Alnylam Pharmaceuticals(ALNY) - 2021 Q1 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements (Unaudited) This section presents the company's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, with detailed explanatory notes Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (As of March 31, 2021 and December 31, 2020) | Item | March 31, 2021 (Thousands of Dollars) | December 31, 2020 (Thousands of Dollars) | | :----------------------------------- | :--------------------- | :---------------------- | | Assets | | | | Cash and cash equivalents | 379,543 | 496,580 | | Marketable debt securities | 1,273,027 | 1,333,182 | | Marketable equity securities | 56,967 | 44,633 | | Accounts receivable, net | 110,626 | 102,413 | | Inventories | 73,940 | 75,202 | | Prepaid expenses and other current assets | 75,980 | 62,767 | | Receivable related to sale of future royalties | 500,000 | 500,000 | | Total current assets | 2,470,083 | 2,614,777 | | Property, plant and equipment, net | 464,572 | 465,029 | | Operating lease right-of-use assets | 237,213 | 241,485 | | Restricted investments | 40,725 | 40,725 | | Other assets | 42,676 | 45,045 | | Total assets | 3,255,269 | 3,407,061 | | Liabilities and Stockholders' Equity | | | | Accounts payable | 45,381 | 51,966 | | Accrued expenses | 280,527 | 355,909 | | Operating lease liabilities | 38,917 | 36,872 | | Deferred revenue | 116,340 | 127,207 | | Liability related to sale of future royalties | 13,660 | 13,316 | | Total current liabilities | 494,825 | 585,270 | | Operating lease liabilities, net of current portion | 288,015 | 293,039 | | Deferred revenue, net of current portion | 208,123 | 225,094 | | Long-term debt | 191,590 | 191,278 | | Liability related to sale of future royalties, net of current portion | 1,086,065 | 1,058,225 | | Other liabilities | 60,461 | 37,908 | | Total liabilities | 2,329,079 | 2,390,814 | | Stockholders' Equity | | | | Common stock | 1,173 | 1,164 | | Additional paid-in capital | 5,747,394 | 5,644,074 | | Accumulated other comprehensive loss | (36,717) | (43,622) | | Accumulated deficit | (4,785,660) | (4,585,369) | | Total stockholders' equity | 926,190 | 1,016,247 | | Total liabilities and stockholders' equity | 3,255,269 | 3,407,061 | - As of March 31, 2021, total assets were $3.255 billion, a decrease from $3.407 billion as of December 31, 2020[21] - Total current assets decreased from $2.615 billion to $2.470 billion, primarily due to a reduction in cash and cash equivalents and marketable debt securities[21] - Total liabilities decreased from $2.391 billion to $2.329 billion, with total current liabilities decreasing from $585 million to $495 million[21] - Total stockholders' equity decreased from $1.016 billion to $926 million, and the accumulated deficit increased to $4.786 billion[21] Condensed Consolidated Statements of Operations and Comprehensive Loss Condensed Consolidated Statements of Operations and Comprehensive Loss (For the Three Months Ended March 31, 2021 and March 31, 2020) | Item | For the Three Months Ended March 31, 2021 (Thousands of Dollars) | For the Three Months Ended March 31, 2020 (Thousands of Dollars) | Change (Thousands of Dollars) | Change (%) | | :------------------------------------------------- | :----------------------------- | :----------------------------- | :------------ | :---------- | | Statements of Operations | | | | | | Net product revenues | 135,769 | 71,938 | 63,831 | 89% | | Net revenues from collaborations | 41,797 | 27,538 | 14,259 | 52% | | Total revenues | 177,566 | 99,476 | 78,090 | 79% | | Cost of sales | 23,023 | 13,302 | 9,721 | 73% | | Cost of collaborations | 8,039 | — | 8,039 | N/A | | Research and development expenses | 185,899 | 169,571 | 16,328 | 10% | | Selling, general and administrative expenses | 146,859 | 126,761 | 20,098 | 16% | | Total operating costs and expenses | 363,820 | 309,634 | 54,186 | 18% | | Operating loss | (186,254) | (210,158) | 23,904 | (11%) | | Interest expense | (32,515) | — | (32,515) | N/A | | Interest income | 450 | 5,480 | (5,030) | (92%) | | Other income, net | 19,044 | 23,032 | (3,988) | (17%) | | Total other (expense) income | (13,021) | 28,512 | (41,533) | (146%) | | Loss before income taxes | (199,275) | (181,646) | (17,629) | 10% | | Provision for income taxes | (1,016) | (575) | (441) | 77% | | Net loss | (200,291) | (182,221) | (18,070) | 10% | | Net loss per common share - basic and diluted | (1.71) | (1.62) | (0.09) | 6% | | Comprehensive loss | (193,386) | (177,762) | (15,624) | 9% | - Total revenues increased by 79% year-over-year to $177.6 million, driven by significant growth in net product revenues and net revenues from collaborations[24] - Operating loss narrowed by 11% to $186.3 million, but net loss expanded by 10% year-over-year to $200.3 million due to increased interest expense and reduced other income[24] Condensed Consolidated Statements of Stockholders' Equity Stockholders' Equity Changes (For the Three Months Ended March 31, 2021 and March 31, 2020) | Item | March 31, 2021 (Thousands of Dollars) | March 31, 2020 (Thousands of Dollars) | | :------------------------------------------------- | :--------------------- | :--------------------- | | Balance at beginning of period | 1,016,247 | 1,438,692 | | Exercise of common stock options, net of tax withholdings | 47,034 | 54,221 | | Issuance of common stock under equity plans | — | — | | Stock-based compensation expense | 56,295 | 34,578 | | Other comprehensive income | 6,905 | 4,459 | | Net loss | (200,291) | (182,221) | | Balance at end of period | 926,190 | 1,349,729 | - As of March 31, 2021, total stockholders' equity