Investor sentiment, not to mention cash, has been draining out of the biotech sector since the spring of this year, leading to unimpressive performance for leading RNAi companies Alnylam Pharmaceuticals (NASDAQ:ALNY) and Isis Pharmaceuticals (ISIS). I won't try to argue that valuations didn't get overheated when news broke that Alnylam and Sanofi (NYSE:SNY) agreed to a large-scale partnership, but the correction since then has gone too far. Interest (and potential competition) in RNAi is picking up again, but I believe Alnylam has more than enough in its own pipeline to remain an attractive story for some time to come.
Second Quarter Financials More Or Less Incidental
Outside of updates regarding cash balances and burn rates, the actual financial part of pre-commercialization biotech quarterly reports tend to be pretty insignificant in terms of driving valuation or stock action. So too, I believe, with Alnylam.
The company ended the quarter with $955 million in cash, with spending on R&D running around $45 million. Management expects R&D spending to pick up in the second half of the year, while the guidance for year-end cash of $825 million (or more) implies a quarterly burn around $65 million. I would expect this burn rate to accelerate in 2015 given the company's clinical trial plans, but even a cash burn of $100M/quarter would leave reasonable breathing room for the next 18 months.
A Slew Of Data Readouts Before Year-End
Alnylam shareholders are going to have plenty of information to process between now and the end of the year. While there is only just so much that can be gleaned or projected from early-stage trial data, these results will play a significant role in shaping the company's trial designs and priorities in 2015 and beyond.
Alnylam expects to report six month clinical data (modified Neuropathy Impairment Score + 7, or mNIS+7) from the Phase II open label extension study of patisiran at the American Neurological Association meeting in October. While the Phase III APOLLO study is already underway on the basis of confidence that TTR knockdown correlates with clinical benefit and relief of symptoms, this will be an important update to reconfirm that link.
A month later, the company will report data from its pilot Phase II study of ALN-TTRsc in familial amyloidotic cardiomyopathy and senile systemic amyloidosis at the American Heart Association meeting. These data should include safety, PK/PD, and some information on cardiac biomarkers (BNP and troponin). There may also be some update from management with respect to other cardiac endpoints to monitor in the future (like echocardiograms or MRI scans). Management remains bullish on this program, as they plan to initiate a Phase III study before year-end.
December will see the American Society of Hematology meeting and Alnylam presentations of Phase I data on ALN-AT3 in hemophilia and ALN-CC5 in complement-mediated disease. The company has already presented data from the Phase Ia part of the ALN-AT3 study, and the drug (the first to use the company's enhanced stabilization chemistry) showed impressive anti-thrombin knockdown (28% to 32%) with a single low dose.
A Busy Clinical Schedule
By the end of 2014, Alnylam should have two compounds in Phase III trials (patisiran and ALN-TTRsc). Phase Ib data on ALN-AT3, if positive, should lead to further development and a Phase II trial in 2015. Management also expects to file an IND for ALN-CC5 before the end of 2014, a CTA for ALN-PCSsc by the end of 2014, and an IND for ALN-AS1 (porphyria) in late 2014 or early 2015. Management also expects to file an IND for a hepatitis B compound around mid-2015.
Both familial amyloid polyneuropathy and familial amyloid cardiomyopathy/senile systemic amyloidosis remain high-potential orphan drug opportunities, with only Isis in serious late-stage clinical development with a potential competitor. Alnylam is partnered with Sanofi for these drugs, but investors are likely looking at an approximately three-year wait before the company files for approval and that's assuming the pivotal studies show sufficient efficacy.
ALN-AT3 is now emerging as the next major driver. Although the hemophilia space is getting crowded with Biogen Idec (NASDAQ:BIIB), Baxter (NYSE:BAX), and Novo Nordisk (NYSE:NVO) all looking to market long-acting hemophilia treatments, Alnylam has an opportunity to carve out a niche in patients with severe forms of the disease and/or inhibitors. I'd note, though, that this is also a disease that is getting more attention as a target for gene therapy, so there is a risk that the market dynamics shift pretty significantly during the course of Alnylam's clinical development.
ALN-PCSsc is also emerging as a potentially more interesting compound for Alnylam and its development partner The Medicines Company (NASDAQ:MDCO). A continuation of Alnylam's prior work in anti-PCSK9, ALN-PCSsc has shown strong PSCK9 knockdown and LDL-C reduction in primates and holds the potential for a more convenient dosing schedule (once/month or possibly once/quarter). Alnylam and The Medicines Company are years behind Sanofi/Regeneron (NASDAQ:REGN) and Amgen (NASDAQ:AMGN) in what is likely to be a crowded market, but there may still be room for a drug that requires fewer injections without compromising efficacy.
Last and not least are the company's efforts in hepatitis B and complement-mediated diseases. Alexion (NASDAQ:ALXN) has gone to some length to talk down the competitive potential of Alnylam's approach, but Alnylam management believes that it's liver-based approach could still have something to offer, as reportedly more than 10% of Alexion's Soliris patients are refractory (not adequately treated/controlled). On the hepatitis side, Alnylam is at least a year behind Arrowhead Research (NASDAQ:ARWR) and the HBV space is getting crowded with interest from Alnylam, Arrowhead, Isis, and Tekmira (TKMR), but Alnylam's very early-stage primate work does suggest it's at least worth a closer look in human studies.
Life In The RNAi Space Is Seldom Boring
This has been a strange year in the RNAi space. Roche (OTCQX:RHHBY) has decided that it's prior decision to abandon work in RNAi was the wrong move and it has not only partnered with Isis on neurodegenerative disease, but has gone from a partnership announcement with Santaris in January to buying the entire company seven months later.
On the flip side, both Merck (NYSE:MRK) and Novartis (NYSE:NVS), former partners/collaborators with Alnylam, have gotten out of the RNAi game with Merck selling its Sirna assets to Alnylam earlier this year. Novartis was reportedly frustrated by its inability to find therapeutic options outside the liver. In contrast, Roche believes that the locked nucleic acid platform technology at Santaris is a key to delivering various RNA therapies to cells outside the liver. For its part, Alnylam management believes that there are more than enough liver-based targets to support its operations for the foreseeable future.
The Bottom Line
I haven't changed anything in my valuation model for Alnylam. I value the shares at almost $90, with patisiran and TTR-02 representing the overwhelming majority of that value estimate. As more data on ALN-AT3 and other programs become available, that could de-risk these programs somewhat and increase their contributions to the overall value estimate.
Investors have cooled on RNAi, with both Isis and Alnylam down on a year-to-date basis. Arrowhead has fared better and Tekmira is up strongly, in part on enthusiasm over its Ebola program. I continue to believe that Alnylam is a high-risk/high-reward biotech with good potential at today's prices, but this is not a stock for investors liable to panic over a 10% move down over a week or two.
Disclosure: The author is long ALNY. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.