ALNYLAM PHARMACEUTICALS, INC. [ALNY] Filings

10-Q 1 alny-20230630.htm 10-Q alny-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________

FORM 10-Q

____________________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number 001-36407

__________________________________________

ALNYLAM PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in Its Charter)

__________________________________________


Delaware (State or Other Jurisdiction of Incorporation or Organization)			77-0602661 (I.R.S. Employer Identification No.)


675 West Kendall Street, Henri A. Termeer Square Cambridge, MA (Address of Principal Executive Offices)			02142 (Zip Code)

(617) 551-8200

(Registrant’s Telephone Number, Including Area Code)

__________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, $0.01 par value per share

ALNY

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	x	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

At July 28, 2023, the registrant had 125,000,652 shares of Common Stock, $0.01 par value per share, outstanding.

ALNYLAM PHARMACEUTICALS, INC.

QUARTERLY REPORT ON FORM 10-Q

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			PAGE NUMBER
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (Unaudited)

CONDENSED CONSOLIDATED BALANCE SHEETS AS OF J UNE 30 , 2023 AND DECEMBER 31, 2022			5
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS FOR THE THREE AND SIX MONTH S ENDED JUNE 30 , 2023 AND 2022			6
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY FOR THE THREE AND SIX MONTHS ENDED JUNE 30 , 2023 AND 2022			7
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30 , 2023 AND 2022			9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS			10

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			26

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			36

ITEM 4. CONTROLS AND PROCEDURES			36

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS			37

ITEM 1A. RISK FACTORS			37

ITEM 5. OTHER INFORMATION			74

ITEM 6. EXHIBITS			75

SIGNATURES			76

“Alnylam,” ONPATTRO®, AMVUTTRA®, GIVLAARI®, OXLUMO®, Alnylam Act®, GEMINI™ and IKARIA™ are trademarks and registered trademarks of Alnylam Pharmaceuticals, Inc. Our logo, trademarks and service marks are property of Alnylam. All other trademarks or service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of complying with those safe harbor provisions. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

•our views with respect to the potential for approved and investigational RNAi therapeutics, including ONPATTRO, AMVUTTRA, GIVLAARI, OXLUMO, Leqvio® (inclisiran), fitusiran and zilebesiran;

•our plans for additional global regulatory filings and the continuing product launches of ONPATTRO, AMVUTTRA, GIVLAARI, OXLUMO and our partner's plans with respect to Leqvio;

•our future ability to successfully expand the indications for ONPATTRO and AMVUTTRA;

•our expectations regarding potential market size for, and the successful commercialization of, ONPATTRO, AMVUTTRA, GIVLAARI, OXLUMO, Leqvio or any future products;

•our ability to obtain and maintain regulatory approvals and pricing and reimbursement for ONPATTRO, AMVUTTRA, GIVLAARI, OXLUMO or any future products, and our partners' ability with respect to Leqvio and fitusiran;

•the progress of our research and development programs, including programs in both rare and prevalent diseases;

•the potential for improved product profiles to emerge from our new technologies, including our IKARIA and GEMINI platforms and our ability to expand our product engine to include extrahepatic tissues;

•our current and anticipated clinical trials and expectations regarding the reporting of data from these trials;

•risks related to the direct or indirect impact of the novel coronavirus, or COVID-19, global pandemic, emerging or future variants of COVID-19 or any future pandemic, or public health emergency, on, among other things, our financial performance, business and operations, including manufacturing, supply chain, research and development activities and pipeline programs, and other potential impacts to our business;

•any impact of the ongoing conflict in Ukraine, including disruptions to our clinical trials;

•the timing of regulatory filings and interactions with, or actions or advice of, regulatory authorities, which may affect the design, initiation, timing, continuation and/or progress of clinical trials, or result in the need for additional pre-clinical and/or clinical testing or the timing or likelihood of regulatory approvals;

•the status of our manufacturing operations and any delays, interruptions or failures in the manufacture and supply of ONPATTRO, AMVUTTRA, GIVLAARI, OXLUMO or any of our product candidates (or other products or product candidates being developed and commercialized by our partners), by our or their contract manufacturers or by us or our partners;

•our progress continuing to build and leverage our global commercial infrastructure;

•the possible impact of any competing products on the commercial success of ONPATTRO, AMVUTTRA, GIVLAARI, OXLUMO and Leqvio, as well as our product candidates, and, our, or with respect to Leqvio or fitusiran, our partners', ability to compete against such products;

•our ability to manage our growth and operating expenses;

•our views and plans with respect to our 5-year Alnylam P5x25 strategy and our intentions to achieve the metrics associated with this strategy, including to become a top-tier biotech company by the end of 2025;

•our belief that our current cash balance should enable us to achieve a self-sustainable profile without the need for future equity financing;

•our expectations regarding the length of time our current cash, cash equivalents and marketable equity and debt securities will support our operations based on our current operating plan;

•our dependence on third parties for development, manufacture and distribution of products;

•our expectations regarding our corporate collaborations, including potential future licensing fees and milestone and royalty payments under existing or future agreements;

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•our ability to obtain, maintain and protect our intellectual property;

•our ability to attract and retain qualified key management and scientists, development, medical and commercial staff, consultants and advisors and to successfully execute on our Alnylam P5x25 strategy;

•the outcome of litigation, including our patent infringement suits against Pfizer, Inc., BioNTech SE and Moderna, Inc., or of other legal proceedings or government investigations;

•regulatory developments in the United States, or U.S., and foreign countries;

•the impact of laws and regulations;

•developments relating to our competitors and our industry;

•our ability to satisfy our payment obligations, and to service the interest on, or to refinance our indebtedness, including our convertible notes, or to make cash payments in connection with any conversion of our convertible notes, to the extent required;

•our expectations regarding the effect of the capped call transactions and the anticipated market activities of the option counterparties and/or their respective affiliates; and

•other risks and uncertainties, including those listed under the caption Part II, Item 1A, "Risk Factors" of this Quarterly Report on Form 10-Q.

The risks set forth above are not exhaustive. Other sections of this Quarterly Report on Form 10-Q may include additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all risk factors, nor can we assess the impact of all risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events and with respect to our business and future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those described under Part II, Item 1A, "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You are advised, however, to consult any further disclosure we make in our reports filed with the SEC.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (Unaudited)

ALNYLAM PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)


	June 30, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	657,800	$	866,394
Marketable debt securities	1,372,451		1,297,890
Marketable equity securities	27,256		28,122
Accounts receivable, net	220,635		237,963
Inventory	100,453		128,962
Prepaid expenses and other current assets	145,452		132,916

Total current assets	2,524,047		2,692,247
Property, plant and equipment, net	527,474		523,494
Operating lease right-of-use assets	208,801		215,136
Restricted investments	49,388		49,390
Other assets	92,686		66,092
Total assets	$	3,402,396	$	3,546,359
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	59,746	$	98,094
Accrued expenses	598,530		545,460
Operating lease liability	42,074		41,967
Deferred revenue	54,639		42,105
Liability related to the sale of future royalties	33,650		40,289
Total current liabilities	788,639		767,915
Operating lease liability, net of current portion	253,416		261,339
Deferred revenue, net of current portion	194,129		193,791
Convertible debt	1,018,843		1,016,942
Liability related to the sale of future royalties, net of current portion	1,298,446		1,252,015
Other liabilities	257,054		212,580
Total liabilities	3,810,527		3,704,582
Commitments and contingencies (Note 13)
Stockholders’ deficit:
Preferred stock, $0.01 par value per share, 5,000 shares authorized and no shares issued and outstanding as of June 30, 2023 and December 31, 2022	—		—
Common stock, $0.01 par value per share, 250,000 shares authorized; 124,901 shares issued and outstanding as of June 30, 2023; 123,925 shares issued and outstanding as of December 31, 2022	1,250		1,240
Additional paid-in capital	6,647,173		6,454,540
Accumulated other comprehensive loss	(37,080)		(44,654)
Accumulated deficit	(7,019,474)		(6,569,349)
Total stockholders’ deficit	(408,131)		(158,223)
Total liabilities and stockholders’ deficit	$	3,402,396	$	3,546,359

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ALNYLAM PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Statements of Operations
Revenues:
Net product revenues	$	305,705	$	213,515	$	582,033	$	400,387
Net revenues from collaborations	5,844		9,025		42,306		34,970
Royalty revenue	7,205		2,278		13,705		2,720
Total revenues	318,754		224,818		638,044		438,077
Operating costs and expenses:
Cost of goods sold	75,336		34,038		116,768		57,495
Cost of collaborations and royalties	10,034		6,770		23,471		18,940
Research and development	248,526		205,712		479,095		375,605
Selling, general and administrative	214,689		169,984		398,348		324,455
Total operating costs and expenses	548,585		416,504		1,017,682		776,495
Loss from operations	(229,831)		(191,686)		(379,638)		(338,418)
Other (expense) income:
Interest expense	(30,035)		(42,609)		(58,990)		(84,971)
Interest income	21,075		1,899		39,730		2,911
Other expense, net	(35,418)		(42,277)		(47,673)		(93,551)

Total other expense, net	(44,378)		(82,987)		(66,933)		(175,611)
Loss before income taxes	(274,209)		(274,673)		(446,571)		(514,029)
Provision for income taxes	(1,815)		(2,729)		(3,554)		(3,714)
Net loss	$	(276,024)	$	(277,402)	$	(450,125)	$	(517,743)
Net loss per common share - basic and diluted	$	(2.21)	$	(2.29)	$	(3.62)	$	(4.29)
Weighted-average common shares used to compute basic and diluted net loss per common share	124,659		120,896		124,387		120,646

Statements of Comprehensive Loss
Net loss	$	(276,024)	$	(277,402)	$	(450,125)	$	(517,743)
Other comprehensive income (loss):
Unrealized (loss) gain on marketable securities	(2,025)		(1,734)		2,100		(8,951)
Foreign currency translation gain (loss)	4,073		(2,459)		5,483		(83)
Defined benefit pension plans, net of tax	(4)		34		(9)		69
Total other comprehensive income (loss)	2,044		(4,159)		7,574		(8,965)
Comprehensive loss	$	(273,980)	$	(281,561)	$	(442,551)	$	(526,708)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ALNYLAM PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

(In thousands)

(Unaudited)


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Deficit
	Shares	Amount
Balance as of December 31, 2022	123,925	$	1,240	$	6,454,540	$	(44,654)	$	(6,569,349)	$	(158,223)
Exercise of common stock options, net of tax withholdings	269	3		26,415		—		—		26,418
Issuance of common stock under equity plans	47	—		—		—		—		—
Stock-based compensation expense	—	—		41,136		—		—		41,136
Other comprehensive income	—	—		—		5,530		—		5,530
Net loss	—	—		—		—		(174,101)		(174,101)
Balance as of March 31, 2023	124,241	1,243		6,522,091		(39,124)		(6,743,450)		(259,240)
Exercise of common stock options, net of tax withholdings	372	4		38,111		—		—		38,115
Issuance of common stock under equity plans	288	3		9,981		—		—		9,984
Stock-based compensation expense	—	—		76,990		—		—		76,990
Other comprehensive income	—	—		—		2,044		—		2,044
Net loss	—	—		—		—		(276,024)		(276,024)
Balance as of June 30, 2023	124,901	$	1,250	$	6,647,173	$	(37,080)	$	(7,019,474)	$	(408,131)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ALNYLAM PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

(In thousands)

(Unaudited)


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance as of December 31, 2021	120,182	$	1,202	$	6,058,453	$	(33,259)	$	(5,438,193)	$	588,203
Exercise of common stock options, net of tax withholdings	524	5		28,054		—		—		28,059
Issuance of common stock under equity plans	23	—		—		—		—		—
Stock-based compensation expense	—	—		30,051		—		—		30,051
Other comprehensive loss	—	—		—		(4,806)		—		(4,806)
Net loss	—	—		—		—		(240,341)		(240,341)
Balance as of March 31, 2022	120,729	1,207		6,116,558		(38,065)		(5,678,534)		401,166
Exercise of common stock options, net of tax withholdings	192	2		13,890		—		—		13,892
Issuance of common stock under equity plans	71	1		8,089		—		—		8,090
Stock-based compensation expense	—	—		34,453		—		—		34,453
Other comprehensive loss	—	—		—		(4,159)		—		(4,159)
Net loss	—	—		—		—		(277,402)		(277,402)
Balance as of June 30, 2022	120,992	$	1,210	$	6,172,990	$	(42,224)	$	(5,955,936)	$	176,040

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ALNYLAM PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended June 30,
	2023		2022
Cash flows from operating activities:
Net loss	$	(450,125)	$	(517,743)
Non-cash adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	27,244		19,557
Amortization and interest accretion related to operating leases	22,282		20,458
Non-cash interest expense on liability related to the sale of future royalties	51,647		54,704
Stock-based compensation	115,749		59,764
Realized and unrealized loss on marketable equity securities	867		32,258

Change in fair value of development derivative liability	36,686		45,692
Other	(8,252)		17,830
Changes in operating assets and liabilities:
Accounts receivable, net	16,183		46,095
Inventory	1,582		(7,274)
Prepaid expenses and other assets	(29,109)		(51,159)
Accounts payable, accrued expenses and other liabilities	766		19,407
Operating lease liability	(23,847)		(21,434)
Deferred revenue	12,866		(12,167)
Net cash used in operating activities	(225,461)		(294,012)
Cash flows from investing activities:
Purchases of property, plant and equipment	(29,810)		(33,914)
Purchases of marketable securities	(812,887)		(1,096,275)
Sales and maturities of marketable securities	757,767		1,134,138
Proceeds from maturity of restricted investments	58,475		24,225
Purchases of restricted investments	(58,475)		(32,725)
Other investing activities	—		(75)
Net cash used in investing activities	(84,930)		(4,626)
Cash flows from financing activities:
Proceeds from exercise of stock options and other types of equity, net	91,765		49,626




Proceeds from development derivative	8,000		15,667


Net cash provided by financing activities	99,765		65,293
Effect of exchange rate changes on cash, cash equivalents and restricted cash	2,046		(11,073)
Net decrease in cash, cash equivalents and restricted cash	(208,580)		(244,418)
Cash, cash equivalents and restricted cash, beginning of period	868,556		822,153
Cash, cash equivalents and restricted cash, end of period	$	659,976	$	577,735
Supplemental disclosure of cash flows:
Cash paid for interest	$	17,128	$	29,060

Supplemental disclosure of noncash investing activities:
Capital expenditures included in accounts payable and accrued expenses	$	5,663	$	6,518

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. NATURE OF BUSINESS

Alnylam Pharmaceuticals, Inc. (also referred to as Alnylam, we, our or us) commenced operations on June 14, 2002 as a biopharmaceutical company seeking to develop and commercialize novel therapeutics based on ribonucleic acid interference, or RNAi. We are committed to the advancement of our company strategy of building a multi-product, global, commercial biopharmaceutical company with a deep and sustainable clinical pipeline of RNAi therapeutics for future growth and a robust, organic research engine for sustainable innovation and great potential for patient impact. Since inception, we have focused on discovering, developing and commercializing RNAi therapeutics by establishing and maintaining a strong intellectual property position in the RNAi field, establishing strategic alliances with leading pharmaceutical and life sciences companies, generating revenues through licensing agreements, and ultimately developing and commercializing RNAi therapeutics globally, either independently or with our strategic partners. We have devoted substantially all of our efforts to business planning, research, development, manufacturing and early commercial efforts, acquiring, filing and expanding intellectual property rights, recruiting management and technical staff, and raising capital.

In early 2021, we launched our Alnylam P5x25 strategy, which focuses on our planned transition to a top-tier biotech company by the end of 2025. With Alnylam P5x25, we aim to deliver transformative rare and prevalent disease medicines for patients around the world through sustainable innovation, while delivering exceptional financial performance.

As of June 30, 2023, we have five marketed products, including one partnered product, and multiple late-stage investigational programs advancing towards potential commercialization. We currently generate worldwide product revenues from four commercialized products, ONPATTRO, AMVUTTRA, GIVLAARI and OXLUMO, primarily in the United States, or U.S., Europe and Japan.

2. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The accompanying condensed consolidated financial statements of Alnylam are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, applicable to interim periods and, in the opinion of management, include all normal and recurring adjustments that are necessary to state fairly the results of operations for the reported periods. Our condensed consolidated financial statements have also been prepared on a basis substantially consistent with, and should be read in conjunction with, our audited consolidated financial statements for the year ended December 31, 2022, which were included in our Annual Report on Form 10-K that was filed with the Securities and Exchange Commission on February 23, 2023. The year-end condensed consolidated balance sheet data was derived from our audited financial statements but does not include all disclosures required by GAAP. The results of our operations for any interim period are not necessarily indicative of the results of our operations for any other interim period or for a full fiscal year.

The accompanying condensed consolidated financial statements reflect the operations of Alnylam and our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Our significant accounting policies are described in Note 2 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, or GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. In our condensed consolidated financial statements, we use estimates and assumptions related to our inventory valuation and related reserves, liability related to the sale of future royalties, development derivative liability, income taxes, revenue recognition, research and development expenses, and stock-based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable. Actual results could differ from those estimates. Changes in estimates are reflected in reported results in the period in which they become known.

Liquidity

Based on our current operating plan, we believe that our cash, cash equivalents and marketable securities as of June 30, 2023, together with the cash we expect to generate from product sales and under our current alliances, will be sufficient to enable us to advance our Alnylam P5x25 strategy for at least the next 12 months from the filing of this Quarterly Report on Form 10-Q.

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ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3. NET PRODUCT REVENUES

Net product revenues consist of the following:


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2023		2022		2023		2022
ONPATTRO
United States	$	25,560	$	71,085	$	55,377	$	133,392
Europe	56,393		56,787		116,071		109,968
Rest of World	9,505		25,556		22,503		47,077
Total	91,458		153,428		193,951		290,437

AMVUTTRA
United States	96,469		—		175,482		—
Europe	14,405		—		21,173		—
Rest of World	21,262		—		37,249		—
Total	132,136		—		233,904		—

GIVLAARI
United States	35,196		29,661		65,487		53,336
Europe	14,051		13,894		28,522		23,582
Rest of World	8,652		1,595		11,796		3,509
Total	57,899		45,150		105,805		80,427

OXLUMO
United States	8,794		7,121		17,851		12,533
Europe	12,216		7,593		25,525		15,751
Rest of World	3,202		223		4,997		1,239
Total	24,212		14,937		48,373		29,523

Total net product revenues	$	305,705	$	213,515	$	582,033	$	400,387

The following table presents the balance of our receivables related to our net product revenues:


(In thousands)	As of June 30, 2023		As of December 31, 2022
Receivables included in “Accounts receivable, net”	$	184,158	$	203,844

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(Unaudited)

4. NET REVENUES FROM COLLABORATIONS

Net revenues from collaborations consist of the following:


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2023		2022		2023		2022
Regeneron Pharmaceuticals	$	(2,837)	$	14	$	17,153	$	12,426
Novartis AG	8,627		8,533		23,560		21,669
Other	54		478		1,593		875
Total	$	5,844	$	9,025	$	42,306	$	34,970

The following table presents the balance of our receivables and contract liabilities related to our collaboration agreements:


(In thousands)	As of June 30, 2023		As of December 31, 2022
Receivables included in “Accounts receivable, net”	$	28,135	$	32,342
Contract liabilities included in “Deferred revenue”	$	248,603	$	235,528

We recognized revenue of $4.8 million and $10.3 million in the three and six months ended June 30, 2023, respectively, and revenue of $5.3 million in the six months ended June 30, 2022, that was included in the contract liability balance at the beginning of the period. Revenue recognized from amounts included in the contract liability balance at the beginning of the period was immaterial for the three months ended June 30, 2022.

In order to determine revenue recognized in the period from contract liabilities, we first allocate revenue to the individual contract liability balance outstanding at the beginning of the period until the revenue exceeds that balance. If additional consideration is received on those contracts in subsequent periods, we assume all revenue recognized in the reporting period first applies to the beginning contract liability as opposed to a portion applying to the new consideration for the period.

