Item 1. Financial Statements
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
ALNYLAM PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)
June 30, 2024 December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents $ 968,492 $ 812,688
Marketable debt securities 1,646,268 1,615,516
Marketable equity securities 9,889 11,178
Accounts receivable, net 309,481 327,787
Inventory 83,981 89,146
Prepaid expenses and other current assets 154,745 126,382
Total current assets 3,172,856 2,982,697
Property, plant and equipment, net 517,159 526,057
Operating lease right-of-use assets 198,303 199,732
Restricted investments 49,391 49,391
Other assets 71,925 72,003
Total assets $ 4,009,634 $ 3,829,880
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable $ 73,980 $ 55,519
Accrued expenses 808,643 713,013
Operating lease liability 41,656 41,510
Deferred revenue 69,009 102,753
Liability related to the sale of future royalties 61,963 54,991
Total current liabilities 1,055,251 967,786
Operating lease liability, net of current portion
239,352 243,101
Deferred revenue, net of current portion 2,402 188,175
Convertible debt 1,022,688 1,020,776
Liability related to the sale of future royalties, net of current portion 1,342,580 1,322,248
Other liabilities 350,428 308,438
Total liabilities 4,012,701 4,050,524
Commitments and contingencies (Note 13)
Stockholders’ deficit:
Preferred stock, $ 0.01 par value per share, 5,000 shares authorized and no shares issued and outstanding as of June 30, 2024 and December 31, 2023
— —
Common stock, $ 0.01 par value per share, 250,000 shares authorized; 128,021 shares issued and outstanding as of June 30, 2024; 125,794 shares issued and outstanding as of December 31, 2023
1,281 1,259
Additional paid-in capital 7,122,704 6,811,063
Accumulated other comprehensive loss ( 34,637 ) ( 23,375 )
Accumulated deficit ( 7,092,415 ) ( 7,009,591 )
Total stockholders’ deficit ( 3,067 ) ( 220,644 )
Total liabilities and stockholders’ deficit $ 4,009,634 $ 3,829,880
The accompanying notes are an integral part of these condensed consolidated financial statements.
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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,
2024 2023 2024 2023
Statements of Operations
Revenues:
Net product revenues $ 410,088 $ 305,705 $ 775,251 $ 582,033
Net revenues from collaborations 227,338 5,844 345,886 42,306
Royalty revenue 22,399 7,205 33,021 13,705
Total revenues 659,825 318,754 1,154,158 638,044
Operating costs and expenses:
Cost of goods sold 67,271 75,336 121,884 116,768
Cost of collaborations and royalties 1,401 10,034 12,764 23,471
Research and development 294,142 248,526 555,137 479,095
Selling, general and administrative 248,397 214,689 459,194 398,348
Total operating costs and expenses 611,211 548,585 1,148,979 1,017,682
Income (loss) from operations
48,614 ( 229,831 ) 5,179 ( 379,638 )
Other (expense) income:
Interest expense ( 33,258 ) ( 30,035 ) ( 68,511 ) ( 58,990 )
Interest income 29,182 21,075 58,827 39,730
Other expense, net ( 55,705 ) ( 35,418 ) ( 70,249 ) ( 47,673 )
Total other expense, net ( 59,781 ) ( 44,378 ) ( 79,933 ) ( 66,933 )
Loss before income taxes
( 11,167 ) ( 274,209 ) ( 74,754 ) ( 446,571 )
Provision for income taxes
( 5,722 ) ( 1,815 ) ( 8,070 ) ( 3,554 )
Net loss
$ ( 16,889 ) $ ( 276,024 ) $ ( 82,824 ) $ ( 450,125 )
Net loss per common share - basic and diluted
$ ( 0.13 ) $ ( 2.21 ) $ ( 0.66 ) $ ( 3.62 )
Weighted-average common shares used to compute basic and diluted net loss per common share
126,733 124,659 126,435 124,387
Statements of Comprehensive Loss
Net loss
$ ( 16,889 ) $ ( 276,024 ) $ ( 82,824 ) $ ( 450,125 )
Other comprehensive (loss) income:
Unrealized (loss) gain on marketable securities
( 727 ) ( 2,025 ) ( 4,295 ) 2,100
Foreign currency translation (loss) gain
( 6,952 ) 4,073 ( 7,030 ) 5,483
Defined benefit pension plans, net of tax 30 ( 4 ) 63 ( 9 )
Total other comprehensive (loss) income
( 7,649 ) 2,044 ( 11,262 ) 7,574
Comprehensive loss
$ ( 24,538 ) $ ( 273,980 ) $ ( 94,086 ) $ ( 442,551 )
The accompanying notes are an integral part of these condensed consolidated financial statements.
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ALNYLAM PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(In thousands)
(Unaudited)
Common Stock Additional
Paid-in
Capital Accumulated
Other
Comprehensive
Loss Accumulated
Deficit Total
Stockholders’
Deficit
Shares Amount
Balance as of December 31, 2023 125,794 $ 1,259 $ 6,811,063 $ ( 23,375 ) $ ( 7,009,591 ) $ ( 220,644 )
Exercise of common stock options, net of tax withholdings 223 2 24,763 — — 24,765
Issuance of common stock under equity plans 446 4 ( 4 ) — — —
Stock-based compensation charges — — 46,155 — — 46,155
Other comprehensive loss
— — — ( 3,613 ) — ( 3,613 )
Net loss — — — — ( 65,935 ) ( 65,935 )
Balance as of March 31, 2024 126,463 1,265 6,881,977 ( 26,988 ) ( 7,075,526 ) ( 219,272 )
Exercise of common stock options, net of tax withholdings 1,264 13 140,273 — — 140,286
Issuance of common stock under equity plans 294 3 10,358 — — 10,361
Stock-based compensation charges — — 90,096 — — 90,096
Other comprehensive loss
— — — ( 7,649 ) — ( 7,649 )
Net loss — — — — ( 16,889 ) ( 16,889 )
Balance as of June 30, 2024 128,021 $ 1,281 $ 7,122,704 $ ( 34,637 ) $ ( 7,092,415 ) $ ( 3,067 )
The accompanying notes are an integral part of these condensed consolidated financial statements.
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ALNYLAM PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(In thousands)
(Unaudited)
Common Stock Additional
Paid-in
Capital Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit Total
Stockholders’
Deficit
Shares Amount
Balance as of December 31, 2022 123,925 $ 1,240 $ 6,454,540 $ ( 44,654 ) $ ( 6,569,349 ) $ ( 158,223 )
Exercise of common stock options, net of tax withholdings 269 3 26,415 — — 26,418
Issuance of common stock under equity plans 47 — — — — —
Stock-based compensation charges — — 41,136 — — 41,136
Other comprehensive income
— — — 5,530 — 5,530
Net loss — — — — ( 174,101 ) ( 174,101 )
Balance as of March 31, 2023 124,241 1,243 6,522,091 ( 39,124 ) ( 6,743,450 ) ( 259,240 )
Exercise of common stock options, net of tax withholdings 372 4 38,111 — — 38,115
Issuance of common stock under equity plans 288 3 9,981 — — 9,984
Stock-based compensation charges — — 76,990 — — 76,990
Other comprehensive income
— — — 2,044 — 2,044
Net loss — — — — ( 276,024 ) ( 276,024 )
Balance as of June 30, 2023 124,901 $ 1,250 $ 6,647,173 $ ( 37,080 ) $ ( 7,019,474 ) $ ( 408,131 )
The accompanying notes are an integral part of these condensed consolidated financial statements.
