Alnylam Pharmaceuticals From Possibilities to Patients

PRESENTED BY SEAN YOSHIDA, SEUNGCHAN LEE, DUC NGO, DANIEL SHIN

Company Description

Corporation Financials

Industry Overview

THE CORPORATION

COMPANY DESCRIPTION

Alnylam pharmaceuticals is still operating as a development-stage company. As such, its profitability comes from its progress in its R&D and partnerships with other pharmaceutical companies. The company’s “Alnylam 2020” vision projects that the company will have three drugs on the market and 10 drugs in various stages of clinical development by 2020, four of which are in Phase II/III Clinical Trials. In addition, Alnylam has partnered up with multiple other companies and organizations to further advance in R&D. These companies include: The Alpha-1 Project, Genzyme, Merck, The Medicines Company, Monsanto, Ascletis Pharmaceuticals, Arrowhead Research Corporation, Kyowa Hakko Kirin Co., Takeda Pharmaceutical Company, Regulus Therapeutics, Novartis, Medtronic, and Ionis Pharmaceuticals.

Alnylam is currently in a pre-commercial stage with an extensive product pipeline based on RNAi therapeutics. RNAi therapeutics offer a new class of medicines not utilized by other pharmaceutical companies. Products in development at Alnylam are focused on treating genetic diseases, cardio-metabolic diseases, and hepatic infectious diseases. Alnylam’s most advanced drugs are currently Patisiran (Phase III -- treats Hereditary ATTR) and Fitusiran (Phase II -- treats Hemophilia). Until early October this year, Alnylam had another very advanced drug, Revusiran (Phase III* -- treats hereditary ATTR) that was discontinued during Phase III. Revusiran was discontinued after trial data revealed a noticeable death count that may have been connected to Revusiran as a drug and not on external factors. Alnylam thus discontinued Revusiran development as a decision made out of risk management.

Alnylam is still in its development stages as a pharmaceutical company; most of its expenses has been coming from its R&D and general and administrative operations.

CORPORATION DATA

S&P 500: $2,198.81 (11/30/16)

Price: $43.87 (11/30/16)

52 Week High: $109.10

52 Week Low: $31.38

Target Price (1 year): $60.29

*Relative P/E determined by measuring P/E against a benchmark P/E of -5.85 on 10/04/2011, its historic high P/E in the past 10 years.

EPS forecast for 2017 (-4.23) and 2016 (-4.55) resulted from an estimate on current sustainability of financing activities from 2016, which is composed primarily of trading stocks and securities Alnylam has between Sanofi and others. As Alnylam has yet to release a marketable product, most of its revenue is coming from its financing activities, which it then uses to sustain its various R&D operations and cover other expenses. As a result, an EPS forecast on Alnylam at the company’s current stage only reflects on the company’s ability to stay afloat rather than the company’s profitability.

PRICE PERFORMANCE

INDUSTRY OVERVIEW

Alnylam is a pharmaceutical company in the biotechnology industry, specializing in RNAi therapeutics. It is the leading company in RNAi technology based medicines. Alnylam falls within an intersection between biopharmaceutical and biotechnology. Both industries have seen significant market increase over recent years and similarities between the two should be noted in their role in health care.

There are 2,772 biotech companies in the U.S. alone. Opportunities in biotech parallel those in the pharmaceutical industry, with a few key differences. Smaller biotech firms are primarily focused on researching and developing their initial products, unlike large pharmaceuticals. Pharmaceutical sales in 2015 reached approximately $1100b at a -2.7% growth rate; in 2016, sales were about $1200b with a growth rate of 3.9%. From 2016 onwards to 2019, sales are projected to reach a peak at $1,400b with constant growth; peak growth is projected to reach 7% and should average at a 4.3% growth rate from 2015-2019. Meanwhile, biotech drug sales in 2014 were an estimated $289b with a project constant growth rate into 2019, with an estimated sales of $445b by then.

