Alnylam Pharmaceuticals Inc (ALNY) 2006 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Alnylam Pharmaceuticals' Conference Call to Discuss the First Quarter 2006 Financial Results. There will be a question-and-answer session to follow. Please be advised that this conference is being taped at Alnylam's request.

I would now like to turn the call over to Ms. Cynthia Clayton. You may proceed, madam.

Thank you. Hi. This is Cynthia Clayton, Director of Investor Relations and Corporate Communications for Alnylam Pharmaceuticals. With me today are John Maraganore, Chief Executive Officer; Barry Greene, Chief Operating Officer; Vin Miles, Senior Vice President of Business Development; and Patty Allen, Vice President of Finance.

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

Various statements we make concerning our future expectations, plans and prospects, including, without limitations, statements related to our product goals and business goals for 2006 and projections for the amount and sufficiency of cash, cash equivalents and marketable securities, constitute forward-looking statements for the purposes 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 risks related to our approach to discover and develop novel drugs, which is unproven and may never lead to marketable products; obtaining, maintaining and protecting intellectual property utilized by our products; our ability to enforce our patents against infringers and to defend our patent portfolio against challenges from third parties; our ability to obtain additional funding to support our business activities; our dependence on third parties for development, manufacture, marketing, sales and distribution of our products; the successful development of products, all of which are in early stages of development; obtaining regulatory approval for products; competition from others using technology similar to ours and others developing products for similar uses; our dependence on collaborators; and our short operating history; as well as those risks more fully discussed in the "Risk Factors" section of our most recent report on Form 10-K on file with the Securities and Exchange Commission. 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. We do not assume any obligation to update any forward-looking statements.

I will now turn the call over to John.

Thanks, Cynthia. And welcome everyone to today's first quarter 2006 earnings call. We started 2006 with exciting plans on both products and business. And so far, we're having a great year.

Alnylam has made significant progress with our clinical and preclinical development programs. And we have continued to demonstrate, in world-leading peer review journals, our scientific leadership in creating the premier RNAi product platform.

On the business side, our business development initiatives have continued and will continue to yield value-creating partnerships, and our IP portfolio has been significantly bolstered. At the same time, we have strengthened our balance sheet.

One of the reasons for this strength is a significant increase in revenue due to R&D funding from our pharmaceutical alliances. We expect funding from these alliances to form the basis for continued and sustainable revenues over the next several years. All in all, we are well positioned to make the rest of 2006 a very exciting year, a year focused on achievement of major milestones and key value drivers.

All of the events I just discussed have great significance to Alnylam. They are key elements in our strategy to bring forward an innovation-rich pipeline of RNAi therapeutics that address human disease in a fundamentally new way. Our leadership in IP combined with existing and future partnerships providing sustainable fundings also directly contribute to our mission of building a leading biopharmaceutical company.

Let me update you on our quarterly accomplishments, starting with our people. We were very pleased this quarter to announce the appointment of Dr. Akshay Vaishnaw as VP-Clinical Research. Akshay was most recently the head of translational medicine at Biogen Idec. We are delighted that Akshay has joined our team, and we welcome him as a leader of our efforts to bring innovative medicines to patients.

Turning to our pipeline. Our programs have all been progressing very well. We have built a pipeline that we believe has the right balance of proprietary and partner programs; provides us with multiple shots-on goals; and is innovation-rich; and that we are addressing non-druggable but well validated targets for important diseases.

These programs include efforts in RSV, pandemic flu, cystic fibrosis, neuropathic pain, spinal cord injury, and Parkinson's and Huntington's diseases. They also include a significant number of as-yet-undisclosed programs, which are part of our pharmaceutical partnerships.

Without a doubt, one of our most important achievements in the quarter was the completion of two Phase I studies demonstrating that our lead RNAi therapeutic, ALN-RSV01, is safe and well tolerated in humans. Our RSV program represents the first and only RNAi therapeutic in clinical development for the treatment of an infectious disease, and these data support continued development of this candidate for the treatment of RSV infections.

We announced data from these two Phase I trials of ALN-RSV01 last week at the 2006 Pediatric Academic Society's annual meeting in San Francisco. We conducted these trials to evaluate the safety, tolerability, and pharmacokinetics of ALN-RSV01 in healthy adult volunteers.

