Alnylam Pharmaceuticals Inc (ALNY) 2005 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Alnylam Pharmaceuticals conference call to discuss the third quarter 2005 financial results. (Operator Instructions) I would now like to turn the call over to Alnylam. Please proceed.

Thank you. Good afternoon, everyone. This is Cynthia Clayton, Director Investor Relations and Corporate Communications. With me today from Alnylam are John Maraganore, Chief Executive Officer, Barry Greene, Chief Operating Officer, Vin Miles, Senior Vice President Business Development, and Patti Allen, Vice President Finance.

During today's call, John will review the events of the quarter and recent weeks and provide an update on our R&D efforts, Patti will then review our financials, Barry will close with a review of upcoming milestones, and we will then open the call for questions.

Before we begin, I would like to remind you that various remarks that we may make about the company's future expectations, plans, prospects and future operating results, such as expectations regarding the timing of the commencement of clinical trials and projections to the amount and sufficiency of cash and marketable securities constitute forward-looking statements for the purpose of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the "Certain Factors That May Affect Future Results" section of our most recent Form 10-Q, which is on file with the SEC. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change, and therefore you should not rely on these forward-looking statements as representing our views as of any date subsequent to today. I will now turn the call over to John.

Thanks, Cynthia, and welcome, everyone, to today's call to discuss what we believe was an amazing quarter for Alnylam. In recent weeks -- in recent months we have built on our momentum of achievement in both our product and business activities as we continue our leadership in the translation of the breakthrough discovery of RNAi into therapeutics. We believe that this leadership will translate in turn into the creation of a top biopharmaceutical company.

In the last few months we've continued to execute on our critical 2005 goals we outlined for this year. The events of the last several months have truly accelerated our mission of building a leading product company founded on RNA interference. Going forward, you can continue to expect Alnylam's efforts in RNAi to deliver on exciting progress and achievements on technology, products, IP and business alliances.

A clear recent highlight is our progress with ALN-RSV01, our direct RNAi program for the treatment of respiratory syncytial virus or RSV infection. Throughout 2005 we have been focused on rapidly advancing this exciting program toward the clinic and our efforts culminated in our first IND submission last week for this novel RNAi therapeutic. This is a major milestone for our company and we are prepared to initiate clinical trials before the end of the year in both the U.S. and Europe. This is also the first RNAi therapeutic to advance the clinical stage for the treatment of a major infectious disease, the first of what I believe will be many more to come.

Another transformational activity of the quarter is the major multiyear collaboration we established with Novartis, focused on the discovery and development of innovative therapeutics based on RNAi interference. We are very excited about this collaboration, which unites two companies with a strong commitment and passion and the ability to dedicate significant resources and expertise to develop RNAi therapeutics.

Successful execution of this collaboration could lead to Alnylam receiving over $700 million in upfront payments, R&D funding, and milestones. The alliance is the largest ever for RNAi and is yet continued validation of Alnylam's leadership in science, products, and IP that should speak for itself.

Let me begin today with an update on our R&D efforts, first with our proprietary programs in RSV, pandemic flu and cystic fibrosis. For RSV, as I mentioned, we submitted the IND last week for the program. This is a first in many respects. It's our company's first IND, it will be the first ever RNAi therapeutic to enter clinical trials related to the treatment of RSV infection, and more broadly, this is the first time than an RNAi therapeutic for the treatment of a major infectious disease is set to enter the clinic.

There's a clear medical need for new treatments for RSV infection as this is a major cause of respiratory illness in young children, the elderly, and immune deficient patient populations and is the number one cause of infant hospitalizations in the U.S. today. Our drug candidate, ALN-RSV01, selectively and potently silences the highly conserved RSV M gene, which encodes a previously non-druggable protein target absolutely required for viral replication.

Our enthusiasm for this program continues to grow as the evidence builds for its potential therapeutic utility. In September we presented promising data at the RSV Symposium 2005 held in the UK. Our preclinical data to date have shown that intranasally delivered ALN-RSV01 specifically inhibits RSV replication and is active in the prevention and treatment of RSV infection. The results of our GLP toxicology studies of ALN-RSV01 were very promising, as they showed no significant toxicities.

So with compelling efficacy data, a very clean tolerability profile, and of course a well characterized method for GNP manufacturing, we submitted our IND application and are now prepared to begin Phase 1 trials by year end pending FDA clearance of this filing.

