Alnylam Pharmaceuticals Inc (ALNY) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2008 Alnylam Pharmaceuticals earnings conference call. At this time, all participants are in listen-only mode. We'll be facilitating a question-and-answer session towards the end of today's conference. (Operator instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Alnylam. Please proceed.

Good afternoon. I'm Cynthia Clayton, Director of Investor Relations and Corporate Communications. With me today from Alnylam are: John Maraganore, our Chief Executive Officer, Barry Greene, our President and Chief Operating Officer, Akshay Vaishnaw, Senior Vice President of Clinical Research, and Patty Allen, Vice President of Finance and Treasurer. During today's call John will go over highlights of the quarter. Akshay will provide an R&D summary. Patty will review our financials and guidance. Barry will summarize our business highlights and our progress against goals. And we will then open the call for your questions. In the interest of allowing more time for Q&A we're aiming to keep our prepared remarks as short as possible and will not be going through all the accomplishments we achieved in 2008 and early 2009, but rather focus on the highlights. To this end we encourage you to read our press release for additional detail.

Before we begin I would like to remind you that this call will contain remarks concerning Alnylam's future expectations, plans and prospects which 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 those discussed in our most recent quarterly or annual report on file with the SEC. In addition, any forward-looking statements represent our views only as of the date of this recording and should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligation to update any such statements. I will now turn the call over to John.

Thanks, Cynthia, and let me just start by saying I'm recovering from a small head cold today, so apologies for the somewhat muted voice. Welcome, and thanks, everyone, for joining us today for our year-end 2008 call. Overall 2008 was yet another period of excellent performance across key value drivers for Alnylam as we significantly advance the science of RNAi therapeutics and achieved our goals on all fronts: scientific leadership, product pipeline, intellectual property and business execution. So far we're also off to a great start in 2009.

Let me begin with some general comments on the current environment and Alnylam's position in this context. As all of you know, this is simply an unprecedented time in our industry where most biotech companies are focused on one and only one thing and that is survival. While I'm confident that most high quality companies will survive this period, it is nevertheless an extremely difficult time for any company in need of capital over the next 12 to 24 months. We are extremely fortunate at Alnylam to be in a completely different position, a position focused on growth and execution on our business plan that are together bolstered with over $.5 billion in cash. Indeed at Alnylam we are in a stronger position than ever both financially and based on Company fundamentals to build a leading biopharmaceutical company. This is due first and foremost to Alnylam's efforts in leading the advancement of a critically needed new and potentially transformative approach for innovative medicines, and the fact that innovative medicines remain the key value drivers for our industry based on what we believe are lasting market base forces including: the demands of payors, regulators, pharmaceutical partners, physicians, and most importantly patients.

The strength of Alnylam's position in this current environment is also due to the success that we have achieved with our science, our unmatched consolidation of intellectual property in the RNAi field and the funding and critical mass we've achieved through business partnerships with leading pharmaceutical and biotech companies. In short, we're at the right place at the right time and we've executed well to build solidly for the future. Now turning to 2008 and recent events, it is also our view that the last 12 to 14 months have been the most significant value creating period in our Company's history and I'd like to highlight several reasons for this in my introductory comments. First we achieved an extremely important milestone just about a year ago when we demonstrated for the first time ever human proof of concept for an RNAi therapeutic. Indeed just as the nature papers we published in 2004 and 2006 represented key derisking events showing that RNAi therapeutics can work in mice and nonhuman primates, our key accomplishment in 2008 was quite a bit more significant because we extended this to man. We view this as an extremely important accomplishment and a technology defining milestone in the advancement of RNAi therapeutics as a whole new class of medicines.

Second, we were very pleased with the progress over the past year in our mature and clinical pipeline. Indeed we were a Company with one clinical product in 2008. With our ALN-VSP IND filing and its recent approval by the FDA we now have two products in clinical development stages and by the end of this year we expect to have a third product in clinical development. Our ALN-VSP program also defines a major milestone as this shows our progress in systemic delivery of RNAi therapeutics. In addition to the substantial progress, I think it's worth mentioning also the highlights of the growing effort across our partnership and collaborative efforts. These include existing clinical stage licenses with [Quark] and [Kalando], our partnerships with Novartis, Roche and Takeda which are advancing RNAi therapeutics to the clinic, our microRNA therapeutics with Regulus and the very significant number of collaboration programs across a broad range of targets in a large number of disease indications. When added to Alnylam's direct efforts it is clear that RNAi therapeutics are rapidly emerging as a major new drug class.

Indeed what we are seeing here is highly reminiscent to those of us that have been in the industry for quite some time of the progress made in [monoclonal] antibody therapies in the 1990s. Third we made major advances in our overall platform, most notably in regard to our delivery objects, and this is evident in the 14 peer review papers we published last year, the two new papers that we've already published this year and the very clear demonstration of our scientific progress documented at presentations in this month's prestigious Keystone conference. This is the largest number of peer reviewed papers we have ever published in a single year and we aim to only surpass that number in 2009. This scientific progress together with the pipeline progress from Alnylam and our licensees, our partners and collaboratives that I just mentioned also reinforce the fundamental investment thesis for Alnylam which is the creation of a whole new class of drugs.