Both trials were double-blind, randomized and placebo-controlled. In total, 101 subjects were enrolled in this study, and 65 were treated with ALN-RSV01 and 36 with placebo. The subjects received single or multiple daily doses of ALN-RSV01 or saline placebo in a nasal spray.

Results show that our drug, which was given in relevant doses, was both safe when administrated intranasally to human volunteers and showed a safety profile comparable in every respect to placebo with regard to any reported adverse events. All reported adverse events for ALN-RSV01 and placebo subjects were mild with no reported serious adverse events.

Further, there was no evidence of laboratory or electrocardiographic abnormalities in subjects exposed to drug. And finally, as expected, there was no significant exposure systemically to ALN-RSV01, when administered intranasally.

Based on these very robust clinical data and our encouraging preclinical data for ALN-RSV01, we plan to further advance this promising RNAi therapeutic into additional clinical trials for the treatment of RSV infection.

Specifically, we plan to initiate a Phase I study of an inhaled formulation in the second half of the year. And we are aiming to initiate an experimental infection or a viral challenge study later in the year. We expect that these efforts will enable us to initiate a Phase II trial in naturally infected RSV patients in the first half of 2007.

We believe that a promising new therapy, such as ALN-RSV01, for the treatment of RSV represents a very significant market opportunity, and we will continue to move this program through a comprehensive clinical development program. Because this program is unpartnered, we maintain full control and all of its value. And you can expect us to advance this exciting program forward with very strong commitment.

Moving on to our pandemic flu program. We are applying our expertise and experience with RSV to yet another viral disease of the lung, namely pandemic flu, our second development program. In fact, our progress on our RSV program provides a critical roadmap for our development efforts with regards to flu.

As I mentioned earlier, we formed a new collaboration with Novartis in this quarter for the development of an RNAi therapeutic for the treatment of pandemic flu in February. This is in addition to our September 2005 landmark collaboration with Novartis and is now our fifth major pharma partnership overall that also includes alliances with Merck and Medtronic.

By any measure, Novartis has been an excellent partner, and the strategic rationale for partnering on flu could not be stronger. Their capabilities and experience in bringing innovative therapeutics to patients, their experience and track record as a partner with the US government on flu vaccines, combined with Alnylam's general expertise in RNAi and specific expertise in RNAi for respiratory viral pathogens makes us a formidable alliance.

In this alliance, Novartis is providing significant funding in the collaboration and both Alnylam and Novartis will share in any potential profits. We expect to file an IND for a pandemic flu program as early as the end of this year.

Now, turning to other pipeline programs. Beyond RSV and flu, we are very excited about the progress in our program for neuropathic pain. At the American Pain Society meeting just last week, Alnylam scientists and collaborators presented data demonstrating In-Vivo efficacy for RNAi therapeutics targeting sodium channel V1.8. Sodium channel V1.8 is recognized as playing a significant role in chronic neuropathic pain and is well validated as an important target in this indication. But it is an undruggable target by conventional approaches.

We also continue to make strong progress in our efforts on other pipeline programs as well. And as a reminder, we expect to announce our third formal development program in the second half of this year.

Now, in addition to Alnylam's continued progress on these direct RNAi programs in our pipeline, we are very excited about the progress we're making on systemic RNAi delivery. Just this past month, the journal "Nature" published groundbreaking research by Alnylam scientists on the systemic delivery of an RNAi therapeutic targeting a clinically relevant, non-druggable target in non-human primates.

This article represents the first demonstration of therapeutic gene silencing in primates with systemically administered RNAi. We believe that these results were a major step forward in the potential for systemic RNAi, the broadest application for RNAi therapeutics.

Moreover, the publication of these primate data in Nature continues to speak volumes to Alnylam's commitment to scientific excellence. I am proud of our scientists and also of their collaborators, at Protiva Biotherapeutics, for this important scientific achievements.

In this work, we used chemically optimized small interfering RNAs combined with a formulation that encapsulates the siRNAs in a lipid particle and enables delivery of the drug to the liver following systemic administration. The administration of the RNAi therapeutic specific for apoB, a clinically relevant target involved in cholesterol metabolism, led to a profound therapeutic effect. These effects were rapid and durable.

Indeed, low doses of drug resulted in silencing of the apoB messenger RNA by over 90%, reduction of apoB protein levels in the blood of these primates by over 80%, reduction of total plasma cholesterol by over 65%, and a reduction of LDL levels by over 85%. Remarkably, these effects lasted for at least 11 days after a single intravenous dose. Moreover, this administration was well tolerated.

