Alnylam Pharmaceuticals Inc. Q2 2008 Earnings Call Transcript

Alnylam Pharmaceuticals Inc. (NASDAQ:ALNY)

Q2 2008 Earnings Call

August 6 2008 4:30 pm ET


Cynthia Clayton, Director of IR and Corporate Communications

John Maraganore - CEO

Barry Greene - President and COO

Akshay Vaishnaw - VP of Clinical Research

Patty Allen - VP of Finance

Jason Rhodes - VP of Business Development

Kleanthis Xanthopoulos - Regulus Therapeutics


Sapna Srivastava - Morgan Stanley

Pamela Bassett - Cantor Fitzgerald

Alan Carr - Needham


Welcome to the Alnylam Pharmaceuticals conference call to discuss the Second 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.

Cynthia Clayton

Good afternoon. I am 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, Vice President of Clinical Research, Patty Allen, Vice President of Finance and Jason Rhodes, Vice President, Business Development. In addition Kleanthis Xanthopoulos of Regulus Therapeutics is also on the call and will be available for Q&A.

During today's call, John will go over the highlights of the quarter, Akshay will provide an R&D summary, Patty will review our officials and guidance, Jason will review our business highlights for the quarter, Barry will summarize our IP activity and our progress against goals, and we will then open the call 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 provisions under The Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our most recent quarterly or annual report on file with the SEC. In addition, any forward-looking statements represent our views only as of the date of this recording and should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligation to update any such statements.

I will now turn the call over to John

John Maraganore

Hey thanks, Cynthia. Welcome and thank you for joining us. We are thrilled to be here today to highlight our accomplishments for the second quarter of 2008; and as far as the year goes, so far it is been a very exciting seven months.

RNA Interference continues to be recognized as a transformative breakthrough for new innovative medicines, and Alnylam is leading the way across the key value drivers of scientific leadership, product pipeline, intellectual property and business execution. The entire pharma industry recognizes the importance of this technology and Alnylam's leadership in the field positions us extremely well in the near-term and for the long-term.

The most important element of our business plan remains the execution on our discovery efforts through our RNAi platform that fuels a robust pipeline of clinical and ultimately marketed products. Q2 was an important quarter for pipeline progress, highlighted by initiation of a Phase II clinical study for a lead program, ALN-RSV01 in naturally infected with RSV lung transplantations.

We were also pleased to announce today, that we will be advancing ALN-VSP as our lead IND candidate for 2008 with our status being on track to fulfilling this goal by the end of this year. In other activities, our scientific leadership continues with the publication of a number of important papers, notably our nature biotechnology paper with the MIT group and additional important papers expected to come in the very near term.

Further we are quite excited to have consolidated intellectual property in the emerging field of RNA activation or RNAa, as this could be an important new platform for the future. As you will hear momentarily, many other accomplishments on our scientific and development efforts were also achieved this past quarter.

Also during the second quarter, we conclusively achieved our entire business goals for 2008 with the completion of new alliances with Takeda, Kyowa Hakko, and through our joint venture Regulus with GSK. Alnylam now has major partnerships with some of the strongest and most innovation-minded healthcare companies in the world, a list that also includes Medtronic, Novartis, Roche and Biogen Idec. These activities have resulted in a tremendously strong cash position, and we now expect to end the year with about a $0.5 billion in cash.

This is an unusually strong position during this time of broader economic uncertainty, as we are spared any need to raise funds in the capital markets, either now or in the foreseeable future. Further, in light of this position and as the leader in the RNAi field, we are presented with many investment opportunities from companies either in need of our IP, expertise or funding.

In this regard, we aim to stay very focused on RNAi and the broader world of non-coding RNAs since we frankly; can't imagine anything more important to invest in. Further, we plan on staying extremely disciplined on opportunities that meet our scientific standards of excellence.

Now while we completed our 2008 business goals and while we do not need more cash from new business alliances, we are hardly stopping any of our additional partnership discussions. In fact, we will continue to form significant new partnerships ranging from major platform alliances like Takeda and Roche, product alliances like Medtronic and Kyowa and alliances with our microRNA company Regulus as we recently did with GSK.

