What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-23 compared with 2022-02-10 · 64 added, 64 removed, 163 unchanged (44% of the section changed)

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As described in Part I, Item 1.

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

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

In Part I, Item 1.

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

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

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

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

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

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

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

We currently have programs focused on a number of therapeutic areas and, as of December 31, 2022, we generate worldwide product revenues from four commercialized products, ONPATTRO, AMVUTTRA, GIVLAARI and OXLUMO, primarily in the U.S., Europe and Japan.

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

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

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The following data summarizes the results of our operations:

Year Ended December 31,

(In thousands) 2021 2020 2019

Revenues $ 844,287 $ 492,853 $ 219,750

Year Ended December 31, 2022 vs 2021 2021 vs 2020

(In thousands, except percentages) 2022 2021 2020 $ Change % Change $ Change % Change

Total revenues $ 1,037,418 $ 844,287 $ 492,853 $ 193,131 23 % $ 351,434 71 %

Operating costs and expenses $ 1,822,490 $ 1,552,939 $ 1,321,291 $ 269,551 17 % $ 231,648 18 %

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Net revenues from collaborations 134,912 180,953 131,333 (46,041) (25) % 49,620 38 %

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

Royalty revenue 8,177 1,196 — 6,981 584 % 1,196 N/A

Total $ 1,037,418 $ 844,287 $ 492,853 $ 193,131 23 % $ 351,434 71 %

Net Product Revenues

Net product revenues consist of the following:

Net product revenues consist of the following, by product and region:

Year Ended December 31, 2022 vs 2021 2021 vs 2020

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Europe 224,063 190,435 107,755 33,628 18 % 82,680 77 %

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

Rest of World 86,797 71,092 46,752 15,705 22 % 24,340 52 %

Total 557,608 474,737 306,081 82,871 17 % 168,656 55 %

United States 82,521 — — 82,521 N/A — N/A

Europe 4,214 — — 4,214 N/A — N/A

Rest of World 7,060 — — 7,060 N/A — N/A

Total 93,795 — — 93,795 N/A — N/A

United States 115,659 92,747 42,797 22,912 25 % 49,950 117 %

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

Europe 48,670 30,895 12,000 17,775 58 % 18,895 157 %

Rest of World 8,815 4,173 309 4,642 111 % 3,864 1,250 %

Total 173,144 127,815 55,106 45,329 35 % 72,709 132 %

United States 27,698 18,876 — 8,822 47 % 18,876 N/A

Europe 37,915 38,949 333 (1,034) (3) % 38,616 11,596 %

Rest of World 4,169 1,761 — 2,408 137 % 1,761 N/A

Total 69,782 59,586 333 10,196 17 % 59,253 17,794 %

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

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

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

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

Total net product revenues $ 894,329 $ 662,138 $ 361,520 $ 232,191 35 % $ 300,618 83 %

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

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

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

Net product revenues increased during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily as a result of increased patients across our commercial portfolio of products, including the initial launch of AMVUTTRA.

We expect net product revenues to increase during 2023, as compared to 2022, as we continue to add new patients onto our commercial products, as well as launch these products into additional markets, assuming regulatory approvals.

Please read Note 3 to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K for balances and activity in each product revenue allowance and reserve category for the years ended December 31, 2022 and 2021.

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Total $ 134,912 $ 180,953 $ 131,333 $ (46,041) (25) % $ 49,620 38 %

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

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

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

Net revenues from collaborations decreased during the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to a decrease in revenue recognized in connection with our collaboration agreements with Regeneron and Vir, attributed to reduced research and manufacturing activities and timing of reimbursable activities.

Royalty revenue increased during the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to increased global net sales of Leqvio by our partner, Novartis.

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

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

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

Recognition of our combined net revenues from collaborations and royalty revenue is dependent on a variety of factors including the level of work reimbursed by partners, achievement of milestones under our collaboration agreements, and royalties associated with sales of Leqvio.

We expect variability in net revenues from collaboration and royalty revenue in 2023, as compared to 2022, due to the timing of manufacturing activities, achievement of milestones under our collaboration agreements and royalties associated with sales of Leqvio.