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ALNYLAM PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
2024 2023
Cash flows from operating activities:
Net loss $ ( 82,824 ) $ ( 450,125 )
Non-cash adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 28,520 27,244
Amortization and interest accretion related to operating leases 21,658 22,282
Non-cash interest expense on liability related to the sale of future royalties 61,103 51,647
Stock-based compensation expense
134,635 115,749
Realized and unrealized loss on marketable equity securities
1,289 867
Change in fair value of development derivative liability 64,228 36,686
Other ( 15,365 ) ( 8,252 )
Changes in operating assets and liabilities:
Accounts receivable, net 10,050 16,183
Inventory 6,816 1,582
Prepaid expenses and other assets ( 13,775 ) ( 29,109 )
Accounts payable, accrued expenses and other liabilities 69,605 766
Operating lease liability ( 23,791 ) ( 23,847 )
Deferred revenue ( 219,506 ) 12,866
Net cash provided by (used in) operating activities
42,643 ( 225,461 )
Cash flows from investing activities:
Purchases of property, plant and equipment ( 20,991 ) ( 29,810 )
Purchases of marketable securities ( 717,826 ) ( 812,887 )
Sales and maturities of marketable securities 705,137 757,767
Proceeds from maturity of restricted investments 57,875 58,475
Purchases of restricted investments ( 57,875 ) ( 58,475 )
Net cash used in investing activities
( 33,680 ) ( 84,930 )
Cash flows from financing activities:
Proceeds from exercise of stock options and other types of equity, net 158,637 91,765
Proceeds from development derivative, net
1,770 8,000
Net cash provided by financing activities 160,407 99,765
Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 13,061 ) 2,046
Net increase (decrease) in cash, cash equivalents and restricted cash
156,309 ( 208,580 )
Cash, cash equivalents and restricted cash, beginning of period 814,884 868,556
Cash, cash equivalents and restricted cash, end of period $ 971,193 $ 659,976
Supplemental disclosure of cash flows:
Cash paid for interest $ 39,101 $ 17,128
The accompanying notes are an integral part of these condensed consolidated financial statements.
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ALNYLAM PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. NATURE OF BUSINESS
Alnylam Pharmaceuticals, Inc. (also referred to as Alnylam, the Company, 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 collaborations 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 collaborators. We have devoted substantially all of our efforts to business planning, research, development, manufacturing and commercial efforts, acquiring, filing and expanding intellectual property rights, recruiting management and technical staff, and raising capital.
In early 2021, we launched our Alnylam P 5 x25 strategy, which focuses on our planned transition to a top-tier 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, while delivering exceptional financial performance.
As of June 30, 2024, we have five marketed products, including one product commercialized by a collaborator, and multiple late-stage investigational programs advancing towards potential commercialization. We currently generate worldwide product revenues from four commercialized products, ONPATTRO, AMVUTTRA, GIVLAARI and OXLUMO, primarily in the United States, or U.S., and Europe.
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, 2023, which were included in our Annual Report on Form 10-K that was filed with the Securities and Exchange Commission on February 15, 2024. 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, 2023. There have been no material changes to our significant accounting policies during the six-month period ended June 30, 2024.
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 as of 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, deferred tax asset valuation allowances, 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. Changes in estimates are reflected in reported results in the period in which they become known.
Liquidity
Based on our current operating plan, we believe that our cash, cash equivalents and marketable securities as of June 30, 2024, will be sufficient to satisfy our working capital and operating needs for at least the next 12 months from the filing date of this Quarterly Report on Form 10-Q.
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ALNYLAM PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Recent Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update 2023-09, Improvements to Income Tax Disclosures, which requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as expanded information on income taxes paid by jurisdiction. The disclosure requirements will be applied on a prospective basis, with the option to apply them retrospectively. The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the disclosure requirements related to this new standard.
In November 2023, the FASB issued Accounting Standards Update 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which is intended to improve reportable segment disclosure requirements, primarily through additional disclosures about significant segment expenses. The standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. We are currently evaluating the disclosure requirements related to this new standard.
3. NET PRODUCT REVENUES
Net product revenues, classified based on the geographic region in which the product is sold, consist of the following:
Three Months Ended
June 30, Six Months Ended
June 30,
(In thousands) 2024 2023 2024 2023
ONPATTRO
United States $ 22,112 $ 25,560 $ 38,651 $ 55,377
Europe 37,074 56,393 81,764 116,071
Rest of World 18,058 9,505 26,046 22,503
Total 77,244 91,458 146,461 193,951
AMVUTTRA
United States 148,463 96,469 278,701 175,482
Europe 56,760 14,405 100,493 21,173
Rest of World 24,886 21,262 46,156 37,249
Total 230,109 132,136 425,350 233,904
GIVLAARI
United States 41,225 35,196 79,956 65,487
Europe 16,314 14,051 31,629 28,522
Rest of World 4,588 8,652 8,598 11,796
Total 62,127 57,899 120,183 105,805
OXLUMO
United States 15,744 8,794 29,076 17,851
Europe 20,503 12,216 41,930 25,525
Rest of World 4,361 3,202 12,251 4,997
Total 40,608 24,212 83,257 48,373
Total net product revenues $ 410,088 $ 305,705 $ 775,251 $ 582,033
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ALNYLAM PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the balance of our receivables related to our net product revenues:
(In thousands) As of June 30,
2024 As of December 31,
2023
Receivables included in “Accounts receivable, net” $ 248,654 $ 210,097
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) 2024 2023 2024 2023
Roche
$ 16,506 $ — $ 91,186 $ —
Regeneron Pharmaceuticals 207,429 ( 2,837 ) 234,193 17,153
Novartis AG 2,304 8,627 16,820 23,560
Other 1,099 54 3,687 1,593
Total $ 227,338 $ 5,844 $ 345,886 $ 42,306
The following table presents the balance of our receivables and contract liabilities related to our collaboration agreements:
(In thousands) As of June 30, 2024 As of December 31, 2023
Receivables included in “Accounts receivable, net” $ 39,497 $ 99,576
Contract liabilities included in “Deferred revenue” $ 71,176 $ 290,763
We recognized revenue of $ 200.0 million and $ 228.7 million in the three and six months ended June 30, 2024, respectively, and revenue of $ 4.8 million and $ 10.3 million in the three and six months ended June 30, 2023, respectively, that was included in the contract liability balance at the beginning of the applicable period.
