UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2009
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File Number 000-50743
ALNYLAM PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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77-0602661
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(State or Other Jurisdiction of
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(I.R.S. Employer
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Incorporation or Organization)
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Identification No.)
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300 Third Street, Cambridge, MA
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02142
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(Address of Principal Executive
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(Zip Code)
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Offices)
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(617) 551-8200
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such
files). Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
o
No
þ
As of July 31, 2009, the registrant had 41,728,062 shares of Common Stock, $0.01 par
value per share, outstanding.
ALNYLAM PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
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June 30,
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December 31,
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2009
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2008
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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147,870
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$
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191,792
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Marketable securities
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119,368
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238,596
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Collaboration receivables
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5,857
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4,188
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Prepaid expenses and other current assets
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5,327
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4,674
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Restricted cash
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2,999
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Total current assets
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278,422
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442,249
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Marketable securities
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206,533
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82,321
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Property and equipment, net
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18,483
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19,194
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Deferred tax assets
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5,606
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5,382
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Investment in joint venture (Regulus Therapeutics Inc.)
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8.901
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1,583
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Intangible assets, net
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708
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795
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Restricted cash, net of current portion
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3,152
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Total assets
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$
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518,653
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$
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554,676
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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6,463
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$
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2,588
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Accrued expenses
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9,908
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9,328
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Income taxes payable
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1,829
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6,111
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Deferred rent
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1,561
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1,561
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Deferred revenue
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82,570
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79,864
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Total current liabilities
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102,331
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99,452
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Deferred rent, net of current portion
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1,951
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2,732
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Deferred revenue, net of current portion
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229,669
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250,121
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Other long-term liabilities
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220
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246
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Total liabilities
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334,171
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352,551
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Commitments and contingencies (Note 5)
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Stockholders equity:
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Preferred stock, $0.01 par value, 5,000,000 shares
authorized and no shares issued and outstanding at
June 30, 2009 and December 31, 2008
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Common stock, $0.01 par value, 125,000,000 shares
authorized; 41,705,344 shares issued and outstanding
at June 30, 2009; 41,413,828 shares issued and
outstanding at December 31, 2008
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417
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414
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Additional paid-in capital
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465,277
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452,767
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Accumulated other comprehensive income
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1,621
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1,186
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Accumulated deficit
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(282,833
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)
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(252,242
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)
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Total stockholders equity
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184,482
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202,125
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Total liabilities and stockholders equity
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$
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518,653
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$
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554,676
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
ALNYLAM PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except per share amounts)
(Unaudited)
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Three Months Ended June 30,
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Six Months Ended June 30,
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2009
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2008
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2009
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2008
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Net revenues from research collaborators
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$
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24,601
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$
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23,833
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$
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49,658
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$
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46,025
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Operating expenses:
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Research and development
(1)
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38,615
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29,558
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63,936
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49,835
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General and administrative
(1)
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8,398
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7,106
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16,114
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12,978
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Total operating expenses
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47,013
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36,664
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80,050
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62,813
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Loss from operations
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(22,412
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)
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(12,831
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)
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(30,392
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)
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(16,788
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)
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Other income (expense):
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Equity in loss of joint venture (Regulus Therapeutics Inc.)
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(816
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)
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(1,605
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)
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(2,286
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)
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(3,234
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)
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Interest income
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1,458
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3,547
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3,506
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8,249
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Interest expense
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(208
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)
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(440
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)
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Other (expense) income
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(24
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)
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(412
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)
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154
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(330
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)
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|
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Total other income (expense)
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618
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1,322
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1,374
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4,245
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|
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Loss before income taxes
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(21,794
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)
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(11,509
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)
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(29,018
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)
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(12,543
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)
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Provision for income taxes
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|
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(908
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)
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|
|
(1,251
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)
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|
|
(1,573
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)
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|
(1,456
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)
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|
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Net loss
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$
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(22,702
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)
|
|
$
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(12,760
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)
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$
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(30,591
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)
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$
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(13,999
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)
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|
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|
|
|
|
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|
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Net loss per common share basic and diluted
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$
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(0.55
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)
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$
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(0.31
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)
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$
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(0.74
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)
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$
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(0.34
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)
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|
|
|
|
|
|
|
|
|
|
|
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Weighted average common shares used to compute basic and
diluted net loss per common share
|
|
|
41,520
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|
|
|
40,908
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|
|
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41,460
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|
|
|
40,821
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Net loss
|
|
$
|
(22,702
|
)
|
|
$
|
(12,760
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)
|
|
$
|
(30,591
|
)
|
|
$
|
(13,999
|
)
|
Foreign currency translation
|
|
|
(23
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)
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|
|
(499
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)
|
|
|
(113
|
)
|
|
|
(489
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)
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Unrealized gain (loss) on marketable securities
|
|
|
1,021
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|
|
|
(1,808
|
)
|
|
|
548
|
|
|
|
(1,472
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
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Comprehensive loss
|
|
$
|
(21,704
|
)
|
|
$
|
(15,067
|
)
|
|
$
|
(30,156
|
)
|
|
$
|
(15,960
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(1) Non-cash stock-based compensation expenses included in
operating expenses are as follows:
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Research and development
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|
$
|
3,248
|
|
|
$
|
2,857
|
|
|
$
|
6,282
|
|
|
$
|
5,171
|
|
General and administrative
|
|
|
2,164
|
|
|
|
1,691
|
|
|
|
4,267
|
|
|
|
3,197
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
ALNYLAM PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
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Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
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Net loss
|
|
$
|
(30,591
|
)
|
|
$
|
(13,999
|
)
|
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,745
|
|
|
|
2,297
|
|
Deferred income taxes
|
|
|
(250
|
)
|
|
|
32
|
|
Non-cash stock-based compensation
|
|
|
10,153
|
|
|
|
8,886
|
|
Charge for 401(k) company stock match
|
|
|
249
|
|
|
|
192
|
|
Equity in loss of joint venture (Regulus Therapeutics Inc.)
|
|
|
2,682
|
|
|
|
2,717
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Proceeds from landlord for tenant improvements
|
|
|
|
|
|
|
581
|
|
Collaboration receivables
|
|
|
(1,669
|
)
|
|
|
(95
|
)
|
Prepaid expenses and other assets
|
|
|
(653
|
)
|
|
|
(1,256
|
)
|
Accounts payable
|
|
|
3,875
|
|
|
|
2,414
|
|
Income taxes payable
|
|
|
(4,282
|
)
|
|
|
1,221
|
|
Accrued expenses and other
|
|
|
(201
|
)
|
|
|
(2,998
|
)
|
Deferred revenue
|
|
|
(17,746
|
)
|
|
|
86,358
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(34,688
|
)
|
|
|
86,350
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(2,947
|
)
|
|
|
(7,198
|
)
|
Decrease in restricted cash
|
|
|
6,151
|
|
|
|
|
|
Purchases of marketable securities
|
|
|
(267,988
|
)
|
|
|
(283,536
|
)
|
Sales and maturities of marketable securities
|
|
|
263,552
|
|
|
|
341,722
|
|
Investment in joint venture (Regulus Therapeutics Inc.)
|
|
|
(10,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(11,232
|
)
|
|
|
50,988
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
957
|
|
|
|
1,476
|
|
Proceeds from issuance of shares to Novartis
|
|
|
1,154
|
|
|
|
5,408
|
|
Repayments of notes payable
|
|
|
|
|
|
|
(1,852
|
)
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
2,111
|
|
|
|
5,032
|
|
|
|
|
|
|
|
|
Effect of exchange rate on cash
|
|
|
(113
|
)
|
|
|
9
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(43,922
|
)
|
|
|
142,379
|
|
Cash and cash equivalents, beginning of period
|
|
|
191,792
|
|
|
|
105,157
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
147,870
|
|
|
$
|
247,536
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
ALNYLAM PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements of Alnylam Pharmaceuticals, Inc.
(the Company or Alnylam) are unaudited and have been prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP) applicable to interim
periods and, in the opinion of management, include all normal and recurring adjustments that are
necessary to present fairly the results of operations for the reported periods. The Companys
condensed consolidated financial statements have also been prepared on a basis substantially
consistent with, and should be read in conjunction with, the Companys audited consolidated
financial statements for the year ended December 31, 2008, which were included in the Companys
Annual Report on Form 10-K filed with the Securities and Exchange Commission (the SEC) on
March 2, 2009. The year-end condensed balance sheet data was derived from audited financial
statements, but does not include all disclosures required by GAAP. The results of the Companys
operations for any interim period are not necessarily indicative of the results of the Companys
operations for any other interim period or for a full fiscal year.
The accompanying condensed consolidated financial statements reflect the operations of the
Company and its wholly-owned subsidiaries, Alnylam U.S., Inc., Alnylam Europe AG (Alnylam Europe)
and Alnylam Securities Corporation. All significant intercompany accounts and transactions have
been eliminated. The Company uses the equity method of accounting to account for its investment in
Regulus Therapeutics Inc., formerly Regulus Therapeutics LLC (Regulus).
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the condensed consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Net Loss Per Common Share
The Company accounts for and discloses net loss per common share in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings per Share.
Basic net
loss per common share is computed by dividing net loss attributable to common stockholders by the
weighted average number of common shares outstanding. Diluted net loss per common share is computed
by dividing net loss attributable to common stockholders by the weighted average number of common
shares and dilutive potential common share equivalents then outstanding. Potential common shares
consist of shares issuable upon the exercise of stock options (using the treasury stock method),
and unvested restricted stock awards. Because the inclusion of potential common shares would be
anti-dilutive for all periods presented, diluted net loss per common share is the same as basic net
loss per common share.
The following table sets forth for the periods presented the potential common shares
(prior to consideration of the treasury stock method) excluded from the calculation of net loss per
common share because their inclusion would be anti-dilutive, in thousands:
|
|
|
|
|
|
|
|
|
|
|
Three and Six Months
|
|
|
Ended June 30,
|
|
|
2009
|
|
2008
|
Options to purchase common stock
|
|
|
7,071
|
|
|
|
5,595
|
|
Unvested restricted common stock
|
|
|
29
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,100
|
|
|
|
5,652
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
Effective January 1, 2009, the Company implemented SFAS No. 157,
Fair Value Measurements
(SFAS 157), for all nonfinancial assets and nonfinancial liabilities not recognized or disclosed
at fair value in the financial statements on a recurring basis. The implementation of SFAS 157 for
those assets and liabilities did not have a material impact on the Companys operating results or
5
financial position, however, could have an impact in future periods. The Company did not have
any nonfinancial assets or nonfinancial liabilities that would be recognized or disclosed at fair
value on a recurring basis as of June 30, 2009.
The following tables present information about the Companys assets that are measured at fair
value on a recurring basis as of June 30, 2009 and December 31, 2008, and indicate the fair value
hierarchy of the valuation techniques the Company utilized to determine such fair value. In
general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active
markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data
points that are observable, such as quoted prices (adjusted), interest rates and yield curves. Fair
values determined by Level 3 inputs utilize unobservable data points for the asset or liability,
and include situations where there is little, if any, market activity for the asset or liability.
Financial assets measured at fair value on a recurring basis are summarized as follows, in
thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
Significant
|
|
|
Significant
|
|
|
|
As of
|
|
|
Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
June 30,
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Cash equivalents
|
|
$
|
144,415
|
|
|
$
|
143,576
|
|
|
$
|
839
|
|
|
$
|
|
|
Marketable securities (fixed income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government obligations
|
|
|
177,019
|
|
|
|
|
|
|
|
177,019
|
|
|
|
|
|
Corporate notes
|
|
|
114,844
|
|
|
|
|
|
|
|
114,844
|
|
|
|
|
|
Commercial paper
|
|
|
31,964
|
|
|
|
|
|
|
|
31,964
|
|
|
|
|
|
Marketable securities (equity holdings)
|
|
|
2,074
|
|
|
|
|
|
|
|
2,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
470,316
|
|
|
$
|
143,576
|
|
|
$
|
326,740
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
Significant
|
|
|
Significant
|
|
|
|
As of
|
|
|
Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Cash equivalents
|
|
$
|
187,057
|
|
|
$
|
167,293
|
|
|
$
|
19,764
|
|
|
$
|
|
|
Marketable securities (fixed income)
|
|
|
320,269
|
|
|
|
|
|
|
|
320,269
|
|
|
|
|
|
Marketable securities (equity holdings)
|
|
|
648
|
|
|
|
|
|
|
|
648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
507,974
|
|
|
$
|
167,293
|
|
|
$
|
340,681
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying amounts reflected in the Companys condensed consolidated balance sheets for
cash, collaboration receivables, other current assets, accounts payable and accrued expenses
approximate fair value due to their short-term maturities.
Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (FASB) reached a consensus on
Emerging Issues Task Force (EITF) Issue No. 07-1,
Accounting for Collaborative Arrangements
(EITF 07-1). EITF 07-1 requires collaborators to present the results of activities for which they
act as the principal on a gross basis and report any payments received from (made to) other
collaborators based on other applicable GAAP or, in the absence of other applicable GAAP, based on
analogy to authoritative accounting literature or a reasonable, rational and consistently applied
accounting policy election. Further, EITF 07-1 clarifies that the determination of whether
transactions within a collaborative arrangement are part of a vendor-customer (or analogous)
relationship subject to EITF Issue No. 01-9,
Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendors Products)
(EITF 01-9). EITF 07-1 became
effective on January 1, 2009. The adoption of EITF 07-1 did not have a material impact on the
Companys condensed consolidated financial statements, however, it resulted in enhanced disclosures
for the Companys collaboration activities.
In May 2009, the FASB issued SFAS No. 165,
Subsequent Events
(SFAS 165). SFAS 165
establishes general standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued. The adoption of SFAS 165 did not
impact the Companys condensed consolidated financial statements. The Company evaluated all events
or transactions that occurred after June 30, 2009 up through August 6, 2009, the date these condensed consolidated
financial statements were issued. During this period, the Company did not have any material
recognizable or unrecognizable subsequent events.
6
In June 2009, the FASB issued SFAS No. 166,
Accounting for Transfers of Financial Statements
an amendment of FASB
Statement No. 140
(SFAS 166). SFAS 166 prescribes the information that a reporting entity
must provide in its financial reports about a transfer of financial assets; the effects of a
transfer on its financial position, financial performance, and cash flows; and a transferors
continuing involvement in transferred financial assets. Specifically, among other aspects, SFAS 166
amends SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
(SFAS 140), by removing the concept of a qualifying
special-purpose entity from SFAS 140 and removing the exception from applying FASB Interpretation
No. 46,
Consolidation of Variable Interest Entities (revised December 2003) an interpretation of
ARB No. 51
(FIN 46R) to variable interest entities that are qualifying special-purpose entities.
It also modifies the financial-components approach used in SFAS 140. SFAS 166 is effective for
transfer of financial assets occurring on or after January 1, 2010. The Company has not determined
the effect that the adoption of SFAS 166 will have on its condensed consolidated financial
statements but the effect will generally be limited to future transactions.
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R)
(SFAS 167). SFAS 167 amends FIN 46R, to require an enterprise to determine whether its variable
interest or interests give it a controlling financial interest in a variable interest entity. The
primary beneficiary of a variable interest entity is the enterprise that has both (1) the power to
direct the activities of a variable interest entity that most significantly impact the entitys
economic performance and (2) the obligation to absorb losses of the entity that could potentially
be significant to the variable interest entity or the right to receive benefits from the entity
that could potentially be significant to the variable interest entity. SFAS 167 also amends FIN 46R
to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable
interest entity. SFAS 167 is effective for all variable interest entities and relationships with
variable interest entities existing as of January 1, 2010. The Company has not determined the
effect that the adoption of SFAS 167 will have on its condensed consolidated financial statements.
In June 2009, the FASB issued SFAS No. 168,
The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles a replacement of FASB Statement No. 162
(SFAS 168). SFAS 168 replaces SFAS No. 162
, The Hierarchy of Generally Accepted Accounting
Principles,
to establish the
FASB Accounting Standards Codification
as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental entities in
preparation of financial statements in conformity with GAAP. SFAS 168 is effective for interim and
annual periods ending after September 15, 2009. The adoption of this
standard will not impact the Companys condensed consolidated financial statements.
2. SIGNIFICANT AGREEMENTS
Platform Alliances
Roche Alliance
In July 2007, the Company and, for limited purposes, Alnylam Europe, entered into a license
and collaboration agreement (the LCA) with F. Hoffmann-La Roche Ltd (Roche Basel) and
Hoffman-La Roche Inc. (together with Roche Basel, Roche). Under the LCA, which became effective
in August 2007, the Company granted Roche a non-exclusive license to the Companys intellectual
property to develop and commercialize therapeutic products that function through RNA interference
(RNAi), subject to the Companys existing contractual obligations to third parties. The license
is initially limited to the therapeutic areas of oncology, respiratory diseases, metabolic diseases
and certain liver diseases, and may be expanded to include up to 18 additional therapeutic areas,
comprising substantially all other fields of human disease, as identified and agreed upon by the
parties, upon payment to the Company by Roche of an additional $50.0 million for each additional
therapeutic area, if any.
In consideration for the rights granted to Roche under the LCA, Roche paid the Company
$273.5 million in upfront cash payments. In addition, in exchange for the Companys contributions
under the LCA, for each RNAi therapeutic product successfully developed by Roche, its affiliates or
sublicensees under the LCA, if any, the Company is entitled to receive milestone payments upon
achievement of specified development and sales events, totaling up to an aggregate of
$100.0 million per therapeutic target, together with royalty payments based on worldwide annual net
sales, if any.
Under the LCA, the Company and Roche also agreed to collaborate on the discovery of RNAi
therapeutic products directed to one or more disease targets (Discovery Collaboration), subject
to the Companys existing contractual obligations to third parties. The collaboration between Roche
and the Company will be governed by a joint steering committee for a period of five years that is
comprised of an equal number of representatives from each party. In exchange for the Companys
contributions to the collaboration, Roche will be required to make additional milestone and royalty
payments to the Company.
7
In July 2007, the Company executed a common stock purchase agreement (the Common Stock
Purchase Agreement) with Roche Finance Ltd, an affiliate of Roche (Roche Finance). Under the
terms of the Common Stock Purchase Agreement, on August 9, 2007, Roche Finance purchased
1,975,000 shares of the Companys common stock at $21.50 per share, for an aggregate purchase price
of $42.5 million. The Company recorded this issuance using the closing price of the Companys
common stock on August 9, 2007, the date the shares were issued to Roche. Based on the closing
price of $25.98, the fair value of the shares issued was $51.3 million, which was $8.8 million in
excess of the proceeds received from Roche for the issuance of the Companys common stock. As a
result, the Company allocated $8.8 million of the upfront payment from the LCA to the common stock
issuance.
Under the terms of the Common Stock Purchase Agreement, in the event the Company proposes to
sell or issue any of its equity securities, subject to specified exceptions, it has agreed to grant
to Roche Finance the right to acquire, at fair value, additional securities, such that Roche
Finance would be able to maintain its ownership percentage in the Company.
In connection with the execution of the LCA and the Common Stock Purchase Agreement, the
Company also executed a Share Purchase Agreement (the Alnylam Europe Purchase Agreement) with
Alnylam Europe and Roche Beteiligungs GmbH, an affiliate of Roche (Roche Germany). Under the
terms of the Alnylam Europe Purchase Agreement, which became effective in August 2007, the Company
created a new, wholly-owned German limited liability company (Roche Kulmbach) into which
substantially all of the non-intellectual property assets of Alnylam Europe were transferred, and
Roche Germany purchased from the Company all of the issued and outstanding shares of Roche Kulmbach
for an aggregate purchase price of $15.0 million. The Alnylam Europe Purchase Agreement also
included transition services that were performed by Roche Kulmbach employees at various levels
through August 2008. The Company reimbursed Roche for these services at an agreed-upon rate. The
Company recorded contra revenue (a reduction of revenues) of $0.5 million and $0.8 million
for these services for the three and six months ended June 30, 2008, respectively.
In addition, in connection with the closing of the Alnylam Europe Purchase Agreement, the
Company granted restricted stock of the Company to certain employees of Roche Kulmbach. In
connection with the closing, the Company also accelerated the unvested portion of the outstanding
stock options of certain Alnylam Europe employees.
In summary, the Company received upfront payments totaling $331.0 million under the Roche
alliance, which included an upfront payment under the LCA of $273.5 million, $42.5 million under
the Common Stock Purchase Agreement and $15.0 million for the Roche Kulmbach shares under the
Alnylam Europe Purchase Agreement.
The Company recorded $278.2 million as deferred revenue in connection with the Roche alliance.
This amount represents the aggregate proceeds received from Roche of $331.0 million, net of the
amount allocated to the common stock issuance of $51.3 million, and the net book value of Alnylam
Europe of $1.5 million.
When evaluating multiple element arrangements, the Company considers whether the components of
the arrangement represent separate units of accounting as defined in EITF Issue No. 00-21,
Revenue
Arrangements with Multiple Deliverables
(EITF 00-21). Application of this standard requires
subjective determinations and requires management to make judgments about the value of each
individual element and whether it is separable from the other aspects of the contractual
relationship. The Company has determined that the deliverables under the Roche alliance include
the license, the Alnylam Europe assets and employees, the steering committees (joint steering
committee and future technology committee) and the services that the Company will be obligated to
perform under the Discovery Collaboration. The Company has concluded that, pursuant to paragraph 9
of EITF 00-21, the license and assets of Alnylam Europe are not separable from the undelivered
services (i.e., the steering committees and Discovery Collaboration) and, accordingly, the license
and the services are being treated as a single unit of accounting. When multiple deliverables are
accounted for as a single unit of accounting, the Company bases its revenue recognition pattern on
the final deliverable. Under the Roche alliance, the steering committee services and the Discovery
Collaboration services are the final deliverables and all such services will end, contractually,
five years from the effective date of the LCA. The Company is recognizing the Roche-related revenue
on a straight-line basis over five years because the Company cannot reasonably estimate the total
level of effort required to complete its service obligations under the LCA. The Company will
continue to reassess whether it can reasonably estimate the level of effort required to fulfill its
obligations under the Roche alliance. In particular, when the Discovery Collaboration commences,
the Company may be able to make such an estimate. When, and if, the Company can make a reasonable
estimate of its remaining efforts under the collaboration, the Company would modify its method of
recognition and utilize a proportional performance method. As future substantive milestones are
achieved, a portion of the milestone payment, equal to the percentage of the performance period
completed when the milestone is achieved, multiplied by the amount of the milestone payment, will
be recognized as revenue upon achievement of such milestone. The remaining portion of the milestone
will be recognized over the remaining performance period on a straight-line basis. The Company recognized $14.0 million and $27.8 million in revenues in its condensed
consolidated statements of operations for the three and six months ended June 30,
2009, respectively, and $13.4 million and $26.8 million in revenues for the three and six
months ended June 30, 2008, respectively, under the Roche alliance.
8
Takeda Alliance
In May 2008, the Company entered into a license and collaboration agreement (the Takeda
Collaboration Agreement) with Takeda Pharmaceutical Company Limited (Takeda) to pursue the
development and commercialization of RNAi therapeutics. Under the Takeda Collaboration Agreement,
the Company granted Takeda a non-exclusive, worldwide, royalty-bearing license to the Companys
intellectual property to develop, manufacture, use and commercialize RNAi therapeutics, subject to
the Companys existing contractual obligations to third parties. The license initially is limited
to the fields of oncology and metabolic disease and may be expanded at Takedas option to include
other therapeutic areas, subject to specified conditions. Under the Takeda Collaboration Agreement,
Takeda will be the Companys exclusive platform partner in the Asian territory, as defined in the
Takeda Collaboration Agreement, for a period of five years.
In consideration for the rights granted to Takeda under the Takeda Collaboration Agreement,
Takeda agreed to pay the Company $150.0 million in upfront and near-term technology transfer
payments. In addition, the Company has the option, exercisable until the start of Phase III
development, to opt-in under a 50-50 profit sharing agreement to the development and
commercialization in the United States of up to four Takeda licensed products, and would be
entitled to opt-in rights for two additional products for each additional field expansion, if any,
elected by Takeda under the Takeda Collaboration Agreement. In June 2008, Takeda paid the Company
an upfront payment of $100.0 million. Takeda is also required to make the additional $50.0 million
in payments to the Company upon achievement of specified technology transfer milestones,
$20.0 million of which was achieved in September 2008 and paid in October 2008, $20.0 million of
which is required to be paid upon achievement of specified technology transfer activities, but no
later than 24 months after execution of the Takeda Collaboration Agreement, and $10.0 million of
which is required to be paid upon achievement of specified technology transfer activities within 24
to 36 months after execution of the Takeda Collaboration Agreement (collectively, the Technology
Transfer Milestones). If Takeda elects to expand its license to additional therapeutic areas,
Takeda will be required to pay the Company $50.0 million for each of up to approximately 20 total
additional fields selected, comprising substantially all other fields of human disease, as
identified and agreed upon by the parties. In addition, for each RNAi therapeutic product developed
by Takeda, its affiliates and sublicensees, if any, the Company is entitled to receive specified
development and commercialization milestones, totaling up to $171.0 million per product, together
with royalty payments based on worldwide annual net sales, if any.
Pursuant to the Takeda Collaboration Agreement, the Company and Takeda have also agreed to
collaborate on the research of RNAi therapeutics directed to one or two disease targets agreed to
by the parties (the Research Collaboration), subject to the Companys existing contractual
obligations with third parties. Takeda also has the option, subject to certain conditions, to
collaborate with the Company on the research and development of RNAi drug delivery technology for
targets agreed to by the parties. In addition, Takeda has a right of first negotiation for the
development and commercialization of the Companys RNAi therapeutic products in the Asian
territory, excluding the Companys ALN-RSV program. In addition to the 50-50 profit sharing
option, the Company has a similar right of first negotiation to participate with Takeda in the
development and commercialization in the United States of licensed products. The collaboration
between the Company and Takeda is governed by a joint technology transfer committee (the JTTC), a
joint research collaboration committee (the JRCC) and a joint delivery collaboration committee
(the JDCC), each of which is comprised of an equal number of representatives from each party.
The Company has determined that the deliverables under the Takeda agreement include the
license, the joint committees (the JTTC, JRCC and JDCC), the technology transfer activities and the
services that the Company will be obligated to perform under the Research Collaboration. The
Company has determined that, pursuant to EITF 00-21, the license and undelivered services (i.e.,
the joint committees and the Research Collaboration) are not separable and, accordingly, the
license and services are being treated as a single unit of accounting.
When multiple deliverables are accounted for as a single unit of accounting, the Company bases
its revenue recognition pattern on the final deliverable. Under the Takeda Collaboration Agreement,
the last elements to be delivered are the JDCC and JTTC services, each of which has a life of no
more than seven years. The Company is recognizing the upfront payment of $100.0 million, the first
Technology Transfer Milestone of $20.0 million and the $30.0 million of remaining Technology
Transfer Milestones, the receipt of which the Company believes is probable, on a straight-line
basis over seven years because the Company is unable to reasonably estimate the level of effort to
fulfill these obligations, primarily because the effort required under the Research Collaboration
is largely unknown. As future substantive milestones are achieved, a portion of the milestone
payment, equal to the percentage of the performance period completed when the milestone is
achieved, multiplied by the amount of the milestone payment, will be recognized as revenue upon
achievement of such milestone. The remaining portion of the milestone will be recognized over the
remaining performance period on a straight-line basis. The Company will continue to reassess
whether it can reasonably estimate
9
the level of effort required to fulfill its obligations under the Takeda Collaboration
Agreement. When, and if, the Company can make a reasonable estimate of its remaining efforts under
the collaboration, the Company would modify its method of recognition and utilize a proportional
performance method. The Company recognized $5.4 million and $10.8 million in revenues in its condensed
consolidated statements of operations for the three and six months ended June 30,
2009, respectively, and $2.1 million in revenues for each of the three and six months
ended June 30, 2008, under the Takeda Collaboration Agreement.
In connection with the Takeda Collaboration Agreement, the Company paid $5.0 million of
license fees to the Companys licensors, primarily Isis Pharmaceuticals, Inc. (Isis), during
2008, in accordance with the applicable license agreements with those parties. These fees were
charged to research and development expense.
Discovery and Development Alliances
Isis Collaboration and License Agreement
In April 2009, the Company and Isis amended and restated their existing strategic
collaboration and license agreement (as amended and restated, the Amended and Restated Isis
Agreement), originally entered into in March 2004. Under this agreement, the Company and Isis
agreed to extend the broad cross-licensing arrangement regarding double-stranded RNAi that was
established in 2004, pursuant to which Isis granted the Company licenses to its current and future
patents and patent applications relating to chemistry and to RNA-targeting mechanisms for the
research, development and commercialization of double-stranded RNA products. The Company has the
right to use Isis technologies in its development programs or in collaborations and Isis has agreed
not to grant licenses under these patents to any other organization for the discovery, development
and commercialization of double-stranded RNA products designed to work through an RNAi mechanism,
except in the context of a collaboration in which Isis plays an active role. The Company granted
Isis non-exclusive licenses to its current and future patents and patent applications relating to
RNA-targeting mechanisms and to chemistry for research use. The Company also granted Isis the
non-exclusive right to develop and commercialize double-stranded RNA products developed using RNAi
technology against a limited number of targets. In addition, the Company granted Isis non-exclusive
rights to research, develop and commercialize single-stranded RNA products.
The Company agreed to pay Isis milestone payments, totaling up to approximately $3.4 million,
upon the occurrence of specified development and regulatory events, and royalties on sales, if any,
for each product that the Company or a collaborator develops using Isis intellectual property. In
addition, the Company agreed to pay to Isis a percentage of specified fees from strategic
collaborations the Company may enter into that include access to the Isis intellectual property.
Isis has agreed to pay the Company, per therapeutic target, a license fee of $0.5 million, and
milestone payments totaling approximately $3.4 million, payable upon the occurrence of specified
development and regulatory events, and royalties on sales, if any, for each product developed by
Isis or a collaborator that utilizes the Companys intellectual property. Isis has the right to
elect up to ten non-exclusive target licenses under the agreement and has the right to purchase one
additional non-exclusive target per year during the term of the collaboration.
As part of the Amended and Restated Isis Agreement, the Company and Isis have expanded their
collaborative efforts to focus on the development of single-stranded RNAi (ssRNAi) technology.
Under the Amended and Restated Isis Agreement, the Company obtained from Isis a co-exclusive,
worldwide license to Isis current and future patents and patent applications relating to chemistry
and RNA-targeting mechanisms to research, develop and commercialize ssRNAi products for a limited
number of gene targets to be designated by the Company. Each of the Company and Isis will have the
opportunity to discover and develop drugs employing the ssRNAi technology. Under the terms of the
Amended and Restated Isis Agreement, the Company will potentially pay Isis up to an aggregate of
$31.0 million in license fees, payable in four tranches, that include $11.0 million on signing,
$10.0 million 18 months following signing, or if and when
in vivo
efficacy in rodents is
demonstrated if sooner, $5.0 million upon achievement of
in vivo
efficacy in non-human primates,
and $5.0 million upon initiation of the first clinical trial with an ssRNAi drug, subject to the
Companys right to unilaterally terminate the research program. The Company has recorded the
upfront payment of $11.0 million as research and development expense. The Company will expense
each milestone payment when achievement of the milestone is considered probable. The Company will
fund research activities at a minimum of $3.0 million each year for three years with research
development activities conducted by both the Company and Isis. If the Company develops and
commercializes drugs utilizing ssRNAi technology on its own or with a partner, Isis could
potentially receive milestone payments, totaling up to $18.5 million per product, as well as
royalties. Also, initially, Isis is eligible to receive up to 50 percent of any sublicense payments
due to the Company from a third party based on the Companys partnering of ssRNAi products, which
amount will decline over time as the Companys investment in the technology and drugs increases. In
turn, the Company is eligible to receive up to five percent of any sublicense payments due to Isis
from a third party based on Isis partnering of ssRNAi products.
The Company has the unilateral right to terminate the research program before September 30,
2010, in which event any licenses to ssRNAi products granted by Isis to the Company under the
Amended and Restated Isis Agreement, and any obligation thereunder by the Company to pay milestone
payments, royalties or sublicense payments to Isis for such ssRNAi products, would also
terminate.
10
Novartis Broad Alliance
In the second half of 2005, the Company entered into a series of transactions with Novartis
Pharma AG and its affiliate, Novartis Institutes for BioMedical Research, Inc. (collectively,
Novartis). In September 2005, the Company and Novartis executed a stock purchase agreement (the
Stock Purchase Agreement) and an investor rights agreement (the Investor Rights Agreement). In
October 2005, in connection with the closing of the transactions contemplated by the Stock Purchase
Agreement, the Investor Rights Agreement became effective and the Company and Novartis executed a
research collaboration and license agreement (the Collaboration and License Agreement). The
Collaboration and License Agreement had an initial term of three years, with an option for two
additional one-year extensions at the election of Novartis. In July 2009, Novartis elected to
further extend the term for the fifth and final planned year, through October 2010.
Under the terms of the Stock Purchase Agreement, in October 2005, Novartis purchased
5,267,865 shares of the Companys common stock at a purchase price of $11.11 per share for an
aggregate purchase price of $58.5 million, which, after such issuance, represented 19.9% of the
Companys outstanding common stock as of the date of issuance. In addition, under the Investor
Rights Agreement, the Company granted Novartis rights to acquire additional equity securities in
the event that the Company proposes to sell or issue any equity securities, subject to specified
exceptions, as described in the Investor Rights Agreement, such that Novartis would be able to
maintain its then-current ownership percentage in the Companys outstanding common stock. Pursuant
to terms of the Investor Rights Agreement, in May 2008, Novartis purchased 213,888 shares of the
Companys common stock at a purchase price of $25.29 per share, resulting in an aggregate payment to
the Company of $5.4 million. In May 2009, Novartis purchased 65,922 shares of the Companys common
stock at a purchase price of $17.50 per share, resulting in an aggregate payment to the Company of
$1.2 million. This purchase allows Novartis to maintain its ownership position of 13.4% of the
Companys outstanding common stock. The exercise of this right does not result in any changes to
existing rights or any additional rights to Novartis. Further, during the term described in the
Investor Rights Agreement, Novartis is permitted to own no more than 19.9% of the Companys
outstanding shares.
Under the terms of the Collaboration and License Agreement, the parties will work together on
a defined number of selected targets, as defined in the Collaboration and License Agreement, to
discover and develop therapeutics based on RNAi. In consideration for the rights granted to
Novartis under the Collaboration and License Agreement, Novartis made upfront payments totaling
$10.0 million to the Company in October 2005, partly to reimburse prior costs incurred by the
Company to develop
in vivo
RNAi technology. The Collaboration and License Agreement also includes
terms under which Novartis will provide the Company with research funding and milestone payments as
well as royalties on annual net sales of products resulting from the Collaboration and License
Agreement, if any. The amount of research funding provided by Novartis under the Collaboration and
License Agreement during the research term is dependent upon the number of active programs on which
the Company is collaborating with Novartis at any given time and the number of Company employees
that are working on those programs, in respect of which Novartis reimburses the Company at an
agreed upon rate. Under the terms of the Collaboration and License Agreement, Novartis has the
right to select up to 30 exclusive targets to include in the collaboration, which number may be
increased to 40 under certain circumstances and upon additional payments. For RNAi therapeutic
products successfully developed under the Collaboration and License Agreement, if any, the Company
would be entitled to receive milestone payments upon achievement of certain specified development
and annual net sales events, up to an aggregate of $75.0 million per therapeutic product.
Under the terms of the Collaboration and License Agreement, the Company retains the right to
discover, develop, commercialize and manufacture compounds that function through the mechanism of
RNAi, or products that contain such compounds as an active ingredient, with respect to targets not
selected by Novartis for inclusion in the collaboration, provided that Novartis has a right of
first offer with respect to an exclusive license for additional targets before the Company partners
any of those additional targets with third parties.
The Collaboration and License Agreement also provides Novartis with a non-exclusive option to
integrate into its operations the Companys intellectual property relating to RNAi technology,
excluding any technology related to delivery of nucleic acid-based molecules (the Integration
Option). Novartis may exercise this Integration Option at any point during the research term,
which expires in October 2010. In connection with the exercise of the Integration Option, Novartis
would be required to make additional payments to the Company totaling $100.0 million, payable in
full at the time of exercise, which payments would include an option exercise fee, a milestone
based on the overall success of the collaboration and pre-paid milestones and royalties that could
become due as a result of future development of products using the Companys technology. In
addition, under this license grant, Novartis may be required to make milestone and royalty payments
to the Company in connection with the successful development and
11
commercialization of RNAi therapeutic products, if any. The license grant under the
integration option, if exercised by Novartis, would be structured similarly to the Companys
non-exclusive platform licenses with Roche and Takeda.
The Company initially deferred the non-refundable $10.0 million upfront payment and the
$6.4 million premium received that represents the difference between the purchase price and the
closing price of the common stock of the Company on the date of the stock purchase from Novartis.
These payments, in addition to research funding and certain milestone payments, the receipt of
which is considered probable, are being amortized into revenue using the proportional performance
method over the estimated duration of the Collaboration and License Agreement or ten years. Under
this model, the Company estimates the level of effort to be expended over the term of the agreement
and recognizes revenue based on the lesser of the amount calculated based on proportional
performance of total expected revenue or the amount of non-refundable payments earned. The Company
recognized $2.2 million and $4.9 million in revenues in its condensed consolidated statements of
operations for the three and six months ended June 30, 2009, respectively, and $3.2 million and
$6.4 million in revenues for the three and six months ended June 30, 2008, respectively, related to
the Collaboration and License Agreement.
As future substantive milestones are achieved, and to the extent they are within the period of
performance, milestone payments will be recognized as revenue on a proportional performance basis
over the contracts entire performance period, starting with the contracts commencement. A portion
of the milestone payment, equal to the percentage of total performance completed when the milestone
is achieved, multiplied by the milestone payment, will be recognized as revenue upon achievement of
the milestone. The remaining portion of the milestone will be recognized over the remaining
performance period under the proportional performance method.
The Company believes the estimated period of performance under the Collaboration and License
Agreement is ten years, which includes the three-year initial term of the agreement, the two
one-year extensions elected by Novartis and limited support as part of a technology transfer until
2015, the fifth anniversary of the termination of the agreement. The Company continues to use an
expected term of ten years in its proportional performance model. The Company reevaluates the
expected term when new information is known that could affect the Companys estimate. In the event
the Companys period of performance is different than estimated, revenue recognition will be
adjusted on a prospective basis.
Product Alliances
Kyowa Hakko Alliance
In June 2008, the Company entered into a license and collaboration agreement (the Kyowa Hakko
Agreement) with Kyowa Hakko Kirin Co., Ltd. (Kyowa Hakko). Under the Kyowa Hakko Agreement, the
Company granted Kyowa Hakko an exclusive license to its intellectual property in Japan and other
markets in Asia (the Licensed Territory) for the development and commercialization of ALN-RSV01,
an RNAi therapeutic for the treatment of respiratory syncytial virus (RSV) infection, for which
the Company is currently conducting Phase II clinical trials. The Kyowa Hakko Agreement also covers
additional RSV-specific RNAi therapeutic compounds that comprise the ALN-RSV program (Additional
Compounds). The Company retains all development and commercialization rights worldwide outside of
the Licensed Territory.
Under the terms of the Kyowa Hakko Agreement, in June 2008, Kyowa Hakko paid the Company an
upfront cash payment of $15.0 million. In addition, Kyowa Hakko is required to make payments to the
Company upon achievement of specified development and sales milestones totaling up to
$78.0 million, and royalty payments based on annual net sales, if any, of ALN-RSV01 by Kyowa Hakko,
its affiliates and sublicensees in the Licensed Territory.
The collaboration between Kyowa Hakko and the Company is governed by a joint steering
committee that is comprised of an equal number of representatives from each party. Under the
agreement, Kyowa Hakko is establishing a development plan for ALN-RSV01 relating to the development
activities to be undertaken in the Licensed Territory, with the initial focus on Japan. Kyowa Hakko
is responsible, at its expense, for all development activities under the development plan that are
reasonably necessary for the regulatory approval and commercialization of ALN-RSV01 and
Additional Compounds in Japan and the rest of the Licensed Territory. The
Company will be responsible for supply of the product to Kyowa Hakko under a supply agreement
unless Kyowa Hakko elects, prior to the first commercial sale of the product in the Licensed
Territory, to manufacture the product itself or arrange for a third party to manufacture the
product.
The Company has determined that the deliverables under the Kyowa Hakko Agreement include the
license, the joint steering committee, the manufacturing services and any Additional Compounds. The
Company has determined that, pursuant to EITF 00-21,
the individual deliverables are not separable and, accordingly, must be accounted for as a
single unit of accounting.
12
When multiple deliverables are accounted for as a single unit of accounting, the Company bases
its revenue recognition pattern on the final deliverable. The Company is currently unable to
reasonably estimate its period of performance under the Kyowa Hakko Agreement, as it is unable to
estimate the timeline of its deliverables related to a fixed-price option granted to Kyowa Hakko
for any Additional Compounds. The Company is deferring all revenue under the Kyowa Hakko Agreement
until it is able to reasonably estimate its period of performance. The Company will continue to
reassess whether it can reasonably estimate the period of performance to fulfill its obligations
under the Kyowa Hakko Agreement.
Cubist Alliance
In January 2009, the Company entered into a license and collaboration agreement (the Cubist
Agreement) with Cubist Pharmaceuticals, Inc. (Cubist) to develop and commercialize therapeutic
products (Licensed Products) based on certain of the Companys RNAi technology for the treatment
of RSV. Licensed Products include ALN-RSV01, as well as several other second-generation RNAi-based
RSV inhibitors, which currently are in pre-clinical studies.
Under the terms of the Cubist Agreement, the Company and Cubist will share responsibility for
developing Licensed Products in North America and will each bear one-half of the related
development costs. The Companys collaboration with Cubist for the development of Licensed Products
in North America will be governed by a joint steering committee comprised of an equal number of
representatives from each party. Cubist will have the sole right to commercialize Licensed Products
in North America with costs associated with such activities and any resulting profits or losses to
be split equally between the Company and Cubist. Throughout the rest of the world (the Royalty
Territory), excluding Asia, where the Company has previously partnered its ALN-RSV program with
Kyowa Hakko, Cubist will have an exclusive, royalty-bearing license to develop and commercialize
Licensed Products.
In consideration for the rights granted to Cubist under the Cubist Agreement, Cubist made a
$20.0 million upfront cash payment to the Company. Cubist also has an obligation under the Cubist
Agreement to pay the Company milestone payments, totaling up to an aggregate of $82.5 million, upon
the achievement of specified development and sales events in the Royalty Territory. In addition, if
Licensed Products are successfully developed, Cubist will be required to pay to the Company
royalties on net sales of Licensed Products in the Royalty Territory, if any, subject to offsets
under certain circumstances. Upon achievement of certain development milestones, the Company will
have the right to convert the North American co-development and profit sharing arrangement into a
royalty-bearing license and, in addition to royalties on net sales in North America, will be
entitled to receive additional milestone payments totaling up to an aggregate of $130.0 million
upon achievement of specified development and sales events in North America, subject to the timing
of the conversion by the Company and the regulatory status of a Licensed Product at the time of
conversion. If the Company makes the conversion to a royalty-bearing license with respect to North
America, then North America becomes part of the Royalty Territory.
During the term of the Cubist Agreement, neither party nor its affiliates may develop,
manufacture or commercialize anywhere in the world, outside of Asia, a therapeutic or prophylactic
product that specifically targets RSV, except for Licensed Products developed, manufactured or
commercialized pursuant to the Cubist Agreement.
The Company has determined that the deliverables under the Cubist Agreement include the
licenses, technology transfer related to the ALN-RSV program, the joint steering committee, and the
development and manufacturing services that the Company will be obligated to perform during the development period. The Company
has determined that, pursuant to EITF 00-21, the deliverables and undelivered services are not
separable and, accordingly, the licenses and services are being treated as a single unit of
accounting.
When multiple deliverables are accounted for as a single unit of accounting, the Company bases
its revenue recognition pattern on the final deliverable. Under the Cubist Agreement, the last
element to be delivered is the service of the joint steering committee, which has an expected life
of no more than seven years. The Company is recognizing the upfront payment of $20.0 million on a
straight-line basis over seven years because the Company is unable to reasonably estimate the level
of effort to fulfill its performance obligations. As future substantive milestones are achieved, a
portion of the milestone payment, equal to the percentage of the performance period completed when
the milestone is achieved, multiplied by the amount of the milestone payment, will be recognized as
revenue upon achievement of such milestone. The remaining portion of the milestone will be
recognized over the remaining performance period on a straight-line basis. The Company will
continue to reassess whether it can reasonably estimate the level of effort required to fulfill its
obligations under the Cubist Agreement. When, and if, the Company can make a reasonable estimate of
its remaining efforts under the collaboration, the Company would modify its method of recognition
and utilize a proportional performance method. The Company recognized $0.7 million and $1.4 million in revenues in its condensed
consolidated statements of operations for the three and six months ended June 30,
2009, respectively, related to the upfront payment under the Cubist Agreement.
13
Under the terms of the Cubist Agreement, the Company and Cubist will share responsibility for
developing Licensed Products in North America and will each bear one-half of the related
development costs. For revenue generating arrangements that involve cost sharing between the
parties, the Company applies the provisions of EITF 07-1. EITF 07-1 requires collaborators to
present the results of activities for which they act as the principal on a gross basis and report
any payments received from (made to) other collaborators based on other applicable GAAP or, in the
absence of other applicable GAAP, analogy to authoritative accounting literature or a reasonable,
rational and consistently applied accounting policy election. As the Company is not considered the
principal in this agreement, pursuant to EITF 07-1, the Company will record any amounts due from
Cubist as a reduction of research and development costs. For the three and six months ended June
30, 2009, the Company and Cubist incurred $3.2 million and $7.0 million, respectively, under the
Cubist Agreement. During the three and six months ended June 30, 2009, amounts due from Cubist of
$1.5 million and $3.3 million, respectively, were recorded as a reduction to research and
development expense. As such, the Company recorded net research and development expenses of $1.6
million and $3.5 million in its condensed consolidated statements of operations for the three and
six months ended June 30, 2009, respectively.
Government Funding
NIH Contract
In September 2006, the National Institute of Allergy and Infectious Diseases (NIAID) awarded
the Company a contract for up to $23.0 million over four years to advance the development of a
broad spectrum RNAi anti-viral therapeutic for hemorrhagic fever virus, including the Ebola virus.
Of the $23.0 million in funding, the government initially committed to pay the Company up to
$14.2 million over the first two years of the contract. In June 2008, as a result of the progress
of the program, the government awarded the Company an additional $7.5 million, to be paid through
September 2009 for the third year of the contract, together with any remaining funds carried over
from the funding allocated for the first two years of the contract. The Company recognizes revenue
under government cost reimbursement contracts as it performs the underlying research and
development activities.
Department of Defense Contract
In August 2007, the Defense Threat Reduction Agency (DTRA) of the United States Department
of Defense awarded the Company a contract to advance the development of a broad spectrum RNAi
anti-viral therapeutic for hemorrhagic fever virus. The government initially committed to pay the
Company up to $10.9 million through February 2009, which included a six-month extension granted by
DTRA in July 2008. Following a program review in early 2009, the Company and DTRA determined not to
continue this program and accordingly, the remaining funds of up to $27.7 million will not be
accessed. The Company recognizes revenue under government cost reimbursement contracts as it
performs the underlying research and development activities.
3. INCOME TAXES
During the three and six months ended June 30, 2009, the Company recorded a provision for
income taxes of $0.9 million and $1.6 million, respectively. The Company records income tax expense
for federal alternative minimum tax, state and foreign taxes. The Company expects to generate U.S.
taxable income during 2009 due to the recognition of certain proceeds received from the Takeda
alliance. The Companys U.S. taxable income is expected to be offset by net operating loss
carryforwards and other deferred tax attributes. However, the Company will continue to be subject
to federal alternative minimum tax and state income taxes.
At December 31, 2008, the Company recorded net deferred tax assets to the extent it is more
likely than not that the assets will be utilized. These deferred tax assets were related to the
recognition of Roche revenue for tax purposes. The Company expects the recognition of certain
deferred tax attributes to generate net operating losses in 2010 and 2011 that will be carried back
to 2008 and 2009 to offset taxable income. The remaining deferred tax assets are subject to a
valuation allowance as it is more likely than not that those assets will not be realized.
At December 31, 2008, the state net operating loss carryforward was $8.6 million and the state
research and development tax credit carryforward was $0.5 million. These attributes are available
to reduce future tax liabilities and expire at various dates through 2023. Ownership changes, as
defined in the Internal Revenue Code of 1986, as amended (the Code), including those resulting
from the issuance of common stock in connection with the Companys public offerings, may limit the
amount of net operating loss and tax credit carryforwards that can be utilized to offset future
taxable income or tax liability. The Company has determined that there is no limitation on the
utilization of net operating loss and tax credit carryforwards in accordance with Section 382 of
the Code in 2008.
14
On January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement 109
(FIN 48),
which was issued in July 2006. The implementation of FIN 48 did not result in any adjustment to the
Companys beginning tax positions. The Company continues to recognize fully its tax benefits, which
are offset by a valuation allowance to the extent that it is more likely than not that the deferred
tax assets will not be realized. At June 30, 2009, the Company did not have any unrecognized tax
benefits.
