Alnylam Pharmaceuticals, Inc. (ALNY) Earnings Call Transcript & Summary

Good morning, next session of this year's GHC. I'm Mani Foroohar, Senior Analyst for Genetic Medicines. And at point I'm hosting Jeff Poulton, CFO of Alnylam. Jeff, how you're doing?

Good. Good to be here with you today, Mani.

Great to have you. Those investing audience for the 100th time, I'm sure you guys have -- after 2 years, you guys are familiar with this as I am. The question you want to send in, of course, you can type in the interface right below my chin on the screen right now. And I'll go ahead and pass it along to Jeff. But I'll start with one of my own. Obviously, there's a lot of squabbling about my TTR study, your TTR study and a lot of confusion about how they're going to behave. So let's talk about the financial implications, presuming vutrisiran will become approved in cardiomyopathy indication, and eventually vutrisiran will enter in cardiomyopathy down the road, will be available and commercialized in polyneuropathy in the near term. Talk about how you think about margin contribution on those 2 drugs? And what are your commercial strategies to either encourage or discourage switching?

Okay. Fantastic. Thanks for the question. So I'll start with the margin question on ONPATTRO versus vutrisiran, and again, initially in hereditary PN. First to look at the royalty burden on the 2 products, both do have royalties payable to Sanofi. ONPATTRO, it's between 15% and 25%. And it's largely for markets ex U.S., ex Canada, ex Western Europe, right? We don't have royalties on ONPATTRO Sanofi for U.S., Canada or Western Europe. But actually ex those markets, we do. That would compare off to vutrisiran, which would be between 15% and 30%. And the 15% to 30% is impacted as sales grow over time as the royalty rates is the same, it ratchets up, and that's on global sales. So in many markets that we're selling vutrisiran, we're paying royalties. So the royalty burden is higher on vutri than it is ONPATTRO. The second thing to look at then is the cost of goods sold, these are different products. ONPATTRO's an LNP that delivers products in every 3-week IV-infused drug. Vutri is a GalNAc, once a quarter subcu, hopefully will be once every 6 months. So it's got a lower cost of goods sold. Vutri from a cost of manufacturing perspective at a lower cost than ONPATTRO. So you now all add together and the margins on ONPATTRO are likely somewhere in the range of sort of high single digit to 10% better than they are on vutrisiran. However, we think given the profile of vutrisiran that that's going to grow the overall franchise, such that the absolute sort of gross margin dollars that we generate as a result [ have the prospect ] of the market are beneficial to the franchise overall. So that's the margin question. In terms of what the dynamics might look like when we launched, so let me just sort of set the table again here. So in 2021 for ONPATTRO, we did $475 million in revenue, got over -- I think it's over 2,050 patients on commercial therapy at the end of the year and still robust growth. 55% growth year-over-year for ONPATTRO. So now we're going to be adding, hopefully, a second product to the franchise, and that's how we think about it now as a franchise. And the first opportunity, hopefully, to begin commercializing the vutrisiran within the U.S. So we've got an April 14 PDUFA date. We do expect approval likely in Europe and Japan by the end of the year, but likely no revenue contribution outside of the U.S. for vutrisiran. So it's really just a U.S. issue for 2022. Look, we think, given the profile of vutrisiran which I already mentioned, is a once-a-quarter subcu compared to ONPATTRO, which is an every 3-week IV product, certainly, we think the vast majority of new patients that are going on therapy post-vutri launch in the U.S. will prefer to go on vutrisiran just given the lower treatment burden. We've had -- however, we've had patients on ONPATTRO now going on, I think, 8 years for those that entered the clinical studies earliest. And what we've seen with that product in terms of compliance rates is, frankly, is pretty remarkable, more than 90% treatment compliance for a drug that's in every 3-week IV-infused drug. I think that speaks to the experience that the patients are having on the therapy that they're that motivated to stay that compliant. So I think there's going to be some stickiness with ONPATTRO. I think there's going to be some patients that have been on it for a while, they are elderly patients. It's working for them. Some of them actually prefer maybe the high-touch approach there. Every 3 weeks, you're going into infusion center with nurses. You're maybe doing -- there's a social element to that with other patients. So there will be some stickiness there. I think there's going to be some ONPATTRO patients that are probably going to want to get to vutri to lower the treatment burden as fast as possible. But we'll see how that plays out over time. I anticipate that when we start reporting results for both products, we'll try and give the market as much detail as we can about the patients that are on vutri and how many of them are new to treatment versus how many are -- switches from ONPATTRO. I do think from an investor standpoint, the way to think about this going forward, though, is to look at it as a franchise and sort of combining the numbers together in terms of understanding performance. Again, we'll give you the detail for both products, but I think that's going to be the way to think about it. So hopefully, that provides some clarity on what to expect when we launch the second product here.