was $926 million, a decrease from $1.016 billion as of December 31, 2020, primarily due to a $200.3 million net loss offsetting increases from stock-based compensation and option exercises[27] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (For the Three Months Ended March 31, 2021 and March 31, 2020) | Item | For the Three Months Ended March 31, 2021 (Thousands of Dollars) | For the Three Months Ended March 31, 2020 (Thousands of Dollars) | | :------------------------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | (235,660) | (246,161) | | Net cash provided by investing activities | 71,352 | 113,688 | | Net cash provided by financing activities | 51,177 | 53,869 | | Effect of exchange rate changes | (3,910) | (631) | | Net decrease in cash, cash equivalents and restricted cash | (117,041) | (79,235) | | Cash, cash equivalents and restricted cash at beginning of period | 499,046 | 549,628 | | Cash, cash equivalents and restricted cash at end of period | 382,005 | 470,393 | - Net cash used in operating activities decreased to $235.7 million for the three months ended March 31, 2021, from $246.2 million in the prior-year period, primarily due to a reduced operating loss[31][135] - Net cash provided by investing activities decreased to $71.4 million from $113.7 million in the prior-year period, mainly due to a decrease in net purchases, sales, and maturities of marketable securities[31][136] - Net cash provided by financing activities decreased to $51.2 million from $53.9 million in the prior-year period, primarily due to lower net proceeds from equity issuances, partially offset by proceeds from the vutrisiran and ALN-AGT clinical development financing agreement[31][137] Notes to Condensed Consolidated Financial Statements 1. Nature of Business Alnylam Pharmaceuticals, Inc. is a biopharmaceutical company focused on developing and commercializing novel RNA interference (RNAi)-based therapeutics - Alnylam Pharmaceuticals, Inc. is a biopharmaceutical company focused on developing and commercializing novel RNA interference (RNAi)-based therapeutics[33] - The company launched its "Alnylam P x25" strategy in early 2021, aiming to become a top-five biotechnology company by the end of 2025 through sustainable innovation, transformative medicines for rare and common diseases, and strong financial performance and profitability[33] - As of March 31, 2021, the company had four approved commercial products (including one collaborative product) and six clinical programs in late-stage development[33] 2. Basis of Presentation and Principles of Consolidation This section outlines the basis for preparing the unaudited condensed consolidated financial statements and the principles of consolidation - The condensed consolidated financial statements are unaudited, prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) for interim periods, and include all normal and recurring adjustments[34] - Management used estimates and assumptions in preparing the financial statements, particularly for inventory valuation, future royalty sales liabilities, development derivative liabilities, income taxes, revenue recognition, R&D expenses, and stock-based compensation[35] - The direct or indirect impact of the COVID-19 pandemic on the company's business, operating results, and financial condition remains highly uncertain, with related estimates in the financial statements subject to future changes[35] Liquidity This section discusses the company's financial resources and ability to meet its short-term and long-term obligations - The company expects its cash, cash equivalents, and marketable securities as of March 31, 2021, combined with cash from product sales, existing collaborations, and the strategic financing partnership with The Blackstone Group Inc., to support its Alnylam P x25 strategy for at least the next 12 months[38] 3. Net Product Revenues This section details the net revenues generated from the company's commercialized products Net Product Revenues (For the Three Months Ended March 31, 2021 and March 31, 2020) | Product | Region | March 31, 2021 (Thousands of Dollars) | March 31, 2020 (Thousands of Dollars) | Change (Thousands of Dollars) | Change (%) | | :---------------- | :--------------------- | :--------------------- | :--------------------- | :------------ | :---------- | | ONPATTRO | | | | | | | | United States | 49,471 | 37,196 | 12,275 | 33% | | | Europe | 40,653 | 21,166 | 19,487 | 92% | | | Rest of World (primarily Japan) | 11,827 | 8,302 | 3,525 | 42% | | ONPATTRO Total | | 101,951 | 66,664 | 35,287 | 53% | | GIVLAARI | | | | | | | | United States | 17,762 | 5,274 | 12,488 | 237% | | | Europe | 6,873 | — | 6,873 | N/A | | | Rest of World | 38 | — | 38 | N/A | | GIVLAARI Total | | 24,673 | 5,274 | 19,399 | 368% | | OXLUMO | | | | | | | | United States | 1,408 | — | 1,408 | N/A | | | Europe | 7,737 | — | 7,737 | N/A | | OXLUMO Total | | 9,145 | — | 9,145 | N/A | | Total Net Product Revenues | | 135,769 | 71,938 | 63,831 | 89% | - Net product revenues increased by 89% year-over-year to $135.8 million, driven by the continued global expansion of ONPATTRO and GIVLAARI, and sales contributions from OXLUMO following its Q4 2020 approval[39][118] 4. Net Revenues from Collaborations This section details the revenues generated from the company's strategic collaboration agreements Net Revenues from Collaborations (For the Three Months Ended March 31, 2021 and March 31, 2020) | Collaborator | March 31, 2021 (Thousands of Dollars) | March 31, 2020 (Thousands of Dollars) | Change (Thousands of Dollars) | Change (%) | | :----------------------- | :--------------------- | :--------------------- | :------------ | :---------- | | Regeneron Pharmaceuticals | 30,343 | 19,503 | 10,840 | 56% | | Novartis AG | 8,111 | 1,060 | 7,051 | 665% | | Vir Biotechnology | 2,822 | 6,516 | (3,694) | (57%) | | Other | 521 | 459 | 62 | 14% | | Total | 41,797 | 27,538 | 14,259 | 52% | - Net revenues from collaborations increased by 52% to $41.8 million, primarily due to increased collaboration activities with Regeneron and Novartis[41][120] - Collaboration revenue with Regeneron increased by 56% to $30.3 million, and with Novartis by 665% to $8.1 million, while revenue from Vir Biotechnology decreased by 57% to $2.8 million[41][120] - The company's collaboration agreement with Regeneron includes research services, C5 license obligations, and C5 co-co-promotion obligations, with a total transaction price of $530.5 million, of which $188.3 million remains unrecognized[49][50][53][54] - The collaboration with Novartis involves the development and commercialization of inclisiran, entitling the company to up to $135 million in milestone payments and 10% to 20% in sales royalties[55] - The collaboration with Vir Biotechnology focuses on infectious disease RNAi therapeutics, including ALN-HBV02 and SARS-CoV-2 targets, with the company receiving a $10 million upfront payment and 2.22 million shares of Vir common stock, plus potential additional milestones and high single-digit to low double-digit percentage sales royalties[57][59] 5. Liability Related to the Sale of Future Royalties This section describes the financial liability arising from the sale of future royalty streams - In April 2020, the company entered into an agreement with Blackstone Royalties to sell 50% of future inclisiran royalties and 75% of commercial milestone payments, receiving $500 million upfront and another $500 million due by September 30, 2021[60] - As of March 31, 2021, the carrying value of the liability related to the sale of future royalties was $1.10 billion, net of $13 million in transaction costs[60] Changes in Liability Related to the Sale of Future Royalties (Thousands of Dollars) | Item | Amount (Thousands of Dollars) | | :------------------------------------------------- | :------------ | | Carrying value of liability as of December 31, 2020 | 1,071,541 | | Interest expense recognized | 28,184 | | Carrying value of liability as of March 31, 2021 | 1,099,725 | 6. Fair Value Measurements This section provides details on the fair value measurements of the company's financial assets and liabilities Fair Value Measurements of Financial Assets and Liabilities (As of March 31, 2021, Thousands of Dollars) | Item | Total | Quoted Prices in Active Markets (Level 1) | Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | | :----------------------------------- | :----- | :--------------------- | :------------------- | :--------------------- | | Financial Assets | | | | | | Cash equivalents: Money market funds | 177,470 | 177,470 | — | — | | Marketable debt securities: U.S. government agency securities | 215,200 | — | 215,200 | — | | Marketable debt securities: U.S. Treasury bills | 1,057,827 | — | 1,057,827 | — | | Marketable equity securities | 56,967 | 56,967 | — | — | | Restricted cash (money market funds) | 1,483 | 1,483 | — | — | | Total Financial Assets | 1,508,947 | 235,920 | 1,273,027 | — | | Financial Liabilities | | | | | | Development derivative liability | 48,038 | — | — | 48,038 | - As of March 31, 2021, the company's total financial assets amounted to $1.509 billion, with the majority being Level 2 marketable debt securities ($1.273 billion)[65] - The development derivative liability was $48 million, classified as a Level 3 financial liability, with its valuation incorporating unobservable key inputs[65][86] 7. Marketable Debt Securities This section provides a summary of the company's marketable debt securities portfolio Summary of Marketable Debt Securities (As of March 31, 2021, Thousands of Dollars) | Item | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | | :----------------------------------- | :------- | :------------- | :------------- | :------- | | U.S. government agency securities | 215,171 | 87 | (58) | 215,200 | | U.S. Treasury bills | 1,057,509 | 335 | (17) | 1,057,827 | | Total | 1,272,680 | 422 | (75) | 1,273,027 | - The company classifies all debt security investments as available-for-sale and current assets; as of March 31, 2021, marketable debt securities had a fair value of $1.273 billion, primarily comprising U.S. government agency securities and U.S. Treasury bills[69][70] 8. Other Balance Sheet Details This section provides additional details on various balance sheet accounts Inventory Composition (Thousands of Dollars) | Item | March 31, 2021 | December 31, 2020 | | :----------- | :------------ | :------------- | | Raw materials | 53,694 | 63,460 | | Work-in-process | 23,593 | 16,149 | | Finished goods | 13,753 | 12,693 | | Total | 91,040 | 92,302 | - As of March 31, 2021, total inventories amounted to $91 million, with $17.1 million of long-term inventories included in other assets[74] Cash, Cash Equivalents, and Restricted Cash (Thousands of Dollars) | Item | March 31, 2021 | March 31, 2020 | | :------------------------------------------------- | :------------ | :------------ | | Cash and cash equivalents | 379,543 | 467,779 | | Total restricted cash included in prepaid expenses, other current assets, and long-term other assets | 2,462 | 2,614 | | Total cash, cash equivalents, and restricted cash | 382,005 | 470,393 | - As of March 31, 2021, total cash, cash equivalents, and restricted cash amounted to $382 million, a decrease