4. REGULUS THERAPEUTICS INC.
In September 2007, the Company and Isis established Regulus, a company focused on the
discovery, development and commercialization of microRNA-based therapeutics, a potential new class
of drugs to treat the pathways of human disease. Regulus, which was initially established as a
limited liability company, converted to a C corporation in January 2009 and changed its name to
Regulus Therapeutics Inc. In consideration for the Companys and Isis initial interests in
Regulus, the Company and Isis each granted Regulus exclusive licenses to its intellectual property
for certain microRNA-based therapeutic applications as well as certain patents in the microRNA
field. In addition, the Company made an initial cash contribution to Regulus of $10.0 million,
resulting in the Company and Isis making initial capital contributions to Regulus of approximately
equal aggregate value. Additionally, in March 2009, the Company and Isis each purchased $10.0
million of Series A preferred stock of Regulus under a founders investor rights agreement (the
Investor Rights Agreement). The Company and Isis currently own approximately 49% and 51%,
respectively, of Regulus and there are currently no other third party investors in Regulus.
Regulus continues to operate as an independent company with a separate board of directors,
scientific advisory board and management team, some of whom have options to purchase common stock
of Regulus. Members of the board of directors of Regulus who are employees of the Company or Isis
are not eligible to receive options to purchase Regulus common stock.
The Company, Isis and Regulus also have entered into a license and collaboration agreement
(the Regulus Collaboration Agreement) to pursue the discovery, development and commercialization
of therapeutic products directed to microRNAs. Under the terms of the Regulus Collaboration
Agreement, the Company and Isis each assigned to Regulus specified patents and contracts covering
microRNA-specific technology. In addition, each of the Company and Isis granted to Regulus an
exclusive, worldwide license under its rights to other microRNA-related patents and know-how to
develop and commercialize therapeutic products containing compounds that are designed to interfere
with or inhibit a particular microRNA, subject to the Companys and Isis existing contractual
obligations to third parties. Regulus was also granted the right to request a license from the
Company and Isis to develop and commercialize therapeutic products directed to other microRNA
compounds, which license is subject to the Companys and Isis approval and to each such partys
existing contractual obligations to third parties. Regulus also granted to the Company and Isis an
exclusive license to technology developed or acquired by Regulus for use solely within the
Companys and Isis respective fields (as defined in the Regulus Collaboration Agreement), but
specifically excluding the right to develop, manufacture or commercialize the therapeutic products
for which the Company and Isis granted rights to Regulus.
The Company and Isis have also executed a services agreement (the Services Agreement) with
Regulus. Under the terms of the Services Agreement, the Company and Isis provide to Regulus, for
the benefit of Regulus, certain research and development and general and administrative services
for which they are paid by Regulus.
In April 2008, Regulus entered into a worldwide strategic alliance with GlaxoSmithKline
(GSK) to discover, develop and commercialize up to four novel microRNA-targeted therapeutics to
treat inflammatory diseases such as rheumatoid arthritis and inflammatory bowel disease. In
connection with this alliance, Regulus received $20.0 million in upfront payments from GSK,
including a $15.0 million option fee and a loan of $5.0 million evidenced by a promissory note
(guaranteed by Isis and the Company) that will convert into Regulus common stock under certain
specified circumstances. Regulus could be eligible to receive development, regulatory and sales
milestone payments for each of the microRNA-targeted therapeutics discovered and developed as part
of the alliance. Regulus would also receive royalty payments on worldwide sales of products
resulting from the alliance.
The Company has concluded that Regulus qualifies as a variable interest entity under FIN 46R.
The Investor Rights Agreement contains transfer restrictions on each of Isis and the Companys
interests and, as a result, Isis and the Company are considered related parties under
paragraph 16(d)(1) of FIN 46R. The Company has assessed which entity would be considered the
primary beneficiary under FIN 46R and has concluded that Isis is the primary beneficiary and,
accordingly, the Company has not consolidated Regulus.
The Company accounts for its investment in Regulus using the equity method of accounting.
Through December 31, 2008, the Company was recognizing the first $10.0 million of losses of Regulus
as equity in loss of joint venture (Regulus Therapeutics Inc.) in its condensed consolidated
statements of operations because the Company was responsible for funding those losses through its
15
initial $10.0 million cash contribution. Beginning in January 2009, in connection with the
conversion of Regulus to a C corporation, the Company is recognizing approximately 49% of the
income and losses of Regulus. The carrying value of the Companys investment in joint
venture (Regulus Therapeutics LLC) immediately prior to the conversion to a C corporation exceeded
49% of the net assets of Regulus by approximately $0.8 million. Upon conversion, this amount was
allocated to the intellectual property of Regulus and, because the intellectual property was
determined to be in-process research and development, the $0.8 million was recorded as a charge to
expense. This charge was included in equity in loss of joint venture (Regulus Therapeutics Inc.) in
the condensed consolidated statement of operations for the six months ended June 30, 2009. Under
the equity method, the reimbursement of expenses to the Company is recorded as a reduction to
research and development expense. At June 30, 2009, the Companys investment in the joint venture
was $8.9 million, which is recorded as an investment in joint venture (Regulus Therapeutics
Inc.) in the condensed consolidated balance sheets under the equity method. Summary results of
Regulus statements of operations for the three and six months ended June 30, 2009 and 2008 and
balance sheets as of June 30, 2009 and December 31, 2008 are presented in the tables below, in
thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
1,125
|
|
|
$
|
656
|
|
|
$
|
1,763
|
|
|
$
|
748
|
|
Operating expenses (1)
|
|
|
2,852
|
|
|
|
2,676
|
|
|
|
5,367
|
|
|
|
4,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,727
|
)
|
|
|
(2,020
|
)
|
|
|
(3,604
|
)
|
|
|
(3,921
|
)
|
Other income (expense)
|
|
|
(7
|
)
|
|
|
67
|
|
|
|
12
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,734
|
)
|
|
$
|
(1,953
|
)
|
|
$
|
(3,592
|
)
|
|
$
|
(3,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Non-cash stock-based
compensation included in
operating expenses
|
|
$
|
89
|
|
|
$
|
681
|
|
|
$
|
(221
|
)
|
|
$
|
1,056
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
2009
|
|
2008
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
36,254
|
|
|
$
|
22,411
|
|
Working capital
|
|
|
31,177
|
|
|
|
16,467
|
|
Total assets
|
|
|
37,682
|
|
|
|
23,678
|
|
Note payable
|
|
|
5,260
|
|
|
|
5,179
|
|
Total stockholders equity
|
|
|
17,932
|
|
|
|
1,745
|
|
5. COMMITMENTS
Operating Lease
In June 2009, the Company entered into an agreement with ARE-MA Region No. 28 LLC
(the Landlord), amending provisions of its lease dated as of September 26, 2003, and amended on
March 16, 2006. The amendment provides for the lease of the entire second floor of the Cambridge,
Massachusetts premises (the Premises), including space previously subleased by the Company from
Archemix Corp. (Archemix), effective as of July 1, 2009. The Company is leasing approximately
11,000 square feet of new space and, in total, will lease and occupy approximately 95,000 square
feet of office and laboratory space at the Premises under the lease, as amended.
The term of the lease was extended an additional five years and now expires in September 2016.
The Company has the option to extend the lease for two successive five-year extensions. At
June 30, 2009, the Companys operating lease obligations through 2016 have increased by $22.2
million.
In connection with the execution of this amendment and the concurrent termination of the
Archemix sublease, the Landlord and Archemix released to the Company an aggregate of $3.2 million
being held under letters of credit as security deposits for the lease and the sublease. This
balance was previously classified as long-term restricted cash in the Companys condensed
consolidated balance sheet and was reclassified to cash and cash equivalents at June 30, 2009.
Manufacturing Commitment
In January 2009, the Company and
Tekmira Pharmaceuticals Corporation (Tekmira) entered
into a manufacturing and supply agreement under which the Company
committed to pay Tekmira up to CAD $11.2 million
($9.7 million at June 30, 2009) over a three-year period beginning in January 2009.
16
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Quarterly Report on Form 10-Q contains forward-looking statements that involve
risks and uncertainties. The statements contained in this Quarterly Report on Form 10-Q that are
not purely historical are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Without limiting the
foregoing, the words may, will, should, could, expects, plans, intends,
anticipates, believes, estimates, predicts, potential, continue, target and similar
expressions are intended to identify forward-looking statements. All forward-looking statements
included in this Quarterly Report on Form 10-Q are based on information available to us up to, and
including, the date of this document, and we assume no obligation to update any such
forward-looking statements. Our actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain important factors, including those set
forth below under this Item 2 Managements Discussion and Analysis of Financial Condition and
Results of Operations, Part II, Item 1A Risk Factors and elsewhere in this Quarterly Report on
Form 10-Q. You should carefully review those factors and also carefully review the risks outlined
in other documents that we file from time to time with the Securities and Exchange Commission, or
SEC.
Overview
We are a biopharmaceutical company developing novel therapeutics based on RNA interference, or
RNAi. RNAi is a naturally occurring biological pathway within cells for selectively silencing and
regulating the expression of specific genes. Since many diseases are caused by the inappropriate
activity of specific genes, the ability to silence genes selectively through RNAi could provide a
new way to treat a wide range of human diseases. We believe that drugs that work through RNAi have
the potential to become a broad new class of drugs, like small molecule, protein and antibody
drugs. Using our intellectual property and the expertise we have built in RNAi, we are developing a
set of biological and chemical methods and know-how that we apply in a systematic way to develop
RNAi therapeutics for a variety of diseases.
We are applying our technological expertise to build a pipeline of RNAi therapeutics to
address significant medical needs, many of which cannot effectively be addressed with small
molecules or antibodies, the current major classes of drugs. Our lead RNAi therapeutic program,
ALN-RSV01, is in Phase II clinical trials for the treatment of human respiratory syncytial virus,
or RSV, infection, which is reported to be the leading cause of hospitalization in infants in the
United States and also occurs in the elderly and in immune compromised adults. In February 2008,
we reported positive results from our Phase II experimental RSV infection clinical trial, referred
to as the GEMINI study. The GEMINI study was designed to evaluate the safety, tolerability and
anti-viral activity of ALN-RSV01. In this study, ALN-RSV01 was found to be safe and well tolerated
and demonstrated statistically significant anti-viral activity, including an approximately 40%
reduction in viral infection and a 95% increase in infection-free patients (p<0.01), as compared
to placebo. In July 2009, we reported positive results from a second Phase II human clinical trial
assessing the safety and tolerability of aerosolized ALN-RSV01 versus placebo in adult lung
transplant patients naturally infected with RSV. The study achieved its primary objective of
demonstrating the safety and tolerability of ALN-RSV01. In particular, there were no drug-related
serious adverse events or discontinuations, and there were no clinically significant differences in
the overall adverse event profile between ALN-RSV01 and placebo. Importantly, there was no evidence
of disease exacerbation related to ALN-RSV01 treatment. At the 90 day endpoint, all patients
survived and the incidence of intubation, new respiratory infection, or acute rejection was
comparable across ALN-RSV01 and placebo groups. In addition, new 90 day clinical data were
collected, although the study was not powered for these outcomes due to the small sample size, and
they were therefore considered exploratory. Related to these 90 day data, key prospectively defined
clinical secondary endpoints included recovery of lung function (forced expiratory volume in the
first second, or FEV1) as measured by spirometry and clinical determination of new or progressive
bronchiolitis obliterans syndrome, or BOS. ALN-RSV01 treatment was associated with a statistically
significant decrease in the total incidence of new or progressive BOS at 90 days compared to
placebo (p=0.02); 50% of placebo patients showed new or progressive BOS as compared with only 7.1%
of ALN-RSV01-treated patients.
We have formed collaborations with Cubist Pharmaceuticals, Inc., or Cubist, and Kyowa Hakko
Kirin Co., Ltd., or Kyowa Hakko, for the development and commercialization of products for RSV. We
will jointly develop and commercialize products for RSV with Cubist in North America, Cubist has
responsibility for developing and commercializing these products in the rest of the world outside
of Asia, and Kyowa Hakko has the responsibility for developing and commercializing these products
in Asia.
In December 2008, we submitted an investigational new drug application, or IND, to the United
States Food and Drug Administration, or FDA, for ALN-VSP, our first systemically delivered RNAi
therapeutic candidate. We are developing ALN-VSP
for the treatment of liver cancers, including hepatocellular carcinoma and other solid tumors
with liver involvement. We received
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clearance from the FDA in January 2009 and initiated the Phase
I study in March 2009. The Phase I study, being conducted in the United States, is a multi-center,
open label, dose escalation study to evaluate the safety, tolerability, pharmacokinetics and
pharmacodynamics of intravenous ALN-VSP in approximately 55 patients with advanced solid tumors
with liver involvement, who have failed to respond to or have progressed after standard treatment.
We are also working on a number of programs in pre-clinical development, including:
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ALN-TTR, an RNAi therapeutic candidate targeting the transthyretin, or TTR, gene
for the treatment of TTR amyloidosis, which we advanced to a development program during
2008 and in August 2009, we announced ALN-TTR as our next IND candidate;
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ALN-PCS, an RNAi therapeutic targeting a gene called proprotein convertase
subtilisin/kexin type 9, or PCSK9, for the treatment of hypercholesterolemia; and
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ALN-HTT, an RNAi therapeutic for the treatment of Huntingtons disease, which we
are developing in collaboration with Medtronic, Inc., or Medtronic.
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In addition to these development efforts, we are conducting research activities to discover
RNAi therapeutics to treat various diseases. The diseases for which we have discovery programs
include: viral hemorrhagic fever, including the Ebola virus, which can cause severe, often fatal
infection and poses a potential biological safety risk and bioterrorism threat; progressive
multifocal leukoencephalopathy, or PML, which is a disease of the central nervous system caused by
viral infection in immune compromised patients; and Parkinsons disease, a progressive brain
disease which is characterized by uncontrollable tremor, and in some cases, may result in dementia.
We are also pursuing many other undisclosed internal programs.
In addition to these programs, as part of our collaborations with Novartis Pharma AG and one
of its affiliates, or Novartis, and Takeda Pharmaceutical Company Limited, or Takeda, we have
research activities to discover RNAi therapeutics directed to a number of undisclosed targets. Our
alliance with F. Hoffmann-La Roche Ltd and certain of its affiliates, or Roche, also contemplates
such research activities.
We are working internally and with third-party collaborators to develop capabilities to
deliver our RNAi therapeutics directly to specific sites of disease, such as the delivery of
ALN-RSV01 to the lungs, which we refer to as Direct RNAi. We also are working to extend our
capabilities to advance the development of RNAi therapeutics that are administered by intravenous,
subcutaneous or intramuscular approaches, which we refer to as Systemic RNAi. We have numerous RNAi
therapeutic delivery collaborations and intend to continue to collaborate with government, academic
and corporate third parties to evaluate different delivery options, including with respect to
Direct RNAi and Systemic RNAi. For example, in May of 2007, we entered into an agreement with the
Massachusetts Institute of Technology, or MIT, Center for Cancer Research under which we are
sponsoring an exclusive five-year research program focused on the delivery of RNAi therapeutics. In
addition, during 2007, we obtained an exclusive worldwide license to the liposomal delivery
formulation technology of Tekmira Pharmaceuticals Corporation, or Tekmira, for the discovery,
development and commercialization of lipid-based nanoparticle formulations for the delivery of RNAi
therapeutics. In May 2008, Tekmira acquired Protiva Biotherapeutics Inc., or Protiva. In connection
with this acquisition, we entered into new agreements with Tekmira and Protiva, which provide us
access to key existing and future technology and intellectual property for the systemic delivery of
RNAi therapeutics with liposomal delivery technologies. Under these agreements with Tekmira and
Protiva, we continue to have exclusive rights to the Semple (U.S. Patent No. 6,858,225) and Wheeler
(U.S. Patent Nos. 5,976,567 and 6,815,432) patents for RNAi, which we believe are critical for the
use of cationic liposomal delivery technology. In July 2009, we and Tekmira agreed to jointly participate in a new research collaboration with
scientists at The University of British Columbia, or UBC, and AlCana Technologies, Inc., or
AlCana, focused on the discovery of novel cationic lipids and lipid nanoparticles for the
systemic delivery of RNAi therapeutics. We will fund the collaborative research over a two-year
period, and the work will be conducted by scientists at UBC and AlCana. We will receive
exclusive rights to all new inventions as well as rights to sublicense any resulting
intellectual property to our current and future partners. Tekmira will receive rights to use
new inventions for their own RNAi therapeutic programs that are licensed under our
InterfeRx
tm
program.
As noted above, we are developing ALN-VSP, a systemically delivered RNAi therapeutic
candidate, for the treatment of liver cancers, including hepatocellular carcinoma and other solid
tumors with liver involvement. ALN-VSP comprises two siRNAs formulated using stable nucleic
acid-lipid particles, or SNALP, technology from Tekmira. We also have rights to use SNALP
technology in the advancement of our other systemically delivered RNAi therapeutic programs,
including ALN-TTR for the treatment of TTR amyloidosis and ALN-PCS for the treatment of
hypercholesterolemia.
We rely on the strength of our intellectual property portfolio relating to the development and
commercialization of small interfering RNAs, or siRNAs, as therapeutics. This includes ownership
of, or exclusive rights to, issued patents and pending patent applications claiming fundamental
features of siRNAs and RNAi therapeutics as well as those claiming crucial chemical modifications
and promising delivery technologies. We believe that no other company possesses a portfolio of such
broad and exclusive rights to the
patents and patent applications required for the commercialization of RNAi therapeutics. Given
the importance of our intellectual property portfolio to our business operations, we intend to
vigorously enforce our rights and defend against any challenges that have arisen or may arise in
this area.
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In addition, our expertise in RNAi therapeutics and broad intellectual property estate have
allowed us to form alliances with leading companies, including Isis Pharmaceuticals, Inc., or Isis,
Medtronic, Novartis, Biogen Idec Inc., or Biogen Idec, Roche, Takeda, Kyowa Hakko and Cubist. In
April 2009, we expanded our existing agreement with Isis to focus on the development of
single-stranded RNAi, or ssRNAi, technology. In July 2009, Novartis elected to further extend the
term of our collaboration and license agreement for the fifth and final planned year, through
October 2010.
We have also entered into contracts with government agencies, including the National Institute
of Allergy and Infectious Diseases, or NIAID, a component of the National Institutes of Health, or
NIH. We have established collaborations with and, in some instances, received funding from major
medical and disease associations. Finally, to further enable the field and monetize our
intellectual property rights, we also grant licenses to biotechnology companies for the development
and commercialization of RNAi therapeutics for specified targets in which we have no direct
strategic interest under our InterfeRx program and to research companies that
commercialize RNAi reagents or services under our research product licenses.
We also seek opportunities to form new ventures in areas outside our core strategic focus. For
example, in 2007, we and Isis established Regulus Therapeutics Inc., formerly Regulus Therapeutics
LLC, or Regulus, a company focused on the discovery, development and commercialization of
microRNA-based therapeutics. Because microRNAs are believed to regulate whole networks of genes
that can be involved in discrete disease processes, microRNA-based therapeutics represent a
possible new approach to target the pathways of human disease. Given the broad applications for
RNAi technology, we believe additional opportunities exist for new ventures to be formed.
As noted above, in January 2009, we entered into a license and collaboration agreement with
Cubist to develop and commercialize therapeutic products based on certain of our RNAi technology
for the treatment of RSV. Under the Cubist agreement, licensed products include ALN-RSV01, which
is currently in Phase II clinical development, as well as several other second-generation RNAi-based RSV inhibitors, which
currently are in pre-clinical studies. Under the terms of the Cubist agreement, we and Cubist will
share responsibility for developing licensed products in North America and will each bear one-half
of the related development costs. Cubist will have the sole right to commercialize licensed
products in North America with costs associated with such activities and any resulting profits or
losses to be split equally between us and Cubist. Throughout the rest of the world, excluding
Asia, where we have partnered our ALN-RSV program with Kyowa Hakko, Cubist will have an exclusive,
royalty-bearing license to develop and commercialize licensed products. In consideration for the
rights granted to Cubist under the Cubist agreement, Cubist made a $20.0 million upfront cash
payment to us. Cubist also has an obligation to pay us milestone payments, totaling up to an
aggregate of $82.5 million, upon the achievement of specified development and sales events in the
royalty territory. In addition, if licensed products are successfully developed, Cubist will be
required to pay us double digit royalties on net sales of licensed products in the royalty
territory, if any, subject to offsets under certain circumstances. A more complete description of
the Cubist agreement is set forth below under Strategic Alliances.
We commenced operations in June 2002. We have focused our efforts since inception primarily on
business planning, research and development, acquiring, filing and expanding intellectual property
rights, recruiting management and technical staff, and raising capital. Since our inception, we
have generated significant losses. As of June 30, 2009, we had an accumulated deficit of $282.8
million. Through June 30, 2009, we have funded our operations primarily through the net proceeds
from the sale of equity securities and payments we have received under strategic alliances. Through
June 30, 2009, a substantial portion of our total net revenues have been collaboration revenues
derived from our strategic alliances with Roche, Takeda and Novartis, and from the United States
government in connection with our development of treatments for hemorrhagic fever viruses,
including Ebola. We expect our revenues to continue to be derived primarily from new and existing
strategic alliances, government and foundation funding and license fee revenues.
We currently have programs focused in a number of therapeutic areas. However, we are unable to
predict when, if ever, we will successfully develop or be able to commence sales of any product. We
have never achieved profitability on an annual basis and we expect to incur additional losses over
the next several years. We expect our net losses to continue due primarily to research and
development activities relating to our drug development programs, collaborations and other general
corporate activities. We anticipate that our operating results will fluctuate for the foreseeable
future. Therefore, period-to-period comparisons should not be relied upon as predictive of the
results in future periods. Our sources of potential funding for the next several years are expected
to be derived
primarily from payments under new and existing strategic alliances, which may include license
and other fees, funded research and development payments and milestone payments, government and
foundation funding and proceeds from the sale of equity.
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Research and Development
Since our inception, we have focused on drug discovery and development programs. Research and
development expenses represent a substantial percentage of our total operating expenses. Our most
advanced program is focused on the treatment of RSV infection and is in Phase II clinical studies.
In January 2009, we received clearance from the FDA to proceed with a Phase I study of ALN-VSP for
the treatment of patients with advanced solid tumors with liver involvement. We initiated our
ALN-VSP Phase I study in March 2009.
In August 2009, we announced ALN-TTR, for the treatment
of TTR amyloidosis, as our next IND candidate.
Our other development programs are focused on hypercholesterolemia and Huntingtons disease. In addition to these
development programs, we have discovery programs to develop RNAi therapeutics for the treatment of
a broad range of diseases, such as viral hemorrhagic fever, including the Ebola virus, PML,
Parkinsons disease and many other undisclosed programs, as well as several other diseases that are
the subject of our strategic alliances. We are also working internally and with third-party
collaborators to develop capabilities to deliver our RNAi therapeutics both directly to the
specific sites of disease and systemically, and we intend to continue to collaborate with
government, academic and corporate third parties to evaluate different delivery options.
There is a risk that any drug discovery or development program may not produce revenue for a
variety of reasons, including the possibility that we will not be able to adequately demonstrate
the safety and efficacy of the product candidate. Moreover, there are uncertainties specific to any
new field of drug discovery, including RNAi. The successful development of any product candidate we
develop is highly uncertain. Due to the numerous risks associated with developing drugs, we cannot
reasonably estimate or know the nature, timing and estimated costs of the efforts necessary to
complete the development of, or the period, if any, in which material net cash inflows will
commence from, any potential product candidate. These risks include the uncertainty of:
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our ability to progress product candidates into pre-clinical and clinical trials;
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the scope, rate and progress of our pre-clinical trials and other research and
development activities, including those related to developing safe and effective ways of
delivering siRNAs into cells and tissues;
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the scope, rate of progress and cost of any clinical trials we commence;
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clinical trial results;
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the cost of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights;
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the terms, timing and success of any collaborative, licensing and other arrangements that we
may establish;
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the cost, timing and success of regulatory filings and approvals or potential
changes in regulations that govern our industry or the way in which they are interpreted
or enforced;
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the cost and timing of establishing sufficient sales, marketing and distribution
capabilities;
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the cost and timing of establishing sufficient clinical and commercial supplies
of any products that we may develop; and
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the effect of competing technological and market developments.
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Any failure to complete any stage of the development of any potential products in a timely
manner could have a material adverse effect on our operations, financial position and liquidity. A
discussion of some of the risks and uncertainties associated with completing our projects on
schedule, or at all, and the potential consequences of failing to do so, are set forth in Part II,
Item 1A below under the heading Risk Factors.
Strategic Alliances
A significant component of our business plan is to enter into strategic alliances and
collaborations with pharmaceutical and biotechnology companies, academic institutions, research
foundations and others, as appropriate, to gain access to funding, capabilities, technical
resources and intellectual property to further our development efforts and to generate revenues.
Our
collaboration strategy is to form (1) non-exclusive platform alliances where our collaborators
obtain access to our capabilities and
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intellectual property to develop their own RNAi therapeutic
products; and (2) 50-50 co-development and/or ex-U.S. market geographic partnerships on specific
RNAi therapeutic programs. We have entered into broad, non-exclusive platform license agreements
with Roche and Takeda, under which we will also collaborate with each of Roche and Takeda on RNAi
drug discovery for one or more disease targets. We are pursuing 50-50 co-development programs with
Cubist and Medtronic for the development and commercialization of ALN-RSV and ALN-HTT,
respectively. In addition, we have entered into a product alliance with Kyowa Hakko for the
development and commercialization of ALN-RSV in territories not covered by the Cubist agreement,
which include Japan and other markets in Asia. We also have discovery and development alliances
with Isis, Novartis and Biogen Idec.
We also seek opportunities to form new ventures in areas outside our core strategic focus. For
example, we formed Regulus, together with Isis, to capitalize on our technology and intellectual
property in the field of microRNA-based therapeutics. Given the broad applications for RNAi
technology, we believe additional opportunities exist for new ventures to be formed.
To generate revenues from our intellectual property rights, we also grant licenses to
biotechnology companies under our InterfeRx program for the development and commercialization of
RNAi therapeutics for specified targets in which we have no direct strategic interest. We also
license key aspects of our intellectual property to companies active in the research products and
services market, which includes the manufacture and sale of reagents. Our InterfeRx and research
product licenses aim to generate modest near-term revenues that we can re-invest in the development
of our proprietary RNAi therapeutics pipeline. As of June 30, 2009, we had granted such licenses,
on both an exclusive and nonexclusive basis, to approximately 20 companies.
Since delivery of RNAi therapeutics remains a major objective of our research activities, we
also look to form collaboration and licensing agreements with other companies and academic
institutions to gain access to delivery technologies. For example, we have formed agreements with
Tekmira and MIT, among others, to focus on various delivery strategies. We have also entered into
license agreements with Isis, Max-Planck-Innovation GmbH, Tekmira and MIT, as well as a number of
other entities, to obtain rights to important intellectual property in the field of RNAi. In April
2009, we expanded our existing agreement with Isis to focus on the development of ssRNAi
technology.
Finally, we seek funding for the development of our proprietary RNAi therapeutics pipeline
from foundations and government sources. In 2006, NIAID awarded us a contract to advance the
development of a broad spectrum RNAi anti-viral therapeutic against hemorrhagic fever virus,
including the Ebola virus. In 2007, the Defense Threat Reduction Agency, or DTRA, an agency of the
United States Department of Defense, awarded us a contract to advance the development of a broad
spectrum RNAi anti-viral therapeutic for hemorrhagic fever virus, which contract ended in February
2009. In addition, we have obtained funding for pre-clinical discovery programs from organizations
such as The Michael J. Fox Foundation.
Cubist Alliance.
In January 2009, we entered into a license and collaboration agreement with
Cubist to develop and commercialize therapeutic products based on certain of our RNAi technology
for the treatment of RSV, including ALN-RSV01, which is currently in Phase II clinical trials for
the treatment of RSV infection in adult lung transplant patients, as well as several other
second-generation RNAi-based RSV inhibitors, which currently are in pre-clinical studies.
Under the terms of the Cubist agreement, we and Cubist will share responsibility for
developing licensed products in North America and will each bear one-half of the related
development costs. Our collaboration with Cubist for the development of licensed products in North
America will be governed by a joint steering committee comprised of an equal number of
representatives from each party. Cubist will have the sole right to commercialize licensed products
in North America with costs associated with such activities and any resulting profits or losses to
be split equally between us and Cubist. Throughout the rest of the world, referred to as the
Royalty Territory, excluding Asia, where we have previously partnered our ALN-RSV program with
Kyowa Hakko, Cubist will have an exclusive, royalty-bearing license to develop and commercialize
licensed products.
In consideration for the rights granted to Cubist under the agreement, in January 2009, Cubist
paid us an upfront cash payment of $20.0 million. Cubist also has an obligation under the agreement
to pay us milestone payments, totaling up to an aggregate of $82.5 million, upon the achievement of
specified development and sales events in the Royalty Territory. In addition, if licensed products
are successfully developed, Cubist will be required to pay us double digit royalties on net sales
of licensed products in the Royalty Territory, if any, subject to offsets under certain
circumstances. Upon achievement of certain development milestones, we will have the right to
convert the North American co-development and profit sharing arrangement into a royalty-bearing
license and, in addition to royalties on net sales in North America, will be entitled to receive
additional milestone payments totaling up to an aggregate of $130.0 million upon achievement of
specified development and sales events in North America, subject to the timing of the conversion by
us and the regulatory status of a licensed product at the time of conversion. If we make the
conversion to a royalty-bearing license with respect to North America, then North America becomes
part of the Royalty Territory. Due to the uncertainty of pharmaceutical development and the high
historical failure rates generally associated with drug development, we may not receive any
milestone or royalty payments from Cubist.
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Unless terminated earlier in accordance with the agreement, the agreement expires on a
country-by-country and licensed product-by-licensed product basis, (a) with respect to the Royalty
Territory, upon the latest to occur of (1) the expiration of the last-to-expire Alnylam patent
covering a licensed product, (2) the expiration of the Regulatory-Based Exclusivity Period (as
defined in the Cubist agreement) and (3) ten years from first commercial sale in such country of
such licensed product by Cubist or its affiliates or sublicensees, and (b) with respect to
North America, if we have not converted North America into the Royalty Territory, upon the
termination of the agreement by Cubist upon specified prior written notice. We estimate that our
fundamental RNAi patents covered under the Cubist agreement will expire both in and outside of the
United States generally between 2016 and 2025. Allowed claims covering ALN-RSV01 in the United
States would expire in 2026. These patent rights are subject to any potential patent term
extensions and/or supplemental protection certificates extending such term extensions in countries
where such extensions may become available. In addition, more patent filings relating to the
collaboration may be made in the future. Cubist has the right to terminate the agreement at any
time (1) upon three months prior written notice if such notice is given prior to the acceptance
for filing of the first application for regulatory approval of a licensed product or (2) upon nine
months prior written notice if such notice is given after the acceptance for filing of the first
application for regulatory approval. Either party may terminate the agreement in the event the
other party fails to cure a material breach or upon patent-related challenges by the other party.
During the term of the Cubist agreement, neither party nor its affiliates may develop,
manufacture or commercialize anywhere in the world, outside of Asia, a therapeutic or prophylactic
product that specifically targets RSV, except for licensed products developed, manufactured or
commercialized pursuant to the agreement.
We have determined that the deliverables under the Cubist agreement include the licenses,
technology transfer related to the ALN-RSV program, the joint steering committee, and the
development and manufacturing services that we will be obligated to perform during the development period. We have determined
that, pursuant to Emerging Issues Task Force, or EITF, Issue No. 00-21, Revenue Arrangements with
Multiple Deliverables, or EITF 00-21, the deliverables and undelivered services are not separable
and, accordingly, the licenses and services are being treated as a single unit of accounting.
When multiple deliverables are accounted for as a single unit of accounting, we base our
revenue recognition pattern on the final deliverable. Under the Cubist agreement, the last element
to be delivered is the joint steering committee service, which has an expected life of no more than
seven years. We are recognizing the upfront payment of $20.0 million on a straight-line basis over
seven years because we are unable to reasonably estimate the level of effort to fulfill our
performance obligations. As future substantive milestones are achieved, a portion of the milestone
payment, equal to the percentage of the performance period completed when the milestone is
achieved, multiplied by the amount of the milestone payment, will be recognized as revenue upon
achievement of such milestone. The remaining portion of the milestone will be recognized over the
remaining performance period on a straight-line basis. We will continue to reassess whether we can
reasonably estimate the level of effort required to fulfill our obligations under the Cubist
agreement. When, and if, we can make a reasonable estimate of its remaining efforts under the
collaboration, we will modify our method of recognition and utilize a proportional performance
method.
Under the terms of the Cubist agreement, we and Cubist will share responsibility for
developing Licensed Products in North America and will each bear one-half of the related
development costs. For revenue generating arrangements that involve cost sharing between both
parties, we apply the provisions of EITF No. 07-1 Accounting for Collaborative Arrangements, or
EITF 07-1. EITF 07-1 requires collaborators to present the results of activities for which they
act as the principal on a gross basis and report any payments received from (made to) other
collaborators based on other applicable accounting principles generally accepted in the United
States of America, or GAAP, or, in the absence of other applicable GAAP, analogy to authoritative
accounting literature or a reasonable, rational and consistently applied accounting policy
election. As we are not considered the principal in this agreement, pursuant to EITF 07-1, we will
record any amounts due from Cubist as a reduction of research and development costs. For the three
and six months ended June 30, 2009, we and Cubist incurred $3.2 million and $7.0 million,
respectively, under the Cubist agreement. Amounts due from Cubist of $1.5 million and $3.3 million,
respectively, were recorded as a reduction to research and development expense. As such, we
recorded net research and development expenses of $1.6 million and $3.5 million in our condensed
consolidated statements of operations for the three and six months ended June 30, 2009,
respectively.
Amended and Restated Isis Collaboration.
In April 2009, we and Isis amended and restated our
existing strategic collaboration and license agreement, originally entered into in March 2004.
Under this agreement, we and Isis agreed to extend the broad cross-licensing arrangement regarding
double-stranded RNAi that was established in 2004, pursuant to which Isis granted us licenses to
its current and future patents and patent applications relating to chemistry and to RNA-targeting
mechanisms for the research, development and commercialization of double-stranded RNA products. We
have the right to use Isis technologies in our
development programs or in collaborations and Isis has agreed not to grant licenses under
these patents to any other organization for
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the discovery, development and commercialization of
double-stranded RNA products designed to work through an RNAi mechanism, except in the context of a
collaboration in which Isis plays an active role. We granted Isis non-exclusive licenses to our
current and future patents and patent applications relating to RNA-targeting mechanisms and to
chemistry for research use. We also granted Isis the non-exclusive right to develop and
commercialize double-stranded RNA products developed using RNAi technology against a limited number
of targets. In addition, we granted Isis non-exclusive rights to research, develop and
commercialize single-stranded RNA products.
We agreed to pay Isis milestone payments, totaling up to approximately $3.4 million, upon the
occurrence of specified development and regulatory events, and royalties on sales, if any, for each
product that we or a collaborator develops using Isis intellectual property. In addition, we agreed
to pay to Isis a percentage of specified fees from strategic collaborations we may enter into that
include access to the Isis intellectual property. Isis has agreed to pay us, per therapeutic
target, a license fee of $0.5 million, and milestone payments totaling approximately $3.4 million,
payable upon the occurrence of specified development and regulatory events, and royalties on sales,
if any, for each product developed by Isis or a collaborator that utilizes our intellectual
property. Isis has the right to elect up to ten non-exclusive target licenses under the agreement
and has the right to purchase one additional non-exclusive target per year during the term of the
collaboration.
As part of the amended and restated Isis agreement, we and Isis have expanded our
collaborative efforts to focus on the development of single-stranded RNAi, or ssRNAi, technology.
Under the amended and restated Isis agreement, we obtained from Isis a co-exclusive, worldwide
license to Isis current and future patents and patent applications relating to chemistry and
RNA-targeting mechanisms to research, develop and commercialize ssRNAi products for a limited
number of gene targets to be designated by us. Both we and Isis will have the opportunity to
discover and develop drugs employing the ssRNAi technology. Under the terms of the amended and
restated Isis agreement, we will potentially pay Isis up to an aggregate of $31.0 million in
license fees, payable in four tranches, that include $11.0 million on signing, $10.0 million 18
months following signing, or if and when
in vivo
efficacy in rodents is demonstrated if sooner,
$5.0 million upon achievement of
in vivo
efficacy in non-human primates, and $5.0 million upon
initiation of the first clinical trial with an ssRNAi drug, subject to our right to unilaterally
terminate the research program. We have recorded the upfront payment of $11.0 million as research
and development expense. We will expense each milestone payment when achievement of the milestone
is considered probable. We will fund research activities at a minimum of $3.0 million each year for
three years with research development activities conducted by both us and Isis. If we develop and
commercialize drugs utilizing ssRNAi technology on our own or with a partner, Isis could
potentially receive milestone payments, totaling up to $18.5 million per product, as well as
royalties. Also, initially, Isis is eligible to receive up to 50 percent of any sublicense payments
due to us from a third party based on our partnering of ssRNAi products, which amount will decline
over time as our investment in the technology and drugs increases. In turn, we are eligible to
receive up to five percent of any sublicense payments due to Isis from a third party based on Isis
partnering of ssRNAi products.
We have the unilateral right to terminate the research program before September 30, 2010, in
which event any licenses to ssRNAi products granted by Isis to us under the amended and restated
Isis agreement, and any obligation thereunder by us to pay milestone payments, royalties or
sublicense payments to Isis for such ssRNAi products, would also terminate.
Novartis Alliance.
In May 2009, pursuant to terms of the investor rights agreement between us
and Novartis, Novartis purchased 65,922 shares of our common stock, at a purchase price of $17.50
per share, resulting in an aggregate payment to us of $1.2 million. Under the investor rights
agreement, we granted Novartis rights to acquire additional equity securities such that Novartis
would be able to maintain its ownership percentage, which following this purchase was 13.4% of our
outstanding common stock.
Our collaboration and license agreement with Novartis had
an initial term of three years, with an option for two additional one-year extensions at the
election of Novartis. In July 2009, Novartis elected to further extend the term of our collaboration and license
agreement for the fifth and final planned year, through October 2010.
Regulus
In September 2007, we and Isis established Regulus, a company focused on the discovery,
development and commercialization of microRNA-based therapeutics. Regulus combines our and Isis
technologies, know-how and intellectual property relating to microRNA-based therapeutics. Since
microRNAs are believed to regulate the expression of broad networks of genes and biological
pathways, microRNA-based therapeutics define a new and potentially high-impact strategy to target
multiple points on disease pathways. Regulus, which had initially been established as a limited
liability company, converted to a C corporation as of January 2, 2009 and changed its name to
Regulus Therapeutics Inc.
23
In consideration for our and Isis initial interests in Regulus, we and Isis each granted
Regulus exclusive licenses to our intellectual property for certain microRNA-based therapeutics as
well as certain patents in the microRNA field. In addition, we made an initial cash contribution
to Regulus of $10.0 million, resulting in us and Isis making initial capital contributions to
Regulus of approximately equal aggregate value. In addition, in March 2009, we and Isis each
purchased $10.0 million of Series A preferred stock of Regulus. We and Isis currently own
approximately 49% and 51%, respectively, of Regulus and there are currently no other third party
investors in Regulus. Regulus continues to operate as an independent company with a separate board
of directors, scientific advisory board and management team, some of whom have options to purchase
common stock of Regulus. Members of the board of directors of Regulus who are our employees or
Isis employees are not eligible to receive options to purchase Regulus common stock.
We, Isis and Regulus have also entered into a license and collaboration agreement to pursue
the discovery, development and commercialization of therapeutic products directed to microRNAs.
Under the terms of the license and collaboration agreement, we and Isis assigned to Regulus
specified patents and contracts covering microRNA-specific technology. In addition, each of us
granted to Regulus an exclusive, worldwide license under our rights to other microRNA-related
patents and know-how to develop and commercialize therapeutic products containing compounds that
are designed to interfere with or inhibit a particular microRNA, subject to our and Isis existing
contractual obligations to third parties. Regulus also has the right to request a license from us
and Isis to develop and commercialize therapeutic products directed to other microRNA compounds,
which license is subject to our and Isis approval and to each such partys existing contractual
obligations to third parties. Regulus granted to us and Isis an exclusive license to technology
developed or acquired by Regulus for use solely within our respective fields (as defined in the
license and collaboration agreement), but specifically excluding the right to develop, manufacture
or commercialize the therapeutic products for which we and Isis granted rights to Regulus.
Regulus most advanced program, which is in pre-clinical research, is a microRNA-based
therapeutic candidate that targets miR-122, an endogenous host gene required for viral infection by
the hepatitis C virus, or HCV. HCV infection is a significant disease worldwide, for which emerging
therapies target viral genes and, therefore, are prone to viral resistance. Regulus is also
pursuing a program that targets miR-21. Pre-clinical studies by Regulus and collaborators have
shown that miR-21 is implicated in several therapeutic areas, including heart failure and fibrosis.
In addition to these programs, Regulus is also actively exploring additional areas for development
of microRNA-based therapeutics, including cancer, other viral diseases, metabolic disorders and
inflammatory diseases.
In April 2008, Regulus entered into a worldwide strategic alliance with GlaxoSmithKline, or
GSK, to discover, develop and market novel microRNA-targeted therapeutics to treat inflammatory
diseases such as rheumatoid arthritis and inflammatory bowel disease. In connection with this
alliance, Regulus received $20.0 million in upfront payments from GSK, including a $15.0 million
option fee and a loan of $5.0 million evidenced by a promissory note (guaranteed by Isis and us)
that will convert into Regulus common stock under certain specified circumstances. Regulus could be
eligible to receive development, regulatory and sales milestone payments for each of the four
microRNA-targeted therapeutics discovered and developed as part of the alliance, and would also
receive royalty payments on worldwide sales of products resulting from the alliance, if any. In
May 2009, Regulus achieved the initial discovery milestone under the GSK alliance, which triggered
a payment under the agreement, concurrent with the first demonstration of a pharmacological effect
in immune cells by specific microRNA inhibition.
Intellectual Property
The strength of our intellectual property portfolio relating to the development and
commercialization of siRNAs as therapeutics is essential to our business strategy. We own or
license issued patents and pending patent applications in the United States and in key markets
around the world claiming fundamental features of siRNAs and RNAi therapeutics as well as those
claiming crucial chemical modifications and promising delivery technologies. Specifically, we have
a portfolio of patents, patent applications and other intellectual property covering: fundamental
aspects of the structure and uses of siRNAs, including their use as therapeutics, and RNAi-related
mechanisms; chemical modifications to siRNAs that improve their suitability for therapeutic uses;
siRNAs directed to specific targets as treatments for particular diseases; delivery technologies,
such as in the field of cationic liposomes; and all aspects of our specific development candidates.
We believe that no other company possesses a portfolio of such broad and exclusive rights to
the patents and patent applications required for the commercialization of RNAi therapeutics. Our
intellectual property estate for RNAi therapeutics includes over 1,800 active cases and over 700
granted or issued patents, of which over 300 are issued or granted in the United States, the
European Union and Japan. We continue to seek to grow our portfolio through the creation of new
technology in this field. In
addition, we are very active in our evaluation of third-party technology, as most recently
evidenced by our acquisition of the intellectual property in the emerging biological field of RNAa.
24
Our expertise in RNAi therapeutics and broad intellectual property estate have allowed us to
form alliances with leading companies, including Isis, Medtronic, Novartis, Biogen, Roche, Takeda,
Kyowa Hakko and Cubist, as well as license agreements with other biotechnology companies interested
in developing RNAi therapeutic products and research companies that commercialize RNAi reagents or
services.
In addition, in July 2009, we announced that we will contribute more than 1,500 issued or
pending patents in our RNAi technology patent estate to the patent pool established by GSK in March
2009. We are the first company to add its patents to the approximately 800 patent filings GSK
provided to the pool. The patent pool was formed to aid in the discovery and development of new
medicines for the treatment of 16 neglected tropical diseases, or NTD, as defined by the FDA, in
the worlds least developed countries. Through our contribution to the patent pool, we are
providing RNAi intellectual property, technology and know-how on a royalty-free, non-profit basis
in the least developed countries via licensing agreements with qualified third parties. Such
organizations will be engaged in research efforts focused on discovery of new medicines for NTD and
their distribution to least developed countries.
Given the importance of our intellectual property portfolio to our business operations, we
intend to vigorously enforce our rights and defend against any challenges that have arisen or may
arise in this area.
In June 2009, we joined with Max-Planck-Gesellschaft Zur Forderung Der Wissenschaften E.V. and
Max-Planck-Innovation GmbH, collectively, Max Planck, in taking legal action against the Whitehead
Institute for Biomedical Research, or Whitehead, MIT
and the Board of Trustees of the University of Massachusetts, or UMass. The complaint, initially
filed in Suffolk County Superior Court in Boston, Massachusetts and subsequently removed to the
U.S. District Court for the District of Massachusetts, alleges (among other things) that the defendants
have improperly prosecuted the so-called Tuschl I patent applications and wrongfully incorporated
inventions covered by the Tuschl II patent applications into the Tuschl I patent applications,
thereby potentially damaging the value of inventions reflected in the Tuschl II patent
applications. In the field of RNAi therapeutics, we are the exclusive licensee of the Tuschl I
patent applications from Max Planck, MIT and Whitehead, and of the Tuschl II patent applications
from Max Planck.
Although we are vigorously asserting our rights in this case (along with Max Planck),
litigation is subject to inherent uncertainty and a court could ultimately rule against us. In
addition, litigation is costly and may divert the attention of our management and other resources
that would otherwise be engaged in running our business.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies since the
beginning of this fiscal year. Our critical accounting policies are described in the Managements
Discussion and Analysis of Financial Condition and Results of Operations section of our Annual
Report on Form 10-K for the year ended December 31, 2008, which we filed with the Securities and
Exchange Commission on March 2, 2009.
Results of Operations
The following data summarizes the results of our operations for the periods indicated,
in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
Net revenues
|
|
$
|
24,601
|
|
|
$
|
23,833
|
|
|
$
|
49,658
|
|
|
$
|
46,025
|
|
Operating expenses
|
|
|
47,013
|
|
|
|
36,664
|
|
|
|
80,050
|
|
|
|
62,813
|
|
Loss from operations
|
|
|
(22,412
|
)
|
|
|
(12,831
|
)
|
|
|
(30,392
|
)
|
|
|
(16,788
|
)
|
Net loss
|
|
$
|
(22,702
|
)
|
|
$
|
(12,760
|
)
|
|
$
|
(30,591
|
)
|
|
$
|
(13,999
|
)
|
25
Revenues
The following table summarizes our total consolidated net revenues, for the periods indicated,
in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Roche
|
|
$
|
13,967
|
|
|
$
|
13,365
|
|
|
$
|
27,795
|
|
|
$
|
26,776
|
|
Takeda
|
|
|
5,419
|
|
|
|
2,074
|
|
|
|
10,836
|
|
|
|
2,074
|
|
Novartis
|
|
|
2,243
|
|
|
|
3,172
|
|
|
|
4,922
|
|
|
|
6,424
|
|
Government contract
|
|
|
1,930
|
|
|
|
4,030
|
|
|
|
3,734
|
|
|
|
8,963
|
|
Other research collaborator
|
|
|
944
|
|
|
|
230
|
|
|
|
1,827
|
|
|
|
468
|
|
InterfeRx program, research reagent license and other
|
|
|
98
|
|
|
|
962
|
|
|
|
544
|
|
|
|
1,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues from research collaborators
|
|
$
|
24,601
|
|
|
$
|
23,833
|
|
|
$
|
49,658
|
|
|
$
|
46,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues increased for the three and six months ended June 30, 2009 as compared to the
three and six months ended June 30, 2008 primarily as a result of our alliance with Takeda. In
June 2008, we received upfront cash payments totaling $100.0 million under the Takeda alliance and
in October 2008, we received the first technology transfer milestone payment of $20.0 million.
Takeda is required to make an additional $30.0 million in near-term payments to us upon achievement
of specified technology transfer milestones. The $150.0 million in upfront and technology transfer
milestone payments made or due to us under the Takeda alliance are being recognized as revenue on a
straight-line basis over seven years.
For the three and six months ended June 30, 2009 as compared to the three and six months ended
June 30, 2008, government contract revenues decreased due primarily to the wind down of our
collaboration with DTRA. Following a program review, in February 2009 we and DTRA determined not to
continue this program and accordingly, no additional funds will be accessed.
The decrease in Novartis revenues in the three and six months ended June 30, 2009 as compared
to the three and six months ended June 30, 2008 was due in part to a reduction in the number of
resources allocated to the broad Novartis alliance.
For the three and six months ended June 30, 2009 as compared to the three and six months ended
June 30, 2008, other research collaborator revenues increased due primarily to our alliance with
Cubist. In consideration for the rights granted to Cubist under the agreement, in January 2009,
Cubist paid us an upfront cash payment of $20.0 million. We are recognizing this $20.0 million
payment as revenue on a straight-line basis over seven years.
Total deferred revenue of $312.2 million at June 30, 2009 consists of payments we have
received from collaborators, primarily Roche, Takeda, Kyowa Hakko and Cubist, but have not yet
recognized pursuant to our revenue recognition policies.