We also believe that there are opportunities to start new businesses, as we did with Regulus about a year ago. In short, the hunger for our innovation is stronger than ever, and the opportunities for our technology are surprisingly broader than even we ever expected. To that end, and to provide an update on ongoing business development efforts, we now expect an additional two or more major new alliances over the next 6 to 18 months and this should serve as new guidance for our efforts through the end of 2009.

On the people side, we continue to build the leadership team at both Alnylam and Regulus. In the case of the latter, we recently announced the addition of Dr. Garry Menzel as Executive Vice President, Corporate Development and Finance. As many of you know, Garry was a leading banker at Goldman and then Credit Suisse, and his involvement with Regulus should be nothing short of a resounding endorsement of our efforts to build a great company that we believe will benefit Alnylam shareholders significantly.

Finally, I would like to address our recent decision to withdraw our participation at an upcoming bank sponsored investor conference. As I think we have demonstrated, we are committed to talking to all of our investors and sharing our progress at different venues, be they investor conferences or a peer-reviewed scientific meetings.

This commitment requires that we prioritize, where and how we deploy our leadership or scientific teams in a manner consistent with our overall business interests. In the case of our decision to withdraw from that meeting, there is nothing more to it than that.

Now, with that as some key introductory remarks, I would like to pass it over to Akshay Vaishnaw for his update on our R&D and scientific leadership efforts. Akshay?

Akshay Vaishnaw

Thanks, John. Q2 was clearly an important quarter with the advancement of ALN-RSV01, our lead RNAi candidate for RSV infection. We initiated and are actively enrolling patients in a double-blinded randomized placebo controlled phase II study to assess the safety and tolerability of aerosolized ALN-RSV01 in adult lung transplant patients naturally infected with RSV.

The trial will be the first to evaluate the safety and tolerability of ALN-RSV01 in a naturally acquired RSV lower respiratory tract infection and we hope to obtain signals for anti-viral activity of that drug from the study.

RSV infection in lung transplantations represents a significant unmet medical need. The condition is associated with significant morbidity. For example, rates of acute and chronic lung rejection following RSV infections have been reported to be as high as 15% to 30%.

We are pleased with the enrollment in this study, but now have 10 participating centers in both hemispheres. We expect to provide more specific guidance on completion date and timing for the date availability on our next quarterly conference call, but we are encouraged by our progress thus far.

This trial follows the important positive clinical results, we announced in the beginning of the year with the internodal form of used in the GEMINI Phase II experimental infection trial, where we demonstrated human proof-of-concept in adult volunteers.

In addition, we continue to have good discussions with the FDA about the start of our pediatric Phase II trial, not encouraged regarding our path forward within kids

In addition to RSV, we are advancing our pipeline with the decision to file an IND for ALN-VSP. And RNAi therapeutic for the treatment of liver cancer and this filing will occur this calendar year.

ALN-VSP is now our most advanced systemically delivered RNAi therapeutic. It comprises two sRNAs in a lipid nanoparticle formulation. These two sRNAs, target distinct genes involved in the growth and developments of tumors, you see in the kinesin spindle protein or KSP and Vascular Endothelial Growth Factor or VEGF.

Pre-clinical data with ALN-VSP as compared to a control non-specific sRNA, in a mouse model of liver cancer demonstrated significant dose-dependent silencing of both KSP and VEGF derived from the human tumor; evidence of tumor cell cycle arrest due to KSP silencing which was documented histologically; reduction in overall tumor growth as measured by quantification of a tumor-specific gene; and marked reduction in the size of liver tumors in VSP-treated animals as observed by gross pathology.

This is a very exciting approach for RNAi and oncology, an approach that we think is actually only the beginning for RNAi in on oncologic indication. As we as look forward to filing the IND for ALN-VSP this year and exploring its activity in the clinical study.

We would also like to report progress with our earlier pipeline program ALN-PCS and ALN-HTT. ALN-PCS and RNAi therapeutic targeting PCSK9 for the treatment of hypercholesterolemia continues to advance in pre-clinical study toward a potential IND in 2009. ALN-HTT and RNAi therapeutic targeting the Huntingtin gene for treatment of Huntington's disease continues to advance in pre-clinical studies. ALN-HTT is in development together with Medtronic.

Earlier in our discovery pipeline and related to our Alnylam Biodefense efforts, we were pleased to have today announce continued commitments for Federal Funding in this effort. This funding not only supports advancement of specific RNAi therapeutic products for certain hemorrhagic fever viruses that is believed to represent a bioterrorism risk, but also provides expense reimbursement for the advancement of new delivery technologies applicable to these and in fact broader Alnylam product interest.