We will be conducting two Phase 1 studies, one in the U.S. and one in Europe. In aggregate, these studies will involve 92 subjects. Indeed, within months of initiating this studies -- these studies, we expect to have what we believe will be the largest human experience with RNAi therapeutics and the only experience outside of the eye (ph).

The U.S. study will be a single dose escalating randomized placebo-controlled blinded study in 35 healthy adult male volunteers. There will be five dose groups with a 5 to 2 randomization of subjects to receive drug or placebo. The European study will be a single and multi-dose escalating randomized placebo-controlled blinded study in 57 healthy adult male volunteers. There will be a total of six groups in this protocol, where three groups will receive an ascending single dose treatment with a 5 to 2 randomization of drug or placebo and where three additional groups will receive ascending multi-dose treatments with a 9 to 3 randomization of drug or placebo.

The objectives of both the U.S. and European studies are safety and pharmacokinetics. We expect to complete the trials and have data available to present at an appropriate medical meeting in the first half of 2006.

Now, in addition to our efforts on RSV, we are actively working to discover and develop an RNAi therapeutic for pandemic flu, which means a worldwide epidemic of highly pathogenic influenza that might be caused by a newly emerging form of avian flu, or the so-called H5N1 virus. We are currently in active discussions with government agencies regarding funding for this important program and we are encouraged by the specific mention of RNAi technology in the recent Department of Health and Human Services Influenza Plan that is based on the President's new $7.1 billion Influenza Initiative.

The goal of Alnylam's program is to rapidly advance an RNAi therapeutic that would be an effective antiviral for prevention and treatment of flu caused by the H5N1 virus. We expect that this type of approach will be used in conjunction with vaccines and other antivirals and would potentially become part of the government's stockpile strategy to achieve adequate preparedness.

We aim to work very closely with the U.S. government, regulatory authorities, and world health authorities to advance this program with needed urgency and social responsibility. Again, we will continue our ongoing discussions and will certainly keep you updated on our progress on this front.

Turning to our CF program, in October we achieved the first of three potential milestones from our collaboration with the Cystic Fibrosis Foundation Therapeutics Incorporated, the drug discovery and development affiliate of the Cystic Fibrosis Foundation. The $300,000 milestone payment contemplated as part of the original $1.5 million award from the CF Foundation was related to a specific technical milestone and is a clear step in making progress to develop an RNAi therapeutic for Cystic Fibrosis.

Our partnered RNAi therapeutics are also moving forward and making strong progress. So let me now provide you with a brief update on those efforts as well. In our Parkinson's program we received a grant from the Michael J. Fox Foundation for Parkinson's research to support the development of novel Parkinson's therapies using RNAi technology for the silencing of alpha-synuclein. In our Medtronic alliance we have been developing potential RNAi therapeutics for major CNS diseases such as Huntington's, Parkinson's and Alzheimer's. Our initial efforts have focused on Huntington's and we also plan to present data from this program next week at the Society of Neuroscience meeting.

In the first of our two Merck alliances, we made continued progress with our spinal cord injury program. In our ocular disease effort we made a strategic business decision to suspend further development of ALN-VEG01, our RNAi therapeutic candidate targeting VEGF for AMD, in order to allocate resources to the other product opportunities I just mentioned. This decision was based on the reported efficacy in recent Phase 3 studies from competing drugs in the space and the attractiveness of our other opportunities and we're confident that we made the right decision here.

In the meanwhile, our ocular disease collaboration with Merck is still ongoing and we look forward to exploring other alternative targets with them for the development of RNAi therapeutics for disease of the eye.

Now, in addition to our drug discovery and development programs, we're making very encouraging and consistent progress on systemic RNAi technologies and on new opportunities for RNAi therapeutics. This progress includes first, data we've reported at the Second International Symposium on Triglycerides and HDL in July where we described an improved dosage regimen and novel chemical conjugates for chemically engineered small interfering RNAs, or siRNAs, the molecules that mediate RNAi. Overall, this study showed that therapeutic gene silencing for siRNAs can be achieved systemically at doses that are sixfold lower than those that we published in the journal Nature one year ago.