Operating Costs and Expenses

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Cost of goods sold $ 140,174 $ 115,005 $ 74,185 $ 25,169 22 % $ 40,820 55 %

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

Cost of goods sold as a percentage of net product revenues 15.7 % 17.4 % 20.5 %

Cost of collaborations and royalties 28,643 25,139 3,867 3,504 14 % 21,272 550 %

Research and development 883,015 792,156 654,819 90,859 11 % 137,337 21 %

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770,658 620,639 588,420 150,019 24 % 32,219 5 %

$ 1,552,939 $ 1,321,291 $ 1,159,181 $ 231,648 18 % $ 162,110 14 %

Total $ 1,822,490 $ 1,552,939 $ 1,321,291 $ 269,551 17 % $ 231,648 18 %

Cost of Goods Sold

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

Cost of goods sold as a percentage of net product revenues decreased to 15.7% for the year ended December 31, 2022, as compared to 17.4% for the year ended December 31, 2021, primarily due to an increase in sales of products with a lower cost to manufacture.

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

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

We expect cost of goods sold will increase during 2023, as compared to 2022, primarily as a result of an expected increase in net product sales as well as increased royalties.

Cost of collaborations and royalties

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

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

Cost of collaborations and royalties increased during the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to timing and demand of GalNAc material supply to our collaboration partners to support certain product manufacturing and ongoing clinical trials.

We anticipate variability in the cost of collaborations and royalties during 2023, as compared to 2022, due to the timing and demand of GalNAc material to be supplied to our collaboration partners.

Research and Development

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(In thousands, except percentages) 2022 2021 2020 $ Change % Change $ Change % Change

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

Clinical research and outside services $ 438,418 $ 418,985 $ 307,378 $ 19,433 5 % $ 111,607 36 %

Compensation and related 225,589 196,134 190,705 29,455 15 % 5,429 3 %

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

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

Occupancy and all other costs 126,847 108,622 96,272 18,225 17 % 12,350 13 %

Stock-based compensation 92,161 68,415 60,464 23,746 35 % 7,951 13 %

Lab supplies, materials and other 44,881 42,229 38,158 2,652 6 % 4,071 11 %

License fees 16,832 2,780 37,030 14,052 505 % (34,250) (92) %

$ 883,015 $ 792,156 $ 654,819 $ 90,859 11 % $ 137,337 21 %

Research and development expenses increased during the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to the following:

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

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

• Increased compensation and related expenses as a result of increased headcount to support our R&D pipeline and development expenses;

• Increased stock-based compensation expense primarily due to the accounting for certain performance-based awards;

• Increased clinical research and outside services expenses primarily due to increase in clinical batches manufactured and development expenses associated with the KARDIA-1 and KARDIA-2 zilebesiran phase 2 studies.

During the years ended December 31, 2022 and 2021, in connection with advancing activities under our collaboration agreements, we incurred research and development expenses, primarily related to external development and clinical expenses, including the manufacture of clinical product.

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Regeneron Pharmaceuticals $ 43,002 $ 73,411 $ 57,833

Vir Biotechnology 13,349 30,644 15,479

Other 1,172 15,575 35,300

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138,488 97,302 79,409 41,186 42 % 17,893 23 %

Facilities-related 44,768 45,387 35,779 (619) (1) % 9,608 27 %

Other 52,491 87,456 53,201 (34,965) (40) % 34,255 64 %

Occupancy and all other costs

131,967 97,259 132,843 34,708 36 % (35,584) (27) %

$ 770,658 $ 620,639 $ 588,420 $ 150,019 24 % $ 32,219 5 %

Selling, general and administrative expenses increased during the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to the following:

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

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

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

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

• Increased compensation and related expenses as a result of increased headcount and other strategic investments in support of the global launch of AMVUTTRA and other expenses to support our strategic growth;

• Increased stock-based compensation expense primarily due to the accounting for certain performance-based awards;

• Increased consulting and professional services expenses to support our commercial portfolio.