from $470.4 million as of March 31, 2020[77] - Accumulated other comprehensive loss decreased from $43.6 million as of December 31, 2020, to $36.7 million as of March 31, 2021, primarily influenced by foreign currency translation gains and pension plan adjustments[79] 9. Credit Agreement This section outlines the terms and conditions of the company's credit agreement with Blackstone Group Inc - In April 2020, the company entered into a credit agreement with an affiliate of Blackstone Group Inc., providing up to $700 million in senior secured delayed draw term loans across three tranches[80] - The first tranche of $200 million was drawn as of December 31, 2020; the second and third tranches (each $250 million) are available for request by June 30, 2021, and December 31, 2021, respectively, subject to specific conditions such as first commercial sale of inclisiran in the U.S. or $300 million in ONPATTRO and GIVLAARI revenues[82][83] - The loans bear interest at LIBOR plus 7% (with a 1% floor) or the base rate plus 6% (with a 2% floor), with the company having the option to pay interest in kind at a 1% higher rate until 2023; as of March 31, 2021, the interest rate was 8%[83] - All obligations are secured by intellectual property related to ONPATTRO, GIVLAARI, and vutrisiran, equity interests in subsidiaries, remaining inclisiran royalties, and other assets[83] 10. Development Derivative Liability This section details the financial liability associated with the company's co-development agreements - In August 2020, the company entered into a co-development agreement with Blackstone Life Sciences, where Blackstone Life Sciences will provide up to $150 million in funding for the clinical development of vutrisiran and ALN-AGT[84] - In return, the company agreed to pay a 1% net sales royalty for 10 years following vutrisiran approval, and fixed payments up to 2.5 times the investment within two years of approval in specific countries[86] Changes in Development Derivative Liability (Thousands of Dollars) | Item | Amount (Thousands of Dollars) | | :------------------------------------------------- | :------------ | | Development derivative liability as of December 31, 2020 | 25,585 | | Amounts received under financing agreement | 4,200 | | Loss from remeasurement of development derivative liability | 18,253 | | Development derivative liability as of March 31, 2021 | 48,038 | - As of March 31, 2021, the development derivative liability was $48 million, including an $18.3 million loss from remeasurement[87] 11. Stock-Based Compensation This section provides information on the company's stock-based compensation expenses Stock-Based Compensation Expense (For the Three Months Ended March 31, 2021 and March 31, 2020) | Item | March 31, 2021 (Thousands of Dollars) | March 31, 2020 (Thousands of Dollars) | | :----------------------- | :--------------------- | :--------------------- | | Research and development expenses | 24,375 | 16,049 | | Selling, general and administrative expenses | 31,315 | 18,529 | | Total | 55,690 | 34,578 | - Total stock-based compensation expense increased to $55.7 million for the three months ended March 31, 2021, from $34.6 million in the prior-year period, primarily due to the accounting treatment of certain performance-based equity awards[91][124][128] 12. Net Loss Per Common Share This section presents the calculation of net loss per common share, both basic and diluted Net Loss Per Common Share (For the Three Months Ended March 31, 2021 and March 31, 2020) | Item | March 31, 2021 | March 31, 2020 | | :------------------------------------------------- | :------------ | :------------ | | Net loss | (200,291) | (182,221) | | Net loss per common share - basic and diluted | (1.71) | (1.62) | | Weighted-average common shares used in computing basic and diluted net loss per common share | 117,080 | 112,748 | - Diluted net loss per share is the same as basic net loss per share because the inclusion of potential common shares would be anti-dilutive[92] Anti-Dilutive Common Stock Equivalents (Thousands of Shares) | Item | March 31, 2021 | March 31, 2020 | | :----------------------- | :------------ | :------------ | | Options to purchase common stock | 13,859 | 13,609 | | Unvested restricted common stock | 1,538 | 1,411 | | Total | 15,397 | 15,020 | 13. Commitments and Contingencies This section outlines the company's significant commitments and contingent liabilities, including legal matters - The company faces multiple legal proceedings, including securities class action lawsuits, one of which was dismissed by the court on March 12, 2021, while another remains on appeal in the New York State Supreme Court[94][95][96] - On April 9, 2021, the company received a document subpoena from the U.S. Department of Justice regarding the marketing and promotion of ONPATTRO (patisiran) in the U.S., and is preparing its response and cooperating with the government's inquiry[96] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed analysis of the company's financial condition and operating performance, covering its overview, R&D strategy, product pipeline, strategic alliances, key accounting policies, and changes in revenues and expenses Overview This section provides a general overview of the company's business, strategy, financial position, and the impact of external factors - Alnylam is a global commercial-stage biopharmaceutical company focused on developing novel RNA interference (RNAi)-based therapeutics, with four RNAi medicines launched: ONPATTRO, GIVLAARI, OXLUMO, and Leqvio[100] - The company initiated its "Alnylam P x25" strategy in early 2021, aiming