Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Alnylam Pharmaceuticals (NASDAQ:ALNY)

Q1 2008 Earnings Call

May 08, 2008 4:30 pm ET

Executives

Cynthia Clayton - Director of Investor Relations and Corporate Communications

John Maraganore. - Chief Executive Officer

Barry Greene - President and Chief Operating Officer

Akshay Vaishnaw. - Vice President of Clinical Research

Patricia Allen - Vice President of Finance

Stuart Pollard. - Vice President of Business and Scientific Strategy

Kleanthis G. Xanthopoulos - President and Chief Executive Officer of Regulus

Analysts

Mike King - Rodman & Renshaw

Simos Simeonidis - Broadpoint Capital

Ted Tenthoff - Piper Jaffray

Pamela Basset - Cantor Fitzgerald

Operator

Good day, ladies and gentlemen. Thank you for standing by and welcome to the Alnylam Pharmaceuticals conference call to discuss the First Quarter 2008 Financial Results. There will be a question-and-answer session to follow. Please be advised that this call is being taped at Alnylam's request. I would now like to turn the call over to Alnylam. Please proceed.

Cynthia Clayton - Director of Investor Relations and Corporate Communications

Good afternoon. I'm Cynthia Clayton, Director of Investor Relations and Corporate Communications. With me today from Alnylam are John Maraganore, our Chief Executive Officer, Barry Greene, our President and Chief Operating Officer, Akshay Vaishnaw, our vice president, clinical research, Patty Allen, our Vice President, Finance and Treasurer, Stuart Pollard, our Vice President, scientific and business strategy, and Kleanthis Xanthopoulos, President and CEO of Regulus Therapeutics, our joint venture with Isis.

During today's call, John will make some introductory comments, Akshay will provide an R&D summary, Patty will review our financials and guidance, Barry will summarize our business highlights for the year, Kleanthis will summarize some recent highlights for Regulus, John will wrap up with our progress against goals before opening the call up for your questions.

Before we begin, let me remind you that various statements we may make on this call concerning Alnylam's future expectations plans and prospects constitute forward - looking statements for the purposes of the Safe Harbor Provisions under the Private Securities Litigation Reform Act of 1995

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those risks more fully discussed in the Risk Factor section of our most recent annual report on Form 10-K on file with the Securities and Exchange Commission.

In addition, any forward - looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. We do not assume any obligation to update any forward - looking statements.

I will now turn the call over to John.

John Maraganore. - Chief Executive Officer

Thanks, Cynthia. Welcome to all of you and thank you for joining us, 2008 is already shaping up to be a great year, as measured by the significant progress in the first quarter on the scientific, clinical and business fronts. The most important event of the quarter and, in fact, in our history was the demonstration of human proof of concept with an RNAi therapeutic, achieving a major de-risking event in the advancement of RNAi therapeutics as a whole new class of medicines. This important event was achieved through completion and analysis of our landmark Gemini study for our lead program ALN-RSV01 being developed as a treatment for repository syncytial virus infection, or RSV.

To put this accomplishment into perspective, we believe that it greatly strengthens our platform, our program and our business. Remember, experiments in a petunia, in a worm, in a cell, in a mouse or even in a non-human primate can all be important steps forward, as steps forward that we and others have achieved with RNAi. But in our business, the experiments that really count are the ones in man. And conducting a high quality clinical study and demonstrating clear clinical activity for an RNAi therapeutics in man is a very powerful step forward for the entire platform.

As Akshay will summarize shortly, we're also quite pleased with our other pipeline and scientific accomplishments during the quarter. These included the start of a new Phase II trial for our RSV program, advancements in our preclinical programs, and continued demonstration of scientific leadership, notably our presentations at Keystone and our recent Nature Biotechnology paper with our colleagues at MIT.

Our leadership on the intellectual property was highlighted by the grant of the Tuschl II patent in Japan, making this key patent, already issued in the U.S. and granted in Europe, the only fundamental RNAi patent to be awarded in all three major pharmaceutical markets.

Our business development activities continue to be very active, as exemplified by the significant collaboration between Regulus and GSK completed just a few weeks ago, as well as our successful efforts during the quarter to unite Tekmira and Protiva as a single delivery partner for Alnylam in the field of cationic liposomal delivery.

In the meantime, our discussions around additional major partnerships are quite strong and we remain very confident regarding our remaining goals for the year. Indeed, the hunger for innovation in the pharmaceutical industry is stronger than ever and RNAi therapeutics represent an important and increasingly well validated strategy for new breakthrough medicines.