For the foreseeable future, we expect our revenues to continue to be derived primarily from
our alliances with Roche, Takeda, Novartis and Cubist, as well as other strategic alliances,
collaborations, government contracts and licensing activities.
Operating expenses
The following tables summarize our operating expenses for the periods indicated, in
thousands and as a percentage of total operating expenses, together with the changes, in thousands
and percentages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
% of Total
|
|
|
Three Months
|
|
|
% of Total
|
|
|
|
|
|
|
Ended
|
|
|
Operating
|
|
|
Ended
|
|
|
Operating
|
|
|
Increase
|
|
|
|
June 30, 2009
|
|
|
Expenses
|
|
|
June 30, 2008
|
|
|
Expenses
|
|
|
$
|
|
|
%
|
|
Research and development
|
|
$
|
38,615
|
|
|
|
82
|
%
|
|
$
|
29,558
|
|
|
|
81
|
%
|
|
$
|
9,057
|
|
|
|
31
|
%
|
General and administrative
|
|
|
8,398
|
|
|
|
18
|
%
|
|
|
7,106
|
|
|
|
19
|
%
|
|
|
1,292
|
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
47,013
|
|
|
|
100
|
%
|
|
$
|
36,664
|
|
|
|
100
|
%
|
|
$
|
10,349
|
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
% of Total
|
|
|
Six Months
|
|
|
% of Total
|
|
|
|
|
|
|
Ended
|
|
|
Operating
|
|
|
Ended
|
|
|
Operating
|
|
|
Increase
|
|
|
|
June 30, 2009
|
|
|
Expenses
|
|
|
June 30, 2008
|
|
|
Expenses
|
|
|
$
|
|
|
%
|
|
Research and development
|
|
$
|
63,936
|
|
|
|
80
|
%
|
|
$
|
49,835
|
|
|
|
79
|
%
|
|
$
|
14,101
|
|
|
|
28
|
%
|
General and administrative
|
|
|
16,114
|
|
|
|
20
|
%
|
|
|
12,978
|
|
|
|
21
|
%
|
|
|
3,136
|
|
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
80,050
|
|
|
|
100
|
%
|
|
$
|
62,813
|
|
|
|
100
|
%
|
|
$
|
17,237
|
|
|
|
27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development.
The following tables summarize the components of our research
and development expenses for the periods indicated, in thousands and as a percentage of total
research and development expenses, together with the changes, in thousands and percentages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
% of
|
|
|
Three Months
|
|
|
% of
|
|
|
|
|
|
|
Ended
|
|
|
Expense
|
|
|
Ended
|
|
|
Expense
|
|
|
Increase (Decrease)
|
|
|
|
June 30, 2009
|
|
|
Category
|
|
|
June 30, 2008
|
|
|
Category
|
|
|
$
|
|
|
%
|
|
Research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License fees
|
|
$
|
10,423
|
|
|
|
27
|
%
|
|
$
|
7,414
|
|
|
|
25
|
%
|
|
$
|
3,009
|
|
|
|
41
|
%
|
External services
|
|
|
6,928
|
|
|
|
18
|
%
|
|
|
6,466
|
|
|
|
22
|
%
|
|
|
462
|
|
|
|
7
|
%
|
Clinical trial and manufacturing
|
|
|
6,751
|
|
|
|
17
|
%
|
|
|
2,395
|
|
|
|
8
|
%
|
|
|
4,356
|
|
|
|
182
|
%
|
Compensation and related
|
|
|
5,728
|
|
|
|
15
|
%
|
|
|
4,732
|
|
|
|
16
|
%
|
|
|
996
|
|
|
|
21
|
%
|
Non-cash stock-based compensation
|
|
|
3,248
|
|
|
|
8
|
%
|
|
|
2,857
|
|
|
|
10
|
%
|
|
|
391
|
|
|
|
14
|
%
|
Facilities-related
|
|
|
3,166
|
|
|
|
8
|
%
|
|
|
2,596
|
|
|
|
9
|
%
|
|
|
570
|
|
|
|
22
|
%
|
Lab supplies and materials
|
|
|
2,127
|
|
|
|
6
|
%
|
|
|
2,417
|
|
|
|
8
|
%
|
|
|
(290
|
)
|
|
|
(12
|
%)
|
Other
|
|
|
244
|
|
|
|
1
|
%
|
|
|
681
|
|
|
|
2
|
%
|
|
|
(437
|
)
|
|
|
(64
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and
development expenses
|
|
$
|
38,615
|
|
|
|
100
|
%
|
|
$
|
29,558
|
|
|
|
100
|
%
|
|
$
|
9,057
|
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses increased during the three months ended June 30, 2009
as compared to the three months ended June 30, 2008 due primarily to license fees paid to Isis in
connection with our ssRNAi program under the amended and restated Isis agreement entered into in
April 2009. For the three months ended June 30, 2008, license fees consisted primarily of
$5.0 million in payments to certain entities, primarily Isis, as a result of the Takeda alliance,
as well as a charge of $2.1 million in connection with our Tekmira investment in May 2008.
Clinical trial and manufacturing expenses increased during the
three months ended June 30, 2009 due primarily to increased costs associated
with our ALN-TTR pre-clinical program and our ALN-VSP and ALN-RSV clinical trials. Compensation
and related expenses and facilities-related expenses increased during the three months ended June
30, 2009 as compared to the three months ended June 30, 2008 due to additional research and
development headcount to support our alliances and expanding product pipeline. In addition, under
the terms of our January 2009 agreement with Cubist, we and Cubist each bear one-half of the
development costs for our ALN-RSV program. Accordingly, for the three months ended June 30, 2009,
we recorded a reduction to research and development expenses of $1.5 million.
We expect to continue to devote a substantial portion of our resources to research and
development expenses and, excluding the impact of the license fees we paid in connection with our
ssRNAi program under the amended and restated Isis agreement, we expect that research and
development expenses will remain consistent or increase slightly in 2009 as we continue development
of our and our collaborators product candidates and focus on continuing to develop drug
delivery-related technologies.
We do not track actual costs for most of our research and development programs or our
personnel and personnel-related costs on a project-by-project basis because all of our programs are
in the early stages of development. In addition, a significant portion of our research and
development costs are not tracked by project as they benefit multiple projects or our technology
platform. However, our collaboration agreements contain cost-sharing arrangements whereby certain
costs incurred under the project are reimbursed. Costs reimbursed under the agreements typically
include certain direct external costs and a negotiated full-time equivalent labor rate for the
actual time worked on the project. In addition, we are reimbursed under our government contracts
for certain allowable costs including direct internal and external costs. As a result, although a
significant portion of our research and development expenses are not tracked on a
project-by-project basis, we do track direct external costs attributable to, and the actual time
our employees worked on, our collaborations and government contracts.
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
% of
|
|
|
Six Months
|
|
|
% of
|
|
|
|
|
|
|
Ended
|
|
|
Expense
|
|
|
Ended
|
|
|
Expense
|
|
|
Increase (Decrease)
|
|
|
|
June 30, 2009
|
|
|
Category
|
|
|
June 30, 2008
|
|
|
Category
|
|
|
$
|
|
|
%
|
|
Research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License fees
|
|
$
|
12,683
|
|
|
|
20
|
%
|
|
$
|
7,451
|
|
|
|
15
|
%
|
|
$
|
5,232
|
|
|
|
70
|
%
|
Clinical trial and manufacturing
|
|
|
11,399
|
|
|
|
18
|
%
|
|
|
7,035
|
|
|
|
14
|
%
|
|
|
4,364
|
|
|
|
62
|
%
|
Compensation and related
|
|
|
11,301
|
|
|
|
18
|
%
|
|
|
8,535
|
|
|
|
17
|
%
|
|
|
2,766
|
|
|
|
32
|
%
|
External services
|
|
|
11,148
|
|
|
|
17
|
%
|
|
|
12,129
|
|
|
|
25
|
%
|
|
|
(981
|
)
|
|
|
(8
|
%)
|
Non-cash stock-based compensation
|
|
|
6,282
|
|
|
|
10
|
%
|
|
|
5,171
|
|
|
|
10
|
%
|
|
|
1,111
|
|
|
|
21
|
%
|
Facilities-related
|
|
|
6,105
|
|
|
|
10
|
%
|
|
|
4,509
|
|
|
|
9
|
%
|
|
|
1,596
|
|
|
|
35
|
%
|
Lab supplies and materials
|
|
|
4,312
|
|
|
|
6
|
%
|
|
|
3,849
|
|
|
|
8
|
%
|
|
|
463
|
|
|
|
12
|
%
|
Other
|
|
|
706
|
|
|
|
1
|
%
|
|
|
1,156
|
|
|
|
2
|
%
|
|
|
(450
|
)
|
|
|
(39
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and
development expenses
|
|
$
|
63,936
|
|
|
|
100
|
%
|
|
$
|
49,835
|
|
|
|
100
|
%
|
|
$
|
14,101
|
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses increased during the six months ended June 30, 2009 as
compared to the six months ended June 30, 2008 due primarily to license fees paid to Isis in
connection with our ssRNAi program under the amended and restated Isis agreement entered into in
April 2009, as well as higher license fees payable to certain entities, primarily Isis, as a result
of the Cubist alliance and the initiation of our ALN-VSP Phase I clinical study. For the six
months ended June 30, 2008, license fees consisted primarily of $5.0 million in payments to certain
entities, primarily Isis, as a result of the Takeda alliance, as well as a charge of $2.1 million
in connection with our Tekmira investment in May 2008. Clinical trial and manufacturing expenses
increased during the six months ended June 30, 2009 due primarily to increased costs associated with our ALN-TTR pre-clinical program and our
ALN-VSP and ALN-RSV clinical trials. Compensation and related expenses, lab supplies and
materials, and facilities-related expenses increased during the six months ended June 30, 2009 as
compared to the six months ended June 30, 2008 due to additional research and development headcount
to support our alliances and expanding product pipeline. Partially offsetting these increases was
a decrease in external services primarily due to the wind down of our collaboration with DTRA.
Following a program review, in February 2009 we and DTRA determined not to continue this program
and, accordingly, no additional expenses for this program will be incurred. In addition, under the
terms of our January 2009 agreement with Cubist, we and Cubist each bear one-half of the
development costs for our ALN-RSV program. Accordingly, for the six months ended June 30, 2009, we
recorded a reduction to research and development expenses of $3.3 million.
General and administrative.
The following tables summarize the components of our general and
administrative expenses for the periods indicated, in thousands and as a percentage of total
general and administrative expenses, together with the changes, in thousands and percentages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
% of
|
|
|
Three Months
|
|
|
% of
|
|
|
|
|
|
|
Ended
|
|
|
Expense
|
|
|
Ended
|
|
|
Expense
|
|
|
Increase (Decrease)
|
|
|
|
June 30, 2009
|
|
|
Category
|
|
|
June 30, 2008
|
|
|
Category
|
|
|
$
|
|
|
%
|
|
General and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting and professional services
|
|
$
|
3,267
|
|
|
|
39
|
%
|
|
$
|
2,528
|
|
|
|
36
|
%
|
|
$
|
739
|
|
|
|
29
|
%
|
Non-cash stock-based compensation
|
|
|
2,164
|
|
|
|
26
|
%
|
|
|
1,691
|
|
|
|
24
|
%
|
|
|
473
|
|
|
|
28
|
%
|
Compensation and related
|
|
|
1,725
|
|
|
|
21
|
%
|
|
|
1,465
|
|
|
|
21
|
%
|
|
|
260
|
|
|
|
18
|
%
|
Facilities-related
|
|
|
713
|
|
|
|
8
|
%
|
|
|
623
|
|
|
|
9
|
%
|
|
|
90
|
|
|
|
14
|
%
|
Insurance
|
|
|
166
|
|
|
|
2
|
%
|
|
|
171
|
|
|
|
2
|
%
|
|
|
(5
|
)
|
|
|
(3
|
%)
|
Other
|
|
|
363
|
|
|
|
4
|
%
|
|
|
628
|
|
|
|
8
|
%
|
|
|
(265
|
)
|
|
|
(42
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative
expenses
|
|
$
|
8,398
|
|
|
|
100
|
%
|
|
$
|
7,106
|
|
|
|
100
|
%
|
|
$
|
1,292
|
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in general and administrative expenses during the three months ended June
30, 2009 as compared to the three months ended June 30, 2008 was due primarily to higher
professional service fees related to business activities, including legal activities, an
increase in general and administrative headcount over the past year to support our growth and
higher non-cash stock-based compensation.
28
General and administrative expenses may continue to increase during 2009 due to higher
consulting and professional services expenses associated with legal activities, a description of
which is set forth below under Part II, Item 1 Legal Proceedings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
% of
|
|
|
Six Months
|
|
|
% of
|
|
|
|
|
|
|
Ended
|
|
|
Expense
|
|
|
Ended
|
|
|
Expense
|
|
|
Increase
|
|
|
|
June 30, 2009
|
|
|
Category
|
|
|
June 30, 2008
|
|
|
Category
|
|
|
$
|
|
|
%
|
|
General and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting and professional services
|
|
$
|
5,600
|
|
|
|
35
|
%
|
|
$
|
4,176
|
|
|
|
32
|
%
|
|
$
|
1,424
|
|
|
|
34
|
%
|
Non-cash stock-based compensation
|
|
|
4,267
|
|
|
|
26
|
%
|
|
|
3,197
|
|
|
|
25
|
%
|
|
|
1,070
|
|
|
|
33
|
%
|
Compensation and related
|
|
|
3,449
|
|
|
|
21
|
%
|
|
|
2,895
|
|
|
|
22
|
%
|
|
|
554
|
|
|
|
19
|
%
|
Facilities-related
|
|
|
1,373
|
|
|
|
9
|
%
|
|
|
1,349
|
|
|
|
10
|
%
|
|
|
24
|
|
|
|
2
|
%
|
Insurance
|
|
|
355
|
|
|
|
2
|
%
|
|
|
319
|
|
|
|
2
|
%
|
|
|
36
|
|
|
|
11
|
%
|
Other
|
|
|
1,070
|
|
|
|
7
|
%
|
|
|
1,042
|
|
|
|
9
|
%
|
|
|
28
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative
expenses
|
|
$
|
16,114
|
|
|
|
100
|
%
|
|
$
|
12,978
|
|
|
|
100
|
%
|
|
$
|
3,136
|
|
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in general and administrative expenses during the six months ended June 30,
2009 as compared to the six months ended June 30, 2008 was due primarily to higher professional
service fees related to business activities, including legal activities, an increase in general and
administrative headcount over the past year to support our growth and higher non-cash stock-based
compensation.
Other income (expense)
We incurred $0.8 million and $2.3 million equity in loss of joint venture (Regulus
Therapeutics Inc.) for the three and six months ended June 30, 2009, respectively, as compared to
$1.6 million and $3.2 million for the three and six months ended June 30, 2008, respectively, in
each period related to our share of the net losses incurred by Regulus, which was formed in
September 2007. Through December 31, 2008, we were recognizing the first $10.0 million of losses
of Regulus as equity in loss of joint venture (Regulus Therapeutics Inc.) in our condensed
consolidated statements of operations because we were responsible for funding those losses through
our initial $10.0 million cash contribution. Beginning in January 2009, in connection with the
conversion of Regulus to a C corporation, we are recognizing approximately 49% of the income and
losses of Regulus.
Interest income was $1.5 million and $3.5 million for the three and six months ended June 30,
2009, respectively, as compared to $3.5 million and $8.2 million for the three and six months ended
June 30, 2008, respectively. The decrease was due to significantly lower average interest rates.
Interest expense was zero for the three and six months ended June 30, 2009 as compared to
$0.2 million and $0.4 million for the three and six months ended June 30, 2008, respectively.
Interest expense in the three and six months ended June 30, 2008 was related to borrowings under
our lines of credit used to finance capital equipment purchases. In December 2008, we defeased the
aggregate outstanding balance under these credit lines and expect to have no interest expense in
2009.
Income tax expense, primarily as a result of our alliances with Roche and Takeda, was $0.9
million and $1.6 million for the three and six months ended June 30, 2009, respectively, as
compared to $1.3 million and $1.5 million for the three and six months ended June 30, 2008,
respectively.
29
Liquidity and Capital Resources
The following table summarizes our cash flow activities for the periods indicated, in
thousands:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
Net loss
|
|
$
|
(30,591
|
)
|
|
$
|
(13,999
|
)
|
Adjustments to reconcile net loss to net cash (used
in) provided by operating activities
|
|
|
16,579
|
|
|
|
14,124
|
|
Changes in operating assets and liabilities
|
|
|
(20,676
|
)
|
|
|
86,225
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(34,688
|
)
|
|
|
86,350
|
|
Net cash (used in) provided by investing activities
|
|
|
(11,232
|
)
|
|
|
50,988
|
|
Net cash provided by financing activities
|
|
|
2,111
|
|
|
|
5,032
|
|
Effect of exchange rate on cash
|
|
|
(113
|
)
|
|
|
9
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(43,922
|
)
|
|
|
142,379
|
|
Cash and cash equivalents, beginning of period
|
|
|
191,792
|
|
|
|
105,157
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
147,870
|
|
|
$
|
247,536
|
|
|
|
|
|
|
|
|
Since we commenced operations in 2002, we have generated significant losses. As of June
30, 2009, we had an accumulated deficit of $282.8 million. As of June 30, 2009, we had cash, cash
equivalents and marketable securities of $473.8 million, compared to cash, cash equivalents and
marketable securities of $512.7 million as of December 31, 2008. We invest primarily in cash
equivalents, U.S. government obligations, high-grade corporate notes and commercial paper. Our
investment objectives are, primarily, to assure liquidity and preservation of capital and,
secondarily, to obtain investment income. All of our investments in debt securities are recorded at
fair value and are available-for-sale. Fair value is determined based on quoted market prices and
models using observable data inputs. We have not recorded any impairment charges to our fixed
income marketable securities during the six months ended
June 30, 2009 and 2008.
Operating activities
We have required significant amounts of cash to fund our operating activities as a
result of net losses since our inception. For the six months ended June 30, 2009 as compared to
the six months ended June 30, 2008, net cash used in operating activities of $34.7 million was due
primarily to our net loss and other changes in our working capital. We had a decrease in deferred
revenue of $17.7 million for the six months ended June 30, 2009, as well as a decrease in income
taxes payable of $4.3 million. Cash used in operating activities is adjusted for non-cash items to
reconcile net loss to net cash provided by or used in operating activities. These non-cash
adjustments consist primarily of stock-based compensation, equity in loss of joint venture and
depreciation and amortization.
We expect that we will require significant amounts of cash to fund our operating activities
for the foreseeable future as we continue to develop and advance our research and development
initiatives. The actual amount of overall expenditures will depend on numerous factors, including
the timing of expenses, the timing and terms of collaboration agreements or other strategic
transactions, if any, and the timing and progress of our research and development efforts.
Investing activities
For the six months ended June 30, 2009, net cash used in investing activities of $11.2
million resulted primarily from net purchases of marketable securities of $4.4 million, an
additional $10.0 million investment in Regulus, and purchases of property and equipment of $2.9
million related to our Cambridge facility. Offsetting these amounts was a decrease in restricted
cash of $6.2 million, resulting from the release of letters of credit in connection with the
amendment of our facility lease and the termination of our sublease agreement. For the six months
ended June 30, 2008, net cash provided by investing activities of $51.0 million resulted primarily
from net sales of marketable securities of $58.2 million due primarily to the maturity of
investments, offset by purchases of property and equipment of $7.2 million.
Financing activities
For the six months ended June 30, 2009, net cash provided by financing activities of $2.1
million was due primarily to proceeds of $1.2 million from our issuance of common stock to
Novartis in May 2009, as well as proceeds from the issuance of
common stock in connection with stock option exercises. For the six months ended June 30,
2008, net cash provided by financing activities was $5.0 million due primarily to proceeds of
$5.4 million from our issuance of common stock to Novartis in May 2008, offset by $1.9 million for
repayments on notes payable.
30
During the current downturn in global financial markets, some companies have experienced
difficulties accessing their cash equivalents, investment securities and raising capital generally,
which have had a material adverse impact on their liquidity. In addition, the current economic
downturn has severely diminished the availability of capital and may limit our ability to access
these markets to obtain financing in the future. Based on our current operating plan, we believe
that our existing cash, cash equivalents and fixed income marketable securities, for which we have
not recognized any impairment charges, together with the cash we expect to generate under our
current alliances, including our Novartis, Roche, Takeda and Cubist alliances, will be sufficient
to fund our planned operations for at least the next several years, during which time we expect to
further the development of our product candidates, conduct clinical trials, extend the capabilities
of our technology platform and continue to prosecute patent applications and otherwise build and
maintain our patent portfolio. However, we may require significant additional funds earlier than we
currently expect in order to develop, commence clinical trials for and commercialize any product
candidates.
In the longer term, we may seek additional funding through additional collaborative
arrangements and public or private financings. Additional funding may not be available to us on
acceptable terms or at all. In addition, the terms of any financing may adversely affect the
holdings or the rights of our stockholders. For example, if we raise additional funds by issuing
equity securities, further dilution to our existing stockholders may result. If we are unable to
obtain funding on a timely basis, we may be required to significantly curtail one or more of our
research or development programs. We also could be required to seek funds through arrangements with
collaborators or others that may require us to relinquish rights to some of our technologies or
product candidates that we would otherwise pursue.
Even if we are able to raise additional funds in a timely manner, our future capital
requirements may vary from what we expect and will depend on many factors, including:
|
|
|
our progress in demonstrating that siRNAs can be active as drugs;
|
|
|
|
|
our ability to develop relatively standard procedures for selecting and modifying siRNA drug
candidates;
|
|
|
|
|
progress in our research and development programs, as well as the magnitude of these
programs;
|
|
|
|
|
the timing, receipt and amount of milestone and other payments, if any, from
present and future collaborators, if any;
|
|
|
|
|
the timing, receipt and amount of funding under current and future government contracts, if
any;
|
|
|
|
|
our ability to maintain and establish additional collaborative arrangements;
|
|
|
|
|
the resources, time and costs required to successfully initiate and complete our
pre-clinical and clinical trials, obtain regulatory approvals, protect our intellectual
property and obtain and maintain licenses to third-party intellectual property;
|
|
|
|
|
the cost of preparing, filing, prosecuting, maintaining and enforcing patent claims;
|
|
|
|
|
the costs associated with legal activities arising in the course of our business
activities;
|
|
|
|
|
progress in the research and development programs of Regulus; and
|
|
|
|
|
the timing, receipt and amount of sales and royalties, if any, from our potential products.
|
Contractual Obligations and Commitments
The disclosure of our contractual obligations and commitments is set forth under the heading
Managements Discussion and Analysis of Financial Condition and Results of OperationsContractual
Obligations and Commitments in our Annual Report on Form 10-K for the year ended December 31,
2008. In January 2009, we and Tekmira entered into a manufacturing and supply
agreement under which we committed to pay Tekmira up to CAD $11.2 million ($9.7 million at
June 30, 2009) over a three-year
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period beginning in January 2009. In June 2009, we entered into
an agreement amending provisions of our existing lease. The amendment provides for the lease of the
entire second floor of our Cambridge, Massachusetts premises, including space previously subleased
by us from a third party, effective as of July 1, 2009. We are leasing approximately 11,000 square
feet of new space and in total, will occupy approximately 95,000 square feet of office and
laboratory space at the premises under the lease, as amended. In
addition, the term of the lease was extended
an additional five years and now expires September 30, 2016. Accordingly, at June 30, 2009, our
operating lease obligations through 2016 have increased by $22.2 million.
Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board, or FASB, reached a consensus on
EITF 07-1, which requires collaborators to present the results of activities for which they act as
the principal on a gross basis and report any payments received from (made to) other collaborators
based on other applicable GAAP or, in the absence of other applicable GAAP, based on analogy to
authoritative accounting literature or a reasonable, rational and consistently applied accounting
policy election. Further, EITF 07-1 clarifies that the determination of whether transactions within
a collaborative arrangement are part of a vendor-customer (or analogous) relationship subject to
EITF 01-9. EITF 07-1 became effective on January 1, 2009. The adoption of EITF 07-1 did not have a
material impact on our condensed consolidated financial statements, however, it resulted in
enhanced disclosures for our collaboration activities.
In May 2009, the FASB adopted Statement of Financial Accounting Standards, or SFAS, No. 165,
Subsequent Events, or SFAS 165. SFAS 165 establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before financial statements are
issued. The adoption of SFAS 165 did not impact our condensed consolidated financial statements. We
evaluated all events or transactions that occurred after June 30, 2009 up through August 6, 2009, the date we
issued these condensed consolidated financial statements. During this period, we did not have any
material recognizable or unrecognizable subsequent events.
In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Statements
an amendment of FASB Statement No. 140, or SFAS 166. SFAS 166 prescribes the information that a
reporting entity must provide in its financial reports about a transfer of financial assets; the
effects of a transfer on its financial position, financial performance, and cash flows; and a
transferors continuing involvement in transferred financial assets. Specifically, among other
aspects, SFAS 166 amends SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities, or SFAS 140, by removing the concept of a qualifying
special-purpose entity from SFAS 140 and removing the exception from applying FASB Interpretation
No. 46, Consolidation of Variable Interest Entities (revised December 2003) an interpretation of
ARB No. 51, or FIN 46R, to variable interest entities that are qualifying special-purpose
entities. It also modifies the financial-components approach used in SFAS 140. SFAS 166 is
effective for transfer of financial assets occurring on or after January 1, 2010. We have not
determined the effect that the adoption of SFAS 166 will have on our condensed consolidated
financial statements but the effect will generally be limited to future transactions.
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46R, or
SFAS 167. SFAS 167 amends FIN 46R, to require an enterprise to determine whether its variable
interest or interests give it a controlling financial interest in a variable interest entity. The
primary beneficiary of a variable interest entity is the enterprise that has both (1) the power to
direct the activities of a variable interest entity that most significantly impact the entitys
economic performance and (2) the obligation to absorb losses of the entity that could potentially
be significant to the variable interest entity or the right to receive benefits from the entity
that could potentially be significant to the variable interest entity. SFAS 167 also amends FIN 46R
to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable
interest entity. SFAS 167 is effective for all variable interest entities and relationships with
variable interest entities existing as of January 1, 2010. We have not determined the effect that
the adoption of SFAS 167 will have on our condensed consolidated financial statements.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles a replacement of FASB Statement
No. 162, or SFAS 168. SFAS 168 replaces SFAS No. 162
,
The Hierarchy of Generally Accepted
Accounting Principles, to establish the FASB Accounting Standards Codification as the source of
authoritative accounting principles recognized by the FASB to be applied by nongovernmental
entities in preparation of financial statements in conformity with GAAP. SFAS 168 is effective for
interim and annual periods ending after September 15, 2009. The adoption of this
standard will not impact our condensed consolidated financial statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As part of our investment portfolio, we own financial instruments that are sensitive to market
risks. The investment portfolio is used to preserve our capital until it is required to fund
operations, including our research and development activities. Our marketable securities consist of
U.S. government obligations, high-grade corporate notes and commercial paper. All of our
investments in debt securities are classified as available-for-sale and are recorded at fair
value. Our available-for-sale investments in debt securities are sensitive to changes in interest
rates and changes in the credit ratings of the issuers. Interest rate changes would result in a
change in the net fair value of these financial instruments due to the difference between the
market interest rate and the market interest rate at the date of purchase of the financial
instrument. A 10% decrease in market interest rates at June 30, 2009 would impact the net fair
value of such interest-sensitive financial instruments by $2.6 million. A downgrade in the credit
rating of an issuer of a debt security or further deterioration of the credit markets could result
in a decline in the fair value of the debt instruments. Our investment guidelines prohibit
investment in auction rate securities and we do not believe we have any direct exposure to losses
relating from mortgage-based securities or derivatives related thereto such as credit-default
swaps. We have not recorded any impairment charges to our fixed income marketable securities as of
June 30, 2009.
ITEM 4. CONTROLS AND PROCEDURES.
Our management, with the participation of our chief executive officer and vice president
of finance and treasurer, evaluated the effectiveness of our disclosure controls and procedures as
of June 30, 2009. The term disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means
controls and other procedures of a company that are designed to ensure that information required to
be disclosed by a company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the SECs rules
and forms. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by a company in the reports that it
files or submits under the Exchange Act is accumulated and communicated to the companys
management, including its principal executive and principal financial officers, as appropriate to
allow timely decisions regarding required disclosure. Management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. Based on the evaluation of our
disclosure controls and procedures as of June 30, 2009, our chief executive officer and vice
president of finance and treasurer concluded that, as of such date, our disclosure controls and
procedures were effective at the reasonable assurance level.
No change in our internal control over financial reporting (as defined in
Rules 13a15(d) and 15d15(d) under the Exchange Act) occurred during the three months ended June
30, 2009 that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In June 2009, we joined with Max Planck in taking legal action against Whitehead, MIT and UMass. The complaint, initially filed in Suffolk County Superior Court in
Boston, Massachusetts and subsequently removed to the U.S. District Court for the District of
Massachusetts, alleges (among other things) that the defendants have improperly prosecuted the
so-called Tuschl I patent applications and wrongfully incorporated inventions covered by the
Tuschl II patent applications into the Tuschl I patent applications, thereby potentially damaging
the value of inventions reflected in the Tuschl II patent applications. In the field of RNAi
therapeutics, we are the exclusive licensee of the Tuschl I patent applications from Max Planck,
MIT and Whitehead and of the Tuschl II patent applications from Max Planck. The complaint seeks to enjoin the named
defendants from taking any further action in connection with the prosecution of any
Tuschl I application, a declaratory judgment and unspecified monetary damages.
Although we are vigorously asserting our rights in this case (along with Max Planck),
litigation is subject to inherent uncertainty and a court could ultimately rule against us. In
addition, litigation is costly and may divert the attention of our management and other resources
that would otherwise be engaged in running our business.
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ITEM 1A. RISK FACTORS.
Our business is subject to numerous risks. We caution you that the following important
factors, among others, could cause our actual results to differ materially from those expressed in
forward-looking statements made by us or on our behalf in filings with the SEC, press releases,
communications with investors and oral statements. Any or all of our forward-looking statements in
this Quarterly Report on Form 10-Q and in any other public statements we make may turn out to be
wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks
and uncertainties. Many factors mentioned in the discussion below will be important in determining
future results. Consequently, no forward-looking statement can be guaranteed. Actual future results
may vary materially from those anticipated in forward-looking statements. We undertake no
obligation to update any forward-looking statements, whether as a result of new information, future
events or otherwise. You are advised, however, to consult any further disclosure we make in our
reports filed with the SEC.
Risks Related to Our Business
Risks Related to Being an Early Stage Company
Because we have a short operating history, there is a limited amount of information about us upon
which you can evaluate our business and prospects.
Our operations began in 2002 and we have only a limited operating history upon which you can
evaluate our business and prospects. In addition, as an early-stage company, we have limited
experience and have not yet demonstrated an ability to successfully overcome many of the risks and
uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly
in the biopharmaceutical area. For example, to execute our business plan, we will need to
successfully:
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execute product development activities using unproven technologies related to
both RNAi and to the delivery of siRNAs to the relevant cell tissue;
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build and maintain a strong intellectual property portfolio;
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gain acceptance for the development of our product candidates and any products we
commercialize;
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develop and maintain successful strategic alliances; and
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manage our spending as costs and expenses increase due to clinical trials,
regulatory approvals and commercialization.
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If we are unsuccessful in accomplishing these objectives, we may not be able to develop
product candidates, commercialize products, raise capital, expand our business or continue our
operations.
The approach we are taking to discover and develop novel RNAi therapeutics is unproven and may
never lead to marketable products.
We have concentrated our efforts and therapeutic product research on RNAi technology, and our
future success depends on the successful development of this technology and products based on it.
Neither we nor any other company has received regulatory approval to market therapeutics utilizing
siRNAs, the class of molecule we are trying to develop into drugs. The scientific discoveries that
form the basis for our efforts to discover and develop new drugs are relatively new. The scientific
evidence to support the feasibility of developing drugs based on these discoveries is both
preliminary and limited. Skepticism as to the feasibility of developing RNAi therapeutics has been
expressed in scientific literature. For example, there are potential challenges to achieving safe
RNAi therapeutics based on the so-called off-target effects and activation of the interferon
response.
Relatively few drug candidates based on these discoveries have ever been tested in animals or
humans. siRNAs may not naturally possess the inherent properties typically required of drugs, such
as the ability to be stable in the body long enough to reach the tissues in which their effects are
required, nor the ability to enter cells within these tissues in order to exert their effects. We
currently have only limited data, and no conclusive evidence, to suggest that we can introduce
these drug-like properties into siRNAs. We may spend large amounts of money trying to introduce
these properties, and may never succeed in doing so. In addition, these
compounds may not demonstrate in patients the chemical and pharmacological properties ascribed
to them in laboratory studies, and
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they may interact with human biological systems in unforeseen,
ineffective or harmful ways. As a result, we may never succeed in developing a marketable product.
If we do not successfully develop and commercialize drugs based upon our technological approach, we
may not become profitable and the value of our common stock will decline.
Further, our focus solely on RNAi technology for developing drugs, as opposed to multiple,
more proven technologies for drug development, increases the risks associated with the ownership of
our common stock. If we are not successful in developing a product candidate using RNAi technology,
we may be required to change the scope and direction of our product development activities. In that
case, we may not be able to identify and implement successfully an alternative product development
strategy.
Risks Related to Our Financial Results and Need for Financing
We have a history of losses and may never be profitable.
We have experienced significant operating losses since our inception. As of June 30, 2009, we
had an accumulated deficit of $282.8 million. To date, we have not developed any products nor
generated any revenues from the sale of products. Further, we do not expect to generate any such
revenues in the foreseeable future. We expect to continue to incur annual net operating losses over
the next several years and will require substantial resources over the next several years as we
expand our efforts to discover, develop and commercialize RNAi therapeutics. We anticipate that the
majority of any revenue we generate over the next several years will be from alliances with
pharmaceutical companies or funding from contracts with the government, but cannot be certain that
we will be able to secure or maintain these alliances or contracts, or meet the obligations or
achieve any milestones that we may be required to meet or achieve to receive payments.
To become and remain consistently profitable, we must succeed in discovering, developing and
commercializing novel drugs with significant market potential. This will require us to be
successful in a range of challenging activities, including pre-clinical testing and clinical trial
stages of development, obtaining regulatory approval for these novel drugs and manufacturing,
marketing and selling them. We may never succeed in these activities, and may never generate
revenues that are significant enough to achieve profitability. Even if we do achieve profitability,
we may not be able to sustain or increase profitability on a quarterly or annual basis. If we
cannot become and remain consistently profitable, the market price of our common stock could
decline. In addition, we may be unable to raise capital, expand our business, diversify our product
offerings or continue our operations.
We will require substantial additional funds to complete our research and development activities
and if additional funds are not available, we may need to critically limit, significantly scale
back or cease our operations.
We have used substantial funds to develop our RNAi technologies and will require substantial
funds to conduct further research and development, including pre-clinical testing and clinical
trials of any product candidates, and to manufacture and market any products that are approved for
commercial sale. Because the successful development of our products is uncertain, we are unable to
estimate the actual funds we will require to develop and commercialize them.
Our future capital requirements and the period for which we expect our existing resources to
support our operations may vary from what we expect. We have based our expectations on a number of
factors, many of which are difficult to predict or are outside of our control, including:
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our progress in demonstrating that siRNAs can be active as drugs;
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our ability to develop relatively standard procedures for selecting and modifying siRNA
drug candidates;
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progress in our research and development programs, as well as the magnitude of these
programs;
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the timing, receipt and amount of milestone and other payments, if any, from
present and future collaborators, if any;
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the timing, receipt and amount of funding under current and future government contracts,
if any;
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our ability to maintain and establish additional collaborative arrangements;
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the resources, time and costs required to initiate and complete our pre-clinical
and clinical trials, obtain regulatory
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approvals, protect our intellectual property and
obtain and maintain licenses to third-party intellectual property;
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the cost of preparing, filing, prosecuting, maintaining and enforcing patent claims;
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the costs associated with legal activities arising in the course of our business
activities;
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progress in the research and development programs of Regulus; and
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the timing, receipt and amount of sales and royalties, if any, from our potential
products.
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If our estimates and predictions relating to these factors are incorrect, we may need to
modify our operating plan.
We will be required to seek additional funding in the future and intend to do so through
either collaborative arrangements, public or private equity offerings or debt financings, or a
combination of one or more of these funding sources. Additional funds may not be available to us on
acceptable terms or at all. In addition, the terms of any financing may adversely affect the
holdings or the rights of our stockholders. For example, if we raise additional funds by issuing
equity securities, further dilution to our stockholders will result. In addition, our investor
rights agreement with Novartis provides Novartis with the right generally to maintain its ownership
percentage in us and our common stock purchase agreement with Roche contains a similar provision.
In May 2008, Novartis purchased 213,888 shares of our common stock at a purchase price of $25.29
per share. In May 2009, Novartis purchased 65,922 shares of our common stock at a purchase price of
$17.50 per share, allowing Novartis to maintain its current ownership position of 13.4% of our outstanding common stock. While the exercise of these rights by Novartis has provided us
with an aggregate of $6.6 million in cash, and the exercise in the future by Novartis or Roche may
provide us with additional funding under some circumstances, this exercise and any future exercise
of these rights by Novartis or Roche will also cause further dilution to our stockholders. Debt
financing, if available, may involve restrictive covenants that could limit our flexibility in
conducting future business activities. If we are unable to obtain funding on a timely basis, we may
be required to significantly curtail one or more of our research or development programs. We also
could be required to seek funds through arrangements with collaborators or others that may require
us to relinquish rights to some of our technologies, product candidates or products that we would
otherwise pursue on our own.
If the estimates we make, or the assumptions on which we rely, in preparing our condensed
consolidated financial statements prove inaccurate, our actual results may vary from those
reflected in our projections and accruals.
Our condensed consolidated financial statements have been prepared in accordance with GAAP.
The preparation of these condensed consolidated financial statements requires us to make estimates
and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses,
the amounts of charges accrued by us and related disclosure of contingent assets and liabilities.
We base our estimates on historical experience and on various other assumptions that we believe to
be reasonable under the circumstances. We cannot assure you, however, that our estimates, or the
assumptions underlying them, will be correct.
The investment of our cash balance and our investments in marketable debt securities are subject
to risks which may cause losses and affect the liquidity of these investments.
At June 30, 2009, we had $473.8 million in cash, cash equivalents and marketable securities.
We historically have invested these amounts in corporate bonds, commercial paper, securities issued
by the U.S. government, certificates of deposit and money market funds meeting the criteria of our
investment policy, which is focused on the preservation of our capital. These investments are
subject to general credit, liquidity, market and interest rate risks, which may be affected by
U.S. sub-prime mortgage defaults that have affected various sectors of the financial markets and
caused credit and liquidity issues. We may realize losses in the fair value of these investments or
a complete loss of these investments, which would have a negative effect on our condensed
consolidated financial statements. In addition, should our investments cease paying or reduce the
amount of interest paid to us, our interest income would suffer. For example, due to recent market
conditions, interest rates have fallen, and accordingly, our interest income decreased to $1.5
million and $3.5 million for the three and six months ended June 30, 2009, respectively, from
$3.5 million and $8.2 million, for the three and six months ended June 30, 2008, respectively.
These market risks associated with our investment portfolio may have
an adverse effect on
our results of operations, liquidity and financial condition.
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Risks Related to Our Dependence on Third Parties
Our collaboration with Novartis is important to our business. If this collaboration is
unsuccessful, Novartis terminates this collaboration or this collaboration results in competition
between us and Novartis for the development of drugs targeting the same diseases, our business
could be adversely affected.
In October 2005, we entered into a collaboration agreement with Novartis. Under this
agreement, Novartis can select up to 30 exclusive targets to include in the collaboration, which
number may be increased to 40 under certain circumstances and upon additional payments. Novartis
pays the costs to develop these drug candidates and will commercialize and market any products
derived from this collaboration. For RNAi therapeutic products successfully developed under the
agreement, if any, we would be entitled to receive milestone payments upon achievement of certain
specified development and annual net sales events, up to an aggregate of $75.0 million per
therapeutic product, as well as royalties on the annual net sales, if any. The Novartis agreement
had an initial term of three years, with an option for two additional one-year extensions at the
election of Novartis. In July 2009, Novartis elected to further extend the term of our
collaboration agreement for the fifth and final planned year, through October 2010. Novartis may
elect to terminate this collaboration in the event of a material uncured breach by us. We expect
that a substantial amount of funding will come from this collaboration. If this collaboration is
unsuccessful, or if it is terminated, our business could be adversely affected.
This agreement also provides Novartis with a non-exclusive option to integrate into its
operations our intellectual property relating to RNAi technology, excluding any technology related
to delivery of nucleic acid based molecules. Novartis may exercise this integration option at any
point during the research term, which terms expires in October 2010. The license grant under the
integration option, if exercised, would be structured similarly to our non-exclusive platform
licenses with Roche and Takeda. If Novartis elects to exercise this option, Novartis could become a
competitor of ours in the development of RNAi-based drugs targeting the same diseases. Novartis has
significantly greater financial resources and far more experience than we do in developing and
marketing drugs, which could put us at a competitive disadvantage if we were to compete with
Novartis in the development of RNAi-based drugs targeting the same disease. Accordingly, the
exercise by Novartis of this option could adversely affect our business.
Our agreement with Novartis allows us to continue to develop products on an exclusive basis on
our own with respect to targets not selected by Novartis for inclusion in the collaboration. We may
need to form additional alliances to develop products. However, our agreement with Novartis
provides Novartis with a right of first offer, for a defined term, in the event that we propose to
enter into an agreement with a third party with respect to such targets. This right of first offer
may make it difficult for us to form future alliances around specific targets with other parties.
Our license and collaboration agreements with Roche and Takeda are important to our business. If
Roche and/or Takeda do not successfully develop drugs pursuant to these agreements or these
agreements result in competition between us and Roche and/or Takeda for the development of drugs
targeting the same diseases, our business could be adversely affected.
In July 2007, we entered into a license and collaboration agreement with Roche. Under the
license and collaboration agreement we granted Roche a non-exclusive license to our intellectual
property to develop and commercialize therapeutic products that function through RNAi, subject to
our existing contractual obligations to third parties. The license is limited to the therapeutic
areas of oncology, respiratory diseases, metabolic diseases and certain liver diseases and may be
expanded to include up to 18 additional therapeutic areas, comprising substantially all other
fields of human disease, as identified and agreed upon by the parties, upon payment to us by Roche
of an additional $50.0 million for each additional therapeutic area, if any. In addition, in
exchange for our contributions under the collaboration agreement, for each RNAi therapeutic product
successfully developed by Roche, its affiliates, or sublicensees under the collaboration agreement,
if any, we are entitled to receive milestone payments upon achievement of specified development and
sales events, totaling up to an aggregate of $100.0 million per therapeutic target, together with
royalty payments based on worldwide annual net sales, if any. In May 2008, we entered into a
similar license and collaboration agreement with Takeda, which is limited to the therapeutic areas
of oncology and metabolic diseases, and which may be expanded to include up to 20 additional
therapeutic areas, comprising substantially all other fields of human disease, as identified and
agreed upon by the parties, upon payment to us by Takeda of an additional $50.0 million for each
additional therapeutic area, if any. For each RNAi therapeutic product successfully developed by
Takeda, its affiliates and sublicensees, if any, we are entitled to receive specified development
and commercialization milestones, totaling up to $171.0 million per product, together with royalty
payments based on worldwide annual net sales, if any. In addition, we have agreed that for a period
of five years, we will not grant any other party rights to develop RNAi therapeutics in the Asian
territory.
If Roche or Takeda fails to successfully develop products using our technology, we may not
receive any milestone or royalty
payments under these agreements. In addition, even if Takeda is not successful in its efforts,
for a period of five years we will be
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limited in our ability to form alliances with other parties
in the Asia territory. We also have the option under the Takeda agreement, exercisable until the
start of Phase III development, to opt-in under a 50-50 profit sharing agreement to the development
and commercialization in the United States of up to four Takeda licensed products, and would be
entitled to opt-in rights for two additional products for each additional field expansion, if any,
elected by Takeda under the collaboration agreement. If Takeda fails to successfully develop
products, we may not realize any economic benefit from these opt-in rights.
Finally, either Roche or Takeda could become a competitor of ours in the development of
RNAi-based drugs targeting the same diseases. Each of these companies has significantly greater
financial resources than we do and has far more experience in developing and marketing drugs, which
could put us at a competitive disadvantage if we were to compete with either Roche or Takeda in the
development of RNAi-based drugs targeting the same disease.
We may not be able to execute our business strategy if we are unable to enter into alliances with
other companies that can provide business and scientific capabilities and funds for the
development and commercialization of our drug candidates. If we are unsuccessful in forming or
maintaining these alliances on favorable terms, our business may not succeed.
We do not have any capability for sales, marketing or distribution and have limited
capabilities for drug development. In addition, we believe that other companies are expending
substantial resources in developing safe and effective means of delivering siRNAs to relevant cell
and tissue types. Accordingly, we have entered into alliances with other companies and
collaborators that we believe can provide such capabilities, and we intend to enter into additional
alliances in the future. For example, we intend to enter into (1) non-exclusive platform alliances
which will enable our collaborators to develop RNAi therapeutics and will bring in additional
funding with which we can develop our RNAi therapeutics, and (2) alliances to jointly develop
specific drug candidates and to jointly commercialize RNAi therapeutics, if they are approved,
and/or ex-U.S. market geographic partnerships on specific RNAi therapeutic programs. In such
alliances, we may expect our collaborators to provide substantial capabilities in delivery of RNAi
therapeutics to the relevant cell or tissue type, clinical development, regulatory affairs, and/or
marketing, sales and distribution. For example, under our collaboration with Medtronic, we are
jointly developing ALN-HTT, an RNAi therapeutic for Huntingtons disease, which would be delivered
using an implanted infusion device developed by Medtronic. The success of this collaboration will
depend, in part, on Medtronics expertise in the area of delivery by infusion device. In other
alliances, we may expect our collaborators to develop, market and sell certain of our product
candidates. We may have limited or no control over the sales, marketing and distribution activities
of these third parties. Our future revenues may depend heavily on the success of the efforts of
these third parties. For example, we will jointly develop and commercialize products for RSV with
Cubist in North America. We will rely entirely on Cubist for the development and commercialization
of products for RSV in the rest of the world outside of Asia, where we will rely on Kyowa Hakko for
development and commercialization of products for RSV. If Cubist and Kyowa Hakko are not successful
in their commercialization efforts, our future revenues for RSV may be adversely affected.
We may not be successful in entering into such alliances on favorable terms due to various
factors, including Novartis right of first offer on our drug targets. Even if we do succeed in
securing such alliances, we may not be able to maintain them if, for example, development or
approval of a drug candidate is delayed or sales of an approved drug are disappointing.
Furthermore, any delay in entering into collaboration agreements could delay the development and
commercialization of our drug candidates and reduce their competitiveness even if they reach the
market. Any such delay related to our collaborations could adversely affect our business.
For certain drug candidates that we may develop, we have formed collaborations to fund all or
part of the costs of drug development and commercialization, such as our collaborations with
Novartis, as well as collaborations with Cubist, Medtronic and NIAID. We may not, however, be able
to enter into additional collaborations, and the terms of any collaboration agreement we do secure
may not be favorable to us. If we are not successful in our efforts to enter into future
collaboration arrangements with respect to a particular drug candidate, we may not have sufficient
funds to develop that or any other drug candidate internally, or to bring any drug candidates to
market. If we do not have sufficient funds to develop and bring our drug candidates to market, we
will not be able to generate sales revenues from these drug candidates, and this will substantially
harm our business.
If any collaborator terminates or fails to perform its obligations under agreements with us, the
development and commercialization of our drug candidates could be delayed or terminated.
Our dependence on collaborators for capabilities and funding means that our business could be
adversely affected if any collaborator terminates its collaboration agreement with us or fails to
perform its obligations under that agreement. Our current or future collaborations, if any, may not
be scientifically or commercially successful. Disputes may arise in the future with respect to the
ownership of rights to technology or products developed with collaborators, which could have
an adverse effect on our ability to develop and commercialize any affected product candidate.
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Our current collaborations allow, and we expect that any future collaborations will allow,
either party to terminate the collaboration for a material breach by the other party. Our agreement
with Kyowa Hakko for the development and commercialization of RSV
therapeutics for the treatment of RSV
infection in Japan and other major markets in Asia may be terminated by Kyowa Hakko without cause
upon 180-days prior written notice to us, subject to certain conditions, and our agreement with
Cubist relating to the development and commercialization of RSV therapeutics in territories outside
of Asia may be terminated by Cubist at any time upon as little as three months prior written
notice, if such notice is given prior to the acceptance for filing of the first application for
regulatory approval of a licensed product. If we were to lose a commercialization collaborator, we
would have to attract a new collaborator or develop internal sales, distribution and marketing
capabilities, which would require us to invest significant amounts of financial and management
resources.
In addition, if a collaborator terminates its collaboration with us, for breach or otherwise,
it would be difficult for us to attract new collaborators and could adversely affect how we are
perceived in the business and financial communities. A collaborator, or in the event of a change in
control of a collaborator, the successor entity, could determine that it is in its financial
interest to:
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pursue alternative technologies or develop alternative products, either on its
own or jointly with others, that may be competitive with the products on which it is
collaborating with us or which could affect its commitment to the collaboration with us;
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pursue higher-priority programs or change the focus of its development programs,
which could affect the collaborators commitment to us; or
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if it has marketing rights, choose to devote fewer resources to the marketing of
our product candidates, if any are approved for marketing, than it does for product
candidates developed without us.
