Alnylam Pharmaceuticals Inc (ALNY) 2006 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Alnylam Pharmaceuticals conference call to discuss the fourth quarter and year end 2006 financial results. [OPERATOR INSTRUCTIONS]

I would now like to turn the call over to Alnylam.

Good afternoon. I'm Cynthia Clayton, Director of Investor Relations and Corporate Communications. Joining me from Alnylam today are John Maraganore, our President and Chief Executive Officer, Barry Greene, our Chief Operating Officer, Akshay Vaishnaw, our Vice President Clinical Research, and Patty Allen, our Vice President Finance.

During today's call, John will provide a brief overview of the year, Patty will review our financials, Akshay will provide an R&D update, Barry will review our business operations in 2006 and review our 2007 goals, and we will then open the call for questions.

Before we begin, let me remind you that various statements we make concerning our future expectations, plans and prospects, including, without limitation, statements related to our clinical development plans for our product candidates, our expectations with respect to the potential for RNAi therapeutics, our products, goals and business goals for 2007, 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 products, the successful development of our product candidates, all of which are in early stages of development, obtaining regulatory approval for products, competition from others using technologies 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-Q 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 Alnylam's fourth quarter and year end 2006 earnings call.

I think it's fair to say that 2006 was nothing short of a defining year for both the field of RNAi and Alnylam. Of course, the highlight of the year for the entire field of RNAi was the award of the 2006 Nobel Prize for Physiology or Medicine to Craig Mello and Andrew Fire for their discovery of RNA interference.

This is the highest scientific recognition of the RNAi pathway as a major discovery in biology that also points to the importance of RNAi as a new approach for the discovery of innovative medicines. Again, we'd like to offer our sincere congratulations to Doctors Fire and Mello for their great achievement.

Now turning to Alnylam, 2006 was also a critical year. We made important progress in solving the hurdles of delivery to enable systemic RNAi applications and we significantly advanced our pipeline of RNAi therapeutics.

These achievements were enabled overall by our scientific leadership in the field of RNAi. For example, our March 2006 Nature paper on delivery of systemic RNAi therapeutics in non-human primates was a major event for the entire field and for Alnylam. This paper captured the attention of many top researchers in both academia and industry.

More recently, just last week we had the opportunity of participating in the premier scientific conference on RNAi, the Keystone Symposium on RNAi with over 700 researchers from both academia and industry, where our scientists presented new data on our progress. In my opinion, our significant presence at this conference was yet further demonstration of our leadership in the field.

Now in turn, this leadership position has manifested itself in creation of the broadest industry pipeline of RNAi therapeutics with more than 17 clinical or pre-clinical programs by Alnylam, Alnylam partners, and Alnylam licensees. And this number does not include the programs we are working on with Novartis.

In 2006 we were very pleased with the progress in our RSV program where ALN-RSV01 was shown to be safe and well tolerated at clinically relevant doses when administered intranasally. This program is now on a path for evaluation for human proof-of-concept in an experimental infection model study where we expect to have data as early as the end of this year.

In addition to RSV, we continue to make progress with our influenza program, which demonstrated the applications of this approach toward the H5N1 flu virus and we initiated a new development program targeting PCSK9 for the treatment of hypercholesterolemia.

Our PCSK9 program is our first systemic RNAi program and an enormously exciting opportunity for breakthrough innovative medicine toward an otherwise undruggable target. We are also excited about our progress in additional pre-clinical programs such as those in our CNS portfolio, including Huntington's and neuropathic pain.

As we advanced our science and our pipeline, we also accomplished several important business milestones in 2006. The partnerships that we have formed demonstrate the strong potential of RNAi as a product platform for innovative medicines and continues to position Alnylam as the premier partner in this important new technology.

We believe that it is now increasingly clear to both top academic scientists and to R&D executives in pharma and top tier biotech companies that RNAi therapeutics have real potential to emerge as a whole new class of drugs.

It is also clear to these companies that innovative medicines and enabling platforms are critical for their future. As a result, we have found the environment for our partnership discussions to be extremely positive. Indeed, we're very much on track with our goal of completing one or more major new alliances in 2007 and believe that announcement of a new partnership could, in fact, materialize sooner rather than later.

I'd like to again address our perspective on last year's $1.1 billion acquisition of Serna by Merck. Certainly, we view this as an important validating event that points to how the pharmaceutical industry recognizes RNAi as a potential source of new innovative medicines.

It is our perspective that the value paid in this acquisition, however, is well below the value that Alnylam can attain by creating a whole new class of drugs. Thus, it remains our focus to maximize the value of RNAi therapeutics and Alnylam for our shareholders, which we believe is best achieved by maintaining a continued and determined focus on products and our mission of building a new top tier biopharmaceutical company founded on RNAi.