Finally, let me comment on this morning's news regarding Novartis' election to fully exercise their rights under our investor rights agreement as part of the equity investment they made in Alnylam back in 2005. We view this decision by Novartis as being very much in line with their historical investment in Alnylam but also a significant vote of confidence in RNAi therapeutics as well as Alnylam's efforts to build a successful, independent company.

We are very happy to have Novartis as a partner, along with our other significant pharmaceutical partners, including Roche, GlaxoSmithKline, Medtronic, and based on numerous ongoing discussions, certainly others in the future. We believe that today's move greatly strengthens the execution of our business plan, which includes making all of our existing partners successful and forming additional major alliances. So we're quite excited about our progress to date this year. And I'd like to now turn it over to the team to review the various aspects of our business, starting with Akshay Vaishnaw, for a summary of our clinical accomplishments. Akshay?

Akshay Vaishnaw – Vice President of Clinical Research

Thank you, John. The clear highlight in our R&D efforts for the quarter was the achievement of human proof of concept for our RNAi therapeutics platform in a double blind, randomized, placebo-controlled human clinical study.

As John mentioned, this outcome significantly supports our overall research and development and business execution efforts. To put the results into context, the data show for the first time in a well controlled study that the RNAi pathway can be harnessed in man to achieve clinical activity. It goes without saying that human data with a new class of medicine is a major accomplishment. As with our prior preclinical work, we certainly look forward to publishing our clinical results in a high quality journal.

Furthermore, these results are also very meaningful for the development of ALN-RSV01 towards the treatment for RSV infection, as they give us significantly increased confidence in our development efforts going forwards.

The results of the Gemini study were quite robust. In this double blind, randomized, placebo-controlled study of 88 experimentally infected volunteers, intranasally administered ALN-RSV01 demonstrated statistically significant antiviral efficacy.

Specifically, we observed a 38% relative reduction in RSV infection rate and a 95% increase in the number of infection free subjects. Many additional endpoints also demonstrated consistent outcomes in favor of a treatment effect. In addition, multivariate analysis across a large number of parameters, including fluctuation in cytokine levels, proves that the treatment with ALN-RSV01 was associated with antiviral efficacy, with a P value of 0.05. Now, for an early Phase II study, this is indeed a clear, positive result.

Following the success of the Gemini study, we were pleased to initiate a Phase II clinical trial to assess the safety and tolerability of aerosolized ALN-RSV01 versus placebo in adult lung transplant patients naturally infected with RSV.

While this study is aimed at measuring safety and tolerability with our inhaled formulation in a naturally infected setting, our first prior ALN-RSV01 program and an important step as we advance toward pediatric populations, we will also measure antiviral activity, when it is possible, to obtain bronchoalveolar samples from these patients.

Enrollment in this multicenter northern and southern hemisphere study is active and we look forward to providing further guidance on timing for results as we progress in our efforts.

Turning now to the rest of our pipeline, we were pleased to begin the year by advancing a new development program, ALN-HTT for Huntington's disease. ALN-HTT is an RNAi therapeutic targeting the Huntington gene for the treatment of Huntington's disease, a debilitating neurodegenerative disorder with no effective treatments. This program is being advanced on a 50/50 basis with our partner Medtronic.

During the quarter we were also very pleased to present new data from our PCSK9 program in hypercholesterolemia at the Keystone RNAi symposium, including data from non-human primates. And we were especially excited to present data performed in collaboration with our colleagues at Protiva and our ALN-VSP program for liver cancer also at the Keystone meeting. These data showed a very impressive anti-tumor effect, including the specific silencing of human tumor derived genes and marked near complete reduction of tumor growth.

Of course, we also continued our scientific leadership in the advancement of RNAi therapeutics with several key publications and presentations. Some notable highlights included our paper on immune stimulation of oligonucleotides that demonstrates the ability of designing, selecting and engineering the needed drug-like properties in siRNAs to achieve specific RNAi mediated effects.

We also had a paper in Nature Biotechnology that represents groundbreaking research with our collaborators at MIT to create novel delivery lipids, or lipidoids, that significantly expand the chemical diversity of approaches for formulation of siRNAs for systemic delivery. The publication in Antiviral Research with intranasally delivered ALN-RSV 1 for the treatment of RSV infection. And finally, in addition, our presentations on ALN-PCS and ALN-VSP that I commented on earlier, as well as additional presentations at Keystone -- at the Keystone meeting regarding our programs for Ebola, PML and new delivery advances, including approaches to achieve delivery of siRNAs to heart and muscle.