No. That's certainly helpful. One of the other questions -- and this is in part more broadly on RNAi therapeutics to the subcu. There's an avenue to make these therapies entirely self-administered versus some that are office-administered despite being subcu. That, for example, is a strategy, a lot of place has taken by a partner for [ the care ]. How do you think about the appropriateness of something like a vutrisiran moving into in-home patient, self-administration, something they just keep in the fridge and they get every 2 months as opposed to something where they go into the office?

Yes. It's a good question. I think that -- let's just talk about reimbursement for a second before we talk about patient convenience. But from a reimbursement perspective, having it as a physician-administered product makes it a Part B Medicare drug, which has some advantages from an out-of-pocket perspective for patients. So we do think that's a good positive thing for the patient communities where we've got products that are Part B-administered drugs. I think whether it's self-administered or whether a physician administered, I think one of the other factors there is probably how frequently it needs to be administered. For a product like vutrisiran, we're talking about once a quarter, hopefully, move into once every 6 months. I think that profile actually makes more sense to be physician-administered, particularly in the type of patient population we're talking about there, an elderly patient population. And going in once a quarter or twice a year lines up pretty closely with how often these types of patients are having to see their physicians as well. So not really a big inconvenience issue. But those are the kinds of things that we would think about. There's multiple factors there. Again, reimbursement, out-of-pocket impact, convenience, et cetera. Those are the things that we think about as we make those decisions.

Yes. I mean I was thinking about it in terms of taking this lesson -- and so what does this tell us about is it the right form factor and setting for delivery for hypertension, which is a different number -- which is a much different number of patients. Even if you talk about multi-agent refractory hypertension, that's still a different number of patients than TTR. So I mean how do you think about a larger population like that? And is that a place where you want to be at home from the start? Or are those patients still seeing their physicians often enough that it's just easier to go there?

I mean I think we're going to -- it's is going to be interesting and very instructive to watch the experience that Novartis has with LEQVIO, right, which is a once every 6 months for hypercholesteremia. I mean that's a Part B drug. So those patients are going to be largely going in to see their physician to have that administered once every 6 months. And again, I think that Part B aspect of it is pretty meaningful in terms of out-of-pocket impact. So look, I think that, that model could work very well for a zilebesiran and hypertension as well. We're studying multiple doses in the KARDIA-1, which is one of the Phase II studies we're looking at quarterly and an every 6-month dosing. And so I think that model could work well. Again, I think we're going to learn a lot in terms of the experience that Novartis has commercially and how well that model works in terms of thinking about this. They're really changing -- potentially changing the way hypercholesteremia is treated. They're looking at this sort of from a population-level approach. You saw that with the deal that they signed in the U.K. And so again, we're going to learn a lot about that over the next several years. They've recently gotten the approval in the U.S., and so we'll start to see hopefully some progress there as well. But I think we could think about zilebesiran down the road in a very similar way commercially perhaps.

That makes sense to me. That makes sense to me. Hopping from the product side to the financial management side of the balance sheet, like the cost of capital. Obviously, you and I had talked last year, I remember, about the opportunity to bring your cost of capital down, and it's drifted down over time throughout your tenure. Obviously, accessing debt markets has gotten messier. It certainly wouldn't be a challenge if the numbers are different. How do you think about where we are now and the opportunities to finance Alnylam at an even more attractive cost of capital than where you are now?