Fourth, on the business side we had a stellar year in formation of major business alliances. This included our major platform alliance with Takeda, our two product alliances with Kyowa and Cubist and our Regulus alliance with GSK. Together just in the past 12 months alone these alliances have yielded $175 million in realized funding, and, of course, there's more coming as we expect two or more major alliances for the remainder of 2009. This business execution is fundamentally driven by the strong belief of our partners that RNAi therapeutics are progressing as a whole new class of innovative medicines, but also the hard core due diligence that they performed showing that Alnylam has the best technology and the best and we believe only intellectual property. And finally we made some very important additions to our team with the appointment of Jack Schmidt as CSO and Ed Skolnick as a director and member of our scientific advisory board. We also promoted some key talent such as Victor Kotelianski and Akshay Vaishnaw. And we've recruited additional outstanding talent for roles at Regulus. I mentioned these promotions because our people and our culture remain major drivers of our success.

So in aggregate human proof of concept, systemic delivery and pipeline progress, outstanding scientific leadership, four major partnerships and great people and culture are indeed the reasons this past year in our view is the greatest period of value creation in our history. Most of these accomplishments clearly relate to our progress in advancing RNAi therapeutics as a whole new class of innovative medicines. Of course, these achievements also position us for a very exciting year in 2009, put us on solidly track to meet or even exceed our ambitious RNAi 2010 goals, and are very much in line with our mission of building a top tier biopharmaceutical company founded on RNAi. With that I'd like to now turn the call over to Akshay to discuss our clinical pipeline and scientific progress in more detail. Akshay?

Thank you, John. As you know, our R&D efforts are focused on building a pipeline of RNAi therapeutics from our proprietary partnered and collaborative programs via the translation of RNAi as a transformative with new innovative medicines including sRNAs and microRNA therapeutics and RNA activation. Across these efforts 2008 was an exceptional year and we're off to a great start again in 2009. Let me begin by discussion of our RSV program. As John mentioned the human proof concept data obtained with our Gemini Phase II study was a first for the technology and the entire industry and certainly represents a notable achievement for Alnylam. These data showed for the first time in a well controlled study that the RNAi [therapeutic] can be safely harnessed in man to achieve clinical activity representing a major derisking event for the advancement of RNAi therapeutics and supporting Alnylam's border R&D efforts. Our goal for the ALN-RSV program is to develop an RNAi therapeutic for the treatment of established RSV infection in pediatric and adult populations where both have significant unmet medical need. As you know, we have partnered this program with Kyowa Hakko in Asia and with Cubist in the rest of the world while retaining 50/50 co-development rights in the US.

We're advancing ALN-RSV01 as our lead program, but also have developed second generation RSV specific RNAi therapeutics that have the potential to be differentiated across both pediatric and adult market opportunities. We'll have a better perspective on how to maximize value of this overall effort as we obtain additional Phase II data in adults. Our ongoing Phase II safety and tolerability trial of ALN-RSV01 in adult lung transplant patients naturally infected with RSV is continuing to progress well and in fact accrual is tracking ahead of schedule. We're on track to complete the trial by midyear if not earlier with data thereafter. As a reminder, this study will enroll all 21 patients in a Phase II randomized double blind placebo controlled study to assess the safety and tolerability of inhaled ALN-RSV01 placebo in a naturally infected adult population, that is, adult lung transplant patients infected with documented RSV. This study remains blinded and we expect to obtain important safety and tolerability data that will support advancement of the program. Indeed safety and tolerability are the primary endpoints of this study.

Now while we're collecting additional measurements from antiviral activity on the study it's important to clearly emphasize that any laboratory or clinical activity data here will be strictly of an exploratory nature and it is extremely unlikely that there will be any statistically significant p-values given the small size of the study in. In addition to our lung transplant Phase II study and as part of our ongoing development of the ALN-RSV program we'll also soon initiating a randomized double blind placebo controlled study to address the safety, tolerability and pharmacokinetics of twice a day and three times a day dosing regimens of inhaled ALN-RSV01 in adult volunteers. This clinical pharmacology study was designed based on our very promising preclinical efficacy data with multiple daily dose administration of ALN-RSV01 and is part of our overall strategy in advancing our program to pediatric populations.

Turning now to ALN-VSP, our RNAi therapeutic for the treatment of liver cancer, we've made tremendous progress in 2008 and early 2009 on many fronts. In fact, just last month Alnylam received clearance from the US FDA to begin enrolling patients in a Phase I trial which we expect to initiate in the first half of this year. As John said this is our first systemic RNAi therapeutic clinical program which is a proved point of the strong progress we have made on systemic delivery. This is also our first RNAi therapeutics program in oncology, an area where we believe RNAi-based therapies are extremely promising due to the emerging data from cancer genetics.

The plan Phase I study will be a multicenter, open labeled dose escalation trial to evaluate the safety, tolerability, pharmacokinetics and pharmacodynamics of intravenous ALN-VSP in patients with advanced solid tumors with liver involvement. We will provide additional details on the design of this study very soon once we have begun enrolling. In the meanwhile we remain very excited about this program and just this past month we presented new preclinical data at the Keystone RNAi symposium. These data in an orthotopic tumor model in mice demonstrated a statistically significant increase in survival of ALN-VSP treated animals compared to treatment known as sorafenib also known as Nexavar, an approved drug for the treatment of hepatocellular carcinoma. Data also showed some evidence for a potentially even greater increase in survival benefit in animals treated with both ALN-VSP and sorafenib.