These findings significantly advance the field of RNAi research, as they expand the opportunity for therapeutics with systemic RNAi applications. We believe that our non-human primate data are the most comprehensive and important dataset generated to-date demonstrating the potential for systemic delivery of RNAi therapeutics. They represent a major derisking event in the field.

Further, the progress we've made gives us confidence that we can advance systemic RNAi opportunities towards clinical development within the next 18 to 24 months. We are still considering several potential opportunities to pursue in our first systemic RNAi program, including treatments for systemic viral infections, metabolic and cardiovascular diseases and cancer. So stay tuned.

To advance our systemic RNAi platform, we also announced three new relationships that will support our systemic RNAi efforts and will provide Alnylam and our existing and future partners with access to key technologies, capabilities and delivery-related intellectual property that further reinforce our leadership position and enhance our product platform for RNAi therapeutics.

We signed an agreement with Inex, a pioneer in the development of liposomal delivery systems, which provides us access to their liposomal technology for RNAi therapeutics directed to specific gene targets. In addition, we will collaborate with Inex to explore the potential of various liposomal formulations for delivery of RNAi therapeutics in a more general way.

We also formed an agreement with MIT that provides us with an option to take licenses to novel liposomal drug delivery systems being developed in the lab of Dr. Robert Langer. We expect that these licenses will enable us to develop additional systemic delivery approaches using liposomes, similar to the approach used in our primate study in the journal Nature.

And just today, we were pleased to announce an agreement with the CBR Institute, at the Harvard Medical School, around very exciting technology for systemic delivery of small interfering RNAs to tumors and other cell types, including T-cells. This license stems from work from Dr. Judy Lieberman's lab that was recently published in Nature Biotechnology. We are delighted to work with Judy, as she is a creative out-of-the-box thinker, who has led much of the translational research on RNAi in the academic community.

Now, let me turn to a discussion on our first quarter progress on intellectual property as well as our future plans on partnerships. Our IP position provides us exclusive access to the earliest and broadest intellectual property in the RNAi therapeutics field. These are the fundamental patents in RNAi that we believe will be needed by all companies developing and commercializing RNAi therapeutics.

To remind you, there are currently eight issued, granted or allowed fundamental patents in the world's largest pharmaceutical markets, the US and Europe. We alone have access or outright ownership to all eight of these patents, and we have exclusive rights to seven of the eight patents.

This was a very important quarter for the continued development of our IP leadership. In January, we announced the allowance of our exclusively held Tuschl II patent by the US Patent and Trademark Office. To remind you, this patent stems from work done by Professor Thomas Tuschl, when he was at the Max-Planck Institute in Munich.

It is work that corresponds to the landmark 2001 Nature paper by Tom's lab that was the first published work showing that an RNAi therapeutic was the mediated - can be used to mediate RNAi in mammalian cells using a double -- a small double-stranded RNA with 3'-prime overhangs called small interfering RNAs.

It is distinct as a patent in both inventorship and ownership from the so-called Tuschl I patent to which we also happen to have a license. The recently allowed 96 claims for Tuschl II include methods of making small interfering RNAs that are 19 to 25 nucleotides in length with one or more 3'-prime overhangs with or without chemical modifications, including so-called "no ribose" modifications and for targeting any messenger RNA in a mammalian cell.

Thus, not only is this a patent that is crucial as part of our fundamental IP, but it is also the only one allowed by the USPTO that broadly covers siRNAs. It also happens to be the broadest allowed patent covering all types of relevant chemical modifications and all disease targets, not just one, two or three targets.

Of course, the significance of our IP is best measured by the nearly 20 companies -- major pharmaceutical companies, like Merck, Medtronic and Novartis, biotech companies and reagent companies that have acknowledged our IP position through licenses they have taken.

We were very pleased this quarter to have completed a second alliance with Novartis that I mentioned earlier. We also added Dharmacon, a subsidiary of Fisher Scientific, and IDT as licensees this quarter in the reagent market. With the addition of these names, we now estimate that the majority of all siRNAs sold today as reagents are sold under licenses to Alnylam's intellectual property.

Even with this track record behind us, our business development team is certainly not resting on their laurels. The significance of our IP, the scientific leadership we have uniquely demonstrated and the huge scope of opportunities for RNAi therapeutics will continue to drive partnerships. Partnerships are a current and future strategy for how we will build our business, and we expect to enter into many additional partnerships with pharmaceutical companies, biotechnology companies and reagent companies in the future.

