Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are a global commercial-stage biopharmaceutical company that discovers, develops, manufactures and commercializes novel therapeutics based on RNAi. Our commercial products and broad pipeline of investigational RNAi therapeutics are targeting a broad range of disease areas and indications.
As described in Part I, Item 1. “Business” of this Annual Report on Form 10-K, we currently have five products that have received marketing approval, including one collaborated product, and multiple late-stage investigational programs advancing towards potential commercialization. In Part I, Item 1. “Business” you can also find a summary of key events in 2024 and 2025 to-date related to our marketed products and our clinical development programs.
We have incurred significant losses since we commenced operations in 2002 and as of December 31, 2024, we had an accumulated deficit of $7.29 billion. 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 continued build-out 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 may incur additional operating losses. We will require substantial resources over the next several years as we expand our efforts to discover, develop and commercialize RNAi therapeutics, and aim to achieve financial self-sustainability by the end of 2025. 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, 2024, we generate worldwide product revenues from four commercialized products, ONPATTRO, AMVUTTRA, GIVLAARI and OXLUMO, primarily in the U.S. and Europe. However, our ongoing development and regulatory efforts may not be successful and we may not be able to commence sales of any other products and/or successfully expand the labels of or market and sell our existing commercialized products or any other approved products in the future. A meaningful portion of our total revenues in recent years has been derived from collaboration revenues from collaborations with Roche, Regeneron and Novartis. In addition to revenues from the commercial sales of our approved products and potentially from sales of future products, we expect our sources of potential funding for the next several years to continue to be derived in part from existing and new strategic collaborations. Such collaborations include, or may include in the future, license and other fees, equity investments, funded research and development, milestone payments and royalties on product sales by our licensors, including royalties on sales of Leqvio made by our collaborator Novartis.
78
Table of Contents
Results of Operations
The following data summarizes the results of our operations:
Years Ended December 31,
2024 vs 2023 2023 vs 2022
(In thousands, except percentages) 2024 2023 2022 $ Change % Change $ Change % Change
Total revenues $ 2,248,243 $ 1,828,292 $ 1,037,418 $ 419,951 23 % $ 790,874 76 %
Total operating costs and expenses $ 2,425,128 $ 2,110,467 $ 1,822,490 $ 314,661 15 % $ 287,977 16 %
Loss from operations $ (176,885) $ (282,175) $ (785,072) $ 105,290 (37) % $ 502,897 (64) %
Total other expense, net $ (200,490) $ (151,342) $ (341,921) $ (49,148) 32 % $ 190,579 (56) %
Benefit from (provision for) income taxes $ 99,218 $ (6,725) $ (4,163) $ 105,943 * $ (2,562) 62 %
Net loss $ (278,157) $ (440,242) $ (1,131,156) $ 162,085 (37) % $ 690,914 (61) %
* Indicates the percentage change period over period is greater than 500%.
For a discussion of our 2023 results and a comparison with 2022 results please refer to “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which was filed with the SEC on February 15, 2024.