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 revenues, that are directly attributable to our collaboration agreements, by collaborator:
Three Months Ended June 30,
2024 2023
(In thousands) Clinical and Manufacturing
External Services Other Clinical and Manufacturing
External Services Other
Roche
$ 22,503 $ 2,499 $ 1,234 $ — $ — $ —
Regeneron Pharmaceuticals 6,006 3,492 4,786 9,956 910 9,330
Other 1,485 89 242 85 58 405
Total $ 29,994 $ 6,080 $ 6,262 $ 10,041 $ 968 $ 9,735
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ALNYLAM PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30,
2024 2023
(In thousands) Clinical and Manufacturing
External Services Other Clinical and Manufacturing
External Services Other
Roche
$ 36,638 $ 6,111 $ 1,568 $ — $ — $ —
Regeneron Pharmaceuticals 16,795 7,233 8,959 18,472 2,150 18,693
Other 3,591 89 949 397 184 765
Total $ 57,024 $ 13,433 $ 11,476 $ 18,869 $ 2,334 $ 19,458
The research and development expenses incurred for the agreements included in the table above consist of costs incurred for (i) clinical and preclinical expenses, including manufacturing of clinical and preclinical 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, 2024 and 2023, we did not incur material selling, general and administrative expenses related to our collaboration agreements.
Product Collaborations
Roche
On July 21, 2023, or the Effective Date, we entered into a Collaboration and License Agreement, or the Roche Agreement, with F. Hoffmann-La Roche Ltd. and Genentech, Inc., or, collectively, Roche, pursuant to which we and Roche established a worldwide, strategic collaboration for the joint development of zilebesiran. Zilebesiran is our investigational small interfering RNA, or siRNA, therapeutic targeting liver-expressed angiotensinogen, which is currently in Phase 2 clinical development for the treatment of hypertension.
Under the Roche Agreement, we granted to Roche (i) co-exclusive rights to develop zilebesiran worldwide and commercialize zilebesiran in the U.S., referred to as the Co-Commercialization Territory, (ii) exclusive rights to commercialize zilebesiran outside of the U.S., referred to as the Roche Territory, and (iii) non-exclusive rights to manufacture zilebesiran for the development and commercialization of zilebesiran in the Roche Territory. In connection with the Roche Agreement, Roche made an upfront, non-refundable payment to us of $ 310.0 million.
We lead the global clinical development for zilebesiran. We are responsible for forty percent ( 40 %) and Roche is responsible for the remaining sixty percent ( 60 %) of development costs incurred in the conduct of development activities that support regulatory approval of zilebesiran globally. We and Roche share equally ( 50 / 50 ) all costs incurred in connection with development activities that are conducted to support regulatory approval of zilebesiran solely in the Co-Commercialization Territory if incremental development activities are needed. Roche is solely responsible for all costs incurred in the conduct of development activities that are conducted primarily to support regulatory approval in the Roche Territory. Upon regulatory approval, Roche has the exclusive right to commercialize zilebesiran in the Roche Territory and will pay us tiered, low double-digit royalties based on net sales of zilebesiran on a country-by-country basis during the applicable royalty term. We and Roche will co-commercialize zilebesiran in the Co-Commercialization Territory and share equally ( 50 / 50 ) profits and losses (including commercialization costs).
Roche has the right to terminate the Roche Agreement for any or no reason at all upon prior written notice, however, if the termination notice occurs after the achievement of the first development milestone and before the achievement of the third development milestone, Roche is required to pay us a termination fee of $ 50.0 million. In addition, either party may terminate the Roche Agreement for a material breach by, or insolvency of, the other party, subject to a cure period. Unless earlier terminated pursuant to its terms, the Roche Agreement will remain in effect until expiration on a country-by-country basis (a) in the Roche Territory, upon expiration of the applicable royalty term in the applicable country and (b) in the Co-Commercialization Territory, upon expiration of the term of the co-commercialization efforts.
We evaluated the Roche Agreement and concluded that the Roche Agreement had elements that were within the scope of Accounting Standards Codification, or ASC, 606, Revenue from Contracts with Customers and ASC 808, Collaborative Arrangements .
As of the Effective Date, we identified the following promises in the Roche Agreement that were evaluated under the scope of ASC 606: delivery of (i) a co-exclusive license to develop zilebesiran worldwide and commercialize zilebesiran within the Co-Commercialization Territory, a non-exclusive license to manufacture zilebesiran in the Roche Territory solely for purposes of developing and commercializing zilebesiran in the Roche Territory, and an exclusive license to commercialize zilebesiran in the Roche Territory, collectively referred to as Roche License Obligation, (ii) development services, including the manufacture
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ALNYLAM PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
of clinical supply, that support regulatory approval of zilebesiran, referred to as the Roche Development Services Obligation, and (iii) technology transfer of the existing manufacturing process for zilebesiran, referred to as the Roche Technology Transfer Obligation. The three performance obligations under the Roche Agreement are collectively referred to as the Roche Performance Obligations.
We also evaluated whether certain options outlined within the Roche Agreement represented material rights that would give rise to a performance obligation and concluded that none of the options convey a material right to Roche and therefore were not considered separate performance obligations within the Roche Agreement.
We assessed the above promises and determined that the Roche License Obligation, Roche Development Services Obligation and Roche Technology Transfer Obligation were reflective of a vendor-customer relationship and therefore represented performance obligations within the scope of ASC 606. The Roche License Obligation was considered functional intellectual property and distinct from other promises under the contract as Roche can benefit from the licenses on its own or together with other readily available resources. As the licenses were delivered at the same time, they were considered one performance obligation at contract inception. The Roche Development Services Obligation was considered distinct as Roche could benefit from the development services together with the licenses transferred by us at the inception of the agreement. The development services are not expected to significantly modify or customize the initial intellectual property as zilebesiran was in Phase 2 clinical development at contract inception. The Roche Technology Transfer Obligation was distinct as Roche can benefit from the manufacturing license transferred by us at the inception of the agreement given the advancements of our RNAi platform and our utilization of third-party contract manufacturing organizations to manufacture zilebesiran. Therefore, each represents a separate performance obligation within the contract with a customer under the scope of ASC 606 at contract inception.
We consider the collaborative activities associated with the co-commercialization of zilebesiran in the U.S. to be a separate unit of account within the scope of ASC 808 as we and Roche are both active participants in the commercialization activities and are exposed to significant risks and rewards that are dependent on the commercial success of the activities in the arrangement.
