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Alnylam Registers to Go Public; SEC Documents Reveal Firm s Private Side


A little more than seven months after Alnylam Pharmaceuticals became the first firm to partner with a big pharma player on RNAi drug development, the company is first again — this time in launching an initial public offering.

Alnylam said last weekend that it has filed with the US Securities and Exchange Commission to float its shares on the NASDAQ under the ticker symbol “ALNY” in an IPO worth up to roughly $86.3 million. The announcement was made concurrently with the release of a preliminary prospectus for the IPO.

Currently, there are only two RNAi drug companies publicly traded in the US — Sirna Therapeutics and CytRx — and both of these were already public when new management came aboard and changed the firms’ focus to the gene silencing technology (see RNAi News, 8/22/2003, and GenomeWeb News, 7/18/2003). Another firm, Australia’s Benitec, plans to begin trading on the NASDAQ soon, but is already traded overseas (see RNAi News, 1/30/2004).

While the IPO window for the biopharmaceutical sector has been reopening slowly since it slammed down in 2001, most biotech companies going public have at least had one product candidate in clinical trials, if not something already on the market. Alnylam, however, is still in the preclinical stages of developing its RNAi-based drugs, and doesn’t expect to have a product candidate in phase I testing until 2005.

“The company has good management, good science, good intellectual property, and good investors,” Gert Caspritz, general partner at venture capital firm Techno Venture Management — which holds about 2.5 million shares of Alnylam rival Sirna — told RNAi News. “I just think there is a consensus in the investment community that upside potential in therapeutic use of RNAi still has to be proven.

“I would be surprised if the majority of the investment community would not think that this is a premature IPO,” he said, adding that while RNAi “works wonderfully as a tool for target validation,” the bar is higher when it comes to applying the technology to drug development.

“When you talk to banks about what the criteria for a therapeutics company to go forward are … they are higher than what Alnylam currently has to offer,” Caspritz said. Sirna, by contrast, already had a foundation when it changed into an RNAi firm, better preparing it for difficulties the nascent RNAi field is likely to encounter, he said.

Despite such naysaying, Alnylam has managed to garner the support of many in the investment community already, in no small part due to its roster of seasoned executives, who came from companies including Millennium Pharmaceuticals and Amgen, and top-name scientific advisors and co-founders, such as Nobel Laureate Phil Sharp; According to Alnylam, it has privately placed about $44.8 million of equity securities.

Alnylam said in a press release that Banc of America Securities will be the sole book-runner and lead manager of the IPO, with Citigroup Global Markets, Piper Jaffray, and ThinkEquity Partners acting as co-managers. The number of shares the company plans to offer and the price of those shares, as well as a date for the IPO, have yet to be determined.

Alnylam representatives, principals, and investors were unable to comment for this article pursuant to SEC regulations. However, some details about Alnylam’s operations have come to light in the company’s preliminary prospectus.

The Money

In the SEC filing, Alnylam broke out its financial results for the year ended Dec. 31, 2003, as well as other financial details. The financial results of Ribopharma — the Kulmbach, Germany-based RNAi company Alnylam bought in July for $1.5 million in cash, about 1.5 million shares of common stock, and the assumption of $7.1 million of debt — have been included in Alnylam’s results beginning with the date of acquisition.

Alnylam reported research and development costs of roughly $13.1 million for 2003, which included about $3 million in salaries and benefits to its 43 employees focused on R&D; stock-based compensation charges of $2.8 million; laboratory costs of $1.9 million; costs to license technology of $1.7 million; and intellectual property-related costs of $1.4 million.

Alnylam recorded about $7.5 million in general and administrative expenses last year, plus $4.6 million in expenses associated with purchased in-process R&D associated with the Ribopharma acquisition.

A portion of Alnylam’s expenses is related to the salaries paid to the company’s executives.

According to the prospectus, Alnylam CEO John Maraganore receives $369,398 annually, plus a bonus of $110,000. In 2003, he also received options to purchase 610,000 shares of Alnylam stock at a price of $0.25 per share. He was also given options to purchase another 183,000 shares of Alnylam stock at $0.25 per share under certain conditions.

Barry Greene, Alnylam COO, is paid $260,000 annually, and is eligible for a bonus of up to 25 percent of his base salary, according to an SEC document filed by Alnylam along with its prospectus. Greene has also received an option to purchase 250,000 shares of Alnylam stock.