We expect that these partnerships will include partnerships on pipeline programs that we have taken to later stages of development and also higher inflexion points of value as well as drug discovery partnerships on specific targets or groups of targets.

We also expect the funding associated from such partnerships to form the basis for continued and sustainable revenues over the next several years, as you are beginning to see already in our first quarter sales.

Now, with that as a brief summary on an extremely productive start of the year, let me turn over the call to Patty for a review of our quarter's financials. Patty?

Thanks, John, and good afternoon everyone. During the first quarter, we continued to execute against our overall financial objectives. We have been very focused on managing our expenses even as we have increased investments in clinical and R&D spending, primarily due to our Phase I related activities. In addition, as we projected, we have seen a significant step-up in revenues as a result of our value creating partnership with pharmaceutical companies, primarily our Novartis relationship. Also, we're very pleased to have significantly strengthened our balance sheet this quarter with the completion of the follow-on offering that raised over $62 million in net proceeds.

At the end of the first quarter, we had cash, cash equivalents and marketable securities of $132.3 million compared to $80 million at December 31, 2005. The increase in cash in the first quarter is primarily due to $62.2 million of net proceeds from the Company's public offering of 5.1 million shares of our common stock in January 2006. Following the completion of this offering, Alnylam now has approximately 32 million shares of common stock outstanding.

Our GAAP net loss for the first quarter was $8.9 million, or $0.30 per share, compared to $6.6 million, or $0.32 per share, in the first quarter of 2005. On a GAAP basis, revenues in the first quarter of 2006 were $5.7 million, a significant increase from the $1.6 million reported during the first quarter of 2005, reflecting our expanding base of pharmaceutical partnerships and the significance of our alliances with Novartis.

Revenues include $4.4 million of cost reimbursement and amortization revenues related to our main collaboration with Novartis, $800,000 of cost reimbursement revenues related to our Novartis' flu collaboration, and $300,000 of cost reimbursement and the amortization revenues related to our collaboration with Merck. As a reminder, our goal is that we expect to receive greater then $15 million in alliance-based funding from our partners in 2006, and we are on track to achieve that goal.

GAAP research and development expenses were $11.9 million in the first quarter of 2006, including $1.5 million of non-cash stock-based compensation, compared to $5.4 million in the first quarter of 2005, which included $200,000 of non-cash stock-based compensation.

The increase in R&D expenses was primarily due to higher clinical trials and manufacturing-related expenses for our two Phase I RSV clinical trials, which began in December 2005. The increase was also due to higher external service costs, associated with our direct and systemic RNAi therapeutic program, and costs related to an increase in R&D headcount over the past year to support our expanding pipeline and alliances.

These increases were partially offset by lower expenses for our AMD program, for which we suspended development in September 2005, due to the competitive landscape for AMD. The increase in non-cash stock-based compensation was due primarily to the adoption of FAS 123(R) on January 1, 2006.

General and administrative trade expenses were $3.6 million in the first quarter of 2006, including $800,000 of non-cash stock-based compensation, compared with $3 million in the first quarter of 2005, which included $300,000 of non-cash stock-based compensation. The increase in G&A expenses was due primarily to higher non-cash stock-based compensation expenses related to the adoption of FAS 123(R) on January 1st.

In summary, we are in a solid financial position and remain on track to meet our guidance of yearend cash in excess of $115 million. I'll now turn the call over to Barry for a review of our upcoming milestones.

Thanks, Patty. As John mentioned, we've accomplished a great deal, so far, this year. And we expect to continue our track record of execution and our momentum over the course of 2006.

With regard to our pipeline for RSV program, we're making rapid progress in advancing this RNAi therapeutic candidate. We expect to initiate, as we discussed, a Phase I inhalation trial in the second half of 2006. In addition, we aim to initiate an experimental infection clinical study in the second half of 2006, and our plan is to initiate a Phase II trial in naturally infected RSV patients in the first half of 2007. For our pandemic flu program, we are aiming to submit an IND application as early as the end of the year.

In addition to these two programs, we intend to initiate and announce an additional development candidate in the second half of 2006. At the same time, our scientific leadership on all forms of RNAi therapeutics, including siRNAs and microRNAs, will continue to be highlighted in peer review meetings and high quality peer review journals.