Yes. I mean the first thing I'll start with is I'm happy with our balance sheet today, right, in terms of the amount of cash that we've got on the balance sheet, and we think that's enough cash to get us to a breakeven situation where we're not going to have to go out and issue additional equity to continue to fund our operations. So that's a really good place to be given the sort of current state of the financial markets, and I'd start there. You're right. I recall the conversation that we had previously. We've got $700 million of debt on the balance sheet. Now that's fully drawn. So that was the credit facility that we put in place as part of the Blackstone deal 1.5 years or so ago now, 2 years ago now. And that's funded right now at about an 8% interest rate, right? So not cheap debt by any measure, but certainly cheaper capital than incremental equity. I think as the business continues to progress and move towards profitability, I think the options to refinance that or continue to move the balance sheet in a direction of a lower cost of capital, our options become greater as we move towards profitability. So those are things that we're already thinking about now at some point that I'm going to be able to do cheaper debt than what I've got on the balance sheet today. So again, that will evolve over time as we progress the operations and move towards profitability.

That makes sense to me. So I guess I'm hitting the line between the income statement where we started at revenue line and hopped down to the interest line, I skipped all of OpEx. That's probably not the right answer. How should we think about incremental buildout ahead into vutrisiran launch, if any? And you talked about the COGS line, but there should be some countervailing operational leverage as you have 2 products in the same bag. So to what extent does that sort of counteract that COGS headwind from the royalty?

Yes. Let me just talk about the guidance that we gave on operating expenses. So I think we gave combined R&D, an SG&A operating expense guidance on, I'll call, non-GAAP that reflects -- would reflect 18% year-over-year growth of between $1.4 billion and $1.5 billion. And we don't break out the R&D guidance separate from the SG&A guidance, but I did say on the call that the growth in R&D would be higher than the growth in SG&A year-over-year, which is similar to what we -- the profile from '21. I think the numbers -- our R&D and SG&A non-GAAP OpEx grew 16% in '21, and that was 19% R&D and 12% SG&A. I would expect something similar in '22. And let's just talk about the drivers of growth for both. On the R&D side, it's the progression of zilebesiran. We've touched on that a couple of times. We've got 2 Phase II studies that are just ramping up now, one with about 375 patients, which is KARDIA-1, which is a monotherapy sort of dose ranging study. And then the bigger study is the KARDIA-2 which is the combination study, about 800 patients there. So that -- as we ramp and enroll those studies, that's going to generate growth and OpEx for R&D year-over-year. And then I would say the earlier part of the pipeline is also generating some growth year-over-year. So we'll have a couple of Phase I studies being initiated here, ALN-APP, which is our first CNS program, and then ALN-XDH, which is our program for gout. And then just the activity, frankly, preclinically that we have ongoing with Regeneron is also going to drive incremental growth. So those are sort of the growers in R&D. In SG&A, I think the SG&A, we've been focused on trying to really leverage what we've built over the last 3 or 4 years because we aggressively built out the commercial infrastructure initially around the ONPATTRO launch because we knew that we planned to have 2 or 3 products launched in close succession. We knew that with the types of products that they work, that these were products that we could successfully commercialize globally. And we wanted to own the rights and launch those globally. So we've been trying to, I think, have more moderate growth in SG&A given that initial significant ramp in growth there. This year, I think given that we are going to be launching our fourth product, vutrisiran, there will be some incremental growth around that. Again, we're just launching that in the U.S. this year, likely not any launches ex U.S. until the following year. Again, there will be incremental investment there, but we're going to be able to leverage a lot of what we've already built. And as you said, right, it's going to have a very similar label to ONPATTRO. And so in terms of resourcing and things like that, we're going to leverage a lot of the resources that we already got in place, and we do think about it as a franchise. So hopefully, that's helpful.

No. That is -- another question I got in from the investing audience. Obviously, the use of LNPs to deliver some RNA therapeutics broadly has expanded enormously during the pandemic. I mean different technology than you guys. But still, the -- like the LNP side of it is pretty similar. There have been some product input challenges for the vaccine companies, obviously are operating in a different population scale than you guys are. Are you seeing any pricing impact on any of the inputs that go into ONPATTRO on the LNP basis? Or is that a small enough part of the COGS that it just gets washed away?