We expect that research and development expenses combined with selling, general and administrative expenses will increase during 2023, as compared to 2022, as we continue to advance and develop our platform and pipeline, advance our product candidates, including partnered programs, into later-stage development, prepare regulatory submissions and continue to build-out our global commercial and compliance infrastructure and field team to support ONPATTRO, GIVLAARI, OXLUMO, and the launch of AMVUTTRA in the U.S.

and EU, as well as launch these products into additional markets, assuming regulatory approvals.

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

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(In thousands, except percentages) 2022 2021 2020 $ Change % Change $ Change % Change

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

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

Interest expense $ (155,968) $ (143,021) $ (84,496) $ (12,947) 9 % $ (58,525) 69 %

Other (expense) income, net

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

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

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

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

Interest income 24,808 1,579 11,809 23,229 1,471 % (10,230) (87) %

Realized and unrealized (losses) gains on marketable equity securities (33,312) 55,695 54,042 (89,007) (160) % 1,653 3 %

Change in fair value of development derivative liability (94,659) (38,433) (17,185) (56,226) 146 % (21,248) 124 %

Other (6,204) (19,312) 8,668 13,108 (68) % (27,980) (323) %

Loss on the extinguishment of debt (76,586) — — (76,586) N/A — N/A

Total $ (341,921) $ (143,492) $ (27,162) $ (198,429) 138 % $ (116,330) 428 %

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

Total other expense increased during the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to a $76.6 million loss on the extinguishment of the Blackstone credit agreement, increased realized and unrealized losses on our marketable equity securities holdings, and increased loss as a result of a mark-to-market adjustment related to the development derivative liability.

Liquidity and Capital Resources

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Net cash used in operating activities (541,274) (641,693) (614,961)

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

Net cash provided by (used in) investing activities 169,354 (273,300) (435,518)

Net cash provided by financing activities 425,753 1,247,118 994,979

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Operating Activities

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

Net cash used in operating activities decreased during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to decreased cash disbursements related to working capital payments and stronger cash receipts from increased product sales.

Investing Activities

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

Net cash provided by investing activities increased during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to net activities related to our marketable debt securities.

Financing Activities

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

Net cash provided by financing activities decreased during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to greater cash received in 2021, including $500.0 million received from our sale of one-half of our royalty interest under the Novartis agreement in September 2021 and $500.0 million received in connection with the second and final drawdowns on our credit agreement in June 2021 and December 2021, respectively, offset by $136.2 million

received from the issuance of convertible debt, net of repayment of credit facility and purchase of capped call transactions in September 2022.

Additional Capital Requirements

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

ONPATTRO, GIVLAARI and OXLUMO.

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

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

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

We currently have programs focused on a number of therapeutic areas and, as of December 31, 2022, have received regulatory approval and commercially launched four products.

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

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

Based on our current operating plan, we believe that our cash, cash equivalents and marketable securities as of December 31, 2021, together with the cash we expect to generate from product sales and under our current alliances, including milestones and royalties on Leqvio sales, will be sufficient to enable us to advance our long-term strategic goals for at least the next 12 months from the filing of this Annual Report on Form 10-K.

Based on our current operating plan, we believe that our cash, cash equivalents and marketable securities as of December 31, 2022, together with the cash we expect to generate from product sales and under our current alliances, will be sufficient to satisfy our near-term capital and operating needs for at least the next 12 months from the filing of this Annual Report on Form 10-K.

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

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

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

• Amounts related to future long-term debt total $1.02 billion, of which we do not expect to make payments on principal within the next 12 months.

• Payments associated with the liability related to the sale of future royalties were approximately $3.4 million in 2022, with $40.3 million to be paid within the next 12 months.

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As of December 31, 2022, we had cash, cash equivalents and marketable securities of $2.19 billion, compared to $2.44 billion as of December 31, 2021.

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

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

Critical Accounting Policies and Estimates

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

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

and similar programs in certain other countries,

including countries in which we are accruing for estimated rebates because final pricing has not yet been negotiated.

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

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

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

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.

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis