Alnylam Pharmaceuticals' CEO Discusses Restructuring of Relationship with Tekmira (Transcript)

Alnylam Pharmaceuticals Inc. (NASDAQ:ALNY)

Restructuring of Relationship with Tekmira Conference Call

November 13, 2012 8:00 AM ET

Executives

Cynthia Clayton – VP, IR and Corporate Communications

John Maraganore – CEO

Laurence Reid – SVP and Chief Business Officer

Analysts

Alan Carr – Needham & Company

Marko Kozul – Leerink Swann

Mike King – Dawson James Securities

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Alnylam Pharmaceuticals Conference Call. There will be a question-and-answer session to follow. Please be advised that this call is being taped at the company’s request. I would now like to turn the call over to the company. Please proceed.

Cynthia Clayton

Good morning. I’m Cynthia Clayton, Vice President, Investor Relations and Corporate Communications at Alnylam. With me today are John Maraganore, our Chief Executive Officer, and Laurence Reid, our Senior Vice President and Chief Business Officer. Barry Greene, our President and Chief Operating Officer, and Mike Mason, our Vice President of Finance and Treasurer, are participating in an investor conference in New York this morning and are unable to attend to the call.

During today’s call, John will provide some initial context on the restructuring of our relationship with Tekmira, Laurence will review the details of the agreements, then John will come back to review our goals and guidance for the remainder of the year and we will then turn the call over to you for your questions.

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 provision 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 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 obligations to update such statements.

I will now turn the call over to John.

John Maraganore

Thanks, Cynthia, and thank you, everyone, for joining us this morning. As I’m sure many of you saw from our press release last night, we have restructured our relationship with Tekmira and resolved all litigation. Laurence will provide you with more specifics in just a moment, but I wanted to start by saying that we believe that we have restructured our Tekmira relationship in a very favorable manner for Alnylam. We also are pleased to put this legal matter behind us. And of course, our focus will continue to be on the execution of our mission of advancing RNAi therapeutics through clinical trials and to the market where we can make an impact in the lives of patients and their caregivers.

Clearly, in recent months, we have made excellent progress in this regard and we aim to continue that as we advance our pipeline of innovative medicines. Indeed, we are committed to advancing RNAi therapeutic products as part of our Alnylam 5x15 product strategy with LNP delivery technologies as employed with ALN-TTR02, ALN-PCS and ALN-VSP, in addition to the use of the company’s proprietary conjugate-based delivery technology which enables subcutaneous dose administration as employed with ALN-TTR subcu, ALN-AT3, among other programs.

I’ll now turn the call over to Laurence and go through specifics on the restructuring. Laurence?

Laurence Reid

Thank you, John. Good morning, everybody. With this restructuring of our Tekmira relationship, we’re gaining independence in our LNP manufacturing and significantly decreasing the milestone and royalty burdens on the LNP-based products in our pipeline. Further, by consolidating certain IP elements, we’re ensuring a stronger overall patent estate for LNP-based products while retaining Alnylam’s full and unfettered access to this technology both alone and with partners for our products in the future.

More specifically, in a new license agreement signed yesterday with Tekmira, we’ve consolidated certain IP elements related to LNP technology. Certain patents and patent applications, including the MC3 lipid family, will be assigned by Alnylam to Tekmira. However, Alnylam retains full rights to use this IP for advancing RNAi therapeutic products to the market, including the right to sublicense those products. Alnylam has also agreed to grant five additional non-exclusive therapeutic licenses to Tekmira and Alnylam intellectual property.

In addition, we’ve elected to buy out our manufacturing obligations to Tekmira with respect to our LNP-based pipeline programs. We will make a one-time payment of $30 million to Tekmira and, in return, we will have the right to manufacture our own LNP-based products going forward, either ourselves or with a third-party contractor. In fact, we’ve established at Alnylam our own GMP capabilities and process for our own LNP-based products and we intend to deploy this capability for the advancement of ALN-TTR02 into Phase III clinical trials. These manufacturing plans have actually been anticipated for the last year, and we continue to expect the start of those Phase III trials by the end of 2013 without any delay.

Also under the agreement, we’ve elected to buy down certain future potential milestone payments at a significant portion of the future royalties on our ALN-TTR02, ALN-PCS and ALN-VSP programs. We will make a one-time payment of $35 million to Tekmira in association with the termination of the prior license agreements, as well as a buydown of future potential milestone payments, and a significant portion of potential royalty payments on these three LNP-based products.

Tekmira will remain eligible to receive up to $10 million in aggregate contingent milestone payments related to advancement of ALN-VSP and ALN-TTR02. It’s worth noting that these milestone payments will become the only potential milestones associated with our ALN-VSP, ALN-PCS and ALN-TTR02 products.

Alnylam will otherwise continue to be obligated to pay Tekmira potential milestones and royalties on other future LNP-based products. And Tekmira will be continued to be obligated to pay Alnylam potential milestones and royalties on certain RNAi therapeutics developed under its licenses from Alnylam and those are on terms that are identical to the original license agreements.

