ALNY Alnylam Pharmaceuticals Inc

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

OR

 

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 001-36407

 

 

ALNYLAM PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware		77-0602661
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
300 Third Street, Cambridge, MA		02142
(Address of Principal Executive Offices)		(Zip Code)

(617) 551-8200

(Registrant’s 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  x    No  ¨

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  x    No  ¨

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):

 

Large accelerated filer		x		Accelerated filer		¨
Non-accelerated filer		¨  (do not check if a smaller reporting company)		Smaller reporting company		¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

At April 30, 2015, the registrant had 84,282,698 shares of Common Stock, $0.01 par value per share, outstanding.

 

 

 

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INDEX

 

		PAGE NUMBER
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2015 AND DECEMBER 31, 2014			2
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014			3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014			4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS			5
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			25
ITEM 4. CONTROLS AND PROCEDURES			26
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS			26
ITEM 1A. RISK FACTORS			27
ITEM 5. OTHER INFORMATION			49
ITEM 6. EXHIBITS			49
SIGNATURES			51

 

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ALNYLAM PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

 

		March 31, 2015				December 31, 2014
ASSETS
Current assets:
Cash and cash equivalents		$	306,580			$	75,179
Marketable securities			660,403				526,929
Investment in equity securities of Regulus Therapeutics Inc.			99,890				94,583
Billed and unbilled collaboration receivables			10,107				39,937
Prepaid expenses and other current assets			13,206				9,739
Total current assets			1,090,186				746,367
Marketable securities			483,771				279,821
Deferred tax assets			33,667				31,667
Property and equipment, net			21,166				21,740
Total assets		$	1,628,790			$	1,079,595
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	15,486			$	15,111
Accrued expenses			14,427				23,680
Deferred tax liabilities			33,667				31,667
Accrued intraperiod tax allocation			2,004				—
Deferred rent			1,010				1,005
Deferred revenue			14,099				23,871
Total current liabilities			80,693				95,334
Deferred rent, net of current portion			5,021				5,011
Deferred revenue, net of current portion			46,566				42,983
Total liabilities			132,280				143,328
Commitments and contingencies (Note 5)
Stockholders’ equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized and no shares issued and outstanding at March 31, 2015 and December 31, 2014			—				—
Common stock, $0.01 par value, 125,000,000 shares authorized; 84,214,295 shares issued and outstanding at March 31, 2015; 77,202,753 shares issued and outstanding at December 31, 2014			842				772
Additional paid-in capital			2,450,690				1,843,362
Accumulated other comprehensive income			52,385				48,763
Accumulated deficit			(1,007,407	)			(956,630	)
Total stockholders’ equity			1,496,510				936,267
Total liabilities and stockholders’ equity		$	1,628,790			$	1,079,595

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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ALNYLAM PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, except per share amounts)

(Unaudited)

 

		Three Months Ended March 31,
		2015				2014
Net revenues from collaborators		$	18,537			$	8,275
Operating expenses:
Research and development (1)			58,035				43,758
In-process research and development			—				224,656
General and administrative (1)			12,724				8,925
Total operating expenses			70,759				277,339
Loss from operations			(52,222	)			(269,064	)
Other income (expense):
Interest income			1,014				333
Other income (expense)			—				(82	)
Total other income			1,014				251
Loss before income taxes			(51,208	)			(268,813	)
Benefit from income taxes			431				17,870
Net loss		$	(50,777	)		$	(250,943	)
Net loss per common share - basic and diluted		$	(0.62	)		$	(3.70	)
Weighted-average common shares used to compute basic and diluted net loss per common share			82,074				67,786
Comprehensive loss:
Net loss		$	(50,777	)		$	(250,943	)
Unrealized gain on marketable securities, net of tax			3,622				5,313
Comprehensive loss		$	(47,155	)		$	(245,630	)
(1)    Non-cash stock-based compensation expenses included in operating expenses are as follows:
Research and development		$	5,346			$	3,681
General and administrative			2,890				1,910

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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ALNYLAM PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