On the business side, we continue -- we expect to continue the significant alliance-based funding we announced this quarter, and our plan is to bring in over 15 million in alliance-based funding throughout the year. The leadership we've already shown this year in our IP estate will continue to grow. In particular, we will continue to strengthen our intellectual property position by obtaining patent issuances and grants in major markets over the course of the year.

To reemphasize, our scientific IP leadership position affords us the ability to continue forming collaborations that you will see in the future. We believe the funding associated with our current and new collaborations will form the basis for continued and sustainable revenue over the next several years.

In addition to our large pharma partners and consistent with our strategy, we plan to grant more InterfeRx and research product licenses during 2006. Finally, our plan is to continue to maintain a very strong balance sheet, and we are on track to end 2006 with more than $115 million in cash.

At this point, I'd like to turn the call back to the operator for questions. Alexis?

Thank you, sir. [OPERATOR INSTRUCTIONS]

Your first question comes from the line of David Witzke with Banc of America. You may proceed.

Hi. Good afternoon.

Hey, David. How are you?

I'm good. John, I wonder, can you walk through what the key steps are remaining on the technology side prior to generating a systemic RNA lead for IND enabling studies and what the key hurdles are for each steps and how -- I guess, how confident you are in conquering these remaining hurdles?

Great question, Dave. I mean, clearly, the progress that we reported in Nature just a month and a half ago is really quite exciting, and we're thrilled by the data and the results that we've seen.

What really appears to be the case here is that with the liposomal formulation that we used in that paper together with the optimized siRNAs that we can achieve very, very significant silencing of a disease-causing and highly clinically relevant gene in a non-human primate.

So the level of efficacy validation that we have just demonstrated in that work in a very robust study -- that was 18 primates in that study -- is really something, which I think is a major derisking event, certainly for the whole field of RNAi therapeutics but also certainly for Alnylam's efforts on systemic RNAi.

And the key steps, going forward, are really the blocking and tackling that that we have demonstrated in the past and are capable of doing in terms of bringing the program like that through the appropriate scale-up activities and the appropriate safety pharmacology studies and the clinical and the manufacturing type studies that really support an IND filing.

So when we talk about the time horizon we're talking about here, we do believe that where we are today allows us to advance a program with that technology platform to the start of clinical studies as early as the next 18 to 24 months.

Now, we haven't disclosed the exact clinical program that we are going after. We are looking at many opportunities, not only for Alnylam-alone programs, but you wouldn’t be surprised also as part of our relationships with our major pharma partners, in particular, both Merck and Novartis.

But in terms of the steps, going forward, they are very standard steps that really relate to the traditional pre-IND type studies that one gets engaged in, as we did with ALN-RSV01.

And I guess the molecular architecture of a lead, would it look very similar to the liposomal formulation in the Nature publication?

Yes. I mean, clearly, the relationship that we've announced with Inex as well as the relationship with the Langer lab are the types of platform technologies that we would engage and use in the advancement of this type of therapeutic candidate. And there's obviously some optimization that we will do beyond what we published in Nature.

But keep in mind, we finished that Nature work -- that was well four to six months before the paper was published. So there is some significant lead-time here in terms of our efforts to advance this candidate forward.

And then, John, regarding the recent publication, has this led to any pickup in unsolicited business development interest from big pharma that you are currently now working with? And I guess, in general, how do you characterize the response?

Well, you know, it's a great -- it's -- the answer is, categorically, yes. As you probably know, it was really the Nature publication we published in November of 2004 that really drove a number of discussions across the pharma industry with a lot of obvious suspects that people can imagine. And that led to us deciding that Novartis was really the right choice for a significant partnership that brought us a major commitment from them as well as a significant scale of funding, going forward, and that led to our Novartis relationship.

Not surprisingly, within weeks of publishing our Nature paper, we have received a large number of interest, a significant number of phone calls unsolicited from the pharma industry, who have looked at this work and are very, very interested in potential opportunities.

Thank you.

Thanks, Dave.

Your next question comes from the line of Edward Tenthoff with Piper Jaffray. You may proceed.

Great. Thank you.

Hi, Ted.

Hey, guys. How are you?

Good.

Congrats on a great start to the year.

Great. Thank you.

Hey, guys, just real quick question. Firstly, Patty, you went through the numbers pretty quick. Could you reiterate what you said about the breakout between the different collaborative components for the revenues?