We determined the transaction price under ASC 606 at the inception of the Roche Agreement was $ 857.0 million, consisting of the $ 310.0 million upfront payment and $ 547.0 million additional variable consideration attributed to cost reimbursement from development and manufacturing services and technology transfer related to the Roche Performance Obligations. We determined that any variable consideration related to development and regulatory milestones was deemed to be fully constrained at inception and therefore excluded from the initial transaction price due to the high degree of uncertainty and risk associated with these potential payments as we determined that we could not assert that it was probable that a significant reversal in the amount of cumulative revenue recognized would not occur. We also determined that royalties and sales milestones relate solely to the licenses of intellectual property and were therefore excluded from the transaction price under the sales- or usage-based royalty exception of ASC 606.
We developed the estimated standalone selling price at inception for each of the Roche Performance Obligations with the objective of determining the price at which we would sell such an item if it were to be sold regularly on a standalone basis. We developed the estimated standalone selling price for the Roche License Obligation primarily based on the probability-weighted present value of expected future cash flows associated with each underlying license or activity. In developing such estimates, we applied judgment in determining the forecasted revenues, taking into consideration the applicable market conditions and relevant entity-specific factors, the probability of success, the time needed to develop zilebesiran and the discount rate. We developed the estimated standalone selling price for the services and clinical supply included in the Roche Development Services Obligation and the Roche Technology Transfer Obligation primarily based on the level of efforts necessary to perform the service and the costs for full-time equivalent employees and expected resources to be committed plus a reasonable margin.
We allocated the variable consideration related to the estimated reimbursements for the Roche Development Services Obligation and the Roche Technology Transfer Obligation to each performance obligation as the terms of the variable payment relate specifically to our efforts to satisfy the performance obligation and allocating the variable amount of consideration entirely to the respective performance obligation is consistent with the allocation objective of ASC 606 when considering all of the performance obligations and payment terms in the contract. We allocated the fixed upfront consideration of $ 310.0 million entirely to the Roche License Obligation as the value of the fixed consideration together with the expected value of the remaining development and regulatory milestones, sales-based milestones, and royalties, all of which are either currently constrained at inception or subject to the sales- or usage-based royalty exception, approximates the standalone selling price of the Roche License Obligation. Therefore, allocating the fixed upfront consideration entirely to the Roche License Obligation is consistent with the allocation objective of ASC 606 when considering all of the performance obligations and payment terms in the contract.
The Roche License Obligation was satisfied at a point in time upon transfer of the license to Roche. Control of the licenses was transferred on the Effective Date and Roche could begin to use and benefit from the licenses. For the Roche Development
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ALNYLAM PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Services Obligation, we measure proportional performance over time using an input method based on cost incurred relative to the total estimated cost of the 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 transaction price allocated to the obligation. Management has applied significant judgment in the process of developing our estimates. We re-evaluate the transaction price as of the end of each reporting period.
As of June 30, 2024, the total transaction price was determined to be $ 922.0 million, an increase of $ 65.0 million from December 31, 2023. The increase is due to the achievement of the development milestone for the first patient dosed in the KARDIA-3 Phase 2 study.
The following tables provide a summary of the transaction price allocated to each performance obligation, in addition to revenue activity during the period, in thousands:
Revenue Recognized During
Transaction Price Allocated Three Months Ended June 30, Six Months Ended June 30,
Performance Obligations As of June 30, 2024 2024 2023 2024 2023
Roche License Obligation
$ 375,000 $ — $ — $ 65,000 $ —
Roche Development Services Obligation
545,000 12,797 — 19,948 —
Roche Technology Transfer Obligation
2,000 — — — —
$ 922,000 $ 12,797 $ — $ 84,948 $ —
As of June 30, 2024, the aggregate amount of the transaction price allocated to the Roche Performance Obligations that was unsatisfied was $ 503.1 million, which is expected to be recognized through the term of the Roche Agreement as the services are performed.
Regeneron Pharmaceuticals, Inc.
Overview
In 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. In connection with the Regeneron Master Agreement, we and Regeneron entered into (i) a co-co collaboration agreement covering the continued development of cemdisiran, our C5 siRNA, currently in development for C5 complement-mediated diseases, as a monotherapy, or the C5 Co-Co Collaboration Agreement, and (ii) a license agreement to evaluate anti-C5 antibody-siRNA combinations for C5 complement-mediated diseases including evaluating the combination of Regeneron’s pozelimab and cemdisiran, or the C5 License Agreement. The Master Agreement, the C5 Co-Co Collaboration Agreement and the C5 License Agreement were accounted for as a single arrangement because the agreements were negotiated together.
In November 2022, Regeneron exercised its right under the C5 Co-Co Collaboration Agreement to opt-out of the further development and commercialization of cemdisiran monotherapy. As a result of Regeneron’s decision to opt-out, the licenses granted to Regeneron under the C5 Co-Co Collaboration Agreement reverted to us, we had the sole right to continue to develop and commercialize cemdisiran monotherapy, and Regeneron no longer shared in the costs on any monotherapy program. Regeneron remained eligible to receive tiered, double-digit royalties on net sales of cemdisiran as a monotherapy.
In June 2024, we entered into an amended and restated C5 License Agreement, or the Amended C5 License Agreement, which terminated the C5 Co-Co Collaboration Agreement and granted Regeneron a worldwide license to cemdisiran as a monotherapy in addition to the license to cemdisiran in combination with anti-C5 antibodies. Through the Amended C5 License Agreement, Regeneron is now solely responsible for development, manufacturing and commercialization of cemdisiran as a monotherapy and in combination with anti-C5 antibodies. As part of the Amended C5 License Agreement, we will provide manufacturing technology transfer services for cemdisiran to Regeneron. Regeneron provided us with an upfront payment of $ 10.0 million and we will receive certain milestone payments upon receipt of regulatory approval for cemdisiran as a monotherapy, and tiered double-digit royalties on net sales. The Amended C5 License Agreement did not change our rights to receive low double-digit royalties and commercial milestones of up to $ 325.0 million on any potential product sales if cemdisiran is used as part of a combination product.
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 up to seven 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
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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 $ 300.0 million. The Regeneron Collaboration also covers a select number of RNAi therapeutic programs designed to target genes expressed in the liver.
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, 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.
In connection with the Regeneron Master Agreement, we remain eligible to receive an additional $ 100.0 million in milestone payments upon achievement of certain criteria during early clinical development for an eye program. In addition, we and Regeneron are continuing to advance programs nominated during the Initial Research Term, and Regeneron has the right to nominate up to six additional targets per year during this period. For each of these programs, Regeneron will provide us with $ 2.5 million in funding at program initiation and an additional $ 2.5 million at lead candidate identification. If Regeneron exercises the option to extend the research term, Regeneron will retain the right to nominate up to six additional targets per year, and we will remain eligible to achieve $ 2.5 million in funding at each program initiation and an additional $ 2.5 million at each lead candidate identification during the Research Term Extension Period.
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.