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If any of these occur, the development and commercialization of one or more drug candidates
could be delayed, curtailed or terminated because we may not have sufficient financial resources or
capabilities to continue such development and commercialization on our own.
We depend on government contracts to partially fund our research and development efforts and may
enter into additional government contracts in the future. If current or future government funding,
if any, is reduced or delayed, our drug development efforts for such funded programs may be
negatively affected.
In September 2006, NIAID awarded us a contract for up to $23.0 million over four years to
advance the development of a broad spectrum RNAi anti-viral therapeutic for hemorrhagic fever
virus, including the Ebola virus. Of the $23.0 million in funding, the government initially
committed to pay us up to $14.2 million over the first two years of the contract. In June 2008, as
a result of the progress of the program, the government awarded us an additional $7.5 million, to
be paid through September 2009 for the third year of the contract, together with any remaining
funds carried over from the funding allocated for the first two years of the contract. We cannot be
certain that the government will appropriate the funds necessary for this contract in future
budgets. In addition, the government can terminate the agreement in specified circumstances. If we
do not receive the $23.0 million we expect to receive under this contract, we may not be able to
develop therapeutics to treat Ebola.
For example, in August 2007, DTRA awarded us a contract to advance the development of a broad
spectrum RNAi anti-viral therapeutic for hemorrhagic fever virus infection. When granted, this
federal contract provided for potential funding of up to $38.6 million through February 2011. Of
this amount, the government initially committed to pay us up to $10.9 million through February
2009, which term includes a six-month extension granted by DTRA in July 2008. However, following a
program review in early 2009, we and DTRA determined not to continue this program and accordingly,
the remaining funds will not be accessed.
Regulus is important to our business. If Regulus does not successfully develop drugs pursuant to
this license and collaboration agreement or Regulus is sold to Isis or a third-party, our business
could be adversely affected.
In September 2007, we and Isis formed Regulus, of which we currently own approximately 49%, to
discover, develop and commercialize microRNA-based therapeutics. Regulus intends to address
therapeutic opportunities that arise from abnormal
expression or mutations in microRNAs. Generally, we do not have rights to pursue
microRNA-based therapeutics independently of
Regulus. If Regulus is unable to discover, develop and
commercialize microRNA-based therapeutics, our business could be adversely affected.
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In addition, subject to certain conditions, we and Isis each have the right to initiate a
buy-out of Regulus assets, including Regulus intellectual property and rights to licensed
intellectual property. Following the initiation of such a buy-out, we and Isis will mutually
determine whether to sell Regulus to us, Isis or a third party. We may not have sufficient funds to
buy out Isis interest in Regulus and we may not be able to obtain the financing to do so. In
addition, Isis may not be willing to sell their interest in Regulus. If Regulus is sold to Isis or
a third party, we may lose our rights to participate in the development and commercialization of
microRNA-based therapeutics. If we and Isis are unable to negotiate a sale of Regulus, Regulus will
distribute and assign its rights, interests and assets to us and Isis in accordance with our
percentage interests, except for Regulus intellectual property and license rights, to which each
of us and Isis will receive co-exclusive rights, subject to certain specified exceptions. In this
event, we could face competition from Isis in the development of microRNA-based therapeutics.
We have very limited manufacturing experience or resources and we must incur significant costs to
develop this expertise or rely on third parties to manufacture our products.
We have very limited manufacturing experience. Our internal manufacturing capabilities are
limited to small-scale production of non-good manufacturing practice material for use in
in vitro
and
in vivo
experiments. Our products utilize specialized formulations, such as liposomes, whose
scale-up and manufacturing could be very difficult. We also have very limited experience in such
scale-up and manufacturing, requiring us to depend on third parties, who might not be able to
deliver in a timely manner, or at all. In order to develop products, apply for regulatory approvals
and commercialize our products, we will need to develop, contract for, or otherwise arrange for the
necessary manufacturing capabilities. We may manufacture clinical trial materials ourselves or we
may rely on others to manufacture the materials we will require for any clinical trials that we
initiate. Only a limited number of manufacturers supply synthetic siRNAs. We currently rely on
several contract manufacturers for our supply of synthetic siRNAs. There are risks inherent in
pharmaceutical manufacturing that could affect the ability of our contract manufacturers to meet
our delivery time requirements or provide adequate amounts of material to meet our needs. Included
in these risks are synthesis and purification failures and contamination during the manufacturing
process, which could result in unusable product and cause delays in our development process, as
well as additional expense to us. To fulfill our siRNA requirements, we may also need to secure
alternative suppliers of synthetic siRNAs. In addition to the manufacture of the synthetic siRNAs,
we may have additional manufacturing requirements related to the technology required to deliver the
siRNA to the relevant cell or tissue type. In some cases, the delivery technology we utilize is
highly specialized or proprietary, and for technical and legal reasons, we may have access to only
one or a limited number of potential manufacturers for such delivery technology. Failure by these
manufacturers to properly formulate our siRNAs for delivery could also result in unusable product
and cause delays in our discovery and development process, as well as additional expense to us.
The manufacturing process for any products that we may develop is subject to the FDA and
foreign regulatory authority approval process and we will need to contract with manufacturers who
can meet all applicable FDA and foreign regulatory authority requirements on an ongoing basis. In
addition, if we receive the necessary regulatory approval for any product candidate, we also expect
to rely on third parties, including our commercial collaborators, to produce materials required for
commercial supply. We may experience difficulty in obtaining adequate manufacturing capacity for
our needs. If we are unable to obtain or maintain contract manufacturing for these product
candidates, or to do so on commercially reasonable terms, we may not be able to successfully
develop and commercialize our products.
To the extent that we enter into manufacturing arrangements with third parties, we will depend
on these third parties to perform their obligations in a timely manner and consistent with
regulatory requirements, including those related to quality control and quality assurance. The
failure of a third-party manufacturer to perform its obligations as expected could adversely affect
our business in a number of ways, including:
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we may not be able to initiate or continue clinical trials of products that are under
development;
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we may be delayed in submitting regulatory applications, or receiving regulatory
approvals, for our product candidates;
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we may lose the cooperation of our collaborators;
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we may be required to cease distribution or recall some or all batches of our
products; and
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ultimately, we may not be able to meet commercial demands for our products.
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If a third-party manufacturer with whom we contract fails to perform its obligations, we may
be forced to manufacture the materials ourselves, for which we may not have the capabilities or
resources, or enter into an agreement with a different third-party manufacturer, which we may not
be able to do with reasonable terms, if at all. In some cases, the technical skills required to
manufacture our product may be unique to the original manufacturer and we may have difficulty
transferring such skills to a back-up nor alternate supplier, or we may be unable to transfer such
skills at all. In addition, if we are required to change manufacturers for any reason, we will be
required to verify that the new manufacturer maintains facilities and procedures that comply with
quality standards and with all applicable regulations and guidelines. The delays associated with
the verification of a new manufacturer could negatively affect our ability to develop product
candidates in a timely manner or within budget. Furthermore, a manufacturer may possess technology
related to the manufacture of our product candidate that such manufacturer owns independently. This
would increase our reliance on such manufacturer or require us to obtain a license from such
manufacturer in order to have another third party manufacture our products.
We have no sales, marketing or distribution experience and would have to invest significant
financial and management resources to establish these capabilities.
We have no sales, marketing or distribution experience. We currently expect to rely heavily on
third parties to launch and market certain of our product candidates, if approved. However, if we
elect to develop internal sales, distribution and marketing capabilities, we will need to invest
significant financial and management resources. For products where we decide to perform sales,
marketing and distribution functions ourselves, we could face a number of additional risks,
including:
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we may not be able to attract and build a significant marketing or sales force;
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the cost of establishing a marketing or sales force may not be justifiable in
light of the revenues generated by any particular product; and
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our direct sales and marketing efforts may not be successful.
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If we are unable to develop our own sales, marketing and distribution capabilities, we will not be
able to successfully commercialize our products without reliance on third parties.
The current credit and financial market conditions may exacerbate certain risks affecting our
business.
Due to the recent tightening of global credit, there may be a disruption or delay in the
performance of our third-party contractors, suppliers or collaborators. We rely on third parties
for several important aspects of our business, including significant portions of our manufacturing
needs, development of product candidates and conduct of clinical trials. If such third parties are
unable to satisfy their commitments to us, our business could be adversely affected.
Risks Related to Managing Our Operations
If we are unable to attract and retain qualified key management and scientists, staff consultants
and advisors, our ability to implement our business plan may be adversely affected.
We are highly dependent upon our senior management and scientific staff. The loss of the
service of any of the members of our senior management, including Dr. John Maraganore, our Chief
Executive Officer, may significantly delay or prevent the achievement of product development and
other business objectives. Our employment agreements with our key personnel are terminable without
notice. We do not carry key man life insurance on any of our employees.
Although we have generally been successful in our recruiting efforts, as well as our retention
of employees, we face intense competition for qualified individuals from numerous pharmaceutical
and biotechnology companies, universities, governmental entities and other research institutions,
many of which have substantially greater resources with which to reward qualified individuals than
we do. We may be unable to attract and retain suitably qualified individuals, and our failure to do
so could have an adverse effect on our ability to implement our business plan.
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We may have difficulty managing our growth and expanding our operations successfully as we seek to
evolve from a company primarily involved in discovery and pre-clinical testing into one that
develops and commercializes drugs.
Since we commenced operations in 2002, we have grown substantially. As of June 30, 2009, we
had approximately 179 employees in our facility in Cambridge, Massachusetts. Our rapid and
substantial growth may place a strain on our administrative and operational infrastructure. If drug
candidates we develop enter and advance through clinical trials, we will need to expand our
development, regulatory, manufacturing, marketing and sales capabilities or contract with other
organizations to provide these capabilities for us. As our operations expand, we expect that we
will need to manage additional relationships with various collaborators, suppliers and other
organizations. Our ability to manage our operations and growth will require us to continue to
improve our operational, financial and management controls, reporting systems and procedures. We
may not be able to implement improvements to our management information and control systems in an
efficient or timely manner and may discover deficiencies in existing systems and controls.
Risks Related to Our Industry
Risks Related to Development, Clinical Testing and Regulatory Approval of Our Drug Candidates
Any drug candidates we develop may fail in development or be delayed to a point where they do not
become commercially viable.
Pre-clinical testing and clinical trials of new drug candidates are lengthy and expensive and
the historical failure rate for drug candidates is high. We are developing our most advanced
product candidate, ALN-RSV01, for the treatment of RSV infection. In January 2008, we completed our
GEMINI study, a Phase II trial designed to evaluate the safety, tolerability and anti-viral
activity of ALN-RSV01 in adult subjects experimentally infected with RSV. We recently completed a
second Phase II trial assessing the safety and tolerability of ALN-RSV01 in adult lung transplant
patients naturally infected with RSV and we intend to continue the
ALN-RSV clinical development program. In addition, in December 2008, we submitted an IND to the FDA for ALN-VSP, our first
systemically delivered RNAi therapeutic. We are developing ALN-VSP for the treatment of certain
liver cancers. We received clearance from the FDA in January 2009 to proceed with a Phase I study
and initiated this study in March 2009. However, we may not be able to further advance these or any
other product candidate through clinical trials. If we successfully enter into clinical studies,
the results from pre-clinical testing or early clinical trials of a drug candidate may not predict
the results that will be obtained in subsequent human clinical trials. For example, ALN-VSP and our
other systemically delivered therapeutic candidates employ novel delivery formulations that have
yet to be evaluated in human studies and have yet to be proven safe and effective in clinical
trials. We, the FDA or other applicable regulatory authorities, or an institutional review board,
or IRB, may suspend clinical trials of a drug candidate at any time for various reasons, including
if we or they believe the subjects or patients participating in such trials are being exposed to
unacceptable health risks. Among other reasons, adverse side effects of a drug candidate on
subjects or patients in a clinical trial could result in the FDA or foreign regulatory authorities
suspending or terminating the trial and refusing to approve a particular drug candidate for any or
all indications of use.
Clinical trials of a new drug candidate require the enrollment of a sufficient number of
patients, including patients who are suffering from the disease the drug candidate is intended to
treat and who meet other eligibility criteria. Rates of patient enrollment are affected by many
factors, including the size of the patient population, the age and condition of the patients, the
nature of the protocol, the proximity of patients to clinical sites, the availability of effective
treatments for the relevant disease, the seasonality of infections and the eligibility criteria for
the clinical trial. Delays in patient enrollment can result in increased costs and longer
development times.
Clinical trials also require the review and oversight of IRBs, which approve and continually
review clinical investigations and protect the rights and welfare of human subjects. Inability to
obtain or delay in obtaining IRB approval can prevent or delay the initiation and completion of
clinical trials, and the FDA may decide not to consider any data or information derived from a
clinical investigation not subject to initial and continuing IRB review and approval in support of
a marketing application.
Our drug candidates that we develop may encounter problems during clinical trials that will
cause us, an IRB or regulatory authorities to delay, suspend or terminate these trials, or that
will delay the analysis of data from these trials. If we experience any such problems, we may not
have the financial resources to continue development of the drug candidate that is affected, or
development of any of our other drug candidates. We may also lose, or be unable to enter into,
collaborative arrangements for the affected drug candidate and for other drug candidates we are
developing.
Delays in clinical trials could reduce the commercial viability of our drug candidates. Any of
the following could, among
other things, delay our clinical trials:
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delays in filing initial drug applications;
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conditions imposed on us by the FDA or comparable foreign authorities regarding
the scope or design of our clinical trials;
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problems in engaging IRBs to oversee trials or problems in obtaining or maintaining IRB
approval of trials;
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delays in enrolling patients and volunteers into clinical trials;
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high drop-out rates for patients and volunteers in clinical trials;
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negative or inconclusive results from our clinical trials or the clinical trials
of others for drug candidates similar to ours;
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inadequate supply or quality of drug candidate materials or other materials
necessary for the conduct of our clinical trials;
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serious and unexpected drug-related side effects experienced by participants in
our clinical trials or by individuals using drugs similar to our product candidates; or
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unfavorable FDA or other regulatory agency inspection and review of a clinical
trial site or records of any clinical or pre-clinical investigation.
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Even if we successfully complete clinical trials of our drug candidates, any given drug
candidate may not prove to be an effective treatment for the diseases for which it was being
tested.
The FDA approval process may be delayed for any drugs we develop that require the use of
specialized drug delivery devices.
Some drug candidates that we develop may need to be administered using specialized drug
delivery devices that deliver RNAi therapeutics directly to diseased parts of the body. For
example, we believe that product candidates we develop for Parkinsons disease, HD or other central
nervous system diseases may need to be administered using such a device. For neurodegenerative
diseases, we have entered into a collaboration agreement with Medtronic to pursue potential
development of drug-device combinations incorporating RNAi therapeutics. We may not achieve
successful development results under this collaboration and may need to seek other collaboration
partners to develop alternative drug delivery systems, or utilize existing drug delivery systems,
for the direct delivery of RNAi therapeutics for these diseases. While we expect to rely on drug
delivery systems that have been approved by the FDA or other regulatory agencies to deliver drugs
like ours to similar physiological sites, we, or our collaborator, may need to modify the design or
labeling of such delivery device for some products we may develop. In such an event, the FDA may
regulate the product as a combination product or require additional approvals or clearances for the
modified delivery device. Further, to the extent the specialized delivery device is owned by
another company, we would need that companys cooperation to implement the necessary changes to the
device, or its labeling, and to obtain any additional approvals or clearances. In cases where we do
not have an ongoing collaboration with the company that makes the device, obtaining such additional
approvals or clearances and the cooperation of such other company could significantly delay and
increase the cost of obtaining marketing approval, which could reduce the commercial viability of
our drug candidate. In summary, we may be unable to find, or experience delays in finding, suitable
drug delivery systems to administer RNAi therapeutics directly to diseased parts of the body, which
could negatively affect our ability to successfully commercialize these RNAi therapeutics.
We may be unable to obtain United States or foreign regulatory approval and, as a result, be
unable to commercialize our drug candidates.
Our drug candidates are subject to extensive governmental regulations relating to, among other
things, research, testing, development, manufacturing, safety, efficacy, recordkeeping, labeling,
marketing and distribution of drugs. Rigorous pre-clinical testing and clinical trials and an
extensive regulatory approval process are required to be successfully completed in the United
States and in many foreign jurisdictions before a new drug can be marketed. Satisfaction of these
and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated
delays. It is possible that none of the drug candidates we may develop will
obtain the appropriate regulatory approvals necessary for us or our collaborators to begin
selling them.
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We have very limited experience in conducting and managing the clinical trials necessary to
obtain regulatory approvals, including approval by the FDA. The time required to obtain FDA and
other approvals is unpredictable but typically takes many years following the commencement of
clinical trials, depending upon the complexity of the drug candidate. Any analysis we perform of
data from pre-clinical and clinical activities is subject to confirmation and interpretation by
regulatory authorities, which could delay, limit or prevent regulatory approval. We may also
encounter unexpected delays or increased costs due to new government regulations, for example, from
future legislation or administrative action, or from changes in FDA policy during the period of
product development, clinical trials and FDA regulatory review. For example, the Food and Drug
Administration Amendments Act of 2007, or FDAAA, may make it more difficult and costly for us to
obtain regulatory approval of our product candidates and to produce, market and distribute products
after approval. The FDAAA granted a variety of new powers to the FDA, many of which are aimed at
improving the safety of drug products before and after approval. In particular, it authorizes the
FDA to, among other things, require post-approval studies and clinical trials, mandate changes to
drug labeling to reflect new safety information, and require risk evaluation and mitigation
strategies, or REMS, for certain drugs, including certain currently approved drugs. In addition, it
significantly expanded the federal governments clinical trial registry and results databank and
creates new restrictions on the advertising and promotion of drug products. Under the FDAAA,
companies that violate the new law are subject to substantial civil monetary penalties.
Because the drugs we are intending to develop may represent a new class of drug, the FDA has
not yet established any definitive policies, practices or guidelines in relation to these drugs.
While the product candidates that we are currently developing are regulated as a new drug under the
Federal Food, Drug, and Cosmetic Act, the FDA could decide to regulate them or other products we
may develop as biologics under the Public Health Service Act. The lack of policies, practices or
guidelines may hinder or slow review by the FDA of any regulatory filings that we may submit.
Moreover, the FDA may respond to these submissions by defining requirements we may not have
anticipated. Such responses could lead to significant delays in the clinical development of our
product candidates. In addition, because there may be approved treatments for some of the diseases
for which we may seek approval, in order to receive regulatory approval, we will need to
demonstrate through clinical trials that the product candidates we develop to treat these diseases,
if any, are not only safe and effective, but safer or more effective than existing products.
Furthermore, in recent years, there has been increased public and political pressure on the FDA
with respect to the approval process for new drugs, and the number of approvals to market new drugs
has declined.
Any delay or failure in obtaining required approvals could have a material adverse effect on
our ability to generate revenues from the particular drug candidate. Furthermore, any regulatory
approval to market a product may be subject to limitations on the indicated uses for which we may
market the product. These limitations may limit the size of the market for the product and affect
reimbursement by third-party payors.
We are also subject to numerous foreign regulatory requirements governing, among other things,
the conduct of clinical trials, manufacturing and marketing authorization, pricing and third-party
reimbursement. The foreign regulatory approval process includes all of the risks associated with
FDA approval described above as well as risks attributable to the satisfaction of local regulations
in foreign jurisdictions. Approval by the FDA does not assure approval by regulatory authorities
outside the United States and vice versa.
If our pre-clinical testing does not produce successful results or our clinical trials do not
demonstrate safety and efficacy in humans, we will not be able to commercialize our drug
candidates.
Before obtaining regulatory approval for the sale of our drug candidates, we must conduct, at
our own expense, extensive pre-clinical tests and clinical trials to demonstrate the safety and
efficacy in humans of our drug candidates. Pre-clinical and clinical testing is expensive,
difficult to design and implement, can take many years to complete and is uncertain as to outcome.
Success in pre-clinical testing and early clinical trials does not ensure that later clinical
trials will be successful, and interim results of a clinical trial do not necessarily predict final
results.
A failure of one of more of our clinical trials can occur at any stage of testing. We may
experience numerous unforeseen events during, or as a result of, pre-clinical testing and the
clinical trial process that could delay or prevent our ability to receive regulatory approval or
commercialize our drug candidates, including:
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regulators or IRBs may not authorize us to commence or continue a clinical trial
or conduct a clinical trial at a prospective trial site;
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our pre-clinical tests or clinical trials may produce negative or inconclusive
results, and we may decide, or regulators
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may require us, to conduct additional
pre-clinical testing or clinical trials, or we may abandon projects that we expect to be
promising;
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enrollment in our clinical trials may be slower than we anticipate or
participants may drop out of our clinical trials at a higher rate than we anticipate,
resulting in significant delays;
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our third party contractors may fail to comply with regulatory requirements or
meet their contractual obligations to us in a timely manner;
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we might have to suspend or terminate our clinical trials if the participants are
being exposed to unacceptable health risks;
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IRBs or regulators, including the FDA, may require that we hold, suspend or
terminate clinical research for various reasons, including noncompliance with regulatory
requirements;
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the cost of our clinical trials may be greater than we anticipate;
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the supply or quality of our drug candidates or other materials necessary to
conduct our clinical trials may be insufficient or inadequate;
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effects of our drug candidates may not be the desired effects or may include
undesirable side effects or the drug candidates may have other unexpected
characteristics; and
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effects of our drug candidates may not be clear, or we may disagree with
regulatory authorities, including the FDA, about how to interpret the data generated in
our clinical trials.
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Even if we obtain regulatory approvals, our marketed drugs will be subject to ongoing regulatory
review. If we fail to comply with continuing United States and foreign regulations, we could lose
our approvals to market drugs and our business would be seriously harmed.
Following any initial regulatory approval of any drugs we may develop, we will also be subject
to continuing regulatory review, including the review of adverse drug experiences and clinical
results that are reported after our drug products are made commercially available. This would
include results from any post-marketing tests or vigilance required as a condition of approval. The
manufacturer and manufacturing facilities we use to make any of our drug candidates will also be
subject to periodic review and inspection by the FDA. The discovery of any new or previously
unknown problems with the product, manufacturer or facility may result in restrictions on the drug
or manufacturer or facility, including withdrawal of the drug from the market. We do not have, and
currently do not intend to develop, the ability to manufacture material for our clinical trials or
on a commercial scale. We may manufacture clinical trial materials or we may contract a third party
to manufacture these materials for us. Reliance on third-party manufacturers entails risks to which
we would not be subject if we manufactured products ourselves, including reliance on the
third-party manufacturer for regulatory compliance. Our product promotion and advertising is also
subject to regulatory requirements and continuing regulatory review.
If we fail to comply with applicable continuing regulatory requirements, we may be subject to
fines, suspension or withdrawal of regulatory approval, product recalls and seizures, operating
restrictions and criminal prosecution.
Even if we receive regulatory approval to market our product candidates, the market may not be
receptive to our product candidates upon their commercial introduction, which will prevent us from
becoming profitable.
The product candidates that we are developing are based upon new technologies or therapeutic
approaches. Key participants in pharmaceutical marketplaces, such as physicians, third-party payors
and consumers, may not accept a product intended to improve therapeutic results based on RNAi
technology. As a result, it may be more difficult for us to convince the medical community and
third-party payors to accept and use our product, or to provide favorable reimbursement.
Other factors that we believe will materially affect market acceptance of our product
candidates include:
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the timing of our receipt of any marketing approvals, the terms of any approvals
and the countries in which approvals are obtained;
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the safety, efficacy and ease of administration of our product candidates;
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the willingness of patients to accept potentially new routes of administration;
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the success of our physician education programs;
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the availability of government and third-party payor reimbursement;
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the pricing of our products, particularly as compared to alternative treatments; and
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availability of alternative effective treatments for the diseases that product
candidates we develop are intended to treat and the relative risks, benefits and costs
of the treatments.
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Even if we develop an RNAi therapeutic product for the prevention or treatment of infection by
hemorrhagic fever viruses such as Ebola, governments may not elect to purchase such a product,
which could adversely affect our business.
We expect that governments will be the only purchasers of any products we may develop for the
prevention or treatment of hemorrhagic fever viruses such as Ebola. In the future, we may also
initiate additional programs for the development of product candidates for which governments may be
the only or primary purchasers. However, governments will not be required to purchase any such
products from us and may elect not to do so, which could adversely affect our business. For
example, although the focus of our Ebola program is to develop RNAi therapeutic targeting gene
sequences that are highly conserved across known Ebola viruses, if the sequence of any Ebola virus
that emerges is not sufficiently similar to those we are targeting, any product candidate that we
develop may not be effective against that virus. Accordingly, while we expect that any RNAi
therapeutic we develop for the treatment of Ebola could be stockpiled by governments as part of
their biodefense preparations, they may not elect to purchase such product, or if they purchase our
products, they may not do so at prices and volume levels that are profitable for us.
If we or our collaborators, manufacturers or service providers fail to comply with regulatory laws
and regulations, we or they could be subject to enforcement actions, which could affect our
ability to market and sell our products and may harm our reputation.
If we or our collaborators, manufacturers or service providers fail to comply with applicable
federal, state or foreign laws or regulations, we could be subject to enforcement actions, which
could affect our ability to develop, market and sell our products successfully and could harm our
reputation and lead to reduced acceptance of our products by the market. These enforcement actions
include:
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warning letters;
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product recalls or public notification or medical product safety alerts to healthcare
professionals;
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restrictions on, or prohibitions against, marketing our products;
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restrictions on importation or exportation of our products;
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suspension of review or refusal to approve pending applications;
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exclusion from participation in government-funded healthcare programs;
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exclusion from eligibility for the award of government contracts for our products;
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suspension or withdrawal of product approvals;
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product seizures;
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injunctions; and
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civil and criminal penalties and fines.
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Any drugs we develop may become subject to unfavorable pricing regulations, third-party
reimbursement practices or healthcare reform initiatives, thereby harming our business.
The regulations that govern marketing approvals, pricing and reimbursement for new drugs vary
widely from country to country. Some countries require approval of the sale price of a drug before
it can be marketed. In many countries, the pricing review period begins after marketing or product
licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains
subject to continuing governmental control even after initial approval is granted. Although we
intend to monitor these regulations, our programs are currently in the early stages of development
and we will not be able to assess the impact of price regulations for a number of years. As a
result, we might obtain regulatory approval for a product in a particular country, but then be
subject to price regulations that delay our commercial launch of the product and negatively impact
the revenues we are able to generate from the sale of the product in that country.
Our ability to commercialize any products successfully also will depend in part on the extent
to which reimbursement for these products and related treatments will be available from government
health administration authorities, private health insurers and other organizations. Even if we
succeed in bringing one or more products to the market, these products may not be considered
cost-effective, and the amount reimbursed for any products may be insufficient to allow us to sell
our products on a competitive basis. Because our programs are in the early stages of development,
we are unable at this time to determine their cost effectiveness or the likely level or method of
reimbursement. Increasingly, the third-party payors who reimburse patients, such as government and
private insurance plans, are requiring that drug companies provide them with predetermined
discounts from list prices, and are seeking to reduce the prices charged for pharmaceutical
products. If the price we are able to charge for any products we develop is inadequate in light of
our development and other costs, our profitability could be adversely affected.
We currently expect that any drugs we develop may need to be administered under the
supervision of a physician. Under currently applicable United States law, drugs that are not
usually self-administered may be eligible for coverage by the Medicare program if:
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they are incident to a physicians services;
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they are reasonable and necessary for the diagnosis or treatment of the illness
or injury for which they are administered according to accepted standard of medical
practice;
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they are not excluded as immunizations; and
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they have been approved by the FDA.
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There may be significant delays in obtaining coverage for newly-approved drugs, and coverage
may be more limited than the purposes for which the drug is approved by the FDA. Moreover,
eligibility for coverage does not imply that any drug will be reimbursed in all cases or at a rate
that covers our costs, including research, development, manufacture, sale and distribution. Interim
payments for new drugs, if applicable, may also not be sufficient to cover our costs and may not be
made permanent. Reimbursement may be based on payments allowed for lower-cost drugs that are
already reimbursed, may be incorporated into existing payments for other services and may reflect
budgetary constraints or imperfections in Medicare data. Net prices for drugs may be reduced by
mandatory discounts or rebates required by government health care programs or private payors and by
any future relaxation of laws that presently restrict imports of drugs from countries where they
may be sold at lower prices than in the United States. Third party payors often rely upon Medicare
coverage policy and payment limitations in setting their own reimbursement rates. Our inability to
promptly obtain coverage and profitable reimbursement rates from both government-funded and private
payors for new drugs that we develop could have a material adverse effect on our operating results,
our ability to raise capital needed to commercialize products, and our overall financial condition.
We believe that the efforts of governments and third-party payors to contain or reduce the
cost of healthcare will continue to affect the business and financial condition of pharmaceutical
and biopharmaceutical companies. A number of legislative and regulatory proposals to change the
healthcare system in the United States and other major healthcare markets have been proposed in
recent years. These proposals have included prescription drug benefit legislation that was enacted
and took effect in January 2006 and
healthcare reform legislation recently enacted by certain states. Further federal and state
legislative and regulatory developments are
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possible and we expect ongoing initiatives in the
United States to increase pressure on drug pricing. Such reforms could have an adverse effect on
anticipated revenues from drug candidates that we may successfully develop.
Another development that may affect the pricing of drugs is Congressional action regarding
drug reimportation into the United States. Recent proposed legislation has been introduced in
Congress that, if enacted, would permit more widespread reimportation of drugs from foreign
countries into the United States. This could include reimportation from foreign countries where the
drugs are sold at lower prices than in the United States. Such legislation, or similar regulatory
changes, could lead to a decrease in the price we receive for any approved products, which, in
turn, could impair our ability to generate revenue. Alternatively, in response to legislation such
as this, we might elect not to seek approval for or market our products in foreign jurisdictions in
order to minimize the risk of reimportation, which could also reduce the revenue we generate from
our product sales.
There is a substantial risk of product liability claims in our business. If we are unable to
obtain sufficient insurance, a product liability claim against us could adversely affect our
business.
Our business exposes us to significant potential product liability risks that are inherent in
the development, manufacturing and marketing of human therapeutic products. Product liability
claims could delay or prevent completion of our clinical development programs. If we succeed in
marketing products, such claims could result in an FDA investigation of the safety and
effectiveness of our products, our manufacturing processes and facilities or our marketing
programs, and potentially a recall of our products or more serious enforcement action, limitations
on the indications for which they may be used, or suspension or withdrawal of approvals. We
currently have product liability insurance that we believe is appropriate for our stage of
development and may need to obtain higher levels prior to marketing any of our drug candidates. Any
insurance we have or may obtain may not provide sufficient coverage against potential liabilities.
Furthermore, clinical trial and product liability insurance is becoming increasingly expensive. As
a result, we may be unable to obtain sufficient insurance at a reasonable cost to protect us
against losses caused by product liability claims that could have a material adverse effect on our
business.
If we do not comply with laws regulating the protection of the environment and health and human
safety, our business could be adversely affected.
Our research and development involves the use of hazardous materials, chemicals and various
radioactive compounds. We maintain quantities of various flammable and toxic chemicals in our
facilities in Cambridge that are required for our research and development activities. We are
subject to federal, state and local laws and regulations governing the use, manufacture, storage,
handling and disposal of these hazardous materials. We believe our procedures for storing, handling
and disposing these materials in our Cambridge facility comply with the relevant guidelines of the
City of Cambridge and the Commonwealth of Massachusetts. Although we believe that our safety
procedures for handling and disposing of these materials comply with the standards mandated by
applicable regulations, the risk of accidental contamination or injury from these materials cannot
be eliminated. If an accident occurs, we could be held liable for resulting damages, which could be
substantial. We are also subject to numerous environmental, health and workplace safety laws and
regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and
the handling of biohazardous materials.
Although we maintain workers compensation insurance to cover us for costs and expenses we may
incur due to injuries to our employees resulting from the use of these materials, this insurance
may not provide adequate coverage against potential liabilities. We do not maintain insurance for
environmental liability or toxic tort claims that may be asserted against us in connection with our
storage or disposal of biological, hazardous or radioactive materials. Additional federal, state
and local laws and regulations affecting our operations may be adopted in the future. We may incur
substantial costs to comply with, and substantial fines or penalties if we violate, any of these
laws or regulations.
Risks Related to Patents, Licenses and Trade Secrets
If we are not able to obtain and enforce patent protection for our discoveries, our ability to
develop and commercialize our product candidates will be harmed.
Our success depends, in part, on our ability to protect proprietary methods and technologies
that we develop under the patent and other intellectual property laws of the United States and
other countries, so that we can prevent others from unlawfully using our inventions and proprietary
information. However, we may not hold proprietary rights to some patents required for us to
commercialize our proposed products. Because certain U.S. patent applications are confidential
until the patents issue, such as applications filed prior to November 29, 2000, or applications
filed after such date which will not be filed in foreign countries, third parties may have filed
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patent applications for technology covered by our pending patent applications without our
being aware of those applications, and our patent applications may not have priority over those
applications. For this and other reasons, we may be unable to secure desired patent rights, thereby
losing desired exclusivity. Further, we may be required to obtain licenses under third-party
patents to market our proposed products or conduct our research and development or other
activities. If licenses are not available to us on acceptable terms, we will not be able to market
the affected products or conduct the desired activities.
Our strategy depends on our ability to rapidly identify and seek patent protection for our
discoveries. In addition, we may rely on third-party collaborators to file patent applications
relating to proprietary technology that we develop jointly during certain collaborations. The
process of obtaining patent protection is expensive and time-consuming. If our present or future
collaborators fail to file and prosecute all necessary and desirable patent applications at a
reasonable cost and in a timely manner, our business will be adversely affected. Despite our
efforts and the efforts of our collaborators to protect our proprietary rights, unauthorized
parties may be able to obtain and use information that we regard as proprietary. While issued
patents are presumed valid, this does not guarantee that the patent will survive a validity
challenge or be held enforceable. Any patents we have obtained, or obtain in the future, may be
challenged, invalidated, adjudged unenforceable or circumvented by parties attempting to design
around our intellectual property. Moreover, third parties or the U.S. Patent and Trademark Office,
or USPTO, may commence interference proceedings involving our patents or patent applications. Any
challenge to, finding of unenforceability or invalidation or circumvention of, our patents or
patent applications would be costly, would require significant time and attention of our management
and could have a material adverse effect on our business.
Our pending patent applications may not result in issued patents. The patent position of
pharmaceutical or biotechnology companies, including ours, is generally uncertain and involves
complex legal and factual considerations. The standards that the USPTO and its foreign counterparts
use to grant patents are not always applied predictably or uniformly and can change. Adding to the
uncertainty of our current intellectual property portfolio and our ability to secure and enforce
future patent rights are the outcome of a legal dispute surrounding the implementation of certain
continuation and claims rules promulgated by the USPTO, which were scheduled to take effect
November 1, 2007, but which are now enjoined and on appeal, and the outcome of Congressional
efforts to reform the Patent Act of 1952. There is also no uniform, worldwide policy regarding the
subject matter and scope of claims granted or allowable in pharmaceutical or biotechnology patents.
Accordingly, we do not know the degree of future protection for our proprietary rights or the
breadth of claims that will be allowed in any patents issued to us or to others.
We also rely to a certain extent on trade secrets, know-how and technology, which are not
protected by patents, to maintain our competitive position. If any trade secret, know-how or other
technology not protected by a patent were to be disclosed to or independently developed by a
competitor, our business and financial condition could be materially adversely affected.
We license patent rights from third party owners. If such owners do not properly or successfully
obtain, maintain or enforce the patents underlying such licenses, our competitive position and
business prospects will be harmed.
We are a party to a number of licenses that give us rights to third party intellectual
property that is necessary or useful for our business. In particular, we have obtained licenses
from, among others, Isis, MIT, Whitehead, Max Planck, Stanford University, Tekmira and The
University of Texas Southwestern Medical Center. We also intend to enter into additional licenses
to third party intellectual property in the future.
Our success will depend in part on the ability of our licensors to obtain, maintain and
enforce patent protection for our licensed intellectual property, in particular, those patents to
which we have secured exclusive rights. Our licensors may not successfully prosecute the patent
applications to which we are licensed. Even if patents issue in respect of these patent
applications, our licensors may fail to maintain these patents, may determine not to pursue
litigation against other companies that are infringing these patents, or may pursue such litigation
less aggressively than we would. Without protection for the intellectual property we license, other
companies might be able to offer substantially identical products for sale, which could adversely
affect our competitive business position and harm our business prospects. In addition, we
sublicense our rights under various third-party licenses to our collaborators. Any impairment of
these sublicensed rights could result in reduced revenues under our collaboration agreements or
result in termination of an agreement by one or more of our collaborators.
In June 2009, we joined with Max Planck in taking legal action against Whitehead, MIT and
UMass. The complaint, initially filed in Suffolk County Superior Court in Boston, Massachusetts
and subsequently removed to the U.S. District Court for the District of Massachusetts, alleges
(among other things) that the defendants have improperly prosecuted the so-called Tuschl I patent
applications and wrongfully incorporated inventions covered by the Tuschl II patent applications
into the Tuschl I patent applications, thereby potentially damaging the value of inventions
reflected in the Tuschl II patent applications. In the field of RNAi
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therapeutics, we are the exclusive licensee of the Tuschl I patent applications from Max
Planck, MIT and Whitehead and of the Tuschl II patent applications from Max Planck.
Although we are vigorously asserting our rights in this case (along with Max Planck),
litigation is subject to inherent uncertainty and a court could ultimately rule against us. In
addition, litigation is costly and may divert the attention of our management and other resources
that would otherwise be engaged in running our business.
Other companies or organizations may challenge our patent rights or may assert patent rights that
prevent us from developing and commercializing our products.
RNAi is a relatively new scientific field, the commercial exploitation of which
has resulted in many different patents and patent applications from organizations and individuals
seeking to obtain patent protection in the field. We have obtained grants and issuances of RNAi
patents and have licensed many of these patents from third parties on an exclusive basis. The
issued patents and pending patent applications in the United States and in key markets around the
world that we own or license claim many different methods, compositions and processes relating to
the discovery, development, manufacture and commercialization of RNAi therapeutics. Specifically,
we have a portfolio of patents, patent applications and other intellectual property covering:
fundamental aspects of the structure and uses of siRNAs, including their manufacture and use as
therapeutics, and RNAi-related mechanisms; chemical modifications to siRNAs that improve their
suitability for therapeutic uses; siRNAs directed to specific targets as treatments for particular
diseases; and delivery technologies, such as in the field of cationic liposomes.
As the field of RNAi therapeutics is maturing, patent applications are being fully processed
by national patent offices around the world. There is uncertainty about which patents will issue,
and, if they do, as to when, to whom, and with what claims. It is likely that there will be
significant litigation and other proceedings, such as interference, reexamination and opposition
proceedings, in various patent offices relating to patent rights in the RNAi field. For example,
various third parties have initiated oppositions to patents in our Kreutzer-Limmer and Tuschl II
series in the EPO and in other jurisdictions. We expect that additional oppositions will be filed
in the EPO and elsewhere, and other challenges will be raised relating to other patents and patent
applications in our portfolio. In many cases, the possibility of appeal exists for either us or our
opponents, and it may be years before final, unappealable rulings are made with respect to these
patents in certain jurisdictions. The timing and outcome of these and other proceedings is
uncertain and may adversely affect our business if we are not successful in defending the
patentability and scope of our pending and issued patent claims. In addition, third parties may
attempt to invalidate our intellectual property rights. Even if our rights are not directly
challenged, disputes could lead to the weakening of our intellectual property rights. Our defense
against any attempt by third parties to circumvent or invalidate our intellectual property rights
could be costly to us, could require significant time and attention of our management and could
have a material adverse effect on our business and our ability to successfully compete in the field
of RNAi.
There are many issued and pending patents that claim aspects of oligonucleotide chemistry that
we may need to apply to our siRNA drug candidates. There are also many issued patents that claim
targeting genes or portions of genes that may be relevant for siRNA drugs we wish to develop. Thus,
it is possible that one or more organizations will hold patent rights to which we will need a
license. If those organizations refuse to grant us a license to such patent rights on reasonable
terms, we may not be able to market products or perform research and development or other
activities covered by these patents.
If we become involved in patent litigation or other proceedings related to a determination of
rights, we could incur substantial costs and expenses, substantial liability for damages or be
required to stop our product development and commercialization efforts.
Third parties may sue us for infringing their patent rights. Likewise, we may need to resort
to litigation to enforce a patent issued or licensed to us or to determine the scope and validity
of proprietary rights of others. In addition, a third party may claim that we have improperly
obtained or used its confidential or proprietary information. Furthermore, in connection with a
license agreement, we have agreed to indemnify the licensor for costs incurred in connection with
litigation relating to intellectual property rights. The cost to us of any litigation or other
proceeding relating to intellectual property rights, even if resolved in our favor, could be
substantial, and the litigation would divert our managements efforts. Some of our competitors may
be able to sustain the costs of complex patent litigation more effectively than we can because they
have substantially greater resources. Uncertainties resulting from the initiation and continuation
of any litigation could limit our ability to continue our operations.
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If any parties successfully claim that our creation or use of proprietary technologies
infringes upon their intellectual property
rights, we might be forced to pay damages, potentially including treble damages, if we are
found to have willfully infringed on such parties patent rights. In addition to any damages we
might have to pay, a court could require us to stop the infringing activity or obtain a license.
Any license required under any patent may not be made available on commercially acceptable terms,
if at all. In addition, such licenses are likely to be non-exclusive and, therefore, our
competitors may have access to the same technology licensed to us. If we fail to obtain a required
license and are unable to design around a patent, we may be unable to effectively market some of
our technology and products, which could limit our ability to generate revenues or achieve
profitability and possibly prevent us from generating revenue sufficient to sustain our operations.
Moreover, we expect that a number of our collaborations will provide that royalties payable to us
for licenses to our intellectual property may be offset by amounts paid by our collaborators to
third parties who have competing or superior intellectual property positions in the relevant
fields, which could result in significant reductions in our revenues from products developed
through collaborations.
If we fail to comply with our obligations under any licenses or related agreements, we could lose
license rights that are necessary for developing and protecting our RNAi technology and any
related product candidates that we develop, or we could lose certain exclusive rights to grant
sublicenses.
Our current licenses impose, and any future licenses we enter into are likely to impose,
various development, commercialization, funding, royalty, diligence, sublicensing, insurance and
other obligations on us. If we breach any of these obligations, the licensor may have the right to
terminate the license or render the license non-exclusive, which could result in us being unable to
develop, manufacture and sell products that are covered by the licensed technology or enable a
competitor to gain access to the licensed technology. In addition, while we cannot currently
determine the amount of the royalty obligations we will be required to pay on sales of future
products, if any, the amounts may be significant. The amount of our future royalty obligations will
depend on the technology and intellectual property we use in products that we successfully develop
and commercialize, if any. Therefore, even if we successfully develop and commercialize products,
we may be unable to achieve or maintain profitability.
Confidentiality agreements with employees and others may not adequately prevent disclosure of
trade secrets and other proprietary information.
In order to protect our proprietary technology and processes, we rely in part on
confidentiality agreements with our collaborators, employees, consultants, outside scientific
collaborators and sponsored researchers and other advisors. These agreements may not effectively
prevent disclosure of confidential information and may not provide an adequate remedy in the event
of unauthorized disclosure of confidential information. In addition, others may independently
discover trade secrets and proprietary information, and in such cases we could not assert any trade
secret rights against such party. Costly and time-consuming litigation could be necessary to
enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade
secret protection could adversely affect our competitive business position.
Risks Related to Competition
The pharmaceutical market is intensely competitive. If we are unable to compete effectively with
existing drugs, new treatment methods and new technologies, we may be unable to commercialize
successfully any drugs that we develop.
The pharmaceutical market is intensely competitive and rapidly changing. Many large
pharmaceutical and biotechnology companies, academic institutions, governmental agencies and other
public and private research organizations are pursuing the development of novel drugs for the same
diseases that we are targeting or expect to target. Many of our competitors have:
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much greater financial, technical and human resources than we have at every stage
of the discovery, development, manufacture and commercialization of products;
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more extensive experience in pre-clinical testing, conducting clinical trials,
obtaining regulatory approvals, and in manufacturing, marketing and selling
pharmaceutical products;
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product candidates that are based on previously tested or accepted technologies;
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products that have been approved or are in late stages of development; and
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collaborative arrangements in our target markets with leading companies and research
institutions.
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We will face intense competition from drugs that have already been approved and accepted by
the medical community for the treatment of the conditions for which we may develop drugs. We also
expect to face competition from new drugs that enter the market. We believe a significant number of
drugs are currently under development, and may become commercially available in the future, for the
treatment of conditions for which we may try to develop drugs. For instance, we are currently
evaluating RNAi therapeutics for RSV, liver cancer, TTR amyloidosis, hypercholesterolemia and HD,
and have a number of additional discovery programs targeting other diseases. Virazole and Synagis
are currently marketed for the treatment of certain RSV patients, and numerous drugs are currently
marketed or used for the treatment of liver cancer, hypercholesterolemia and HD as well. These
drugs, or other of our competitors products, may be more effective, safer, less expensive or
marketed and sold more effectively, than any products we develop.
If we successfully develop drug candidates, and obtain approval for them, we will face
competition based on many different factors, including:
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the safety and effectiveness of our products;
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the ease with which our products can be administered and the extent to which
patients accept relatively new routes of administration;
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the timing and scope of regulatory approvals for these products;
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the availability and cost of manufacturing, marketing and sales capabilities;
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price;
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reimbursement coverage; and
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patent position.
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Our competitors may develop or commercialize products with significant advantages over any
products we develop based on any of the factors listed above or on other factors. Our competitors
may therefore be more successful in commercializing their products than we are, which could
adversely affect our competitive position and business. Competitive products may make any products
we develop obsolete or noncompetitive before we can recover the expenses of developing and
commercializing our drug candidates. Furthermore, we also face competition from existing and new
treatment methods that reduce or eliminate the need for drugs, such as the use of advanced medical
devices. The development of new medical devices or other treatment methods for the diseases we are
targeting could make our drug candidates noncompetitive, obsolete or uneconomical.
We face competition from other companies that are working to develop novel drugs using technology
similar to ours. If these companies develop drugs more rapidly than we do or their technologies,
including delivery technologies, are more effective, our ability to successfully commercialize
drugs will be adversely affected.
In addition to the competition we face from competing drugs in general, we also face
competition from other companies working to develop novel drugs using technology that competes more
directly with our own. We are aware of several companies that are working in the field of RNAi. In
addition, we granted licenses or options for licenses to Isis, GeneCare Research Institute Co.,
Ltd., Benitec Ltd., Calando Pharmaceuticals, Inc., Tekmira, Quark Biotech, Inc. and others under
which these companies may independently develop RNAi therapeutics against a limited number of
targets. Any of these companies may develop its RNAi technology more rapidly and more effectively
than us. Merck & Co., Inc., or Merck, was one of our collaborators and a licensee under our
intellectual property for specified disease targets until September 2007, at which time we and
Merck agreed to terminate our collaboration. As a result of its acquisition of Sirna Therapeutics
Inc. in December 2006, and in light of the mutual termination of our collaboration, Merck, which
has substantially more resources and experience in developing drugs than we do, may become a direct
competitor.
In addition, as a result of agreements that we have entered into, Roche and Takeda have
obtained, and Novartis has the right to obtain, broad, non-exclusive licenses to certain aspects of
our technology that give them the right to compete with us in certain circumstances.
We also compete with companies working to develop antisense-based drugs. Like RNAi product
candidates, antisense drugs
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target messenger RNAs, or mRNAs, in order to suppress the activity of specific genes. Isis is
currently marketing an antisense drug and has several antisense drug candidates in clinical trials.
The development of antisense drugs is more advanced than that of RNAi therapeutics, and antisense
technology may become the preferred technology for drugs that target mRNAs to silence specific
genes.
In addition to competition with respect to RNAi and with respect to specific products, we face
substantial competition to discover and develop safe and effective means to deliver siRNAs to the
relevant cell and tissue types. Safe and effective means to deliver siRNAs to the relevant cell and
tissue types may be developed by our competitors, and our ability to successfully commercialize a
competitive product would be adversely affected. In addition, substantial resources are being
expended by third parties in the effort to discover and develop a safe and effective means of
delivering siRNAs into the relevant cell and tissue types, both in academic laboratories and in the
corporate sector. Some of our competitors have substantially greater resources than we do, and if
our competitors are able to negotiate exclusive access to those delivery solutions developed by
third parties, we may be unable to successfully commercialize our product candidates.
Risks Related to Our Common Stock
If our stock price fluctuates, purchasers of our common stock could incur substantial losses.
The market price of our common stock may fluctuate significantly in response to factors that
are beyond our control. The stock market in general has recently experienced extreme price and
volume fluctuations. The market prices of securities of pharmaceutical and biotechnology companies
have been extremely volatile, and have experienced fluctuations that often have been unrelated or
disproportionate to the operating performance of these companies. These broad market fluctuations
could result in extreme fluctuations in the price of our common stock, which could cause purchasers
of our common stock to incur substantial losses.