Discussion of Results of Operations
Revenues
Total revenues consist of the following:
Years Ended December 31, 2024 vs 2023
2023 vs 2022
(In thousands, except percentages) 2024 2023 2022 $ Change % Change $ Change % Change
Net product revenues $ 1,646,228 $ 1,241,474 $ 894,329 $ 404,754 33 % $ 347,145 39 %
Net revenues from collaborations 510,221 546,185 134,912 (35,964) (7) % 411,273 305 %
Royalty revenue 91,794 40,633 8,177 51,161 126 % 32,456 397 %
Total $ 2,248,243 $ 1,828,292 $ 1,037,418 $ 419,951 23 % $ 790,874 76 %
79
Table of Contents
Net Product Revenues
Net product revenues consist of the following, by product and region:
Years Ended December 31,
2024 vs 2023 2023 vs 2022
(In thousands, except percentages) 2024 2023 2022 $ Change % Change $ Change % Change
ONPATTRO
United States $ 74,787 $ 97,739 $ 246,748 $ (22,952) (23) % $ (149,009) (60) %
Europe 134,197 210,916 224,063 (76,719) (36) % (13,147) (6) %
Rest of World 43,873 45,891 86,797 (2,018) (4) % (40,906) (47) %
Total 252,857 354,546 557,608 (101,689) (29) % (203,062) (36) %
AMVUTTRA
United States 630,613 411,169 82,521 219,444 53 % 328,648 398 %
Europe 235,441 70,898 4,214 164,543 232 % 66,684 *
Rest of World 104,396 75,771 7,060 28,625 38 % 68,711 *
Total 970,450 557,838 93,795 412,612 74 % 464,043 495 %
GIVLAARI
United States 165,373 141,954 115,659 23,419 16 % 26,295 23 %
Europe 65,906 57,498 48,670 8,408 15 % 8,828 18 %
Rest of World 24,592 19,799 8,815 4,793 24 % 10,984 125 %
Total 255,871 219,251 173,144 36,620 17 % 46,107 27 %
OXLUMO
United States 62,766 38,159 27,698 24,607 64 % 10,461 38 %
Europe 80,753 60,025 37,915 20,728 35 % 22,110 58 %
Rest of World 23,531 11,655 4,169 11,876 102 % 7,486 180 %
Total 167,050 109,839 69,782 57,211 52 % 40,057 57 %
Total net product revenues $ 1,646,228 $ 1,241,474 $ 894,329 $ 404,754 33 % $ 347,145 39 %
* Indicates the percentage change period over period is greater than 500%.
Net product revenues increased during the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to growth from sales of AMVUTTRA driven by increased patient demand, partially offset by a decrease in sales of ONPATTRO due to patient switches to AMVUTTRA, as well as increased patients on GIVLAARI and OXLUMO therapies.
Please see Note 3, Net Product Revenues, 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, 2024 and 2023.
Net Revenues from Collaborations and Royalty Revenue
Net revenues from collaborations and royalty revenue consist of the following:
Years Ended December 31, 2024 vs 2023 2023 vs 2022
(In thousands, except percentages) 2024 2023 2022 $ Change % Change $ Change % Change
Roche
$ 119,489 $ 337,802 $ — $ (218,313) (65) % $ 337,802 N/A
Regeneron Pharmaceuticals 302,798 100,468 87,844 202,330 201 % 12,624 14 %
Novartis AG 79,759 86,727 43,159 (6,968) (8) % 43,568 101 %
Other 8,175 21,188 3,909 (13,013) (61) % 17,279 442 %
Total net revenues from collaborations
$ 510,221 $ 546,185 $ 134,912 $ (35,964) (7) % $ 411,273 305 %
Royalty revenue $ 91,794 $ 40,633 $ 8,177 $ 51,161 126 % $ 32,456 397 %
80
Table of Contents
Net revenues from collaborations decreased during the year ended December 31, 2024, as compared to the year ended December 31, 2023, primarily driven by:
• a decrease in revenue recognized under our Roche Collaboration in 2024 due to the recognition of $310.0 million of revenue upon the transfer of licenses to Roche during the third quarter of 2023.
Partially offset by:
• revenue of $185.0 million recognized under our Regeneron Collaboration as we modified the collaboration in June 2024 and provided Regeneron with an exclusive license to develop, manufacture and commercialize cemdisiran as a monotherapy; and
• recognition of $65.0 million in revenue under our Roche Collaboration associated with dosing the first patient in the zilebesiran KARDIA-3 clinical trial during 2024.
Royalty revenue increased during the year ended December 31, 2024, as compared to the year ended December 31, 2023, due to increased volume and rate of royalties earned from global net sales of Leqvio by our collaborator, Novartis.
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 collaborators, achievement of milestones under our collaboration agreements, and royalties associated with sales of Leqvio. We expect net revenues from collaborations will increase in 2025, as compared to 2024, primarily driven by higher anticipated revenues under our Roche Collaboration and License Agreement. We expect our royalty revenue will increase in 2025, as compared to 2024, due to the continued growth of royalties earned from global net sales of Leqvio by our collaborator, Novartis.