Finally and importantly, all ongoing litigation between Alnylam and Tekmira has been settled, and this allows us to continue to focus our efforts on advancing innovative medicines to patients. We’ve also agreed to a resolution of the interference proceeding related to an Alnylam-owned patent directed to a component in ALN-VSP. In addition, Tekmira and AlCana have agreed to drop their claims and counterclaims in both the Massachusetts and British Columbia lawsuits.

Importantly, the parties have agreed to strong language in the new agreements that makes any future litigation between the parties highly unlikely.

Finally, aside from obligations related to the new license agreement, we will have no relationship with Tekmira in the future.

With that, I’ll turn the call back over to John for a review of our goals and guidance for the remainder of the year and then I’m very happy to take any questions you have related to the specifics of the licensing agreements.

John Maraganore

Thanks, Laurence. And congrats to you, Barry and the rest of our team for getting this done. As Laurence detailed for you, we will incur a $65 million charge to operating expenses during the fourth quarter of 2012 related to the restructuring of license agreements with Tekmira.

As a result of the payments being made in connection with this restructuring, we are revising our financial guidance to end 2012 with greater than $215 million in cash. We believe this continues to represent a very solid balance sheet and we remain very well positioned to execute on our goals, which include advancing ALN-TTR02 through the current Phase II trial with data in mid-2013 and the goal of starting our pivotal study by the end of 2013; filing an IND for ALN-TTR subcu, our first GalNAc-conjugated siRNA to enter clinical studies, by the end of this year with data in 2013; filing an IND for ALN-AT3, another GalNAc-conjugated siRNA that enables subcutaneous dose administration for the treatment of hemophilia, and we expect to file that IND in 2013; partnering our ALN-PCS program as part of the start of Phase II; and advancing our other Alnylam 5x15 programs toward Phase I with partnerships that we aim to form; in addition to forming additional partnerships on programs and technology; and ending the year with over $215 million in cash.

With that, I’d like to turn the call back over to the operator for your questions. Dalou?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Thank you. The first question we have comes from the line of Alan Carr. Please go ahead, sir.

John Maraganore

Hi, Alan.

Alan Carr – Needham & Company

Good morning. Thanks for taking my questions.

John Maraganore

Absolutely. Good morning to you too.

Alan Carr – Needham & Company

One that I wanted to get out of the way real quick is so, Laurence, this was just a – you have a straight, basic, non-exclusive access to the Tekmira delivery technology now?

Laurence Reid

In simple terms, Alan, that’s exactly right, that we have non-exclusive access to all of the intellectual property, both that was historically licensed and that has been assigned under the agreement, and we get the right to use that across all targets and across our pipeline.

Alan Carr – Needham & Company

Okay. And then the other two questions that I wanted to ask were, one, you addressed this a little bit, but you’re bringing the manufacturing rights over to you now. Can you all, I guess, go over in a little bit more detail about how ready you are for that for both – it sounds like you’re ready for Phase III, but what’s involved for commercial?

And then the other question is, you mentioned strong language in the agreement regarding avoiding future litigation. I’m wondering if you can go over that too. Thanks.

John Maraganore

Thanks, Alan. Let me deal with the manufacturing question and then Laurence can deal with the question related to the agreement. As it relates to manufacturing, and for over a year now, Alan, in anticipation of our clear objectives to independently manufacture our products in light of Tekmira’s litigation, we have developed internal capabilities that are GMP-compliant for the manufacture of LNP-based products and have developed the proprietary process for the manufacture of those products.

We are deploying that capability currently with manufacture of ALN-TTR02 and we are in line and fully able to provide that material for the start of our Phase III trial which, again, will begin at the end of next year. In the meantime, our current trials are employing material that’s been used that was manufactured historically at Tekmira and, obviously, that’s proceeding quite nicely in the Phase II study. So capabilities exist.

Obviously, our partners at Genzyme are fully aware of those capabilities and, clearly, as part of the diligence they did on our deal, we’re very happy with what we’ve been able to generate with those capabilities. And we’ll be manufacturing not only for Alnylam that capability, but also for Genzyme from that capability. We expect that our manufacturing facility will enable supply of drug through clinical trials and at least through the early stages of commercialization. And obviously, as that continues, we’ll look at other considerations as to how we expand it beyond the early launch.

So that’s on manufacturing. And then, Laurence, do you want to handle the settlement question?

Laurence Reid

Yes, I think the important point – I’m not going to get into a lot of details – the important point is that both parties wanted to be very clear that we wanted to make sure there was no grounds left for future litigation between us, so the agreements are very clear on how we’re dealing with historical IP and know-how that’s been shared between the parties. And then there are specific mechanisms built into the documents that represent mechanisms to resolve future disputes and to ensure avoidance of future litigation and, essentially, to mutually disincentivize each other from going down those paths.