Beyond these programs that I specifically commented on, we also have a large number of additional discovery programs both Alnylam with our pharmaceutical partners, and what you can expect to see in the months to come is a greater sense for how this pipeline will mature into what we believe could be one of the most significant and exciting pipelines of innovative medicine across the entire biopharmaceutical industry.

Scientific leadership remains an important objective for R&D activities. As part of our efforts there, we continue to demonstrate scientific leadership through publication and presentation of peer-reviewed research, including new in vivo research in validating the mammalian host gene involved in malaria infection and the anti-parasitic efficacy of RNAi therapeutics dated, which were published in an article in Cell Host & Microbe, the discovery of lipitoids, a novel biomaterials approach for systemic delivery of RNAi therapeutics later which were published in Nature Biotechnology as part of the research collaboration with scientists at MIT.

And finally new research related to defining immunostimulatory properties and mechanisms for sRNAs and methods to screen for and eliminate these properties in defining drug-like properties of sRNAs for therapeutic applications and these data were published in the Journal of Interferon & Cytokine Research.

So, at this mid-point of the year, our scientists have published five peer-reviewed papers. We are thus tracking well towards our goal of 10 or more peer-reviewed papers in 2008, and we are confident about meeting, if not actually exceeding this goal.

In closing I would like to comment on two other highlights for the recent period that in my mind deserve particular mention. First, related to the completion of the Tekmira-Protiva merger in Q2, we were very pleased during the first half to have completed an expanded agreement with the combined company, which is now called Tekmira.

Most importantly, we are now working very closely with the strength in Tekmira that results from the merger. As part of our relationship, we also have the options to co-develop and co-commercialize Tekmira's PLK SNALP program being developed for the treatment of certain cancers.

Tekmira has recently guided that they expect this program to be in Phase I in 2009. The target in this program Polo-like kinase-1 is one of the industry's most exciting oncology target and has proven to undruggable with small molecule approaches. So this could be a very promising approach.

Secondly, we're also very excited by recent accomplishments where we've expanded our scientific leadership in RNA therapeutics in the emerging biological field of RNA activation otherwise known as made in the RNAa.

RNAa technology has the potential for the activation of Gene expression with applications in certain genetic diseases and cancer. This is an emerging biology and an area of very active research in a number of academic labs.

In histology, double-stranded RNAs called anti-gene RNAs or Ag-RNAs that are designed to be complementary to some promoter regions in chromosomal DNA have been found to significantly and reproducably accurate transcription of DNA to RNA by nearly tenfold. This can be used to activate gene expression in a pharmacologically relevant manner in contrast to RNA interference, where we silence gene expression.

Our IP consolidation in the RNAa area was conclusive and includes the completion of exclusive license agreement with the University of Texas Southwestern Medical Center, University of California, San Francisco, and the Salk Institute for Biological Studies.

Further, we will be collaborating closely with Dr. David Corey at UTSW and also with Dr. Long Chang Lee at UCSF in this field. While there is more to be done here, RNAa technology could represent a new product platform in Alnylam's efforts to advance innovative medicines to patients. And we look forward to seeing how this progresses in the future.

Now with that, Patty Allen will review the financials. Patty?

Patty Allen

Thanks, Akshay and good afternoon, everyone. In the second quarter, we achieved our highest quarterly revenues in the history of the company, $23.8 million, over a two-and-a-half fold increase over the same quarter last year.

In aggregate, the strategic alliances we have formed with Novartis, Roche, Takeda, Biogen Idec, Kyowa Hakko, along with government funding and payments we are receiving from our InterfeRx alliances are generating a strong and steady revenue stream for the foreseeable future.

Let me walk you through some of the accounting for these alliances, since the amortization of upfront payments accounts for a significant portion of our quarterly revenues. Each quarter, we will be recognizing approximately $14 million in GAAP revenues from our Roche alliance over a five-year period.

With our recent Takeda alliance, we will be recognizing both the $100 million upfront payments as well as the $50 million in technology transfer milestone over seven year period.