The amount of revenue from collaborations that we recognize is based, in part, on estimates of total costs to be incurred. These estimates reflect our historical experiences, current contractual requirements, and forecasted plans of development or manufacturing activities. We adjust these estimates for changes in actual costs incurred, contractual terms, and further forecasts. Such changes in estimates could have a significant impact on revenue and earnings in the period of the adjustment.
Operating Costs and Expenses
Operating costs and expenses consist of the following:
Years Ended December 31, 2024 vs 2023 2023 vs 2022
(In thousands, except percentages) 2024 2023 2022 $ Change % Change $ Change % Change
Cost of goods sold $ 306,513 $ 268,216 $ 140,174 $ 38,297 14 % $ 128,042 91 %
Cost of goods sold as a percentage of net product revenues 18.6 % 21.6 % 15.7 %
Cost of collaborations and royalties 16,857 42,190 28,643 (25,333) (60) % 13,547 47 %
Research and development 1,126,232 1,004,415 883,015 121,817 12 % 121,400 14 %
Selling, general and administrative
975,526 795,646 770,658 179,880 23 % 24,988 3 %
Total $ 2,425,128 $ 2,110,467 $ 1,822,490 $ 314,661 15 % $ 287,977 16 %
Cost of Goods Sold
Cost of goods sold as a percentage of net product revenues decreased to 18.6% for the year ended December 31, 2024, as compared to 21.6% for the year ended December 31, 2023. Approximately 5.0% of the 21.6% of cost of goods sold as a percentage of net product revenues for the year ended December 31, 2023 was attributable to cancelled manufacturing commitments and the impairment of ONPATTRO inventory that had been manufactured for future demand associated with the use of ONPATTRO for the treatment of patients with ATTR amyloidosis with cardiomyopathy, for which we did not receive regulatory approval in the U.S. These one-time charges in 2023 did not recur in 2024, resulting in the decrease in cost of goods sold as a percentage of net product revenues in 2024, which was partially offset by higher volume and royalty rates payable on net sales of AMVUTTRA in 2024.
We expect our cost of goods sold, including cost of goods sold as a percentage of net product revenues, will increase during 2025, as compared to 2024, primarily as a result of an expected increase in net product revenues and increased royalties on net sales of AMVUTTRA.
Cost of Collaborations and Royalties
Cost of collaborations and royalties decreased during the year ended December 31, 2024, as compared to the year ended December 31, 2023, primarily due to decreased demand for GalNAc material supplied to our collaborators in support of certain
81
Table of Contents
product manufacturing as our collaborators transition to producing the material independently, as well as reduced royalties payable from the expiration of licenses of third-party intellectual property.
We expect our cost of collaborations and royalties will decrease during 2025, as compared to 2024, primarily as a result of our collaborators transitioning to produce GalNAc material independently.
Research and Development
Research and development expenses consist of the following:
Years Ended December 31,
2024 vs 2023 2023 vs 2022
(In thousands, except percentages) 2024 2023 2022 $ Change % Change $ Change % Change
Clinical research and outside services $ 509,129 $ 485,732 $ 438,418 $ 23,397 5 % $ 47,314 11 %
Compensation and related 327,929 260,423 225,589 67,506 26 % 34,834 15 %
Occupancy and all other costs (1)
161,425 160,987 126,847 438 — % 34,140 27 %
Stock-based compensation 127,749 97,273 92,161 30,476 31 % 5,112 6 %
Total
$ 1,126,232 $ 1,004,415 $ 883,015 $ 121,817 12 % $ 121,400 14 %
(1) Occupancy and all other costs includes facilities, information technology, depreciation and certain departmental expenses.
Research and development expenses increased during the year ended December 31, 2024, as compared to the year ended December 31, 2023, primarily due to the following:
• increased clinical trial expenses mainly related to the advancement of our KARDIA-3 and cAPPRicorn-1 clinical programs;
• increased costs associated with our preclinical activities as we develop our clinical pipeline of RNAi therapeutics targeting multiple tissue types;
• increased employee compensation and related expenses to support our research and development pipeline and development expenses; and
• increased stock-based compensation expenses primarily due to the accounting for certain performance-based awards.