We also remain on track to expand our clinical development pipeline with several additional promising candidates approaching the clinic. These programs include our efforts on hypercholesterolemia, targeting PCSK9, our Amyloidosis program targeting transthyretin and our Huntington's program with Medtronic. As a result together with our ongoing clinical programs on ALN-VSP and ALN-RSV we expect to have a total three RNAi therapeutic programs in clinical development by the end of this year, putting us well on track to meet our RNAi 2010 goal of four or more RNAi therapeutic programs in clinical development by the end of 2010.

Finally in addition to our development efforts we're very pleased with the progress on our overall platform and specifically with delivery. In 2008 and earlier this year we expanded our Tekmira relationship while continuing to hold exclusive licenses on the key [willa and sample patents] and also obtaining the right to opt in to codevelop and co-commercialize Tekmira's PLK1 program where there was just a very nice paper published in "The Journal of Clinical Investigation." We also formed a number of other important relationships including our new efforts on RNA activation amongst many others. Much of this is described in the publications that John commented on earlier and was also very clear in the recent Keystone conference where Alnylam's science was featured prominently. In that regard I think it's important to highlight the important data we presented at this meeting regarding the very clear demonstration of RNAi mediated efficacy with systemic delivery and lung delivery that was shown to be independent of any like receptor retractions including TLR3. Together these data highlight the important work we've made in establishing our platform.

In closing we're very encouraged by the progress we've made this year and we are very excited about the progress we are poised to achieve in 2009. We're building the industry leading effort in RNAi therapeutics across our pipeline and scientific efforts. We appreciate that there's much to do, but we're only motivated by that challenge. I'd like to now turn the call over to Patty to review our financials.

Thanks, Akshay. And good afternoon, everyone. I'm pleased to report on a very healthy financial position for Alnylam that will allow to us grow our business and execute on our mission without any need to go to the capital markets for many years to come. In these difficult economic times this is a very good place for us to be positioned. We ended 2008 with $513 million in cash, significantly exceeding our original 2008 guidance of greater than $390 million in cash and our largest year-end cash number ever. This number excludes the $20 million in up front payments we received from Cubist in the first days of January of this year. Due to our strategy of conservative cash management, we had zero write-offs related to our cash portfolio to date. Also we're very pleased to report today that we have repaid the small amount of debt, approximately $4 million, that we previously had on our balance sheet and now have zero debt. With $513 million in cash and zero debt Alnylam has one of the strongest balance sheets in the entire biotechnology industry.

Our GAAP revenues were significantly higher in the fourth quarter of 2008 having achieved $24.4 million in revenues compared to $18.2 million in the fourth quarter of 2007. This strong revenue performance is largely attributable to our collaborative partnerships with Roche which total $14 million as well as from our collaboration with Takeda which total $5 million. Revenues from the fourth quarter also included $5 million of expense reimbursement and amortization revenues from Novartis, the National Institutes of Health, the Department of Defense, Biogen Idec, InterfeRx, research reagents and services license fees and other sources. For the full year in 2008 we achieved $96 million in revenues, nearly double our 2007 revenues of $51 million, which are due primarily to the strong and recurring revenue stream achieved from our collaborative partnerships. Of course, the amortization of up front payments from the strategic alliances we have formed with Roche and Takeda accounts for a significant portion of our quarterly GAAP revenues. As a reminder for our Roche alliance each quarter over a five year period we are recognizing approximately $14 million in GAAP revenues.

With our Takeda alliance we are recognizing the $100 million up front payment, the $20 million milestone we achieved in 2008 as well as the $30 million in additional technology transfer milestones, and are amortizing this total of $150 million over a seven year period which equates to over $5 million per quarter in GAAP revenues. Looking ahead for our Cubist alliance, in 2009 we expect to be amortizing the $20 million up front payment over seven years which equals approximately over $700,000 per quarter. And finally please recall that the $15 million in up front payments from our second quarter 2008 alliance of Kyowa Hakko continues to be deferred for GAAP revenue purposes until we can determine our last deliverable to Kyowa.

R&D expenses of $24.9 million were considerably higher in the fourth quarter of 2008 compared to $15.6 million for the same period last year due primarily to license fees related to our intellectual property assets including our recent acquisitions of the Nucleonics IP portfolio, as well as higher costs related to the progress of our clinical pipeline. In addition we made significant investments in delivery related collaborations during the period. That being said R&D expenses of $96.9 million for the year decreased substantially as compared to the previous year of $120.7 million primarily due to higher licenses fees during 2007 as a result of the Company's 2007 alliance with Roche, including $27.5 million of license fees payable to our licensors, primarily Isis, as well as higher payments for drug delivery related activities. We expect to see a moderate increase in R&D expenses in 2009 as compared to 2008 as we prudently invest in our pipeline. Of course, non-cash stock compensation expenses and other items may lead to lumpiness in R&D expenses from quarter to quarter.