Secondly, we were very excited about a new Nature publication by Alnylam and our collaborators at the Rockefeller University that just appeared in press last week. This work is yet another proof point on how Alnylam continues to lead the field in RNAi and relates to a major breakthrough in new research on microRNAs. As many of you probably know, microRNAs are human genes which have been shown to regulate through the RNAi pathway as much as one-third of all messenger RNAs encoded by the human genome. These microRNAs are believed to be involved in several disease processes including cancer and viral infection.

In the new Nature paper, we described a rational design of molecules that we call antagomirs that can harness the RNAi pathway and effectively silence microRNAs involving human diseases. Antagomirs are an exciting new pharmacologic strategy for silencing microRNAs. It extends our overall technology capabilities and we believe that this will be an important part of our product engine in the future.

All told, Alnylam's leadership on systemic delivery and our recent advances on microRNAs exceed our own expectations for the progress in advancing these technologies forward to the clinic to complement what remains our near term efforts on direct RNAi programs.

Let me now move on to the business side. It goes without saying that the big event of the quarter was the alliance with Novartis that we announced in September. From this alliance we received significant upfront payments and an equity investment by Novartis totaling $68.5 million and we are eligible to receive significant R&D funding for a number of years, as well as milestones and royalties.

We are very excited about this alliance, particularly because of Novartis' innovative approach to drug development and their very clear commitment to Alnylam as a partner. This is by far the largest pharmaceutical alliance in RNAi therapeutics and it is what we believe to be one of the most significant innovation-based drug discovery alliances in the biotech industry. With successful execution of collaboration objectives, this alliance could provide us with funding in excess of $700 million.

To put this in perspective, the financial support from the successful execution of this alliance over a five-year period would enable us to drive the development of our present and future RNAi therapeutic programs through 2010. Indeed, the Novartis alliance truly enables Alnylam not only to create an exciting pipeline of RNAi therapeutics with Novartis, but also to advance our own proprietary pipeline of RNAi therapeutics further downstream. This truly represents a transforming event for our company.

In addition, our alliance with Novartis should be viewed as an important and high diligence validation of Alnylam's leadership in translating the science of RNAi into a bona fide product engine. It should also go without saying that this alliance is clear validation of our leadership on IP and the RNAi field. Novartis now joins Merck and Medtronic as an Alnylam partner. This is about as strong a syndicate of partners as a biotech company could possibly have. Together, these alliances have brought us in excess of $100 million of recognized funding with significant future R&D funding, milestone payments, and significant downstream value retention in the form of co-development, profit sharing, or co-promotion of products or royalties on product sales.

Let me now turn to an update on IP and how we at Alnylam continue to leverage the value of this unique asset through licensing activities that complement our activities in forming major alliances. As you know, we have built a leading IP position covering all aspects of RNAi therapeutics, fundamental patents, chemistry patents and target patents. The strength of our IP position for RNAi has been recognized by 16 separate companies who have entered into license agreements with us, including six new companies in this quarter alone.

In addition, we also saw a significant further strengthening of our IP leadership position in RNAi with a steady and un-dampened drumbeat of new patents in major pharmaceutical markets. Key recent events include the allowance of broad claims from the European Patent Office for a new patent called Kreutzer-Limmer 2. The new patent includes allowed claims that cover therapeutic compositions, methods and uses of siRNAs and derivatives directed toward over 125 disease targets. As many of you know, we hold exclusive rights to the Kreutzer-Limmer patent family through our 2003 acquisition of Ribopharma AG, one of our most important bold steps to consolidate intellectual property in the RNAi space.

Today, we are very pleased to announce the issuance of additional U.S. patents to Isis Pharmaceuticals that are exclusively licensed to Alnylam under our March 2004 alliance. These new patents cover chemical modifications of oligonucleotides that may be required to introduce needed drug-like properties into siRNAs for the development of RNAi therapeutics. The issuance of these U.S. patents extends the over 150 issued U.S. patents licensed exclusively to Alnylam for commercialization of siRNAs from the Isis IP estate.

Finally, we recently in-licensed key discoveries from Stanford University published in the journal Science that describes the disease biology of an important microRNA called miR122 that is required as a host factor for hepatitis C infection in the liver. This real and tangible progress on intellectual property is manifested in the major alliances, such as Novartis that I commented on earlier, but also the clear progress we have made in the third quarter on both target-by-target therapeutic licenses, our so-called InterfeRX program, and also licenses into the reagent market.