Thomas Ulich, senior vice president of R&D at Alnylam, is paid $157,403, with an annual bonus of $46,113. Last year, Ulich received options to buy 300,000 shares of Alnylam stock at $0.25 per share.

Vincent Miles, senior vice president of business development at Alnylam, receives a salary of $107,716 and a yearly bonus of $44,975, and last year was given options to buy 150,000 shares of Alnylam stock at $0.25 per share.

John Conley, former Alnylam CFO, was paid $259,453 last year, and received a bonus of $55,250. Conley resigned from the company at the end of January, according to the prospectus.

Alnylam recorded some revenues during 2003, primarily derived through the Merck collaboration. The company noted that the $2 million it received from Merck is being recorded over the deal’s six-year estimated period of performance.

The company posted a net loss of $25 million, or $15.60 per share, for 2003, and had accumulated a deficit of $29.5 million.

As of Dec. 31, Alnylam had cash and cash equivalents totaling $23.2 million, and total assets worth $35.2 million. Alnylam said that its current resources, along with the net proceeds of the IPO, should allow it to operate under its current plan at least through the end of 2005.

Alnylam said in its IPO prospectus that its current number of authorized shares is approximately 34.7 million, and that it has a total capitalization of $30.3 million. The company also said that its board of directors authorized last week that this number be increased to 125 million. This change was still subject to shareholder approval as of Feb. 27, when the prospectus was issued.

The Merger

When Alnylam merged with Ribopharma, the deal was touted by the companies as a means to create a strong IP portfolio and set the “foundation of a strong product-generating engine for RNAi therapeutics.” While this may be the case, Alnylam was also strongly motivated by other factors, according to the prospectus.

Alnylam said in the prospectus that, in December 2002, it entered into a co-exclusive licensing deal with Garching Innovation — the technology transfer organization of the Max-Planck Society — for the worldwide rights to use and sublicense “certain patented technology.” Specifically, the deal was for two pieces of IP known as the Tuschl-1 and Tuschl-2 patent applications.

Named for one-time Max-Planck researcher and Alnylam co-founder Thomas Tuschl, these patent applications cover the use of short interfering RNAs — 21 to 23 nucleotides in length — to induce RNAi in mammalian cells; and RNAi using siRNAs with two-to-three nucleotide 3’ overhangs on the end, respectively.

In exchange for the co-exclusive rights to Max-Planck’s ownership of the Tuschl patent applications, Alnylam gave Garching a number of shares of preferred stock and agreed to pay royalties on net sales of all therapeutic and prophylactic products developed with the technology.

Alnylam also agreed to establish a “German-based company with comparable operational work force and resources.” Since this German company would also be the other co-exclusive licensee of the Max-Planck technology, by acquiring Ribopharma, Alnylam was able to satisfy its requirement under the contract and obtain full ownership of the Tuschl IP.

Alnylam noted in the prospectus that its contract with Garching only requires them to “operate a German company comparable to our United States operation until at least December 2007.” The company also disclosed that it does not intend to pursue full clinical development of in-process R&D programs purchased through the Ribopharma acquisition.

These two preclinical RNAi programs are in the areas of malignant melanoma and pancreatic cancer, and both are expected to result in a marketable product by 2012, according to Alnylam. However, the company said in it SEC filing that its “intention for these programs is to conduct the first phase of clinical trials and then out-license the programs to a partner,” effectively handing off all costs and responsibilities associated with the efforts.

Given the upcoming conclusion of Alnylam’s responsibilities to operate a German unit and its intention to drop Ribopharma’s drug-development programs, in addition to the expiration of the lease on Ribopharma’s German facilities in June 2008, uncertainty about the future of the subsidairy lingers — at least until the quiet period associated with Alnylam’s IPO concludes.

The Move

Late last year, Alnylam signed a lease on new headquarters in Cambridge, Mass. According to the prospectus, the lease runs to September 2011 and includes 33,000 square feet of space. The company also has another lease on 10,600 square feet of expansion space at the 300 Third Street location, for which it will start paying in September 2005. In a filing with the SEC, Alnylam said that the monthly rent on the new facility is $41.50 per square foot of space through the first four years of the lease, and $45.50 per share foot in the remaining years.

The company said it also has the option to lease an additional 21,100 square feet of office and laboratory space at its new location.

Alnylam plans to move to its new headquarters in April, while its lease on its current headquarters is set to expire in May. The company said that it expects to spend $2.9 million in the first half of 2004 to complete the build out of its new headquarters.



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