Higher professional service fees associated with increased business development and intellectual property activities contributed to the increase in G&A expenses for the fourth quarter which totaled $7.3 million versus $5.5 million for Q4 of last year. The increase in G&A expenses for the year overall which totaled $27.1 million as compared to $23.4 million last year was due primarily to a moderate increase in G&A headcount over 2008 to support the Company's growth, higher non-cash stock-based compensation and higher professional fees primarily related to the Kyowa, Takeda and Cubist alliances. We do not expect to see significant increases in G&A expenses in 2009 over levels seen in 2008, although amounts may be lumpy from quarter to quarter primarily due to the activities ongoing in business development as well as fluctuating non-cash stock-based compensation expense. We reported the net loss of $9.4 million in the fourth quarter of 2008 compared to net income of $1.7 million in the fourth quarter of 2007 which is primarily a result of the stronger GAAP revenues we achieved during the fourth quarter of 2008 offset by an increase in R&D expenses as we significantly progressed our pipeline with the ALN-RSVO1 for the treatment of RSV infection which is currently in Phase II clinical trial, and ALN-VSP for the treatment of liver cancer which is moving towards the clinic with the IND accepted in January of 2009.

In addition, as I mentioned earlier, we have made significant investments in our delivery related collaborations as well as intellectual property including our recent acquisition of the Nucleonics IP portfolio. Our net loss of $26 million for the year, however, is significantly lower than our net loss of $85 million in 2007, primarily due to the strength of our GAAP revenues from our strategic alliances particularly with Roche, Takeda and Novartis. In regards to our equity in Regulus Therapeutics we recorded $3.9 million of expense in the fourth quarter of 2008 as compared to $900,000 in the fourth quarter of 2007, as Regulus' operations have ramped up during 2008. Regarding taxes, as I have previously mentioned, driven primarily by certain proceeds from our 2007 Roche alliance, we generated US taxable income during 2008 and will make several cash tax payments in the first quarter of 2009 of approximately $6 million. Based on current projections we expect the deferred tax assets of approximately $5 million that are recorded on our balance sheet will be utilized in future years to generate a federal tax refund.

Looking ahead to 2009 for taxes, we currently expect a modest GAAP tax provision of $2 million to $3 million. In closing our solid financial position affords us the ability to make -- to prudently make investments in our pipeline and technology and to continue to build the leading RNAi therapeutics company. Regarding our 2009 financial guidance, we expect to end 2009 with over $435 million in cash with no debt and with a non-GAAP cash net operating loss of between $35 million to $45 million. We expect to incur approximately $20 million to $30 million of other cash payments, including further investment in Regulus, cash tax payments of approximately $6 million as I just mentioned and capital expenditures and other potential strategic investments. Therefore, we expect our 2009 spend profile will represent a prudent and modest increase as compared to 2008. I will now turn the call over to Barry Greene to discuss our business highlights and our progress against goals. Barry?

Thanks, Patty. And hello, everyone. As you know, Alnylam has performed exceptionally well on business execution which underlies the financial profile Patty just described. To date we have raised over $660 million in realized partnership-based funding and have completed 10 major alliances since our Company's inception. Importantly we expect the interest and the need from the pharmaceutical industry to only continue, and, in fact, we are having excellent discussions with many pharmaceutical and biotech companies around major alliances in our platform, our products and our efforts on microRNAi therapeutics with Regulus. In 2009 we are expecting to complete two or more major alliances and that is in addition to the Cubist deal we announced in early January. In addition we are also making progress on new business opportunities across the broad dimensions of RNAi technology in certain areas that fall outside of our core focus such as vaccines, stem cells and bioprocessing.

Now turning to 2008 and earlier this year, the past 14 months has certainly been no exception to our historical track record. Indeed we formed four major alliances including a platform alliance with Takeda, product alliances with Kyowa and Cubist, and our first Regulus alliance with GSK. These are clear validating events on the importance of our technology and the broad opportunities for our Company. Notably in May 2008 we formed a strategic worldwide platform alliance with Takeda. This alliance is valued at over $1 billion and includes $100 million of up front cash and $50 million in additional technology transfer payments of which we already received $20 million in 2008.

In addition for Takeda, Alnylam is eligible to receive up to $171 million in milestone payments as well as significant royalties per product. This was the first major RNAi therapeutics partnership between a Japanese pharmaceutical company and a US biotechnology company. It provides Takeda with broad worldwide non-exclusive access to and enablement with Alnylam's RNAi therapeutics platform technology, [NIT], in two therapeutic areas. Importantly they have the right to expand the number of therapeutic fields in the future for $50 million per field. Now I want to emphasize that the most valuable aspect of our alliance with Takeda includes the right to opt in as late as the beginning of Phase III to codevelop and co-commercialize four Takeda RNAi therapeutic programs in the US market on a 50/50 basis.

Now in addition to the Takeda alliance we were excited to have established global partnerships with Cubist and Kyowa Hakko to further advance our program for ALN-RSV. Together these two alliances brought in $35 million in upfront payments, 50% sharing of expenses, greater than [$160 million] in milestones while retaining 50% of the US market and double-digit royalties for ex-US sales. These clearly are outstanding term for a Phase II program and reflect our strong interest in ALN-RSV and in retaining downstream economics. These RVP partnerships also bring critical mass to the advancement of this program and provide us with additional financial flexibility to invest in the multiple product opportunities represented by our pipeline of novel RNAi therapeutics that go well beyond RSV.