Yes. I'd say that's a small enough COGS where it's not a meaningful driver for us. I mean I think just -- are we seeing inflationary impacts on some the business as a sort of obvious question. I think the answer is, yes. I mean we're seeing some of that. I mean this is where, frankly, we're a strong procurement operation plays a really important role in terms of working with the business and working with vendors to sort of challenge that and really understand where they might be having increases in costs that they are looking to pass along. And so we're working hard to manage that situation, make sure that we get as big a bang for the buck as we can. But I don't think we've seen anything, Mani, around the LNP space that's going to be significant enough to drive any kind of step change in margins that were -- that we've been recognizing.

That makes sense. That makes sense. We talked a little bit about the CNS side of the platform, moving a little bit more before. Obviously, less mature than the liver-targeted platform, but that's to be expected. Presuming that we see what we hope to see from ALN-APP, et cetera, over time, should we be thinking of the CNS side of the platform as producing an equivalent number of INDs to what we're seeing on the GalNAc? Or is it just -- is it less target-rich than the liver? Is it more target-rich? Like how are you thinking about budgeting human capital as well as financial capital between these different approaches and these different targets?

Yes. I mean we're excited about getting into clinic with APP and getting the data readout by the end of the year, obviously, very important for -- given that it's the first foray into the CNS. We do think that there's lots of opportunities longer term in CNS. And frankly, this is one of the main reasons we put the collaboration together with Regeneron. I guess it's been almost 3 years ago now. And so we're generating right now 2 to 4 new INDs a year, just sort of rough guidelines as we think 1 to 2 of those will be Regeneron related, and the other 1 to 2 are sort of -- would be wholly owned opportunities for Alnylam. And we think that increases to 4-plus by the end of this 5-year period. The Regeneron collaboration -- again, it's CNS and it's ocular. So that 1 to 2 that we think right now is sort of a rough guide. You're going to have both CNS and ocular programs starting to move forward there. So we see lots of opportunity here for sure in CNS.

That makes sense to me. One of the other dynamics that we talk about a lot is the fact that you guys have this tremendous discovery engine, but not everything belongs in your hands. You're moving towards more and more large market indications. Is there a limit? Is there some level of -- some type of indication that you're just like "you know what, we don't really want to go into every GP's office in the world." that can be Pfizer's Problem, any large pharma partner [indiscernible]. I'm trying to get a sense of the where the edges are in terms of what you think your wheelhouse and your commercial like [ circle ] of excellence.

Yes. I mean just a couple of ways, I think, to sort of get at this. One is, again, given the financial goals that we've put out as part of P^5x25. One of those is getting to profitability, right, get to profitability by the end of the period. So we have to make choices, right, to get there. Again, we're not trying to get the profitability as fast as we can, trying to get there in a way. When we get there, that it's sustainable. But it does require us to make certain choices, right, about what we're going to invest in and what we're not going to invest in. And I actually think that the fact that it does create that dynamic where we have to make choices because we have more to invest in than we -- if we want to get to profitability, we've got to make those choices. So we will make those choices, right? So that will factor into those kinds of decisions. Now as it relates to prevalent disease indications and our desire to have those as wholly owned programs, certainly, zilebesiran is the one that's most advanced, and we've talked about the fact that right now, that is a wholly owned program. And as we think about that program potentially advancing towards the market, obviously, we're going to learn a lot more about what that profile looks like and how it might be positioned in the market after we get a Phase II study. But that could be an area where we've got a fair amount of commercial infrastructure already in place, right? Because of the -- hopefully, if we got success in APOLLO-B and HELIOS-B, we'll be building out more commercial infrastructure to promote and sell products into the cardiology offices. And so that's something that could be leveraged with zilebesiran. Now if it's presented as a kind of a first-line therapy, and it's a product that needs to be sold in primary care physicians offices, that's likely not something that we would build out or entertain commercially, and we would consider a partnership in a situation like that.

So along those same lines, like there's -- so you guys don't need "to partner" or anything to get to profitability. Now that's [ how you model ]...