Contract Modification
We determined the Amended C5 License Agreement does not meet the requirements to account for the contract modification as a separate contract under ASC 606 because the consideration exchanged for the additional distinct goods and services does not reflect the standalone selling price. Therefore, we have accounted for the Amended C5 License Agreement and Regeneron Master Agreement as a single combined contract. The modification date was determined to be the June 2024 effective date of the Amended C5 License Agreement.
Our performance obligations subsequent to the contract modification 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 development service obligations, collectively referred to as the C5 License Obligation; (iii) a worldwide license to cemdisiran for monotherapies, referred to as the C5 Monotherapy Obligation, and (iv) a technology transfer of the existing manufacturing process for cemdisiran, referred to as the Regeneron Technology Transfer Obligation.
The Amended C5 License Agreement did not change the Research Services Obligation or the C5 License Obligation which were both performance obligations at the inception of our global, strategic collaboration with Regeneron prior to the contract modification. The Amended C5 License Agreement resulted in two additional performance obligations which are the C5 Monotherapy Obligation and the Regeneron Technology Transfer Obligation. The C5 Monotherapy Obligation is considered
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functional intellectual property and distinct from other promises as Regeneron can benefit from the cemdisiran monotherapy license on its own or together with other readily available resources and the license is separately identifiable from the other promises in the contract. The Regeneron Technology Transfer Obligation is distinct as Regeneron can benefit from the cemdisiran monotherapy license transferred by us without the technology transfer given cemdisiran is in an advanced stage of clinical development and our utilization of third-party contract manufacturing organizations to manufacture cemdisiran. Therefore, the C5 Monotherapy Obligation and the Regeneron Technology Transfer Obligation each represent a separate performance obligation.
As of the modification date, we established a new transaction price of $ 329.7 million which represents the remaining deferred revenue as of the modification date of $ 260.3 million, variable consideration of $ 59.4 million which relates to estimated reimbursements and milestones for the Research Services Obligation, C5 License Obligation and Regeneron Technology Transfer Obligation and the $ 10.0 million upfront payment related to the Amended C5 License Agreement. We allocated the $ 59.4 million of variable consideration to the respective performance obligation as the terms of the variable payments relate specifically to our efforts to satisfy the performance obligations and allocating the variable amount of consideration entirely to the respective performance obligations is consistent with the allocation objective of ASC 606 when considering all of the performance obligations and payment terms in the contract.
We determined that any variable consideration related to regulatory milestones were deemed to be fully constrained and therefore excluded from the transaction price due to the high degree of uncertainty and risk associated with these potential payments and we determined that we could not assert that it was probable that a significant reversal in the amount of cumulative revenue recognized would not occur. We determined that royalties and sales-based milestones relate solely to the license of intellectual property and were therefore excluded from the transaction price under the sales-or usage-based royalty exception of ASC 606.
As of the modification date, the transaction price for each performance obligation is as follows, in thousands:
Performance Obligations Standalone Selling Price Fixed Consideration
Variable Consideration Allocated
Total Transaction Price
Research Services Obligation $ 78,820 $ 45,469 $ 30,000 $ 75,469
C5 License Obligation $ 53,745 31,004 25,386 56,390
C5 Monotherapy Obligation
$ 332,000 191,520 — 191,520
Regeneron Technology Transfer Obligation
$ 4,000 2,307 4,000 6,307
$ 270,300 $ 59,386 $ 329,686
The fixed consideration 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 prices for the remaining Research Services Obligation, the remaining C5 License Obligation and the new Regeneron Technology Transfer Obligation primarily based on the level of efforts necessary to perform the services and the costs for full-time equivalent employees and expected resources to be committed plus a reasonable margin. We developed the estimated standalone selling price for the cemdisiran monotherapy license granted under the C5 Monotherapy Obligation using the adjusted market assessment approach based on a discounted cash flow model that establishes the forecasted earnings during the commercial period for cemdisiran as a monotherapy adjusted for probability of success.
The transaction price of $ 191.5 million allocated to the C5 Monotherapy Obligation performance obligation was recognized immediately as this obligation was satisfied at a point in time upon transfer of the license to Regeneron. Control of the license was transferred in June 2024 and Regeneron could begin to use and benefit from the license.
A cumulative catch-up adjustment was recognized for the remaining Research Services and the remaining C5 License Obligation as of the contract modification date to reflect the measure of progress and transaction price following the modification. The cumulative catch-up adjustment for the remaining Research Services and the remaining C5 License Obligation was not significant.
For the Research Services Obligation, the C5 License Obligation, and the Regeneron Technology Transfer Obligation, 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 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. The transaction price remaining related to our unsatisfied performance obligations as of June 30, 2024 increased $ 31.6 million from the contract
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modification date primarily related to our Research Services Obligation. After the contract modification date, the estimated timing of our underlying research activities to complete our obligations, and the resulting milestones we expect to achieve, changed. Revenue recognized under this agreement is accounted for as collaboration revenue.
The following tables provide a summary of the transaction price allocated, deferred revenue as of the balance sheet date, and revenue recognized during the period for the remaining unsatisfied performance obligations, in thousands:
Transaction Price Allocated Deferred Revenue
Performance Obligations As of June 30,
2024 As of June 30,
2024 As of December 31,
2023
Research Services Obligation $ 102,969 $ 41,469 $ 63,400
C5 License Obligation 60,484 27,400 27,500
Regeneron Technology Transfer Obligation
6,307 2,307 —
$ 169,760 $ 71,176 $ 90,900
Revenue Recognized During
Three Months Ended June 30, Six Months Ended June 30,
Performance Obligations 2024 2023 2024 2023
Research Services Obligation $ 4,000 $ ( 17,000 ) $ 18,700 $ ( 6,300 )
C5 License Obligation 8,800 3,100 10,500 5,300
$ 12,800 $ ( 13,900 ) $ 29,200 $ ( 1,000 )
As of June 30, 2024, the aggregate amount of the transaction price allocated to the remaining Research Services Obligation, C5 License Obligation, and Regeneron Technology Transfer Obligation that was unsatisfied was $ 152.2 million, which is expected to be recognized through the term of the Regeneron Collaboration as the services are performed. 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 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. In 2020, Novartis AG, or Novartis, completed its acquisition of MDCO and assumed all of MDCO’s rights and obligations under the MDCO License Agreement.
As of June 30, 2024, we have earned $ 120.0 million of milestones and we could be entitled to receive an additional $ 60.0 million commercialization milestone. 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.
Other
In addition to the collaboration agreements discussed above, we have various other collaboration agreements that are not individually significant to our operating results or financial condition at this time. Pursuant to the terms of those agreements, we may be required to pay, or we may receive, additional amounts contingent upon the occurrence of various future events (e.g., upon the achievement of various development and commercial milestones) which in the aggregate could be significant. We may also incur, or be reimbursed for, significant research and development costs. In addition, if any products related to these collaborations are approved for sale, we may be required to pay, or we may receive, royalties on future sales. The payment or receipt of these amounts, however, is contingent upon the occurrence of various future events. Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development and commercialization, it is possible we may not receive any such payments under all of our existing collaboration and license agreements, including the agreements described within this note.