Of course, Merck is also a partner of Alnylam. As a reminder, our partnership with Merck is defined by 10 targets, of which four have been selected as active programs. These are the only targets where Merck has access to Alnylam IP, which we believe is clearly needed to develop and commercialize RNAi therapeutics.

So to sum up my introductory remarks, we believe 2006 was a very important year for the company and as you'll hear in a moment, 2007 promises to be even more important.

With that, I'll now turn the call over to Patty Allen to review our financials. Patty?

Thanks, John. I will refer you to the press release we issued this afternoon for a detailed review of our fourth quarter and year end 2006 financial results. I'll take just a few minutes today to provide you with our perspective on these results.

Revenues for the quarter of $7 million were made up of $4.6 million of expense reimbursement, milestone and amortization revenues related to our collaborations with Novartis, and $2.4 million of expense reimbursement and amortization revenues from Biogen Idec, Merck, the NIH for Ebola, research reagent and services licensees, and other sources.

As you can expect, there will be variability in revenues from quarter to quarter as we achieve milestones and as resources are allocated between our partnered programs and our proprietary programs.

The fourth quarter was a very busy quarter for our proprietary PCSK9 program as that program ramped up towards an IND in 2007. For the year, total revenues of $26.9 million included $21.8 million of expense reimbursement, milestone, and amortization revenues related to our collaborations with Novartis, and $5.1 million of expense reimbursement and amortization revenues from Biogen Idec, Merck, the NIH for Ebola, InterfeRx licensees, research reagent and services licensees, and other sources.

We significantly exceeded our goal of having greater than $15 million in alliance-based funding during 2006. As you can see, with the alliances we have in place we saw almost a 400% increase in revenues as compared with 2005. This revenue base provides a sustainable foundation for building our business.

R&D expenses were $12.3 million in the fourth quarter of 2006, including $1.7 million of non-cash stock comp, and $49.8 million for the year, including $5 million of non-cash stock comp. Included in R&D expenses for the year were costs related to our proprietary pipeline for our RSV program related to the Phase I intranasal and inhalation trials as well as costs related to the preparation and start of the experimental infection study in Q4.

We also added new proprietary programs during the year for PCSK9 and Ebola. In addition, we made progress with our partnered programs with Novartis, Medtronic and Merck and added two new major alliances during 2006 with Biogen Idec for PML and with Novartis for flu. We added 30 R&D people during 2006 to support our alliances and expanding product pipeline.

G&A expenses were $4.6 million in the fourth quarter of 2006, including $900,000 of non-cash stock comp. G&A expenses were fairly consistent in all quarters for a total of $16.6 million for the year, including $3.3 million of non-cash stock comp.

The increase in G&A expenses for the quarter and year as compared to the prior year periods was mainly due to increased business activities, higher facility related costs and higher non-cash stock comp charges. While we continue to manage G&A very tightly, variability in G&A will occur based on the business activities in any given quarter.

For the fourth quarter, GAAP net loss was $8.4 million, or $0.26 per share, including $2.6 million of non-cash stock comp charges. This compared to $14.5 million, or $0.56 per share, including $1 million of non-cash stock comp charges in the fourth quarter of 2005.

For the year, GAAP net loss was $34.6 million, or $1.09 per share, including $8.3 million of non-cash stock comp charges. This compared to a net loss of $42.9 million, or $1.96 per share, including $4.6 million of non-cash stock comp charges during 2005.

The significant decrease in net loss for both the quarter and the year as compared to the prior year periods was attributable to the significant and sustainable revenues we are realizing from our collaborative arrangements, partially offset by an increase in R&D expenses as we have advanced our pipeline and increased R&D headcount to support our programs.

We also completed two follow-on offerings during 2006 that allowed us to raise over $160 million in new capital. In January we raised $62 million in net proceeds from the sale of 5.1 million shares of common stock and in December we raised $101 million in net proceeds from the sale of 4.7 million shares of common stock. As a result, we exceeded our upwardly revised financial guidance of greater than $115 million in cash by ending the year with over $217 million in cash.

Our financial strength provides a strong foundation to meet our goal of building a long-term significant business. We expect to receive more than $25 million in alliance-based funding in 2007 and we expect to end 2007 with greater than $180 million in cash.

Looking toward 2007, we are in the strong financial position to execute on our 2007 goals and invest in our pipeline in a prudent but significant manner.

I'll now turn the call over to Akshay for a review of our pre-clinical and clinical accomplishments. Akshay?

Thanks, Patty. 2006 was indeed an exciting year as we advanced our lead compound, ALN-RSV01 for RSV infection, through Phase I trials, advanced our efforts on flu, moved our third development program forward and continued to present and publish encouraging in vivo results from our pre-clinical programs in peer-review journals and settings.

Let me begin first with our most advanced program, ALN-RSV01 for the treatment of RSV infection. Earlier in the year we presented the results from two Phase 1 clinical studies for ALN-RSV01 showing the compound to be safe and well tolerated when administered in relevant doses intranasally. Following these results, we initiated the U.S. Phase I human clinical trial of an inhaled formulation of ALN-RSV01 to evaluate safety, tolerability and pharmacokinetics in healthy adult volunteers.