Now in addition to these new partnerships our existing major alliances, notably Novartis and Roche, remain extremely strong. For example, we were pleased to have Novartis extend our relationship for its fourth year and we're pleased to see Roche's continued very strong commitment in the field. I also wanted to provide you with some additional color on these landmark alliances related to our upcoming 10K filing. In particular, we're able to say at this time that our Novartis alliance signed in 2005 is defined as an alliance for 30 exclusive targets with Novartis retaining the right to add an additional 10 targets in return for additional payments to Alnylam. As Novartis advances these programs, Alnylam is entitled to receive milestones totaling up to $75 million for RNAi therapeutic product.

Another feet of this early landmark deal is the option for Novartis to purchase a nonexclusive platform license. With this option exercisable up until the end of the research collaboration during its either four or five year term, Novartis, if they choose to exercise this option, would pay Alnylam $100 million up front in addition to future milestones and royalties per product. This broad nonexclusive license granted to Novartis would be structured similarly to our nonexclusive platform licenses that we have with Roche and Takeda. Turning to our Roche agreement, we're also making new disclosures, namely that we are eligible to receive $100 million in milestone payments in addition to royalties for each therapeutic target that Roche develops, and that Roche has the right to expand their therapeutic fields of which there are an additional 18 in addition to the four they have at the price of $50 million per field. So regarding our existing relationships with Novartis and Roche, the key point here is that as we help them succeed in advancing RNAi therapeutics to patient, Alnylam can benefit very significantly in future payments and royalties.

Turning to the advancement of our intellectual property position, Alnylam continues to be the leader in this area. We believe our overall patent position is unmatched in the industry. We have over 1,800 active cases of which over 700 have been granted on a worldwide basis and over 300 of these patents have been issued or granted in the world's largest pharmaceutical markets, that's the US, Europe and Japan. This is clearly an unparalleled intellectual properties state in RNAi therapeutics. This is not only measured by the scope of these numbers, but also in the level of funding we have received in our partnership agreements and the fact that over 50% of all development stage RNAi products are currently covered by Alnylam IP licenses. Of course, for those that aren't currently covered we expect that they will require IP coverage as they approach the market and we can assume they will get coverage at substantially higher costs.

It's important to remember that no single patent or patent family defines the full breadth of Alnylam's intellectual property position. Our fundamental patents need to be looked at in their aggregate form. Together they contain broad sets of claims that are either currently issued or pending and we expect these claims to cover all commercially meaningful aspects of sRNAs short long blended, modified or unmodified or risk substrates and there's others. Of course, given the strength and scope of our IP we fully expect that there will be many challenges especially as part of the standard European patent process and as we have seen recently, some of our patents will stand and some will be overturned just as we saw with the Kreutzer-Limmer 623 and 945 patents. Some of these will be recovered on appeal but even if one is lost on appeal, there are many others from even the same patent family or as part of our broader estate that will be granted and broadly covers sRNAs.

In 2008 and recently in 2009 we continued to strengthen our dominant IP position with the issuance or grant of important patents owned, controlled or licensed by Alnylam and RNAi. For further information on specific products in this new front, I encourage you to read our press release which offers details on our fundamental IPSD including Tuschl II, [krook], Kreutzer-Limmer, McCaffrey and others. This includes new patent grants that we're announcing today. Under all circumstances in going forward you can expect us to continue to aggressively prosecute and deliver on the leading and dominant IP estates for RNAi.

In closing, let me reiterate what John said at the beginning of the call. From the very beginning our goal at Alnylam has been and continues to be the creation of a leading biopharmaceutical company based on the innovative and medical impact that can be achieved with RNAi therapeutics. We believe today more than ever in the transformative nature of RNAi and that Alnylam is positioned to continue to lead the world in developing new medicines based on RNAi, bringing to patients a completely new approach to treat disease in ways simply not achievable with today's small molecule and biologic approaches. With greater than $.5 billion, the leading scientific platform, dominant IP, global partners and collaborators and most importantly people with a keen sense of urgency and passion for creating a new class of drugs, Alnylam today is positioned for innovative growth for 2009 and well beyond. Thank you for your attention, and with that I'd now like to turn the call back over to the operator. Tamali?

Sure. (Operator Instructions). And please wait a few moments while the questions compile. Questions will be taken in the order received. Your first question comes from the line of Sapna Srivastava with Morgan Stanley. Please proceed.

Hi. It's Dave calling in for Sapna.

Hi, Dave.

How you doing?

Good.

Just a question on delivery. I know that's sort of an ongoing topic for everyone in the field. My assumption is you're using some type of lipid delivery for VSP, but was wondering if you have made any progress or if there's been any developments either at Keystone or otherwise about more targeted or cell specific delivery, and whether you think you would incorporate that into the VSP program or the next program to target more specific cells within the liver or cells outside of the liver.

Dave, that's a great question. Let me handle that. Then Akshay may have some additional comments as well. So with the VSP program, also with our PSK9 program and our transthyretin program, we are using systemic delivery with a liposomal formulation that has been developed together with our collaboratives at Tekmira Pharmaceuticals, and that formulation has performed exceptionally well in delivery of small interfering RNAs to broad cell types in the of the parenchyma of the liver and we believe it is a robust platform. In addition we have, of course, also developed liposomal formulations as part of our MIT collaboration but also continue to improve those formulations together with our collaborations with Tekmira and the University of British Columbia amongst other efforts that we have in the Company. So that approach really works quite well for targeting any target gene in the liver that's involved in the cause or pathway of human disease, and that, of course, is a lot to handle right there.