		Three Months Ended March 31,
		2015				2014
Cash flows from operating activities:
Net loss		$	(50,777	)		$	(250,943	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			3,690				2,600
Non-cash stock-based compensation			8,236				5,591
Charge for 401(k) company stock match			247				157
Benefit from intraperiod tax allocation			(431	)			(17,870	)
In-process research and development			—				224,656
Changes in operating assets and liabilities:
Billed and unbilled collaboration receivables			29,830				4,084
Prepaid expenses and other assets			(3,179	)			(4,499	)
Accounts payable			750				(1,379	)
Accrued expenses and other			(8,432	)			3,773
Deferred revenue			(6,189	)			(7,845	)
Net cash used in operating activities			(26,255	)			(41,675	)
Cash flows from investing activities:
Purchases of property and equipment			(2,110	)			(388	)
Increase in restricted cash			(288	)			—
Purchases of marketable securities			(507,617	)			(487,598	)
Sales and maturities of marketable securities			168,687				133,206
Payment for asset acquisition			—				(25,000	)
Net cash used in investing activities			(341,328	)			(379,780	)
Cash flows from financing activities:
Proceeds from exercise of stock options and other types of equity			13,566				11,541
Proceeds from issuance of common stock, net of offering costs			496,400				—
Proceeds from issuance of common stock to Genzyme			89,018				723,037
Payments for repurchase of common stock for employee tax withholding			—				(15,703	)
Net cash provided by financing activities			598,984				718,875
Net increase in cash and cash equivalents			231,401				297,420
Cash and cash equivalents, beginning of period			75,179				53,169
Cash and cash equivalents, end of period		$	306,580			$	350,589

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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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. are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, applicable to interim periods and, in the opinion of management, include all normal and recurring adjustments that are necessary to state fairly the results of operations for the reported periods. Our condensed consolidated financial statements have also been prepared on a basis substantially consistent with, and should be read in conjunction with, our audited consolidated financial statements for the year ended December 31, 2014, which were included in our Annual Report on Form 10-K that was filed with the Securities and Exchange Commission, or SEC, on February 13, 2015. The year-end condensed consolidated balance sheet data was derived from our audited financial statements, but does not include all disclosures required by GAAP. The results of our operations for any interim period are not necessarily indicative of the results of our operations for any other interim period or for a full fiscal year.

The accompanying condensed consolidated financial statements reflect the operations of Alnylam and our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

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

We compute basic net loss per common share by dividing net loss by the weighted-average number of common shares outstanding. We compute diluted net loss per common share by dividing net loss 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:

 

		At March 31,
		2015				2014
Options to purchase common stock			7,775				8,185
Unvested restricted common stock			30				10
Other			—				378
			7,805				8,573

Public Offering

In January 2015, we sold an aggregate of 5,447,368 shares of our common stock through an underwritten public offering at a price to the public of $95.00 per share. As a result of the offering, which included the full exercise of the underwriters’ option to purchase additional shares, we received aggregate net proceeds of $496.4 million, after deducting underwriting discounts and commissions and other offering expenses of $21.1 million.

 

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Fair Value Measurements

The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. 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. The fair value hierarchy level is determined by the lowest level of significant input.

Investments in Marketable Securities and Cash Equivalents

We invest our excess cash balances in short-term and long-term marketable debt and equity securities. We classify our investments in marketable debt securities as either held-to-maturity or available-for-sale based on facts and circumstances present at the time we purchased the securities. At each balance sheet date presented, we classified all of our investments in debt and equity securities as available-for-sale. We report available-for-sale investments at fair value at each balance sheet date and include any unrealized holding gains and losses (the adjustment to fair value) in accumulated other comprehensive income (loss), a component of stockholders’ equity. At March 31, 2015, the balance in our accumulated other comprehensive income was composed solely of activity related to our available-for-sale marketable securities, including our investment in equity securities of Regulus Therapeutics Inc., or Regulus. Realized gains and losses are determined using the specific identification method and are included in other income. We did not recognize any realized gains or losses from sales of our available-for-sale securities during the three months ended March 31, 2015, and as a result, did not reclassify any amount out of accumulated other comprehensive income for the same period. If any adjustment to fair value reflects a decline in the value of the investment, we consider all available evidence to evaluate the extent to which the decline is “other than temporary,” including our intention to sell and, if so, mark the investment to market through a charge to our condensed consolidated statements of comprehensive income (loss). We did not record any impairment charges related to our fixed income marketable securities during the current period. Our marketable securities are classified as cash equivalents if the original maturity, from the date of purchase, is 90 days or less, and as marketable securities if the original maturity, from the date of purchase, is in excess of 90 days. Our cash equivalents are composed of money market funds.