We also initiated an experimental infection study designed to establish a safe and reliable RSV infection of the upper respiratory tract in adult volunteers. We expect these studies to prepare us to enter Phase II trials in naturally infected patients in the second half of 2007.

Furthermore, we believe that the treatment phase of the experimental infection study, which we expect to start in the first half of this year, could provide the opportunity of demonstrating human proof-of-concept for an RNAi therapeutic with data expected as early as the second half of this year.

Our second development program is ALN-FLU01, a potential RNAi therapeutic for the treatment of influenza including pandemic flu. With our collaboration with Novartis we have advanced our pandemic flu program in developmental activities and demonstrated activity of ALN-FLU01 towards human clinical isolates of the H5N1 virus.

ALN-FLU01 is comprised of two siRNAs that target two distinct highly [conserve gene] sequences of the flu genome. As these efforts progress, our goal is to advance this program towards an IND in 2007.

We recently announced that ALN-PCS01 would be our next and third development program. ALN-PCS01 is a systemically delivered RNAi therapeutic targeting the gene PCSK9 for the treatment of hypercholesterolemia. Preclinical results to date show considerable potency and durability after a single dose administered in rodent models. Our data to date have shown the following.

In vivo systemic administration of ALN-PCS01 was associated with dose-dependent and rapid silencing of the PSCK9 messenger RNA to more than 70% of control levels with peak silencing effects observed as soon as 48 hours after dosing. After a single intravenous injection, the RNAi therapeutics showed a durable biological effect with more than 50% silencing of PCSK9 maintained through two weeks and full recovery of PCSK9 to normal levels only 23 days after dosing.

In turn, therapeutic efficacy for ALN-PCS01 was demonstrated with up to a 30% reduction in total cholesterol levels at doses that were well tolerated. These are very significant levels of cholesterol reductions in mice, a species with very low physiologic levels of LDL cholesterol.

Finally, in a transgenic mouse model where the human PCSK9 gene is expressed, we showed more than 80% silencing of the human PCSK9 gene and over a 500-fold reduction in plasma levels for human PCSK9 protein. These are truly exciting results and we plan to file an IND for ALN-PCS01 in 2007.

In this program we are using a lipid-based nano particle formulation developed in collaboration with MIT. As we advance these development programs, important progress is also being made in programs on neuropathic pain, Huntington's disease and other programs which were recently highlighted at the January Keystone Symposium on RNAi therapeutics.

Data were also published recently in the journal Nature Medicine by our scientists and collaborators from Yale University demonstrating that an RNAi therapeutic can silence angiopoietin-2, a key mediator in acute lung injury.

Now, as John commented earlier, we are also pleased by the progress made by our scientists and collaborators on systemic delivery of RNAi therapeutics. We were thrilled last year in March when our Nature paper contained the first published demonstration in non-human primates showed that a systemically delivered RNAi therapeutic can potently silence an endogenous disease-causing gene in a clinically relevant manner.

We also made rapid progress with collaborators at both Inex Pharmaceuticals and MIT in our efforts to develop a lipid-based drug delivery system for RNAi therapeutics. Our progress with Inex has been very encouraging and last month we obtained a worldwide exclusive license to Inex' liposome delivery formulation technology in the discovery, development and commercialization of RNAi therapeutics.

In summary, Alnylam remains committed to both scientific leadership in the field of RNAi and advancement of the leading industry pipeline of RNAi therapeutics. While there's more to be done, we're very encouraged with our progress and I look forward to updating you in future meetings and calls.

I'd like to now turn the call over to Barry for a review of our business accomplishments in 2007.

Thank you, Akshay.

In addition to the important clinical achievements Akshay just outlined, 2006 was a year in which these successes were underpinned with a solid level of business execution that truly took us to a new level.

These accomplishments included new and expanding pharmaceutical and biotech collaborations, strengthening our leadership position in RNAi therapeutic development. It also included identification of new funding opportunities from public sector sources due to the interest in RNAi as a platform for potential biodefense applications.

In addition in 2006, we both strengthened our intellectual property position in RNAi as we translated this IP position into near-term value with target-by-target licenses that comprised our InterfeRx licensing program.

The first category of business growth in 2006 was that of strategic business relationships as we solidified existing partnerships and formed new alliances on RNAi therapeutics. Today our major alliance partners include Merck, Medtronic, Novartis and Biogen Idec.

As you know, we signed a new second collaboration with Novartis, separate from our existing discovery agreement, focused on pandemic flu. This collaboration was born out of our growing relationship with Novartis and our shared interest in devoting certain resources specifically to pandemic flu and we're pleased with Novartis' dedication to RNA interference.