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5. 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, 2024 Quoted Prices in Active Markets
(Level 1) Significant Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3)
Financial assets
Cash equivalents:
Money market funds $ 158,467 $ 158,467 $ — $ —
U.S. treasury securities 36,315 — 36,315 —
Commercial paper 6,300 — 6,300 —
Marketable debt securities:
U.S. treasury securities 882,671 — 882,671 —
U.S. government-sponsored enterprise securities 383,501 — 383,501 —
Corporate notes 305,003 — 305,003 —
Commercial paper 70,079 — 70,079 —
Municipal securities 5,014 — 5,014 —
Marketable equity securities 9,889 9,889 — —
Restricted cash (money market funds) 1,217 1,217 — —
Total financial assets $ 1,858,456 $ 169,573 $ 1,688,883 $ —
Financial liabilities
Development derivative liability $ 390,939 $ — $ — $ 390,939
(In thousands) As of December 31, 2023 Quoted Prices in Active Markets
(Level 1) Significant Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3)
Financial assets
Cash equivalents:
Money market funds $ 166,059 $ 166,059 $ — $ —
U.S. treasury securities 30,712 — 30,712 —
Commercial paper 2,685 — 2,685 —
Corporate notes 762 — 762 —
Marketable debt securities:
U.S. treasury securities 862,022 — 862,022 —
U.S. government-sponsored enterprise securities 441,341 — 441,341 —
Corporate notes 252,350 — 252,350 —
Commercial paper 56,216 — 56,216 —
Certificates of deposit 3,587 — 3,587 —
Marketable equity securities 11,178 11,178 — —
Restricted cash (money market funds) 1,210 1,210 — —
Total financial assets $ 1,828,122 $ 178,447 $ 1,649,675 $ —
Financial liabilities
Development derivative liability $ 324,941 $ — $ — $ 324,941
For the six months ended June 30, 2024 and 2023, there were no transfers into or out of Level 3 financial assets or liabilities. 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.
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6. 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 and six months ended June 30, 2024 or 2023.
The following tables summarize our marketable debt securities:
As of June 30, 2024
(In thousands) Amortized
Cost Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
U.S. treasury securities $ 920,578 $ 79 $ ( 1,671 ) $ 918,986
U.S. government-sponsored enterprise securities 384,165 63 ( 727 ) 383,501
Corporate notes 305,491 39 ( 527 ) 305,003
Commercial paper 76,379 — — 76,379
Municipal securities 5,017 — ( 3 ) 5,014
Total $ 1,691,630 $ 181 $ ( 2,928 ) $ 1,688,883
As of December 31, 2023
(In thousands) Amortized
Cost Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
U.S. treasury securities $ 892,237 $ 1,085 $ ( 588 ) $ 892,734
U.S. government-sponsored enterprise securities 440,915 1,000 ( 574 ) 441,341
Corporate notes 252,487 945 ( 320 ) 253,112
Commercial paper 58,901 — — 58,901
Certificates of deposit 3,587 — — 3,587
Total $ 1,648,127 $ 3,030 $ ( 1,482 ) $ 1,649,675
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, 2024 As of December 31, 2023
Marketable debt securities $ 1,646,268 $ 1,615,516
Cash and cash equivalents 42,615 34,159
Total $ 1,688,883 $ 1,649,675
7. OTHER BALANCE SHEET DETAILS
Inventory
The components of inventory are summarized as follows:
(In thousands) As of June 30, 2024 As of December 31, 2023
Raw materials $ 26,021 $ 23,346
Work in process
66,535 76,963
Finished goods 27,855 25,123
Total inventory
$ 120,411 $ 125,432
As of June 30, 2024 and December 31, 2023, we had $ 36.4 million and $ 36.3 million of long-term inventory, respectively, included within other assets in our condensed consolidated balance sheets as we anticipate it being consumed beyond our normal operating cycle.
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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) 2024 2023
Cash and cash equivalents $ 968,492 $ 657,800
Total restricted cash included in other assets 2,701 2,176
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows
$ 971,193 $ 659,976
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, 2023 $ ( 32,792 ) $ ( 2,753 ) $ 1,548 $ 10,622 $ ( 23,375 )
Other comprehensive loss before reclassifications
— — ( 4 ) ( 7,030 ) ( 7,034 )
Amounts reclassified from other comprehensive loss
— 63 ( 4,291 ) — ( 4,228 )
Net other comprehensive loss
— 63 ( 4,295 ) ( 7,030 ) ( 11,262 )
Balance as of June 30, 2024 $ ( 32,792 ) $ ( 2,690 ) $ ( 2,747 ) $ 3,592 $ ( 34,637 )
(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, 2022 $ ( 32,792 ) $ ( 1,092 ) $ ( 9,470 ) $ ( 1,300 ) $ ( 44,654 )
Other comprehensive income before reclassifications
— — ( 11 ) 5,483 5,472
Amounts reclassified from other comprehensive income
— ( 9 ) 2,111 — 2,102
Net other comprehensive income
— ( 9 ) 2,100 5,483 7,574
Balance as of June 30, 2023 $ ( 32,792 ) $ ( 1,101 ) $ ( 7,370 ) $ 4,183 $ ( 37,080 )
Amounts reclassified out of accumulated other comprehensive (loss) income relate to settlements of marketable debt securities and amortization of our pension obligation which are recorded within other expense, net in the condensed consolidated statements of operations and comprehensive loss.
8. CONVERTIBLE DEBT
Convertible Senior Notes Due 2027
In 2022, we commenced a private offering of $ 900.0 million in aggregate principal amount of 1 % Convertible Senior Notes due 2027, or the Initial Notes. On September 13, 2022, the initial purchasers in such offering exercised their option to purchase an additional $ 135.0 million in aggregate principal amount of our 1 % Convertible Senior Notes due 2027, or the Additional Notes, and together with the Initial Notes collectively referred to as the Notes, bringing the total aggregate principal amount of the Notes issued and outstanding to $ 1.04 billion. The Notes were issued pursuant to an indenture, dated September 15, 2022, or the Indenture. The Indenture includes customary covenants and sets forth certain events of default after which the Notes may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving the Company after which the Notes become automatically due and payable.
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The Notes will mature on September 15, 2027, unless earlier converted, redeemed or repurchased. The Notes bear interest at a rate of 1 % per year payable semiannually in arrears on March 15 and September 15 of each year, beginning on March 15, 2023. The Notes are convertible at the option of the noteholder on or after June 15, 2027. Prior to June 15, 2027, the Notes are convertible only under the following circumstances: (1) During any calendar quarter commencing after the calendar quarter ending on December 31, 2022 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day; (2) During the five business day period after any ten consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each trading day of that ten consecutive trading day period was less than 98 % of the product of the last reported sale price of our common stock and the conversion rate of the Notes on such trading day; (3) If we call any or all of the Notes for redemption; or (4) Upon the occurrence of specific corporate events as set forth in the Indenture governing the Notes. We will settle any conversions of Notes by paying or delivering, as applicable, cash, shares of our common stock, or a combination of cash and shares of common stock, at our election.