We account for our investment in Regulus as an available-for-sale marketable security. Intraperiod tax allocation rules require us to allocate our provision for income taxes between continuing operations and other categories of earnings, such as other comprehensive income. In periods in which we have a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, such as other comprehensive income, we must allocate the tax provision to the other categories of earnings. We then record a related tax benefit in continuing operations. Upon sales of our available-for-sale marketable securities, we apply the aggregate portfolio approach to recognize the related tax provision or benefit into income (loss) from continuing operations. As a result, the disproportionate tax effect remains in accumulated other comprehensive income as long as we maintain an investment portfolio.

Subsequent Events

We did not have any material recognized subsequent events. However, we did have the following nonrecognized subsequent events, which are more fully described in Note 5:

 

•

In April 2015, we entered into a non-cancelable real property lease agreement, or the BMR lease, with BMR-675 West Kendall Street LLC, or BMR, for laboratory and office space located at 675 West Kendall Street, Cambridge, Massachusetts.

 

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In May 2015, we entered into a non-cancelable real property lease agreement with RREEF America REIT II CORP. PPP, or RREEF, for office space located on several floors at 101 Main Street, Cambridge, Massachusetts.

2. SIGNIFICANT AGREEMENTS

The following table summarizes our total consolidated net revenues from collaborators, for the periods indicated, in thousands:

 

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		Three Months Ended March 31,
		2015				2014
Description
Monsanto		$	5,621			$	1,410
Takeda			5,493				5,493
The Medicines Company			1,983				1,266
Genzyme			1,817				—
Other			3,623				106
Total net revenues from collaborators		$	18,537			$	8,275

Product Alliances

Genzyme Collaboration

In January 2014, we entered into a global, strategic collaboration with Genzyme Corporation, a Sanofi company, or Genzyme, to discover, develop and commercialize RNAi therapeutics as Genetic Medicines to treat orphan diseases. The 2014 Genzyme collaboration superseded and replaced the previous collaboration between us and Genzyme entered into in October 2012 to develop and commercialize RNAi therapeutics targeting transthyretin, or TTR, for the treatment of TTR-mediated amyloidosis, or ATTR amyloidosis, including patisiran and revusiran, in Japan and the Asia-Pacific region.

2012 Genzyme Agreement

Under the 2012 Genzyme agreement, Genzyme paid us an upfront cash payment of $22.5 million. We were also entitled to receive certain milestone payments under the 2012 Genzyme agreement. In the fourth quarter of 2013, we earned a milestone of $7.0 million based upon the completion of a successful patisiran Phase 2 clinical trial and a milestone of $4.0 million based upon the initiation of the Phase 3 clinical trial for patisiran.

Under the 2012 Genzyme agreement, the parties agreed to collaborate in the development and commercialization of licensed products, with Genzyme assuming primary responsibility in the Genzyme territory, which included Japan and the Asia-Pacific region, and us retaining primary responsibility in the rest of the world.

We determined that the deliverables under the 2012 Genzyme agreement included the license, a joint steering committee and any additional TTR-specific RNAi therapeutic compounds that comprised the ALN-TTR program. We also determined that, pursuant to the accounting guidance governing revenue recognition on multiple element arrangements, the license and undelivered joint steering committee and any additional TTR-specific RNAi therapeutic compounds did not have standalone value due to the specialized nature of the services to be provided by us. In addition, while Genzyme had the ability to grant sublicenses, it could not sublicense all or substantially all of its rights under the 2012 Genzyme agreement. The uniqueness of our services and the limited sublicense right were indicators that standalone value was not present in the arrangement. Therefore the deliverables were not separable and, accordingly, the license and undelivered services were treated as a single unit of accounting. We were unable to reasonably estimate the period of performance under the 2012 Genzyme agreement, as we were unable to estimate the timeline of our deliverables related to the deliverable for any additional TTR-specific RNAi therapeutic compounds. Through December 31, 2013, we had deferred all revenue, or $33.5 million, under the 2012 Genzyme agreement.

2014 Genzyme Collaboration

In January 2014, we entered into the 2014 Genzyme collaboration. As noted above, the 2014 Genzyme collaboration superseded and replaced the 2012 Genzyme agreement.

The 2014 Genzyme collaboration is structured as an exclusive relationship for the worldwide development and commercialization of RNAi therapeutics in the field of Genetic Medicines, which includes our current and future Genetic Medicine programs that reach Human Proof-of-Principle Study Completion (as defined in the Genzyme master agreement), or Human POP, by the end of 2019, subject to extension to the end of 2021 in various circumstances. We will retain product rights in North America and Western Europe, referred to as the Alnylam Territory, while Genzyme will obtain exclusive rights to develop and commercialize collaboration products in the rest of the world, referred to as the Genzyme Territory, together with certain broader co-development/co-promote or worldwide rights for certain products. Genzyme’s rights, described in detail below, are structured as an opt-in that is triggered upon achievement of Human POP. We maintain development control for all programs prior to Genzyme’s opt-in and maintain development and commercialization control after Genzyme’s opt-in for all programs in the Alnylam Territory.