Last year we also entered into a new alliance with Biogen Idec on the development of RNAi therapeutics towards a viral disease called PML in an application of RNAi that speaks to its potential as a source of new innovative medicines. As you know, PML is a very rare potential complication of Biogen Idec's MS drug Tysabri and the ability to develop an antiviral drug targeting [JC virus] for the treatment of PML could enhance patient safety.

In aggregate, these alliances have provided for a significant increase in R&D funding reflected in almost 400% growth in 2006 revenues as compared with 2005. In addition, our scientists are matching their world-class leadership in RNAi with some of the strongest pharma and biotech partners for advancing these products to the market. All told, we're very proud of this track record of industry alliances in 2006. But as John commented, we expect this only to continue.

The second category of business growth in 2006 relates to our ability to secure public sector support for our leading efforts in RNAi therapeutics. Indeed, our strategy was expanded to involve partnerships with government agencies on applications of RNAi technology that address significant public health concerns including influenza and biodefense pathogens. To this end, we received three major grants or contracts from government agencies that brought in over $25 million in committed funding.

To focus these efforts, we launched an initiative called Alnylam Biodefense. The funding of Alnylam Biodefense efforts enables us to expand our overall platform development activities that in turn support drug discovery activities in other more classic clinical and commercial areas. Further, as these steadily funded programs show promise in in vivo studies, there remains a very real opportunity for potential government stockpiling with meaningful near-term financial reward.

The final category of business growth in 2006 relates to the continued strengthening and leveraging of our intellectual property position. Most notably in 2006, we were delighted to see two important fundamental patents issued by the U.S. Patent Office from the Alnylam exclusively held Tuschl II patent series. These include the 196 and 704 Tuschl II patents.

These are the first and only patents issued in the United States that cover small interfering RNAs. And as a reminder, these patents are distinct in ownership -- in inventorship from the so-called Tuschl I patent that we also have a license to.

By all accounts, Tuschl II is a critical patent in the RNAi therapeutics landscape as it covers methods of making siRNAs with or without chemical modifications and without any limitations, including so-called [nolribose] siRNAs or [SINAs].

It also covers such RNA agents for targeting any messenger RNA in mammalian cells. We expect this patent series to continue to yield important new patent issuances in the U.S., Europe, and rest of world.

We are also pleased to have successfully defended this summer Kreutzer-Limmer number 623 patent that was upheld with amended claims in oral proceedings by the European Patent Office. We also made steady and continued progress on our chemistry IP and the intellectual property for preclinical and clinical programs.

A new development in our overall intellectual property position relates to our recent exclusive license to the Inex intellectual property state, which contains three significant issued patents covering cationic liposomes and oligonucleotide delivery including siRNAs. This is an important development as it now appears that most systemic RNAi applications are converging on the use of cationic liposomes and this type of delivery is broadly covered by the Wheeler and Semple patents that we have licensed exclusively from Inex.

As it relates to target IP, we were pleased to see that the U.S. Patent Office has instituted a re-examination of a broad target patent, one covering the target [IKK gamma]. They did this by rejecting all the issued claims in its initial ruling.

This points to our long-standing and our fundamental belief that the IP, the fundamental IP, the vast majority of which we hold exclusively, is what will encompass the broadest claims for the development and commercialization of RNAi therapeutics.

Further, it validates our belief that applications to specific targets filed after Tuschl II will not yield claims with broad coverage on RNAi when the target is known. Across fundamental chemistry delivery and target intellectual property I've mentioned, I think it's fair to say that we would not trade our intellectual property position for anyone else's.

The emerging IP landscape on RNAi therapeutics reinforces our belief that all companies developing RNAi therapeutics fall into one of two categories, current Alnylam partners or those enabled by Alnylam intellectual property, or those that will be future Alnylam partners because they need Alnylam intellectual property. This will continue to create a very unique value opportunity for Alnylam and our stockholders.

At the level of near-term value creation, the importance of Alnylam's IP position was recognized in 2006 through major alliances we formed but also from additional licenses we completed, including five license grants to InterfeRx partners and research reagent companies.

For example, Quark Biotech, to which we granted an InterfeRx license in 2006, just initiated a Phase I clinical trial targeting RTP801 for the treatment of age related macular degeneration. They then -- they have also partnered that program with Pfizer. Without a license to our intellectual property, we believe they would not have freedom to operate in this area.

Let me move on now to a discussion of our goals for 2007. We are reiterating the product and business goals outlined earlier this month which are also in today's press release. On the clinical side, our goals are to continue the development of our pipeline of RNAi therapeutics. In particular, we are very focused on achieving an important milestones for the field and for Alnylam, namely to demonstrate human proof-of-concept for an RNAi therapeutic within the next 12 to 18 months.

Our specific pipeline goals are as follows. In advancing ALN-RSV01 for the treatment of RSV infection, we plan to present data for our ongoing Phase I inhalation trial in adult volunteers in the first half of 2007. Begin the treatment protocol phase of an experimental infection study in adult volunteers in the first half of 2007 and present data from that study in the second half of 2007.