That equates over $5 million per quarter in GAAP revenues for the Takeda alliance beginning in Q3. We also received $15 million in upfront payments in Q2 from our recent Kyowa Hakko Alliance, but until we can determine our last deliverables to Kyowa, we will defer the upfront payment and not record any GAAP revenues for the time being with this alliance.

We also have a strong and steady stream of revenues from our NIH and DOD grants, and we were happy to announce this morning that the NIH has extend our grant for another year. We were also very pleased this quarter that Novartis has elected to exercise their option to extend our 2005 transformative alliance for another year through October 2009.

This extension will result in continued significant R&D funding from Novartis and there will be no change to our current accounting for this alliance. Also, it is notable that our InterfeRx program continues to be successful, as we are starting to receive milestones from our partners, such as Quark and Calando, as they move their RNAi program along into clinical development.

In total, the success of our partnerships and alliances are generating a steady and sustainable GAAP revenue stream of well over $20 million per quarter. Even with these strong revenues, we are so very focused on tightly managing the business. Turning to expenses and net loss, our net loss was higher this quarter compared to Q1, primarily due to some unique one-time payments, as a result of the Takeda alliance and an investment in Tekmira.

Our R&D expenses continue to increase as our pipeline progresses. What is significant about this quarter is that although we had our second highest quarter ever in R&D expenses, our strong revenues are covering the expenses of investing in our pipeline. Takeda R&D expenses with the $5 million in payments to Isis and others as a result of the Takeda alliance. We also made a strategic investment in Tekmira in conjunction with their merger with Protiva and we recorded a $2 million license fee charge in Q2 associated with that investment.

More importantly, the increase spend reflects the progression of our pipeline, as we initiated a new Phase II clinical trial for RSV. We progressed ALN-VSP towards the 2008 IND and we made other investments in our preclinical pipeline for our PCSK9 and Huntington's program. We are also making significant investments in delivery with our collaborations with Tekmira, MIT and others and we have grown our headcount in R&D to support our programs and delivery initiative.

As one would have expected, we saw an increase in G&A expenses in Q2, primarily as a result of our business development activities and a continued investment to develop, prosecute and protect our IP portfolio.

On taxes, primarily as a result of our 2007 Roche alliance, we incurred GAAP income tax expenses of $1.3 million in Q2. Although somewhat counter-intuitive since we are in a net loss position, the accounting rules require that the quarters where there is a higher net loss will result in higher income tax expenses being recorded. We continue to have a favorable tax strategy and now expect to record approximately $3 million to $4 million in tax expense in 2008. Of course, this would exclude the impact of any further major alliances in 2008.

Finally turning to cash. As John commented earlier, we are in a very strong position and we ended Q2 with $538 million in cash. Due to the considerable upfront payments from the new alliances completed year-to-date, we are significantly increasing our year-end cash guidance from $390 million to approximately $500 million.

Thus our financial profile is extremely strong right now, reflecting our solid cash position and steady stream of revenues. We can count on future revenues from existing and new alliances to help drive the business. Certainly we are in an excellent position to build the company and execute on our business plan.

Let me now turn the call over to Jason Rhodes to discuss our recent execution on our business development objectives, certainly one of the highlights for the quarter. Jason!

Jason Rhodes

Thank you, Patty. Q2 was a big quarter for business development, therefore with the signing of three important partnerships we have met all of our 2008 business development goals.

The major highlight for the quarter was the formation of a strategic worldwide platform alliance with Takeda Pharmaceuticals valued at over $1 billion, with 150 million up front and near term technology transfer payments. This is the first major RNAi therapeutics partnership between a Japanese pharmaceutical company and a U.S. biotechnology company and Takeda has become Alnylam's strategic partner RNAi therapeutics in Japan.

The alliance provides Takeda with a broad worldwide non-exclusive platform IP license and significant enablement.

With Alnylam's RNAi platform technology in the fields of oncology and metabolic disease. Importantly, Alnylam retains the right to opt in to co-develop and co-commercialize Takeda RNAi Therapeutic programs in the U.S. market on a 50-50 basis.

This opt-in rate can be exercised on at least four Takeda RNAi therapeutic products, and importantly, we can opt in for each product as late as the start of phase III studies, which is of course a very de-risked stage of development. Importantly, this partnership, like our Roche partnership is non-exclusive, thus preserving Alnylam's opportunity to form future partnerships and to pursue our proprietary work in RNAi.