 

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Specifically, in addition to its regional rights for our current and future Genetic Medicine programs in the Genzyme Territory, Genzyme has the right to either (i) co-develop and co-promote ALN-AT3 for the treatment of hemophilia and other rare bleeding disorders in the Alnylam Territory, with us maintaining development and commercialization control, or (ii) obtain a global license to ALN-AS1 for the treatment of hepatic porphyrias. Genzyme may exercise this selection right upon the completion of Human POP for both the ALN-AT3 and ALN-AS1 programs. Finally, Genzyme has the right for a global license to a single, future Genetic Medicine program that was not one of our defined Genetic Medicine programs as of the effective date of the 2014 Genzyme collaboration. We will retain global rights to any RNAi therapeutic Genetic Medicine program that does not reach Human POP by the end of 2019, subject to certain limited exceptions. We retain full rights to all current and future RNAi therapeutic programs outside of the field of Genetic Medicines, including the right to form new collaborations.

Under the 2014 Genzyme collaboration, Genzyme’s specific license rights include the following:

 

•

Regional license terms – Upon opt-in, we will retain product rights in the Alnylam Territory, while Genzyme will obtain exclusive rights to develop and commercialize the product in the Genzyme Territory. Genzyme can elect this license for any of our current and future Genetic Medicine programs that complete Human POP by the end of 2019, subject to limited extension. Development costs for products once Genzyme exercises an option will be shared between Genzyme and us, with Genzyme responsible for twenty percent of the global development costs. Upon the effective date of the 2014 Genzyme collaboration, Genzyme expanded the scope of its regional license and collaboration for patisiran, an investigational RNAi therapeutic currently in a Phase 3 clinical trial, which was originally established under the 2012 Genzyme agreement. Genzyme will be required to make payments totaling up to $50.0 million upon the achievement of certain patisiran development milestones. In addition, Genzyme will be required to make payments totaling up to $75.0 million per product other than patisiran, including up to $55.0 million in development milestones and $20.0 million in commercial milestones. We could potentially earn the next patisiran milestone payment, ranging between $5.0 million and $20.0 million based on the geographic region, upon the achievement of specified events in connection with a regulatory filing or approval. Genzyme will also be required to pay tiered double-digit royalties up to twenty percent for each regional product based on annual net sales, if any, of such regional product by Genzyme, its affiliates and sublicensees.

 

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Co-development/co-promote license terms – Upon opt-in, we will retain product rights in the Alnylam Territory, while Genzyme will obtain exclusive rights to develop and commercialize the product in the Genzyme Territory, and will co-promote the product in the Alnylam Territory. Upon the effective date of the 2014 Genzyme collaboration, Genzyme expanded its regional rights for revusiran, an investigational RNAi therapeutic currently in a Phase 3 clinical trial, which were originally granted under the 2012 Genzyme agreement, to include a co-development/co-promote license and collaboration. Genzyme also has the right to elect a co-development/co-promote license and collaboration for ALN-AT3, if it does not elect a global license and collaboration for ALN-AS1. Development costs for co-development/co-promote products, once Genzyme exercises an option, will be shared between Genzyme and us, with Genzyme responsible for fifty percent of the global development costs. Genzyme will be required to make payments totaling up to $75.0 million in development milestones for each of revusiran and ALN-AT3, if selected. In December 2014, we earned a development milestone payment of $25.0 million based upon the initiation of the first global Phase 3 clinical trial for revusiran. We could potentially earn the next revusiran milestone payment, ranging between $5.0 million and $25.0 million based on the geographic region, upon the achievement of specified events in connection with regulatory approval. Genzyme will also be required to pay tiered double-digit royalties up to twenty percent for each co-development/co-promote product based on annual net sales, if any, in the Genzyme Territory for such co-development/co-promote product by Genzyme, its affiliates and sublicensees. The parties will share profits equally and we expect to book product sales in the Alnylam Territory.