And importantly, initiate a Phase II trial in naturally infected patients in the second half of 2007. We'll also advance our pipeline by filing INDs for two programs in 2007 and advancing two new development candidates.

Moving to our scientific leadership, we will continue our efforts to optimize systemic delivery for RNAi therapeutics and present or publish new non-human primate data in the first half of '07. In addition, our goal is to publish two or more major papers related to in vivo efficacy for RNAi therapeutics delivered systemically. Our scientists are also very hard at work in the emerging area of micro-RNAs and we look to publish two or more papers from our research programs on micro-RNAs with antagomirs, a novel class of oligonucleotide therapeutics that can silence disease-causing micro-RNAs in vivo.

Turning to our business goals, you can expect us to be very active with a high level of execution in 2007 that builds on our 2006 performance. Our business goals for 2007 are as follows. First, to form one or more new major alliances with leading companies to continue to develop and fund our growing pipeline of RNAi therapeutics. Our ongoing discussions are quite strong and we are very much on track to meet this goal.

Next, we aim to further and significantly augment our fundamental intellectual property position by obtaining multiple patent issuances and grants in the U.S. and Europe, the major markets, over the course of the year. We also expect to realize additional near-term value from our IP estate by granting more than five new InterfeRx or research product licenses.

Further, we expect to receive more than $25 million in alliance-based funding in 2007, including R&D funding and achievement of additional objectives on our alliances and collaborators including Merck, Medtronic, Novartis, and Biogen Idec. And finally, we expect to end the year with greater than $180 million in cash.

In summary, we expect that our performance in 2006 and our focus in 2007 will continue to advance Alnylam towards its mission of building a new top tier biopharmaceutical company founded on RNA interference.

We thank you for your continued interest and attention to our progress. I'd like now to turn the call over to the operator so we can address your questions. Katina, questions please.

Thank you all for that presentation. [OPERATOR INSTRUCTIONS]

Your first question will come from the line of David Witzke representing Banc of America. Please proceed.

Thanks. Good afternoon.

Hey, Dave.

Hey, how are you? A quick question, '07 guidance for alliance-based funding of $25 million. Are you referring here to anticipated recognized revenue for the year are or is this something very different, meaning actual expected cash payments from partners?

Dave, it's very similar to what we -- if you remember for 2006 we had a goal of achieving greater than $15 million in alliance-based funding and we reported 26.9 on GAAP revenues for the year. So for 2007 that would be equivalent to our GAAP revenues of alliance-based funding coming in at greater than $25 million.

Great, got it. And then the PCSK9 pre-clinical poster presented at last week's Keystone meeting suggests cholesterol lowering in the rodent model, I think it was durable out to two weeks. What is your expectation for how this will translate to human pharmacokinetics and I guess potential dosing schedules?

Let me -- Dave, let me address part of that question and then turned it over to Akshay. The cholesterol data was actually just a single point data, I believe at 48 hours post dosing. The silencing of the PCSK9 gene was measured from a duration of action standpoint and presented at the meeting and that was the dataset that you referred to in terms of the durability of over 50% silencing at two weeks and in fact only a recovery to normal at 23 days in these experiments. Let me then turn it over to Akshay to comment on the clinical expectations for that type of performance.

Yes, so, I think we can safely say that based on the multiple experiments we've done in silencing a range of targets in rodent species as well as others such as hamster, rat and non-human primate that a., we reliably and durably silenced the relevant disease-causing target and b., that the duration of effect is consistent between two to four weeks.

Now how ultimately this translates into man we'll have to see, but I think we're confident that this leads to a clinically relevant regimen that will be administered off the order of something between every two to four weeks and that seems very attractive to the clinicians that we've spoken to for a tough to treat disease like refractory hypercholesterolemia.

Yes, I think just to add a little color to that, Dave, and to augment that, I mean what's actually quite remarkable and now consistent across multiple targets and multiple species with RNAi therapeutics is the ability of achieving almost antibody-like pharmacodynamics with this class of drugs which really speaks well to the potential of using this therapeutic approach as a parenteral therapy in a number of disease settings including more chronic diseases where dose frequency of administration is going to be, as Akshay said, potentially perhaps at worst once every two weeks but one can begin to think about once every month type does frequency.

Thanks, very helpful, John. And finally, it appears that Pfizer is building out a significant effort in RNAi therapeutics outside of the core field. One would assume at some point the big pharmas of the world would need to come to you. Are you actively approaching them when you know they're working in your field or on a particular target or is it really sit back and wait for them to come to you and I would imagine the longer they wait, the higher a potential royalty?

Well, I think that in general companies that, I won't speak to any specifics, but in general companies that are developing RNAi therapeutics are coming to Alnylam with their interest. And of course some companies are exporting RNAi as a target validation tool, virtually every company is doing that. Those companies that are focusing on the development of therapeutics, of which there is an increasing number, are certainly talking to Alnylam.