Overall, pharmaceutical and biotechnology industries have positive outlooks. The main driving forces for these two industries are an aging population, company expansions, and implementations of improved health insurance and services, especially in developing countries. Some of the major biotech companies based on market capitalization are Amgen, Novo Nordisk, Gilead Sciences, Allergan, Celgene, Biogen, Shire, Teva, Regeneron, and CSL.

Strengths

Weaknesses

Opportunities

Threats

SWOT ANALYSIS

STRENGTHS

● New technological advancements: RNAi therapeutics has not been utilized by any other companies and testing has shown great potential. RNAi therapeutics is based on nobel prize winning technology, putting Alnylam up ahead of its competitors since this method is not widely understood by most people yet.

● Large amount of funding: Since R&D requires large amounts of money, Alnylam will be protected for some time from newcomers.

● Extensive alliances with other pharmaceutical and biotech companies which allows Alnylam to act relatively freely.

WEAKNESSES

● Revusiran: During the end of Phase III clinical trials, the drug treatment failed as more patients died with the treatment than with the placebo. The failed delivery mechanism for Revusiran was highlighted as the cause of patient deaths. Public image may be the most affected here as investors are still worried that RNAi technology is the main issue, which would undermine Alnylam’s entire drug pipeline.

● Lack of Revenue: Being a relatively new company still, Alnylam faces the struggle that many new pharmaceuticals with no products on the market face: a long period of research with no real revenue or profit coming in yet.

● Alnylam currently does not have the capacity to conduct sales and distribution and lacks the intrinsic capacity to develop and commercialize products. Thus, the company has been dependent on its alliances to continue its operations.

OPPORTUNITIES

● Pioneer benefits: Being the first company to produce medication which utilizes RNAi therapeutics has its advantages. The company can profit the most during this time as they are the only product in their respective category.

● Pipeline products targets diseases which currently have no attainable, long-term treatments. Pipeline products can capture a substantial market share as a result.

● Political stance on pharmaceuticals as of present: As of November 9, 2016, Donald Trump has won the presidential election. Clinton’s stance on pharmaceutical/biotech companies and their prices for the products would have forced prices down, and in turn revenues. Under a more conservative leadership, Alnylam may continue to realize its full potential without having to take a cut to its revenue.

THREATS

● Generic medications: Upon successful approval of their drugs, Alnylam will more likely than not face competition attempting to create generic versions of their drug for a cheaper cost.

● Possibility that RNAi may not make for an effective drug platform for treating diseases and genetic disorders if drugs are made with currently existing technology.

● Competition from majority market holders: Once Alnylam gets its products out, it will still be difficult to maintain since the majority of revenue is maintained by the top 1% of the biotechnology companies.

Supplier Power

Buyer Power

Threat of Substitution

Threat of New Entrants

Competitive Rivalry

PORTER’S FIVE FORCES

PORTER’S FIVE FORCES

Supplier Power

Buyer Power

Threat of Substitution

Threat of New Entrants

Competitive Rivalry

BARGAINING POWER OF SUPPLIERS (LOW)

○ Most of the value is driven by IP (intellectual property). ■ Alnylam has an extensive portfolio of RNAi IP with fundamental, chemistry,

delivery, and target patents and patent applications covering the development and commercialization of RNAi therapeutics.

■ Alnylam’s IP estate include a large number of issued patents and pending patent applications in the world’s major pharmaceutical markets - US, EU, and Japan. They cover synthetic RNA molecules, their synthesis and use, including use as therapeutics, diagnostics, and research reagents.

○ Nature of business does not force them, unlike other industries, to rely on suppliers.

○ Scientific tools, materials, computers and testing equipment is highly specialized, but the likelihood of these companies invading on their line of business is not very high.