Now in addition to the work we're doing on liposomes, we are extremely involved in doing work on conjugant based delivery which is focused on more targeted specific cell types. We've commented at Keystone and other meetings on delivery using [folic] conjugants for tumor delivery, for example. Of course, we've also talked about our cholesterol conjugate approach in the past and also have used certain sugar conjugates to get delivery to [hypatacides] and potentially to macrophages as well and that's part of an ongoing effort where we show data at the recent Keystone meeting. Beyond that we also have a broader set of work that's going on in the Company that's going to be disclosed in the future but not ready yet for disclosure, but areas that we're very excited about for other approaches for systemic delivery to other tissues in the body.

So I'd say, Dave, that in a nutshell the progress that's been made has been phenomenal to date. We're extremely happy with it, but as I've said before, we'll always be working on delivery just like people are still working on antibody engineering 30 to 35 years after Kohler and Millstein discovered monoclonals, and it's going to be part of an ongoing area of research in the Company, but the good news, of course, is that we have extremely good versions of delivery technologies that can allow us to build an exciting clinical pipeline and set of marketing products we believe based on what we have already. Akshay, any further comments?

I think you've covered it. We have an excellent foundation to build on with our published and well known work across liposomes with Tekmira and MIT, and also the conjugants that you mentioned, and I think there are very logical evolutions of liposomal work that we and others will share in with altering the pharmacology of the liposome, by manipulating components to have different half-life profiles and different biodistribution patents. This is very attractable and of we're very interested in that, and work on that with Tekmira. They illustrated some of their work in this regard in the very recent "Journal of Clinical Investigation" paper showing liposomal delivery using a Tekmira liposome, the kind that we work on with them showing delivery to tumors outside of the liver in other compartments. So I think also the pharmacology of the liposome and then also decorating the liposome with certain [ligens] that allow homing to critical targets on tumor types and other organs is quite feasible and we're very actively interested that and the conjugant work John has described and the cholesterol conjugant is just at the vanguard of many of the different conjugants one can envision we are very busy working with,. So I think a lot more to come.

Yes. I'll just finish up, Dave, by saying we probably see two or three companies a week that come by to visit Alnylam because they have ideas and different approaches and we welcome them all. And often, in fact, have feasibility agreements that are ongoing with well over 20 of those companies. And most things don't work as suggested by these companies, but we do evaluate them and we have a very open approach with the broader academic community in term of what's going on and so we're at the center of everything that's going on and there's -- I can think a single technology that we're unaware of at this point in time unless it's just beginning to ferment someplace. So we're very connected where that whole field's going.

Just one quick follow-up. You said your current VSP formulation gives broad liver distribution. Does that include biliary as well as sort of liver parenchyma?

Well, we haven't done laser capture microdissection to answer your question specifically, okay? But what we do know is that we know that all cell types that where we've measured specific cell type specific message, okay, can be silenced with this approach, and so we believe that we are getting a broad silencing effect across the entire liver parenchyma regardless of cell type.

All right. Thank you.

Yes.

Your next question comes from the line of Simos Simeonidis with Rodman & Renshaw. Please proceed.

Hi, guys. Thanks for taking the question.

Hi, Simos.

Hi. I also had a question about delivery. I went through your Keystone data and your recent NAS paper with this new [lepidoid] the [LMP01], so I had a couple questions on that. And actually I saw today the announcement by Tekmira at the meeting in Japan where they mentioned that they have this new [snout] formulation where with the therapeutic index five or 10 times over [carneformulations]. So the first question is for your Phase I with VSP, are you using this new formulation that Tekmira is talking about and actually they published the paper yesterday in JCI, or are you using something that was a few months earlier, for example?

Well, so the work that we're doing with ALN-VSP is very comparable to what would be characterized in the JCI papers. They're liver specific snout formulation and that's what's being used for our VSP program, okay? As you know, the JCI paper nicely characterizes the PLK1 program that Alnylam has an opted right for with Tekmira. So we're excited about the progress they've made with that program as well. We like PLK1 as a target. So that work does not describe the release that came out from Tekmira to my understanding as it relates to some new advancements, but we're very aware of those new advancements and we have licenses to those technologies as well. So based on our long-standing relationship with Tekmira, and, of course, the role that we played in bringing the contentious Protiva and Tekmira organizations together a one happy family and our investment in Tekmira, our strategic relationship with them is very strong and we have a very good relationship with them across their entire platform.

Okay. And then secondly, again on delivery I read the P&As paper, the LNP01 lepidoid from Bob Langer's lab. Would you correct that as an earlier stage type of formulation that you're going use first in your preclinical or is this ready for prime type? Is it improvement over the snouts, comparable?

I think that the formulation that's been being developed at MIT are actually extremely exciting. We view MIT as a longer range technology area for us. It's obviously some extremely exciting academic results that I think will widen a lot of eyes and -- but it's still being -- I characterize it as two to three years behind where the work is with the current version of liposomal formulations with our Tekmira relations, for example.

Okay, great. I have a question about a week ago Roche announced a deal with a small RNAi company [MDRNA] and didn't really disclose any terms or anything. But given that they're your partners and they're engaged to you, it's going to amount your IP and everything. D you have any comments? What do you think they may have seen that prompted them to go outside their relationship?