Partially offset by:
• decreased expenses within other clinical programs, specifically the APOLLO-B Phase 3 clinical trial of patisiran due to the wind down of clinical activities during the open label extension period; and
• decreased costs due to the timing of manufacturing of zilebesiran for clinical activities.
During the years ended December 31, 2024, 2023 and 2022, in connection with advancing activities under our collaboration agreements, we incurred research and development expenses, primarily related to external development and clinical expenses, including the manufacture of clinical product. The following table summarizes research and development expenses incurred, for which we recognize revenue, that are directly attributable to our collaboration agreements, by collaborator:
Years Ended December 31,
(In thousands) 2024 2023 2022
Roche
$ 92,725 $ 44,620 $ —
Regeneron Pharmaceuticals 71,659 77,444 43,002
Other 8,525 4,951 1,172
Total $ 172,909 $ 127,015 $ 44,174
82
Table of Contents
Selling, General and Administrative
Selling, general and administrative expenses consist of the following:
Years Ended December 31, 2024 vs 2023 2023 vs 2022
(In thousands, except percentages) 2024 2023 2022 $ Change % Change $ Change % Change
Compensation and related
$ 386,743 $ 298,888 $ 273,262 $ 87,855 29 % $ 25,626 9 %
Consulting and professional services
274,539 226,664 226,941 47,875 21 % (277) — %
Occupancy and all other costs (1)
169,909 145,687 131,967 24,222 17 % 13,720 10 %
Stock-based compensation
144,335 124,407 138,488 19,928 16 % (14,081) (10) %
Total
$ 975,526 $ 795,646 $ 770,658 $ 179,880 23 % $ 24,988 3 %
(1) Occupancy and all other costs includes facilities, information technology, depreciation and certain departmental expenses.
Selling, general and administrative expenses increased during the year ended December 31, 2024, as compared to the year ended December 31, 2023, primarily due to higher costs associated with marketing investments to promote our TTR therapies and prepare for the potential launch of AMVUTTRA for the treatment of ATTR amyloidosis with cardiomyopathy and increased employee compensation expenses.
We expect that research and development expenses combined with selling, general and administrative expenses will increase during 2025, as compared to 2024, as we continue to build out our global commercial and compliance infrastructure, launch our current commercial products into new markets, prepare for future commercial product launches, including the launch of AMVUTTRA in cardiomyopathy, assuming regulatory approvals, advance our product candidates, including collaborated programs, into later-stage development, advance and develop our platform and preclinical pipeline, and prepare regulatory submissions. 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 based on our determinations regarding the probability of vesting for performance-based awards.
Other (Expense) Income
Other (expense) income consists of the following:
Years Ended December 31,
2024 vs 2023 2023 vs 2022
(In thousands, except percentages) 2024 2023 2022 $ Change % Change $ Change % Change
Interest expense $ (141,858) $ (121,221) $ (155,968) $ (20,637) 17 % $ 34,747 (22) %
Interest income 121,992 95,561 24,808 26,431 28 % 70,753 285 %
Other expense, net
Realized and unrealized losses on marketable equity securities (3,022) (16,944) (33,312) 13,922 (82) % 16,368 (49) %
Change in fair value of development derivative liability (170,770) (90,997) (94,659) (79,773) 88 % 3,662 (4) %
Other (6,832) (17,741) (6,204) 10,909 (61) % (11,537) 186 %
Loss on the extinguishment of debt — — (76,586) — N/A 76,586 (100) %
Total $ (200,490) $ (151,342) $ (341,921) $ (49,148) 32 % $ 190,579 (56) %
Total other expense, net increased during the year ended December 31, 2024, as compared to the year ended December 31, 2023, primarily due to increased loss associated with the change in fair value of the development derivative liability as a result of valuation updates driven by the positive topline results for the HELIOS-B clinical trial announced in June 2024, partially offset by increased interest income driven by higher market interest rates on our marketable debt securities.
