The last twelve months haven’t been particularly good in terms of market performance for Alnylam Pharmaceuticals (ALNY), and that hasn’t really changed much over the last three months either, as the shares continue to lag biotech indices. With top-line Phase III givosiran data looking good on efficacy but leaving some questions as to safety, the ENVISION study hasn’t been much of a catalyst and that may be the case for a little while longer. I do believe these shares remain undervalued, though, and offer some attractive long-term upside.
Givosiran – Not A Home Run, But Maybe A Triple?
Last week’s top-line data release from the Phase III ENVISION study of givosiran in porphyria wasn’t an event where the odds skewed particularly favorably for a strong positive share price reaction. It was pretty much taken as a given by most investors and analysts that the drug was effective, and the real question was going to be how the safety data looked – particularly as a high level of severe adverse events (including one discontinuation due to liver enzyme elevation) led the company to abandon its initial plan for an early approval filing based on interim data.
The data that Alnylam offered, while incomplete, was good but certainly not perfect. The drug easily met the primary endpoint of a reduction in porphyria attacks, and I believe the data support the notion that patients taking givosiran can expect to see a marked reduction in attacks. The drug also hit most of its secondary trial endpoints, including urinary ALA and PBG levels, and the amount of hemin patients took to manage their disease. The drug did miss several secondary efficacy endpoints, though, including pain, fatigue, nausea, and a physical component summary (though the pain and physical component summary were “near misses” statistically speaking).
The problem, then and now, was a less than clean safety profile. There was a definite increase in serious adverse events in the givosiran arm, with 21% of patients experiencing an SAE versus 9% in the placebo group, including 10% experiencing chronic kidney disease (versus none in the placebo group) and 15% experiencing liver enzyme elevation (versus 2% in the placebo group). Only one patient discontinued the study (due to liver enzyme elevation), while another experienced a brief pause in dosing to manage liver enzyme elevation, and all but one eligible patient continued into the open-label extension study.
Safety Should Be Seen As Relative
Safety concerns have dogged RNAi therapy development for some time, and this is not Alnylam’s first brush with safety concerns. Revusiran failed late in development due to a still-not-understood elevated mortality rate in the drug group, ALN-AAT was shelved due to safety concerns (a follow-on drug is now in the pipeline), Onpattro requires steroids at the time of administration to manage infusion-related side effects, and modest liver enzyme elevation has been seen with other compounds.
Still, I think some perspective is in order. In the givosiran study, all of the patients experiencing more serious kidney side effects had renal dysfunction going into the study and none required dialysis nor discontinued the study. What’s more, porphyria can be a miserable disease in its more severe forms, causing serious pain, vomiting, psychological side effects and sometimes seizures and/or paralysis. Likewise, all of the patients that had serious liver enzyme elevation started the study with iron overload and/or liver disease.
I think it makes sense to wait for the full data presentation (at EASL in April), particularly to learn more details about the patients who experienced more severe side effects, but I think the risk/benefit trade-off still favors givosiran. Kidney issues are commonplace with symptomatic porphyria patients (I’ve seen estimates that more than half of symptomatic patients have some degree of chronic kidney disease), and this may well amount to little more than more careful monitoring for those patients with kidney dysfunction (again, none of the trial patients required dialysis nor stopped taking the drug).
Other Odds And Ends
Since my last update on Alnylam, there have been a few other items of note. Most recently, the company filed a clinical trial authorization (or CTA) application in the U.K. to begin Phase I testing of ALN-AGT for hypertension. This is all as expected, as management had previously indicated its intention to begin human studies around mid-2019.
The company also announced fourth-quarter earnings that were in line with the company’s January presentation at a major sell-side healthcare conference. The company continues to make progress identifying and starting patients on Onpattro, as well as signing commercial payers to value-based reimbursement agreements.
As far as clinical activity goes, the company should have top-line data from the Phase III ILLUMINATE-A study of lumasiran before year-end, and investors should also see Phase III read-outs from Alnylam’s partners The Medicines Company (MDCO) (inclisiran) and Sanofi (SNY) (fitusiran), and both compounds may be a bit under the radar in terms of their potential revenue benefits to Alnylam, to say nothing about adding to the safety database for RNAi therapies.
With the givosiran data in hand, I’ve increased my estimated odds for approval and commercialization, and modestly adjusted my market share assumption (to account for some exclusion of patients with more serious kidney and/or liver disease). I’ve also made some tweaks to my assumptions for the other pipeline drugs, but these are “housekeeping” adjustments and not related to any real change in the thesis.
I expect revenue from the amyloidosis franchise to peak at around $2 billion (probability-adjusted and net of the royalties to Sanofi), with Onpattro giving way to vutrisiran (ALN-TTRsc02) based on the latter’s better dosing. I’m also expecting around $300 million to $400 million in royalties, probability-adjusted, from both inclisiran and fitusiran. I model around $750 million in probability-adjusted revenue from givosiran and less than $300 million from lumasiran, though I believe those drugs could have similar peak revenue (the difference being there’s less data on lumasiran to drive a higher approval probability).
With the exception of inclisiran, I expect six-figure pricing for Alnylam’s pipeline, though fitusiran pricing will likely be lower than the $300K+/yr I model for Onpattro, vitusiran, givosiran, and lumasiran. I likewise expect low 70%s gross margins and operating margins in the low 50%s in the 2028-2030 timeframe.
I’ve also incorporated the impact of the company’s mid-January equity raise, which brought the company’s cash balance to $1.5 billion. Management said that would cover about two years of cash burn, which fits my modeling assumptions, and I estimate that Alnylam will need to raise another $500 million or so to cover estimated cash burn before going free cash flow positive (assuming around $550M to $600M in R&D spending and $400M-plus in SG&A spending post-2020). With that in mind, I’d expect at least one financing round, ideally on the back of good news that spikes the share price, though an alternative like convertible debt would be plausible.
All told, my fair value drops to about $128, with about half of the change coming from the equity raise, a quarter from a slower/longer ramp to peak sales for the amyloidosis program, and adjustments to other programs including givosiran.
The Bottom Line
Alnylam has been a volatile stock for some time, and to some extent that’s just the nature of biotech. I do believe, though, that the company has successfully built a sizable and promising pipeline, and I believe today’s share price doesn’t fully reflect the value of that pipeline. With givosiran likely to reach the market in 2020 and the company just beginning to move into CNS disease, I believe there are still strong arguments for owning these shares.
Disclosure: I am/we are long ALNY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.