The following table provides research and development expenses incurred by type, for which we recognize net revenue, that are directly attributable to our collaboration agreements, by collaboration partner:


	Three Months Ended June 30,
	2023						2022
(In thousands)	Clinical Trial and Manufacturing		External Services		Other		Clinical Trial and Manufacturing		External Services		Other
Regeneron Pharmaceuticals	$	9,956	$	910	$	9,330	$	1,677	$	365	$	9,645
Other	85		58		405		—		280		177
Total	$	10,041	$	968	$	9,735	$	1,677	$	645	$	9,822


	Six Months Ended June 30,
	2023						2022
(In thousands)	Clinical Trial and Manufacturing		External Services		Other		Clinical Trial and Manufacturing		External Services		Other
Regeneron Pharmaceuticals	$	18,472	$	2,150	$	18,693	$	3,114	$	987	$	18,953
Other	397		184		765		156		322		337
Total	$	18,869	$	2,334	$	19,458	$	3,270	$	1,309	$	19,290

The research and development expenses incurred for the agreements included in the table above consist of costs incurred for (i) clinical expenses, including manufacturing of clinical product, (ii) external services including consulting services and lab supplies and services, and (iii) other expenses, including professional services, facilities and overhead allocations, and a reasonable estimate of compensation and related costs as billed to our counterparties, for which we recognize net revenues from collaborations. For the three and six months ended June 30, 2023 and 2022, we did not incur material selling, general and administrative expenses related to our collaboration agreements.

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In addition, we recognized a reduction to our research and development expenses of $4.5 million and $10.2 million for the three and six months ended June 30, 2023, respectively, and $3.5 million and $7.4 million for the three and six months ended June 30, 2022, respectively, from cost reimbursement due under certain of our collaboration agreements with Regeneron Pharmaceuticals, Inc., or Regeneron, accounted for under Accounting Standards Codification, or ASC, Topic 808, Collaborative Arrangements, or ASC 808.

Product Alliances

Regeneron Pharmaceuticals, Inc.

In April 2019, we entered into a global, strategic collaboration with Regeneron to discover, develop and commercialize RNAi therapeutics for a broad range of diseases by addressing therapeutic targets expressed in the eye and central nervous system, or CNS, in addition to a select number of targets expressed in the liver, which we refer to as the Regeneron Collaboration. The Regeneron Collaboration is governed by a Master Agreement, referred to as the Regeneron Master Agreement, which became effective on May 21, 2019. In connection with the Regeneron Master Agreement, we and Regeneron entered into (i) a binding co-co collaboration term sheet covering the continued development of cemdisiran, our C5 small interfering RNA, or siRNA, currently in Phase 2 development for C5 complement-mediated diseases, as a monotherapy and (ii) a binding license term sheet to evaluate anti-C5 antibody-siRNA combinations for C5 complement-mediated diseases including evaluating the combination of Regeneron’s pozelimab (REGN3918), currently in Phase 3 development, and cemdisiran. The C5 co-co collaboration and license agreements were executed in August 2019.

Under the terms of the Regeneron Collaboration, we are working exclusively with Regeneron to discover RNAi therapeutics for eye and CNS diseases for an initial research period of approximately five years, which we refer to as the Initial Research Term. Regeneron has an option to extend the Initial Research Term (referred to as the Research Term Extension Period, and together with the Initial Research Term, the Research Term) for up to an additional five years, for a research term extension fee of $300.0 million. The Regeneron Collaboration also covers a select number of RNAi therapeutic programs designed to target genes expressed in the liver, including our previously announced collaboration with Regeneron to identify RNAi therapeutics for the chronic liver disease nonalcoholic steatohepatitis. We retain broad global rights to all of our other unpartnered liver-directed clinical and pre-clinical pipeline programs. The Regeneron Collaboration is governed by a joint steering committee that is comprised of an equal number of representatives from each party.

Regeneron leads development and commercialization for all programs targeting eye diseases (subject to limited exceptions), entitling us to certain potential milestone and royalty payments pursuant to the terms of a license agreement, the form of which has been agreed upon by the parties. We and Regeneron are alternating leadership on CNS and liver programs covered by the Regeneron Collaboration, with the lead party retaining global development and commercial responsibility. For such CNS and liver programs, both we and Regeneron have the option at lead candidate selection to enter into a co-co collaboration agreement, the form of which has been agreed upon by the parties, whereby both companies will share equally all costs of, and profits from, all development and commercialization activities under the program. If the non-lead party elects to not enter into a co-co collaboration agreement with respect to a given CNS or liver program, we and Regeneron will enter into a license agreement with respect to such program and the lead party will be the “Licensee” for the purposes of the license agreement. If the lead party for a CNS or liver program elects to not enter into the co-co collaboration agreement, then we and Regeneron will enter into a license agreement with respect to such program and leadership of the program will transfer to the other party and the former non-lead party will be the “Licensee” for the purposes of the license agreement.

With respect to the programs directed to C5 complement-mediated diseases, we retain control of cemdisiran monotherapy development, and Regeneron is leading combination product development. Pursuant to the C5 co-co collaboration agreement, Regeneron notified us in November 2022 of its decision to exercise its right to opt-out of the further development and commercialization of cemdisiran monotherapy. As a result, Regeneron no longer shares costs and potential future profits on any monotherapy program with us. We continue to perform our obligations under the agreement and we are solely responsible for all development and commercialization costs. Regeneron will be eligible to receive tiered double-digit royalties on net sales. Under the C5 license agreement, for cemdisiran to be used as part of a combination product, Regeneron is solely responsible for all development and commercialization costs and we will receive low double-digit royalties and commercial milestones of up to $325.0 million on any potential combination product sales. The C5 co-co collaboration agreement, the C5 license agreement, and the Master Agreement have been combined for accounting purposes and treated as a single agreement.

In connection with the Regeneron Master Agreement, Regeneron made an upfront payment of $400.0 million. We are also eligible to receive up to an additional $200.0 million in milestone payments upon achievement of certain criteria during early clinical development for eye and CNS programs. We and Regeneron plan to advance programs directed to up to 30 targets in the first five years under the Regeneron Collaboration during the Initial Research Term. For each program, Regeneron will provide us with $2.5 million in funding at program initiation and an additional $2.5 million at lead candidate identification, with the potential for approximately $30.0 million in annual discovery funding to us as the Regeneron Collaboration reaches steady state.

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(Unaudited)

Regeneron has the right to terminate the Regeneron Master Agreement for convenience upon ninety days’ notice. The termination of the Regeneron Master Agreement does not affect the term of any license agreement or co-co collaboration agreement then in effect. In addition, either party may terminate the Regeneron Master Agreement for a material breach by, or insolvency of, the other party. Unless earlier terminated pursuant to its terms, the Regeneron Master Agreement will remain in effect with respect to each program until (a) such program becomes a terminated program or (b) the parties enter into a license agreement or co-co collaboration agreement with respect to such program. The Regeneron Master Agreement includes various representations, warranties, covenants, dispute escalation and resolution mechanisms, indemnities and other provisions customary for transactions of this nature.