Thank you.

Your next question will come from the line of Sapna Srivastava representing Morgan Stanley. Please proceed.

This is actually Dave Friedman calling for Sapna.

Hi, Dave.

Hi. How are you doing?

Good.

I was just wondering if you could provide a little more detail on your activities with Medtronic and when you might or when we might see something from that enter either some in vivo pre-clinical or clinical trial?

Dave, let me address that. We've already published and presented data in a number of different meetings. I think the last one specifically on the Medtronic collaboration was a society neuroscience meeting where we presented some data from that collaboration.

It's actually a very exciting relationship and one where we've, I think both Medtronic and Alnylam have really benefited greatly because they do have, frankly, the only implantable infusion pump out there available. And of course the ability of silencing target genes like the Huntington gene, which is genetically mutated in Huntington's disease, is really a very promising overall opportunity.

You probably -- I know you were at the Keystone meeting last week and you probably saw a nice presentation from [Neil Aronin], a collaborator of ours, related to the use of RNAi in Huntington's where he showed pretty striking effects in silencing the Huntington gene and also in behavioral aspects of that disease as well in a mouse model.

So we're quite encouraged by where that's going and we haven't given any specific guidance on when that might be in the clinic but we're working closely with our friends at Medtronic to make that happen.

Okay. Thank you.

Your next question will come from the line of Ted Tenthoff representing Piper Jaffray. Please proceed.

Ted? Hey, Ted, are you there? Katina, maybe we should go to the next question.

Your next question will come from the line of Mark Monane representing Needham & Co. Please proceed.

Hey, Mark.

Hey. Good afternoon, everybody. I hope -- best wishes from New York City and congratulations on your progress.

Thank you, Mark.

Are people coughing over there?

Unfortunately, yes.

Off and on.

[inaudible - background noise] going around at Alnylam.

No, no, no.

Best wishes to Patty. Here's a couple of questions. Talk about RSV. Please, would you be kind enough to review with us the different delivery routes that you're using for the different studies and then talk to us a little bit about dose considerations and how you might modify -- how you think about doses of these agents. Is it an anabolic process, is it catalytic process, is it anabolic process, is the drug consumed in a process and do you have to change the doses as you go from one method of delivery to another?

Okay, let me -- I think you've asked -- I think you've asked some excellent questions there, Mark. Let me address -- let me have Akshay address those.

Thanks, Mark. So with respect to the first half delivery routes, this year is an important year as we've outlined [inaudible - background noise] experimental infection study where we look forward to providing human proof-of-concept.

The virus RSV will be administered intranasally and ALN-RSV01 will also be administered via the intranasal route. And the rationale for all of that is that in adults, and the studies will be done in adult volunteers, the infection is an upper respiratory tract infection and so both the virus and the drug are focused on the nasal compartment.

Now, with respect to the ultimate goal, of course we want to develop an inhaled therapeutic and so we use the formulation delivered via nebulizer and so that is an inhaled compound. And as you know, the Phase 1 safety, tolerability and PK studies are ongoing via the inhaled route in adult volunteers. So that's speaking to the various routes of administration that we have studied so far.

Now --

With respect -- I'm sorry.

No, go ahead. I'm sorry.

With respect to your question on dose considerations, I think we're confident based on the animal model data that certainly the range in which we are seeing efficacy is at very low mg/kg levels. And as we've shown in public meetings and elsewhere, we see profound reduction in the virus burden in the lungs of animals infected with RSV up to 10,000 [fall] reductions at doses of 1 mg/kg. That's a single administration of the drug in these animals. So really profound activity at low exposure.

And in the clinical trial program that's ongoing right now, we've evaluated safety and tolerability both via the inhalational and intranasal route at that dose level and above. So we think we've safely covered where we'll need to be in the clinic to evaluate safety and efficacy in the naturally infected population that we look forward to evaluating later this year.

Did you mention in the [P2] study whether you're going to use the inhaled version or the intranasal version given the RSV I believe stays a number of days in the upper respiratory tract before proceeding to the lower respiratory tract?

Yes. The final target population for that Phase II study, we're doing a lot of diligence around that at the moment, Mark, and we're in a fortunate position that we do have the two options. And I think as we finalize that, we'll be communicating more to you. But in all likelihood, the most serious infections are in those with lower respiratory tract disease and so that would be an inhaled compound delivered via nebulizer.

And do you believe that siRNA is consumed in a reaction or does it live again in the process?

Now, that's an interesting question. Just at this recent Keystone meeting that we mentioned we'd presented new data that I don't think we've shared in the public domain showing that you can give ALN-RSV01 for up to three days or 72 hours before exposure to the virus and still see the dramatic 10,000 fall reduction in virus burdens in the animals, in the lungs of the animals.