Sure. So on a GAAP basis, Ted, we recognized $4.4 million of cost reimbursement and amortization revenues from the main Novartis alliance, $800,000 of cost reimbursement revenues related to our Novartis flu collaboration, and $300,000 of cost reimbursement and amortization revenues from our collaboration with Merck.

And just to remind you, Ted, just to add to that, the Novartis flu alliance started in February.

Great. Okay. Good. And are there pretty consistent amounts, going forward, or does it kind of depend on the R&D that is done within the quarter?

Well, what we said is we expect to continue to ramp up the main Novartis alliance through 2006, Ted. And as John just said for the Novartis flu alliance, we only have half of a quarter of revenue in those numbers. So we expect to see a continued ramp up for the flu program with Novartis.

And the Novartis figures don't include the amortization of the Novartis upfront. Is that correct?

No, they do. So what I reported is the $4.4 million of cost reimbursement and amortization of the upfront.

Great.

Okay.

Okay. Good. That's very helpful. Actually, I'll jump back in the queue. Thank you.

Thanks, Ted.

Thanks, Ted.

Your next question comes from the line of Mark Monane with Needham & Company. You may proceed.

Thank you very much for taking my question. Good afternoon everybody.

Hi, Mark.

Hey, Mark.

Couple of questions here. What -- to be concrete, one concrete, one more, one abstract -- to be concrete, what is the registration strategy in Alnylam's point of view for the RSV program? And is that registration strategy influenced by MedImmune's Numax or any other competition in this area?

Great. Great question, Mark. So the registration strategy -- so let's take a step back. We believe and have, I think, been very appropriately interested in the treatment opportunity for RSV infection.

So notwithstanding the enormous success that MedImmune has had and will continue, we believe, to have in the prevention of RSV infection in high-risk premature infants, we believe that there is a separate and distinct opportunity for the treatment of established RSV infection in kids as well as in a number of adult populations.

So the clear strategy that we have as we move forward with this program, is to develop a therapeutic -- for which there is now no treatment; that is widely used in these kids -- for the treatment of RSV infection in either hospitalized kids and/or patients that are not hospitalized that have a significant lower respiratory track infection but whose disease course is still premature from the standpoint of requiring hospitalization.

And we haven't yet decided where the initial Phase III studies will be aimed at. That will depend a lot on the progress on the Phase II studies and where we see the emerging efficacy profile and safety profile of the drug. And that will guide a lot of our thinking about the Phase III.

But clearly, in either the hospitalized cohort of kids, for which there are well over 100,000 hospitalizations in the US per year and many more worldwide, or in the larger number of pediatric patients that have a significant lower respiratory track infection but are still not candidates for hospitalization, which is a larger number of patients, we believe there is a significant opportunity for this drug.

And we do not expect that that in any way, shape or form would compete with where Synagis and Numax are aiming, which is the prevention of RSV infection in high-risk premature infants.

Okay. Fair enough. That was pretty clear. Thank you. The second question is a little bit more abstract. And that is, looking at your next development candidate that I think BG talked about, what is the -- now you have a choice of direct and systemic. How do you figure out which one is your next candidate, and have you figured out what that will be?

Well, Mark, as you know, we have a number of preclinical efforts that are ongoing and others that we haven't yet disclosed, because they are [technical difficulty] coming along very nicely but just haven’t had the opportunity of presenting data on those programs. And we're looking at both systemic and direct opportunities from the standpoint of what our next development program will be.

It's going to be very data driven in terms of which one we select. Obviously, internally, we have some ideas and some thoughts. And we look forward to sharing them with people sometime in the second half.

Fair enough, again. Thanks for the added information.

Thank you, Mark.

Your next question comes from the line of Andrew Hack with Rodman and Renshaw. You may proceed.

Hi, all. Nice quarter --

Hey, Andrew.

Hey, Andrew.

Thank you.

-- and revenue number.

We're pleased.

Yes. I wanted to delve a little deeper into this easier questions around that next development candidates.

Yes.

I know you answered to some degree on the last question, but I thought maybe you could go into a little more detail on how you -- and obviously, you have a number of "irons in the fire" for a next program. You have ongoing partnerships, which you may announce development candidates out of. That's one source, I assume, for potential development candidates.

And there is also the question of -- if it's not out of one of your existing programs, do you go with a program that's easily -- more easily partnerable or do you go with something you could actually take along on your own to market potentially. And I was wondering if you could elaborate a little bit on those various strategic components.