For any license agreement subsequently entered into, the licensee will generally be responsible for its own costs and expenses incurred in connection with the development and commercialization of the collaboration products. The licensee will pay to the licensor certain development and/or commercialization milestone payments totaling up to $150.0 million for each collaboration product. In addition, following the first commercial sale of the applicable collaboration product under a license agreement, the licensee is required to make certain tiered royalty payments, ranging from low double-digits up to 20%, to the licensor based on the aggregate annual net sales of the collaboration product, subject to customary reductions.

For any co-co collaboration agreement subsequently entered into, we and Regeneron will share equally all costs of, and profits from, development and commercialization activities. Reimbursement of our share of costs will be recognized as a reduction to research and development expense in the condensed consolidated statements of operations and comprehensive loss. In the event that a party exercises its opt-out right, the lead party will be responsible for all costs and expenses incurred in connection with the development and commercialization of the collaboration products under the applicable co-co collaboration agreement, subject to continued sharing of costs through defined points. If a party exercises its opt-out right, following the first commercial sale of the applicable collaboration product under a co-co collaboration agreement, the lead party is required to make certain tiered royalty payments, ranging from low double-digits up to 20%, to the other party based on the aggregate annual net sales of the collaboration product and the timing of the exercise of the opt-out right, subject to customary reductions and a reduction for opt-out transition costs.

Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development, we may not receive any milestone or royalty payments from Regeneron under the Regeneron Master Agreement, the C5 license agreement, or any future license agreement, or under any co-co collaboration agreement in the event we exercise our opt-out right.

Our obligations under the Regeneron Collaboration include: (i) a research license and research services, collectively referred to as the Research Services Obligation; (ii) a worldwide license to cemdisiran for combination therapies, and manufacturing and supply, and development service obligations, collectively referred to as the C5 License Obligation; and (iii) development, manufacturing and commercialization activities for cemdisiran monotherapies, referred to as the C5 Co-Co Obligation.

The research license is not distinct from the research services primarily as a result of Regeneron being unable to benefit on its own or with other resources reasonably available, as the license is providing access to specialized expertise, particularly as it relates to RNAi technology that is not available in the marketplace. Similarly, the worldwide license to cemdisiran for combination therapies is not distinct from the manufacturing and supply, and development service obligations, as Regeneron cannot benefit on its own from the value of the license without receipt of supply.

Separately, prior to Regeneron’s decision in November 2022 to exercise its right to opt-out of the further development and commercialization of cemdisiran monotherapy, the cemdisiran monotherapy co-co collaboration agreement was under the scope of ASC 808 as we and Regeneron were both active participants in the development and manufacturing activities and were exposed to significant risks and rewards that were dependent on commercial success of the activities of the arrangement. Regeneron’s decision to exercise its right to opt-out of the arrangement caused a change in the role of Regeneron and its exposure to significant risks and rewards under the arrangement. As a result, we determined that the arrangement no longer represents a collaborative arrangement.

The arrangement now represents a vendor-customer relationship under ASC 606 as we perform our obligation to provide development and manufacturing activities under the arrangement. The transaction price allocated to the C5 Co-Co obligation unit of account will be recognized over time using an input method based on cost incurred relative to the total estimated costs for the identified performance obligation by determining the proportion of effort incurred as a percentage of total effort we expect to expend.

The total transaction price is comprised of the $400.0 million upfront payment and additional variable consideration related to research, development, manufacturing and supply activities related to the Research Services Obligation and the C5 License Obligation. We utilized the expected value method to determine the amount of reimbursement for these activities. We determined that any variable consideration related to sales-based royalties and milestones related to the worldwide license to

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(Unaudited)

cemdisiran for combination therapies is deemed to be constrained and therefore has been excluded from the transaction price. In addition, we are eligible to receive future milestones upon the achievement of certain criteria during early clinical development for the eye and CNS programs. We are also eligible to receive royalties on future commercial sales for certain eye, CNS or liver targets, if any; however, these amounts are excluded from variable consideration under the Regeneron Collaboration as we are only eligible to receive such amounts if, after a drug candidate is identified, the form of license agreement is subsequently executed resulting in a license that is granted to Regeneron. Any such subsequently granted license would represent a separate transaction under ASC 606.

We allocated the initial transaction price to each unit of account based on the applicable accounting guidance as follows, in thousands:


Performance Obligations	Standalone Selling Price		Transaction Price Allocated
Research Services Obligation	$	130,700	$	183,100
C5 License Obligation	97,600		92,500
C5 Co-Co Obligation	364,600		246,000
			$	521,600

The transaction price was allocated to the obligations based on the relative estimated standalone selling prices of each obligation, over which management has applied significant judgment. We developed the estimated standalone selling price for the licenses included in the Research Services Obligation and the C5 License Obligation primarily based on the probability-weighted present value of expected future cash flows associated with each license related to each specific program. In developing such estimate, we applied judgment in the determination of the forecasted revenues, taking into consideration the applicable market conditions and relevant entity-specific factors, the expected number of targets or indications expected to be pursued under each license, the probability of success, the time needed to develop a product candidate pursuant to the associated license and the discount rate. We developed the estimated standalone selling price for the services and/or manufacturing and supply included in each of the obligations, as applicable, primarily based on the nature of the services to be performed and/or goods to be manufactured and estimates of the associated costs. The estimated standalone selling price of the C5 Co-Co Obligation was developed by estimating the present value of expected future cash flows that Regeneron is entitled to receive. In developing such estimate, we applied judgment in determining the indications that will be pursued, the forecasted revenues for such indications, the probability of success and the discount rate.

For the Research Services Obligation, the C5 License Obligation, and the C5 Co-Co Obligation accounted for under ASC 606, we measure proportional performance over time using an input method based on cost incurred relative to the total estimated costs for each of the identified obligations, on a quarterly basis, by determining the proportion of effort incurred as a percentage of total effort we expect to expend. This ratio is applied to the transaction price allocated to each obligation. Management has applied significant judgment in the process of developing our estimates. Any changes to these estimates will be recognized in the period in which they change as a cumulative catch up. We re-evaluate the transaction price as of the end of each reporting period and as of June 30, 2023, the total transaction price was determined to be $549.3 million, a decrease of $9.6 million from December 31, 2022. As of June 30, 2023, the transaction price is comprised of the upfront payment and variable consideration related to development, manufacture, and supply activities. Revenue recognized under this agreement is accounted for as collaboration revenue.

