificates of deposit 2,500 — — 2,500 Total $ 1,604,309 $ 23 $ ( 10,604 ) $ 1,593,728 21 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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 The fair values of our marketable debt securities by classification in the condensed consolidated balance sheets were as follows: (In thousands) As of June 30, 2022 As of December 31, 2021 Marketable debt securities $ 1,504,154 $ 1,548,617 Cash and cash equivalents 89,574 54,998 Total $ 1,593,728 $ 1,603,615 8. OTHER BALANCE SHEET DETAILS Inventory The components of inventory are summarized as follows: (In thousands) As of June 30, 2022 As of December 31, 2021 Raw materials $ 19,140 $ 14,754 Work in progress 100,191 100,942 Finished goods 13,192 7,005 Total $ 132,523 $ 122,701 As of June 30, 2022 and December 31, 2021, we had $ 43.5 million and $ 36.3 million of long-term inventory, respectively, included within other assets in our condensed consolidated balance sheet as we anticipate it being consumed beyond our normal operating cycle. Cash, Cash Equivalents and Restricted Cash The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within our condensed consolidated balance sheets that sum to the total of these amounts shown in the condensed consolidated statements of cash flows: As of June 30, (In thousands) 2022 2021 Cash and cash equivalents $ 575,558 $ 745,767 Total restricted cash included in other assets 2,177 2,298 Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows $ 577,735 $ 748,065 22 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Accumulated Other Comprehensive (Loss) Income The following tables summarize the changes in accumulated other comprehensive (loss) income, by component: (In thousands) Loss on Investment in Joint Venture Defined Benefit Pension Plans Unrealized (Losses) Gains from Debt Securities Foreign Currency Translation Adjustment Total Accumulated Other Comprehensive Loss Balance as of December 31, 2021 $ ( 32,792 ) $ ( 2,811 ) $ ( 1,630 ) $ 3,974 $ ( 33,259 ) Other comprehensive income before reclassifications — — 4 ( 83 ) ( 79 ) Amounts reclassified from other comprehensive income (loss) — 69 ( 8,955 ) — ( 8,886 ) Net other comprehensive income (loss) — 69 ( 8,951 ) ( 83 ) ( 8,965 ) Balance as of June 30, 2022 $ ( 32,792 ) $ ( 2,742 ) $ ( 10,581 ) $ 3,891 $ ( 42,224 ) (In thousands) Loss on Investment in Joint Venture Defined Benefit Pension Plans Unrealized Gains (Losses) from Debt Securities Foreign Currency Translation Adjustment Total Accumulated Other Comprehensive (Loss) Income Balance as of December 31, 2020 $ ( 32,792 ) $ ( 3,754 ) $ 348 $ ( 7,424 ) $ ( 43,622 ) Other comprehensive (loss) income before reclassifications — — 1 7,673 7,674 Amounts reclassified from other comprehensive income — 116 ( 249 ) — ( 133 ) Net other comprehensive income (loss) — 116 ( 248 ) 7,673 7,541 Balance as of June 30, 2021 $ ( 32,792 ) $ ( 3,638 ) $ 100 $ 249 $ ( 36,081 ) Amounts reclassified out of accumulated other comprehensive loss relate to settlements of marketable equity securities and amortization of our pension obligation which are recorded as other income in the condensed consolidated statements of operations and comprehensive loss. 9. 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 condensed 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 June 30, 2022, 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 9 % and 8 % as of June 30, 2022 and December 31, 2021, respectively. We are obligated to pay interest due on the Term Loans 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 AMVUTTRA, (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. 23 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The Credit Agreement contains negative covenants that, among other things and subject to certain exceptions, could restrict our ability to, incur additional liens, incur additional indebtedness, make investments, including acquisitions, engage in fundamental changes, sell or dispose of assets that constitute collateral, including certain intellectual property, pay dividends or make any distribution or payment on or redeem, retire or purchase any equity interests, amend, modify or waive certain material agreements or organizational documents and make payments of certain subordinated indebtedness. Additionally, the Credit Agreement contains certain customary representations and warranties, affirmative covenants and provisions relating to events of default, including nonpayment of principal, interest and other amounts; failure to comply with covenants; the rendering of judgments or orders or default by us in respect of other material indebtedness; and certain insolvency and ERISA events. The Credit Agreement also requires us to have consolidated liquidity of at least $ 100.0 million as of the last day of each fiscal quarter. As of June 30, 2022, we were in compliance with the applicable terms and conditions of the covenants under the Credit Agreement. 10. 