So clearly the drug gets to the risk apparatus, the catalytic machinery that degrades the target [MRNA] and can reside there for an extended period of time. And this sort of harkens back to the theme of durability that we were talking about in association with the systemic programs and we see that as a consistent feature.

And, Mark, just to add some more color about the distribution of the drug. We specifically designed the drug for the eventual inhalation route in naturally infected patients, kids or adults, particularly elderly or for others with immune compromised systems.

That's how we see that, the end stage commercial opportunity. The drug is designed to go to the lining of the lung and not have systemic exposure. So the PK is very rapid but, as Akshay just said, the pharmacodynamics are actually very durable.

That was helpful. That was a helpful addition of color. And while you're on the phone, Barry, maybe you can talk about -- you talked about the lipid formulation for delivery you're working on with Inex and MIT.

Do you believe that this is the first generation of delivery for siRNA or are you exploring other routes of delivery? I believe delivery, even I believe it was -- I can't remember if it was Fire or Mello I'm sorry, I don't remember if Mello said that delivery is the key next step in thinking about these drugs as -- thinking about these compounds as therapeutics.

Right. So, no, if you think about the progress we've made thus far, Mark, we've been very successful in demonstrating effective in vivo delivery in the eyes, the lungs that we've just talked about, and in the CNS, both the brain and the CNS periphery.

And the big news last year published in March in Nature was our ability to deliver systemically, particularly to the liver hepatocytes, we've made great progress. The lipid-based formulations that we're using for PCSK9 came out of the work that we've learned from the lipid-based collaboration we've done in the MIT collaboration as well and that's what we're going forward with PCSK9. And we have a number of opportunities already with the ability to deliver.

That said, delivery to multiple organs and multiple tissues to give us even a broader range of RNAi therapeutics is something that we will continue to work on.

Let me add a little bit of color to that, Mark, which is that clearly, delivery is something which we have a long term and high level of commitment to in the company and there's no other company in the world that's doing as much with as many resources on this issue as we are. And liposomal delivery is really a very attractive approach for systemic delivery and it's clearly going to be the approach that we use for at least the beginning stages of our systemic RNAi therapeutics.

But we also have made investments and have in-licensed technology and have proprietary technology that covers conjugation approaches, that covers some elegant approaches that have been published by [Judy Lieberman] at the Center for Blood Research.

So I like to characterize it as a very broad toolkit that we are using to really be, which is critical in this business, the leading company on delivery of RNAi therapeutics, which we have been historically and we will continue to be in the future.

Thanks for the added information and congratulations on your progress.

Thanks, Mark.

Your next question will come from the lion of Douglas Chow representing Caris & Co. Please proceed.

Hi, Doug.

Oh, hi. Just regarding the flu program before you file your IND, what needs to be done at this point?

Well, the flu program is one where we're obviously using a lot of the knowledge out of the RSV program for delivery of RNAi therapeutics to the lung airways. And so we're doing a lot of work to finalize those formulations to get efficient delivery.

Flu is a little bit different than RSV in the sense that it does infect a broader group of cell types than what is observed with RSV, which is very localized to lung epithelium. So there are some optimizations of formulations that are needed for flu, which is currently in progress, before we scale up into the form of development activities for filing the IND.

Oh, I see. And in terms of funding from the government, do you expect them to have another program similar to what they had in '06?

We don't know yet, Doug. They haven't -- they haven't announced exactly what will be appropriated for pandemic flu preparedness in 2007 at this point in time. So it's still unknown at the legislative level what will be appropriated for funding at the HHS.

But we do have a very active program with obviously both the NIAID and also with other government agents including DOD, DITRA, DARPA, on various routes of funding.

In the meantime, as you know, in our collaboration with Novartis we obtained full funding for the program and as that program develops and ultimately gets commercialized, we share in the profits. So we don't require the funding from the federal agencies, but obviously use that as a source of supplementing our efforts.

Okay, great. Thanks a lot.

Thanks, Doug.

Your next question will come from the line of Pamela Bassett representing Cantor Fitzgerald. Please proceed.

Hi. Thanks for taking my call. Congratulations.

Hi, Pamela.

Hi. Congratulations on quite a quarter and quite a year. Can you talk a little bit more about the impact of the IKK gamma patent and how that specifically relates to T2 and [inaudible]?

Sure, Pamela. I'd be delighted to. Obviously what we know is what is publicly available through the U.S. Patent Office on its website and we know that the Patent Office instituted re-examination proceedings of the IKK patent that was issued to Serna, I guess now Merck, and in their initial re-examination review they rejected all of the issued claims, citing prior art, and much of it from Tuschl II, as being a antecedent of the work in a manner that did not justify the IKK case getting a broad patent issued.

And as you know, the IKK case was actually examined by a group outside of the RNAi group in the U.S. Patent Office. It's a group -- it was a group that happened to be the gene therapy group of the U.S. Patent Office and this rejection of the IKK case actually comes out of the RNAi group who received -- or who apparently issued this re-examination proceeding.