Sure. I feel like inviting you to our upcoming board meeting, where we will be talking about a lot of these issues.

Please do.

Sure. No. I think those are great questions, Andrew. And we are looking at them -- all those issues very closely. But let me just add some color, because I want to be clear. One is that the next development program that we commit to will be a proprietary program. So obviously, we have programs that are ongoing with our partners, and those are progressing very, very nicely. But we want to be clear that the next program that we discuss in terms of what Alnylam will do would be a Alnylam proprietary program.

Not to say that there aren't very exciting programs that are moving along together with our Merck relationships but also our Novartis relationship, but I want to clear that it really is a program that from an investor standpoint is going to be an Alnylam proprietary program.

In terms of how we think about the strategy from a business standpoint, we're looking at potential candidates that fit into both buckets. And one that could in fact be addressing opportunities where ultimately a partnership-based approach would make a lot of sense, but then others where we believe that we can find and identify clinical opportunities that are Alnylam to-the-market type opportunities.

And I think one of things that we've been able to do based on the position that we've put Alnylam into through the partnerships that we've already done is that how the financial wherewithal and the sustainable funding source that actually allows us to make that decision.

It wouldn’t be the case if we had done small partnerships with no significant funding, but we're actually in the situation where we've done major partnerships with sustainable funding. And the free cash from those partnerships allows us to fuel choices about how we can build our business.

So it really is in both of those buckets, of course, but the opportunity of us doing something that is our Alnylam to-the-market opportunity is something which is very much in front of us.

It's great. Both of those were very helpful -- both the color on the desire to do a proprietary programs for the next clinical development program and the focus on Alnylam to-the-market-type strategies.

Going down a level into some of the activities you have ongoing, one thing that I noticed in the release is that the Merck reimbursement continues to be quite low. And I wondered if you could give us any sense -- because I'm sure there are a range of ongoing activities there -- of what's ongoing with Merck and what we might expect, going forward, for the Merck relationships?

That's a good question. So what's going on with Merck is that we have obviously two different relationships with Merck. In the first relationship with Merck, the way that that relationship works is they provided us, I think, to-date about $16 million or $17 million of funding -- both equity purchases and also milestones that have been paid, cash milestones that have been paid to Alnylam.

The way that relationship works is we take certain programs at our cost through the end of GLP talks. Merck then has the option to opt-in and co-develop and co-promote with Alnylam.

So the nature of the funding in that first relationship is very much geared to the front-end funding that we received combined with future funding that comes upon completion of certain programs that are Merck proprietary programs to a specific stage of development.

In terms of the Merck Ocular relationship, as we've talked about at the last conference call, the dynamics of the AMD market in light of what's happened with Lucentis and off-label use with Avastin has appropriately has us and Merck thinking about the right way forward in that entire setting.

And so we are not very actively, as we were before when we were developing Veg-F, advancing specific programs in that specific relationship. We are much more focused on the first relationship and obviously continue to look very closely on what the right next step forward is for the potential in the ocular disease opportunities.

Thanks. Those were very helpful.

Good.

Your next question comes from the line of Andrew McDonald with ThinkEquity. You may proceed.

Hey, Andrew.

Hey. Good afternoon. Thanks for talking the call.

Thank you.

The question that I have is one that you guys have probably thought a lot about, and that's the appropriate design for a proof of concept study for your siRNA for RSV.

Yes.

You know, the challenge study and you've kind of thrown that out there as a possibility. I'm wondering if you guys have any more clarity into that study, and what's the next step for you there?

Well, let me set some context, and then I'll hand it over to Barry to address that specifically. So what we are trying to do, just for other people on the call, Andrew, because I think the situation is much more clearly as we believe that with ALN-RSV01 one of the attractive opportunities of that development program is the opportunity of going into an experimental infection model in adult volunteers and demonstrating antiviral activity in an adult volunteer setting, using a safely administered and, of course, IRV-reviewed protocol, where RSV will be used at a very low dose to safely infect a human volunteer population.

So that's the context of what we've been aiming to do. Now, to do that, there have been many steps that we've had to be able to recreate in terms of a viral isolate and so forth. And let me let Barry articulate, most specifically. But before he does that, let me just say that we are optimistic about where that's going. Before we can make specific commitments, however, we want to make sure that all of our I’s and all our T’s are dotted across.

And that's right. Andrew, as you know, when we name an event and a date, we want to have a high degree of certainty that we are going to hit it as we commit. And we've had a track record of hitting the case we've committed to. That's why we've used the words we have on this program.