to become a top-five biotechnology company by the end of 2025 through sustainable innovation, transformative medicines, and strong financial performance and profitability[100] - As of March 31, 2021, the company had an accumulated deficit of $4.79 billion and expects to incur annual net operating losses in the future, but believes its strategic financing partnership with Blackstone will enable it to achieve a self-sustainable financial position[102] - The COVID-19 pandemic has impacted the company's business operations, commercial sales, clinical trials, and supply chain, leading to precautionary measures like remote work and travel restrictions, with ongoing monitoring of the pandemic's evolution[103] Research and Development This section discusses the company's research and development activities and associated expenses - Research and development expenses constitute a significant portion of the company's total operating expenses, reflecting its extensive clinical development pipeline, including multiple late-stage programs[104] Our Product Pipeline This section provides an overview of the company's product candidates across various therapeutic areas and their development status - The company's product pipeline spans four strategic therapeutic areas: Genetic Medicines, Cardio-Metabolic Diseases, Hepatic Infectious Diseases, and Central Nervous System/Ocular Diseases, including four approved products and 12 clinical programs (six in late-stage development)[106] Q1 2021 Commercial Product Net Revenues | Product | Q1 2021 Global Net Product Revenues (Millions of Dollars) | | :--------- | :---------------------------------- | | ONPATTRO | 102.0 | | GIVLAARI | 24.7 | | OXLUMO | 9.1 | - In late-stage clinical development, vutrisiran's HELIOS-A Phase 3 study yielded positive top-line results, with an NDA submitted to the FDA; lumasiran's ILLUMINATE-C Phase 3 study is expected to report top-line results in mid-2021; Novartis' inclisiran is anticipated to submit its response to the U.S. FDA's Complete Response Letter in Q2-Q3 2021; and Sanofi Genzyme's fitusiran Phase 3 program has resumed patient dosing[100][109] Strategic Alliances This section describes the company's collaborations with other entities to advance its therapeutic programs - The company leverages strategic alliances with partners such as Regeneron, Novartis, Sanofi Genzyme, Vir Biotechnology, and Dicerna Pharmaceuticals to access resources, capabilities, and funding for its RNAi therapeutic programs[110] - The collaboration strategy aims to create significant value for both the company and its partners in the RNAi therapeutics field, covering multiple therapeutic areas including CNS/Ocular, Cardio-Metabolic, Hepatic Infectious Diseases, and Genetic Medicines[110][111] Critical Accounting Policies and Estimates This section discusses the key accounting policies and estimates that are significant to the company's financial reporting - There have been no significant changes to the company's critical accounting policies since the beginning of fiscal year 2020[112] Results of Operations Revenues This section analyzes the company's revenue streams, including product sales and collaboration income Total Revenue Composition (For the Three Months Ended March 31, 2021 and March 31, 2020) | Item | March 31, 2021 (Thousands of Dollars) | March 31, 2020 (Thousands of Dollars) | Change (Thousands of Dollars) | Change (%) | | :----------------------- | :--------------------- | :--------------------- | :------------ | :---------- | | Net product revenues | 135,769 | 71,938 | 63,831 | 89% | | Net revenues from collaborations | 41,797 | 27,538 | 14,259 | 52% | | Total | 177,566 | 99,476 | 78,090 | 79% | - Total revenues increased by 79% to $177.6 million, driven by an 89% increase in net product revenues to $135.8 million and a 52% increase in net revenues from collaborations to $41.8 million[116] - The growth in net product revenues was primarily due to the continued global expansion of ONPATTRO and GIVLAARI, and sales contributions from OXLUMO following its Q4 2020 approval[118] - The increase in net revenues from collaborations was mainly attributable to increased collaboration activities with Regeneron and increased material shipments by Novartis to support Leqvio's European launch and potential market approvals[120] Operating Costs and Expenses This section details the various costs and expenses incurred in the company's operations Operating Costs and Expenses (For the Three Months Ended March 31, 2021 and March 31, 2020) | Item | March 31, 2021 (Thousands of Dollars) | March 31, 2020 (Thousands of Dollars) | Change (Thousands of Dollars) | Change (%) | | :----------------------- | :--------------------- | :--------------------- | :------------ | :---------- | | Cost of sales | 23,023 | 13,302 | 9,721 | 73% | | Cost of collaborations | 8,039 | — | 8,039 | N/A | | Research and development expenses | 185,899 | 169,571 | 16,328 | 10% | | Selling, general and administrative expenses | 146,859 | 126,761 | 20,098 | 16% | | Total | 363,820 | 309,634 | 54,186 | 18% | - Total operating costs and expenses increased by 18% to $363.8 million[122] - Cost of sales increased by 73% to $23 million, primarily due to higher third-party royalties and sales of capitalized inventory[123] - Cost of collaborations was a new expense of $8 million, mainly for producing commercial drug supply for collaborators[123] - Research and development expenses increased by 10% to $185.9 million, primarily due to increased site initiations and enrollment in the HELIOS B and APOLLO B Phase 3 clinical trials, and higher stock-based compensation