In summary, we've made very significant advances this past quarter in advancing both the science and clinical development of RNAi therapeutics, advances that are arguably the most significant ever in our company's and the technology's history. That said, we're also the first to acknowledge that there's more to be done in advancing our technology. Nevertheless, we're very pleased with our progress and view the challenges in front of us as only as encouraging and a source of excitement. I'll now turn the call over to Patty to review our financials.

Patricia Allen - Vice President of Finance

Thank you, Akshay, and good afternoon, everyone. Before I get into the details of the quarter, let me first spend a minute on the Novartis purchase of shares that we announced this morning. As you may recall, in 2005 Novartis purchased 5.3 million shares of our common stock, resulting in a 19.9% ownership in Alnylam at that time. Since then, Novartis' ownership position in Alnylam has decreased to 12.9%, as the Company has issued new shares, primarily from stock offerings since 2005.

In accordance with our 2005 agreements, Novartis recently notified us of their interest in exercising the option they have to purchase additional newly issued shares of Alnylam. Annually, they have the right to settle up for shares we issued during the previous calendar year relating to stock option exercises and other modest stock issuances to maintain their current ownership level. Per the terms of these agreements, Novartis purchased today approximately 214,000 newly issued shares of our common stock at $25.29 per share resulting in proceeds to Alnylam of $5.4 million.

The price per share is calculated in accordance with the provisions of the 2005 agreement and is based on a trading average of our stock each March. This is the maximum amount of shares that Novartis can purchase from Alnylam at this time under the terms of our 2005 agreement. Should Novartis choose to increase their position above 13.4%, their current ownership level, they would need to do so in the open market. As a reminder, they cannot own more than 19.9%. It is worth noting that the exercise of this right does not result in any additional rights or any changes to existing rights to Novartis beyond the terms of the original 2005 agreement. We will record the proceeds of $5.4 million from this morning's transaction in the second quarter.

Now let me turn to a discussion of our first quarter results. Once again we had a strong quarter financially and we continue to be in a great position to advance our promising pipeline of RNAi therapeutics. Revenues were a robust $22.2 million, a threefold increase over the same quarter last year and our highest quarter ever, driven by $13.4 million of net collaboration revenues from our Roche alliance, plus $8.8 million of expense reimbursement and amortization revenues from a variety of sources, including Novartis, the National Institutes of Health, the Department of Defense, Biogen Idec, InterfeRx, research reagent and services licensees and others.

As we discussed on our last earnings call, we expect 2008 Roche revenues to increase to $14 million per quarter by Q3. GAAP net loss was $1.2 million for $0.03 per share. Our net loss decreased significantly as compared to the prior year quarter as we continue to tightly manage our expenses and realize strong revenues from the value of our partnering activities. We do expect to remain in a net operating loss profile as we continue to significantly invest in our technology and pipeline activities. As you know, we have a very active R&D effort driven by our Phase II programs for ALN-RSV01 and our preclinical programs for PCSK9, liver cancer and Huntington's disease. Our R&D expenses were lighter in this first quarter than we expect for the remainder of the year, as we received our positive Gemini results in the middle of the first quarter and made the decision to move our RSV program forth thereafter.

R&D expenses were $3 million in the first quarter of 2008, including $2.3 million of non-cash stock-based compensation. We expect to continue to invest significantly in our R&D pipeline throughout the rest of 2008 and expect to see an increase in R&D expenses for the remainder of the year, although R&D expenses may be lumpy from quarter to quarter. G&A expenses were $5.9 million in the first quarter, including $1.5 million of non-cash stock-based compensation. G&A expenses have been trending slightly higher over the past year as we staff our business to support our growth, particularly in R&D.

We expect G&A expenses to vary slightly from quarter to quarter, primarily as a result of our business activities, in particular our partnering activities. We did incur income tax expenses of $200,000 this quarter as a result of our 2007 alliance with Roche. As a reminder, we sold our Kulmbach, Germany operations to Roche in 2007. We have recently had a favorable tax review in Germany whereby our NOLs for tax purposes were preserved. Therefore, we expect to make cash tax payments in 2008 totaling approximately $4 million and expect to record quarterly income tax provisions in accordance with GAAP totaling up to $4 million for 2008.

The cash payments include modest state taxes along with slightly over $3 million in German tax payments. We ended the quarter with over $444 million in cash and continue to expect to end this year with over $319 million in cash. Of course, our cash guidance does not include additional major collaborations which may be signed this year. At March 31st 2008 we had 40.8 million shares outstanding and following the issuance of 200,000 new shares to Novartis today, we have approximately 41 million shares outstanding.