Barry and I just returned from our kick-off meeting in Japan together with a broader Alnylam team. It is clear that this is a critical collaboration for Takeda and one at the most senior levels of their organization are actively engaged in. Also this quarter, we formed an exclusive strategic alliance with Kyowa Hakko to develop and commercialize ALN-RSV01 in Japan and other major markets in Asia.

Kyowa is a very strong partner for RSV program in Asia due to their commitment innovative medicines and important pediatric focus. Importantly, Alnylam retains all development and commercialization rights worldwide for ALN-RSV01, excluding Asia. During the quarter we were also excited to announce the first major partnership for Regulus Therapeutics, our joint venture with Isis. GlaxoSmithKline and Regulus formed a strategic alliance valued at over $600 million to discover, develop and market novel microRNA targeted therapeutics to treat inflammatory diseases.

GSK obtained an option to license product candidates directed at four different microRNA targets within this disease area. GSK is an excellent partner for Regulus and we are excited to add them as a partner with Alnylam and Alnylam's efforts.

Our Regulus CEO, Kleanthis Xanthopoulos is on the phone today, and will be happy to answer any questions regarding the progress on this partnership and other advances with Regulus.

This was also an important period with regards to our existing partner Novartis, who elected to extend their collaboration with us for at least another year, through October 2009. This landmark RNAi alliance was initiated in October 2005, and is focused on discovery, development and commercialization of RNAi therapeutics for a defined number of Novartis selected disease gene targets.

The extension of the collaboration demonstrates Novartis' commitment to Alnylam and also continued validation of RNAi as a transformative technology for the discovery of innovative medicines. We are very pleased to continue our work with Novartis.

Finally let me turn to our InterfeRx program. Recently, we granted Calando Pharmaceuticals a new non-exclusive InterfeRx license do discover, develop and commercialize a synthetic siRNA directed toward an undisclosed cancer target. It includes an Alnylam ROFN to opt-in for co-development and co-commercialization of the RNAi therapeutic product in the U.S. market. It is a powerful feature of the Alnylam InterfeRx program.

On a related note, we were also pleased with the continued progress of another InterfeRx licensee, in this case Quark, who has advanced their ocular disease program into Phase II trials together with their partner.

Finally we also noticed this week the retirement of our InterfeRx license to MDRNA, formerly Nastech where our previous exclusive grant to TNF-alpha comes back to Alnylam, allowing us the opportunity to develop RNAi therapeutics toward this target either alone or with another partner with stronger financial and R&D resources than our previous licensee.

As you know, we have an active business development effort at Alnylam, we will continue to pursue alliances like these and many others, where we can achieve significant value recognition, including the opportunity to collaborate on specific diseases and targets while maintaining rights in the U.S. market.

As John mentioned, over the next 6 to 18 months, we have a very active set of business discussions, and we confidently expect to form two or more strategic collaborations. All of this is made possible through our consistent and sustained demonstration of scientific leadership in the RNAi field and by our having secured the key intellectual property that we believe is required for all industry efforts to commercialize RNAi therapeutic products.

I would now like to turn the call over to Barry do discuss some recent updates on IP and also our progress towards our 2008 goals. Barry.

Barry Greene

Thanks, Jason. And I want to congratulate you and the entire team on an amazing quarter for business execution.

Now, let me first discuss our progress on the intellectual property front. As we have discussed before, we continue to focus on strengthening what is clearly an unmatched and the dominant IP position in the entire field of RNAi therapeutics. Today then, we announced today the issuance of grant of two key patents that are own controlled or exclusively licensed by Alnylam in the RNAi therapeutics field.

First, the Tuschl II patent that we hold exclusive was allowed by both the Russian Patent Office and the Mexican Patent Office. The Tuschl II patent has been previously awarded in all the major markets, U.S., EU and Japan, and a number of other important countries. The strength of this patent continues to be manifested by its issuance across the world, and importantly there is more coming.

Similarly, a new divisional case of Kreutzer-Limmer patent which we exclusively own and which covers siRNAs with the length of 15 to 49 nucleotides was granted by the Australian Patent Office. The Kreutzer-Limmer patent has been previously awarded in EU, Germany, Australia, Canada and South Africa and is pending in the U.S. and Japan. Together with our Crooke patent, our Tuschl II patent and Kreutzer-Limmer patents comprise some of the most important fundamental patent elements currently issued.