The following tables provide a summary of the transaction price allocated to each unit of account based on the applicable accounting guidance, in addition to revenue activity during the period, in thousands:


	Transaction Price Allocated		Deferred Revenue
Performance Obligations	As of June 30, 2023		As of June 30, 2023		As of December 31, 2022
Research Services Obligation	$	205,680	$	45,000	$	26,200
C5 License Obligation	97,600		3,800		7,000
C5 Co-Co Obligation	246,000		189,400		193,600
	$	549,280	$	238,200	$	226,800

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(Unaudited)


	Revenue Recognized During
	Three Months Ended June 30,				Six Months Ended June 30,
Performance Obligations	2023		2022		2023		2022
Research Services Obligation	$	(17,000)	$	1,600	$	(6,300)	$	8,800
C5 License Obligation	3,100		(4,800)		5,300		(3,500)
C5 Co-Co Obligation	1,700		1,700		4,200		4,000
	$	(12,200)	$	(1,500)	$	3,200	$	9,300

As of June 30, 2023, the aggregate amount of the transaction price allocated to the remaining Research Services Obligation, C5 License Obligation and C5 Co-Co Obligation that was unsatisfied was $276.3 million, which is expected to be recognized through the term of the Regeneron Collaboration as the services are performed. Deferred revenue related to the Regeneron Collaboration is classified as either current or non-current in the condensed consolidated balance sheets based on the period the revenue is expected to be recognized.

Novartis AG

2013 Collaboration with The Medicines Company

In February 2013, we and The Medicines Company, or MDCO, entered into a license and collaboration agreement pursuant to which we granted to MDCO an exclusive, worldwide license to develop, manufacture and commercialize RNAi therapeutics targeting proprotein convertase subtilisin/kexin type 9, or PCSK9, for the treatment of hypercholesterolemia and other human diseases, including inclisiran. We refer to this agreement, as amended through the date hereof, as the MDCO License Agreement. In 2020, Novartis AG, or Novartis, completed its acquisition of MDCO and assumed all rights and obligations under the MDCO License Agreement. Additional details regarding the terms, milestones earned upon the achievement of certain events and additional milestones we are entitled to receive upon the achievement of future events under the MDCO License Agreement are described in Note 4 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission on February 23, 2023.

Novartis License Agreement

In December 2021, we and Novartis entered into a collaboration and license agreement, or the Novartis License Agreement, pursuant to which we granted to Novartis an exclusive, worldwide license to develop, manufacture and commercialize siRNAs targeting end-stage liver disease, or ESLD, potentially leading to the development of a treatment designed to promote the regrowth of functional liver cells and to provide an alternative to transplantation for patients with liver failure. Additional details regarding the terms and transaction price under the Novartis License Agreement are described in Note 4 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission on February 23, 2023.

Other

In addition to the collaboration agreements discussed above, we have various other collaboration agreements that are not individually significant to our operating results or financial condition at this time. Pursuant to the terms of those agreements, we may be required to pay, or we may receive, additional amounts contingent upon the occurrence of various future events (e.g., upon the achievement of various development and commercial milestones) which in the aggregate could be significant. We may also incur, or be reimbursed for, significant research and development costs. In addition, if any products related to these collaborations are approved for sale, we may be required to pay, or we may receive, royalties on future sales. The payment or receipt of these amounts, however, is contingent upon the occurrence of various future events.

5. LIABILITY RELATED TO THE SALE OF FUTURE ROYALTIES

In April 2020, we entered into a purchase and sale agreement, or Purchase Agreement, with BX Bodyguard Royalties L.P. (an affiliate of The Blackstone Group Inc.), or Blackstone Royalties, under which Blackstone Royalties acquired 50% of royalties payable, or Royalty Interest, with respect to net sales by MDCO, its affiliates or sublicensees of inclisiran (or the branded drug product, Leqvio) and any other licensed products under the MDCO License Agreement, and 75% of the commercial milestone payments payable under the MDCO License Agreement, together with the Royalty Interest, the Purchased Interest. If Blackstone Royalties does not receive payments in respect of the Royalty Interest by December 31, 2029, equaling at least $1.00 billion, Blackstone Royalties will receive 55% of the Royalty Interest beginning on January 1, 2030. In consideration for the sale of the Purchased Interest, Blackstone Royalties paid us $1.00 billion.

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We continue to own or control all inclisiran intellectual property rights and are responsible for certain ongoing manufacturing and supply obligations related to the generation of the Purchased Interest. Due to our continuing involvement, we will continue to account for any royalties and commercial milestones due to us under the MDCO License Agreement as revenue on our condensed consolidated statement of operations and comprehensive loss and record the proceeds from this transaction as a liability, net of closing costs, on our condensed consolidated balance sheet.

In order to determine the amortization of the liability related to the sale of future royalties, we are required to estimate the total amount of future payments to Blackstone Royalties over the life of the Purchase Agreement. The $1.00 billion liability, recorded at execution of the agreement, will be accreted to the total of these royalty and commercial milestone payments as interest expense over the life of the Purchase Agreement. As of June 30, 2023, our estimate of this total interest expense resulted in an effective annual interest rate of 8%. These estimates contain assumptions that impact both the amount recorded at execution and the interest expense that will be recognized in future periods.

As payments are made to Blackstone Royalties, the balance of the liability will be effectively repaid over the life of the Purchase Agreement. The exact timing and amount of repayment is likely to change each reporting period. A significant increase or decrease in Leqvio global net revenue will materially impact the liability related to the sale of future royalties, interest expense and the time period for repayment. We will periodically assess the expected payments to Blackstone Royalties and to the extent the amount or timing of such payments is materially different than our initial estimates, we will prospectively adjust the amortization of the liability related to the sale of future royalties and the related interest expense.

As of June 30, 2023, the carrying value of the liability related to the sale of future royalties was $1.33 billion, net of closing costs of $10.4 million. The carrying value of the liability related to the sale of future royalties approximates fair value as of June 30, 2023 and is based on our current estimates of future royalties and commercial milestones expected to be paid to Blackstone Royalties over the life of the arrangement, which are considered Level 3 inputs.

The following table shows the activity with respect to the liability related to the sale of future royalties, in thousands:


Carrying value as of December 31, 2022	$	1,292,304
Interest expense recognized	51,647
Payments	(11,855)
Carrying value as of June 30, 2023	$	1,332,096

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(Unaudited)

6. FAIR VALUE MEASUREMENTS

The following tables present information about our financial assets and liabilities that are measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair value:


(In thousands)	As of June 30, 2023		Quoted Prices in Active Markets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets
Cash equivalents:
Money market funds	$	88,264	$	88,264	$	—	$	—
U.S. treasury securities	7,932		—		7,932		—


Marketable debt securities:
U.S. treasury securities	729,899		—		729,899		—
U.S. government-sponsored enterprise securities	384,680		—		384,680		—
Corporate notes	158,880		—		158,880		—
Commercial paper	92,577		—		92,577		—
Certificates of deposit	6,415		—		6,415		—

Marketable equity securities	27,256		27,256		—		—
Restricted cash (money market funds)	1,203		1,203		—		—
Total financial assets	$	1,497,106	$	116,723	$	1,380,383	$	—
Financial liabilities
Development derivative liability	$	253,963	$	—	$	—	$	253,963