In summary, we had our highest quarter ever in revenues and we remain in a very strong financial position. Our cash position allows us to invest prudently in expanding our scientific leadership and to advance and grow our clinical and preclinical pipeline of RNAi therapeutics. Now I'll turn the call over to Barry for a review of our IP and business execution. Barry?

Barry Greene - President and Chief Operating Officer

Thanks, Patty. As you've heard from my colleagues, we continue to execute on all fronts. On the business side, our momentum continues in signing major deals in the industry and growing our intellectual property estate. First, a major business highlight for the quarter was the strategic alliance Regulus entered into last month with GlaxoSmithKline to discover, develop and commercialize novel micro RNA therapeutics to treat inflammatory diseases such as rheumatoid arthritis and inflammatory bowel disease. This transaction is valued at more than $600 million with $20 million in upfront payments. The collaboration provides GSK with an option to license product candidates directed at four different micro RNA targets within inflammatory disease area where, in addition to the upfront payments, Regulus is eligible to receive development, regulatory and sales milestone payments plus significant royalties for each of the four targets.

This is a very significant collaboration for the industry for micro RNAs and importantly for Regulus. It clearly speaks to the quality and the promise of the Regulus technology and science and importantly speaks to the strength of our team there. In addition, Regulus announced this week that they had obtained exclusive rights to IP from Stanford University relating to micro RNA antagonists for the treatment of inflammatory diseases. This license adds to Regulus' already dominant patent position and represents another step in the Company's overall strategy to build a broad and leading platform of technology and intellectual property for the development of micro RNA therapeutics.

We also continued our business in fortifying our delivery platform. In this regard, we strengthened our systemic delivery efforts by expanding our agreements with Tekmira in relation to their planned merger with Protiva Biotherapeutics. This new agreement significantly expands our access to key technology and IP for the delivery of RNAi therapeutics with liposomal technology. It also provides Alnylam with future milestones and royalties on therapeutic programs advanced by the new Tekmira under InterfeRx licenses as well as an option to co-develop, co-commercialize the new Tekmira's cancer program targeting Polo-like kinase-1, or PLK1, a very exciting oncology target. The PLK1 program is a great opportunity that adds to our overall interest in oncology applications of RNAi such as ALN-VSP program and also speaks to a way that we think about partnering where we value product rights and importantly as part of the overall value proposition. We're also pleased to be part of the team awarded a $3.8 million LEAPs grant funded from the Michael J. Fox Foundation for Parkinson's research, a very important unmet medical need.

Let me now turn to intellectual property, which remains unmatched in the field of RNAi therapeutics, and continues to be a core strategic asset for Alnylam. We continue to solidify this position with patent grants around the world and I'd like to highlight a few of them. The European Patent Office, or EPO, formally granted Tuschl II in Europe, which broadly covers compositions, methods and uses of siRNAs. The Japanese Patent Office also granted Tuschl II in Japan and this newly granted patent includes 39 claims broadly covering compositions, methods, uses and systems for siRNAs. The Tuschl II patent series now provides Alnylam exclusivity to the claimed subject matter in the world's top three pharmaceutical markets. The UK Patent Office granted a patent for the Woppmann, et al series. This patent covers siRNA's including molecules of any length that covers overhangs, covers blunt end design features, including siRNAs containing chemical modifications and certain novel motifs.

The German Patent Office granted two patents broadly covering RNAi therapeutics in the Kreutzer-Limmer patent series. We also continued to consolidate IP for micro RNA therapeutics with Regulus obtaining an exclusive license to IP from Stanford, which I mentioned. Today we also highlighted some of other patents targeting specific focus areas such as those for Huntington's disease and HCV. We continued to leverage this broad intellectual property estate. We granted reagent licenses to Shanghai Gene Pharma, which represents our first business transaction in China, a country regarded as having one of the fastest growing life science markets in the world. We've now granted more than 16 license agreements for use of our IP in the research reagent and services markets. And we believe Alnylam intellectual property now covers over 75% of all sales in this market sector.

Regarding ongoing business discussions, our conversations remain very strong across multiple dimensions of our partnering strategy, which includes broad platform alliances, product specific alliances such as our Medtronic alliance, additional Regulus alliances for micro RNA therapeutics, as well as IP licenses and delivery partnerships such as those with Tekmira. We continue to see a very favorable environment for partnering our innovative technology and products and look forward to updating you soon on these efforts. Now I'll turn the call over to John, who will wrap up with a review of our progress towards our goals. John?