The conversion rate for the Notes will initially be 3.4941 shares of common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $ 286.20 per share of common stock. The initial conversion price of the Notes represents a premium of approximately 35 % over the $ 212.00 per share last reported sale price of common stock on September 12, 2022. The conversion rate is subject to adjustment under certain circumstances in accordance with the terms of the Indenture.
We may not redeem the Notes prior to September 20, 2025. We may redeem for cash equal to 100 % of the principal amount of the Notes being redeemed plus accrued and unpaid interest of all or any portion of the Notes, at our option, on or after September 20, 2025, if the last reported sales price of our common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period. No sinking fund is provided for the Notes and therefore we are not required to redeem or retire the Notes periodically.
If we undergo a fundamental change, as defined in the Indenture, then subject to certain conditions, holders may require us to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100 % of the principal amount of the Notes to be repurchased plus accrued and unpaid interest. In addition, if specific corporate events occur prior to the maturity date or if we issue a notice of redemption, we will increase the conversion rate by pre-defined amounts for holders who elect to convert their notes in connection with such corporate event. The conditions allowing holders of the Notes to convert were not met this quarter.
As of June 30, 2024, the Notes are classified as a long-term liability, net of unamortized issuance costs of $ 12.3 million, on the condensed consolidated balance sheets. As of June 30, 2024, the estimated fair value of the Notes was approximately $ 1.11 billion. The fair value was determined based on the last actively traded price per $100 of the Notes for the six months ended June 30, 2024 (Level 2). The Notes were issued at par and costs associated with the issuance of the Notes are amortized to interest expense over the contractual term of the Notes. As of June 30, 2024, the effective interest rate of the Notes is 1 %.
Capped Call Transactions
In 2022, in connection with the pricing of the Initial Notes and the initial purchasers’ exercise of their option to purchase the Additional Notes, we entered into privately negotiated capped call transactions, or Capped Call Transactions. The Capped Call Transactions initially cover, subject to customary anti-dilution adjustments, the number of shares of common stock that underlie the Notes. The cap price of the Capped Call Transactions is initially $ 424.00 per share, which represents a premium of 100 % over the last reported sale price of common stock of $ 212.00 per share on September 12, 2022, and is subject to certain adjustments under the terms of the Capped Call Transactions.
9. 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 a percentage of royalties payable, or the Royalty Interest, initially set at 50 % with respect to net sales by MDCO, its affiliates or sublicensees of inclisiran (or the branded drug product, Leqvio) 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 the Royalty Interest at 55 % beginning on January 1, 2030. In consideration for the sale of the Purchased Interest, Blackstone Royalties paid us $ 1.00 billion.
Due to our continuing involvement and an obligation to repay BX Bodyguard Royalties L.P., we record the proceeds from this transaction as a debt, net of closing costs, on our condensed consolidated balance sheets. We account for any royalties and
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commercial milestones due to us under the MDCO License Agreement as revenue on our condensed consolidated statement of operations and comprehensive loss.
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. As of June 30, 2024, our estimate of this total interest expense resulted in an effective annual interest rate of 9 %. 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, 2024, the carrying value of the liability related to the sale of future royalties was $ 1.40 billion, net of closing costs of $ 9.5 million. The carrying value of the liability related to the sale of future royalties approximates fair value as of June 30, 2024 and is based on our current estimates of future royalties and commercial milestones expected to be paid to Blackstone Royalties over the life of the arrangement, which are considered Level 3 inputs.
The following table shows the activity with respect to the liability related to the sale of future royalties, in thousands:
Carrying value as of December 31, 2023
$ 1,377,239
Interest expense recognized 61,103
Payments ( 33,799 )
Carrying value as of June 30, 2024
$ 1,404,543
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, two of our cardiometabolic programs. As of June 30, 2024, Blackstone has provided $ 70.0 million to fund vutrisiran development costs related to the HELIOS-B Phase 3 clinical trial and $ 26.0 million to fund zilebesiran Phase 2 clinical trials. 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 for the Phase 3 clinical trial of zilebesiran is dependent on us achieving specified development milestones. As between Blackstone Life Sciences and the Company, 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 vutrisiran 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. In September 2023, we announced positive topline results from the KARDIA-1 Phase 2 study of zilebesiran, triggering the achievement of a development milestone of $ 84.5 million payable to Blackstone Life Sciences in 16 equal, quarterly payments over four years . 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.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Our payment obligations under the Funding Agreement will be secured, subject to certain exceptions, by security interests in intellectual property owned by us relating to vutrisiran and zilebesiran, as well as in our bank account in which the funding deposits will be made.
We and Blackstone Life Sciences each have the right to terminate the Funding Agreement in its entirety in the event of the other party’s bankruptcy or similar proceedings. We and Blackstone Life Sciences may each terminate the Funding Agreement in its entirety or with respect to either product in the event of an uncured material breach by the other party, or with respect to a product for certain patient health and safety reasons, or if regulatory approval in specified major market countries is not obtained for the product following the completion of clinical trials for the product. In addition, Blackstone Life Sciences has the right to terminate the Funding Agreement in its entirety upon the occurrence of certain events affecting our ability to make payments under the agreement or to develop or commercialize the products, or upon a change of control of us. Blackstone Life Sciences may also terminate the Funding Agreement with respect to a product if the joint steering committee elects to terminate the development program for that product in its entirety, if certain clinical endpoints are not achieved for that product or, with respect to vutrisiran only, if our right to develop or commercialize vutrisiran is enjoined in a specified major market as a result of an alleged patent infringement. In certain termination circumstances, we will be obligated to pay Blackstone Life Sciences an amount that is equal to, or a multiplier of, the development funding received from Blackstone Life Sciences, and we may remain obligated under certain circumstances to make the payments to Blackstone Life Sciences described above, or the royalty described above in the case of AMVUTTRA, should we obtain regulatory approval for zilebesiran or vutrisiran for ATTR amyloidosis with cardiomyopathy following termination.
We account for the Funding Agreement under ASC 815, Derivatives and Hedging, as a derivative liability, measured at fair value, recorded within accrued expenses or other liabilities on our condensed consolidated balance sheets, depending on timing of our payment to Blackstone Life Sciences. The change in fair value due to the 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, 2024, 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 amyloidosis with cardiomyopathy, (iv) our cost of borrowing ( 11 %), and (v) Blackstone Life Sciences' cost of borrowing ( 6 %).