(In thousands)	As of December 31, 2022		Quoted Prices in Active Markets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets
Cash equivalents:
Money market funds	$	270,394	$	270,394	$	—	$	—
U.S. treasury securities	44,817		—		44,817		—
U.S. government-sponsored enterprise securities	41,763		—		41,763		—
Commercial paper	22,350		—		22,350		—
Certificates of deposit	3,289		—		3,289		—
Corporate notes	1,024		—		1,024		—
Marketable debt securities:
U.S. treasury securities	820,913		—		820,913		—
U.S. government-sponsored enterprise securities	230,770		—		230,770		—
Corporate notes	208,284		—		208,284		—
Commercial paper	36,793		—		36,793		—
Certificates of deposit	1,130		—		1,130		—

Marketable equity securities	28,122		28,122		—		—
Restricted cash (money market funds)	1,197		1,197		—		—
Total financial assets	$	1,710,846	$	299,713	$	1,411,133	$	—
Financial liabilities
Development derivative liability	$	209,277	$	—	$	—	$	209,277

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(Unaudited)

The carrying amounts reflected on our condensed consolidated balance sheets for cash, accounts receivable, net, other current assets, accounts payable and accrued expenses approximate fair value due to their short-term maturities.

7. MARKETABLE DEBT SECURITIES

We invest our excess cash balances in marketable debt securities and at each balance sheet date presented, we classify all of our investments in debt securities as available-for-sale and as current assets as they represent the investment of funds available for current operations. We did not record any impairment charges related to our marketable debt securities during the six months ended June 30, 2023 or 2022.

The following tables summarize our marketable debt securities:


	As of June 30, 2023
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. treasury securities	$	740,838	$	26	$	(3,033)	$	737,831
U.S. government-sponsored enterprise securities	387,754		15		(3,089)		384,680
Corporate notes	160,169		—		(1,289)		158,880
Commercial paper	92,577		—		—		92,577
Certificates of deposit	6,415		—		—		6,415

Total	$	1,387,753	$	41	$	(7,411)	$	1,380,383


	As of December 31, 2022
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. treasury securities	$	870,033	$	79	$	(4,382)	$	865,730
U.S. government-sponsored enterprise securities	275,610		24		(3,101)		272,533
Corporate notes	211,398		16		(2,106)		209,308
Commercial paper	59,143		—		—		59,143
Certificates of deposit	4,419		—		—		4,419

Total	$	1,420,603	$	119	$	(9,589)	$	1,411,133

The fair values of our marketable debt securities by classification in the condensed consolidated balance sheets were as follows:


(In thousands)	As of June 30, 2023		As of December 31, 2022
Marketable debt securities	$	1,372,451	$	1,297,890
Cash and cash equivalents	7,932		113,243
Total	$	1,380,383	$	1,411,133

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(Unaudited)

8. OTHER BALANCE SHEET DETAILS

Inventory

The components of inventory are summarized as follows:


(In thousands)	As of June 30, 2023		As of December 31, 2022
Raw materials	$	17,449	$	22,315
Work in progress	116,661		113,783
Finished goods	28,505		25,606
Total	$	162,615	$	161,704

As of June 30, 2023 and December 31, 2022, we had $62.2 million and $32.7 million of long-term inventory, respectively, included within other assets in our condensed consolidated balance sheet as we anticipate it being consumed beyond our normal operating cycle.

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within our condensed consolidated balance sheets that sum to the total of these amounts shown in the condensed consolidated statements of cash flows:


	As of June 30,
(In thousands)	2023		2022
Cash and cash equivalents	$	657,800	$	575,558
Total restricted cash included in other assets	2,176		2,177
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	$	659,976	$	577,735

Accumulated Other Comprehensive (Loss) Income

The following tables summarize the changes in accumulated other comprehensive (loss) income, by component:


(In thousands)	Loss on Investment in Joint Venture		Defined Benefit Pension Plans		Unrealized (Losses) Gains from Debt Securities		Foreign Currency Translation Adjustment		Total Accumulated Other Comprehensive (Loss) Income
Balance as of December 31, 2022	$	(32,792)	$	(1,092)	$	(9,470)	$	(1,300)	$	(44,654)
Other comprehensive (loss) income before reclassifications	—		—		(11)		5,483		5,472
Amounts reclassified from other comprehensive (loss) income	—		(9)		2,111		—		2,102
Net other comprehensive (loss) income	—		(9)		2,100		5,483		7,574
Balance as of June 30, 2023	$	(32,792)	$	(1,101)	$	(7,370)	$	4,183	$	(37,080)


(In thousands)	Loss on Investment in Joint Venture		Defined Benefit Pension Plans		Unrealized (Losses) Gains from Debt Securities		Foreign Currency Translation Adjustment		Total Accumulated Other Comprehensive (Loss) Income
Balance as of December 31, 2021	$	(32,792)	$	(2,811)	$	(1,630)	$	3,974	$	(33,259)
Other comprehensive income (loss) before reclassifications	—		—		4		(83)		(79)
Amounts reclassified from other comprehensive income (loss)	—		69		(8,955)		—		(8,886)
Net other comprehensive income (loss)	—		69		(8,951)		(83)		(8,965)
Balance as of June 30, 2022	$	(32,792)	$	(2,742)	$	(10,581)	$	3,891	$	(42,224)

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ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Amounts reclassified out of accumulated other comprehensive loss relate to settlements of marketable equity securities and amortization of our pension obligation which are recorded as other income in the condensed consolidated statements of operations and comprehensive loss.

9. CONVERTIBLE DEBT

Convertible Senior Notes Due 2027

On September 12, 2022, we commenced a private offering of $900.0 million in aggregate principal amount of 1% Convertible Senior Notes due 2027, or the Initial Notes. On September 13, 2022, the initial purchasers in such offering exercised their option to purchase an additional $135.0 million in aggregate principal amount of our 1% Convertible Senior Notes due 2027, or the Additional Notes, and together with the Initial Notes collectively referred to as the Notes, bringing the total aggregate principal amount of the Notes to $1.04 billion. The Notes were issued pursuant to an indenture, dated September 15, 2022, or the Indenture. The Indenture includes customary covenants and sets forth certain events of default after which the Notes may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving the Company after which the Notes become automatically due and payable.

The Notes will mature on September 15, 2027, unless earlier converted, redeemed or repurchased. The Notes will bear interest from September 15, 2022 at a rate of 1% per year payable semiannually in arrears on March 15 and September 15 of each year, beginning on March 15, 2023. The Notes are convertible at the option of the noteholder on or after June 15, 2027. Prior to June 15, 2027, the Notes are convertible only under the following circumstances: (1) During any calendar quarter commencing after the calendar quarter ending on December 31, 2022 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) During the five business day period after any ten consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each trading day of that ten consecutive trading day period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate of the Notes on such trading day; (3) If we call any or all of the Notes for redemption; or (4) Upon the occurrence of specific corporate events as set forth in the Indenture governing the Notes. We will settle any conversions of Notes by paying or delivering, as applicable, cash, shares of our common stock, or a combination of cash and shares of common stock, at our election.