John Maraganore – Chief Executive Officer

Thanks, Barry. As you can tell, it really has been an exciting quarter and I'm proud of what we've been able to accomplish so far in 2008. Let me start my closing comments with some organizational highlights. We strengthened our board this quarter and scientific advisory board as well with the appointment of Ed Scolnick. Ed Scolnick is the director of the Psychiatry Initiative at the Broad Institute and the former president of Merck Research Laboratories. It is absolutely fantastic to add Ed to our board. He joins an extremely strong board of directors who are committed to shareholder value through building Alnylam as a significant company. We also continue to add to the Regulus management team with the appointment of Peter Linsley as chief scientific officer. Peter is an industry leader and renowned scientist and was the former executive director of cancer biology at Merck Research Laboratories, which he joined upon his acquisition by Rosetta Informatics.

Finally, let me now turn to a review of our status against our goals. In this first quarter we have made important progress on both our 2008 goals as well as our longer term RNAi 2010 initiative that we launched back in January. Specifically, we very importantly demonstrated human proof of concept for an RNAi therapeutic, a major milestone for our technology, our RSV program and for the company. We also initiated our first Phase II study of ALN-RSV1 in naturally infected patients. We expanded our relationship with the new Tekmira, which expands our scientific leadership on delivery. And we are well on track to meet or even exceed our publication goal of ten or more major scientific papers, with the accomplishment of four papers that we published already this year.

Let me now turn to the business side. On the business side, our goal for 2008 is to complete two or more major partnerships. Our Regulus alliance with GSK is indeed a very significant partnership and this fulfills part of our 2008 goal. But to be clear, we expect one or more additional major alliances in 2008. Further, we have made substantial progress in the strengthening of our intellectual property with multiple patents being issued or granted across the world. We expect this only to continue and quite significantly throughout the rest of the year.

And finally, as Patty mentioned, we remain very much on track to end the year with over $390 million in cash which also excludes additional proceeds that we would expect to receive from new alliances. So as you see we are tracking quite well against our goals for 2008 and also as part of our RNAi 2010 initiative. And we very much look forward to what the rest of 2008 will bring.

Finally, let me just take a step back and note our views on the scale of the opportunity that's presented by Alnylam. Although we have made accomplishments on every front, we think this is only the beginning and we know that there's much more to be done in our efforts. That said, we truly believe, and we are not alone in thinking this, that the enormity of the RNAi opportunity combined with the quality of our research and development efforts, our intellectual property estate, our unparalleled track record of business execution, our strategy and our people result in a rare opportunity to build Alnylam as a as a great, fully integrated biotechnology company.

This goal motivates all of us personally and we believe it will deliver tremendous values to our shareholders. We are excited to share our progress as we pursue our goals. And I'd like to now open up the call for your questions. Operator.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Mike King with Rodman & Renshaw. Please proceed.

Mike King

Good afternoon guys thanks for taking my question. Can you hear me okay?

John Maraganore

Absolutely Mike.

Mike King

Okay, just two different types of questions. On RSV01 could you remind us again what sort of assumptions are going into the study as far as kind of infection rates in the transplant population and remind us of what the endpoints are, please?

John Maraganore

Alright let me turn that over to Akshay.

Akshay Vaishnaw

Hi Mike. So important facets in the design of this study are that first and foremost it's a safety and tolerability study of ALN-RSV01 patient -- ALN-RSV01 in patients who have lung transplants and are infected actively with RSV. So all of them at baseline have evidence of RSV infection and are actively shedding the virus.

Mike King

Sorry to interrupt Akshay, but it's a culture diagnosis as opposed to a clinical diagnosis, correct?

Akshay Vaishnaw

Its going to be - variety of techniques are used at the site but we will validate the diagnosis by one common method ultimately which will be PCR, which is the most sensitive assay there is.

Mike King

Okay and you will only treat patients who are – you are not going presume RSV infection you only treat those that have confirmed RSV injections?

Akshay Vaishnaw

Right. You know we have done a lot of safety studies as you know Mike, both via the intranasal and inhalational route of administration in healthy volunteers. And that, combined with the very exciting news from the Gemini study where we showed that potent antiviral activity means it's time to go ahead into populations of patients who are naturally infected with the virus and to show safety and tolerability in the first instance and then efficacy. And this lung transplant population is the nearest opportunity to do that and that's how we've started. Of course later in the year we hope to expand our additional populations such as the pediatric setting.

Mike King

Right yeah the only question –the only reason I'm asking is the transplant population guy I guess gets a number of respiratory infections, so…

John Maraganore

These are RSV infected patients. And they're documented to be RSV infectious patients.

Mike King

Okay.

John Maraganore

And then there's a QC of that diagnosis that the Company does by PCR.

Mike King

Excellent, all right that what I was I after. And then as far as beyond taking efficacy, , Akshay? Beyond safety and tolerability?