We may incur significant costs from class action litigation due to our expected stock volatility.
Our stock price may fluctuate for many reasons, including as a result of public announcements
regarding the progress of our development efforts, the addition or departure of our key personnel,
variations in our quarterly operating results and changes in market valuations of pharmaceutical
and biotechnology companies. Recently, when the market price of a stock has been volatile as our
stock price may be, holders of that stock have occasionally brought securities class action
litigation against the company that issued the stock. If any of our stockholders were to bring a
lawsuit of this type against us, even if the lawsuit is without merit, we could incur substantial
costs defending the lawsuit. The lawsuit could also divert the time and attention of our
management.
Novartis ownership of our common stock could delay or prevent a change in corporate control or
cause a decline in our common stock should Novartis decide to sell all or a portion of its shares.
Following their purchase in May 2009 of an additional 65,922 shares of our common stock,
Novartis holds 13.4% of our outstanding common stock and has the right to maintain its ownership
percentage through the expiration or termination of our broad alliance. This concentration of
ownership may harm the market price of our common stock by:
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delaying, deferring or preventing a change in control of our company;
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impeding a merger, consolidation, takeover or other business combination involving our
company; or
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discouraging a potential acquirer from making a tender offer or otherwise
attempting to obtain control of our company.
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In addition, if Novartis decides to sell all or a portion of its shares in a rapid or
disorderly manner, our stock price could be negatively impacted.
Anti-takeover provisions in our charter documents and under Delaware law and our stockholder
rights plan could make an acquisition of us, which may be beneficial to our stockholders, more
difficult and may prevent attempts by our stockholders to replace or remove our current
management.
Provisions in our certificate of incorporation and our bylaws may delay or prevent an
acquisition of us or a change in our management. In addition, these provisions may frustrate or
prevent any attempts by our stockholders to replace or remove our current management by making it
more difficult for stockholders to replace members of our board of directors. Because our board of
directors
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is responsible for appointing the members of our management team, these provisions could in
turn affect any attempt by our stockholders to replace current members of our management team.
These provisions include:
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a classified board of directors;
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a prohibition on actions by our stockholders by written consent;
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limitations on the removal of directors; and
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advance notice requirements for election to our board of directors and for
proposing matters that can be acted upon at stockholder meetings.
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In addition, our board of directors has adopted a stockholder rights plan, the provisions of
which could make it difficult for a potential acquirer of Alnylam to consummate an acquisition
transaction.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of
Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of
15% of our outstanding voting stock from merging or combining with us for a period of three years
after the date of the transaction in which the person acquired in excess of 15% of our outstanding
voting stock, unless the merger or combination is approved in a prescribed manner. These provisions
would apply even if the proposed merger or acquisition could be considered beneficial by some
stockholders.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On May 6, 2009, pursuant to terms of the Investor Rights Agreement between us and Novartis,
Novartis purchased 65,922 shares of our common stock, at a purchase price of $17.50 per share,
which is equal to the average of the closing prices for our common stock for the 20 trading-day
period ending on March 30, 2009. This purchase resulted in an aggregate payment to us of $1.2
million. Under the Investor Rights Agreement, we granted Novartis rights to acquire additional
equity securities such that Novartis would be able to maintain its ownership percentage, which
following this purchase was 13.4% of our outstanding common stock.
The shares issued to Novartis were issued in reliance on the exemption from the registration
provisions of the Securities Act of 1933, as amended, set forth in Section 4(2) promulgated thereunder.
The exercise of this right does not result in any changes to existing rights or any additional
rights to Novartis. Further, during the term described in the Investor Rights Agreement, Novartis
is permitted to own no more than 19.9% of our outstanding shares.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Our annual meeting of stockholders was held on June 11, 2009. At the annual meeting, the
following matters were voted upon:
Our stockholders re-elected the three persons listed below as Class II directors, each to
serve until our 2012 annual meeting of stockholders and until his or her successor is duly elected
and qualified. The table below lists the number of shares of our common stock voted in favor of the
election of each such person, as well as the number of votes withheld for the election of such
person:
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Number of Shares For
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Number of Shares Withheld
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John K. Clarke
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37,110,910
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305,939
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Vicki L. Sato, Ph.D.
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36,201,440
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1,215,409
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James L. Vincent
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36,197,250
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1,219,599
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The terms of office of the following directors continued after the annual meeting:
Victor J. Dzau, M.D.
John M. Maraganore, Ph.D.
Paul R. Schimmel, Ph.D.
Phillip A. Sharp, Ph.D.
Edward M. Scolnick, M.D.
Kevin P. Starr
Our stockholders approved the amendment and restatement of our 2004 Stock Incentive Plan. The
holders of 29,511,351 shares of our common stock voted in favor of this proposal. The holders of
574,358 shares voted against this proposal. The holders of 70,317 shares abstained from voting on
this matter. There were 7,260,823 broker non-votes with respect to this matter.
Our stockholders approved the adoption of our 2009 Stock Incentive Plan. The holders of
19,537,967 shares of our common stock voted in favor of this proposal. The holders of 10,548,667
shares voted against this proposal. The holders of 69,392 shares abstained from voting on this
matter. There were 7,260,823 broker non-votes with respect to this matter.
Our stockholders ratified the appointment by our board of directors of PricewaterhouseCoopers
LLP as our independent auditors for the fiscal year ending December 31, 2009. The holders of
37,335,605 shares of our common stock voted in favor of this proposal. The holders of 64,654 shares
voted against this proposal. The holders of 16,590 shares abstained from voting on this matter.
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ITEM 6. EXHIBITS.
10.1
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Amended and Restated 2004 Stock Incentive Plan
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10.2
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2009 Stock Incentive Plan
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10.3
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Amended and Restated Strategic Collaboration and License Agreement effective as of April 28, 2009 between
Isis Pharmaceuticals, Inc. and the Registrant
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10.4
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Second Amendment to Lease, dated June 26, 2009, by and between the Registrant and ARE-MA Region No. 28, LLC
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31.1
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Certification of principal executive officer pursuant to Rule 13a-14(a) promulgated under the Securities
Exchange Act of 1934, as amended.
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31.2
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Certification of principal financial officer pursuant to Rule 13a-14(a) promulgated under the Securities
Exchange Act of 1934, as amended.
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32.1
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Certification of principal executive officer pursuant to Rule 13a-14(b) promulgated under the Securities
Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code.
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32.2
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Certification of principal financial officer pursuant to Rule 13a-14(b) promulgated under the Securities
Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code.
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Indicates confidential treatment requested as to certain portions,
which portions were omitted and filed separately with the Securities
and Exchange Commission pursuant to a Confidential Treatment Request.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
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ALNYLAM PHARMACEUTICALS, INC.
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Date: August 6, 2009
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/s/ John M. Maraganore
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John M. Maraganore, Ph.D.
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Chief Executive Officer
(Principal Executive Officer)
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Date: August 6, 2009
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/s/ Patricia L. Allen
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Patricia L. Allen
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Vice President of Finance and Treasurer
(Principal Financial and Accounting Officer)
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Exhibit 10.3
Execution Copy
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
AMENDED AND RESTATED
STRATEGIC COLLABORATION AND
LICENSE AGREEMENT
This Amended and Restated Strategic Collaboration and License Agreement (the Agreement) is
executed this April 28, 2009 (the Restatement Date), between
Isis Pharmaceuticals, Inc
.,
a Delaware corporation having an address at 1896 Rutherford Road, Carlsbad, CA 92008 (Isis) and
A
lnylam
P
harmaceuticals
, I
nc
., a Delaware corporation having an address
at 300 Third Street, Cambridge, Cambridge, MA 02142 (together with its wholly owned subsidiaries
Alnylam U.S., Inc., a Delaware corporation, and Alnylam Europe AG, a company organized under the
laws of Germany, Alnylam). Isis and Alnylam may be referred to herein as the Parties, or each
individually as a Party.
GUIDING PRINCIPLES
Isis is the leader in RNA-based drug discovery, has created technology, intellectual property,
expertise, facilities and resources to discover and develop oligonucleotide drugs;
Alnylam is the leader in RNAi therapeutics, has developed and acquired intellectual property,
expertise and technology in RNAi therapeutics, and is conducting research, drug discovery and
development focused on Double Stranded RNA drugs;
Isis and Alnylam desire to create a long-term strategic relationship that will enhance the
positions of both companies in RNA-based drug discovery;
Isis will continue to pursue RNA-based drug discovery technology very broadly including all
potential mechanisms of action. Isis will work with Alnylam as Isis primary means of
participating in the potential value of Double Stranded RNA Products, and will not enter into any
collaborations with Third Parties the primary purpose of which is to discover Double Stranded RNA
Products;
Alnylam will focus on RNAi therapeutics and the use of Double Stranded RNA;
Isis and Alnylam are parties to the Strategic Collaboration and License Agreement dated March
11, 2004 (as amended to date, the Original Agreement); and
Isis and Alnylam now wish to amend and restate the Original Agreement primarily to expand the
Original Agreement by providing each other exclusive licenses to research, develop and
commercialize Single Stranded RNAi Products for a limited pool of gene targets, and co-exclusivity
in the field of Single Stranded RNAi Compounds.
The objectives of the strategic relationship are to:
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Enhance the leadership of Alnylam in RNAi therapeutics.
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Enhance the potential of Alnylam to develop Double Stranded RNA drugs.
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Enhance the patent positions of each Party with respect to Double Stranded RNA drugs and
Single Stranded RNAi Products.
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Provide Isis with a means for participating in the success of RNAi therapeutics.
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Provide each party with exclusive rights to research, develop and commercialize Single
Stranded RNAi Products for a limited pool of gene targets, and provide each other
co-exclusivity in the field of Single Stranded RNAi Compounds.
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ARTICLE 1
DEFINITIONS; AMENDMENT AND RESTATEMENT
1.1
Capitalized terms used herein and not defined elsewhere herein have the meanings set forth
in Exhibit 1.1.
1.2
Effective as of the Restatement Date, this Agreement restates and supersedes the Original
Agreement as amended through the Restatement Date. The terms and conditions of the Original
Agreement shall apply for the period from the Effective Date until the Restatement Date unless
otherwise provided by this Agreement.
ARTICLE 2
EQUITY INVESTMENT
2.1
In connection with the Original Agreement, Isis purchased from Alnylam 1,666,667 shares of
Series D Preferred Stock, at $6.00 per share (i.e., at an aggregate purchase price of $10,000,002).
ARTICLE 3
MANUFACTURING SERVICES RELATIONSHIP
3.1
[Intentionally Deleted]
ARTICLE 4
COLLABORATIVE RESEARCH EFFORTS; PROTECTED TARGETS
4.1
Research Management Committee
.
(a)
To promote the success of the collaboration objectives and RNAi technology, the Parties
will establish a Research Management Committee (RMC), which will be comprised of equal numbers of
representatives of each of the Parties and will meet at least twice per calendar year, alternating
venues between the vicinities of Cambridge, Massachusetts and Carlsbad, California, to share
scientific direction and data, to coordinate basic research experiments, and to facilitate the
guiding principles of the collaboration.
(b)
Intellectual property representatives of each Party will be invited to participate in RMC
meetings and such meetings will provide a forum to discuss patent prosecution and enforcement
issues and to allocate responsibility for the filing and prosecution of any Joint Patents.
(c)
Through the RMC, the Parties will update one another regarding the progress of the
Research Program (as defined below), including a summary of the work
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each Party has performed thereunder; and regarding their respective Future Chemistry and Motif
and Mechanism Patents.
(d)
The RMC will establish a written clearance policy that will govern any publication or
presentation by a Party in which such Party proposes to include any previously undisclosed
information or intellectual property Controlled by the other Party.
(e)
The RMC and any subcommittees and working groups established by the RMC will dissolve at
the end of the Research Term. Upon termination of the RMC, the Parties will agree upon a strategy
to make decisions about the items in Sections 4.1 (b), (c), and (d).
4.2
Single Stranded RNAi Collaboration
. Subject to Alnylams early termination right
set forth in Section 14.4, during the 3 year period following the Restatement Date (the Research
Term), the Parties will collaborate in carrying out a research program focused on Single Stranded
RNAi Compounds (the Research Program). The Parties may extend the Research Term by mutual
written agreement.
(a)
Research Plan
. The Research Program will be carried out in accordance with a
written research plan, including without limitation the Budget (as defined below), which research
plan shall be mutually agreed upon by the Parties (the Research Plan). The initial outline of
the Research Plan agreed to by the Parties as of the Restatement Date is hereby incorporated into
this Agreement by reference and is made a part of this Agreement;
provided
, within [**]
days of the Restatement Date, the Parties will complete and agree in writing on an initial Research
Plan, including without limitation an initial Budget, which is hereby incorporated into this
Agreement by reference and is made a part of this Agreement. The purpose of the Research Plan is
to detail the responsibilities and activities of Isis and Alnylam with respect to carrying out the
Research Program. The Research Plan will include a description of the specific activities to be
performed by the Parties in support of the Research Program, the allocation of Isis FTEs and
Alnylam FTEs to perform such activities, projected timelines for completion of such activities, and
an applicable budget (the Budget). The Budget for the Research Program must be mutually agreed
by the Parties and will be at least $3,000,000 per year during the Research Term, including without
limitation budgeted costs of Isis FTEs and Alnylam FTEs, and external costs. Beginning in 2010,
at least once during September of each year of the Research Term, the RMC will review the Research
Plan and will amend the Research Plan, as may be necessary, from time to time. In addition, each
Calendar Quarter the RMC will review the progress of the work under the Research Plan, including
spending against the Budget, and recommend adjustments to the Budget as necessary to support the
Research Plan. The Research Plan, including without limitation any Budget, may only be amended
with the written approval of the RMC. If the activities contemplated by the Research Plan at any
time do not justify the number of Isis FTEs allocated to the Research Program, the Parties will
work in good faith to mutually agree to modify the scope of the Research Plan or adjust the number
of Alnylam funded FTEs and related Budget;
provided
that the minimum Budget for the
Research Plan shall be as set forth in this Section 4.2(a). For clarity, Alnylam shall not be
required to agree to any Budget which exceeds $3,000,000 per year.
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(b)
Research Staffing
. Subject to Alnylams obligations under Section 4.2(c), the
Research Plan will provide for (and Isis will supply) a minimum of [**] Isis FTEs per year during
the initial two-year period of the Research Term to perform activities in support of the Research
Program and a minimum of [**] Isis FTEs during the third year of the Research Program. Each Party
will supply the number of FTEs the Research Plan specifies that such Party will supply, and will
conduct the Research Program diligently and in good scientific manner, and in compliance with all
applicable good laboratory practices, and applicable legal requirements, to attempt to achieve
efficiently and expeditiously the objectives of the Research Program. Each Party will comply with
all Applicable Laws, in the performance of work under this Agreement.
(c)
Research Funding
. Alnylam will fund 100% of the costs of conducting the Research
Program in accordance with the Research Plan (collectively, the Research Costs) to the extent
that such Research Costs are incurred under the Budget, including without limitation FTEs (whether
employed by Isis or Alnylam) plus any out-of-pocket expenses specified in the Research Plan. By
[**], 2009 with respect to the second Calendar Quarter of 2009 and thereafter within [**] Days
following [**] each Calendar Quarter, Alnylam will pay Isis [**] for the Alnylam-funded Isis FTEs
assigned to the Research Program for such Calendar Quarter (a prorated amount shall be payable for
any portion of a Calendar Quarter). With respect to any work to be performed in support of the
Research Program during the [**] days following the Restatement Date, if the Parties have not
agreed on an initial Research Plan, then Alnylam will make [**] payments for such work based on
[**] Isis FTEs. No later than [**] days following the end of each Calendar Quarter, Isis will
provide Alnylam with a report of the number of FTEs actually assigned to the Research Program with
a summary of the FTEs who performed under the Research Program (Actual FTE Costs) and a
reasonably detailed accounting of all other Research Costs actually incurred by Isis during such
Calendar Quarter (Actual External Costs). Alnylam shall not be responsible for any Research
Costs incurred by Isis that exceed the [**] amount in the Budget for the work specified in the
Research Plan to be conducted by Isis (Excess Amount), unless the RMC approves an amendment to
the Budget to include such Excess Amount. Similarly, (i) Alnylam will promptly provide Isis a
summary of the Alnylam FTEs who performed under the Research Program for a given Calendar Quarter
and a reasonably detailed accounting of all other Research Costs actually incurred by Alnylam
during such Calendar Quarter, and (ii) Research Costs incurred by Alnylam that exceed the total
amount in the Budget for the work specified in the Research Plan to be conducted by Alnylam will
not reduce the amounts committed in the Budget to fund Isis Research Costs. In addition, upon
reasonable request, each Party shall provide the other Party with reasonable documentation of
Research Costs incurred by such Party during the Research Term and shall grant the other Party
reasonable audit rights consistent with the terms set forth in Section 9.3 in connection with such
Research Costs.
(d)
Materials Transfer
. In order to facilitate the Research Program, either Party may
provide to the other Party certain materials for use by the other Party in furtherance of the
Research Program. All such materials shall be used by the receiving Party in accordance with the
terms and conditions of this Agreement solely for purposes of performing its rights and obligations
under this Agreement and the Research Plan, and the receiving Party shall not transfer such
materials to any Third Party unless expressly
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contemplated by this Agreement or the Research Plan, or upon the written consent of the
supplying Party.
4.3
Enabled Targets for Single Stranded RNAi.
(a)
Enabled Targets
. Each Party will have a pool (with respect to either Party, an
Enabled Target Pool; with respect to Isis, the Isis Enabled Target Pool; and, with respect to
Alnylam, the Alnylam Enabled Target Pool) each containing [**] slots for which such Party can
designate certain Gene Targets against which such Party intends to research, develop and
commercialize a Single-Stranded RNAi Product (each such slot, an Enabled Target Slot and any Gene
Target occupying such a slot, an Enabled Target);
provided, however
, that, each time a
Party (the Advancing Party) designates as a Development Candidate a Single Stranded RNAi Product
Designed for one of such Advancing Partys Enabled Targets, then (i) such Enabled Target will be
considered to have graduated from the Advancing Partys Enabled Target Pool (a Graduated Enabled
Target), (ii) the Advancing Party will be permitted to designate a new Enabled Target to fill the
open Enabled Target Slot in the Advancing Partys Enabled Target Pool, and (iii) so long as the
Advancing Party continues to maintain an Active Program for the applicable Single Stranded RNAi
Product Designed for the Graduated Enabled Target, such Graduated Enabled Target will remain an
Enabled Target of such Advancing Party hereunder. For purposes of clarity, except as set forth in
Sections 5.1(g)(i), 5.1(h)(i), 5.5, 6.6, 6.1(h)(i) and 6.1(i)(i), as applicable, neither Party may
research, develop or commercialize a Single Stranded RNAi Product other than a Single Stranded RNAi
Product Designed for one of such Partys Enabled Targets.
(b)
Designating Enabled Targets
. Within thirty (30) days following completion of
[**], the Parties will begin the process set forth below for selecting Enabled Targets for
inclusion in each Partys Enabled Target Pool. For clarity, at no time may either Party designate
a Gene Target which is in the other Partys Enabled Target Pool. Except as set forth in Section
4.3(e) below, the Parties will designate Enabled Targets by taking alternating turns (each Partys
designation of a new Gene Target (a Pick) or affirmative election not to designate an Enabled
Target (a Pass) shall be considered a Turn; and each round in which Isis and Alnylam have each
Picked or Passed once shall be considered a Round) in one or more Rounds, as necessary. For each
Turn, a Party shall either Pick or Pass within five (5) Business Days (it being understood that if
a Party does not provide affirmative notice of a Pick or Pass within such five (5) Business
Day-period, then such Party shall be deemed to have Passed in such Turn). The Parties will
complete Rounds until the Parties have either (i) both filled all of their respective Enabled
Target Slots, or (ii) both elected to Pass in the same Round, thereby completing a Round (such
point being the end of a Selection Session, which Selection Session includes all of the Rounds
completed since the end of the last Selection Session (or, in the case of the first Selection
Session, all prior Rounds)). For purposes of clarity, either Party may, prior to Picking or
Passing in such Partys Turn in any ongoing Round, remove any existing Gene Target(s) on its
Enabled Target List in accordance with Section 4.3(d) and use its Pick in such Turn to Pick a
different Gene Target as an Enabled Target on its Enabled Target List, subject to the [**] Enabled
Target Slot limitation. Either Party may initiate a new Selection Session at any time by providing
written notice to the other Party (such new Selection Session to begin on the
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first Business Day following the 30
th
day following such notice). For each new
Selection Session, the Party who gets to take the first Turn in the First Round will be determined
in accordance with Section 4.3(c) below.
(c)
Determining First Turn
. Alnylam will take the first Turn in the first Round of
the first Selection Session. Thereafter:
(i)
If, immediately prior to the start of a Selection Session, one Party (the Lopsided
Party) has fewer Enabled Targets in its Enabled Target Pool than the number of Enabled Targets the
other Party has in such other Partys Enabled Target Pool, then the Lopsided Party will take the
first Turn in the First Round. In such event (1) in each Turn the Lopsided Party makes a [**] that
is not a [**] the other Party [**] until both Parties have an [**] in their respective Enabled
Target Pools (and then subsequent Rounds in the Selection Session will continue in accordance with
Section 4.3(c)(iii) below with the other Party getting the first Pick in the first such subsequent
Round); and (2) if the Lopsided Party [**] or [**] in a Turn, the other Party may Pick or Pass (and
then any subsequent Rounds in the Selection Session will continue in accordance with Section
4.3(c)(iii) below).
(ii)
If there is no Lopsided Party immediately prior to the start of a Selection Session, then
the Party who was
not
the last Party to Pass in the prior Selection Session shall be the first
Party to take the first Turn in the first Round of such new Selection Session (and then any
subsequent Rounds in the Selection Session will continue in accordance with Section 4.3(c)(iii)
below).
(iii)
For any subsequent Rounds in a Selection Session, the Party who was
not
the
first Party to take a Turn in the most previous Round will have the first Turn in the next Round.
(iv)
The Parties have attached as Exhibit 4.3(c)(iv) examples of how the Parties intend this
Section 4.3(c) to operate.
(d)
Removing Enabled Targets
. From time to time after the Restatement Date (except
during the 30-day period immediately preceding a Selection Session or when a Lopsided Party is
taking Turns under Section 4.3(c)(i)), each Party may remove a Gene Target from its Enabled Target
Pool upon written notice to the other Party (which removal will create an open Enabled Target
Slot). In addition, on an Enabled Target-by-Enabled Target basis, if the applicable Party has not
designated a Development Candidate comprising a Single Stranded RNAi Product Designed for the
applicable Enabled Target before the [**] year anniversary of the date such Party added the
applicable Enabled Target to such Partys Enabled Target Pool, then such Gene Target will be
automatically removed from such Partys Enabled Target Pool. Once a Party removes a Gene Target
from its Enabled Target Pool (whether voluntarily or by operation of this Section 4.3(d)), such
Gene Target shall no longer be deemed an Enabled Target hereunder and the removing Party will be
prevented from later adding such Gene Target to its Enabled Target Pool until [**] months have
passed from the date such Gene Target was removed.
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(e)
Isis Protected Targets
. Notwithstanding the foregoing, Alnylam may not designate
as one of Alnylams Enabled Targets any of the Gene Targets identified as an Isis Protected Target
in the letter Isis issued to Alnylam on the Restatement Date (collectively, the Isis Protected
Targets).
(i)
With respect to any Isis Protected Target Isis identified as an Isis Protected Target on
the Restatement Date due to a contractual restriction that prevents or otherwise restricts Isis
ability to grant a license to Alnylam under Sections 5.1(g) and 5.1(h) (each an Isis Partnered
Excluded Target), (1) Isis shall list in the above-reference letter such Isis Partnered Excluded
Targets separately such that they are clearly distinguished from other Isis Protected Targets, (2)
Isis shall diligently enforce the relevant terms governing Isis rights to clear any contractual
restrictions on such Isis Partnered Excluded Target, (3) once a particular contractual restriction
clears or expires on such Isis Partnered Excluded Target, such Gene Target will no longer be
considered an Isis Protected Target, such that Alnylam may then designate such Gene Target as one
of its Enabled Targets in accordance with the terms of this Agreement, and (4) when practical (but
at least every [**] months), Isis shall update the list of Isis Protected Targets to remove Gene
Targets that are no longer Isis Partnered Excluded Targets.
(ii)
For purposes of clarity, except as permitted under Sections 6.1(h)(i) and 6.1(i)(i), Isis
may not research, develop or commercialize a Single-Stranded RNAi Product Designed for any Isis
Protected Target unless such Isis Protected Target is designated as an Enabled Target by Isis
pursuant to Section 4.3(b) above or the remainder of this Section 4.3(e)(ii). Notwithstanding
anything in this Section 4.3 to the contrary, with respect to any Isis Partnered Excluded Target
for which the applicable contractual restriction has cleared or expired (each, a Cleared Target)
(A) Isis shall not have the right to designate such a Cleared Target as one of its Enabled Targets
until Isis has provided written notice to Alnylam of such clearance (as part of the regular updates
contemplated in Section 4.3(e)(i) above or otherwise) (such notice, a Clearance Notice), and (B)
in the first Selection Session following Alnylams Receipt of the applicable Clearance Notice with
respect to a particular Cleared Target, Isis may not Pick such Cleared Target as one of its Enabled
Targets until and unless Alnylam has had a full Turn in such Selection Session in which it could
Pick such Cleared Target as one of its Enabled Targets and does not elect to Pick such Cleared
Target. For example, if two Gene Targets become Cleared Targets (and Alnylam receives a Clearance
Notice related thereto) immediately prior to the start of a Selection Session and Isis has the
first Turn, (1) Isis may not Pick either such Cleared Target in its first Turn, (2) in Alnylams
next Turn, Alnylam could Pick either such Cleared Target, and (3) once Alnylam opts to Pick a Gene
Target (whether or not such Pick was for one of the two Cleared Targets) or Pass, Isis may then
pick either of the remaining two such Cleared Targets that it was prohibited from Picking in its
previous Turn.
(f)
Confidentiality
. The fact that a Party has designated or removed a particular
Gene Target within its Enabled Target Pool is Confidential Information of such Party, subject to
the provisions of Article 12. Neither Party shall disclose such Confidential Information of the
other Party to any Third Party, including its Third Party collaborators, or use such Confidential
Information of the other Party to guide its own (or its Third Party collaborators) decisions to
pursue particular Gene Targets, but either
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Party can use such Confidential Information to decline a Third Partys request for a license
to such Gene Target. The Isis Protected Targets are Isis Confidential Information.
(g)
Review Designating Process
. The Parties agree that on or about the three year
anniversary of the Restatement Date, if either Party deems appropriate, the Parties will, in good
faith, review the process for designating Enabled Targets for the purposes of improving the process
for the mutual benefit of both Parties, and if necessary, amend this Section 4.3, to effect such
improvements; provided, however, that either Party shall have the right to refuse any such changes
in its sole discretion.
ARTICLE 5
LICENSES GRANTED BY ISIS TO ALNYLAM; AND
CO-EXCLUSIVITY COVENANT
5.1
License Grants
. Subject to the terms and conditions of this Agreement, including,
but not limited to, the restrictions set forth in Section 5.3, Isis grants Alnylam the following
licenses:
(a)
Under Isis Current Motif and Mechanism Patents and Isis Current Chemistry Patents, a
license to research, develop, make, have made, use, import, offer to sell and sell Double Stranded
RNA and Double Stranded RNA Products.
(b)
Subject to the terms of Section 11.8, under Isis Future Motif and Mechanism Patents, Isis
Future Chemistry Patents and Isis rights in Joint Patents, a license to research, develop, make,
have made, use, import, offer to sell and sell Double Stranded RNA and Double Stranded RNA
Products.
(c)
Under the Isis Current Motif and Mechanism Patents and Isis Current Chemistry Patents, a
license to research, develop, make, have made, use, import, offer to sell and sell MicroRNA
Products.
(d)
Subject to the terms of Section 11.8, under the Isis Future Motif and Mechanism Patents
and Isis Future Chemistry Patents, a license to research, develop, make, have made, use, import,
offer to sell and sell MicroRNA Products.
(e)
A royalty-free, fully paid, license to practice any Know-How disclosed to Alnylam during
the performance of this Agreement, subject to the non-disclosure but not the non-use provisions
contained in Article 12.
(f)
A fully paid, royalty-free license under Isis Manufacturing Patents to research, develop,
make, have made, use and import Alnylam Products for Research Use.
(g)
Under the Isis Current Motif and Mechanism Patents and Isis Current Chemistry Patents, a
license to (i) research, develop, make, have made, use and import Single Stranded RNAi Compounds
and Single Stranded RNAi Products for Research
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Use, and (ii) research, develop, make, have made, use, import, offer to sell and sell Alnylam
Single Stranded RNAi Products.
(h)
Subject to the terms of Section 11.8, under Isis Future Motif and Mechanism Patents, Isis
Future Chemistry Patents and Isis rights in Joint Patents, a license to (i) research, develop,
make, have made, use and import Single Stranded RNAi Compounds and Single Stranded RNAi Products
for Research Use, and (ii) research, develop, make, have made, use, import, offer to sell and sell
Alnylam Single Stranded RNAi Products.
(i)
Under Isis rights in Research Program Patents, a royalty-free license for any and all
purposes,
except
to research, develop, make, have made, use, import, offer to sell or sell
any (1) oligonucleotides (or chemically modified oligonucleotide analogs) designed to work via the
RNase H 1 or 2 mechanism (including any oligonucleotide which has [**]), (2) Double Stranded RNA
Products, (3) MicroRNA Products, (4) Single Stranded RNAi Products, or (5) Isis Single Stranded
Products.
5.2
License Exclusivity, Territory and Sublicenses
.
(a)
Subject to the terms and conditions of this Agreement, including the restrictions set
forth in Section 5.3, the licenses from Isis to Alnylam granted in Sections 5.1(a) and (b) are
worldwide and co-exclusive (with Isis), with the exclusive right to grant Naked Sublicenses; the
licenses from Isis to Alnylam granted in Sections 5.1 (c), (d), (e), (f), (g)(i), (h)(i) and (i)
are worldwide and nonexclusive; and the licenses from Isis to Alnylam granted in Sections 5.1
(g)(ii) and (h)(ii) are worldwide and exclusive. Alnylam is not permitted to grant sublicenses
under the licenses granted in Sections 5.1(a) through 5.1(e), except that Alnylam is permitted to
grant (i) sublicenses in connection with a Bona Fide Drug Discovery Collaboration, (ii) sublicenses
in connection with a Development Collaboration, (iii) Naked Sublicenses and (iv) sublicenses under
the license granted in Section 5.1(e) in connection with the discovery, development or
commercialization of any product. Furthermore, Alnylam is not permitted to grant sublicenses under
the licenses granted in Section 5.1(f). Alnylam may grant sublicenses under Section 5.1(i),
subject to Section 7.7.
(b)
Alnylam may grant sublicenses under the licenses granted in Sections 5.1(g) and 5.1(h)
only to further the research, development or commercialization of an Alnylam Single Stranded RNAi
Product that Alnylam has performed on its own (or with Isis under the Research Plan) and [**] at
least [**]% of the work to discover and develop the Alnylam Single Stranded RNAi Product through
the [**] (or a date that is earlier than the [**] if requested by Alnylam and approved in writing
by Isis, such approval not to be unreasonably withheld).
(c)
Alnylam cannot sublicense its right to grant Naked Sublicenses under this Agreement except
that Alnylam may permit its sublicensees to grant further sublicenses in connection with a
sublicense to further the research, development or commercialization of an Alnylam Product.
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(d)
Notwithstanding the foregoing, (i) Alnylam acknowledged and permits the license Isis
granted [**], as amended through the Restatement Date, that granted [**] a nonexclusive license
under Isis Current Motif and Mechanism Patents and Isis Current Chemistry Patents for the
manufacture and sale of chemically modified oligonucleotides for [**] only and (ii) Isis may
continue to grant licenses to Third Parties for the purpose of manufacturing and selling
oligonucleotides;
provided
that
, to the extent such licenses cover Double Stranded
RNA or Single Stranded RNAi Compounds, Isis will restrict such licenses to [**].
5.3
Limitations on Licenses
.
(a)
The licenses granted under Section 5.1 above are not intended to grant any rights to
Alnylam to practice the Isis Excluded Technology. If Alnylam wishes to license any Isis Excluded
Technology for which Isis has the right to grant a license or sublicense, Isis will negotiate in
good faith an appropriate license.
(b)
Notwithstanding the licenses granted to Alnylam under Section 5.1, Isis retains its rights
in the Isis Patent Rights and in the Joint Patents (i) exclusively for the Isis Reserved
DS-Targets, and (ii) exclusively for the Isis Encumbered Targets. Once a particular contractual
restriction expires on an Isis Encumbered Target, Alnylams licenses under Section 5.1 will no
longer be limited under this Section 5.3(b) for such target and such target shall no longer be an
Isis Encumbered Target. Isis will update the [**] (as defined in the letter agreement dated March
9, 2004 between Alnylam and Isis) provided to Alnylam prior to the Effective Date and subsequent
[**] provided to Alnylam from time to time to remove targets that are no longer Isis Encumbered
Targets promptly upon receipt of a written request from Alnylam to update such [**], but will not
be required to update such [**] more frequently than [**] a calendar quarter. In addition, the
licenses granted by Isis to Alnylam under each of Sections 5.1(g)(i) and 5.1(h)(i) do not include
the right to research, develop, make, have made, use, or import Single Stranded Compounds or Single
Stranded RNAi Products, in each case that are Designed for Isis Enabled Targets or the Isis
Protected Targets.
(c)
Licenses to Isis Patent Rights that are joint patents with Third Parties (i.e., invented
by one or more Isis inventors and one or more non-Isis inventors) are licensed subject to the
retained rights of any non-Isis inventors and their assignees and licensees. Any such retained
rights of non-Isis inventors and their assignees and licensees existing as of the Restatement Date
are set forth in Exhibit 5.3(c) attached hereto.
(d)
Licenses to Isis Patent Rights that are subject to contractual obligations between Isis
and Third Parties in effect as of the Restatement Date are licensed subject to the restrictions and
other terms described in Exhibit 5.3(d) attached hereto. Alnylam hereby agrees to comply, and to
cause its sublicensees to comply, with such restrictions and other terms.
5.4
Alnylam Covenant Regarding Sublicensing of Isis Patent Rights
. Alnylam shall use
good faith efforts to include sublicenses under the licenses under the Isis Patent Rights granted
to Alnylam in Sections 5.1(a) and 5.1(b) in any Third Party collaboration
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or license agreement in which Alnylam grants rights to develop and commercialize Double
Stranded RNA Products, unless the technology covered by such licensed Isis Patent Rights would not
reasonably be expected to advance the goals of such Third Party collaboration or license
relationship.
5.5
Isis Covenant to Alnylam Regarding Co-Exclusivity for Single Stranded RNAi
Products
. Isis hereby covenants to Alnylam, that, after the Restatement Date, Isis will not
itself, and will not grant to a Third Party a license under the Isis Current Motif and Mechanism
Patents, Isis Current Chemistry Patents, Isis Future Motif and Mechanism Patents, Isis Future
Chemistry Patents, the Co-Exclusive ssRNAi Patents, and/or Isis rights in any Joint Patents or
Research Program Patents to, research, develop, make, have made, use, import, offer to sell and
sell Single Stranded RNAi Compounds or Single Stranded RNAi Products, except Isis may (i) research,
develop, make, have made, use and import Single Stranded RNAi Compounds or Single Stranded RNAi
Products for [**], (ii) grant a license to Controlled Contractors to support work under the
Research Plan, (iii) grant a license to further the research, development or commercialization of
an Isis Single Stranded Product, (iv) grant a license to further the research, development or
commercialization of an Isis Single Stranded RNAi Product solely in conjunction with a permitted
sublicense by Isis under Section 6.3; and (v) continue to grant licenses to Third Parties for the
purpose of manufacturing and selling oligonucleotides;
provided that
, to the extent such
licenses cover Single Stranded RNAi Compounds, Isis will restrict such licenses to [**]. For
purposes of clarity, this Section 5.5 will not preclude Isis from (A) itself using the [**], or (B)
granting any Third Party a license under the [**].
ARTICLE 6
LICENSES GRANTED BY ALNYLAM TO ISIS; AND
CO-EXCLUSIVITY COVENANT
6.1
License Grants
. Subject to the terms and conditions of this Agreement, including,
but not limited to, the restrictions set forth in Section 6.5, Alnylam grants Isis the following
licenses:
(a)
A fully-paid, royalty-free, nonexclusive license under Alnylam Current Motif and Mechanism
Patents and Alnylam Current Chemistry Patents to research, develop, make, have made, use and import
Isis Products other than Isis Single Stranded RNAi Products for Research Use.
(b)
Subject to the terms of Section 11.8, a fully paid, royalty-free nonexclusive license
under Alnylam Future Motif and Mechanism Patents and Alnylam Future Chemistry Patents to research,
develop, make, have made, use and import Isis Products other than Isis Single Stranded RNAi
Products for Research Use.
(c)
A nonexclusive license under Alnylam Current Motif and Mechanism Patents and Alnylam
Current Chemistry Patents to research, develop, make, have made, use, import, offer to sell and
sell Isis Single Stranded Products.
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(d)
Subject to the terms of Section 11.8, a nonexclusive license under Alnylam Future Motif
and Mechanism Patents and Alnylam Future Chemistry Patents to research, develop, make, have made,
use, import, offer to sell and sell Isis Single Stranded Products.
(e)
Under the Alnylam Current Motif and Mechanism Patents and Alnylam Current Chemistry
Patents, a nonexclusive license to research, develop, make, have made, use, import, offer to sell
and sell MicroRNA Products.
(f)
Subject to the terms of Section 11.8, under the Alnylam Future Motif and Mechanism Patents
and Alnylam Future Chemistry Patents, a nonexclusive license to research, develop, make, have made,
use, import, offer to sell and sell MicroRNA Products.
(g)
A worldwide, royalty-free, fully paid, nonexclusive license to practice any Know-How
disclosed to Isis during the performance of this Agreement, subject to the non-disclosure but not
the non-use provisions contained in Article 12.
(h)
A worldwide license under the Alnylam Current Motif and Mechanism Patents and Alnylam
Current Chemistry Patents to (i) research, develop, make, have made, use and import Single Stranded
RNAi Compounds and Single Stranded RNAi Products for Research Use, and (ii) research, develop,
make, have made, use, import, offer to sell and sell Isis Single Stranded RNAi Products. The
license granted to Isis under the foregoing clause (i) shall be non-exclusive, and the license
granted to Isis under the foregoing clause (ii) shall be exclusive.
(i)
Subject to the terms of Section 11.8, a worldwide license under Alnylam Future Motif and
Mechanism Patents and Alnylam Future Chemistry Patents to (i) research, develop, make, have made,
use and import Single Stranded RNAi Compounds and Single Stranded RNAi Products for Research Use,
and (ii) research, develop, make, have made, use, import, offer to sell and sell Isis Single
Stranded RNAi Products. The license granted to Isis under the foregoing clause (i) shall be
non-exclusive, and the license granted to Isis under the foregoing clause (ii) shall be exclusive.
(j)
Under Alnylams rights in Research Program Patents, a royalty-free license for any and all
purposes,
except
to research, develop, make, have made, use, import, offer to sell or sell
any (1) oligonucleotides (or chemically modified oligonucleotide analogs) designed to work via the
RNase H 1 or 2 mechanism (including any oligonucleotide which has [**]), (2) Double Stranded RNA
Products, (3) MicroRNA Products, (4) Single Stranded RNAi Products, or (5) Isis Single Stranded
Product.
6.2
License Option
. For each Gene Target in the Isis DS-Target Pool (as further
described below) Alnylam grants Isis an option to obtain (on a Reserved DS-Target-by-Reserved
DS-Target basis), subject to the terms and conditions of this Agreement, including, but not limited
to, the restrictions set forth in Section 6.5, a non-exclusive license under (i) Alnylam Current
Motif and Mechanism Patents and Alnylam Current Chemistry Patents and (ii) subject to the terms of
Section 11.8, Alnylam Future
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Motif and Mechanism Patents, Alnylam Future Chemistry Patents and Alnylams rights in Joint
Patents, to research, develop, make, have made, use, import, offer for sale and sell Double
Stranded RNA Products that are Isis Products.
(a)
This option will expire on a Reserved DS-Target-by-Reserved DS-Target basis if Isis has
not paid Alnylam the option fee set forth in Section 8.1 below before the earlier of (i) the [**]
with respect to such Reserved DS-Target, (ii) the [**] anniversary of the date such Reserved
DS-Target [**] or the [**] anniversary of the date such Reserved DS-Target [**] with a Third Party
and Isis is contractually able to revoke such Third Partys rights or (iii) the date [**] with
respect to such Reserved DS-Target.
(b)
For any Reserved DS-Target for which Isis obtains a license from Alnylam under this
Section 6.2, Isis will use Commercially Reasonable Efforts (either on its own or in an Antisense
Drug Discovery Program or Development Collaboration) to develop and commercialize Double Stranded
RNA Products that modulate such Reserved DS-Target.
6.3
Sublicenses
.
(a)
With respect to any license granted by Alnylam pursuant to Section 6.1(a), 6.1(b), or 6.2,
Isis may only grant a sublicense to a Third Party solely for (i) the purpose of enabling such Third
Party to collaborate with Isis in an Antisense Drug Discovery Program, or (ii) to develop and
commercialize an Isis Product in a Development Collaboration. With respect to any license granted
by Alnylam pursuant to Section 6.1(c), 6.1(d), 6.1(e), 6.1(f), 6.1(g), Isis may grant a sublicense
to a Third Party in connection with the discovery, development or commercialization of any product.
Isis may grant sublicenses under Section 6.1(j), subject to Section 8.5. With respect to the
licenses granted by Alnylam pursuant to Section 6.1(h) and 6.1(i), Isis may only grant a sublicense
to a Third Party to further the research, development or commercialization of an Isis Single
Stranded RNAi Product that Isis has performed on its own (or with Alnylam under the Research Plan)
and [**] at least [**]% of the work to discover and develop the Isis Single Stranded RNAi Product
through the [**] (or a date that is earlier than the [**] if requested by Isis and approved in
writing by Alnylam, such approval not to be unreasonably withheld).
(b)
Notwithstanding anything in this Agreement to the contrary, Isis may not enter into any
drug discovery collaboration the primary purpose of which is to discover Double Stranded RNA
Products and/or to develop Double Stranded RNA Products to any point up to the [**].
6.4
DS-Target Pool
.
(a)
Reserved DS-Target Slots
. On the Effective Date, Isis will have a pool (the Isis
DS-Target Pool) containing up to [**] slots for which Isis can designate certain Gene Targets
solely for Antisense Drug Discovery Programs (each such slot, a DS-Target Slot and any Gene
Target occupying such a slot, a Reserved DS-Target);
provided, however
, that on January 1
of each year starting with January 1, 2007, Isis will gain the right to purchase one additional
DS-Target Slot by paying Alnylam $[**] per
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each additional DS-Target Slot. These rights are cumulative and, subject to Section 17.2(c)
do not expire during the License Term. Furthermore, in the event that Isis pays the $[**] license
option fee for a Reserved DS-Target pursuant to Section 8.1, such Reserved DS-Target will be
considered to have graduated from the Isis DS-Target Pool, and, subject to Section 6.4(e), Isis
will be permitted to designate a new Reserved DS-Target to fill the open DS-Target Slot in the Isis
DS-Target Pool. For purposes of clarity, except as permitted under Sections 6.1(h)(i) and
6.1(i)(i), Isis may not research, develop or commercialize Single Stranded RNAi Products for a
Reserved DS-Target unless such Reserved DS-Target is designated as an Enabled Target by Isis
pursuant to Section 4.3(a) above.
(b)
Initial Designations
. The letter delivered by Isis to Alnylam on the Restatement
Date sets forth the Reserved DS-Targets as of the Restatement Date.
(c)
Removing/Adding DS-Targets
. After the Restatement Date and no more than once in
any [**] period (a Target Reallocation Period), Isis may do any of the following:
(i) Remove a Gene Target from the Isis DS-Target Pool (which, following
such removal will create an open DS-Target Slot); or
(ii) Add a new Gene Target to any open DS-Target Slot (subject to the
procedures and provisions of Section 6.4(e).
Notwithstanding the foregoing provisions of this Section 6.4(c), in any Target Reallocation
Period, Isis cannot remove a number of Reserved DS-Targets that exceeds the number calculated by
dividing the then current number of DS-Target Slots by [**] and rounding down to the nearest whole
number. For the purpose of the limitation described in the immediately preceding sentence,
removing a Gene Target from the Isis DS-Target Pool and then filling the open DS-Target Slot
created by such removal shall count as a single removal. Once Isis removes a Gene Target from the
Isis DS-Target Pool, Isis will be prevented from later adding such Gene Target to the Isis
DS-Target Pool until [**] have passed from the date Isis removed such Gene Target.
(d)
New Target Request
. When Isis wishes to add a new Gene Target to occupy a vacant
DS-Target Slot, it will provide Alnylam with written notice (the Request Notice) of the Gene
Target it wishes to add (the Proposed Reserved DS-Target). The Request Notice will include the
gene name, and the NCBI accession number or nucleic acid sequence for the Proposed Reserved
DS-Target.
(e)
New Target Rejection/Approval
. Within [**] of receipt of the Request Notice,
Alnylam will give Isis written notice if any of the criteria set forth below applied to such
Proposed Reserved DS-Target at the time of Alnylams receipt of the Request Notice. If, at such
time, the Proposed Reserved DS-Target is (i) subject to Alnylams own Active Program [**], (ii)
encumbered by a contractual obligation between Alnylam and a Third Party that would preclude
Alnylam from granting a license under Section 6.2 with respect to the Proposed Reserved DS-Target
or (iii) the subject of Alnylams good
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faith negotiations to enter into a contractual obligation within the [**] following receipt of
the Request Notice with a Third Party (as supported by a written request from such Third Party)
that would preclude Alnylam from granting a license under Section 6.2 with respect to the Proposed
Reserved DS-Target, then the Proposed Reserved DS-Target will be rejected and will not become a
Reserved DS-Target. If the Proposed Reserved DS-Target is not rejected under this subsection (e),
the Proposed Reserved DS-Target will become an Isis Reserved DS-Target. Alnylam will promptly
notify Isis in writing if a rejected Proposed Reserved DS-Target later becomes available to be
designated as a Reserved DS-Target.
(f)
[Intentionally Deleted]
.
(g)
Diligence on Rejected Targets
. If (i) Alnylam rejects a Proposed Reserved
DS-Target under Section 6.4(e) above and (ii) Alnylam has [**] with respect to such rejected
Proposed Reserved DS-Target by the [**] anniversary of the date Alnylam rejected such Proposed
Reserved DS-Target if Alnylam is working on such target alone, or the [**] anniversary of the date
Alnylam rejected such Proposed Reserved DS-Target if such rejected Proposed Reserved DS-Target is
subject to a contractual obligation between Alnylam and a Third Party that would preclude Alnylam
from granting a license under Section 6.2 with respect to the rejected Proposed Reserved DS-Target
but Alnylam [**], then [**] such rejected Proposed Reserved DS-Target [**].
(h)
Diligence Obligations in Third Party Contractual Obligations
. With the goal of
minimizing contractual encumbrances on Alnylam Patent Rights with respect to Gene Targets in the
absence of a reasonable intent to discover and develop products that modulate such Gene Targets by
Third Parties with which Alnylam enters into such contractual obligations, Alnylam intends to seek
reasonable diligence obligations from Third Parties in negotiating contracts between Alnylam and
such Third Parties that would constitute contractual obligations of Alnylam that would preclude
Alnylam from granting licenses to Isis under Section 6.2 with respect to Proposed Reserved
DS-Targets; or that would prevent Alnylam from granting Isis licenses with respect to Proposed
Reserved DS-Targets;
provided
that
Isis hereby acknowledges that such diligence
obligations are often heavily negotiated in biotechnology license and collaboration agreements and
that this Section 6.4(h) shall not prevent Alnylam from entering into contracts between Alnylam and
Third Parties in accordance with Alnylams reasonable business judgment.
(i)
Confidentiality
. The fact that Isis has designated or removed a particular Gene
Target within the Isis DS-Target Pool is Confidential Information of Isis, or that Alnylam has
rejected a particular Gene Target proposed for a DS-Target Slot or disallowed the redesignation of
a particular Gene Target is Confidential Information of Alnylam, subject to the provisions of
Article 12. Neither Party shall disclose such Confidential Information of the other Party to any
Third Party, including its Third Party collaborators, or use such Confidential Information of the
other Party to guide its own (or its Third Party collaborators) decisions to pursue particular
Gene Targets, but Alnylam can use such Confidential Information of Isis to decline a Third Partys
request for a license to such Gene Target.
6.5
Limitations on Licenses
.
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(a)
The licenses granted under Sections 6.1 and 6.2 above are not intended to grant any rights
to Isis to practice the Alnylam Excluded Technology. If Isis wishes to license any Alnylam
Excluded Technology for which Alnylam has the right to grant a sublicense, Alnylam will negotiate
in good faith an appropriate license.
(b)
Licenses to Alnylam Patent Rights that are joint patents with Third Parties (i.e.,
invented by one or more Alnylam inventors and one or more non-Alnylam inventors) are licensed
subject to the retained rights of any non-Alnylam inventors and their assignees and licensees.
There are no Alnylam Current Chemistry Patents or Alnylam Current Motif and Mechanism Patents
subject to such retained rights.
(c)
Licenses to Alnylam Patent Rights that are subject to contractual obligations between
Alnylam and Third Parties in effect as of the Effective Date are licensed subject to the
restrictions and other terms described in Exhibit 6.5(c) attached hereto. Isis hereby agrees to
comply, and to cause its sublicensees to comply, with such restrictions and other terms.
(d)
Notwithstanding anything to the contrary herein, the licenses to Alnylam Patent Rights
hereunder initially shall not include licenses to Patents licensed by Alnylam from Stanford
University under any agreement between Alnylam and Stanford University in effect as of the
Restatement Date;
provided
that
if any such licensed Patents become issued Patents,
Isis shall have the option of expanding its licenses to Alnylam Patent Rights hereunder to include
such issued Patents by notifying Alnylam of such election and agreeing to pay to Alnylam, in
addition to all amounts otherwise payable to Alnylam hereunder (and without any right under Section
8.2 to reduce such otherwise payable amounts as a consequence of such additional payment amounts),
all amounts that (i) become payable by Alnylam to Stanford University as a result of such expansion
of Isis licenses and Isis (and its Affiliates and sublicensees) exercise of its rights
thereunder and (ii) are described on Exhibit 6.5(d) attached hereto.
(e)
In addition, the licenses granted by Alnylam to Isis under each of Sections 6.1(h)(i),
6.1(i)(i) and 6.1(j) do not include the right to research, develop, make, have made, use, or import
Single Stranded RNAi Compounds or Single Stranded RNAi Products, in each case that are Designed for
Alnylams Enabled Targets.
6.6
Alnylam Covenant to Isis Regarding Co-Exclusivity for Single Stranded RNAi
Products
. Alnylam hereby covenants to Isis, that, after the Restatement Date, Alnylam will not
itself, and will not grant to a Third Party a license under the Alnylam Current Motif and Mechanism
Patents, Alnylam Current Chemistry Patents, Alnylam Future Motif and Mechanism Patents, Alnylam
Future Chemistry Patents, the Co-Exclusive ssRNAi Patents, and/or Alnylams rights in any Joint
Patents or Research Program Patents to, research, develop, make, have made, use, import, offer to
sell and sell Single Stranded RNAi Compounds or Single Stranded RNAi Products, except Alnylam may
(i) research, develop, make, have made, use or import Single Stranded RNAi Compounds or Single
Stranded RNAi Products for [**], (ii) grant a license to Controlled Contractors to support work
under the Research Plan, (iii) grant a license to further the research, development or
commercialization of an Alnylam Single Stranded RNAi Product solely in conjunction with a permitted
sublicense by Alnylam under
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Section 5.2; and (iv) continue to grant licenses to Third Parties for the purpose of
manufacturing and selling oligonucleotides;
provided that
, to the extent such licenses
cover Single Stranded RNAi Compounds, Alnylam will restrict such licenses to [**]. For purposes of
clarity, this Section 6.6 will not preclude Alnylam from (A) itself using the [**], or (B) granting
any Third Party a license under the [**].
ARTICLE 7
LICENSE FEES AND ROYALTIES PAYABLE TO ISIS
7.1
License Fees
.
(a)
In connection with the Original Agreement, Alnylam paid Isis an initial, irrevocable,
noncreditable and non-refundable license fee of $5,000,000.
(b)
Alnylam will pay Isis an additional, irrevocable, noncreditable and non-refundable license
fee of $11,000,000 within 5 Business Days following the Restatement Date.
7.2
Royalties
.
(a)
Subject to the terms and conditions of, and during the term of, this Agreement, Alnylam
will pay to Isis royalties on sales of Alnylam Double Stranded RNA Products by Alnylam, its
Affiliates or sublicensees (except Naked Sublicensees) equal to [**]% of Net Sales. Alnylam may
reduce the royalty due under this section by [**]% of any additional royalties that Alnylam owes to
Third Parties on such Alnylam Double Stranded RNA Product that arise from Alnylam acquiring access
to new technologies after the Effective Date;
provided, however
that (a) the royalty due
under this section can never be less than a floor of [**]% and (b) additional royalties arising as
the result of the addition, pursuant to Section 11.8, of Isis Future Chemistry Patents or Isis
Future Motif and Mechanism Patents to the Isis Patent Rights licensed to Alnylam cannot be used to
reduce the royalty.
(b)
Subject to the terms and conditions of, and during the term of, this Agreement, Alnylam
will pay to Isis royalties on sales of Alnylam Single Stranded RNAi Products by Alnylam, its
Affiliates or sublicensees equal to [**]% of Net Sales;
provided, however
, that if Alnylam
is the subject of an Acquisition, the royalty payable under this Section 7.2(b) on the Net Sales of
Alnylam Single Stranded RNAi Products after the date of such Acquisition will be [**]%.
7.3
Research and Development Milestones
.
(a) Single Stranded Research Milestones.
Alnylam, its Affiliates or sublicensees will pay to
Isis the following milestone payments within [**] after the first achievement of each of the
following events:
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|
|
|
Milestone Event
|
|
Milestone Payment
|
The earlier of (i) first
In Vivo
Efficacy in
Rodents and (ii) the 18-month anniversary of
the Restatement Date
|
|
US$10,000,000
|
First
In Vivo
Efficacy in NHP
|
|
US$ 5,000,000
|
First Initiation of Phase I Trial
|
|
US$ 5,000,000
|
Alnylam shall have the right to prepay Isis any or all of the milestone payments set forth in this
Section 7.3(a) prior to achievement of the corresponding milestone event(s), in which event such
milestone event(s) shall be deemed to have been achieved as of the date of such early payment(s) by
Alnylam, and such early payments will be irrevocable, noncreditable and non-refundable. If Alnylam
decides to terminate this Agreement pursuant to Section 14.4, the terms of Section 14.4(d) shall
apply. For purposes of clarity, Alnylam does not have the right to prepay any of the milestones
set forth in Section 7.3(b) through 7.3(d) below.
(b) Single Stranded Development Milestones
. Alnylam, its Affiliates or sublicensees will pay
to Isis the following milestone payments for each Alnylam Single Stranded RNAi Product within [**]
after the first achievement of each of the following events:
|
|
|
Milestone Event
|
|
Milestone Payment*
|
Initiation of Phase I Trial
|
|
US$[**]
|
Initiation of Phase III Trial
|
|
US$[**]
|
Filing NDA in U.S., EU or Japan
|
|
US$[**]
|
Marketing Approval in U.S., EU or Japan
|
|
US$[**]
|
|
|
|
*
|
|
If Alnylam is the subject of an Acquisition, any milestone payments under this Section 7.3(b)
that were not due before the date of such Acquisition will [**] in amount.
|
Each milestone payment under this Section 7.3(b) will only be due on the [**] Alnylam Single
Stranded RNAi Product that modulates a particular Gene Target to trigger such milestone payment,
whether such milestone is achieved by Alnylam or an Affiliate or sublicensee of Alnylam.
(c) Double Stranded Development Milestones.
Alnylam, its Affiliates or sublicensees (except
Naked Sublicensees) will pay to Isis the following milestone payments for each Alnylam Double
Stranded RNA Product within [**] after the first achievement of each of the following events:
|
|
|
Milestone Event
|
|
Milestone Payment
|
Initiation of Phase I Trial
|
|
US$[**]
|
Initiation of Phase III Trial
|
|
US$[**]
|
Filing NDA
|
|
US$[**]
|
Marketing Approval
|
|
US$[**]
|
Each milestone payment under this Section 7.3(c) will only be due on the [**] Alnylam Double
Stranded RNA Product that modulates a particular Gene Target to trigger such milestone payment,
whether such milestone is achieved by Alnylam or an Affiliate or sublicensee of Alnylam.
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(d) MicroRNA Milestone.
Alnylam, its Affiliates or sublicensees will pay to Isis a milestone
payment of US$[**] for the [**] MicroRNA Product that is an Alnylam Product that modulates a
particular Gene Target within [**] after such MicroRNA Product reaches the initiation of [**], and
not for any other MicroRNA Product that is an Alnylam Product that modulates the particular Gene
Target.
7.4
Sublicensing Revenue on Naked Sublicenses and Single Stranded Sublicenses
.
(a)
With respect to Sublicense Revenue from each Naked Sublicense granted by Alnylam and its
Affiliates under this Agreement, Alnylam will pay Isis within [**] following receipt by Alnylam of
such Sublicense Revenue (i) fifty percent (50%) of all such Sublicense Revenue that does not
constitute royalty payments, and (ii) [**] percent ([**]%) of the amount that remains of the total
royalties received under such Naked Sublicense after Alnylam has paid the royalties that are due
from Alnylam to any Third Parties in connection with such Naked Sublicense.
(b)
Alnylam will pay Isis a percentage of Sublicense Revenue received by Alnylam and its
Affiliates pursuant to sublicenses (or right to obtain a sublicense) granted by Alnylam to a Third
Party as permitted by Section 5.2(b). Alnylam shall make such payment within [**] following
receipt by Alnylam of such Sublicense Revenue. Such percentage will be calculated based on the
year in which Alnylam executes such sublicense agreement, and whether or not Alnylam executes such
sublicense before or after the Product(s) that are the subject of such sublicense have met the [**]
under Section 7.3(b), using the following table:
For Single Stranded RNAi Products Alnylam Sublicenses Before [**]
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
2009-2011
|
|
2012-2013
|
|
2014-2015
|
|
2016-2017
|
|
2017+
|
Applicable
Percentage
|
|
[**]%
|
|
[**]%
|
|
[**]%
|
|
[**]%
|
|
[**]%
|
For Single Stranded RNAi Products Alnylam Sublicenses [**] Such Products
|
|
|
|
|
|
|
|
|
Year
|
|
2009-2012
|
|
2013
|
|
2014
|
|
2015+
|
Applicable
Percentage
|
|
[**]%
|
|
[**]%
|
|
[**]%
|
|
[**]%
|
(c)
If Alnylam grants a sublicense (or right to obtain a sublicense) pursuant to which Alnylam
will be required to pay Isis Sublicense Revenue under Section 7.4(b), then, so long as Alnylam
pays Isis the applicable Sublicense Revenue when due, Alnylam [**] have to pay Isis [**] of the
milestones that become due under Section 7.3(b) after the execution of such sublicense solely with
respect to the Alnylam
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Single Stranded RNAi Product(s) that are being developed and commercialized under each such
sublicense.
(d)
Notwithstanding any of the foregoing, each of the applicable percentages set forth in the
tables above in Section 7.3(b) for any and all periods following the [**] anniversary of the
Restatement Date shall be recalculated by multiplying each such percentage by the fraction of X/Y,
where X is [**] and Y is the total number of Isis Partnered Excluded Targets for which contractual
restrictions have not expired or been cleared as of the [**] anniversary of the Restatement Date.
Such recalculation shall be made on the thirtieth (30
th
) day following the [**]
anniversary of the Restatement Date,
provided, however
, that (i) no recalculation shall be
made if the total number of Isis Partnered Excluded Targets for which contractual restrictions have
not expired or been cleared as of the [**] anniversary of the Restatement Date is less than or
equal to [**]; (ii) the applicable percentages, as so recalculated, shall apply only to all
sublicenses entered into between Alnylam and a Third Party following the [**] anniversary of the
Restatement Date; and (iii) this Section 7.4(d) shall not adjust the applicable percentages set
forth in the tables above in Section 7.3(b) as they apply to any sublicenses entered into between
Alnylam and a Third Party on or before the [**] anniversary of the Restatement Date.
7.5
Technology Access Fees from Bona Fide Collaborations
.
(a)
Alnylam will pay Isis a percentage of Technology Access Fees received by Alnylam and its
Affiliates pursuant to Bona Fide Drug Discovery Collaborations and Development Collaborations
entered into between Alnylam and a Third Party. Alnylam shall make such payment to Isis within
[**] following receipt by Alnylam of such Technology Access Fees. Such percentage will be
calculated based on the year in which Alnylam executes such Bona Fide Drug Discovery Collaboration
or Development Collaboration agreement using the following table:
|
|
|
|
|
|
|
|
|
Year
|
|
2004/2005
|
|
2006
|
|
2007
|
|
2008+
|
Applicable
Percentage
|
|
[**]%
|
|
[**]%
|
|
[**]%
|
|
[**]%
|
However
, Alnylam may credit any milestone payments made by Alnylam under Section
7.3(c) above with respect to an Alnylam Double Stranded RNA Product against any Technology Access
Fees that are later due under a Bona Fide Drug Discovery Collaboration or Development Collaboration
that involves the same Alnylam Double Stranded RNA Product that triggered such milestone payment.
(b)
Notwithstanding the foregoing, for any Bona Fide Drug Discovery Collaboration or
Development Collaboration agreement, Alnylam will pay Isis a minimum fee, payable upon the first
Alnylam Product other than a Single Stranded RNAi Product developed pursuant to such Bona Fide Drug
Discovery Collaboration agreement reaching [**] (in which event Alnylam shall pay Isis such minimum
fee within [**] following such initiation of [**]) or within [**] after the execution of such
Development Collaboration agreement, equal to the lesser of (i) $[**] or (ii) [**]% of the
Technology Access Fees from such collaboration;
provided, however
that Alnylam may credit
any
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amounts paid Isis pursuant to Section 7.5(a) above as the result of the same Bona Fide Drug
Discovery Collaboration or Development Collaboration agreement against this minimum fee with such
amounts credited only once, and provided further that if following such payment, additional
Technology Access Fees are owed to Isis for such Bona Fide Drug Discovery Collaboration or
Development Collaboration, the amounts paid under this Section 7.5(b) (after crediting of any
previous Technology Access Fees paid under Section 7.5(a) in accordance with the immediately
preceding proviso) will be creditable against such future Technology Access Fees.
7.6
Allocation of Sublicense Income and Technology Access Fees
. Each time Alnylam
enters a collaboration or license agreement (an Isis IP Sublicense) pursuant to which Alnylam
grants a sublicense under the Isis Patent Rights to a Third Party, the CEO of Isis and the CEO of
Alnylam will in mutually discuss and agree in writing upon: (a) if the Isis IP Sublicense only
relates Double Stranded RNA, a good faith determination as to whether such Isis IP Sublicense is a
Naked Sublicense or a Bona Fide Drug Discovery Collaboration or Development Collaboration; and (b)
if the Isis IP Sublicense relates to Double Stranded RNA and Alnylam Single Stranded RNAi
Product(s), a good faith allocation of the consideration received by Alnylam under such Isis IP
Sublicense between the consideration attributable to the components of such Isis IP Sublicense that
relate to (i) Double Stranded RNA and (ii) Alnylam Single Stranded RNAi Product(s). Within [**]
days following the execution of each Isis IP Sublicense, Alnylam, through its CEO, will provide
Isis CEO a reasonably detailed and accurate description of such Isis IP Sublicense for the purpose
of enabling the CEOs to perform the determination and allocation described in this Section 7.6.
7.7
Revenue Sharing for Research Program Patents
. Alnylam will pay Isis 50% of any
payments received by Alnylam and its Affiliates pursuant to licenses granted by Alnylam to a Third
Party under the Research Program Patents for any and all purposes,
except
to research,
develop, make, have made, use, import, offer to sell or sell any (1) oligonucleotides (or
chemically modified oligonucleotide analogs) designed to work via the RNase H 1 or 2 mechanism
(including any oligonucleotide which has [**]), (2) Double Stranded RNA Products, (3) MicroRNA
Products, (4) Single Stranded RNAi Products, or (5) Isis Single Stranded Product. Alnylam shall
make such payment to Isis within [**] following receipt by Alnylam of such payments.
ARTICLE 8
LICENSE FEES, SUBLICENSE REVENUE AND
ROYALTIES PAYABLE TO ALNYLAM
8.1
Option Fee
. For each Isis Reserved DS-Target for which Isis exercises its option
granted pursuant to Section 6.2, Isis will pay Alnylam an irrevocable, noncreditable and
non-refundable option fee of $[**] due upon the date of exercise. Isis may credit any $[**]
payment made under Section 6.4(a) for the DS-Target Slot occupied by such Reserved DS-Target
against this option fee. The option fee is only payable once per Gene Target.
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8.2
Royalties
.
(a)
Subject to the terms and conditions of, and during the term of, this Agreement, Isis will
pay to Alnylam royalties on sales of Double Stranded RNA Products that are Isis Products by Isis,
its Affiliates or sublicensees equal to [**]% of Net Sales. Isis may reduce the royalty due under
this section by [**]% of any additional royalties that Isis owes to Third Parties on such Double
Stranded RNA Products that are Isis Products that arise from Isis acquiring access to new
technologies after the Restatement Date;
provided, however
that (i) the royalty due under
this section can never be less than a floor of [**]%, (ii) additional royalties arising as the
result of the addition, pursuant Section 11.8, of Alnylam Future Chemistry Patents or Alnylam
Future Motif and Mechanism Patents to the Alnylam Patent Rights licensed to Isis, or as the result
of an expansion of Isis licenses pursuant to Section 6.5(d), cannot be used to reduce the royalty
and (iii) Isis shall not be entitled to reduce, pursuant to this sentence, its royalty obligation
to Alnylam below a royalty obligation equal to the lesser of (y) Alnylams aggregate royalty
obligations [**] existing as of the Effective Date [**] and (z) Alnylams aggregate royalty
obligations [**] as such obligations may be reduced from time to time after the Effective Date.
(b)
Subject to the terms and conditions of, and during the term of, this Agreement, Isis will
pay to Alnylam royalties on Net Sales of Isis Single Stranded RNAi Products by Isis, its Affiliates
or sublicensees equal to [**]% of Net Sales;
provided
,
however
, that if Isis is the
subject of an Acquisition, the royalty payable under this Section 8.2(b) on the Net Sales of Isis
Single Stranded RNAi Products following such Acquisition will be [**]%.
8.3
Development Milestones
.
(a)
Subject to Section 8.4, Isis, its Affiliates or sublicensees will pay to Alnylam the
following milestone payments for each Double Stranded RNA Product that is an Isis Product within
[**] after the first achievement of each of the following events:
|
|
|
Milestone Event
|
|
Milestone Payment
|
Initiation of Phase I Trial
|
|
US$[**]
|
Initiation of Phase III Trial
|
|
US$[**]
|
Filing NDA
|
|
US$[**]
|
Marketing Approval
|
|
US$[**]
|
Each milestone payment under this Section 8.3(a) will only be due on [**] Double Stranded RNA
Product that is an Isis Product that modulates a particular Gene Target to trigger such milestone
payment, whether such milestone is achieved by Isis or an Affiliate or sublicensee of Isis.
(b)
Isis, its Affiliates or sublicensees will pay to Alnylam a milestone payment of US$[**]
for the [**] Isis Single Stranded Product that is an Isis Product that modulates a particular Gene
Target within [**] after such Isis Single Stranded Product reaches the initiation of IND-Enabling
Studies, and not for any other Isis Single Stranded Product that modulates that particular Gene
Target.
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(c)
Isis, its Affiliates or sublicensees will pay to Alnylam a milestone payment of US$[**]
for the [**] MicroRNA Product that is an Isis Product that modulates a particular Gene Target
within [**] after such MicroRNA Product reaches the initiation of [**], and not for any other
MicroRNA Product that is an Isis Product that modulates the particular Gene Target.
8.4
Sublicense Income on Single Stranded RNAi Sublicenses
.
(a)
With respect to Sublicense Revenue from each sublicense (or right to obtain a sublicense)
related to an Isis Single Stranded RNAi Product granted by Isis and its Affiliates under this
Agreement after the Restatement Date, Isis will pay Alnylam, within [**] following receipt by Isis
of such Sublicense Revenue, a percentage of all such Sublicense Revenue that does not constitute
royalty payments. Such percentage will be calculated based on the year in which Isis executes such
sublicense agreement, and whether or not Alnylam has paid Isis the research funding and applicable
milestones under Section 4.2(c) and 7.3(a), using the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Applicable
|
Milestone Event
|
|
Percentage
|
|
1
|
|
|
Sublicense executed after the Restatement Date
but before Alnylam pays Isis the $[**]
milestone under Section 7.3(a)
|
|
[**]%
|
|
2
|
|
|
Sublicense executed after Alnylam pays Isis
the $[**] milestone under Section 7.3(a) but
before the 3
rd
milestone event
described below
|
|
[**]%
|
|
3
|
|
|
Sublicense executed after Alnylam pays the
first 3 years of research funding under
Section 4.2(c) and the $[**] milestone for
First
In Vivo
Efficacy in NHP under Section
7.3(a)
|
|
[**]%
|
(b)
In the event that Isis enters an Antisense Drug Discovery Program pursuant to which Isis
(i) grants a sublicense under the Alnylam Patent Rights to further develop and/or commercialize an
Isis Single Stranded RNAi Product, (ii) commits to discover and/or develop Double Stranded RNA
Products or single stranded oligonucleotides that are not Single Stranded RNAi Compounds, or (iii)
grants a license or sublicense to intellectual property which would not otherwise result in any
amounts becoming payable to Alnylam hereunder (an Other Isis Sublicense), then in determining the
applicable payment due from Isis to Alnylam in connection with such Antisense Drug Discovery
Program, the CEO of Isis and the CEO of Alnylam will mutually agree in writing upon a good faith
allocation of the consideration received by Isis under such Antisense Drug Discovery Program
between and among the consideration attributable to the components of such Antisense Drug Discovery
Program that qualify as (x) a sublicense to further develop and/or commercialize an Isis Single
Stranded Product, (y) a collaboration to discover and/or develop Double Stranded RNA Products or
single stranded oligonucleotides that are not Single Stranded RNAi Compounds, and (z) an Other Isis
Sublicense; and Isis will pay Alnylam Sublicense Income Fees under Section 8.4(a) in accordance
with such allocation. Within 30 days following the execution of each such transaction, Isis,
through its CEO, will provide Alnylams CEO a reasonably
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detailed and accurate description of such transaction for the purpose of enabling Alnylams
CEO to perform the allocation described in this Section 8.4(b).
8.5
Revenue Sharing for Research Program Patents
. Isis will pay Alnylam 50% of any
payments received by Isis and its Affiliates pursuant to licenses granted by Isis to a Third Party
under the Research Program Patents for any and all purposes,
except
to research, develop,
make, have made, use, import, offer to sell or sell any (1) oligonucleotides (or chemically
modified oligonucleotide analogs) designed to work via the RNase H 1 or 2 mechanism (including any
oligonucleotide which has [**]), (2) Double Stranded RNA Products, (3) MicroRNA Products, (4)
Single Stranded RNAi Products, or (5) Isis Single Stranded Product. Isis shall make such payment
to Alnylam within [**] following receipt by Isis of such payments.
ARTICLE 9
OTHER PAYMENT TERMS
9.1
Payments
. All payments by a Party under this Agreement will be made in United
States dollars by bank wire transfer in next day available funds to such bank account in the United
States designated in writing by Alnylam or Isis, from time to time. Royalties payable under
Sections 7.2 and 8.2 shall be payable on a quarterly basis within 45 days after the end of each
calendar quarter. The Party with such royalty obligation (the Royalty-Paying Party) shall
provide the other Party with a report setting forth (i) gross sales of Alnylam Products or Isis
Products, as applicable, by the Royalty-Paying Party, its Affiliates and sublicensees, (ii) all
deductions from such gross sales taken in calculating Net Sales, (iii) Net Sales of Alnylam
Products or Isis Products, as applicable, by the Royalty-Paying Party, its Affiliates and
sublicensees, (iv) royalties payable based on such Net Sales and (v) all other information relevant
to the calculation of such royalties, on a product-by-product and country-by-country basis, for
each calendar quarter within [**] after the end of such calendar quarter.
9.2
Late Payments; Collections
. In the event that any payment, including royalty,
milestone, Sublicense Revenue or Technology Access Fee payments, due hereunder is not made when
due, the payment will bear interest from the date due at the lesser of (i) 1.5% per month,
compounded monthly, or (ii) the highest rate permitted by law;
provided, however
, that in
no event will such rate exceed the maximum legal annual interest rate. If a Party disputes in
writing the amount of an invoice presented by the other Party within [**] of receipt of such
invoice, interest will only be due on the correct amount as later determined or agreed. The payment
of such interest will not limit a Party from exercising any other rights it may have as a
consequence of the lateness of any payment. In addition, each Party agrees to pay all external
costs of collection, including reasonable attorneys fees, incurred by the other Party in enforcing
the payment obligations after a due date has passed under this Agreement.
9.3
Audit Rights
.
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(a)
Upon the written request of Isis or Alnylam, as the case may be, and not more than once in
each calendar year, Isis or Alnylam will permit the other Partys independent certified public
accountant to have access upon reasonable advance notice and during normal business hours to its
records as may be reasonably necessary to verify the accuracy of the royalty reports hereunder for
the current year and the preceding 2 years prior to the date of such request. The accounting firm
will disclose to the auditing Party only whether the royalty reports are correct or incorrect, the
specific details concerning any discrepancies, and the corrected amount of Net Sales and royalty
payments. No other information will be provided to the auditing Party. Once a Party has audited a
particular calendar year under this section, the Party will be precluded from subsequently auditing
such calendar year. In any sublicense granted by a Party under this Agreement, such Party will
endeavor to secure a similar audit right and if reasonably requested by the other Party will
enforce such audit right.
(b)
If such accounting firm concludes that additional royalties were owed during such period,
the delinquent Party will pay the additional royalties within 90 days of the date such Party
receives the accounting firms written report. The fees charged by such accounting firm will be
paid by the auditing Party unless the additional royalties, milestones or other payments owed by
the audited Party exceed 5% of the royalties, milestones or other payments paid for the time period
subject to the audit, in which case the audited Party will pay the reasonable fees and expenses
charged by the accounting firm.
(c)
Each Party will treat all financial information subject to review under this Section 9.3
or under any sublicense agreement in accordance with the confidentiality provisions of Article 12,
and will cause its accounting firm to enter into an acceptable confidentiality agreement obligating
such firm to retain all such financial information in confidence pursuant to such confidentiality
agreement.
9.4
Taxes
. If laws, rules or regulations require withholding of income taxes or other
taxes imposed upon payments set forth in Section 4.2(c) or Article 7 or 8, each Party will make
such withholding payments as required and subtract such withholding payments from the payments set
forth in Section 4.2(c) or Article 7 or 8. Each Party will submit appropriate proof of payment of
the withholding taxes to the other Party within a reasonable period of time. The Parties will
cooperate to obtain the appropriate tax clearance and/or recover any such withholdings if possible.
ARTICLE 10
ALNYLAM RIGHTS OF FIRST NEGOTIATION; PREFERRED LICENSEE
10.1
Right of First Negotiation
. Isis will notify Alnylam in writing once (i) Isis,
on its own with no subsequent rights to Third Parties, intends to initiate [**] for an Isis Product
that is a Double Stranded RNA Product or (ii) if a Third Party with which Isis has a Development
Collaboration or a collaboration on an [**] an Isis Double Stranded RNA Product before or during
clinical development or commercialization with no subsequent rights to Third Parties. Alnylam will
have [**] from the receipt of such
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notice to notify Isis in writing whether or not Alnylam wishes to negotiate with Isis
regarding the development and/or commercialization of such Isis Product. If Alnylam fails to
respond to Isis notice within the [**] or if Alnylam declines in writing to exercise its right of
first negotiation, then Isis will be free to develop and commercialize (either on its own or with a
Third Party) the Isis Product. If Alnylam wishes to negotiate a license or development or
commercialization rights in such Isis Product, the Parties will negotiate in good faith the terms
of the license or collaboration agreement. If, despite good faith negotiations, Alnylam and Isis
do not reach agreement within [**] from Alnylams exercise of its right of first negotiation, then
Isis will be free to develop and commercialize (either on its own or with a Third Party) the Isis
Product;
provided
that
during the period prior to the latest of (x) the initiation
of [**] the Isis Product, (y) the [**] anniversary of the commencement of [**] for the Isis Product
or (z) in the case of an Isis Product [**] after the commencement of [**], the [**] anniversary of
Isis notice to Alnylam [**], Isis shall not enter into a license or collaboration agreement with a
Third Party for such Isis Product on terms (the More Favorable Terms) that are in the aggregate
materially more favorable to the Third Party than the terms on which Isis most recently offered in
writing to grant such rights to Alnylam without first offering the More Favorable Terms to Alnylam.
10.2
Preferred Licensee
. If, after the Effective Date, Alnylam grants to any Third
Party that is not a Major Pharmaceutical Company a license under the Alnylam Patent Rights to
develop and commercialize Double Stranded RNA Products, then if (a) either (i) the [**] terms of
such license are more favorable to the Third Party than the [**] terms hereunder with respect to
Isis Products are to Isis or (ii) the [**] covered by such license exceeds the [**] potentially
licensed to Isis hereunder for development and commercialization of Double Stranded RNA Products,
and (b) the roles to be played by Alnylam and such Third Party in the development and
commercialization of Double-Stranded RNA Products under such Third Party license, the nature of the
Gene Targets covered by such Third Party license and any other relevant terms of such Third Party
license do not collectively justify the conditions described in the preceding clauses (a)(i) and/or
(a)(ii), then Alnylam shall modify the terms of its licenses to Isis hereunder with respect to such
conditions so that they are reasonably equivalent to those granted to the Third Party.
ARTICLE 11
INTELLECTUAL PROPERTY
11.1
Ownership of Inventions
.
(a)
Each Party will solely own all inventions, technology, discoveries, or other proprietary
property (collectively, Inventions) that are made (as determined by U.S. rules of inventorship)
solely by employees of or consultants to that Party under this Agreement.
(b)
Isis and Alnylam will jointly hold title to all Inventions, whether or not patentable,
that are made (as determined by the U.S. rules of inventorship) jointly by employees of or
consultants to Isis and Alnylam, as well as to Patents filed thereon. Such
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Inventions will be Joint Inventions, and Patents claiming such Joint Inventions will be
Joint Patents. Isis and Alnylam will promptly provide each other with notice whenever a Joint
Invention is made. The Parties agree and acknowledge that, except insofar as this Agreement
provides otherwise, the default rights conferred on joint owners under US patent law, including the
right of each Party to independently practice, license and use a Joint Patent, will apply in
relation to the Joint Patents throughout the world as though US patent law applied worldwide.
(c)
The Parties agree, upon reasonable request, to execute any documents reasonably necessary
to effect and perfect each others ownership of any Invention.
11.2
Filing and Prosecution of Isis and Alnylam Patent Rights
.
(a)
Isis and Alnylam will work closely, through their interactions on the RMC to ensure that,
to the greatest degree permitted by United States and foreign patent laws, Patents for Inventions
relating to all aspects of Double Stranded RNA and/or Single Stranded RNAi Compounds or Single
Stranded RNAi Products are obtained and shared.
(b)
Except as set forth in Sections 11.2(f) and 11.2(g) below, Isis will be responsible for
preparing, filing, prosecuting, maintaining and taking such other actions as are reasonably
necessary or appropriate with respect to the Isis Patent Rights.
(c)
Except as set forth in Section 11.2(f) and 11.2(g) below, Alnylam will be responsible for
preparing, filing, prosecuting, maintaining and taking such other actions as are reasonably
necessary or appropriate with respect to the Alnylam Patent Rights.
(d)
Each Party will endeavor in good faith to coordinate its efforts with those of the other
Party to minimize or avoid interference with the prosecution of the other Partys Patents. Neither
Party will initiate or participate in any opposition, reexamination, interference, litigation or
other proceeding for the purpose of narrowing or invalidating any claim in a Patent of the other
Party.
(e)
At either Partys request, the other Party will keep the requesting Party continuously
informed of and provide documentation of all significant matters relating to the preparation,
filing, prosecution and maintenance of any designated Patent.
(f)
Alnylam will be responsible for preparing, filing, prosecuting, maintaining and taking
such other actions as are reasonably necessary or appropriate with respect to the Isis Special
Patents. If Alnylam elects not to file for or continue the prosecution (including any
interferences, oppositions, reissue proceedings and re-examinations) or maintenance of an Isis
Special Patent in any country, then, Alnylam will notify Isis promptly in writing of its intention
in sufficient time to enable Isis to meet any deadlines by which an action must be taken to
establish or preserve any such rights in such Patent in such country and Isis will have the right,
but not the obligation, to file for or continue the prosecution or maintenance of such Patent in
such country, and Alnylam will cooperate with Isis in regard thereto.
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(g)
Solely with respect to (i) Research Program Patents, or (ii) Patents licensed under this
Agreement that claim Inventions that primarily relate to Single Stranded RNAi Compounds, but, in
each case, excluding Joint Patents, the Party who Controls such Patent (the Responsible Party)
will be responsible for preparing, filing, prosecuting, maintaining and taking such other actions
as are reasonably necessary or appropriate with respect to such Patent. If the Responsible Party
decides to discontinue the preparation, filing, prosecution or maintenance of such a Patent, the
Responsible Party will notify the other Party at least [**] prior to any deadline that, if missed,
would materially prejudice the Patent, and the other Party will have the right, at such Partys own
expense, to prepare, file, prosecute and maintain such Patent.
11.3
Filing and Prosecution of Jointly Owned Patents
.
(a)
The Research Management Committee will designate one of the Parties as being the
responsible Party for preparing, filing, prosecuting, maintaining and taking such other actions as
are reasonably necessary or appropriate with respect to any Joint Patent.
(b)
Each Party will keep the other Party continuously informed of all significant matters
relating to the preparation, filing, prosecution and maintenance of Joint Patents, and shall
provide the other Party with copies of any substantial prosecution papers within thirty days of
receipt.
11.4
Costs and Expenses.
(a)
Except as set forth in Section 11.4(c) below, each Party will bear its own costs and
expenses in filing, prosecuting, maintaining and extending the Alnylam Patent Rights and Isis
Patent Rights, respectively.
(b)
Except as set forth in Section 11.4(c) below, the Parties will pay equal shares of all
costs and expenses in filing, prosecuting, maintaining and extending the Joint Patents.
(c)
Alnylam will bear [**]% of its own costs and expenses in filing, prosecuting, maintaining
and extending the Isis Special Patents. If Alnylam elects not to file for or continue the
prosecution (including any interferences, oppositions, reissue proceedings and re-examinations) or
maintenance of an Isis Special Patent in any country, and Isis assumes the continued prosecution of
such Isis Special Patent (as permitted by Section 11.2(f)) in such country, then the Parties will
[**] all of Isis costs and expenses in filing, prosecuting, maintaining and extending the Isis
Special Patent for which Isis assumed prosecution.
11.5
Enforcement
.
(a)
Each Party will promptly advise the other of any suspected or actual infringement of the
Isis Patent Rights, Alnylam Patent Rights, or Joint Patents by any person that reasonably affects
the other Partys business. The notice shall set forth the facts of such infringement or
misappropriation in reasonable detail.
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(b)
Subject to subsections (c) and (h) below, Alnylam will have the sole and exclusive right,
in its sole discretion and at its expense, to assert and enforce any Isis Patent Rights, Alnylam
Patent Rights or Joint Patents against any party engaging in an unlicensed or unauthorized making,
having made, using, selling, offering for sale or importing of any allegedly infringing Double
Stranded RNA.
(c)
For any enforcement by Alnylam under subsection (b) above that includes Isis Patent Rights
covering a [**] chemical modification, Isis will actively participate in the planning and conduct
of such enforcement and will take the lead of such enforcement to the extent that the scope or
validity of any such Isis Patent Rights covering a [**] chemical modification is at risk.
(d)
Except as set forth in Sections 11.5(b) and (h),
(i)
Isis will have the sole and exclusive right, in its sole discretion and at its expense, to
assert and enforce any Isis Patent Rights;
(ii)
Alnylam will have the sole and exclusive right, in its sole discretion and at its
expense, to assert and enforce any Alnylam Patent Rights and the Isis Special Patent Rights; and
(iii)
The RMC will agree in advance on the enforcement of any Joint Patent and will apportion
enforcement responsibilities and recoveries amongst the parties.
(e)
The rights granted hereunder to Alnylam to enforce certain licensed in or jointly owned
Isis Patent Rights are further limited as described in Exhibit 5.3(d) attached hereto. The rights
granted hereunder to Isis to enforce certain licensed in or jointly owned Alnylam Patent Rights are
further limited as described in Exhibit 6.5(c) attached hereto.
(f)
The nonenforcing Party will have the right, at its own expense, to participate in the
conduct of the enforcement action and to be represented in such action by its own counsel.
(g)
The enforcing Party will not enter into any settlement that impacts the validity, scope or
interpretation of any claim of any Joint Patent or of any Patent of the nonenforcing Party without
prior written authorization of the nonenforcing Party.
(h)
If the Party with enforcement rights under section (b) or (d) above (the Primary Party)
fails to initiate proceedings against any actual or suspected infringement within [**] of receipt
of written request for enforcement from the other Party (the Step-in Party) and if the infringer
is directly competing with a Product (the Affected Product) of such Step-in Party, then (i) if
the license granted in this Agreement under which the Step-in Party is selling the Affected Product
is exclusive or co-exclusive, the Step-in Party will have the right to assert and enforce the
patents that are allegedly being infringed, or (ii) if the license granted in this Agreement under
which the Step-in Party is selling the Affected Product is non-exclusive, the Step-in Party will
have no obligation to pay royalties during the period for which the Primary Party fails to initiate
proceedings or
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take other action (including without limitation entering into a licensing arrangement) to
eliminate such infringement;
provided
that the provisions of the immediately preceding
clause (ii) shall not apply if the Primary Party elects to grant the Step-in Party enforcement
rights with respect to such infringement. The Primary Party will not grant a license to any such
infringing Third Party with respect to any directly competitive infringing product on terms
materially more favorable (milestones and royalties) than the terms of the license granted
hereunder to the Step-in Party or, solely with respect to the Affected Product, will adjust the
terms of such license so that they are not materially less favorable than the terms of the license
granted to the infringing Third Party. In addition, as a condition to the Step-in Partys right
(under clause (i) of this Section 11.5(h)) to assert and enforce a Patent Controlled by the Primary
Party that is allegedly being infringed, the Step-in Party must also assert and enforce any
relevant Patents Controlled by such Step-in Party against the alleged infringer who is competing
with the Affected Product.
(i)
Except as otherwise agreed to by the Parties as part of a cost-sharing arrangement, any
recovery realized as a result of such litigation, after reimbursement of any reasonable litigation
expenses of Isis and Alnylam, shall be retained by the Party or Parties that brought and controlled
such litigation for purposes of this Agreement, except that any recovery realized as a result of
such litigation shall be treated as Net Sales of Isis Products or Net Sales of Alnylam Products and
distributed as such Net Sales would have been distributed.
11.6
[Intentionally Deleted]
11.7
Third Party Patents
. The Parties will consult about the need to license any
patents Controlled by Third Parties that would be useful or necessary for either Party to research,
develop, make, have made, use, sell, offer for sale or import Double Stranded RNA Products or
Single Stranded RNAi Products. If it is agreed that there is a desire to obtain a license or to
acquire any such patent, the Parties will negotiate in good faith regarding (i) the share of the
financial obligations relating to the license or acquisition that each Party will bear; (ii) the
compensation of any acquisition costs incurred in connection with obtaining the Patent rights; and
(iii) an agreement by the Parties to abide by all terms of the agreement under which the patent
rights are granted.
11.8
Future Licenses
. If after the Effective Date, a Party (the Controlling Party)
later invents or acquires rights or title to an invention claimed by a Patent that (i) would be
included in the Isis Future Chemistry Patents or Isis Future Motif and Mechanism Patents if such
Party is Isis or in the Alnylam Future Chemistry Patents or Alnylam Future Motif and Mechanism
Patents if such Party is Alnylam (the Additional Rights) and (ii) carry financial or other
obligations, then the Controlling Party must promptly notify the non-Controlling Party of such
acquisition or invention. If the non-Controlling Party wishes to include such Additional Rights
under the licenses granted pursuant to Article 5 or 6, as applicable, the non-Controlling Party
will notify the Controlling Party of its desire to do so and will assume all financial and other
obligations to the Controlling Partys licensors or collaborators, if any, arising from the grant
to the non-Controlling Party of such license. Any Additional Rights that do not carry financial or
other obligations shall be automatically included under the licenses granted pursuant to
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Article 5 or 6, as applicable. If a Party pays any upfront payments or similar acquisition
costs to access Additional Rights, the Parties will negotiate in good faith regarding sharing such
acquisition costs and payments. When acquiring or creating such Additional Rights, each Party will
endeavor in good faith to secure the right to sublicense such Additional Rights to the other Party.
ARTICLE 12
CONFIDENTIALITY
12.1
Nondisclosure Obligation
. All Confidential Information disclosed by one Party to
the other Party hereunder will be maintained in confidence by the receiving Party and will not be
disclosed to a Third Party or Affiliate or used for any purpose except as set forth below.
12.2
Permitted Disclosures
. Except as otherwise provided herein, a Party may disclose
Confidential Information received from the other Party:
(a)
to governmental or other regulatory agencies in order to obtain Patents or approval to
conduct clinical trials, or to gain Marketing Approval;
provided
that such disclosure may
be made only to the extent reasonably necessary to obtain such Patents or approvals;
(b)
to any adjudicative body as required by law, provided that prior to such disclosure, the
Party subject to such disclosure obligation (the Notifying Party) promptly notifies the other
Party of such requirement so that such other Party can seek a protective order, confidential
treatment or other appropriate remedy; and provided, further, that in the event that no such
protective order, confidential treatment or other remedy is obtained, or that such other Party
waives compliance with this section, the Notifying Party will furnish only that portion of the
other Partys Confidential Information that it is advised by counsel it is legally required to
furnish;
(c)
to Affiliates, sublicensees, agents, consultants, and/or other Third Parties for the
development, manufacturing and/or marketing of Isis Products or Alnylam Products (or for such
parties to determine their interest in performing such activities) in accordance with this
Agreement on the condition that such Affiliates, sublicensees and Third Parties agree to be bound
by the confidentiality obligations contained in this Agreement;
(d)
if such disclosure is required by law or regulation (including without limitation by rules
or regulations of any securities exchange or NASDAQ),
provided
that prior to such
disclosure, the Notifying Party promptly notifies the other Party of such requirement so that such
other Party can seek a protective order, confidential treatment or other appropriate remedy; and
provided, further
, that in the event that no such protective order, confidential treatment
or other remedy is obtained, or that such other Party waives compliance with this section, the
Notifying Party will furnish only that portion of the other Partys Confidential Information that
it is advised by counsel it is legally required to furnish; or
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(e)
as necessary if embodied in products to develop and commercialize such products.
Either Party may disclose (i) a copy of this Agreement on a confidential basis to prospective
lenders and investors, (ii) a mutually agreed upon redacted copy of this Agreement on a
confidential basis to prospective collaborators and (iii) the terms of this Agreement as required
under applicable securities laws or regulations (including without limitation under rules or
regulations of any securities exchange or NASDAQ);
provided, however
, that, subject to
Section 6.4(i), Alnylam shall not disclose Isis past or current Reserved DS-Targets or past or
current Isis Protected Targets without the express prior written consent of Isis, and, subject to
Section 4.3(f), neither Party shall disclose the other Partys past or current Enabled Targets
without the express prior written consent of the other Party.
12.3
Announcements; Publicity
.
(a)
Each Party understands that this Agreement is likely to be of significant interest to
investors, analysts and others, and that either Party therefore may make public announcements with
respect to this Agreement. The Parties agree that any such announcement will not contain
confidential business or technical information unless disclosure of confidential business or
technical information is required by law or regulation, in which case they will make reasonable
efforts to minimize such disclosure of confidential business or technical information to that
required by law or regulation. Each Party agrees to provide to the other Party a copy of any such
public announcement as soon as reasonably practicable under the circumstances prior to its
scheduled release. Except under extraordinary circumstances, each Party shall provide the other
with an advance copy of any press release at least two (2) business days prior to the scheduled
disclosure. The other Party shall have the right to expeditiously review and recommend changes to
any announcement regarding this Agreement or the subject matter of this Agreement,
provided
that such right of review and recommendation shall only apply for the first time that specific
information is to be disclosed, and shall not apply to the subsequent disclosure of information
that (i) is substantially similar to a previously reviewed disclosure and (ii) in the context of
the subsequent disclosure, does not carry a substantially different qualitative message than that
carried by the previously reviewed disclosure. The Party whose press release has been reviewed
shall in good faith consider any changes that are timely recommended by the reviewing Party.
(b)
Each Party will (i) use reasonable, good faith efforts to provide the other Party with at
least 5 business days prior notice (which notice may be given orally to a senior executive officer
of the other Party) before such Party publicly announces the execution of a Naked Sublicense, Bona
Fide Drug Discovery Collaboration agreement or Development Collaboration agreement (or any material
amendments thereto) that could reasonably be expected to be of strategic or financial importance to
the other Partys business and (ii) cooperate with the other Party to enable the other Party to
develop appropriate mutually beneficial public announcements regarding such transactions.
ARTICLE 13
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INDEMNIFICATION
13.1
Indemnification by Alnylam
. Alnylam will indemnify, defend and hold Isis and its
agents, employees, officers and directors (the Isis Indemnitees) harmless from and against any
and all liability, damage, loss, cost or expense (including reasonable attorneys fees) arising out
of Third Party claims or suits related to (a) Alnylams performance of its obligations under this
Agreement; (b) breach by Alnylam of its representations and warranties set forth in Article 15; or
(c) the discovery, development, manufacture, use, importation or commercialization (including
marketing and sale) of Alnylam Products.
13.2
Indemnification by Isis
. Isis will indemnify, defend and hold Alnylam and its
Affiliates and each of their respective agents, employees, officers and directors (the Alnylam
Indemnitees) harmless from and against any and all liability, damage, loss, cost or expense
(including reasonable attorneys fees) arising out of Third Party claims or suits related to (a)
Isis performance of its obligations under this Agreement; (b) breach by Isis of its
representations and warranties set forth in Article 15; or (c) the discovery, development,
manufacture, use, importation or commercialization (including marketing and sale) of Isis Products.
13.3
Notification of Claims; Conditions to Indemnification Obligations
. A Party
entitled to indemnification under this Article 13 shall (a) promptly notify the other Party as soon
as it becomes aware of a claim or action for which indemnification may be sought pursuant hereto,
(b) cooperate with the indemnifying Party in the defense of such claim or suit, and (c) permit the
indemnifying Party to control the defense of such claim or suit, including without limitation the
right to select defense counsel;
provided
that
if the Party entitled to
indemnification fails to promptly notify the indemnifying Party pursuant to the foregoing clause
(a), the indemnifying Party shall only be relieved of its indemnification obligation to the extent
prejudiced by such failure. In no event, however, may the indemnifying Party compromise or settle
any claim or suit in a manner which admits fault or negligence on the part of the indemnified
Party, or which imposes obligations on the indemnified Party other than financial obligations that
are covered by the indemnifying Partys indemnification obligation, without the prior written
consent of the indemnified Party. The indemnifying Party will have no liability under this Article
13 with respect to claims or suits settled or compromised without its prior written consent.
ARTICLE 14
TERM AND TERMINATION OF AGREEMENT
14.1
Term and Termination of Agreement
. This Agreement will be effective as of the
Restatement Date (unless otherwise expressly stated) and unless terminated earlier pursuant to
Sections 14.2 or 14.3 below, the term of this Agreement will continue in effect until expiration of
the License Term.
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14.2
Termination upon Material Breach
. This Agreement may be terminated upon written
notice by either Party to the other at any time during the term of this Agreement if the other
Party is in material breach of its obligations hereunder and has not cured such breach within 90
days after written notice requesting cure of the breach;
provided, however
, that (a) in the
event of a good faith dispute with respect to the existence of such a material breach, the 90-day
cure period will be stayed until such time as the dispute is resolved pursuant to Section 17.6
hereof, (b) so long as the breaching Party takes substantial steps to cure the breach promptly
after receiving notice of the breach from the non-breaching Party and thereafter diligently
prosecutes the cure to completion as soon as is practicable, the non-breaching Party may not
terminate this Agreement, and (c) any license granted under this Agreement with respect to an Isis
or Alnylam Product that has at least reached IND-Enabling Studies may not be terminated for a
material breach under this Section 14.2 (
except
for an uncured failure to make any undisputed
portion of any payment obligation under Article 7 or 8 with respect to such Isis or Alnylam
Product) to the extent such license is necessary to develop, make and have made, sell and import
such Isis or Alnylam Product.
14.3
Termination upon Bankruptcy; Rights in Bankruptcy
.
(a)
This Agreement may be terminated with written notice by either Party at any time during
the term of this Agreement upon the filing or institution of bankruptcy, reorganization,
liquidation or receivership proceedings by or against the other Party or upon an assignment of a
substantial portion of its assets for the benefit of creditors by the other Party;
provided,
however
, in the case of any involuntary bankruptcy proceeding such right to terminate will only
become effective if the Party consents to the involuntary bankruptcy or such proceeding is not
dismissed within 90 days of the filing thereof.
(b)
All rights and licenses granted under or pursuant to this Agreement by Isis or Alnylam
are, and will otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy
Code, licenses of right to intellectual property as defined under Section 101 of the U.S.
Bankruptcy Code. The Parties agree that the Parties, as licensees of such rights under this
Agreement, will retain and may fully exercise all of their rights and elections under the U.S.