So we think this is quite important as it relates to target IP and it's also consistent with other patent rulings that we have been able to see in the competitive landscape where the patent office is providing issued patents on single siRNAs, not broad siRNAs toward a whole entire target, but rather single siRNAs.

And this appears to be the case with, as far as we can tell publicly, with a VEGF patent from Acuity where they got only a single siRNA covered in their issued claims and also with the VEGFR1 patent that was issued to Serna where they only got a single siRNA issue of their claims.

That's what's happening on target IP, which is why we believe the target IP, especially target IP filed after Tuschl II, which is almost all target IP, is not really going to deal broad claims on targets that are well validated. And this has been the guidance from the patent office since actually 2005.

So this area, Eli Lilly case has not set a precedent that flows over to the RNAi space, you think?

No.

Okay, great. Thanks very much.

Thank you.

Your next question will come from the line of Ding Ding representing Maxim Group. Please proceed.

Great. Great. Thanks for taking my call.

Hi, Ding Ding.

Hi, Ding Ding.

Hello, everyone. Just a few questions, if I may. Start with PCSK9. The data you published with the mice model, if you look at the cholesterol-lowering efficacy result, do you find targeting PCSK9 had comparable results as with the study you did with [April B] as a target in the mice model?

Yes, let me comment on that and then Akshay can do that. If you look back at both our cholesterol conjugate approach, our Nature paper 2004, and also the approach that we published in Nature last year in the [Rota] part of that and just compare mouse-to-mouse as opposed to non-human primate to mouse, mice have a different physiology around LDL metabolism and you tend to see maximal type reductions of total cholesterol in the 30 to 40% range.

Now, we haven't yet reported on data in non-human primates with PCSK9, so we'll have to wait to see what those type of results are in non-human primates. But I think even when you think about April B as a target, there's a liability with that target in the context of its role in transporting triglycerides out of the liver. So there are many, many advantages of PCSK9 and we do think it's going to be the best target for treating hypercholesterolemia bar none based on the human genetics and the other Rota data.

Akshay should comment as well.

I was just going to pick up on that genetics point and I think that's what's really got us and the academics we're working with very excited about this target. Very simply, if you are homozygous deficient, that is closed PCSK9 alleles are not working, then the LDL cholesterol level in those individuals is extremely low. It's down at 14 to 20 mg/deciliter.

That's completely consistent with normal health, but at the same time very advantageous in terms of protection from ischemic heart disease. And if you have a heterozygous defect in the PCSK9 locus, one of the two genes is silenced. So a roughly 50% reduction in the level of PCSK9.

In those folks, and there've been very large population studies published in the New England Journal of Medicine around this, those folks with heterozygous defect have median LDL cholesterol levels of around 70 mg/deciliter, which is again a wonderfully low level to have and it gives us some insight into what one could achieve using an RNAi therapeutic with even only 50% silencing that we look forward to seeing profound reductions in LDL cholesterol. In our opinion, you can't get any better validation than that kind of human genetics data as the precedent.

Great. That's very helpful. And then on the RSV program, I was just wondering do you have any updates from Part one. I believe Part one the purpose is to establish the viral [inoculate] level before start Part two sometime in the first half of this year. Do we have any data, any updates on that Part one?

It's still an active clinical study and we haven't reported out any data from that yet, Ding Ding, and we look forward to being able to do that in the future.

Okay. For the flu program, I don't know if we have seen any pre-clinical data that you've published so far and with that data for Phase 1 trial design, are we going to see similar formulation in terms of [in health] versus similar formulation design you used for RSV as well as the two-phase study in experimental infection followed by natural infection study?

So, in the case of flu, the formulation development, which is still being optimized and finalized, is going to be different than RSV but it will also take advantage of both the potential for using intranasal dosing as well as inhaled dosing and the potential for flu -- in flu for using experimental infection studies.

We have published -- the data we published to date on flu, Ding Ding, includes a number of different presentations last year including effects on human clinical isolates and some other data as well and there'll be more data presented, we expect, this year are as that program progresses.

Keep in mind that the flu program is partnered with Novartis and being a partnered program we have to discuss that program with the pace and desire of our partners.

Great. Maybe just a last question for Patty. Following the two secondary offerings you did last year, what's Novartis ownership of Alnylam right now, as of today?

So Novartis currently holds about 14% of Alnylam's outstanding common shares.

Great. Thanks very much.

Thank you.

Your welcome Ding Ding.

There are no further questions at this time. I would now like to turn the presentation back over to John Maraganore for closing remarks.

Well, thank you. Thank you, Katina, and thanks, everyone, for joining us today. We appreciate you taking the time and I hope that we've been able to convey to you our plans for the coming months as we continue to make progress in translating RNAi into a new source of innovative medicines. So thanks for your interest and we look forward to updating you in the future.

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day.