Well, I think that Roche is a very committed player in the RNAi therapeutics field and has made already a couple of what I'd characterize as incremental moves in the field based on the foundation of what they did with Alnylam. So with Alnylam they did obviously the partnership that gave them the broad freedom to operate in the field and I think they've been interested, for example, in their Miris acquisition that they did last year where they acquired Miris for $125 million and in the MDRNA relationship which is undisclosed, so I would only characterize that as being obviously very small amounts of money by necessity of disclosure requirements that MDRNA would have. They're getting access to incremental types of technologies that help them advance their overall efforts. So -- and we're excited about. Is that the more commitment that Roche has and Novartis has and Tekada has to this field the better for Alnylam. We view that as a very positive aspect of it. And, of course, as part of our relationship with Roche if there are things that come out of their efforts, if there are things in the future that come out of our efforts, there's a foundation in which we can essentially get access to each other's future technologies if it makes sense for each other to do so.

Okay. And one final thing and I'll jump back in the queue. One of the things that you guys have done really well and have impressed investors is being able both in '07 and '08, securing the large up front payments from Roche and Takeda, and I know that's a loaded question, but is there something that we can see again in '09?

Well, I don't know the exact answer to that, Simos, because we have discussions ongoing that certainly relate to those types of relationships. We have discussions ongoing that are more product specific relationships. We've had a very solid track record in the past. Certainly what we are aiming for is to form the significant type of relationships that you've seen in the past, but it's impossible to predict with certainty which ones will happen next and how much would those be, and this and that, the other. But certainly when we talk about two or more major alliances in 2009, that's built on a foundation of a track record, which I think obviously speaks for itself, and we're very confident about where that can go. Whether it happens in 2009 from a platform standpoint or 2010 from a platform standpoint, only time will tell for those type of alliances, but we certainly have those type of active discussions.

Thank you very much, and congratulations on a great year.

Thanks, Simos.

Your next question comes from line of Pamela Basset with Cantor Fitzgerald. Please proceed.

Hi, everybody. Congratulations on a great year.

Thanks, Pamela.

You talked about -- Barry, I think you mentioned the potential application of RNAi to vaccine, stem cells and bioprocess. Would that be siRNAs or might it also involve some of the other classes of RNAi focused therapeutics that you're developing more activators like RNA and maybe even 3P siRNAs?

So great question. Let me handle it. Barry did mention that, but it does absolutely include other aspects of noncoding RNAs that are in our entire platform. So it's probably obvious to you, Pamela, that RNA activation could be very interesting for induced [pluripotency] or the trip sRNAs that we reported in the major medical paper could be very interesting for vaccine development, and so we are looking at how we can leverage our platform in those areas in ways that build value and monetize those approaches because they're not our strategic focus to the benefit of Alnylam's shareholders.

Okay. So should we also expect 3P sRNAs and RNAA focused programs in the early pipeline eventually over the next couple patents?

We certainly hope so. I mean what we're aiming to achieve, those are earlier as you know. What we're hoping to achieve with RNA activation this year would be invivo proven concept with that approach, and we've already done that with the 3P sRNAs based on the Nature Medicine paper, and we're interested in expanding that work to get some additional data, which hopefully we'll be able to publish this year as well, but those are still earlier efforts within our research activities.

Okay. So looking ahead, the whole pipeline could evolve into applying a portfolio approach to all the technology within RNAi as well as that you guys have developed along with applications in even bioprocess. How would that work?

Well, I mean there are clear opportunities for using RNA interference as a way of controlling bioprocessing to improve biologics manufacturing, so we have a very active interest in that area and we'll look at ways of monetizing that technology in the year to years to come.

And do you think that will be totally therapeutic focused or --

From a biologics standpoint it will be therapeutics focused. Yes.

Not anything else outside of --

Well, there could be other applications beyond human therapeutics as well.

Okay, interesting. Thanks very much.

Yes.

Your next question comes from the line of Stephen Willey with Thomas Weisel. Please proceed.

Hi, guys. Good afternoon. Thanks for taking my question.

Hi, Stephen.

How are you?

Good.

Just a question on the Novartis agreement just to clarify. They're currently extended through October of '09. Correct?

That's correct.

And there's an option for one more year for them to pick up?

That's correct.

And for them to -- and so essentially once that agreement expires they would then essentially be faced with a decision as to whether or not they want to sign on to a platform agreement?

That's correct, and what we disclosed today is that the up front payment they would make under that would be $100 million.

$100 million, yes. So essentially, then, they're developing I'm presuming clinical assets at this point or preclinical assets or anything, but based when the terms of the agreement expire wouldn't they necessarily, I guess, be forced into a platform alliance in order to continue any of the work under the current IP that you guys hold?

Well, for the 30 targets that are currently under the license agreement for any active programs at the time which is closed. If they -- let's say it ends in five years and let's say they're working at that five year time point on 10 active programs, those continue active programs continue to survive beyond the term of the agreement. They last on till those products are marketed and everything else, but if they want the broader technology for any nonactive program even beyond those 10 as well as broad applications of other therapeutic targets, they have to take an adoption license, a platform license, at that time.