expense[124] - Selling, general and administrative expenses increased by 16% to $146.9 million, mainly due to higher stock-based compensation expense and increased headcount to support the Alnylam P x25 strategy, partially offset by reduced travel expenses due to COVID-19 restrictions[128][129] Total Other (Expense) Income This section analyzes the company's non-operating income and expenses Total Other (Expense) Income (For the Three Months Ended March 31, 2021 and March 31, 2020) | Item | March 31, 2021 (Thousands of Dollars) | March 31, 2020 (Thousands of Dollars) | Change (Thousands of Dollars) | Change (%) | | :------------------------------------------------- | :--------------------- | :--------------------- | :------------ | :---------- | | Interest expense | (32,515) | — | (32,515) | N/A | | Interest income | 450 | 5,480 | (5,030) | (92%) | | Realized and unrealized gains on marketable equity securities | 47,016 | 24,111 | 22,905 | 95% | | Fair value changes in development derivative liability | (18,253) | — | (18,253) | N/A | | Other expense, net | (9,719) | (1,079) | (8,640) | 801% | | Total | (13,021) | 28,512 | (41,533) | (146%) | - Total other (expense) income shifted from $28.5 million income in the prior-year period to a $13 million expense, primarily due to $28.2 million in interest expense related to future royalty sales, $4.3 million in interest expense related to the credit agreement, and an $18.3 million loss from remeasurement of the development derivative liability[132] - Realized and unrealized gains on marketable equity securities increased by 95% to $47 million, partially offsetting the increase in expenses[132] Liquidity and Capital Resources This section discusses the company's sources and uses of cash, and its overall financial flexibility Summary of Cash Flow Activities (For the Three Months Ended March 31, 2021 and March 31, 2020) | Item | March 31, 2021 (Thousands of Dollars) | March 31, 2020 (Thousands of Dollars) | | :------------------------------------------------- | :--------------------- | :--------------------- | | Net cash used in operating activities | (235,660) | (246,161) | | Net cash provided by investing activities | 71,352 | 113,688 | | Net cash provided by financing activities | 51,177 | 53,869 | | Effect of exchange rate changes | (3,910) | (631) | | Net decrease in cash, cash equivalents and restricted cash | (117,041) | (79,235) | | Cash, cash equivalents and restricted cash at beginning of period | 499,046 | 549,628 | | Cash, cash equivalents and restricted cash at end of period | 382,005 | 470,393 | - As of March 31, 2021, the company held $1.71 billion in cash, cash equivalents, and marketable securities, a decrease from $1.87 billion as of December 31, 2020[134] - The company anticipates that its existing cash, cash equivalents, and marketable securities, combined with cash generated from product sales, existing collaborations, and the strategic financing partnership with Blackstone, will be sufficient to support its long-term strategic objectives for at least the next 12 months[138] Contractual Obligations and Commitments This section outlines the company's significant contractual obligations and commitments - There have been no material changes to the company's contractual obligations and commitments since December 31, 2020[139] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to financial market risks, particularly those related to interest rates - As of March 31, 2021, there were no material changes to the company's financial market risk exposures, primarily related to interest rates, or its management objectives and strategies[140] Item 4. Controls and Procedures This section assesses the effectiveness of the company's disclosure controls and procedures and reports on changes in internal control Disclosure Controls and Procedures This section describes the company's controls and procedures designed to ensure timely and accurate disclosure of information - As of March 31, 2021, the company's management evaluated and concluded that its disclosure controls and procedures were effective at a reasonable assurance level[141][143] Changes in Internal Control This section reports on any changes in the company's internal control over financial reporting during the period - During the quarter ended March 31, 2021, there were no changes in the company's internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[144] Part II. Other Information Item 1. Legal Proceedings This section refers to the discussion of the company's significant pending legal proceedings, including securities litigation and government investigations, as detailed in Note 13 to the financial statements - For a discussion of significant pending legal proceedings, refer to Note 13, "Commitments and Contingencies – Legal Matters," to the condensed consolidated financial statements in Part I, Item 1, "Financial Statements (Unaudited)," of this Quarterly Report[146] Item 1A. Risk Factors This section elaborates on various significant risks faced by the company, including those related to financial performance, reliance on third parties, operational management, industry developments, intellectual property, and common stock Risks Related to Our Business Risks Related to Our Financial Results This section outlines risks that could adversely impact the company's financial performance and results - The COVID-19 pandemic could have a material adverse impact on the company's commercial operations, sales, clinical trials, and preclinical research[147] - The company is in an early commercialization stage, and the marketing and sales of