Bankruptcy Code. The Parties further agree that, in the event of the commencement of a bankruptcy
proceeding-by or against either Party under the U.S. Bankruptcy Code, the Party hereto which is not
a Party to such proceeding will be entitled to a complete duplicate of (or complete access to, as
appropriate) any such intellectual property and all embodiments of such intellectual property, and
same, if not already in their possession, will be promptly delivered to them (i) upon any such
commencement of a bankruptcy proceeding upon their written request therefore, unless the Party
subject to such proceeding elects to continue to perform all of its obligations under this
Agreement, or (ii) if not delivered under (i) above, following the rejection of this Agreement by
or on behalf of the Party subject to such proceeding upon written request therefore by the
non-subject Party.
14.4
Alnylams Limited Right to Terminate the Research Program.
Notwithstanding
Section 4.2, Alnylam may unilaterally elect to terminate the Research Program, by providing Isis a
written notice of such election (an Early Termination Notice) on or before 5:00 PM Pacific Time
on September 30, 2010. If Alnylam
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unilaterally terminates the Research Program (the Early Collaboration Termination) in
accordance with this Section 14.4, then, as of the date of the Early Termination Notice (the
Collaboration Termination Date):
(a)
each Partys obligation to perform under the Research Program, and Alnylams obligation to
provide funding under the Research Program that was not payable on or before the Collaboration
Termination Date will automatically terminate;
(b)
Alnylams rights and Isis obligations under the licenses granted by Isis to Alnylam under
Section 5.1(g), 5.1(h) and 5.1(i), including any sublicenses granted by Alnylam thereunder, will
automatically terminate;
(c)
Solely with respect to the license granted to Isis under Section 6.1(i), the definition of
Alnylam Future Motif and Mechanism Patents, and Alnylam Future Chemistry Patents, will be fixed as
of the Collaboration Termination Date in accordance with Sections 12 and 13, respectively, of
Exhibit 1.1;
(d)
Alnylam will be relieved of its obligations to pay Isis any milestones, royalties and
sublicense income relating to Alnylam Single Stranded RNAi Products under Sections 7.2(b), 7.3(a),
7.3(b), and 7.4(b) that had not accrued by the Collaboration Termination Date,
except
that if the
Collaboration Termination Date is before the [**]-month anniversary of the Restatement Date and
before the [**] following the date Alnylam obtains the data that demonstrates the first
In Vivo
Efficacy in Rodents, then Alnylam will not be obligated to pay the $[**] research milestone for the
first
In Vivo
Efficacy in Rodents set forth in Section 7.3(a); and
(e)
Isis will be relieved of its obligations under Sections 5.5 and 8.5, and its obligations
as a Responsible Party under Section 11.2(g).
14.5
Accrued Rights and Surviving Obligations
.
(a)
Expiration or termination of the Agreement will not relieve the Parties of any obligation
accruing prior to such expiration or termination, including, but not limited to, financial
obligations under Section 4.2(c) or Article 7 or 8. Sections 4.3(f), 6.4(i), 9.2, 9.3 and 11.1,
and Articles 1, 12, 13, 14 and 17 will survive expiration or termination of the Agreement.
Provisions concerning reporting requirements will continue in effect in accordance with any
applicable timetables set forth herein. Any expiration or early termination of this Agreement will
be without prejudice to the rights of either Party against the other accrued or accruing under this
Agreement prior to termination. No expiration of this Agreement will relieve a Party of its
obligation to pay milestones, royalties, or a percentage of Technology Access Fees or Sublicense
Revenue to the extent accrued prior to such expiration.
(b)
Except as set forth in Section 14.4.(b), the rights of any sublicensee under any permitted
sublicense granted in accordance with Section 5.2 or 6.3 will survive the termination of this
Agreement.
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ARTICLE 15
REPRESENTATIONS AND WARRANTIES; DISCLAIMER
15.1
Representations and Warranties of the Parties.
Each Party represents and
warrants to the other Party that, as of the Effective Date and the Restatement Date:
(a)
Such Party is duly organized and validly existing under the laws of the state of its
incorporation and has full corporate power and authority to enter into this Agreement and to carry
out the provisions hereof;
(b)
Such Party has taken all corporate action necessary to authorize the execution and
delivery of this Agreement and the performance of its obligations under this Agreement;
(c)
This Agreement is a legal and valid obligation of such Party, binding upon such Party and
enforceable against such Party in accordance with the terms of this Agreement. The execution,
delivery and performance of this Agreement by such Party does not conflict with any agreement,
instrument or understanding, oral or written, to which such Party is a Party or by which such Party
may be bound, and does not violate any law or regulation of any court, governmental body or
administrative or other agency having authority over such Party. All consents, approvals and
authorizations from all governmental authorities or other Third Parties required to be obtained by
such Party in connection with this Agreement have been obtained;
(d)
Such Party has sufficient right, power and authority to enter into this Agreement, to
perform its obligations under this Agreement and to grant the licenses granted hereunder.
15.2
Disclaimers
. THE PARTIES EXPRESSLY DISCLAIM ALL WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR
NON-INFRINGEMENT OF THIRD PARTY RIGHTS, UNLESS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT.
ARTICLE 16
NOTICE
16.1
Notice
. All notices which are required or permitted hereunder will be in writing
and sufficient if delivered personally, sent by facsimile (and confirmed by telephone), sent by
nationally-recognized overnight courier or sent by registered or certified mail, postage prepaid,
return receipt requested, addressed as follows:
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if to Isis, to:
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Isis Pharmaceuticals, Inc.
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1896 Rutherford Road
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Carlsbad, CA 92008
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Attention: Chief Operating Officer
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Fax No.: +1 (760) 603-4652
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with a copy to:
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Attention: General Counsel
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Fax No.: +1 (760) 268-4922
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if to Alnylam, to:
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Alnylam Pharmaceuticals, Inc.
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300 Third Street
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Cambridge, MA 02142
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Attention: VP Legal
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Fax No.: +1 (617) 575-7315
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with a copy to:
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WilmerHale
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60 State Street
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Boston, Massachusetts 02109
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Attention: Steven D. Singer, Esq.
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Fax No.: +1 (617) 526-5000
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or to such other address as the Party to whom notice is to be given may have furnished to the other
Party in writing in accordance herewith. Any such notice will be deemed to have been given when
delivered if personally delivered or sent by facsimile on a business day, on the business day after
dispatch if sent by nationally-recognized overnight courier and on the third business day following
the date of mailing if sent by mail.
ARTICLE 17
MISCELLANEOUS PROVISIONS
17.1
Relationship of the Parties
. It is expressly agreed that Isis and Alnylam will
be independent contractors and that the relationship between the two Parties will not constitute a
partnership, joint venture or agency. Neither Isis nor Alnylam will have the authority to make any
statements, representations or commitments of any kind, or to take any action, which will be
binding on the other, without the prior consent of the other Party.
17.2
Successors and Assigns
. Neither this Agreement nor any interest hereunder may be
assigned or otherwise transferred (whether by sale of stock, sale of assets or merger), nor, except
as expressly provided hereunder, may any right or obligations hereunder be assigned or transferred
by either Party without the prior written consent of the other Party;
provided, however
,
that a Party may, without such consent, assign this Agreement and its rights and obligations
hereunder to an Affiliate or in connection with an Acquisition. Notwithstanding the provisions of
this Section 17.2:
(a)
If Alnylam is the subject of an Acquisition and the entity surviving such Acquisition does
not maintain [**] that is substantially similar or greater [**] after the time of the Acquisition,
then (i) the limit on the [**] that Isis can [**] pursuant to Section 6.4(a) will [**], and (ii)
the exclusive right to grant Naked Sublicenses under Section 5.2 will [**].
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(b)
Additionally, if Alnylam is the subject of an Acquisition, (i) the royalties payable by
Alnylam with respect to Alnylam Single Stranded RNAi Products will be adjusted in accordance with
Section 7.2(b), (ii) the definition of Alnylam Future Motif and Mechanism Patents, and Alnylam
Future Chemistry Patents, will be fixed as of the date of such Acquisition in accordance with
Sections 13 and 12, respectively, of Exhibit 1.1, and (iii) [**].
(c)
If Isis is the subject of an Acquisition, (i) the entity surviving such Acquisition will
no longer [**] under Section 6.4(a), (ii) the number of [**] such Acquisition will be permitted to
[**] pursuant to Section 6.4(a) shall be limited to [**] per calendar year, (iii) the royalties
payable by Isis with respect to Isis Single Stranded RNAi Products will be adjusted in accordance
with Section 8.2(b), and (iv) the definition of Isis Future Motif and Mechanism Patents, and Isis
Future Chemistry Patents, will be fixed as of the date of such Acquisition in accordance with
Sections 57 and 58, respectively, of Exhibit 1.1.
(d)
Any permitted assignee will assume all obligations of its assignor under this Agreement.
Any attempted assignment not in accordance with this Section 17.2 will be void.
17.3
Entire Agreement; Amendments
. This Agreement contains the entire understanding
of the Parties with respect to the license, development and commercialization of Products
hereunder. All express or implied agreements and understandings, either oral or written, heretofore
made by the Parties on the same subject matter are expressly superseded by this Agreement. This
Agreement may be amended, or any term hereof modified, only by a written instrument duly executed
by both Parties hereto.
17.4
Force Majeure
. Neither Party will be held liable or responsible to the other
Party nor be deemed to have defaulted under or breached this Agreement for failure or delay in
fulfilling or performing any term of this Agreement when such failure or delay is caused by or
results from causes beyond the reasonable control of the affected Party including, without
limitation, embargoes, acts of war (whether war be declared or not), insurrections, riots, civil
commotions, acts of terrorism, strikes, lockouts or other labor disturbances, or acts of God. The
affected Party will notify the other Party of such force majeure circumstances as soon as
reasonably practical and will make every reasonable effort to mitigate the effects of such force
majeure circumstances.
17.5
Applicable Law
. The Agreement will be governed by and construed in accordance
with the laws of the State of Delaware without reference to any rules of conflict of laws.
17.6
Dispute Resolution
.
(a)
The Parties recognize that disputes may from time to time arise between the Parties during
the term of this Agreement. In the event of such a dispute, either Party, by written notice to the
other Party, may have such dispute referred to the Parties respective executive officers
designated below or their successors, for attempted
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resolution by good faith negotiations within 30 days after such notice is received. Said
designated officers are as follows:
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For Isis:
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Chief Operating Officer
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For Alnylam:
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President and Chief Operating Officer
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If the dispute is not resolved as provided above, the CEO of Isis and the CEO of Alnylam will meet
for attempted resolution by good faith negotiations within 15 days after the expiration of the
preceding 30 day period.
(b)
In the event the designated executive officers are not able to resolve such dispute during
such 15-day period, then any such dispute shall be resolved through binding arbitration under the
Commercial Arbitration Rules of the American Arbitration Association by a panel of three
arbitrators appointed in accordance with such rules. The Parties shall be entitled to the same
discovery as permitted under the U.S. Federal Rules of Civil Procedure;
provided
that
the panel shall be entitled in its discretion to grant a request from a Party for
expanded or more limited discovery. The award of the arbitrators shall be the sole and exclusive
remedy between the Parties regarding any such dispute. An award rendered in connection with an
arbitration pursuant to this Section 17.6 shall be final and binding upon the Parties and any
judgment upon such award may be entered and enforced in any court of competent jurisdiction. Any
arbitration pursuant to this Section 17.6 shall be conducted in San Diego, California if Alnylam
initiates the arbitration or in Boston, Massachusetts if Isis initiates the arbitration. Nothing
in this Section 17.6 shall be construed as limiting in any way the right of a Party to seek an
injunction or other equitable relief with respect to any actual or threatened breach of this
Agreement or to bring an action in aid of arbitration. Should any Party seek an injunction or
other equitable relief, or bring an action in aid of arbitration, then for purposes of determining
whether to grant such injunction or other equitable relief, or whether to issue any order in aid of
arbitration, the dispute underlying the request for such injunction or other equitable relief, or
action in aid of arbitration, may be heard by the court in which such action or proceeding is
brought.
17.7
No Consequential Damages
. IN NO EVENT WILL EITHER PARTY OR ANY OF ITS RESPECTIVE
AFFILIATES BE LIABLE TO THE OTHER PARTY OR ANY OF ITS AFFILIATES FOR SPECIAL, INDIRECT, INCIDENTAL
OR CONSEQUENTIAL DAMAGES, WHETHER IN CONTRACT, WARRANTY, TORT, NEGLIGENCE, STRICT LIABILITY OR
OTHERWISE, INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS OR REVENUE, OR CLAIMS OF CUSTOMERS OF ANY
OF THEM OR OTHER THIRD PARTIES FOR SUCH OR OTHER DAMAGES.
17.8
Captions
. The captions to the several Articles and Sections hereof are not a
part of this Agreement, but are merely a convenience to assist in locating and reading the several
Articles and Sections hereof.
17.9
Waiver
. The waiver by either Party hereto of any right hereunder, or the failure
to perform, or a breach by the other Party will not be deemed a waiver of any
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other right hereunder or of any other breach or failure by said other Party whether of a
similar nature or otherwise.
17.10
Compliance with Law
. Nothing in this Agreement will be deemed to permit a Party
to export, re-export or otherwise transfer any Product sold under this Agreement without compliance
with applicable laws.
17.11
Severability
. In the event any one or more of the provisions contained in this
Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein will not in any way be affected or
impaired thereby, unless the absence of the invalidated provision(s) adversely affect the
substantive rights of the Parties. The Parties will in such an instance use their best efforts to
replace the invalid, illegal or unenforceable provision(s) with valid, legal and enforceable
provision(s) which, insofar as practical, maintains the balance of the rights and obligations of
the Parties under this Agreement.
17.12
Waiver of Rule of Construction
. Each Party has had the opportunity to consult
with counsel in connection with the review, drafting and negotiation of this Agreement.
Accordingly, the rule of construction that any ambiguity in this Agreement will be construed
against the drafting Party will not apply.
17.13
Counterparts
. This Agreement may be executed in two or more counterparts, each
of which will be deemed an original, but all of which together will constitute one and the same
instrument.
17.14
Performance by Affiliates
. To the extent that this Agreement imposes
obligations on Affiliates of a Party, such Party agrees to cause its Affiliates to perform such
obligations.
17.15
No Implied License.
Except as expressly provided in Sections 5.1, 6.1 and 6.2
of this Agreement, no Party will be deemed by estoppel or implication to have granted the other
Party any license or other right with respect to any intellectual property of such Party.
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Restatement Date.
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Isis Pharmaceuticals, Inc.
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Alnylam Pharmaceuticals, Inc.
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By:
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/s/ B. Lynne Parshall
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By:
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/s/ Barry Greene
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Name:
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B. Lynne Parshall
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Name:
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Barry Greene
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Title:
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Chief Operating Officer
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Title:
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President & COO
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EXHIBIT 1.1
DEFINITIONS
1.
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Acquisition means any of the following events: (a) the acquisition by any Person or group,
other than a Person or group controlling such Party as of the Restatement Date, of beneficial
ownership (as defined in Rule 13d-3 under the United States Securities Exchange Act of 1934,
as amended), directly or indirectly, of fifty percent (50%) or more of the shares of such
Partys voting stock; (b) the approval by the shareholders of such Party of a merger, share
exchange, reorganization, consolidation or similar transaction of such Party (a
Transaction), other than a Transaction which would result in the voting stock of such Party
outstanding immediately prior thereto continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity) more than fifty percent
(50%) of the voting stock of such Party or such surviving entity immediately after such
Transaction; or (c) approval by the shareholders of such Party of a complete liquidation of
such Party or a sale or disposition of all or substantially all of the assets of such Party.
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2.
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Active Program means with respect to a Gene Target and a Party, any ongoing drug discovery,
development, or commercialization of a compound directed to such Gene Target being conducted
by such Party (whether on its own or through a sublicensee).
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3.
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Actual FTE Costs has the meaning set forth in Section 4.2(c).
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4.
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Actual External Costs has the meaning set forth in Section 4.2(c).
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5.
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Advancing Party has the meaning set forth in Section 4.3(a).
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6.
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Affiliate with respect to either Party means Person controlling, controlled by, or under
common control with such Party. For purposes of this definition, control refers to the
possession, directly or indirectly, of the power to direct the management or policies of a
Person, whether through the ownership of voting securities, by contract or otherwise, of a
Person. Notwithstanding the foregoing, Regulus Therapeutics Inc. will not be considered an
Affiliate of either Party.
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7.
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Alnylam Current Chemistry Patents means all Chemistry Patents Controlled by Alnylam as of
the Restatement Date, including without limitation the Patents listed on Schedule 1-7 attached
hereto,
except
Patents that constitute Alnylam Excluded Technology, or Co-Exclusive ssRNAi
Patents.
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8.
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Alnylam Current Motif and Mechanism Patents means all Motif and Mechanism Patents
Controlled by Alnylam as of the Restatement Date, including without limitation the Patents
listed on Schedule 1-8 attached hereto,
except
Patents that constitute Alnylam Excluded
Technology, or Co-Exclusive ssRNAi Patents.
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9.
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Alnylam Double Stranded RNA Product means a Double Stranded RNA Product discovered or
developed by Alnylam, its Affiliates or sublicensees, the manufacture, sale or use of which is
covered by a Valid Claim within the Isis Patent Rights.
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10.
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Alnylam Enabled Target Pool has the meaning set forth in Section 4.3(a).
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11.
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Alnylam Excluded Technology means inhibitors to specific genes or gene families,
manufacturing and analytical technologies, formulation and delivery technologies and the
specific technology listed on Schedule 1-10 attached hereto.
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12.
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Alnylam Future Chemistry Patents means all Chemistry Patents Controlled by Alnylam after
the Restatement Date and having an earliest priority date of no later than [**] or that is
necessary to practice a Patent licensed hereunder;
provided, however
that (a) for any
such Chemistry Patents that are acquired, licensed or invented that include financial or other
obligations to a Third Party, the provisions of Section 11.8 will govern whether such Patent
will be included as an Alnylam Future Chemistry Patent and (b) Alnylam Future Chemistry
Patents do not include Patents that constitute Alnylam Excluded Technology, or Co-Exclusive
ssRNAi Patents. Notwithstanding the foregoing, (i) in the event an Acquisition involving Isis
occurs before [**], the date [**] used in this definition will be automatically changed to
the date of such Acquisition; and (ii) in the event of an Early Collaboration Termination
under Section 14.4,
solely
with respect to the licenses granted to Isis under Section 6.1(i),
the date [**] used in this definition will be automatically changed to the Collaboration
Termination Date.
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13.
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Alnylam Future Motif and Mechanism Patents means all Motif and Mechanism Patents Controlled
by Alnylam after the Restatement Date and having an earliest priority date of no later than
[**] or that is necessary to practice a Patent licensed hereunder;
provided, however
that (a) for any such Motif and Mechanism Patents that are acquired, licensed or invented that
include financial or other obligations to a Third Party, the provisions of Section 11.8 will
govern whether such Patent will be included as an Alnylam Future Motif and Mechanism Patent
and (b) Alnylam Future Motif and Mechanism Patents do not include Patents that constitute
Alnylam Excluded Technology, or Co-Exclusive ssRNAi Patents. Notwithstanding the foregoing,
(i) in the event an Acquisition involving Isis occurs before [**], the date [**] used in
this definition will be automatically changed to the date of such Acquisition, and (ii) in the
event of an Early Collaboration Termination under Section 14.4,
solely
with respect to the
licenses granted to Isis under Section 6.1(i), the date [**] used in this definition will be
automatically changed to the Collaboration Termination Date.
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14.
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Alnylam Patent Rights means Alnylam Current Motif and Mechanism Patents, Alnylam Future
Motif and Mechanism Patents, Alnylam Current Chemistry Patents and Alnylam Future Chemistry
Patents. For purposes of determining whether a royalty is payable by Isis under Section 8.2
in connection with the sale of an Isis Single Stranded RNAi Product, any Joint Patent, a Valid
Claim of
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which covers the manufacture, use or sale of such Isis Single Stranded RNAi Product, will
be considered an Alnylam Patent Right.
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15.
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Alnylam Product means an Alnylam Double Stranded RNA Product MicroRNA Product, or Alnylam
Single Stranded RNAi Product, discovered or developed by Alnylam, its Affiliates or
sublicensees, the manufacture, sale or use of which is covered by a Valid Claim within the
Isis Patent Rights.
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16.
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Alnylam Single Stranded RNAi Product means any Single Stranded RNAi Product Designed for an
Alnylam Enabled Target, the manufacture, sale or use of which is covered by a Valid Claim
within the Isis Patent Rights.
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17.
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Antisense Drug Discovery Program means an antisense drug discovery program that
investigates multiple different mechanisms of modulating a Gene Target to identify a drug
candidate, with a predominant emphasis on potential drug candidates that are single-stranded.
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18.
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Applicable Laws means all laws, statutes, rules, regulations, orders, judgments, or
ordinances having the effect of law of any federal, national, multinational, state,
provincial, county, city or other political subdivision.
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19.
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Bona Fide Drug Discovery Collaboration means a collaboration involving the discovery and
development of Double Stranded RNA Products, in which a Party plays an integral role in the
experimentation and an important, though not necessarily dominant or co-equal, role in the
decision-making, relating to the discovery and development of Double Stranded RNA Products
from the point in time at which the relevant Gene Target has been designated through the
initiation of [**]. A Bona Fide Drug Discovery Collaboration may continue beyond the
initiation of such [**]. For Isis Products that are Double Stranded RNA Products, a Bona Fide
Drug Discovery Collaboration must be an Antisense Drug Discovery Program. For each Party,
collaborations that do not include or involve Patents licensed from the other Party hereunder
shall not constitute Bona Fide Drug Discovery Collaborations. A Partys experimentation
relating to the discovery and development of Double Stranded RNA Products that modulate a
relevant Gene Target prior to the commencement of a collaboration shall be deemed to have been
conducted in the course of the collaboration for purposes of determining whether the
collaboration is a Bona Fide Drug Discovery Collaboration. A series of related collaborations
and/or license agreements involving the discovery and development of Double Stranded RNA
Products with the same sublicensee or related sublicensees that includes a Bona Fide Drug
Discovery Collaboration agreement will be aggregated to constitute a single Bona Fide Drug
Discovery Collaboration.
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20.
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Budget has the meaning set forth in Section 4.2(a).
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21.
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Business Day means a weekday on which banking institutions in Boston, Massachusetts are
open for business. For purposes of clarity, a Business Day
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shall not include any Saturday or Sunday or federal or Commonwealth of Massachusetts
holiday.
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22.
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Calendar Quarter means the respective periods of three (3) consecutive calendar months
ending on March 31, June 30, September 30 and December 31.
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23.
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Chemistry Patent means any Patent that covers (a) an oligomeric compound having a chemical
composition that differs from a native oligonucleotide composition or (b) any modification to
the base, sugar or internucleoside linkage of the oligomeric compound, and specifically, but
without limitation, includes covalently linked conjugates and other such moieties
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24.
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Co-Exclusive ssRNAi Patents means third party Patents in-licensed by both Alnylam and Isis
prior to [**] to the extent that such Patents Cover Single Stranded RNAi Compounds or Single
Stranded RNAi Products.
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25.
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Collaboration Termination Date has the meaning set forth in Section 14.4.
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26.
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Commercially Reasonable Efforts means the diligent efforts, expertise and resources
normally used by a Party to develop, manufacture and commercialize a product or compound owned
by it or to which it has rights, which is of similar market potential at a similar stage in
its development or product life, taking into account issues of safety, and efficacy, product
profile, difficulty in developing the product or compound, competitiveness of the marketplace
for the product, the proprietary position of the compound or product, the regulatory structure
involved, the potential total profitability of the applicable product(s) marketed or to be
marketed and other relevant factors affecting the cost, risk and timing of development and the
total potential reward to be obtained if a product is commercialized, but not less than
reasonably diligent efforts. In determining whether Commercially Reasonable Efforts have been
satisfied, the fact that a Party is required to pay the other Party a royalty or milestones
shall not be a factor weighed (i.e., a Party may not apply lesser resources or effort to a
Product because it must pay a royalty or milestones to the other Party).
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27.
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Control or Controlled means, with respect to any Patent or other intellectual property
right, possession of the right (whether by ownership, license or otherwise), to assign, or
grant a license, sublicense or other right to or under, such Patent or right as provided for
herein without violating the terms of any agreement or other arrangement with any Third Party.
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28.
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Confidential Information means information which is (a) of a confidential and proprietary
nature; and (b) not readily available to that Partys competitors and which, if known by a
competitor of that Party, might lessen any competitive advantage of that Party or give such
competitor a competitive advantage.
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Confidential Information includes, without limitation, (x) information that is proprietary
or confidential or which is treated by that Party as confidential and which relates either
directly or indirectly to the business of that Party regardless
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of the form in which that information is constituted, and which is not lawfully in the
public domain; and (y) any confidential information in relation to Patents, technology,
know-how, or any improvements owned or Controlled by a Party hereto.
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Confidential Information will not include any information that the receiving Party can
establish by written records:
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(i)
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was known by it prior to the receipt of Confidential Information from the disclosing
Party;
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(ii)
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was disclosed to the receiving Party by a Third Party having the right to do so;
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(iii)
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was, or subsequently became, in the public domain through no fault of the
receiving Party, its officers, directors, employees or agents; or
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(iv)
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was concurrently or subsequently developed by personnel of the receiving
Party without having had access to the disclosing Partys Confidential Information.
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29.
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Controlled Contractor means a Third Party contractor, such as a contract research
organization, contract employee, contract manufacturer, consultant and the like, who merely
conducts activities on behalf of a Party, is subject to such Partys supervision and control,
and will not have any rights (other than non-exclusive rights) in any intellectual property
created in connection with such activities.
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30.
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Designed for means, when used in relation to a specified Gene Target, a Single Stranded
RNAi Compound that is [**] to [**] of the specified [**] via [**].
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31.
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Development Candidate means a Single Stranded RNAi Product for which [**] have commenced.
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32.
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Development Collaboration means a collaboration by either Party with a Third Party whose
purpose is the further development and/or commercialization of a Double Stranded RNA Product
or Single Stranded RNAi Product, as applicable, and that begins at or after the initiation of
IND-Enabling Studies for such Product. For each Party, collaborations that do not include or
involve Patents licensed from the other Party hereunder shall not constitute Development
Collaborations.
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33.
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Double Stranded RNA means a composition designed to act primarily through an RNAi mechanism
that is not a MicroRNA Construct and which consists of either (a) two separate oligomers of
native or chemically modified RNA that are hybridized to one another along a substantial
portion (greater than or equal to [**]%) of their lengths, or (b) a single oligomer of native
or chemically modified RNA that is hybridized to itself by self-complementary base-pairing
along a substantial portion (greater than or equal to [**]%) of its length to form a hairpin.
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34.
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Double Stranded RNA Product means a pharmaceutical composition that contains a Double
Stranded RNA.
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35.
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Early Collaboration Termination has the meaning set forth in Section 14.4.
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36.
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Early Termination Notice has the meaning set forth in Section 14.4.
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37.
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Effective Date means March 11, 2004.
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38.
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Enabled Target has the meaning set forth in Section 4.3(a).
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39.
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Enabled Target Pool has the meaning set forth in Section 4.3(a).
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40.
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Enabled Target Slot has the meaning set forth in Section 4.3(a).
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41.
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FTE means the equivalent of the work of one (1) employee working on a dedicated full time
basis for one (1) year (consisting of at least a total of [**] hours per year of dedicated
effort, excluding vacations and holidays) of work on or directly related to the Research Plan,
carried out by an Isis employee or an Alnylam employee, as the case may be. No one person
will be permitted to account for more than [**] hours of FTE contribution per year. Any
person who devotes less than [**] hours per year shall be treated as an FTE on a pro-rata
basis, based upon the actual number of hours worked divided by [**]. Scientific work
performed in the performance of the Research Program by an Isis FTE or Alnylam FTE may
include, but is not limited to, experimental laboratory work, recording and writing up
results, reviewing literature and references, and holding scientific discussions.
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42.
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FTE Rate means $[**] per FTE per year for the initial calendar year of the Research Term,
such FTE rate to be increased by the percentage increase in the Consumer Price Index Urban
Wage Earners and Clerical Workers, US City Average, All Items, 1982-84 = 100, published by the
United States Department of Labor, Bureau of Labor Statistics (or its successor equivalent
index, the CPI) over the CPI as of June 30, 2009, starting as of the beginning of the 2nd
calendar year of the Research Term (i.e., beginning in 2010) and each calendar year thereafter
during the Research Term,
provided
that any such increase shall not exceed [**]% per
annum.
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43.
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Gene Target means a transcriptional unit of a gene, including any protein product of such
transcriptional unit, and including all splice variants.
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44.
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Graduated Enabled Target has the meaning set forth in Section 4.3(a).
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45.
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In Vivo
Efficacy in Rodents means the first achievement by Alnylam or its sublicensees of
at least a [**]% nadir reduction of the mRNA of the intended Gene Target in an internal
organ(s), demonstrated in an independent rodent experiment and confirmed by [**], with an
unformulated, unconjugated Single
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Stranded RNAi Compound administered subcutaneously as a [**] not to exceed [**] mg/kg. If
not achieved earlier, this milestone will be deemed to have occurred upon
In Vivo
Efficacy
in NHP.
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46.
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In Vivo
Efficacy in NHP means the first achievement by Alnylam or its sublicensees of at
least a [**]% nadir reduction of the mRNA of the intended Gene Target in an internal organ(s),
demonstrated in an independent NHP experiment and confirmed by [**], with an unformulated,
unconjugated Single Stranded RNAi Compound administered subcutaneously at a [**] not to exceed
[**] mg/kg per week, with the nadir reduction seen and confirmed in [**] consecutive
administration cycles.
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47.
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IND means an Investigational New Drug Application or similar foreign application or
submission for approval to conduct human clinical investigations.
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48.
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IND-Enabling Studies means the pharmacokinetic and toxicology studies required to meet the
regulations for filing an IND.
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49.
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Initiation of Phase I Trial means the dosing of at least ten human subjects in the first
human clinical trial conducted and designed to evaluate safety of a product.
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50.
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Initiation of Phase III Trial means the dosing of the first patient in the first pivotal
human clinical trial the results of which could be used to establish safety and efficacy of a
Product as a basis for an application for marketing approval or that would otherwise satisfy
the requirements of 21 CFR 3 12.21I or its foreign equivalent.
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51.
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Isis Current Chemistry Patents means all Chemistry Patents Controlled by Isis as of the
Restatement Date, including without limitation the Patents listed on Schedule 1-51 attached
hereto,
except
Patents that constitute Isis Excluded Technology, or Co-Exclusive ssRNAi
Patents.
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52.
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Isis Current Motif and Mechanism Patents means all Motif and Mechanism Patents Controlled
by Isis as of the Restatement Date, including without limitation the Patents listed on
Schedule 1-52 attached hereto,
except
Patents that constitute Isis Excluded Technology, or
Co-Exclusive ssRNAi Patents.
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53.
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Isis DS-Target Pool has the meaning set forth in Section 6.4(a).
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54.
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Isis Enabled Target Pool has the meaning set forth in Section 4.3(a).
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55.
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Isis Encumbered Target means a Gene Target (a) to which Isis has a contractual obligation
to a Third Party existing as of the Restatement Date that precludes Isis from granting a
license under Section 5 with respect to such Gene Target and (b) that is identified and
described on a [**] (as defined in the letter agreement dated March 9, 2004 between Alnylam
and Isis). When and if such restrictions lapse a Gene Target will cease to be an Isis
Encumbered Target.
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56.
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Isis Excluded Technology means (a) RNase H mechanisms, RNase H motifs and RNase H
oligonucleotides when utilized in an RNase H mechanism, assays and methods thereof; (b)
modulators of specific genes, gene families or proteins; (c) manufacturing technologies; (d)
analytical technologies, kits and assays, including without limitation methods, systems and
compositions of matter for amplifying, quantifying, detecting, characterizing or identifying
nucleic acids or nonoligomeric ligands thereto; (e) formulation and delivery technologies; and
(f) the specific technology listed on Schedule 1-56 attached hereto.
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57.
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Isis Future Motif and Mechanism Patents means all Motif and Mechanism Patents Controlled by
Isis after the Restatement Date and having an earliest priority date of no later than [**] or
that is necessary to practice a Patent licensed hereunder;
provided, however
that (a)
for any such Motif and Mechanism Patents that are acquired, licensed or invented that include
financial or other obligations to a Third Party, the provisions of Section 11.8 will govern
whether such Patent will be included as an Isis Future Motif Mechanism Patent, and (b) Isis
Future Motif and Mechanism Patents do not include Patents that constitute Isis Excluded
Technology, or Co-Exclusive ssRNAi Patents. Notwithstanding the foregoing, in the event of an
Acquisition involving Alnylam, the date [**] used in this definition will be automatically
changed to the date of such Acquisition.
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58.
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Isis Future Chemistry Patents means the Chemistry Patents Controlled by Isis after the
Restatement Date and having an earliest priority date of no later than [**] or that is
necessary to practice a Patent licensed hereunder;
provided, however
that (a) for any
such Chemistry Patents that are acquired, licensed or invented that include financial or other
obligations to a Third Party, the provisions of Section 11.8 will govern whether such
Chemistry Patents will be included as an Isis Future Chemistry Patent,
except
Patents that
constitute Isis Excluded Technology and (b) Isis Future Chemistry Patents do not include
Patents that constitute Isis Excluded Technology, or Co-Exclusive ssRNAi Patents.
Notwithstanding the foregoing, in the event of an Acquisition involving Alnylam, the date
[**] used in this definition will be automatically changed to the date of such Acquisition.
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59.
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Isis Manufacturing Patents means the Patents specifically listed on Schedule 1-59 attached
hereto. The Parties may agree in writing from time to time to add additional Patents to
Schedule 1-59 attached hereto.
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60.
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Isis Partnered Excluded Targets has the meaning set forth in Section 4.3(e)(i).
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61.
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Isis Patent Rights means Isis Current Motif and Mechanism Patents, Isis Future Motif and
Mechanism Patents, Isis Current Chemistry Patents and Isis Future Chemistry Patents. For
purposes of determining whether a royalty is payable by Alnylam under Section 7.2 in
connection with the sale of an Alnylam Single Stranded RNAi Product, any Joint Patent, a Valid
Claim of which covers the manufacture, use or sale of such Alnylam Single Stranded RNAi
Product, will be considered an Isis Patent Right.
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62.
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Isis Product means any Isis Single Stranded Product, MicroRNA Product, Double Stranded RNA
Product or Isis Single Stranded RNAi Product, discovered or developed by Isis, its Affiliates
or sublicensees, the manufacture, sale or use of which is covered by a Valid Claim within the
Alnylam Patent Rights.
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63.
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Isis Protected Targets has the meaning set forth in Section 4.3(e).
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64.
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Isis Single Stranded Product means any single stranded oligomeric compound (a) that
hybridizes in whole or in part with a target RNA and modulates the Gene Target, (b) is not a
Double Stranded RNA or Double Stranded RNA Product and (c) the manufacture, sale or use of
which is covered by a Valid Claim within the Alnylam Patent Rights. For purposes of clarity,
an Isis Single Stranded Product shall not include Single Stranded RNAi Compounds, Single
Stranded RNAi Products and Isis Single Stranded RNAi Products.
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65.
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Isis Single Stranded RNAi Product means any Single Stranded RNAi Product Designed for an
Isis Enabled Target, the manufacture, sale or use of which is covered by a Valid Claim within
the Alnylam Patent Rights.
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66.
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Isis Special Patents means the Patents specifically listed on Schedule 1-66 attached
hereto. The Parties may mutually agree in writing from time to time to add additional Patents
to Schedule 1-66 attached hereto
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67.
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Joint Invention has the meaning set forth in Section 11.1(b).
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68.
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Joint Patent has the meaning set forth in Section 11.1(b).
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69.
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Know-How means all tangible or intangible know-how, discoveries, processes, formulas, data,
clinical and preclinical results, non-Patented Inventions, Inventions for which Patents are in
preparation, trade secrets, and any physical, chemical, or biological material or any
replication of any such material in whole or in part that are not otherwise covered by the
Isis Patent Rights or the Alnylam Patent Rights
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70.
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License Term means the period from the Restatement Date until the date of expiry of the
last to expire of the Patents licensed hereunder.
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71.
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Major Pharmaceutical Company means a Person that, together with all of its affiliated
Persons, had annual pharmaceutical product sales during the most recently completed calendar
year in excess of $[**].
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72.
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Marketing Approval means the act of a Regulatory Authority necessary for the marketing and
sale of the Product in a country or regulatory jurisdiction, including, without limitation,
the approval of the NDA by the FDA, EC Approval, and Japanese Approval.
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73.
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MicroRNA Construct is a construct having the chemical and physical description of a Double
Stranded RNA that is either (a) designed to target a precursor microRNA or a microRNA, thereby
to inhibit the production or
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function of the microRNA, or (b) designed to function by mimicking the translational
repressor function of a naturally occurring microRNA, and which, in relation to its target
RNA, has been demonstrated in vitro and, to the extent reasonably feasible, in vivo, to
function solely as a translational repressor and not via cleavage of such target RNA.
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74.
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MicroRNA Product means a pharmaceutical product that contains a MicroRNA Construct.
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75.
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Motif and Mechanism Patents means any Patent that covers an oligomeric structure or
composition of matter, or any method of using or incorporating such oligomeric structure or
composition of matter
in vitro
or
in vivo
, including without limitation for therapeutic use,
in which target RNA levels are modulated by any mechanism other than RNase H.
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76.
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Naked Sublicense means a license for Double Stranded RNA that includes rights to the Isis
Patent Rights that is not a license in connection with (a) a Development Collaboration or (b)
a Bona Fide Drug Discovery Collaboration. A series of Naked Sublicenses to the same
sublicensee or related sublicensees will be aggregated to constitute a single Naked
Sublicense. For the avoidance of doubt, where this Agreement grants Alnylam exclusive rights
to grant Naked Sublicenses, such exclusive rights preclude Isis from granting licenses to the
Isis Patent Rights to Third Parties for Double Stranded RNA even though such license grants by
Isis would technically be license grants and not sublicense grants. Licenses that do not
include or involve rights to Isis Patents shall not constitute Naked Sublicenses.
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77.
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Naked Sublicensee means a Third Party that obtains a Naked Sublicense from Alnylam in
accordance with the terms of this Agreement.
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78.
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NDA means New Drug Application or similar application or submission for approval to market
and sell a new pharmaceutical product filed with or submitted to a Regulatory Authority.
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79.
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Net Sales will mean the gross invoice price of Products sold by Alnylam or Isis (as
applicable), their respective Affiliates and sublicensees (but with respect to Alnylam does
not include Naked Sublicensees) to a Third Party less the following items: (i) trade
discounts, credits or allowances, (ii) credits or allowances additionally granted upon
returns, rejections or recalls, (iii) freight, shipping and insurance charges, (iv) taxes,
duties or other governmental tariffs (other than income taxes) and (v) government-mandated
rebates and (vi) a reasonable reserve for bad debts. Except in the cases of Products used to
conduct clinical trials, reasonable amounts of Products used as marketing samples and Product
provided without charge for compassionate or similar uses, a Party, its Affiliates or
sublicensees will be treated as having sold Products for an amount equal to the fair market
value of Products if: (a) Products are used by such Party, its Affiliates or sublicensees
without charge or provision of invoice, or (b) Products are provided to a Third Party by such
Party, its Affiliates or sublicensees without
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charge or provision of invoice and used by such third party.
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Such amounts shall be determined from the books and records of Alnylam or Isis (as
applicable) and their respective Affiliates and sublicensees, maintained in accordance with
GAAP, consistently applied.
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In the event the Product is sold as part of a Combination Product (as defined below), the
Net Sales from the Combination Product, for the purposes of determining royalty payments,
shall be determined by multiplying the Net Sales (as determined without reference to this
paragraph) of the Combination Product, during the applicable royalty reporting period, by
the fraction, A/A+B, where A is the average sale price of the Product when sold separately
in finished form and B is the average sale price of the other product(s) included in the
Combination Product when sold separately in finished form, in each case during the
applicable royalty reporting period or, if sales of both the Product and the other
product(s) did not occur in such period, then in the most recent royalty reporting period
in which sales of both occurred. In the event that such average sale price cannot be
determined for both the Product and all other products(s) included in the Combination
Product, Net Sales for the purposes of determining royalty payments shall be calculated by
multiplying the Net Sales of the Combination Product by the fraction of C/C+D where C is
the fair market value of the Product and D is the fair market value of all other product(s)
included in the Combination Product. As used above, the term Combination Product means
any pharmaceutical product which consists of a Product and other therapeutically active
pharmaceutical compound or any delivery technology that embodies substantial intellectual
property rights Controlled by the selling Party (e.g., a common syringe would not
constitute a delivery technology that embodies substantial intellectual property rights
Controlled by the selling Party, but an implantable delivery device such as a stent would
constitute such a delivery technology).
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80.
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Other Alnylam Sublicense has the meaning set forth in Section 7.6(a).
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81.
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Other Isis Sublicense has the meaning set forth in Section 8.4(b).
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82.
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Patent or Patents means (a) patent applications (including provisional applications and
applications for certificates of invention); (b) any patents issuing from such patent
applications (including certificates of invention); (c) all patents and patent applications
based on, corresponding to, or claiming the priority date(s) of any of the foregoing; (d) any
substitutions, extensions (including supplemental protection certificates), registrations,
confirmations, reissues, divisionals, continuations, continuations-in-part, re-examinations,
renewals and foreign counterparts thereof; and (e) all patents claiming overlapping priority
therefrom.
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83.
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Person means any person, organization, corporation or other business entity.
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84.
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Product means either an Alnylam Product or an Isis Product as the case may be.
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85.
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Regulatory Authority means any applicable government regulatory authority involved in
granting approvals for the marketing and/or pricing of a Product worldwide including, without
limitation, the United States Food and Drug Administration (FDA) and any successor
government authority having substantially the same function, and foreign equivalents thereof.
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86.
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Research Costs has the meaning set forth in Section 4.2(c).
|
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87.
|
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Research Plan has the meaning set forth in Section 4.2(a).
|
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88.
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Research Program has the meaning set forth in Section 4.2.
|
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89.
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|
Research Program Patent means any Patents that claim Inventions that were discovered by the
employees of either Party in the performance of the Research Program. For purposes of
clarity, Research Program Patents may also be Isis Future Motif and Mechanism Patents, Isis
Future Chemistry Patents, Alnylam Future Motif and Mechanism Patents, or Alnylam Future
Chemistry Patents.
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90.
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|
Research Term has the meaning set forth in Section 4.2.
|
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91.
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Research Use means discovering, developing and optimizing an Alnylam Product or an Isis
Product, as applicable, up to, but not including, [**], and/or conducting pilot manufacturing
studies of an Alnylam Product or an Isis Product, as applicable. Research Use may include
small pilot toxicology studies. With respect to Isis, Research Use does not include studies
[**] for potential drug targets, but does include studies [**] for development of Double
Stranded RNA Products or Single Stranded RNAi Products, as applicable, from among potential
targets for which a reasonable scientific basis exists for believing that such potential
targets are associated with a particular disease or condition.
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92.
|
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Reserved DS-Target has the meaning set forth in Section 6.4(a).
|
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93.
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|
RMC has the meaning set forth in Section 4.1(a).
|
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94.
|
|
Single Stranded RNAi Compound means a single stranded chemically modified oligonucleotide
and/or analog designed to cause target mRNA cleavage via the RISC or RNAi mechanism. For
purposes of clarity, an ssRNAi compound does not include oligonucleotides (or chemically
modified oligonucleotide analogs) designed to work via other mechanisms such as (i) RNase H 1
or 2 (including any oligonucleotide which has [**]); (ii) alteration of splicing; (iii)
translation arrest (excluding RNAi-mediated repression of translation); (iv) alteration of
processing; (v) polyadenylation; (vi) capping; (vii) modulation of pre-mRNA processing of the
target mRNA; or (viii) oligonucleotides (or chemically modified oligonucleotide analogs)
designed to mimic a known naturally occurring microRNA.
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|
Working via the RISC or RNAi mechanism means that the compound is capable
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of, in an in vitro cell culture assay, causing cleavage of the target mRNA at the [**], as
evidenced for example by a [**] assay.
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95.
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Single Stranded RNAi Product means a pharmaceutical composition that contains a Single
Stranded RNAi Compound.
|
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96.
|
|
Sublicense Revenue means any payments that (1) with respect to Alnylam, Alnylam receives
from a sublicensee in consideration of a Naked Sublicense or a sublicense granted by Alnylam
as permitted by Section 5.2(b), or (2) with respect to Isis, Isis receives from a sublicensee
in consideration of a sublicense to further the research, development or commercialization of
an Isis Single Stranded RNAi Product, in each case including, but not limited to, license
fees, royalties, milestone payments, and license maintenance fees, but excluding: (i) payments
made in consideration of equity or debt securities of the applicable Party at fair market
value and (ii) payments specifically committed to reimburse the applicable Party for the
fully-burdened cost of research and development. If a Party receives any non-cash Sublicense
Revenue, such Party will pay the other Party, at the election of the Party who is entitled to
receive Sublicense Revenue payment, either (x) a cash payment equal to the fair market value
of the appropriate percentage of the Sublicense Revenue or (y) the in-kind portion, if
practicable, of the Sublicense Revenue.
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97.
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Technology Access Fee means any payments that Alnylam receives from granting a Third Party
access (through sublicense or otherwise) to the Isis Patent Rights as part of a Bona Fide
Collaboration or Development Collaboration agreement, including, but not limited to, (1)
license fees, (2) collaboration fees, (3) option fees, (4) payments made in consideration for
the issuance of equity or debt securities above fair market value, (5) payments made for
research and development support above Alnylams fully-burdened cost,
but
excluding the
following payments: (i) payments made in consideration for equity or debt securities of
Alnylam at fair market value, (ii) payments made in consideration for thirty-five percent
(35%) or more of Alnylams equity securities at fair market value plus a reasonable control
premium, (iii) payments specifically committed to reimburse Alnylam for the fully-burdened
cost of research and development, including without limitation the fully-burdened cost of
products transferred by Alnylam in connection with such research and development, (iv) [**]
(v) payments that are not milestones and that are associated with the sale of commercial
products, and (vi) payments that count as Sublicense Revenue under a Naked Sublicense subject
to Alnylams payment obligations to Isis under Section 7.4. If Alnylam receives any non-cash
Technology Access Fees, Alnylam will pay Isis, at Isis election, either (x) a cash payment
equal to the fair market value of Isis appropriate portion of the Technology Access Fee or
(y) the in-kind portion, if practicable, of the Technology Access Fee.
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98.
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Third Party means any party other than Isis or Alnylam and their respective Affiliates.
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99.
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Valid Claim means (i) an issued claim of an unexpired Patent that has not been withdrawn,
canceled or disclaimed, or held invalid or unenforceable by a court of competent jurisdiction
in an unappealed or unappealable decision, or (ii) a claim of a patent application which has
been pending for less than [**] years from the earliest priority date for such application.
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EXHIBIT 4.3(c)(iv)
Picking Mechanism Examples
Example A
In the initial round of Picking, the following will be the order (with total number of Enabled
Targets after Pick in parentheses):
Alnylam(1) Isis(1) Isis(2) Alnylam(2) Alnylam(3) Isis(3) Isis(4)
Alnylam(4) . . .
Example B
If both Parties have an equal number of Enabled Targets (10, for this example) and the previous
round ended with an Alnylam Pass followed by an Isis Pass, the following will be the order (with
total number of Enabled Targets after Pick in parentheses):
Alnylam(11) Isis(11) Isis(12) Alnylam(12) Alnylam(13) Isis(13) Isis(14)
Alnylam(14) . . .
Example C
If Alnylam has 10 Enabled Targets and Isis has 5 Enable Targets and there have been no Cleared
Targets since the previous Selection Section, the following will be the order (with total number of
Enabled Targets after Pick in parentheses) regardless of how the previous Round ended:
[**] . . .
Example D
If Alnylam has 10 Enabled Targets and Isis has 5 Enable Targets and there have been one or more
Cleared Targets since the previous Selection Section, the following will be the order (with total
number of Enabled Targets after Pick in parentheses) but Isis will not be entitled to Pick a
Cleared Target until it Picks its [**] Enabled Target (in italics below) regardless of how the
previous Round ended:
[**]
Example E1
If Isis has 10 Enabled Targets and Alnylam has 5 Enable Targets and there have been one or more
Cleared Targets since the previous Selection Section, the following will be the order (with total
number of Enabled Targets after Pick in parentheses) regardless of how the previous Round ended and
assuming that Alnylam does not Pick a Cleared Target until it Picks its [**] Enabled Target (in
italics below):
[**] . . .
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Example E2
If Isis has 10 Enabled Targets and Alnylam has 5 Enable Targets and there have been one or more
Cleared Targets since the previous Selection Section, the following will be the order (with total
number of Enabled Targets after Pick in parentheses) regardless of how the previous Round ended and
assuming that Alnylam Picks a Cleared Target with its [**] Enabled Target (in italics below), and
for clarity, Isis may pick a Cleared Target for its [**] Enabled Target (underlined below):
[**]
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Exhibit 5.3(c) Part I
Isis Third-Party Joint Patents Rights
The following schedule is provided by Isis Pharmaceuticals, Inc. to Alnylam Pharmaceuticals,
Inc., in connection with the Strategic Collaboration and License Agreement between Alnylam and Isis
(the
Agreement
). Capitalized terms used but not otherwise defined herein have the meanings given
to such terms in the Agreement.
