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Alnylam Pharmaceuticals Beats Again, But The Bar Keeps Moving Higher

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About: Alnylam Pharmaceuticals, Inc. (ALNY), Includes: DRNA, NVS, PFE, SNY
by: Stephen Simpson, CFA
Stephen Simpson, CFA
Long only, growth at reasonable price, value, research analyst
Summary

Alnylam announced modestly better than expected Onpattro sales for the fourth quarter, and highlighted near-term commercial opportunities in Japan and Brazil.

The company's JPMorgan conference presentation was otherwise pretty short on new, stock-moving information, but the company has multiple commercialization opportunities to follow in 2020 and 2021.

Alnylam shares remain undervalued below $150.

Closing the books on a very successful 2019, Alnylam (ALNY) didn’t offer all that much that was new at the JPMorgan Healthcare conference, and that more than anything may well explain why the stock didn’t perform particularly well after the company’s presentation. It looks to me as though a lot of stocks, particularly in biotech, were set up for a “buy into the conference, sell during the presentation” trade, as there hasn’t yet been much in the way of thesis-changing news (let alone the M&A activity some were hoping for) coming out of the meeting.

Turning back to Alnylam, though, there’s still a great deal to like about this biotech. Last year saw several successful trial read-outs, particularly the extensive trials done by The Medicines Co (now owned by Novartis (NVS)) for inclisian, largely de-risk the company’s platform, and other studies have validated the company’s new delivery chemistry – chemistry that should prove key in targeting diseases outside the liver. On top of all that, the company has a well-balanced pipeline with two drugs lined up for possible approval in 2020 and multiple compounds in Phase III and Phase II testing.

Onpattro Finishes Strong

Alnylam has seen a somewhat wobbly launch trajectory for Onpattro, which I attribute both to challenges in transitioning to patients outside the early access program as well as Pfizer’s (PFE) launch of Vyndaqel. The company ended 2019 on a stronger note, though, with Onpattro sales up 22% sequentially and about 5% better than expected.

I have no doubt that some investors will lament that Onpattro sales beat by “only” 5%, but it is worth remembering that this drug is still early in its commercialization trajectory. The drug has been available in Japan for only a relatively short time, and the company is just now starting commercialization activities in Brazil – a market that won’t support the same robust pricing as the U.S., Europe, or Japan, but where the underlying population demographics should be favorable.

I’d also note some ongoing quarter to quarter turbulence in the sources of Alnylam’s new start forms for Onpattro. In the fourth quarter, the company saw 44% of its new start forms come from cardiologists (versus 38% from neurologists), and these percentages of moved around a lot. Personally, I read very little into it and I think it’s a byproduct of the relatively small number of people in the patient pool.

Looking To The Next Launches

The FDA approved Givlaari more quickly than expected, but the company was able to adapt and begin commercialization activities promptly. The company ended the quarter with $0.2M in revenue and 13 start forms in hand.

I continue to believe that Givlaari will generate more than $750 million in peak revenue (and perhaps meaningfully more), but it will take time to identify patients and get them on the drug. To that end, I’m not expecting much more than $30 million to $35 million in 2020 revenue.

Longer term, the key will be working with doctors and patients to build awareness of the disease and the drug, as well as working with doctors, patients, and payers to potentially get the drug prescribed, paid for, and used in patients with less severe porphyria. While my core assumption is based on strong penetration in the severe porphyria patient population, successfully penetrating the “moderate to severe” patient group could boost the revenue potential toward $1 billion.

Lumasiran, for which the company has started its FDA submission process, will likely be a similar situation, complicated at least in part by the likely presence in the market of a viable competitor (Dicerna (DRNA)). The company had little new to say about lumasiran, though it sounded to me as though the company might have talked down the timing of the approval a bit in the breakout session, though the company still expects approval in 2020. I think it will take about three years for this drug to start annualizing at $100M in revenue, so likely in the third or fourth quarter of 2023.

The FDA is also likely to approve inclisiran in 2020, and with Novartis now handling that drug and its commercial launch, I’m not all that concerned about execution on commercialization. I expect peak royalties to Alnylam of somewhere around $350 million, but that’s more than 10 years from now. In the near term, I expect a trivial amount of revenue in 2020 and likely less than $100 million per year until 2023.

Fitusiran, which is under Sanofi’s (SNY) control, will likely be submitted for approval in 2021, leading to a 2021/2022 approval based upon submission timing. Given the options already available in the market for hemophilia, I wouldn’t expect the FDA to be in quite the same hurry to approve this drug, and the FDA administration/operating philosophy may well be different by then anyway. I see the potential here as on par with inclisiran, though with upside depending on the final read-outs of the pivotal studies.

The Outlook

With no new clinical information, partnerships, or other exciting news, I’m not too surprised that the market reaction to Alnylam’s JPMorgan presentation was basically a yawn. There are still plenty of questions and doubts about the real peak sales potential of Onpattro that aren’t answerable in a single quarter, and quite a lot is riding on both the cardiomyopathy study of the drug (APOLLO-B) and the clinical success of vitusiran across the spectrum of ATTR. I believe Alnylam will find success here over time, but clearly there are still valid doubts.

As far as the overall company value goes, I continue to see fair value around $150, with the ATTR platform (Onpattro and vitusrian) driving about half of that. There is a collection of early-stage assets here that could drive meaningful value creation if and when incremental clinical data supports improved commercialization odds, but that won’t happen all at once, and it’s highly likely a few will fall by the wayside. What I’m calling the second generation, Givlaari, lumasiran, and inclisiran combine for about $50/share of value in model.

The Bottom Line

The biotech market seems to be selling off in the absence of M&A announcements out of JPMorgan, and that’s just the nature of this volatile sector. I don’t believe anything has occurred to diminish the value of Alnylam, though, and I believe the shares remain undervalued today.

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.