The conversion rate for the Notes will initially be 3.4941 shares of common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $286.20 per share of common stock. The initial conversion price of the Notes represents a premium of approximately 35% over the $212.00 per share last reported sale price of common stock on September 12, 2022. The conversion rate is subject to adjustment under certain circumstances in accordance with the terms of the Indenture.

We may not redeem the Notes prior to September 20, 2025. We may redeem for cash equal to 100% of the principal amount of the Notes being redeemed plus accrued and unpaid interest of all or any portion of the Notes, at our option, on or after September 20, 2025, if the last reported sales price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period. No sinking fund is provided for the Notes and therefore we are not required to redeem or retire the Notes periodically.

If we undergo a fundamental change, as defined in the indenture agreement, then subject to certain conditions, holders may require us to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased plus accrued and unpaid interest. In addition, if specific corporate events occur prior to the maturity date or if we issue a notice of redemption, we will increase the conversion rate by pre-defined amounts for holders who elect to convert their notes in connection with such corporate event. The conditions allowing holders of the Notes to convert were not met this quarter.

As of June 30, 2023, the Notes are classified as a long-term liability, net of issuance costs of $19.2 million, on the condensed consolidated balance sheets. As of June 30, 2023, the estimated fair value of the Notes was approximately $990.9 million. The fair value was determined based on the last actively traded price per $100 of the Notes for the six months ended June 30, 2023 (Level 2). The Notes were issued at par and costs associated with the issuance of the Notes are amortized to interest expense over the contractual term of the Notes. As of June 30, 2023, the effective interest rate of the Notes is 1%.

Capped Call Transactions

In September 2022, in connection with the pricing of the Initial Notes and the initial purchasers’ exercise of their option to purchase the Additional Notes, we entered into privately negotiated capped call transactions, or Capped Call Transactions. The Capped Call Transactions initially cover, subject to customary anti-dilution adjustments, the number of shares of common stock that underlie the Notes. The cap price of the Capped Call Transactions is initially $424.00 per share, which represents a

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ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

premium of 100% over the last reported sale price of common stock of $212.00 per share on September 12, 2022, and is subject to certain adjustments under the terms of the Capped Call Transactions. We used approximately $118.6 million of the proceeds from the offering of Notes to pay the cost of the Capped Call Transactions.

We evaluated the Capped Call Transactions and determined that they should be accounted for separately from the Notes. The cost of $118.6 million to purchase the Capped Call Transactions was recorded as a reduction to additional paid-in capital in the condensed consolidated balance sheet as of June 30, 2023 as the Capped Call Transactions are indexed to our own stock and met the criteria to be classified in stockholders' deficit.

10. DEVELOPMENT DERIVATIVE LIABILITY

In August 2020, we entered into a co-development agreement, referred to as the Funding Agreement, with BXLS V Bodyguard – PCP L.P. and BXLS Family Investment Partnership V – ESC L.P., collectively referred to as Blackstone Life Sciences, pursuant to which Blackstone Life Sciences will provide up to $150.0 million in funding for the clinical development of vutrisiran and zilebesiran, two of our cardiometabolic programs. With respect to vutrisiran, Blackstone Life Sciences has committed to provide up to $70.0 million to fund development costs related to the HELIOS-B Phase 3 clinical trial. In November 2021, Blackstone Life Sciences opted in to Phase 2 clinical trial funding of zilebesiran, committing to fund, upon meeting certain patient enrollment thresholds, up to $26.0 million. Furthermore, Blackstone Life Sciences has the right, but is not obligated, to fund up to $54.0 million for development costs related to a Phase 3 clinical trial of zilebesiran. The amount of funding ultimately provided by Blackstone Life Sciences is dependent on us achieving specified development milestones with respect to each clinical trial. We retain sole responsibility for the development and commercialization of both vutrisiran and zilebesiran.

As consideration for Blackstone Life Sciences’ funding for vutrisiran clinical development costs, we have agreed to pay Blackstone Life Sciences a 1% royalty on net sales of AMVUTTRA (vutrisiran) for a 10-year term beginning upon the first commercial sale following regulatory approval of vutrisiran for ATTR-cardiomyopathy, as well as fixed payments of up to 2.5 times their investment over a two-year period upon regulatory approval of vutrisiran for ATTR-cardiomyopathy in specified countries, unless it is later withdrawn from the market following a mandatory recall. As consideration for Blackstone Life Sciences’ funding for Phase 2 clinical development costs of zilebesiran, we have agreed to pay Blackstone Life Sciences fixed payments of up to 3.25 times their Phase 2 investment over a four-year period upon the successful completion of the zilebesiran Phase 2 clinical trial, unless certain regulatory events affecting the continued development of zilebesiran occur. As consideration for Blackstone Life Sciences’ funding for Phase 3 clinical development costs of zilebesiran, we have agreed to pay Blackstone Life Sciences fixed payments of up to 4.5 times their Phase 3 investment over a four-year period upon regulatory approval of zilebesiran in specified countries, unless it is later withdrawn from the market following a mandatory recall.

Our payment obligations under the Funding Agreement will be secured, subject to certain exceptions, by security interests in intellectual property owned by us relating to vutrisiran and zilebesiran, as well as in our bank account in which the funding deposits will be made.

We and Blackstone Life Sciences each have the right to terminate the Funding Agreement in its entirety in the event of the other party’s bankruptcy or similar proceedings. We and Blackstone Life Sciences may each terminate the Funding Agreement in its entirety or with respect to either product in the event of an uncured material breach by the other party, or with respect to a product for certain patient health and safety reasons, or if regulatory approval in specified major market countries is not obtained for the product following the completion of clinical trials for the product. In addition, Blackstone Life Sciences has the right to terminate the Funding Agreement in its entirety upon the occurrence of certain events affecting our ability to make payments under the agreement or to develop or commercialize the products, or upon a change of control of us. Blackstone Life Sciences may also terminate the Funding Agreement with respect to a product if the joint steering committee elects to terminate the development program for that product in its entirety, if certain clinical endpoints are not achieved for that product or, with respect to vutrisiran only, if our right to develop or commercialize vutrisiran is enjoined in a specified major market as a result of an alleged patent infringement. In certain termination circumstances, we will be obligated to pay Blackstone Life Sciences an amount that is equal to, or a multiplier of, the development funding received from Blackstone Life Sciences, and we may remain obligated under certain circumstances to make the payments to Blackstone Life Sciences described above, or the royalty described above in the case of AMVUTTRA, should we obtain regulatory approval for zilebesiran or vutrisiran for ATTR-cardiomyopathy following termination.

We account for the Funding Agreement under ASC Topic 815, Derivatives and Hedging, as a derivative liability, measured at fair value, within other liabilities on our condensed consolidated balance sheets. The change in fair value due to the remeasurement of the development derivative liability is recorded as other expense on our condensed consolidated statements of operations and comprehensive loss.

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ALNYLAM