We, of course, have many other divisional applications stemming from these patents, as well as other pending patent applications, such as Tuschl I, Hannon and Kay. All of this contributes to the creation of an unmatched estate that we will only strengthen in scope and breadth.

Now let me turn to our Glover patent, which is exclusively licensed to Alnylam from Cancer Research Technologies or CRT. This European patent was overturned by the European Patent Office through the course of opposition proceedings, a common procedural step in the prosecution of European patents.

To be clear, we believe that the Glover patent, which stems from the pioneering work by Wianny and Zernicka-Goetz published in 2000 is in fact, meritorious novel research, having important inventive matter and is a key part of the history of RNA interference.

Alnylam and CRT intend to appeal any decision that does not result in the patent being maintained in the fullest form or scope. It is important to note that about 50% of patents that are overturned in European opposition proceedings are reinstated during the appeal process.

In closing, I would like to summarize how we are tracking against our key 2008 goals. As you know, the first quarter of this year, we announced human proof-of-concept for ALN-RSV01 being developed for the treatment of RSV infection and we fulfilled that goal. We look forward to the publication of our data in a peer-reviewed journal in the near future.

We have also initiated the Phase II study in naturally infected patients and look forward to those results as Akshay detailed. We expect to further advance our pipeline by filing an IND by year-end for ALN-VSP for the treatment of liver cancer.

Our other pre-clinical programs include those with ALN-PCS for hypercholesterolemia and ALN-HTT for Huntington's disease and they are progressing very well. Those and other programs will comprise potential INDs in the future, including 2009.

Scientifically, we continue to lead the field by publishing cutting-edge research on RNAi therapeutics. Already this mid-year point of 2008, we have published five papers, nearing our goal of at least 10 publications and actually believe that we will exceed the goal for the year.

As you know, we have already fulfilled our goal of forming two or more major new alliances, thanks to our friends Takeda and Kyowa Hakko and GSK with Regulus. We have updated that goal with new guidance to reflect our expectation that we will sign another two or more additional deals over the next 6 to 18 months.

These deals include potential platform alliances, new product alliances, including those that are geographically focused, significant Regulus partnerships and the formation of new significant businesses, such as our regular spin-off that we formed last year. Across all of these dimensions, we are having excellent discussions with many companies.

It is fair to say that the pharmaceutical industry knows who we are at the most senior level and understands how RNAi can be transformative for our entire industry. We have excellent relations with companies in the pharma space, and are committed to building very successful partnerships, that advance innovative medicines to patients.

On the intellectual property front for goals, as I just discussed, we will continue to expand our leadership position with additional patent issuances and grants around the world. We expect this to continue significantly throughout the rest of the year.

Of course, the same IP dominance applies to our efforts on microRNA Therapeutics with Regulus and also our recent consolidation of IP in the emerging biology of RNA activation. And finally, as Patty mentioned, we now intend to end the year with about $0.5 billion in cash providing many years of runway.

In summary, we have had a remarkable first half of 2008 and our efforts have clearly paid off. We believe we are truly in a unique position in the industry with our leadership in the field of RNAi therapeutics. This leadership is further supported by our substantial cash position and sustainable revenue stream.

Nonetheless, please rest assured that our entire team is as passionate as ever to make a profound impact with our technology for the benefit of patients and their families. So in closing, you can be sure that the second half of this year will certainly be an exciting period.

With that, let me turn the call back over to the operator, so that we can take your questions. Operator?

Question-and-Answer Session


(Operator Instructions). And we will pause for a moment to compile a list of questions. And your first question comes from the line of Sapna Srivastava of Morgan Stanley. Please proceed.

Sapna Srivastava - Morgan Stanley

Question and congratulations.

John Maraganore

Hi, Sapna. How are you?

Sapna Srivastava - Morgan Stanley

Good. How are you?

John Maraganore


Sapna Srivastava - Morgan Stanley

So, I have one question, and probably more [cliché] question. Just in terms of the two or more major new alliances, could you give us some more color on like what kind of deals are you anticipating? And you gave a 6 to 18-month timeframe, just some more color on that as well?