Akshay Vaishnaw

Yes, so, beyond that we're obviously, because they're actively shedding virus, we're going to do exploratory antiviral activity measures looking at samples from the respiratory tract. And there are two sources there. The samples taken from the nose, intranasal swabs and so forth, and in some of the patients, because these patients often are instrumented via bronchoscopy, there will be bronchoalveolar samples and so we're sampling directly from the lung that's infected.

Mike King

Okay and then ultimately, if successful and you were to move on, I guess your final endpoint would be something like graft failure or some other metric like that?

Akshay Vaishnaw

I think again just – in this study the major goal is to demonstrate safety and tolerability in naturally infected setting. If the exploratory antiviral activity measures are encouraging, then obviously there's a path forwards in this indication as well. And I think what you're alluding to is that this is a very high unmet need indication, like the pediatric population. The specific concern in these patients is infection with RSV can trigger organ failure. So they can reject their graft. And so a long term outcome would be to preserve graft function in these patients who are infected with RSV.

John Maraganore

And there also a number of other clinical endpoint complications in this setting that obliviously represent opportunities that we see encouraging results here to study this population further in additional Phase II B and Phase III studies.

Akshay Vaishnaw

And speaking to that in the short term, shortness of breath, decline in lung function monitored by lung function tests. These kinds of things are all very closely monitored in these subjects.

Mike King

Right okay perfect. Thank you, and then shifting gears, I'm sure you guys have heard this before as well as recently, but I was wondering, again without trying to pin you down either on timing or sort of dollars, some investors are of the mind that the Roche and Novartis collaborations and licenses don't leave Alnylam a lot of room to form deals. And again, without trying to be specific, could you help us understand what other assets there are, what other types of collaborations one can imagine that the Company might enter into?

John Maraganore

Well you know Mike – let me address that and then Barry, if he wants to chime in, can chime in also. I mean, it's -- obviously we have a really solid track record of execution on the business side. I think it's pretty incontrovertible in the industry. I don't think actually in the history of the industry there's another company that's raised so much money from partnerships as Alnylam has in its period. So it's a pretty unique position that we've been in. I certainly welcome your thoughts if there are other examples out there historically that I'm missing. And…

Mike King

I'd say that….

John Maraganore

Yeah, at least its top two or three at a bare minimum. And there certainly was a lot of anxiety when we did our Novartis alliance back in 2005 from people that felt that maybe we can't do other alliances. Well, I think we've very clearly documented that we can with our Roche alliance back in 2007. And I think it's fair to say that there's literally nothing about the Roche alliance that we can not replicate or can replicate tomorrow. And that it's a non-exclusive deal. It has simply no encumbrances upon doing future alliances. And so we have many, many degrees of freedom as to how we partner and the strategy around partnering. And obviously partnering is a way of raising funds for the Company, to build our company as a significant enterprise. And also we think there are going to be partnership opportunities where perhaps we retain very significant product rights in addition to funding, major funding. And so we're looking at those type of alliances. This is all in the platform category of alliances where we have very active discussions.

Mike King

Right.

John Maraganore

And so let me just leave at that I think, the most important category of alliances that we're involved in. And we don't feel nor do people that we talk to feel any limitations whatsoever in terms of how we do this and when we do this. Okay?

Mike King

Yes, sorry. I was waiting. I thought Barry was going to chime in. Okay.

John Maraganore

Oh, Barry, did you want to chime in?

Barry Greene

I didn't because I think John covered everything pretty completely.

Mike King

Quote Barry Greene, "What he said." Okay, thanks very much.

John Maraganore

Thanks, Mike.

Operator

Your next question comes from the line of Simos Simeonidis with Broadpoint Capital. Please proceed.

Simos Simeonidis

Yes, hi, guys. Thanks for taking the question. Could you give us any color in how the enrollment for the ASV trial is going and roughly when you expect to complete and could we see data this year potentially?

John Maraganore

So, Simos, I'll make a few comments and then Akshay can say the rest. We only announce a clinical trial start when we've dosed at least one patient and obviously had some period of time to evaluate the outcome in that patient, which of course is a blinded study so we don't know what the patient received. And that's just a matter of how we announce the start of trials. And all I can say at this point is that it's more than one. And we'll update everybody on the accrual but we're optimistic about it and we've opened up a number of sites, seven in total right now, both northern hemisphere and then southern hemisphere. The RSV season is now ending in the northern hemisphere and is now starting in the southern hemisphere. And we have active sites on both sides of the equator.