This schedule and the information and disclosures contained in this schedule are intended only
to qualify and limit the licenses granted by Isis to Alnylam in the Agreement and do not expand in
any way the scope or effect of any such licenses.
Isis has cases with joint inventorship with the [**] following entities:
[**]
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Exhibit 5.3(c) Part II, Joint Patent Rights
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Isis Docket Number
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Status
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Patent Number
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Grant Date
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Title
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3rd Party
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Isis Docket Number
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Status
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Grant Date
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Title
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3rd Party
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Exhibit 5.3(d)
Isis Encumbered Patent Rights
The following schedule of encumbered Patents is provided by Isis Pharmaceuticals, Inc. to
Alnylam Pharmaceuticals, Inc., in connection with the Strategic Collaboration and License Agreement
between Alnylam and Isis (the
Agreement
). Capitalized terms used but not otherwise defined
herein have the meanings given to such terms in the Agreement.
This schedule and the information and disclosures contained in this schedule are intended only
to qualify and limit the licenses granted by Isis to Alnylam in the Agreement and do not expand in
any way the scope or effect of any such licenses.
1. Merck
The Patents identified by Isis docket numbers [**] cover the incorporation of certain
Merck-proprietary [**].
The licenses from Isis to Alnylam with respect to these Patents are limited to the Isis Field. In
addition, Merck has a research license to practice these Patents in the Isis Field.
Isis Field means the use of [the Merck [**]] solely for the purposes of developing [**].
Reference is made to the discussion regarding Merck nucleosides on the Excluded Technology
schedule.
2. Gilead Sciences, Inc.
Gilead has retained exclusive rights in the Patents identified by a Gilead in the Third Party
column to make, have made, use, import, export or sell compounds and other subject matter claimed
within the scope of the patents which are [**].
In addition, Gilead has a non-exclusive, non-sublicensable, non-assignable license under such
Patents to make and use CodeBlocker Compounds and Oligonucleotide Delivery Systems for internal
research purposes, but not for any commercial purpose.
Codeblocker Compound means an oligonucleotide that binds directly to DNA or RNA within a cell on
a selective basis determined by the nucleotide sequence of the target DNA or RNA and exerts its
biological activity predominantly through binding to DNA or RNA to inhibit the transcription or
replication of the target DNA or RNA or binding to RNA to inhibit the translation, processing,
packaging or regulatory activity of the target RNA. A Codeblocker Compound may also have a
mechanism of action or biological activity other than one conferred through direct binding to RNA
or DNA provided that (i) the compound originally was designed to bind a target DNA or RNA and (ii)
the final compound or any compounds used to derive the final compound were not identified using
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selective purification and polymerase amplification in any fashion. An oligonucleotide, is [**].
An oligonucleotide includes RNA or DNA fragments, and may be composed of naturally occurring or
non-naturally occurring bases, sugars or intersugar linkages. An oligonucleotide may have [**].
Oligonucleotides may be made such that adjacent nucleoside or nucleoside fragments are linked
together by [**] linkages to form the [**] in the linkage.
Oligonucleotide Delivery System means any [**] which was developed by Gilead on or prior to [**],
and which (i) enhances the [**] of a Codeblocker Compound, (ii) selectively delivers a Codeblocker
compound to the intended [**], (iii) provides [**], or (iv) otherwise favorably alters the [**] so
as to enhance its pharmacological activity of clinical value. Oligonucleotide Delivery System
includes [**].
Glaxo Smith Kline has retained rights (originally granted from Gilead to GSK) in the Patents
identified by a Gilead in the Third Party column to (i) conduct research and development within
the GSK Field and (ii) make, have made, use, offer for sale, sell, supply and import within the GSK
Field any form or dosage of a GSK Codeblocker Compound and any GSK Codeblocker Delivery System used
in connection therewith.
GSK may grant sublicenses only (a) to affiliates, for any use within the GSK Field, and (b) to
non-affiliates only to the extent necessary to enable such sublicensee to make, have made, use,
offer for sale, sell, supply and import a GSK Codeblocker Compound developed by GSK or a research
or development collaborator of GSK during the term of such collaboration and for which GSK (alone
or in conjunction with a commercialization partner for such compound) has commenced or is prepared
to commence human clinical trials.
GSK Field means research with respect to, and the development and use of, GSK Codeblocker
Compounds for the diagnosis, prevention or treatment of conditions or diseases in humans.
GSK Codeblocker Compound means any material which (i) binds directly to DNA or RNA within a cell
on a selective basis determined by the nucleotide sequence of the target DNA or RNA and exerts its
biological activity predominantly through binding to DNA or RNA to inhibit the transcription or
replication of the target DNA or RNA or binding to RNA to inhibit the translation, processing,
packaging or regulatory activity of the target RNA, and (ii) is a molecule [**], and (iii) is not a
naturally occurring protein that binds to DNA to regulate transcription, or a peptide derived from
such a naturally occurring protein, and (iv) is [**], and (v) was not known by GSK prior to [**].
GSK Codeblocker Delivery System means any [**] which is developed by GSK or Gilead pursuant to
their Collaborative Research Agreement dated March 25, 1996, and which (i) [**] a GSK Codeblocker
Compound, (ii) [**] to the intended target [**], (iii) provides [**] a GSK Codeblocker Compound
from [**], or (iv) otherwise [**] a GSK Codeblocker Compound so as to [**].
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3. [**], Inc.
Alnylam cannot grant Naked Sublicenses with respect to the Patents identified by a [**] in the
Third Party column or the Patents listed on Annex 3. In addition, [**] has the first right to
defend and enforce such Patents if it is facing the greatest competitive threat from infringement.
Alnylam must notify Isis if it grants a sublicense of any kind to a Third Party with respect to
such Patents.
The [**] has the first right to defend and maintain the Patents with a docket number containing
[**].
Isis also has access to certain other [**] technology to the extent it is useful for Antisense
Products and Antisense Technology (both as defined in Annex 3). However, in addition to the
restrictions described above, this technology carries certain other use restrictions depending on
how the technology is characterized under the in-license agreement. We do not believe that such
technology will be useful to Alnylam, but have provided a description of the technology and its
related encumbrances on Annex 3 attached hereto.
4. Tullis Patents.
The Patents identified by a Tullis in the Third Party column can only be sublicensed in
combination with a product that (i) uses such Patents and (ii) employs as a material element other
Isis Patent Rights.
5. Amgen, GSK, Chiron and Pfizer.
Amgen, Inc., Glaxo Smith Kline, Chiron Corporation and Pfizer, Inc. each have a license to use some
or all of the Patents identified by a TV in the Third Party column for their own internal target
validation research.
6. Integrated DNA Technologies, Inc.
With respect to the Patents identified by an IDT in the Third Party column, Integrated DNA
Technologies, Inc. has a nonexclusive license to make, have made, use, import, offer to sell, sell
and have sold oligonucleotides and other related research products to the Academic Market.
Academic Market means end-users employed by and located at or in academic, university,
government, and other 501(c)(3) registered not-for-profit organizations; provided however that
specifically excluded from this definition shall be those end-users at such institutions whose
research is directly funded by a for-profit corporation for the purpose of drug discovery, drug
development, or target validation/gene functionalization wherein the funding corporation has a
specific legal interest or right to the data and information of the funded research
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7. TriLink Biotechnologies, Inc.
TriLink Biotechnologies, Inc. has a non-exclusive license to the Patents identified by a TriLink
in the Third Party column to (i) make, use, distribute and sell Licensed Products to purchasers who
have signed a form license agreement and (ii) have [**] in the manufacture of Licensed Products.
Licensed Product means [**]
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Propyne means any of the following [**]
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[**]
8. Government Rights
Inventions claimed in US Patent Applications: [**] were funded in part by a Small Business
Innovation Research grant administered by the National Institutes of Health. Accordingly, the U.S.
Federal Government retains certain rights to those inventions.
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Annex 3
If the Patents marked with either a B1 or B2 restriction are [**] prevails in the [**] and [**] for
such Patents broadly cover [**], the licenses under such Patents are limited to discover, develop,
make, have made, use, sell, have sold, offer to sell, import and have imported Antisense Products
and to practice Antisense Technology; provided that the license will only extend to the issued
claims corresponding to the [**] and shall not extend to any other claim of such Patents.
The licenses under the Patents marked with an F restriction are limited (i) to discover, develop,
make, have made, use, sell, have sold, offer to sell, import and have imported Antisense Products
which contain modifications which have [**], (ii) to practice Antisense Technology using
oligonucleotides [**] in such oligonucleotides, and (iii) to discover, develop, make, have made,
use, sell, have sold, offer to sell, import and have imported Antisense Products which target genes
involved in [**].
The licenses under the Patents marked with a C or D restriction are limited to discover, develop,
make, have made, use, sell, have sold, offer to sell, import and have imported Antisense Products
and practice Antisense Technology, provided that neither such Antisense Products nor such Antisense
Technology use, or are used with, [**].
The licenses under the Patents marked with an A restriction are limited to discover, develop, make,
have made, use, sell, have sold, offer to sell, import and have imported Antisense Products and
practice Antisense Technology, provided that such Antisense Products and Antisense Technology use,
or are used with, the technology covered by the claims of such Patents solely for the [**] purposes
only.
The licenses under the Patents marked with an M restriction are limited to discover, develop, make,
have made, use, sell, have sold, offer to sell, import and have imported Antisense Products and
practice Antisense Technology, which Antisense Products and Antisense Technology primarily act
[**].
The licenses under the Patents marked with a K restriction are limited to discover, develop, make,
have made, use, sell, have sold, offer to sell, import and have imported Antisense Products and
practice Antisense Technology; provided, however, that such licenses will not extend to [**].
For purposes of this description:
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Antisense Products means oligonucleotides or oligonucleotide analogs or mimics thereof
targeted to a specific sequence of RNA that hybridize to such sequence and through such
hybridization modulate the production of the targeted gene product. The term Antisense
Products shall not include Ribozymes.
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Antisense Technology means the use of any oligonucleotide or oligonucleotide analog or
mimic thereof targeted to a specific sequence of RNA that hybridizes to such sequence and
through such hybridization modulates the production of the targeted gene product. The
term Antisense Technology shall not include Ribozyme technology.
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Ribozymes means oligonucleotides or oligonucleotide analogs or mimics containing a
catalytic core having a bulge or stem loop and regions flanking the catalytic core that
hybridize to a targeted RNA and modulate the targeted RNA by cleavage at a site next to a
specific ribonucleotide triplet by an oligonucleotide catalyzed transesterification
reaction.
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Ribozyme Technology means the use of any oligonucleotides or oligonucleotide analogs or
mimics thereof containing a catalytic core having a bulge or stem loop and regions
flanking the catalytic core that hybridize to a targeted RNA and modulate the targeted RNA
by cleavage at a site next to a specific ribonucleotide triplet by an oligonucleotide
catalyzed transesterification reaction.
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Execution Copy
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Patent #
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HYBN #
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Title
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Patent Group
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Inventors
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Restriction
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Exhibit 6.5(c)
Restrictions Imposed by Agreements Between Alnylam and Third Parties
Executed Prior to the Effective Date
Because of agreements in effect with Third Parties as of the Effective Date, the following
restrictions and other terms apply to Alnylam Patent Rights with respect to which Isis is granted a
license, or option to obtain a license, under this Agreement.
Rights Licensed from
[**]
The rights licensed from [**] ([**]) relate to the [**] and [**] patents.
[**] patent means the pending patent applications listed in Schedule 1-5 with the following
case numbers: [**].
[**] patent means the pending patent applications listed in Schedule 1-5 with the following case
numbers, excluding claims [**] (case number [**]) and the equivalent claims in any patent
applications and patents resulting from this PCT application: [**].
The restrictions on, and other terms relating to, the rights available to Isis under the Agreement
are described in the following clauses excerpted from the Co-Exclusive License executed between
Alnylam and [**] on December 20, 2002.
ARTICLE 2 GRANT OF RIGHTS
2.4
Sublicenses
.... Immediately after the signature of each sublicense granted under this Agreement,
COMPANY shall provide [**] with a copy of the signed sublicense agreement, and COMPANY
shall confirm in writing to [**] that COMPANY shall be liable for payment of royalties on
NET SALES of the SUBLICENSEE in accordance with Sections 5.2 and 5.3.
ARTICLE 4 COMPANY DILIGENCE OBLIGATIONS AND REPORTS
4.1
Activity Requirements
COMPANY shall use commercially reasonable efforts, and shall oblige its SUBLICENSEES to use
commercially reasonable efforts, to develop and to introduce into the commercial market
LICENSED PRODUCTS at the earliest practical date.
4.2
Development Reports
Commencing with the beginning of 2003, COMPANY shall furnish, and shall oblige its
SUBLICENSEES to furnish to COMPANY for inclusion in its reports to [**], to [**] in
writing, within 30 (thirty) days after the end of each calendar quarter with COMPANYs
standard R&D report, as provided to the investors pursuant to the Amended and Restated
Investors Rights Agreement Series B, on
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the progress of its efforts during the immediately preceding calendar quarter to develop
and commercialize LICENSED PRODUCTS for each indication and sub-indication within the
FIELD. The report shall also contain a discussion of intended R&D efforts for the calendar
quarter in which the report is submitted.
4.4
Liability for SUBLICENSEES
If SUBLICENSEES of COMPANY develop, manufacture, use and/or sell LICENSED PRODUCTS under
the PATENT RIGHTS, COMPANY warrants and is liable towards [**] that the SUBLICENSEES
perform their sublicense agreement in accordance with this Agreement, and COMPANY shall be
responsible and liable for royalty payments and reports of the SUBLICENSEES.
4.5
Effect of Failure
In the event that [**] determines that COMPANY or any of its SUBLICENSEES has failed to
fulfill any of its obligations under this Section 4, then [**] may treat such failure as a
material breach in accordance with Section 11.7.
ARTICLE 5 SHARES, Royalties and Payment Terms
5.2
Running Royalties
COMPANY shall pay to [**] the following running royalties on NET SALES of therapeutic and
prophylactic LICENSED PRODUCTS by COMPANY and its SUBLICENSEES:
[[**]% ([**] percent) to [**]% ([**]%) of NET SALES depending on level of NET
SALES].
In the event that COMPANY or a SUBLICENSEE develops [**] LICENSED PRODUCTS, COMPANY shall
initiate negotiations with [**] at least 3 (three) months prior to the intended first
commercial sale of each [**] LICENSED PRODUCT. COMPANY and [**] shall negotiate in good
faith royalties on reasonable market terms for such [**] LICENSED PRODUCT.
.... Non-cash consideration shall not be accepted by COMPANY or any SUBLICENSEE for LICENSED
PRODUCTS without the prior written consent of [**].
5.3
Royalty Stacking
(a)
Third Party Licenses
In the event COMPANY or a SUBLICENSEE takes, for objective commercial and/or legal reasons,
a license from any third party under any patent applications or patents that dominate the
PATENT RIGHTS or is dominated by the PATENT RIGHTS in order to develop, make, use, sell or
import any LICENSED PRODUCT [**], then COMPANY is allowed to deduct [**]% ([**] percent)
of any additional running royalties to be paid to such third party up to [**]% ([**]
percent) of the running royalties stated in Section 5.2, from the date COMPANY
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has to pay running royalties to such third party. However, the running royalties stated in
Section 5.2 shall not be reduced to less than a minimum of [**]% ([**] percent) of NET
SALES in any case.
For avoidance of doubt, if COMPANY or a SUBLICENSEE takes a license [**], COMPANY is in no
event allowed to deduct any license fees [**] from running royalties due to [**] under this
Agreement.
(b)
PATENT RIGHTS Coverage
In the event that (i) COMPANY or its SUBLICENSEES sell a LICENSED PRODUCT in a country
where no PATENT RIGHTS are issued and no patent applications that are part of the PATENT
RIGHTS are pending that have not been pending for less than [**] years after filing
national patent applications in the country in question, and (ii) such LICENSED PRODUCT is
manufactured in a country where PATENT RIGHTS are issued or patent applications that are
part of the PATENT RIGHTS are pending that have not been pending for more than [**] years
after filing national patent applications in the country in question, the royalties stated
in Section 5.2 will be reduced by [**]% ([**] percent) for such LICENSED PRODUCT, until the
expiration or abandonment of all issued patents and filed patent applications within the
PATENT RIGHTS in the country in which the LICENSED PRODUCT is manufactured.
5.4
Reports
Within 30 (thirty) days of the end of each calendar half year, COMPANY shall deliver a
detailed report to [**] for the immediately preceding calendar half year showing at least
(i) the number of LICENSED PRODUCTS sold by COMPANY and its SUBLICENSEES in each country,
(ii) the gross price charged by COMPANY and its SUBLICENSEES for each LICENSED PRODUCTS in
each country, (iii) the calculation of NET SALES, and (iv) the resulting running royalties
due to [**] according to those figures. If no running royalties are due to [**], the report
shall so state.
5.6 Bookkeeping and Auditing
COMPANY is obliged to keep, and shall oblige its SUBLICENSEES to keep, complete and
accurate books on any reports and payments due to [**] under this Agreement, which books
shall contain sufficient information to permit [**] to confirm the accuracy of any reports
and payments made to [**]. [**], or [**] appointed agents, is authorized to check the
books of COMPANY, and, upon [**] request, COMPANY, or agents appointed by [**] for COMPANY,
shall check the books of its SUBLICENSEES for [**]. The charges for such a check shall be
borne by [**]. In the event that such check reveals an underpayment in excess of 5% (five
percent), COMPANY shall bear the full cost of such check and shall remit any amounts due to
[**] within thirty days of receiving notice thereof from [**].
The right of auditing by [**] under this Section shall expire five years after each report
or payment has been made. Sublicenses granted by COMPANY shall
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provide that COMPANY shall have the right to check the books of its SUBLICENSEES according
to this Section 5.6.
5.7
No Refund
All payments made by COMPANY or its SUBLICENSEES under this Agreement are nonrefundable and
noncreditable against each other.
ARTICLE 6 Patent Prosecution AND Infringement
6.3 Infringement
COMPANY shall inform [**] promptly in writing of any alleged infringement of the PATENT
RIGHTS by a third party and of any available evidence thereof.
Subject to COMPANYs right to join in the prosecution of infringements set forth below, the
OWNERS shall have the right, but not the obligation, to prosecute in their own discretion
and at their own expense, all infringements of the PATENT RIGHTS. The total cost of any
such sole infringement action shall be borne by the OWNERS, and the OWNERS shall keep any
recovery or damages derived therefrom. In any such infringement suits, COMPANY shall, at
the OWNERS expense, cooperate in all respects.
COMPANY shall have the right to join the OWNERS prosecution of any infringements of the
PATENT RIGHTS: In any such joint infringement suits, the OWNERS and COMPANY will cooperate
in all respects. The OWNERS and COMPANY will agree in good faith on the sharing of the
total cost of any such joint infringement action and the sharing of any recovery or damages
derived therefrom.
In the event that the OWNERS decide not to prosecute infringements of the PATENT RIGHTS,
neither solely nor jointly with COMPANY, [**] shall offer to COMPANY to prosecute any such
infringement in its own discretion and at its own expense. ... The OWNERS shall, at
COMPANYS expense, cooperate. The total cost of any such sole infringement action shall be
borne by COMPANY, and COMPANY shall keep any recovery or damages derived therefrom.
In the event that COMPANY intends to make any arrangements with the infringer to settle
the infringement (such as sublicenses), and solely the OWNERS or the OWNERS jointly with
COMPANY have prosecuted the infringement, any such settlement needs the prior written
approval of [**], which shall not unreasonably be withheld; reasons to withheld include,
without limitation, that the settlement is financially disadvantageous for the OWNERS or
[**]. Any infringer to which COMPANY grants such sublicenses shall be a SUBLICENSEE under
this Agreement.
ARTICLE 8 CONFIDENTIALITY
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8.2
Obligation for
[**]
The content of this Agreement and any information marked confidential which is disclosed to
[**] under this Agreement by COMPANY or its SUBLICENSEES shall be treated confidential by
[**] during the TERM and for [**] years thereafter. [**] shall not use such information for
any purposes other than those necessary to directly further the purpose of this Agreement.
[**] may disclose such information to the OWNERS, provided however, that the OWNERS are
obliged to confidentiality to the same extent as [**].
The confidentiality obligation shall not apply to information which is (i) publicly
available or becomes publicly available through no fault of [**], or (ii) obtained by [**]
from another source without a duty of confidentiality, or (iii) demonstrably independently
developed or possessed by [**], or (iv) is required by law, regulation, accounting
principles or an order of a court or government agency to be disclosed.
ARTICLE 10 General Compliance with Laws
10.2
Non-Use of OWNERS Names
Neither COMPANY nor its SUBLICENSEES shall use the name of [**] or any variation,
adaptation, or abbreviation thereof, or of any of its trustees, officers, faculty,
students, employees, or agents, or any trademark owned by any of the OWNERS, in any
promotional material or other public announcement or disclosure without the prior written
consent of the OWNERS or in the case of an individual, the consent of that individual. The
foregoing notwithstanding, without the consent of the OWNERS, COMPANY may state generally
that it is co-exclusively licensed by the OWNERS under the PATENT RIGHTS.
ARTICLE 11 EFFECTIVENESS AND TERMINATION
11.5
Attack on PATENT RIGHTS
[**] shall have the right to terminate this Agreement immediately upon written notice to
COMPANY, if COMPANY attacks, or has attacked or supports an attack through a third party,
the validity of any of the PATENT RIGHTS. To the extent legally enforcable, sublicenses
granted by COMPANY shall provide that in the event the SUBLICENSEE attacks, or has attacked
or supports an attack through a third party, the validity of any of the PATENT RIGHTS,
COMPANY shall have the right to terminate the sublicense agreement immediately; upon
request of [**], COMPANY shall have the obligation to terminate such sublicense agreement.
11.8
Effect of Termination
.... In no event shall termination of this Agreement release COMPANY or its SUBLICENSEES
from the obligation to pay any amounts that became due on or before the effective date of
termination. In the event that any license granted to COMPANY under this Agreement is terminated, any
sublicense under such license granted prior to termination of said license shall remain in
full fore and effect, provided that:
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(a) the SUBLICENSEE is not then in breach of its sublicense agreement, and
(b) the SUBLICENSEE agrees to be bound to [**] as licensor under the terms and conditions
of the sublicense agreement, provided that [**] shall have no other obligation than to
leave the sublicense granted by COMPANY in place.
Rights Licensed from
[**]
The rights licensed from [**] relate to the pending patent applications listed in Schedule 1-5 with
the following case numbers: [**].
The restrictions on, and other terms relating to, the rights available to Isis under the Agreement
are described in the following clauses excerpted from the agreement executed between Alnylam and
[**] on [**]. Articles 7, 8 and 9 of such agreement are included in these excerpts because clause
13.4 of such agreement states that Any sublicense will expressly include the provisions of
Articles 7, 8, and 9 for the benefit of [**].
7 ROYALTY REPORTS, PAYMENTS, AND ACCOUNTING
7.1 Quarterly Earned Royalty Payment and Report.
Beginning with the first sale of a
Licensed Product, Alnylam will make written reports (even if there are no sales) and earned
royalty payments to [**] within thirty days after the end of each calendar quarter. This
report will be in the form of the report of Appendix B and will state the number,
description, and aggregate Net Sales of Licensed Product during the completed calendar
quarter, and resulting calculation pursuant to Section 6.3 of earned royalty payment due
[**] for the completed calendar quarter. With each report, Alnylam will include payment
due [**] of royalties for the completed calendar quarter.
7.2 Termination Report.
Alnylam will make a written report to [**] within ninety days
after the license expires under Section 3.2. Alnylam will continue to make reports after
the license has expired, until all Licensed Product produced under the license have been
sold or destroyed. Concurrent with the submittal of each post-termination report, Alnylam
will pay [**] all applicable royalties.
7.3 Accounting.
Alnylam will keep and maintain records for a period of three years showing
the manufacture, sale, use, and other disposition of products sold or otherwise disposed of
under the license. Records will include general-ledger records showing cash receipts and
expenses, and records that include production records, customers, serial numbers, and
related information in sufficient detail to enable Alnylam to determine the royalties
payable under this Agreement.
7.4 Audit by [**].
Alnylam will permit an independent certified public accountant selected
by [**] and acceptable to Alnylam to examine Alnylams books and records from time to time
(but no more than one time a year) to the extent necessary to verify reports provided for
in Sections 7.1 and 7.2. [**] will pay for the cost of such audit, unless the results of
the audit reveal an
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underreporting of royalties due [**] of five percent or more, in which case, Alnylam will
pay the audit costs.
8 NEGATION OF WARRANTIES
8.1
To the best of [**] OTL knowledge, [**] is the sole owner of Licensed Patent and has
the right to enter into this Agreement and to grant the rights and licenses set forth
herein.
8.2 Negation of Warranties.
Nothing in this Agreement is construed as:
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(A)
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[**] warranty or representation as to the validity or scope
of any Licensed Patent;
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(B)
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A warranty or representation that anything made, used, sold,
or otherwise disposed of under any license granted in this Agreement is or
will be free from infringement of patents, copyrights, and other rights of
third parties;
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(C)
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An obligation to bring suit against third parties for
infringement, except as described in Article 12;
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(D)
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Granting by implication, estoppel, or otherwise any licenses
or rights under patents or other rights of [**] or other persons other than
Licensed Patent, regardless of whether the patents or other rights are
dominant or subordinate to any Licensed Patent; or
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(E)
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An obligation to furnish any technology or technological
information.
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8.3 No warranties.
Except as expressly set forth in this Agreement, [**] makes no
representations and extends no warranties of any kind, either express or implied. There
are no express or implied warranties of merchantability or fitness for a particular
purpose, or that Licensed Product will not infringe any patent, copyright, trademark, or
other rights, or any other express or implied warranties.
8.4 Specific Exclusion.
Nothing in this Agreement grants Alnylam any express or implied
license or right under or to [**] entitled [**] or any patent application corresponding
thereto.
9 INDEMNITY
9.1 Indemnification.
Alnylam will indemnify, hold harmless, and defend [**] and [**]
Hospitals and Clinics, and their respective trustees, officers, employees, students, and
agents against all claims for death, illness, personal injury, property damage, and
improper business practices arising out of the
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manufacture, use, sale, or other disposition of Invention, Licensed Patent, Licensed
Product, by Alnylam or any sublicensee, or their customers except to the extent such claims
are due to the gross negligence or willful misconduct of [**]. [**] agreed to promptly
notify Alnylam in writing of any such claim and Alnylam shall manage and control, at its
own expense, the defense of such claim and its settlement. Alnylam agrees not to settle
any such claim against [**] without [**] written consent where such settlement would
include any admission of liability on the part of [**], where the settlement would impose
any restriction on the conduct by [**] of any of its activities, or where the settlement
would not include an unconditional release of [**] from all liability for claims that are
the subject matter of such claim.
9.2 No Liability.
Subject to Section 9.1, neither party will be liable to each other for
any loss profit, expectation, punitive or other indirect, special, consequential, or other
damages whatsoever, in connection with any claim arising out of or related to this
Agreement whether grounded in tort (including negligence), strict liability, contract, or
otherwise.
9.3 Workers Compensation.
Alnylam will at all times comply, through insurance or
self-insurance, with all statutory workers compensation and employers liability
requirements covering all employees with respect to activities performed under this
Agreement.
9.4 Insurance.
Alnylam will maintain, during the term of this Agreement, Comprehensive
General Liability Insurance, including Product Liability Insurance prior to
commercialization, with a reputable and financially secure insurance carrier to cover the
activities of Alnylam and its sublicensees. Upon initiation of human clinical trials of
Licensed Product, such insurance will provide minimum limits of liability of Five Million
Dollars and will include [**] and [**] Hospitals and Clinics, and their respective
trustees, directors, officers, employees, students, and agents as additional insureds.
Insurance will be written to cover claims incurred, discovered, manifested, or made during
or after the expiration of this Agreement and must be placed with carriers with ratings of
at least A- as rated by A.M. Best. Alnylam will furnish a Certificate of Insurance
evidencing primary coverage and additional insured requirements and requiring thirty (30)
days prior written notice of cancellation or material change to [**]. Alnylam will advise
[**], in writing, that it maintains excess liability coverage (following form) over primary
insurance for at least the minimum limits set forth above. All insurance of Alnylam will
be primary coverage; insurance of [**] and [**] Hospitals and Clinics will be excess and
noncontributory.
12 INFRINGEMENT BY OTHERS: PROTECTION OF PATENTS
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12.1
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Infringement Action.
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(A)
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The parties will promptly inform each other of any suspected
infringement of any Licensed Patent by a third party.
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(B)
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[**], Licensee and the other Co-Exclusive licensee will meet
to discuss the matter during the Co-Exclusive period of this Agreement.
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(C)
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If the Field-of-Use becomes Exclusive for Licensee, [**] and
Licensee will meet to discuss the matter during the Exclusive period of this
Agreement.
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(D)
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If [**] does not choose to institute suit against said third
party within sixty days of notification, then the suit may be brought in both
Licensees and the other Co-Exclusive licensees names, and [**] name if
necessary and the out-of-pocket costs thereof shall be borne equally by
Licensee and the other Co-Exclusive licensee and any recovery or settlement
shall be shared equally between Licensee and the other Co-Exclusive licensee.
In such situation, Licensee and the other Co-Exclusive licensee shall agree to
the manner in which they exercise control over such action and if either party
desires to also be represented by separate counsel of its own selection, the
fees for such counsel shall be paid by such party.
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(E)
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If both [**] and the other Co-Exclusive licensee, or [**] if
there is no other Co-Exclusive Licensee, choose not to institute suit against
said third party within sixty days of notification, then Licensee shall have
the right to institute suit in its own name or if necessary, in [**] name, to
enjoin such infringement. Licensee shall bear the entire cost of such
litigation and shall be entitled to retain the entire amount of any recovery
or settlement. However, any recovery in excess of litigation/settlement costs
will be considered Net Sales and Licensee will pay [**] royalties as indicated
in Article 6 hereof. [**] shall provide reasonable assistance to Licensee in
the prosecution of any such suit brought by Licensee, at Licensees expense.
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13 SUBLICENSING
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13.1
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Permitted Sublicensing for Licensed Co-Exclusive Field of Use
. Alnylam may
grant sublicenses in the Co-exclusive Licensed Field of Use during the Co-Exclusive
period:
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(A)
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only in conjunction with intellectual property under
Alnylams control; and
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(B)
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only if Alnylam is developing or selling Licensed Products in
the Co-Exclusive Licensed Field of Use.
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13.2
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Required Sublicensing for Licensed Co-Exclusive Field of Use
.
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(A)
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If Alnylam or its sublicensee(s) is unable or unwilling to
serve or develop a potential market or market territory for which there is a
willing sublicensee, Alnylam will, at [**] request, negotiate in good faith a
sublicense under the Licensed Patents, provided that the same request has been
made of the other Co-Exclusive licensee.
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(B)
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Bona fide business concerns of Alnylam will be considered in
any good faith negotiations for a sublicense under this Agreement and Alnylam
shall not be required to license/sublicense any other intellectual property to
such sublicensee.
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(C)
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If the other Co-Exclusive licensee itself or through its
sublicensees is already developing a product in the market or market territory
for which there is a willing sublicensee, Alnylam will not be required to
sublicense to such party.
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(D)
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In case that any other issue arises in the context of
Required Sublicensing, [**] will discuss and try to resolve such issue with
Alnylam in good faith.
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13.3
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Sublicense Requirements
. Any sublicense granted by Alnylam under this
Agreement will be subject and subordinate to terms and conditions of this Agreement,
except:
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(A)
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Sublicense terms and conditions will reflect that any
sublicensee will not further sublicense, with the exception that sublicensee
may further sublicense rights under Licensed Patents only as needed or implied
in the course of distribution or performance of service as required for the
sale to an end user of Licensed Products; and
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(B)
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The earned royalty rate specified in the sublicense [**] in
this Agreement.
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13.4
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Sublicenses Revert to [**]
. Any sublicense will expressly include the
provisions of Articles 7, 8, and 9 for the benefit of [**]. If a sublicensee desires
that its sublicense survive the termination of this agreement, [**] agrees that the
sublicense will revert to [**] subject to the transfer of all obligations, including
the payment of royalties specified in the sublicense, to [**] or its designee, if this
Agreement is terminated.
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13.5
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Copy of Sublicenses
. Alnylam will provide [**] in confidence a copy of all
relevant portions of any sublicenses granted pursuant to this Article 13.
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13.6
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Sharing of Sublicensing Income
. In addition to the earned royalties defined
in Article 6, Alnylam will pay [**] percent ([**]%) of the amount received by Alnylam,
that is specifically attributable to the Licensed Patents, from a sublicensee in
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(A)
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[**], and
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(B)
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[**] as defined in [**].
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13.7
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Royalty-free Sublicenses
. Alnylam may grant royalty-free or noncash
sublicenses or cross-licenses if Alnylam pays all royalties due [**] from
sublicensees Net Sales.
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EXHIBIT 6.5(d)
DESCRIPTION OF POTENTIAL PASS-THROUGH AMOUNTS PAYABLE TO
STANFORD UNIVERSITY
The passages shown below are excerpted from the License Agreement between THE BOARD OF TRUSTEES OF
THE LELAND Stanford JUNIOR UNIVERSITY (Stanford) and Alnylam Pharmaceuticals, Inc. dated
September 17, 2003. These passages were selected to provide Isis with sufficient information to
understand its potential obligation to Stanford pursuant to Section 6.5(d) of the Agreement.
DEFINITIONS
2.5
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Licensed Field of Use means delivery of ex-vivo synthesized siRNA Molecules for research,
development and therapeutic uses (including a diagnostic necessary for development, sale or
reimbursement of a therapeutic Licensed Product). The Licensed Field of Use specifically
excludes delivery of any system producing in vivo expressed siRNAs for therapeutic use,
including but not limited to episomal and integrated vectors, and recombinant viruses.
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2.7
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Co-Exclusive means that, subject to Article 4, Stanford will only grant one further license
in the Licensed Territory in the Licensed Field of Use.
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GRANT
3.2
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Co-Exclusivity.
The license is Co-Exclusive, including the right to sublicense pursuant to
Article 13, in the Licensed Field of Use for a term beginning on the Effective Date, and
ending, on a country-by-country basis, on the expiration of the last to expire of Licensed
Patents.
|
|
3.4
|
|
Exclusivity.
|
|
(A)
|
|
If the other Co-Licensee discontinues licensing this Field of Use, then the
Field of Use will become exclusive for Alnylam.
|
|
|
(B)
|
|
If the other Co-Licensee discontinues any other therapeutic license under
the Licensed Patents, Stanford shall so inform Alnylam and Alnylam shall have the
option to obtain an exclusive, worldwide sublicensable license to such therapeutic
field. The terms of any such license shall be negotiated in good faith by Stanford
and Alnylam. This option may be exercised by Alnylam by written notice to Stanford
at any time during a period of ninety (90) days after notification by Stanford.
|
ROYALTIES
6.3
|
|
Earned Royalty.
In addition, Alnylam will pay Stanford earned royalties on Net Sales as
follows:
|
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(A)
|
|
[**]% of Net Sales for a Licensed Product subject to the following;
|
|
|
(B)
|
|
Such royalty payments shall be reduced up to [**]% (from [**]% of Net Sales
down to [**]% of Net Sales) by the amount of royalty paid to access additional
intellectual property necessary in order to sell Licensed Products (Additional
Earned Royalties).
|
|
|
(C)
|
|
Such royalty payments shall be reduced as follows:
|
|
(1)
|
|
[**]% if Additional Earned Royalties are [**]% or less.
|
|
|
(2)
|
|
[**]% if Additional Earned Royalties are greater than [**]%
but less than [**]%.
|
|
|
(3)
|
|
[**]% if Additional Earned Royalties are equal to or greater
than [**]% but less than [**]%.
|
|
|
(4)
|
|
[**]% if Additional Earned Royalties are equal to or greater
than [**]% but less than [**]%.
|
|
|
(5)
|
|
[**]% if Additional Earned Royalties are equal to or higher
than [**]%.
|
|
(D)
|
|
Only one royalty is due on each Licensed Product sold by Alnylam or its
sublicensees regardless of whether its manufacture, use, importation or sale are or
shall be covered by more than one patent or patent application included in Licensed
Patents under this Agreement, and no further royalties will be due for use of such
Licensed Product by Alnylam or its sublicensees customers.
|
6.4
|
|
Creditable Payments.
Creditable payments under this Agreement will be an offset to Alnylam
against each earned royalty payment which Alnylam would be required to pay under Section 0
until the entire credit is exhausted.
|
|
6.5
|
|
Milestone Payments.
|
|
(A)
|
|
For the first Licensed Product, Alnylam will make the following payments
for the filing of an IND, intitiation of Phase II trial, initiation of Phase III
trial, and approval of New Drug Application or equivalent in the U.S. (Milestone
Payments):
|
|
(1)
|
|
$[**] for filing of the first IND.
|
|
|
(2)
|
|
$[**] for initiation of the first Phase II trial.
|
|
|
(3)
|
|
$[**] for initiation of the first Phase III trial.
|
|
|
(4)
|
|
$[**] for approval of the first New Drug Application or
equivalent regulatory approval in the U.S..
|
|
(B)
|
|
For the second Licensed Product, Alnylam will make the following Milestone
Payments:
|
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Execution Copy
|
(1)
|
|
$[**] for filing of the first IND.
|
|
|
(2)
|
|
$[**] for initiation of the first Phase II trial.
|
|
|
(3)
|
|
$[**] for initiation of the first Phase III trial.
|
|
|
(4)
|
|
$[**] for approval of the first New Drug Application or
equivalent regulatory approval in the U.S..
|
|
(C)
|
|
For the third and every subsequent Licensed Product, Alnylam will make the
following Milestone Payments:
|
|
(1)
|
|
$[**] for filing of the first IND.
|
|
|
(2)
|
|
$[**] for initiation of the first Phase II trial.
|
|
|
(3)
|
|
$[**] for initiation of the first Phase III trial.
|
|
|
(4)
|
|
$[**] for approval of the first New Drug Application or
equivalent regulatory approval in the U.S..
|
|
(D)
|
|
Notwithstanding the above, at the time that Stanford receives a Milestone
Payment from Alnylam on behalf of a sublicensee under 13.6, the corresponding
Milestone Payment under this Section 6.5 will not be due.
|
6.6
|
|
Obligation to Pay Royalties.
If this Agreement is not terminated in accordance with other
provisions, Alnylam will be obligated to pay royalties on all Licensed Product that is either
sold or produced under the license granted in Article 3, whether or not the Licensed Product
is produced before the Effective Date of this Agreement or sold after the Licensed Patent has
expired.
|
13
SUBLICENSING
13.1
|
|
Permitted Sublicensing for Licensed Co-Exclusive Field of Use.
Alnylam may grant sublicenses
in the Co-exclusive Licensed Field of Use during the Co-Exclusive period:
|
|
(A)
|
|
only in conjunction with intellectual property under Alnylams control; and
|
|
|
(B)
|
|
only if Alnylam is developing or selling Licensed Products in the
Co-Exclusive Licensed Field of Use.
|
13.3
|
|
Sublicense Requirements.
Any sublicense granted by Alnylam under this Agreement will be
subject and subordinate to terms and conditions of this Agreement, except:
|
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|
(A)
|
|
Sublicense terms and conditions will reflect that any sublicensee will not
further sublicense, with the exception that sublicensee may further sublicense rights
under Licensed Patents only as needed or implied in the course of distribution or
performance of service as required for the sale to an end user of Licensed Products;
and
|
|
|
(B)
|
|
The earned royalty rate specified in the sublicense may be at different
rates than the rates in this Agreement.
|
13.4
|
|
Sublicenses Revert to Stanford.
Any sublicense will expressly include the provisions of
Articles 7, 8, and 9 for the benefit of Stanford [Note: these provisions are detailed in
Exhibit 6.5(c)]. If a sublicensee desires that its sublicense survive the termination of this
agreement, Stanford agrees that the sublicense will revert to Stanford subject to the transfer
of all obligations, including the payment of royalties specified in the sublicense, to
Stanford or its designee, if this Agreement is terminated.
|
|
13.5
|
|
Copy of Sublicenses.
Alnylam will provide Stanford in confidence a copy of all relevant
portions of any sublicenses granted pursuant to this Article 13.
|
|
13.6
|
|
Sharing of Sublicensing Income.
In addition to the earned royalties defined in Article 6,
Alnylam will pay Stanford [**] percent ([**]%) of the amount received by Alnylam, that is
specifically attributable to the Licensed Patents, from a sublicensee in
|
|
(A)
|
|
up-front license fees, and
|
|
|
(B)
|
|
clinical Milestone Payments as defined in Article 6.5.
|
13.7
|
|
Royalty-free Sublicenses.
Alnylam may grant royalty-free or noncash sublicenses or
cross-licenses if Alnylam pays all royalties due Stanford from sublicensees Net Sales.
|
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EXHIBIT 8.2(c)
DESCRIPTION OF ALNYLAM ROYALTY OBLIGATIONS TO [**] EXISTING AS OF THE EFFECTIVE DATE
As of the Effective Date, Alnylam has the following royalty obligations to [**] ([**]):
Alnylam is obligated to pay [**] running royalties on NET SALES (as defined in Alnylams agreements
with [**]) of therapeutic and prophylactic LICENSED PRODUCTS (as defined in Alnylams agreements
with [**]) by Alnylam and its SUBLICENSEES (as defined in Alnylams agreements with [**]) that
range from [**]% ([**] percent) to [**]% ([**] percent) of NET SALES, depending on the level of NET
SALES. Royalties payable by Alnylam to [**] are subject to the following Royalty Stacking
provision:
5.3 Royalty Stacking
(a) Third Party Licenses
In the event COMPANY or a SUBLICENSEE takes, for objective commercial and/or legal reasons, a
license from any third party under any patent applications or patents that dominate the PATENT
RIGHTS or is dominated by the PATENT RIGHTS in order to develop, make, use, sell or import any
LICENSED PRODUCT (explicitly excluding, without limitation, any third party patents and patent
applications for formulation, stabilization and delivery), then COMPANY is allowed to deduct [**]%
([**] percent) of any additional running royalties to be paid to such third party up to [**]% ([**]
percent) of the running royalties stated in Section 5.2, from the date COMPANY has to pay running
royalties to such third party. However, the running royalties stated in Section 5.2 shall not be
reduced to less than a minimum of [**]% ([**] percent) of NET SALES in any case.
For avoidance of doubt, if COMPANY or a SUBLICENSEE takes a license to a third party target,
COMPANY is in no event allowed to deduct any license fees for such target from running royalties
due to [**] under this Agreement.
Because Alnylams right to reduce its royalty obligations to [**] pursuant to the foregoing royalty
stacking provision is not co-extensive with Isis right to reduce its royalty obligations to
Alnylam pursuant to Section 8.2 of this Agreement, Isis right to reduce its royalty obligations to
Alnylam pursuant to Section 8.2 of this Agreement is limited, pursuant to Section 8.2(c) of this
Agreement, to the extent necessary to ensure that Isis royalty obligations to Alnylam are never
less than Alnylams royalty obligations to [**] with respect to sales by Isis, its Affiliates and
its sublicensees of any Isis Product.
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Execution Copy
Schedule 1-7
Alnylam Current Chemistry Patents
Alnylam Current Chemistry Patents include all claims of the patents and patent applications listed
below that do not claim inhibitors to specific genes or gene families.
|
|
|
|
|
|
|
|
|
|
|
|
|
Filing
|
|
|
|
|
|
|
|
|
Case No.
|
|
Date
|
|
Country
|
|
Serial No.
|
|
Status
|
|
Title
|
[**]
|
|
[**]
|
|
[**]
|
|
[**]
|
|
[**]
|
|
[**]
|
[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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|
[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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|
[**]
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[**]
|
|
[**]
|
|
[**]
|
87
Execution Copy
Schedule 1-8
Alnylam Current Motif and Mechanism Patents
Alnylam Current Motif and Mechanism Patents include all claims of the patents and patent
applications listed below that do not claim inhibitors to specific genes or gene families.
|
|
|
|
|
|
|
|
|
|
|
|
|
Filing
|
|
|
|
|
|
|
|
|
Case No.
|
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Date
|
|
Country
|
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Serial No.
|
|
Status
|
|
Title
|
[**]
|
|
[**]
|
|
[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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[**]
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88
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Filing
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Case No.
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Date
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Serial No.
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Status
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Title
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[**]
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[**]
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Note that Alnylams license to this series of patent applications specifically excludes
claims [**] and the equivalent claims in any patent applications and patents resulting from
this PCT application. The application contains claims relating to [**]. The claims excluded
from Alnylams license are those that [**].
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*
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Subject to the provisions of section 6.5(d).
|
90
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Schedule 1-10
Alnylam Excluded Technology
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1.
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All Patent rights licensed to Alnylam under the license agreements between [**] dated
[**], and between [**] and Alnylam dated [**].
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2.
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All Patent rights licensed to Alnylam under the license agreement between [**] and
Alnylam dated [**].
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3.
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All Patent rights licensed to Alnylam under the license agreement between [**] and
Alnylam dated [**].
|
91
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Schedule 1-51 (Updated April 28, 2009)
Isis Current Chemistry Patents
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Confidential materials omitted and filed separately with the Securities and Exchange Commission. A
total of 41 pages have been omitted pursuant to a request for confidential treatment.
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Schedule 1-52 (Updated April 28, 2009)
Isis Current Motif and Mechanism Patents
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Confidential materials omitted and filed separately with the Securities and Exchange Commission. A
total of 15 pages have been omitted pursuant to a request for confidential treatment.
93
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Schedule 1-56
Excluded Technology
The following schedule of Excluded Technology is provided by Isis Pharmaceuticals, Inc. to
Alnylam Pharmaceuticals, Inc., in connection with the Strategic Collaboration and License Agreement
between Alnylam and Isis (the
Agreement
). Capitalized terms used but not otherwise defined
herein have the meanings given to such terms in the Agreement.
This schedule and the information and disclosures contained in this schedule are intended only
to qualify and limit the licenses granted by Isis to Alnylam in the Agreement and do not expand in
any way the scope or effect of any such licenses.
In the event of a conflict between this schedule of Excluded Technology and any other schedule
or terms of the Agreement, this schedule will govern.
|
1.
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Intellectual property covering:
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RNA processing, including modulation of [**]
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PNA chemistry licensed or acquired from (i) [**];
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[**] chemistry licensed or acquired from [**];
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[**] a Gene Target.
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2.
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[**]/4-Thio Chemistry.
|
4-thio chemistries including patents licensed in from [**]
94
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In addition, the following Patents in-licensed from the [**] are excluded:
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96
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3.
|
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Gen-Probe and NIH. (A)
|
The following Patents in-licensed from Gen-Probe Inc. and the National Institute of Health are
excluded:
97
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U.S. Patent No. [**] entitled: [**];
U.S. Patent No. [**] entitled: [**]; and
U.S. Patent No. [**] entitled: [**]
In addition to certain manufacturing technology excluded by definition, the following Patents
in-licensed from McGill University are excluded:
|
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Status
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Title
|
[**]
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[**]
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[**]
|
The following Patents in-licensed from the [**] are excluded:
[**] Patent No. [**] entitled [**];
[**] Patent Application [**] entitled [**];
[**] Patent Application [**] entitled [**]; and
[**] Patent No. [**] entitled [**].
The Walder Patents are excluded. Walder Patents means and includes [**]. Patent Nos. [**];
[**] Patent No. [**], and [**] Patent Application No. [**] (allowed).
Single nucleosides, nucleotides or monomers claimed in Patents filed as of the Effective Date
which are prosecuted by Merck and Co. are excluded. However if such Patents are necessary for
Alnylam to practice the licenses granted under Section 5.1 with respect to a specific Alnylam
Product, then Isis will include such necessary Patents in the licenses granted under Section
5.1.
98
Execution Copy
[**]
Isis believes the agreement under which Isis received a license to the [**] Patents listed
below [**].
|
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Number
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Date
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Title
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99
Execution Copy
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Number
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Date
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9.
|
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Carnegie Institution of Washington.
|
Isis is not granting Alnylam any sublicense under the License Agreement dated January 28, 2005
between Isis and Carnegie Institution of Washington.
|
10.
|
|
Garching Innovation GmbH.
|
Isis is not granting Alnylam any sublicense under the Co-Exclusive License Agreement dated
October 18, 2004 among Isis, Alnylam and Garching Innovation GmbH.
|
|
|
(A)
|
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Isis cannot sublicense the technologies marked with this footnote.
|
|
(B)
|
|
Although, Isis can sublicense the technologies marked with this footnote, such a
sublicense carries additional financial and other obligations. Isis is willing to
negotiate a separate sublicense agreement for these technologies.
|
Schedule 1-59
Isis Manufacturing Patents
The Parties have not yet agreed to a specific list of Manufacturing Patents as of the date of the
Addendum Transmittal. However, the Parties agree to work together to develop a list of
Manufacturing Patents by [**].
100
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Schedule 1-66
Isis Special Patents
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102
Execution Copy
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Filing
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103
Execution Copy
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Serial
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Filing
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Status
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Number
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Date
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Title
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104