ONPATTRO, GIVLAARI, OXLUMO, or future products may not be successful or meet expectations[150][151] - The company has a history of losses and may not achieve or maintain profitability, with an accumulated deficit of $4.79 billion as of March 31, 2021[152] - The company requires substantial additional funding to continue its research, development, and commercialization activities, and if required funding exceeds expectations, operations may need to be significantly limited or curtailed[152][154] - Any negative developments regarding the inclisiran royalty stream and commercial milestone payments could materially adversely affect the company's receipt of these payments[156] - The company's operating results may fluctuate in future periods, potentially leading to a decline in its stock price[157] - Inaccurate estimates or assumptions in financial statements and forecast guidance could lead to actual results differing from expectations[159] - Investments in cash, cash equivalents, and marketable securities are subject to risks that could result in losses and affect the liquidity of these investments[159] - Changes in tax laws could adversely affect the company's business and financial condition[160] Risks Related to Our Dependence on Third Parties This section addresses risks arising from the company's reliance on external partners for various aspects of its business - If the company fails to maintain existing or establish new alliances to access business and scientific capabilities and funding for product candidate development and commercialization, it may be unable to execute its business strategy[161][163] - If any collaborator materially modifies, terminates, or fails to fulfill its obligations under an agreement, the development and commercialization of the company's product candidates could be delayed or terminated[165] - The company has limited manufacturing experience and resources and must incur significant costs to develop expertise and/or rely on third parties to manufacture its products[165][167] - The company relies on third parties to conduct its clinical trials, and if they fail to perform their obligations, its development plans could be adversely affected[169] Risks Related to Managing Our Operations This section covers risks associated with the company's internal management and operational challenges - If the company fails to attract and retain qualified key management, scientific, development, medical, and commercial personnel, advisors, and consultants, the implementation of its business plans could be adversely affected[170] - The company may struggle to successfully scale its operations as it evolves from a U.S. and EU company primarily engaged in discovery, preclinical testing, and clinical development to a global company developing and commercializing multiple medicines[171][172] - The increasing use of social media could lead to liabilities, including inappropriate disclosure of sensitive information or negative/inaccurate comments, harming the company's reputation[173] - System failures or unauthorized or improper use or access to the company's systems could result in business and operational disruptions, including data loss, security breaches, and legal liabilities[174] - Brexit could negatively impact global economic conditions, financial markets, and the company's business, including regulatory changes and currency fluctuations[175] Risks Related to Our Industry Risks Related to Development, Clinical Testing and Regulatory Approval of Our Product Candidates and the Commercialization of Our Approved Products This section addresses the inherent risks in the pharmaceutical industry concerning product development, regulatory processes, and market acceptance - Any product candidates developed by the company or its partners may fail in development or be delayed to the extent that they are not commercially viable[176][178][179] - The company or its partners may not obtain U.S. or foreign regulatory approval for product candidates, preventing their commercialization[180][181] - Even with regulatory approval, marketed drugs remain subject to ongoing regulatory oversight, and non-compliance could lead to restricted or withdrawn approvals[182] - Even with regulatory approval, the market may not accept the commercialization of the company's product candidates, hindering its ability to generate profits[183][184] - The company has limited commercial experience, and its marketing, sales, market access, and distribution capabilities are nascent, requiring significant ongoing resource investment, and commercial efforts may not be successful[184] - The patient populations for hereditary transthyretin-mediated amyloidosis, acute hepatic porphyria, and primary hyperoxaluria type 1 are small and not precisely determined, which could impact revenues and profitability if actual patient numbers are lower than estimated[184] - The company could incur significant liability if law enforcement agencies allege or determine that it engaged in commercial activities or promoted approved products in a manner that violates applicable regulations[184][185] - Any drugs developed by the company may be subject to unfavorable pricing regulations, third-party reimbursement practices, or healthcare reform measures, harming its business[185][187][188][189][190][191][192][193](index=193&type=chunk] - Governments outside the U.S. may impose stringent price controls, and the U.S. government may implement price controls or reference pricing, which could adversely affect the company's revenues[194] - Failure by the company or its collaborators, contract manufacturers, or service