Will Alnylam Raise Money Soon?

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There's an old adage in biotech that says you raise money when you can, regardless of whether you really need it at the moment. With very strong early-stage data in hand on lead compound ALN-TTR02, Alnylam Pharmaceuticals (ALNY) may well be considering whether it is time to raise money again.

Strong Data Spikes The Shares

It was just a week ago when I wrote that investors would soon have market-moving data to look at from Alnylam, as the company was due to report Phase 1 data on its ALN-TTR02 drug for transthyretin-mediated amyloidosis.

Based on an earlier study of predecessor compound ALN-TTR01, there was reason to expect strong results, but Alnylam outdid even those expectations. While TTR01 showed about 41% average nadir TTR knockdown, TTR02 showed 82-94% knockdown after just a single dose. It was also noteworthy to see how quickly the drug worked - 50% knockdown occurred within 3 days of administration. Topping it all off, there were no major side-effects seen from the drug (acute infusion reactions are not generally considered serious or significant, particularly if they respond to a slower infusion rate).

With this news in hand, the shares are up one-third on an otherwise mediocre day in the market. While investors will almost certainly ask how this data compares to that from Pfizer's (PFE) Vyndaqel, the fact is that that question is almost impossible to answer right now - the Alnylam study not only was not a head-to-head study against Vyndaqel, but did not use similar endpoints like neurologic function/impairment, nutritional status, or large/small fiber function. While such strong knockdown suggests strong efficacy, those metrics still have to be proven.

Next Step(s)?

This data is clearly encouraging and it certainly supports an accelerated development timeline. The company will need to do a Phase 2 repeat dosing study, but the company could be in pivotal trials with TTR-02 by the second half of 2013 and the drug could be on the market in 2015 if the efficacy and safety remain strong (and given that this is Phase 1 data, that is a big "if").

The next clinical development steps for Alnylam may well be partnering discussions - most analysts expect the company to partner ALN-PCS (hypercholesterolemia), ALN-HPN (anemia), and ALN-TMP (blood disorders) with larger companies. With complete Phase 1 data expected out on ALN-PCS this quarter, a partnering announcement could occur before year-end assuming the data is strong enough. With Amgen (AMGN) and Regeneron (REGN) also targeting the same PCSK9 pathway, there could be a "keeping up with the Jones" aspect to an Alnylam partnership, but time will tell.

Alnylam can't really control partnership interest. What Alnylam management can control is the decision to leverage this good news into another round of capital-raising. With the stock up strongly on this announcement (and strong year-to-date), it would seem like a relatively favorable time to "top off the tanks", so to speak. Moreover, it would be unusual for Alnylam to get sizable upfront payments from any of the previously-mentioned partnering candidates given their early stage of development. Consequently, even just a small secondary (on the order of 5 million shares) could be worthwhile.

The Bottom Line

With strong initial data in on TTR02, maybe it's worth reconsidering the value proposition on Alnylam shares. I had previously estimated that TTR02 was worth about $6.50 per share on the basis of a 35% discount rate and $500 million in revenue. De-risking the drug to the tune of a 30% discount rate would add almost $2.50 per share in value.

Expanding the potential revenue, though, has an even bigger impact. There are an estimated 5,000 to 10,000 in the immediately addressable market, and thousands more in potential follow-on indications. The original $500 million number assumes about 2,750 patients, but boosting that to 5,000 would move the revenue estimate to $900 million and the per-share value to $16 from this one drug alone.

I would not get too aggressive with revenue projections and discount rates at this point, as this is still Phase 1 data and Alnylam has a long way to go. That said, I remain bullish on these shares and while I don't love the dilution of a possible follow-on offering, I cannot fault management for wanting to make hay while the sun shines.

Disclosure: I am long ALNY.