So it's going along well. Before we can project when the trial will be done, however, I think in the fairness to our investors it'd be good for us to know how the accrual is going because I wouldn't want to give an expectation out there for timing that I can't live up to. And so let me just leave it at that. We're -- we think it'll accrue well. There's a high interest by lung transplant physicians and physicians that manage these patients after their lung transplants, actually quite remarkably high interest in a new treatment for RSV because it is a major problem for them. And we're encouraged by their enthusiasm and the passion of the people at their sites to help us accrue patients. So we'll update you as soon as we think it is reasonable to do so.

Simos Simeonidis

Okay. And then one quick financial question for Patty. From the $22 million in revenue, you said there's $8.8 million from all your partners. Could you be specific in terms of how much Novartis is part of that, the part that is Novartis' contribution?

Patty Allen

Sure, Simos. Novartis GAAP revenues for the first quarter of '08 were actually $3.3 million. And then we've had a significant amount of revenue coming in from our government relationships as well and those totaled almost $# million. So quite significant.

Simos Simeonidis

Okay. Thank you very much.

Patty Allen

You're welcome.

John Maraganore

Thanks Simos.

Operator

(Operator Instructions). And your next question comes from the line of Ted Tenthoff with Piper Jaffray. Please proceed.

Ted Tenthoff

Great. Congratulations on the quarter and on the –

John Maraganore

Thanks Ted.

Ted Tenthoff

Positive progress. I guess just looking kind of a little bit beyond the spinal -- or, I'm sorry, the lung transplant study. How do you start to look at the eventual pediatric and elderly populations? What would be next steps for RSV beyond this study? I know you went into some of this detail at the analyst day, but just want to see if your thinking has changed there at all or just kind of get a longer term view of what the development plan might be.

John Maraganore

So, Ted, let me just make a couple of comments and then turn it over to Akshay, who should really address the meat of your questions. The RSV01 program is obviously a very important lead program for the Company. We're extremely pleased with the Gemini results because they give us data in humans related to antiviral activity, which is, when you look at the paradigm of the development of drugs like Tamiflu and Relenza and others, those type of data points have been very instructive and ultimately were predictive of outcomes in clinical, larger clinical. So with that type of de-risking event, obviously we're now looking very actively at the further Phase II development and then ultimately the Phase III development of this program. And we clearly view the pediatric population as being an important area of unmet medical need, but there are also adult populations as well, as we articulated at our R&D Day. And the lung transplant population is one of them but there are others as well. And we're going to be opportunistic obviously, as we develop this program, to see if there are near term and more rapid paths forward as we develop this program. But it'd be premature to have people's expectations set on that, but rather to focus on what is going to be an appropriately paced development program that is aimed at developing an important new therapy ultimately for the important and most important population for this therapy, which is the pediatric population, where we expect to start our first Phase II in the second half of the year. So with that as context, Akshay, do you want to add a little bit more color to some of the thinking?

Akshay Vaishnaw

Well, I think in terms of broad brush strokes, John's painted the picture exactly right. We're sitting now with a major program that's in Phase II with outstanding preclinical data, with safety and tolerability data with two routes of exposure, intranasal and inhalational, in over 200 adult volunteers. We've got an 88-patient study, the Gemini study, where we've convincingly demonstrated antiviral efficacy. And I think the scene is set now for parallel exploration, both in adult infected setting, of which the first is the lung transplant protocol and we've talked about that today, and the second and in some sense a very, very high area of unmet need is the pediatric population. I think most of you are familiar that there are almost 800,000 cases of RSV bronchiolitis or lower respiratory tract infection in kids every year, with about 125,000 hospitalizations. And that's what we'll be turning our attention to in the second half of the year in terms of getting efforts going in that segment. And as ever, I think the first steps are always safety and tolerability for a new population. And that's what that first study very much will be focused on as well as attempting to demonstrate antiviral activity in an exploratory sense.

And I think, based on that outcome of that study, we look forward to moving on towards further development in Phase II in the pediatric segment. But right now, all of those plans are being thought through very carefully. We've had a number of very exciting KOL interactions with experts in the field. Obviously people are delighted to learn about the antiviral activity that were clearly demonstrated in that now and we're getting a lot of encouragement to move forwards into the pediatric setting. And quite frankly, the feedback we've had from a lot of informed people is that this is the first real major advance towards a treatment for RSV in over two decades. And so there's a lot of anticipation and we continue planning to try and match that later in the year.

Ted Tenthoff

Thanks, that's very helpful.

John Maraganore

Thanks Ted.

Operator

Our final question comes from the line of Pamela Basset with Cantor Fitzgerald. Please proceed.

Pamela Basset

History, thanks for taking my call.

John Maraganore

Hi, Pamela.