providers to comply with healthcare laws and regulations or legal obligations related to privacy, data protection, and information security could result in enforcement actions, harming the company's business and reputation[196][197][198][199][200][201][202] - Federal government spending and services may decrease, potentially affecting the company's ability to obtain services, reimbursement, or funding from the federal government[202] - The company's business is subject to significant product liability claims risk, and if it cannot obtain sufficient insurance, product liability claims could adversely affect its business[203] - The company's employees may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements or insider trading violations, which could severely harm its business[203] - If the company fails to comply with environmental, health, and human safety protection laws and regulations, its business could be adversely affected[203] Risks Related to Patents, Licenses and Trade Secrets This section addresses risks concerning the company's intellectual property, including patents, licenses, and trade secrets - If the company fails to obtain and enforce patent protection for its discoveries, its ability to develop and commercialize product candidates will be impaired[204][205][206] - The company licenses patent rights from third-party owners; if these owners fail to properly or successfully obtain, maintain, or enforce patents under these licenses, the company's competitive position and business prospects could be harmed[206] - Other companies or organizations may challenge the company's patent rights or assert patent rights that prevent the company from developing and commercializing its products[206][208] - If the company becomes involved in patent litigation or other rights determination proceedings, it could incur substantial costs and expenses, significant damages liability, or be required to cease product development and commercialization efforts[208][209][210] - If the company fails to comply with obligations under any license or related agreement, it may be required to pay damages and could lose licenses or other rights critical to developing, commercializing, and protecting its RNAi technology, approved products, and any other product candidates[210] - Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information[211] Risks Related to Competition This section discusses the competitive landscape of the pharmaceutical market and its potential impact on the company - The pharmaceutical market is highly competitive; if the company cannot effectively compete with existing drugs, new therapeutic approaches, and new technologies, it may not successfully commercialize any drugs it develops[212] - The company faces competition from other companies developing novel drugs and technology platforms using similar technologies; if these companies develop drugs faster than the company, or if their technologies (including delivery technologies) are more effective, the company's ability to successfully commercialize its drugs could be adversely affected[213] Risks Related to Our Common Stock This section addresses risks specifically related to the company's common stock, including price volatility and ownership structure - Purchasers of common stock may suffer significant losses if the company's stock price fluctuates[214][216] - The company may incur substantial costs due to class action lawsuits[217] - Future sales of the company's common stock, including by significant stockholders, the company, or its directors and executive officers, could cause the price of the company's common stock to decline[218] - Regeneron's ownership of the company's common stock could delay or prevent a change in control of the company[218] - Anti-takeover provisions in the company's charter documents and Delaware law could make it more difficult to acquire the company and may prevent attempts by stockholders to replace or remove current management[219][220] Item 5. Other Information This section discloses the second amendment to the company's non-cancelable real estate lease agreement with BMR-Fresh Pond Research Park LLC, extending the lease term for its manufacturing facility at 665 Concord Avenue, Cambridge, Massachusetts, for five years until September 30, 2027 - On April 27, 2021, the company entered into the Second Amendment to its non-cancelable real estate lease agreement with BMR-Fresh Pond Research Park LLC, extending the lease term for its manufacturing facility at 665 Concord Avenue, Cambridge, Massachusetts, for five years until September 30, 2027[221] Item 6. Exhibits This section lists the various exhibits filed with the quarterly report, including XBRL taxonomy extension files and executive certifications - Exhibits include Inline XBRL Taxonomy Extension Schema Document, Calculation Linkbase Document, Label Linkbase Document, Presentation Linkbase Document, Definition Linkbase Document, and Cover Page Interactive Data File[222] - Also included are certifications by the Chief Executive Officer and Chief Financial Officer pursuant to Section 13a-14(a) and 13a-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code[223] Signatures This section contains the signatures of the company's Chief Executive Officer, Dr. John M. Maraganore, and Executive Vice President and Chief Financial Officer, Jeffrey V. Poulton, confirming the report's due execution under the Securities Exchange Act of 1934 - This report was signed by Dr. John M. Maraganore, Chief Executive Officer, and Jeffrey V. Poulton, Executive Vice President and Chief Financial Officer, on April 29, 2021[225]