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 AMVUTTRA (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 AMVUTTRA 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 AMVUTTRA, should we obtain regulatory approval for zilebesiran or vutrisiran for ATTR-cardiomyopathy following termination. We account for the Funding Agreement under ASC Topic 815, Derivatives and Hedging, as a derivative liability, measured at fair value, within other liabilities on our condensed consolidated balance sheets. The change in fair value due to the 24 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) remeasurement of the development derivative liability is recorded as other expense on our condensed consolidated statements of operations and comprehensive loss. As of June 30, 2022, the derivative liability is classified as a Level 3 financial liability in the fair value hierarchy. The valuation method incorporates certain unobservable Level 3 key inputs including (i) the probability and timing of achieving stated development milestones to receive payments from Blackstone Life Sciences, (ii) the probability and timing of achieving regulatory approval and payments to Blackstone Life Sciences, (iii) an estimate of the amount and timing of the royalty payable on net sales of AMVUTTRA, assuming regulatory approval for ATTR-cardiomyopathy, (iv) our cost of borrowing ( 13 %), 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 December 31, 2021 $ 83,618 Amount received under the Funding Agreement 15,667 Loss recorded from remeasurement 45,692 Carrying value as of June 30, 2022 $ 144,977 11. STOCK-BASED COMPENSATION The following table summarizes stock-based compensation expenses included in operating costs and expenses: Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2022 2021 2022 2021 Research and development $ 10,638 $ 13,086 $ 22,255 $ 37,461 Selling, general and administrative 19,833 18,992 37,509 50,307 Total $ 30,471 $ 32,078 $ 59,764 $ 87,768 12. 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 during the period. 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 outstanding during the period. 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 common share equivalents were excluded from the calculation of net loss per common share because their inclusion would be anti-dilutive: As of June 30, (In thousands) 2022 2021 Options to purchase common stock 12,719 12,551 Unvested restricted common stock 1,950 1,257 Total 14,669 13,808 13. 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. 25 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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. 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. Patent Infringement Lawsuits In March 2022, we filed separate lawsuits in the U.S. District Court for the District of Delaware against (1) Pfizer, Inc. and its subsidiary Pharmacia & Upjohn Co. LLC, collectively referred to as Pfizer, and (2) Moderna, Inc., and its subsidiaries ModernaTX, Inc., and Moderna US, Inc., collectively referred to as Moderna. The lawsuits seek damages for infringement of U.S. Patent No. 11,246,933, or ‘933 Patent, in Pfizer’s and Moderna’s manufacture and sale of their messenger RNA, or mRNA, COVID-19 vaccines. The patent relates to the Company’s biodegradable cationic lipids that are foundational to the success of the mRNA COVID-19 vaccines. We are seeking judgment that each of Pfizer and Moderna is infringing the ‘933 Patent, as well as damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the unlicensed uses made of our patented lipids by Pfizer and Moderna, together with interest and costs as may be awarded by the court. As stated in the filed complaints, we are not seeking injunctive relief in these lawsuits. On May 23, 2022, Moderna filed a partial motion to dismiss, asserting an affirmative defense under Section 1498(a). We responded on May 27, 2022, opposing their motion arguing Moderna had significant non-government sales and the government contract ended in April 2022. Moderna responded on June 13, 2022, requesting a partial motion to dismiss those claims for sales under 1498(a). This motion is fully briefed and pending before the court. On May 27, 2022, Pfizer filed an answer to our complaint, denying the allegations, and asserting invalidity and non-infringement defenses. In addition, Pfizer added BioNTech SE to the suit and added counter-claims seeking a declaratory judgment that our patent is invalid and a second claim alleging that our patent is invalid due to patent misuse. We believe their defenses and counter-claims have no merit and responded on June 10, 2022, with substantive arguments as to the validity of our claims and the lack of merit of their patent misuse claim. On July 12, 2022, we filed a new lawsuit against each of Pfizer and Moderna seeking damages for infringing our newly granted U.S. Patent No. 11,382,979 in Pfizer’s and Moderna’s manufacture and sale of their mRNA COVID-19 vaccines. 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, 26 Table of Contents ALNYLAM PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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 obligations as of June 30, 2022. 27 Table of Contents