Benefit from (Provision for) Income Taxes
Benefit from (provision for) income taxes was a follows:
Years Ended December 31,
2024 vs 2023 2023 vs 2022
(In thousands, except percentages)
2024 2023 2022 $ Change % Change $ Change % Change
Benefit from (provision for) income taxes
$ 99,218 $ (6,725) $ (4,163) $ 105,943 * $ (2,562) 62 %
* Indicates the percentage change period over period is greater than 500%.
83
Table of Contents
We recorded a benefit from income taxes of $99.2 million for the year ended December 31, 2024 and a provision for income taxes of $6.7 million for the year ended December 31, 2023. The benefit from income taxes for the year ended December 31, 2024 primarily relates to the release of the valuation allowance on our certain Switzerland deferred tax assets, which mainly consist of the tax basis of the intangible assets that were transferred to our wholly-owned Switzerland subsidiary in 2020, 2021 and 2023 and net operating loss carryforwards. We maintained a full valuation allowance on our U.S. deferred tax assets as of December 31, 2024.
Liquidity and Capital Resources
The following table summarizes our cash flow activities:
Years Ended December 31,
$ Change
(In thousands) 2024 2023 2022 2024 vs 2023 2023 vs 2022
Net cash (used in) provided by:
Operating activities $ (8,312) $ 104,156 $ (541,274) $ (112,468) $ 645,430
Investing activities $ (116,840) $ (336,350) $ 169,354 $ 219,510 $ (505,704)
Financing activities $ 294,159 $ 172,131 $ 425,753 $ 122,028 $ (253,622)
Operating Activities
Net cash used in operating activities increased during the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to decreased cash received from our collaborators, partially offset by stronger cash receipts from increased product sales.
Investing Activities
Net cash used in investing activities decreased during the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to the timing of net investments of cash into our marketable debt securities.
Financing Activities
Net cash provided by financing activities increased during the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to increased net proceeds from exercise of stock options.
Additional Capital Requirements
We currently have programs focused in many therapeutic areas and, as of December 31, 2024, have five marketed products, including one product commercialized by a collaborator. 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 approved indications for our approved products, including AMVUTTRA, in the future. In addition, we may incur additional operating 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 continued build-out 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, 2024 will be sufficient to satisfy our near-term capital and operating needs for at least 12 months from the filing of this Annual Report on Form 10-K. Recent and expected working and other capital requirements, in addition to the above matters, also include the items described below:
• Amounts related to future lease payments for operating lease obligations as of December 31, 2024 totaled $384.5 million, with $43.4 million expected to be paid within the next 12 months.
• Cash outflows for capital expenditures were $34.3 million in 2024 and $62.2 million in 2023. We expect capital expenditures to increase in 2025 to support the increase in our manufacturing and production capacity needs.
• 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 to Blackstone associated with the liability related to the sale of future royalties were $57.0 million in 2024, with an estimated $131.8 million to be paid within the next 12 months.
• Payments associated with an achieved development milestone due to Blackstone were $21.1 million in 2024, with the same amount to be paid within the next 12 months. Further, we anticipate making an additional $76.5 million of fixed and royalty payments upon regulatory approval of AMVUTTRA for the treatment of ATTR amyloidosis with
84
Table of Contents
cardiomyopathy and the first commercial sale of AMVUTTRA following regulatory approval of AMVUTTRA for the treatment of ATTR amyloidosis with cardiomyopathy, respectively, within the next 12 months.
Since we commenced operations in 2002, we have generated significant losses and as of December 31, 2024, we had an accumulated deficit of $7.29 billion. As of December 31, 2024, we had cash, cash equivalents and marketable securities of $2.69 billion, compared to $2.44 billion as of December 31, 2023.
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
Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities in our consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions and could have a material impact on our reported results. While our significant accounting policies are more fully described in the Notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be the most critical in understanding the judgments and estimates we use in preparing our consolidated financial statements:
Net Product Revenues
Our net product revenues are recognized, net of variable consideration related to certain allowances and accruals, at the time the customer obtains control of our product. We record reserves, based on contractual terms, for components related to product sold during the reporting period, as well as our estimate of product that remains in the distribution channel inventory at the end of the reporting period that we expect will be sold to qualified healthcare providers. On a quarterly basis, we update our estimates and record any needed adjustments in the period we identify the adjustments.