But the experimental infection model or the challenge study, as we often call it, is a path that has been used very successfully in developing flu antivirals. For RSV, this has been done before but hasn't been done for a quite a while.

So the steps we have to go through are, first, to grow a low pathogenic strain of RSV virus. Take that strain to people and ensure that we have a homogeneous infection in people so that we can then take the third step and apply ALN-RSV01 to those people, clearly, measuring safety and also measuring viral titer reductions by taking swabs both before drug administration and then after.

So it's a three-step process. As John mentioned, we have a high degree of confidence that we are executing across those, and we will initiate the studies at the second half of this year.

Great. Thank you, guys.

Thanks, Andrew.

[OPERATOR INSTRUCTIONS]

Your next question comes from the line of [Len Yaffe] with [Blackrock Partners]. You may proceed.

Thank you.

Hey, Len.

Hey. I was extremely impressed with the site specific antibody based technology that Dr. Lieberman has for systemic delivery of RNAi that you announced this morning that you will be licensing. And what I was wondering is if you could discuss what targets specifically you may be going after, and especially given that she has published some very interesting data on HIV and the CCR5 receptor as well as on the FAS gene receptors related to Hepatitis, liver cancer and any other diseases states, will you be looking at these too in collaboration with her or where do you expect that research to go?

Len, let me address that. I mean we too have been very excited by Judy's research. And Judy really is one of the leading academic researchers out there who has done what I think is true translational research in terms of the potential of RNAi in terms of systemic delivery.

And the work that she published in Nature Biotechnology was very impressive, because it showed not only the ability of delivering siRNAs to tumors in the context of a xenograph model, but also the ability of achieving delivery into T-cells.

And if you will, it's sort of a strategy of a much more targeted systemic delivery strategy compared to the liposomal delivery strategy that is part of our overall belief that we are creating Alnylam both with our internal efforts, but also with our in-licensing and collaborative efforts. The broadest suite, effectively, the multiple quivers in our overall bow and arrow set here, approaches for achievement of systemic RNAi.

And I think it's fair to say that Judy's technology, in particular, is very promising, as it relates to multiple different cell types where both in the context of potential oncology indications, but also I think excitingly potentially in the application of this technology for certain systemic viral infections, one could begin to imagine how we can use her type of technology to go after the those type of opportunities.

So we're also excited about it. You know, I think that you can rest assured that we will continue to amass delivery technologies and intellectual property in a way that continues to build what we think is unquestionably the leading RNAi therapeutics platform at Alnylam.

Great. And then, secondly, as I talk to researchers in this field, the comment that keeps coming back is the pace at which the drug discovery is accelerating that what they expected would take years is taking months because of RNAi. Are you seeing that to the same extent, and can you give us any sort of either anecdotal evidence of the rapidity with which advances are being made in this area?

Well, I think that the progress in the entire RNAi field has really been striking. And obviously I'm sort of in it. So I might feel that way in a biased way. But I think most people objectively will have a look at this field and have commented on how rapid the progress has been, ranging from -- when we think about it, it was only in 1998 that an observation in petunias was discovered to occur in the worm. And then it was 2001 that Tom Tuschl published in Nature that this occurs in mammalian cells. And here we are in 2006 with multiple programs across the industry in clinical development and many, many programs in preclinical development with clear achievement of systemic RNAi. So the field has really progressed very rapidly. And I think that we will continue to see that happening from the efforts that we have here at Alnylam.

So the critical factor has been and continues to be the optimization of delivery. And I think that the progress that we've made, very importantly, in the recent Nature paper should demonstrate and does demonstrate to us and should demonstrate to academic and clinical opinion leaders, but also the heads of R&D in major pharma companies that this is really something, which is, in fact, a very promising technology for the future of drug development and commercialization.

Great. Thank you very much.

Thanks, Len.

Thanks, Len.

At this time, there are no further questions in queue, and I would like to turn the presentation back over to management for closing remarks.

Well, thanks to everyone for participating in our Q1 call this afternoon. We appreciate you taking the time, and we hope that we've been able to convey to you the significance of the progress we have made this quarter as well as the future growth and value drivers that come throughout the year. Thank you very much.

Ladies and gentlemen, I would like to thank you for your participation in today's presentation. This now concludes the conference. You may all disconnect, and have a wonderful day.