In this regard, key recent progress includes an InterfeRX program license to Nastech Pharmaceuticals for the commercialization of RNAi therapeutics that target TNF-alpha, a key mediator of inflammatory and autoimmune diseases and also four new reagent market licensees, including Eurogentec, Sigma-Aldrich and MWG-Biotech AG, and Ciagen (ph).

Finally, on the organizational front, we were extremely pleased to announce this past quarter the addition of Jim Vincent to our Board of Directors. Mr. Vincent was a former chairman and CEO at Biogen from 1985 to 2002 and he is aptly credited with leading and driving the successful development of Biogen as one of the industry's top biopharmaceutical companies.

We are certain that his experience will be extremely invaluable to Alnylam as we build our company. In summary, it has been a very productive quarter and indeed, we feel that the events of the past two months have truly propelled our model forward in achieving its vision and mission.

We are now a company about to enter the clinic, we have several significant partnerships in place to drive the discovery and development of RNAi therapeutics, we have a strongly and uniquely validated patent position for the development and commercialization of RNAi therapeutics and the financial wherewithal to build a significant pipeline of innovative medicine to make a difference in the lives of patients. I will now turn the call over to Patty Allen to review our financial results for the quarter. Patty?

Thanks John, good afternoon everyone. During the third quarter, we reallocated resources and stepped up our development efforts, particularly with our RSV program resulting in the IND filing we announced last week. As such, our financials for the quarter reflect this increased investment in our lead development program and continued investment in the rest of our pipeline.

In addition, the alliance with Novartis strengthens the financial picture of the company and as John noted, provides us with the resources and partners to build an even more significant pipeline of RNAi therapeutics that we couldn't have imagined before.

Our GAAP net loss for the quarter was $10.7 million, or $0.51 per share, compared to $6.4 million or $0.33 per share in the third quarter of 2004. The net loss included $2.2 million of non-cash stock based compensation charges for the current quarter and $731,000 for the same quarter last year. We also incurred higher external research costs related to the advancement of our RSV induction program towards the ultimate IND filing that we announced last week.

Revenues in the third quarter of 2005 were $1.4 million, a slight increase from the quarter ended September 30, 2004. These revenues included the following; $300,000 of cost reimbursement revenues related to our June 2004 Merck Ocular collaboration as well as $600,000 in revenues from the amortization of certain payments received by Alnylam from Merck under the Merck 2003 technology collaboration and the June 2004 Merck Ocular collaboration. We have recorded these payments as deferred revenue and amortized the associated revenues over the estimated periods of performance under these agreements.

In addition, we have $300,000 of revenues earned from the original $500,000 upfront payments we received relating to our March 2005 collaboration agreement with the CF foundation and $200,000 relating to our interferox (ph) license with Nastech Pharmaceuticals and our four new reagent license signed during the third quarter.

Research and development expenses were $8 million in the third quarter of 2005, including $1.1 million of non cash stock based compensation as compared to $4.8 million in the third quarter of 2004 which included $200,000 of non-cash stock based compensation. The increase in R&D is primarily due to higher research costs related to the advancement of our RSV program and the fact that we had our AMD program in development and heading towards the clinic as well until we made the business decision in September to put the program on hold.

G&A expenses were $4.1 million in the third quarter of 2005, including $1.1 million of non-cash stock based compensation as compared with $3 million in the third quarter of 2004 which included $500,000 of non-cash stock based compensation. The increase in G&A expenses is due primarily to legal and other related professional costs associated with our Novartis alliance and other business development related activities.

At the end of the third quarter, Alnylam had cash, cash equivalents and marketable securities of $24.8 million, which does not reflect the $68.5 million of gross proceeds received from Novartis in October after the alliance was closed. These proceeds will be recognized in the fourth quarter.

Through September 30, 2005, we have utilized $8 million of the $10 million available under our equipment line of credit we have with Lighthouse Capital Partners. In June 2005, we amended this agreement to extend the period under which we are allowed to draw down the remaining $2 million available under the line of credit through December 31, 2005. Beginning in July 2005, the line of credit is being repaid over four years.

In terms of shares outstanding, with Novartis' purchase of approximately $5.3 million shares of Alnylam's common stock, a 19.9% interest in our company, we now have approximately 26.6 million shares outstanding.