The following table presents the activity with respect to the development derivative liability, in thousands:
Carrying value as of December 31, 2023
$ 324,941
Amount received under the Funding Agreement 12,333
Amount paid under the Funding Agreement ( 10,563 )
Change in fair value of development derivative liability 64,228
Carrying value as of June 30, 2024
$ 390,939
11. STOCK-BASED COMPENSATION
The following table summarizes stock-based compensation expenses included in operating costs and expenses on our condensed consolidated statements of operations, and stock-based compensation charges included in additional paid-in capital on our condensed consolidated statements of stockholders’ deficit:
Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2024 2023 2024 2023
Research and development $ 48,115 $ 32,801 $ 67,330 $ 49,033
Selling, general and administrative 41,173 43,001 67,305 66,716
Total stock-based compensation expense
89,288 75,802 134,635 115,749
Capitalized stock-based compensation costs
808 1,188 1,616 2,377
Total stock-based compensation charges
$ 90,096 $ 76,990 $ 136,251 $ 118,126
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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. We compute diluted net loss per common share by dividing net loss by the weighted-average number of common shares and dilutive potential common share equivalents then outstanding during the period. In the diluted net loss per share calculation, net loss is adjusted for the elimination of interest expense on the convertible debt. Potential common shares consist of shares issuable upon the vesting of restricted stock units, 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) and upon conversion of the convertible debt outstanding during the period (calculated using the if-converted method assuming the conversion of the convertible debt as of the earliest period reported or at the date of issuance, if later). Because the inclusion of potential common shares would be anti-dilutive for periods presenting a net loss, diluted net loss per common share is the same as basic net loss per common share.
The following table sets forth the potential common shares (prior to consideration of the treasury stock or if-converted methods) excluded from the calculation of net loss per common share because their inclusion would be anti-dilutive:
As of June 30,
(In thousands) 2024 2023
Options to purchase common stock, inclusive of performance-based stock options 6,235 8,023
Unvested restricted stock units, inclusive of performance-based restricted stock units 2,870 2,303
Convertible debt 3,616 3,616
Total 12,721 13,942
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 June 30, 2024, our commitments over the next five years to make fixed and cancellable payments under existing license agreements were not material.
Legal Matters
From time to time, we may be a party to litigation, arbitration or other legal proceedings in the course of our business, including the matters described below. The claims and legal proceedings in which we could be involved include challenges to the scope, validity or enforceability of patents relating to our products or product candidates, and challenges by us to the scope, validity or enforceability of the patents held by others. These include claims by third parties that we infringe their patents or breach our license or other agreements with such third parties. The outcome of any such legal proceedings, regardless of the merits, is inherently uncertain. In addition, litigation and related matters are costly and may divert the attention of our management and other resources that would otherwise be engaged in other activities. If we were unable to prevail in any such legal proceedings, our business, results of operations, liquidity and financial condition could be adversely affected. Our accounting policy for accrual of legal costs is to recognize such expenses as incurred.
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
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contract ended in April 2022. Moderna responded on June 13, 2022, requesting a partial motion to dismiss those claims for sales under Section 1498(a).
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 an additional lawsuit against each of Pfizer and Moderna seeking damages for infringement of U.S. Patent No. 11,382,979, or ‘979 patent, in Pfizer’s and Moderna’s manufacture and sale of their mRNA COVID-19 vaccines. The parties agreed to combine the two patents in one lawsuit, separately against each of Moderna and Pfizer/BioNTech.
On February 8, 2023, we received notification from the U.S. Patent Office that a third patent would issue on February 28, 2023, as U.S. Patent No. 11,590,229, or ‘229 patent, which we also believe Pfizer and Moderna’s COVID-19 vaccines infringe upon. On February 15, 2023, we filed a motion with the court to add this patent to the existing cases against Pfizer and Moderna, and on April 26, 2023, the court held a hearing and denied Moderna’s partial motion to dismiss those claims for sales under Section 1498(a), our motion to add the ‘229 patent to the then current lawsuits as well as a motion filed by Moderna to add certain invalidity arguments made by Pfizer in our case to supplement Moderna’s invalidity arguments previously made.
On May 26, 2023, we filed additional lawsuits against Pfizer and Moderna in Delaware seeking damages for infringing the ‘229 patent. In addition to this patent, we also alleged infringement of U.S. Patent Nos. 11,633,479 and 11,633,480 against both Pfizer and Moderna and of U.S. Patent No. 11,612,657 against Pfizer only.
On August 9, 2023, a Markman hearing was held in the U.S. District Court for the District of Delaware to consider the meaning of three disputed terms as used in the ’933 and ’979 patents. On August 21, 2023, the court issued an order construing two of the three terms, and deferred a ruling on the third term pending an evidentiary hearing, which was held on January 4, 2024 with the final ruling pending the outcome of an additional evidentiary hearing, which was held on July 12, 2024. Following the August 21, 2023 order, we and Moderna jointly agreed to final judgment of non-infringement of two of our patents, and such judgment was entered by the court on August 30, 2023, and on September 7, 2023, we appealed the claim construction ruling to the Court of Appeals for the Federal Circuit in the initial lawsuit against Moderna. The claim construction ruling did not affect one of the patents in the lawsuit filed against Moderna on May 26, 2023, and that case is going forward on a schedule to be set by the court.
The two separate suits against Pfizer are ongoing subject to the ruling on the third claim term, and in September 2023, we and Pfizer agreed to consolidate the 2022 and 2023 lawsuits in one case, which will require moving the trial date from November 2024 to the first half of 2025, with the final schedule to be determined by the court.
On July 12, 2024, Acuitas Therapeutics Inc., or Acuitas, and certain named employees, filed a Declaratory Judgment action against us in the U.S. District Court for the District of Delaware, seeking a judgment that would add certain Acuitas employees as co-inventors on the patents we have asserted against Pfizer/BioNTech and Moderna in our lawsuits. We expect to respond to the complaint in due course.
Indemnifications
In connection with license agreements we may enter with companies to obtain rights to intellectual property, we may be required to indemnify such companies for certain damages arising in connection with the intellectual property rights licensed under the agreements. Under such agreements, we may be responsible for paying the costs of any litigation relating to the license agreements or the underlying intellectual property rights, including the costs associated with certain litigation regarding the licensed intellectual property. We are also a party to a number of agreements entered into in the ordinary course of business, which contain typical provisions that obligate us to indemnify the other parties to such agreements upon the occurrence of certain events, including litigation or other legal proceedings. In addition, we have agreed to indemnify our officers and directors for expenses, judgments, fines, penalties, excise taxes, and settlement amounts paid in connection with any threatened, pending or completed litigation proceedings, in which an officer or director was, is or will be involved as a party, on account of such person’s status as an officer or director, or by reason of any action taken by the officer or director while acting in such capacity, subject to certain limitations. These indemnification costs are charged to selling, general and administrative expense.
Our maximum potential future liability under any such indemnification provisions is uncertain. We have determined that the estimated aggregate fair value of our potential liabilities under all such indemnification provisions is minimal and had not recorded any liability related to such indemnification provisions as of June 30, 2024.
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