Yes. I mean I don't think we're going to do -- it doesn't -- we're not going to be motivated to do partnerships purely for financial reasons, like in terms of cash and bolstering the balance sheet. We think we have what we need in terms of cash in the balance sheet today. It doesn't mean that we won't entertain partnerships for other reasons, but it's not going to be for financing reasons, per se.

Yes. It's exactly where I was going. When you -- so obviously, what does the role of partnership BD? Because there's obviously demand for RNAi technology in large capital. We've seen that with partnerships, yourself, Arrowhead, et cetera, the Dicerna acquisition by one of their partners. There's obviously a hunger to have -- for a de-risked technology like this out there -- but you kind of don't need these partnerships. So how do you think about what the role of that is, how much of the [ major team's ] time to be spent on it, like to justify.

Yes. I mean it's a fair question. And I agree with what you said. We don't need it. We don't need it financially because of, frankly, the Blackstone deal and how that's positioned our balance sheet, and the trajectory that we think we're on from a commercial perspective. We don't think we need strategic partnerships from a financial perspective to get us to where we're trying to go. Now does that mean that we won't consider them? No, I think we would consider them opportunistically. If there is a partnership where a partner would bring a certain expertise that we think would be valuable for a program, that's something we would consider. If there were a desire to sort of risk balance things a little bit depending on what type of area that we're talking about, would we consider it? We would. But it's not a driver strategically. Partnerships or M&A is not a driver for the organization. We have enough to invest in with our platform that we can just focus on that. And I think that's fantastic, the ability to focus and the ability to grow organically. And the P^5x25 goals that we put out in terms of financial goals weren't required or didn't include or weren't dependent on doing deals to get us there. That's really built based on what's in our own hands in terms of our ability to drive these programs.

That makes sense. I'm hopping over to another question about the role of OXLUMO, and expanding that mechanism into stone formation outside of the genetically defined PH population. That's obviously -- it's a tougher market to define in part because you can't just test people and say, hey, [ they lack ] . Scale that out from how you guys think of that opportunity for us. And like what population of those patients should we think about that from a revenue perspective? I know it's a little bit of an R&D question and a little bit of a market-sizing question.

Yes. Let me start in terms of the sort of sizing of the market for you. And we are -- the plan is to initiate a Phase II study here in recurrent stone formers. The opportunity is significant. We think that there's about 10% of patients who -- there's about 10% of the population -- of adult population that experiences kidney stones, and then roughly somewhere in the 25% to 30% of those patients are recurring kidney stones -- or have recurrent kidney stones. So that's the opportunity set that we're talking about, right, in terms of the size of the opportunity. So obviously, relative to the PH1 population, it's orders of magnitude larger in terms of potential market opportunity. So we're going to learn a lot more in the Phase II study about whether or not this is a therapy that can work in that population and whether or not it makes sense to continue to invest. But that's the idea. It's substantially larger opportunity.

That makes sense to me. That makes sense to me. We're approaching the end of this 30 minutes here. We spent a lot of this time talking about margin structure, execution, et cetera. One of the other questions that I get a lot is, at what point does it make sense for Alnylam to approach partnering from the other side? Are there delivery technologies that you guys look at and say, you know what, that would be useful for RNAi, we should be acquiring that, we should be partnering that in? Are there places where you guys look externally, technology, to expand the reach of RNAi?

Yes. It's a good question. I think the answer is yes. And I think the PeptiDream collaboration that we did, I think it was earlier in '21, is a good example of that. And that's exactly what that's about. It's looking at new and innovative ways to deliver our technology to different tissue types. And so from a BD perspective, certainly, those are the kinds of things that we keep a close eye on in the market. Are there enabling technologies that could further enable our success with RNAi? So that, to me, is sort of right in line with the question you're asking, that type of deal that we did. I think it was early last year, we announced that collaboration.

No. That makes a lot of sense to me. I think that's like another place where in the day, like your gene editing counterparts, like that's an open debate. [indiscernible] huge debate. So I'm getting the "Mani, we're out of time" message. Jeff, thank you so much. It's been a great conversation. Always a pleasure, and looking forward to seeing more from you guys throughout the year.

Thanks, Mani. Thanks for your questions.

Great. Pleasure as always.

Take care.