As a result of the upfront payments and the equity investment received from Novartis as part of our alliance announced in the third quarter, we increased our cash guidance from greater than $25 million to greater than $75 million at the end of 2005. As we mentioned earlier, this alliance was closed in October 2005 and the $68.5 million we received was not included in our third quarter financials. We believe that we are on track to meet our financial guidance for 2005. I'll now turn the call to Barry for a review of our 2005 milestones.

Thanks Patty and thanks to all of you for joining our call today. As John mentioned earlier, one of the business highlights of the quarter was the transformation and collaboration we entered into with Novartis to develop RNAi therapeutics. We stated earlier in the year that we would enter one strategic alliance and we've done two. Medtronic in February and just recently Novartis.

In addition, we established the goal of being a clinical stage company in 2005. With our ability to accelerate our RSV program, we're well on our way to achieving that goal with the IND filed for ALN-RSV01 just last week. The achievement of these key milestones has set the stage for future growth and to our planning to build on this momentum to drive forward our development programs and business initiatives.

Looking forward, we're on track to announce our next development program by year end. We will also continue to make strong progress with our preclinical programs with data presentations upcoming at the Society for Neuroscience, November 12-16 in Washington, D.C. On Saturday, November 12, we will have a poster from data from our Huntington's program. On Monday, November 14, our scientists and collaborators will be giving a presentation including data from our Parkinson's program and on Tuesday, November 15, we will have some early data from a program we have ongoing in neuropathic pain.

We also will have data presented at the Cold Spring Harbor Vaccine Meeting December 1-4. As always, you can expect us to show continued strengthening and leveraging of our leading intellectual property position. Importantly, and in closing, I'd like to remind everyone to save a date for upcoming R&D day on December 14 in New York. We look forward to providing you more in depth review of our development programs at that time.

It's been a tremendous year so far for Alnylam and we have more exciting news to come as we execute on our milestones. Thank you everyone for listening this afternoon. At this time, I'd like to turn the call over the operator and take questions. Operator, can you open up the questions, please?

(Operator Instructions) Your first question comes from the line of Andrew McDonald with Think Equity, please proceed.

Hi guys and thanks for taking the call.

Hey Andrew, how are you?

I'm good. My question concerns the intranasal pulmonary delivery of siRNA. To my knowledge it has not yet been done in humans. I'm wondering if it has been done in primates and wondering about whether some of the challenges to delivering in a ligo (ph) in that manner, in a primate versus a rodent and what you guys are doing to look at that.

Well Andrew, as you probably know, because you've been in the industry side before, the toxicology program that we did in support of the IND for RSV01, included studies in both rodents and primates, so specifically comprehensive toxicology, pharmacology, toxicokinetic studies that were done under GLP conditions in both species, rodents and cynomolgus monkeys.

So we do have, on a safety level, we have quite a bit of information around the delivery and tolerability of siRNAs delivered, our specific GNP manufacture material in cynomolgus monkeys and as we said, the safety profile that is included in our IND is remarkably clean and we feel very encouraged by those data as it relates to other types of respiratory approaches that we would examine with this technology.

And then as far as getting appropriate coverage of the epithelial lung cells with intranasal or pulmonary delivered siRNA, do you have much of a feel for that aspect of the technology?

Yes, so both in primates and in rodents, we have examined the biodistribution of intranasally in and also by inhalation sRNAs delivered to those species and feel that we can get the appropriate coverage. Keep in mind, Andrew, the intranasal dosage form is going to be pursued through an IND amendment with an inhalation dosage form. So that that is ultimately the clinical and commercial formulation that will be used for ultimately pediatric indications.

The intranasal dosing provides us early safety data together with the opportunity of going into an experimental infection model in adult volunteers which is an upper respiratory tract disease model in an adult volunteer population.

Great, thank you.

Super.

Again, ladies and gentlemen, to ask a question, please press star one. There are no more questions at this time, I will now turn the call over to John Maraganore for final remarks.

Thank you everybody. Again, it's been a very exciting quarter for us at Alnylam as we look forward to more to come in the few months that remain for this year but obviously next year as well. So thanks everybody and have a good night.

Thank you for your participation in today's conference. This concludes the presentation, you may all disconnect. Good day.