BARGAINING POWER OF SUPPLIERS (LOW) [CON’T]

○ Marketing alliances have often proved problematic in biotech firms■ Alnylam has made strategic partnerships with Sanofi-Genzyme as well as

other companies. ○ Alnylam has helped enable other companies for advancement of RNAi

therapeutics with licenses to its IP estate and associated know-how. ■ Validated by Alnylam’s progress to date with 11 programs in

pre-clinical and clinical development with over 30 distinct agreements entered into with leading pharmaceutical, biotechnology, and research reagent companies.

■ Companies include: Alpha-1 Project, Genzyme, Merck, Medicines Company, Monsanto, Ascletis Pharmaceuticals, Arrowhead Research Corporation, Kyowa Hakko Kirin Co., Takeda Pharmaceutical Company, Regulus Therapeutics, Novartis AG, Medtronic, Ionis Pharmaceuticals

POWER OF BUYERS (MEDIUM)

○ Company that sells pharmaceutical drugs has thousands of individual customers and doesn’t need to worry about a buyer revolt.

○ Major rare disease treatment → Long Run Profits■ As opposed to vaccination → Short Run Profits

○ Large organizations such as government and hospitals have more bargaining power with biotech firms that sell highly specialized products.

○ Demand for generic vs brand name drug has increased because of the costs○ Generic drug companies do not have the high costs associated with the R&D of

new drugs, which allows them to sell at cheaper prices

THREAT OF SUBSTITUTION (MEDIUM/HIGH)

○ Patent protection might stop threat of alternative drugs and chemicals for a period of time, but eventually there will be a company that can produce a similar product at a cheaper price; generic drugs

○ Long way before any generics can be made as there are no drugs yet made to cure the various major rare diseases in Alnylam’s extensive pipeline.

THREAT OF NEW ENTRANTS (LOW)

○ Biotech firms require huge amounts of funding to finance their large R&D budgets. Ample cash is one of the biggest barriers.

■ When interest rates are low, or equity markets are receptive to IPOs, the barriers are lower.

■ Alnylam most cash ($billions) out of all other biotech companies due to strategic alliance with Sanofi-Genzyme in return for commercial rights outside of USA, Northern Europe, Etc.

○ Specialization also creates barriers. ■ Firm focusing on a more obscure, novel technology would likely have a low

threat of new entrants because there are very few experts in this field. ■ Alnylam and RNAi therapeutics. Nobel Prize winning scientific theory

behind RNAi Therapeutics.

INTENSITY OF COMPETITIVE RIVALRY (HIGH)

○ Top 1% of biotech companies make up majority of the revenue. Rivalry is extremely intense, cutthroat.

■ Alnylam has no real competitors regarding RNAi therapeutics due to strategic alliances, but face competition from other orphan drug companies in various departments.

■ Main orphan drug company competitors are Sarepta Therapeutics and Kite Pharma

Alnylam was valuated using a DCF analysis on its most anticipated products in its pipeline, which will be a major driver in the company’s revenue. The following selected drugs were chosen for DCF analysis because they are currently the furthest in their developmental stages compared to other selections in Alnylam’s pipeline.

FINANCIAL ANALYSIS

Projected Income Statement

Functions Used to Forecast Income Statement

DCF Patisiran

DCF Fitusiran

DCF Inclisiran (ALN-PCSsc)

DCF SUMMATION

Comparable Public Companies

An Alternative Approach...

We recognized that Alnylam’s most valuable assets in providing a cash flow include their products currently in development, their patents (both maintenance and further acquisitions), and financing activities.Products in Development -- Capitalizing Research & Development

An Alternative Approach...

Alnylam’s Forecasted Growth Rate

MAJOR HOLDERS

Top Institutional Holders

Top Mutual Fund Holders

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12 MONTH MOVING AVERAGE CROSS

RECOMMENDATION: BUY

○ Extensive drug pipeline with huge long-term potential revenue. Future-oriented

○ Current and expected investor convergence

○ Most of the threats that the company faces are also threats to competitors, but given Alnylam’s market position, the company would be the prime candidate to rise up in the long run (exclusivity in patents)