The estimates for our product revenue allowances and accruals are most significantly affected by chargebacks, which are contractual commitments with the government and other entities to sell products to qualified healthcare providers at prices lower than the list prices charged to the customer who directly purchases from us, and rebates that represent discount obligations under government programs, including Medicaid in the U.S. and similar programs in certain other countries, including countries in which we are accruing for estimated rebates because final pricing has not yet been negotiated. We are also subject to potential rebates in connection with our value-based agreements, or VBAs, with certain commercial payors.
We use the expected value method, which is the sum of probability-weighted amounts in a range of possible consideration amounts, or the most likely amount method, which is the single most likely amount in a range of possible considerations, to estimate variable consideration related to our product revenues. We use the expected value method to estimate variable consideration for chargebacks, certain rebates, and other incentives and we use the most likely amount method for certain rebates and trade discounts and allowances.
Net Revenues from Collaborations
We earn revenue in connection with collaboration agreements which allow our collaborators to utilize our technology platforms and develop product candidates.
For elements of collaboration arrangements that are accounted for pursuant to Accounting Standards Codification Topic 606, Revenue from Contracts with Customers , or ASC 606, we identify the performance obligations and allocate the total consideration we expect to receive on a relative standalone selling price basis to each performance obligation. Key assumptions to determine the standalone selling price may include forecasted revenues, development timelines, reimbursement rates for personnel costs, the expected number of targets or indications expected to be pursued under each license, discount rates and probabilities of technical and regulatory success. We recognize revenue associated with each performance obligation as the control over the promised goods or services transfer to our collaborator which occurs either at a point in time or over time. If control transfers over time, revenue is recognized by using a method of measuring progress that best depicts the transfer of goods or services, 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. 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.
Liability Related to the Sale of Future Royalties
We account for the liability related to the sale of future royalties as a debt financing. Interest on the liability related to the sale of future royalties is recognized using the effective interest rate method over the life of the related royalty stream.
85
Table of Contents
The liability related to the sale of future royalties and the related interest expense are based on our current estimates of future royalties and commercial milestones expected to be paid over the life of the arrangement, which we determine by using third-party data to estimate Leqvio’s global net revenue. We periodically assess the expected payments and to the extent the amount or timing of our future estimated payments is materially different than our previous estimates, we account for any such change by prospectively adjusting the effective interest rate and related non-cash interest expense.
An increase or decrease of 10% to the interest rate would result in an increase or decrease to our liability related to the sale of future royalties of approximately $35.6 million.
Development Derivative Liability
In August 2020, we entered into a co-development agreement, referred to as the Funding Agreement, with BXLS V Bodyguard – PCP L.P. and BXLS Family Investment Partnership V – ESC L.P., collectively referred to as Blackstone Life Sciences, pursuant to which Blackstone Life Sciences will provide up to $150.0 million in funding for the clinical development of vutrisiran and zilebesiran, two of our cardiometabolic programs. As consideration for Blackstone Life Sciences’ funding for certain vutrisiran and zilebesiran clinical development costs, we have agreed to pay Blackstone Life Sciences fixed success-based payments upon achievement of specific milestones for vutrisiran and zilebesiran as well as a 1% royalty on net sales of vutrisiran for ten years.
The development derivative liability is recorded at fair value and represents our current estimate of the expected future payments to Blackstone Life Sciences. The development derivative liability is based on the probability weighted present value of the estimated cash flows pursuant to contractual terms of the Funding Agreement. The most significant assumptions in determining the development derivative liability are the probability of success for the clinical development and regulatory approval of vutrisiran and zilebesiran and our current cost of borrowing. Estimates of the probability of success and our cost of borrowing are based on what we believe to be reasonable and supportable assumptions and require management’s judgment. Actual results could vary materially from these estimates.
Recent Accounting Pronouncements
Please read Note 2, Summary of Significant Accounting Policies, 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 a description of recent accounting pronouncements.