Okay. And then just in terms of thinking about product specific alliances, there was a lot of commentary and questions about a development in delivery technology. Do you think that because we're necessarily so early in the delivery stage of things that, that would preclude another company from signing a product alliance per se, something like VSP, when two, three years out there may be an improvement in the lipid delivery formulation which requires them to put the thing back into Phase I trial and reevaluate safety and tolerability?

I mean first of all, we think VSP as currently configured is good to go to the market as far as we know now, Stephen, number one. And number two, the specifics of how we would do a product deal with an ALN-VSP for example and we intend to fully retain the US markets rights to that product. So we look to the European and rest of world partner there, that's going to be obviously done in a format that would include improvements and other types of embellishments of delivery, for example, that might take place in the future. So it wouldn't at all be unattracted to the partner as to how it relates to how you would advance that type of program.

And then you mentioned Roche and the Miris deal. Have you looked at any viral specific expression at all or even a vector expression?

Yes. We have looked at that, Stephen, but mine I have to say while it's interesting and there's some potential there, you have to focus on something and we've been very focused on delivering synthetic siRNAs. There has been some interesting work that's been done with some viral vector methods and nonviral vector methods as well, but that's just not our bailiwick and we're going to stay focused on siRNAs all right.

Alright. Thanks for taking my questions, and congrats on a great year.

Thanks, Stephen.

(Operator instructions). Your next question comes from the line of Alan Carr with Needham & Company. Please proceed.

Hi. Good afternoon, everyone.

Hi, Alan.

I was intrigued by your comment earlier about strategic investments. Is this -- I wonder if you could elaborate on that a bit and whether that relates possibly to some acquisition plans in 2009?

Let me have Barry answer that question. Barry?

Yes, Alan, this is something we've been talking about for quite a while, and in fact Regulus is the best example of this so far. Given the ubiquitous nature of the RNAi pathway and the dominant IP we have, it's important for to us to interrogate other areas where RNAi can add value and we're very focused on developing sRNA therapeutics, so things like microRNA therapeutics or vaccine enhancements, as John mentioned bioprocessing, are other possible companies that can be formed where we'd return tremendous value to shareholders by owning a significant portion of that company or product rights from some of those companies, but not detract from our core mission. So if there are pieces of technology that are important to make those companies work, there may be pieces of acquisitions, but it's really driven by the significant scientific advancement and the power of RNAi in these different product and company opportunities.

I would just only add to that, Alan, Barry hit it spot on, but I would just add that everything that we do relates to RNA interference. We have no interest in acquisitions outside of our core focus whatsoever. And the reason for that is that we can't imagine a single dollar that would be better spent anywhere else other than RNA interference at this point in time from -- certainly from our vantage point, and so that's going to remain a focus. But in addition to what Barry just mentioned, there could also be an opportunistic investments that we would look at on delivery technologies out there. We do scan that universe. We are in a balance sheet position as a Company, and as a leader in the space. We see every deal that's being offered by investment banks. We review them closely, and so there may be things that we take a look at. We put some money in reserve from a financial planning standpoint, so that we obviously, can choose to use it. If we don't use it, then obviously we'll keep the cash, but we are in a mode where we are always open to looking and always open to exploring as long as it's related to RNA interference.

Okay. That's clear. Thank you. I have one other unrelated question. Regarding the RSV trial in lung transplant patients, that one you said enrollment would end mid-'09, maybe a little earlier. What about timing of data? What's the results from that trial? What sort of lag should we expect between finishing the --

Great question. Now let me have Akshay answer that.

Yes, Alan, I think we said data soon thereafter. So if the trial finishes midyear or so, hopefully a little earlier it looks like, then naturally we have to get the data and look at it very carefully, assure the quality, and so I think you can expect in a period of months after that -- and we're talking a few months -- that we would release and as is our usual practice, we'll give everybody a heads up as to the time and date and a suitable venue where we'll be announcing the data. Typically we've announced them at scientific forum.

So we should expect the results from this not necessarily in the form of a press release but associated with a particular meeting?

No. We would do a press release.

Okay.

And then obviously there would be a follow-up full scientific presentation at a scientific meeting.

I get you, okay.

Yes.

Sorry, I missed this, also, but you're planning to start a trial with inhaled formation two to three times a day in adults. When did you guide for that to start?

Akshay?

That will start fairly soon within the next month or two. So it's a very much a first half of the year activity that we want to initiate that.

And that's simply a clinical pharmacology study, Alan, that's focused on leveraging some of the experience we've had out of the preclinical research into the human setting as well.

This was healthy volunteers, right?

That's right, that's right.

Okay. Great. Thanks very much.

Great, Alan.

Your next question is a follow-up from the line of Pamela Basset with Cantor Fitzgerald. Please proceed.

And just one moment. This will be our last question.

Yes. Thank you, Cynthia. Hi, Pamela.

Hi. Just quick follow-up on the timing of the Novartis decision for platform license. I thought that they had to decide before the end of the agreement in October. I thought it was more like July. Am I not remembering correctly?

There's a notification period if they -- so if they choose to extend through year five, there's a notification period that's provided in July, okay? They can actually wait till the October time point to take their platform license.

Okay. Great. Thanks for the clarification.

And with that let me thank everybody for joining us today. Obviously we had a great year last year by all accounts, and I think 2009 is already stacking up to be as great, if not a better year. So thanks for your time and we look forward to talking to you soon. Bye-bye.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.