Pamela Basset

Hi. Could you just go through briefly again why Novartis at this time purchased additional shares? Was this written into the original contract and they had to make a decision? It was a decision point for them or –

John Maraganore

Yes, so

Pamela Basset

opportunity again next year?

John Maraganore

Sure. So, Pamela, great question. So, in the investor rights agreement that was signed in 2005, which was associated with the share purchase agreement where Novartis purchased 19.9% of Alnylam, at that time, they had, and this is relatively standard in these type of agreements. They had the opportunity that as the Company in the future would potentially issue new shares as related to financings or effectively issue new shares in the form of stock option exercise or employee stock purchase plans and so forth and so on, they have the opportunity of maintaining their equity ownership level to a certain percent ownership up to 19.9% and not greater than 19.9%. Part of the mechanism included that opportunity to do that in association with potential financing events. And then the other mechanism that's in the investor rights agreement, which is filed with our documents with the SEC, is an annual true-up mechanism that would reflect the opportunity for them to maintain their ownership consistent with things like stock option exercise and stock option grants to consultants and employee stock option purchase plans, 401-k type grants. And we have an obligation to notify Novartis of what -- how many shares they would be eligible to purchase annually. And we've had that obligation since 2005.

This year they chose to exercise their right and purchase the maximal amount that they could purchase, which is the 214,000 shares, newly issued shares. And that takes their ownership from 12.9% to 13.4%. And it went from 19.9% down to 12.9% because in previous years had not exercised their option to keep their ownership level at the levels that it was at those years. And because they had not taken those options in the past, they essentially lost their opportunity through the issuance of new shares to buy back up to 19.9%. So their only -- they were only able to buy up to the current 13.4% level. If they wanted to buy up to the 19.9%, they're able to do so but directly in open market, not through the issuance of new shares. And obviously they can't buy over 19.9% during the term of the agreement.

Pamela Basset

Thank you. Should we think of this as an indication of the progress that they're making internally or that you're making together with Novartis or that they're looking at Alnylam as an investment vehicle? I'm just wondering why this year, not last year.

John Maraganore

Well, I think that we are certainly quite pleased to have Novartis as a partner and they -- the progress with that partnership has progressed quite nicely. And clearly their investment in the Company at this time is a bullish signal as it relates to the nature of our relationship. So we're obviously quite pleased to have them participate. But we are going to be hitting a point in our relationship in three years where they, at their election, can extend it for an additional year or thereafter for even a fifth year. And we at this point don't know what they want to do but clearly their level of interest in the progress and their investment today certainly is a signal of their interest. But we don't frankly know which way that will emerge and how that will emerge going forward.

So they're a very strong partner. They're very committed to working with us. They made a very bold pioneering move back in 2005 to enter this space and I think they were prescient in their -- in their leadership to do so and they've enjoyed great benefits from that working with Alnylam. In addition, they have the option, and this is publicly disclosed in our agreements, that they can take a broad platform license for a significant upfront payment that they would make to Alnylam and additional milestones and royalties going forward. Obviously this -- they could do that this year. They could do that the fourth year or the fifth year. They can only do that the fourth year or the fifth year provided that they continue the relationship into the fourth year and into the fifth year as well. So there are interesting dynamics of all agreements. They're a very good partner. We have a good relationship with them and we're excited to continue to work forward with them. But we're also excited to work forward -- work with our other partners like Roche and Glaxo as well as new partners that will almost certainly add to our team in the future.

Pamela Basset

Okay, great and the decision - the timing around those decisions briefly is

John Maraganore

The three year mark is October of 2005. I'm sorry, of '08.

Pamela Basset

So this coming October they can extend for another year.

John Maraganore

That's correct.

Pamela Basset

Okay. And then if they want to, they could also exercise their – the platform license at that time as well?

John Maraganore

Exactly

Pamela Basset

If they need to extend -- if they're going to extend -- if they're going to pursue the platform license, basically.

John Maraganore

Correct. Or they can exercise their platform license this year and then say we're going to sort of do everything inside and then not extend the collaboration either way.

Pamela Basset

Okay, so this…

John Maraganore

There's multiple sort of different paths it can take.

Pamela Basset

Okay, great. That's very helpful. Thank you very much.

Representative

Yes, thank you Pamela. Well, thanks, everybody. We appreciate your interest today. As you can see, we've had a very busy and productive first quarter and we are very much look forward -- looking forward updating you on future calls and presentations. Thanks, everybody.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.

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!

Source: Alnylam Pharmaceuticals, Q1 2008 Earnings Call Transcript
This Transcript
All Transcripts