John Maraganore

Absolutely, Sapna, I am very happy to do that, let me make some comments and then invite Jason to make some comments as well. We have many ongoing discussions across the pharma industry, usually a very senior levels of the industry related to the broad alliances that we obviously recognize as being the most value creating alliances such as our platform alliances that we have done with Roche and with Takeda. We also have as part of our strategy in advancing our pipeline, a strategy of partnering Ex-US on our proprietary pipeline programs. And that includes our RSV program, our PCS program, our VSP program, for example.

And we have a number of discussions that are ongoing with very strong interest in the pharma space that if, Kleanthis wants to mention he can comment on, of course not specifics, as it relates to our Regulus effort where we are certainly there still looking at discovery-based alliances with the pharmaceutical industry, and there has been very strong interest in what we are doing. And all of these discussions are going on at this time and they proceed at a pace of development and advancement which is hard to be precise on how they are going forward.

But we are very encouraged by that and that is why we are comfortable and confident in being able to provide the guidance that we provided. Obviously, I think we have got the track record behind us, Sapna to be confident about that type of execution. Jason, Kleanthis any thoughts or comments. Jason, you first.

Jason Rhodes

Yes, and that is absolutely the scope of things that we are pursuing, we continue to pursue them very seriously. And given the strength of our balance sheet to be very disciplined about pursuing partnerships that really create the most value for Alnylam and our shareholders.

John Maraganore

Kleanthis, any comments?

Kleanthis Xanthopoulos

Not really, nothing more to comment on. There is a very strong interest in RNAi Therapeutics and microRNA as part of that from a very large number of pharmaceutical companies.

John Maraganore

I mean, fundamental to all this Sapna, if I could just close the comments, is that the hunger for innovation at a macro level from the pharmaceutical industry is greater than ever. I have never seen a period of time where there is such a strong interest in the innovation that comes from biotechnology. And at the way forefront and at the CEO level of many of these companies is RNAi interference as a transformative technology. And that is a very real statement that we hear directly or we hear obviously from our colleagues.

Sapna Srivastava - Morgan Stanley

John, just a quick follow-up on that as, you know, you gave a scope of very different avenues or [lines] both for you and for Regulus. I mean what is your tilt towards I mean, is it something broader like Roche, Takeda like alliance or is it more like to do a drug-specific partnership or it is just, specially gives some color?

John Maraganore

It is all of the above. It is all the above in ways that are value creating for our overall strategy to build a very significant leading company. And clearly new platform alliances are absolutely in the mix.

Sapna Srivastava - Morgan Stanley

Okay. Thank you.


Your next question comes from the line of Pamela Bassett of Cantor Fitzgerald. Please proceed.

John Maraganore

Hi, Pamela. Hello?


Again, Pamela, your line is now open.

Pamela Bassett - Cantor Fitzgerald

Hi. Can you hear me?

John Maraganore

Yes, we can hear you now.

Pamela Bassett - Cantor Fitzgerald

Sorry about that. I had a little phone trouble. Congratulations on another fantastic quarter. I wonder if you could talk a little bit about the relationship between possibly increasing expenses going forward with these new relationships. What expense increases, if you could review that a little bit, because having to grow the organization perhaps or anything else?

John Maraganore

Sure. Let me make some, a couple introductory comments, and then Patty should take the question. We are actually only a 150 people in this Company, and there is probably not many companies of our size and number of people that have been able to accomplish obviously broad alliances, broad pipeline execution so forth and so on. So, we really have a very lean orientation, a very lean orientation in terms of how we do things.

Frankly, it allows us to move faster because we can make decisions so much more quickly in this type of environment. And the investments that we are making really relate to the advancement of our pipeline, very little investment is linked to any business activities or business development activities.

Some of them relate to one-time payments that come from the percentage of upfront payments that we owe to some of our license source like Isis was a major licensor of Alnylam, but the vast majority sort of the, on an operating basis of our investments are related to pipeline advancement. And so maybe Patty can comment on how you should look at that going forward.

Patty Allen

Sure. Hi, Pamela.

Pamela Bassett - Cantor Fitzgerald


Patty Allen

As John just mentioned, this was actually a pretty high quarter for R&D expenses mainly because we had a couple of one-time items, this quarter related to the $5 million payments to Isis, as John just mentioned and we also incurred a $2 million expense charge for our investment in Tekmira. So, that is about $7 million of one-time expenses.