Alan Carr – Needham & Company

Okay. Thanks very much.

John Maraganore

Thanks, Alan.

Operator

Thank you. The next question comes from the line of Marko Kozul. Please go ahead, sir.

Marko Kozul – Leerink Swann

Hi, good morning. And congratulations on putting this behind you and refocusing fully on the pipeline initiatives.

John Maraganore

Great. Thank you, Marko. We agree.

Marko Kozul – Leerink Swann

Get in a quick question here. I see you’re paying down a significant amount of the future royalties and milestones related to the use of the MC3 lipid family. I was wondering if you could give us some sense of any continuing royalty that you might owe, for modeling purposes.

John Maraganore

Yes. Laurence, do you want to handle that?

Laurence Reid

So what we’re saying today is, so the historical terms on the licenses which will continue for LNP-based products other than the three that we talked about, we’ve historically characterized as low single digit. And then as part of the restructuring here and in return for the buydown payment, the royalties on ALN-VSP, ALN-PCS and ALN-TTR02 will then be significantly reduced below those figures. There are still royalties on those products, but they will be reduced from that initial starting level. And that’s as precise as we’re being in our public guidance on that, Marko.

John Maraganore

And, but, Marko, you could expect that with that type of payment related specifically to the buydown of those royalties, that it was a very significant buydown of those royalties.

Marko Kozul – Leerink Swann

Perfect. And I see in the release that it looks like Tekmira may owe you potential milestones and royalties on future candidates. Can you talk a little bit about that as well, please?

Laurence Reid

Correct. And those – this is Laurence here, Marko. Those figures are – they are identical to the figures that have historically existing in the arrangements between us, which we try to leave certain financial pieces of the agreements in place identically other than the buydown that John just articulated. And so, the royalties and milestones that Tekmira owes Alnylam are unchanged from the previous agreements.

Marko Kozul – Leerink Swann

Okay, great. And just one last housekeeping. The $10 million that you may still owe Tekmira, how is that split between VSP and TTR? Thanks.

John Maraganore

Laurence?

Laurence Reid

It’s split equally between those two products, and it’s two milestones – sorry, it’s one milestone on each product, both of which are associated with the future clinical development of those products.

Marko Kozul – Leerink Swann

Great. Thanks for taking the questions and congrats again. Thanks.

John Maraganore

Thanks, Marko.

Operator

Thank you. (Operator Instructions) And our next question comes from the line of Mike King. Please go ahead, sir.

Mike King – Dawson James Securities

Good morning, guys, and...

John Maraganore

Hey, Mike.

Mike King – Dawson James Securities

Hey, good morning, John. Congrats as well on getting this behind you. A couple of questions. First, on manufacturing, just to follow up on the previous questions, I wanted to know, I’ve never seen a pilot plant or anything at Alnylam; is this outsourced to a contractor? And what kind of flexibility do you have to kind of turn the spigot on and off should you want to either up or down titrate the amount of LNPs you need?

John Maraganore

Yes. So, Mike, next time you’re in town, we can show you the pilot plant. It’s not in the building. It’s in a different building where we have a lease sort of in the (inaudible) area around Cambridge. And it’s a capability that we’ve built up over the last year and is now fully engaged in the manufacture of LNPs. So, that is something which we’d be happy to see in the future.

And it is a capability that, again, we’re quite pleased with and will be important going forward. But it’s obviously one that gives us flexibility across the entirety of our pipeline, both for TTR02, but also for other LNP-bearing products, and it’s a capability that also, over time, we might expand to include the synthesis of our GalNAc-siRNAs which we’re currently doing with third-party manufacturers alone.

Mike King – Dawson James Securities

Okay. Yes, you anticipated my next question, so that’s great. And then should we expect any significant CapEx that might accompany the necessity to ramp that facility in the future or...?

John Maraganore

It’s already been spent, Mike.

Mike King – Dawson James Securities

Okay. Great.

John Maraganore

That’s already in the numbers that you’ve seen, and it was part of our important investment this year for sure.

Mike King – Dawson James Securities

Okay. And just as one final question with regard to – GalNAc is not covered under this in any circumstances, correct?

John Maraganore

No, no. Not at all. Not at all. GalNAc-siRNAs are completely proprietary to Alnylam, no third parties whatsoever.

Mike King – Dawson James Securities

Okay, great. Thanks, guys.

Operator

Thank you. Sir, we have no further question in the queue. So now I’ll turn the call back to Alnylam for closing remarks. Thank you.

John Maraganore

Right. Well, thanks, everyone. We’re delighted to put this matter behind us. And we are focusing on our continued advancement of RNAi therapeutics to patients. Thanks very much and have a great rest of day. Bye-bye.

Operator

Thank you, ladies and gentlemen, for your participation in today’s conference call. You may now disconnect. Have a great day. Thank you.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!