However, if you look at our R&D expenses as compared to prior quarters and quarters last year, you're most certainly seeing an increase in R&D spend, which is the appropriate thing to do at this stage, as we advance our pipeline for RSV, VSP moving towards IND and our other pre-clinical programs. So, that is what we would expect for the rest of the year.

Pamela Bassett - Cantor Fitzgerald

Okay, great. Thanks very much.

John Maraganore

Thanks, Pamela.


(Operator Instructions). Your next question comes from the line of Alan Carr of Needham.

Alan Carr - Needham

Hi, good afternoon everyone.

John Maraganore

Hi, Alan, how are you?

Alan Carr - Needham

Good, thanks.

John Maraganore


Alan Carr - Needham

A couple questions on your lead programs there, what sort of extra information can you tell us about the RSV program in terms of timelines? I think you mentioned that there were 10 sites open. Can you give us any information on enrollment numbers, when that one might finish, and also what is your guidance for the pediatric trial?

John Maraganore

Okay. So, Alan, let me make a couple of comments and then Akshay, who is joining us on the phone from the UK, can also chime in as well. So, the RSV program in lung transplant patients is accruing actively currently and is accruing well. And in the opening comments that Akshay made, what we said, is that at the next conference call we will provide some more specific guidance on when the accrual will be complete and when data will be available.

And the other reason we do that is, we want to be certain that, we are going to be able to, hit or exceed the timeline, and it is actually, the accrual is going along quite well, but we want to be at a point in time, where we have more precise visibility. There is the nature of this trial, where it depends on the briskness of a given RSV season, either in the northern or southern hemisphere.

So, we believe and have good visibility, certainly today in the southern hemisphere, where we have accrued patients, and previously in the northern hemisphere, when the trial was started, where we also have accrued patients. So, we have done patients and have treated patients on both sides of the equator at this point in time.

And by the next conference call, we will be able to give you much more precise detail on what we will guide you to in terms of that timeline. The other question towards the pediatric is that, that is moving along. We are aiming to be able to start that trial toward the end of this year. We have had excellent discussions with the agency about how that is progressing, and we are encouraged by the path forward therefore by all accounts.

Akshay, do you want to add any more flavor?

Akshay Vaishnaw

No, really not much more to add to that, John, but understanding the level of unmet need that is associated with RSV in the transplant setting translates to very high eagerness in terms of investigated participation and both in the northern and southern hemisphere, we have had no problem accumulating these sites. There are many more sites we could take on it if we needed to. It is gone very well, and as you said, we have accrued patient both in northern and southern hemispheres.

And so far things look very good, and just further reiterating your comments about the pediatric effort, very productive interactions with the regulators on that. They clearly appreciate the importance of RSV as a major pathogen, the highest cause of infant mortality in terms of respiratory virus and regard ALN-RSV01 as a potentially important product that could address that unmet need, and, indeed, we look forward to progressing ALN-RSV01 to pediatric studies by the end of the year.

Alan Carr - Needham

Great. Can I ask another question about the cancer and cholesterol programs?

John Maraganore


Alan Carr - Needham

It looks like the cancer I is clearly moving to the front of the line here, among the two of them.

John Maraganore


Alan Carr - Needham

Now, you obviously have resources to pursue both aggressively. Is there something in terms of delivery or RNAi in general as to why is one indication easier to go after than the other?

John Maraganore

So, Alan, both are progressing very actively and the goal for the year was one, and we have been moving both along quite well. The VSP program does have the benefit in the context of the conduct over GLP studies that the nature of exposure or duration in those type of studies to support INDs and oncology are quite different than the nature and flavor of GLP studies that are needed and used to support clinical trials for a hypercholesterolemia program. So there really are some differences there that edged in favor of the VSP program from a timing execution standpoint, and that's really what you are seeing here.

Alan Carr - Needham

Okay, that makes sense. Thanks very much.


That concludes the Q&A session. I would now like to turn the call back over to the CEO, John Maraganore.

John Maraganore

Thank you. Well, listen thanks everybody for joining us today. We very much look forward to keeping you updated throughout the rest of the year on our progress. And as always, we are very committed to our efforts in bringing new breakthrough therapies to patients based on the discoveries of RNAi and we thank you for your interest in our progress. Thank you very much.


Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have an excellent week.

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