 

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Global license terms – Upon opt-in, Genzyme will obtain a worldwide license to develop and commercialize the product. Genzyme can elect a global license for ALN-AS1, if it does not elect a co-development/co-promote license for ALN-AT3. Genzyme will also have one right to a global license through 2019, subject to limited extension, for a future Genetic Medicine program that was not one of our defined Genetic Medicine programs as of the effective date of the 2014 Genzyme collaboration. Genzyme shall be responsible for one hundred percent of global development costs. Genzyme will be required to make payments totaling up to $200.0 million per global product,

 

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including up to $60.0 million in development milestones and $140.0 million in commercial milestones. Genzyme will also be required to pay tiered double-digit royalties up to twenty percent for each global product based on annual net sales, if any, of each global product by Genzyme, its affiliates and sublicensees.

Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development, we may not receive any additional milestone payments or any royalty payments from Genzyme under the 2014 Genzyme collaboration.

Under the master agreement, the parties will collaborate in the development of option products, with us leading development for all programs prior to Genzyme’s opt-in and also leading development and commercialization for all programs in the Alnylam Territory after Genzyme’s opt-in. If Genzyme does not exercise its option to license rights to a particular program, we will retain the exclusive right to develop and commercialize such program throughout the world, including the right to sublicense to third parties.

The 2014 Genzyme collaboration is governed by an alliance joint steering committee that is comprised of an equal number of representatives from each party. There are additional committees to manage various aspects of each regional, co-developed/co-promoted and global program. We and Genzyme intend to enter into supply agreements to provide for supply of collaboration products to Genzyme for clinical studies, and, at Genzyme’s request, commercial sales. Genzyme also has certain rights to manufacture collaboration products. Additionally, Genzyme has certain limited opt-out rights, as specified in the master agreement, upon which products revert fully back to us with no further obligations to Genzyme.

Upon the closing of the equity transaction in February 2014, we sold to Genzyme 8,766,338 shares of our common stock and Genzyme paid $700.0 million in aggregate cash consideration to us. As a condition to the closing of the equity transaction, Genzyme entered into an investor agreement with us. Under the investor agreement, until the earlier of the fifth anniversary of the expiration or earlier termination of the 2014 Genzyme collaboration and the date on which Genzyme and its affiliates cease to beneficially own at least 5% of our outstanding common stock, Genzyme and its affiliates are bound by certain “standstill” provisions. The standstill provisions include agreements not to acquire more than 30% of our outstanding common stock, call stockholder meetings, nominate directors other than those approved by our board of directors, subject to certain limited exceptions, or propose or support a proposal to acquire us. Further, Genzyme has agreed to vote, and cause its affiliates to vote, all shares of our voting securities they are entitled to vote, up to a maximum of 20% of our outstanding common stock, in a manner either as recommended by our board of directors or proportionally with the votes cast by our other stockholders, except with respect to certain change of control transactions or our liquidation or dissolution. Until Genzyme owns less than 7.5% of our outstanding common stock, subject to Genzyme’s limited right to maintain its ownership percentage as described below, if we issue common stock or securities convertible into or exercisable for common stock to a third party that holds at least 30% of our outstanding common stock or, in connection with a collaboration or license transaction, to a third party that will initially hold at least the percentage of our outstanding common stock represented by the shares purchased by Genzyme at the closing of the equity transaction, we will offer Genzyme an opportunity to amend the standstill and voting provisions in the investor agreement to be consistent with the terms provided to such third party.

Under the investor agreement, Genzyme has also agreed not to dispose of any shares of common stock beneficially owned by it immediately after the closing of the stock purchase until the earlier of (i) December 31, 2019 (subject to extension by up to two years if Genzyme’s option to select additional compounds under the master agreement is extended beyond December 31, 2019) and (ii) six months after the expiration or earlier valid termination of the collaboration, in each case subject to earlier termination in the event certain clinical activities under the collaboration fail to occur. Following the expiration of this lock-up period, Genzyme will be permitted to sell such shares of common stock subject to certain limitations, including volume and manner of sale restrictions. Notwithstanding the foregoing, following the two-year anniversary of the closing of the stock purchase, in the event that the market price per share of our common stock is at least 100% higher than the market price per share of our common stock at closing of the stock purchase (in each case based upon a ten-day trailing average), Genzyme may sell up to 25% of its initial shares, subject to certain restrictions on post-lock-up period dispositions as described above.

Under the investor agreement, following the lock-up period, Genzyme will have three demand rights to require us to conduct a registered underwritten public offering with respect to the shares of common stock beneficially owned by Genzyme immediately after the closing of the stock purchase. In addition, following the lock-up period, subject to certain conditions, Genzyme will be entitled to participate in registered underwritten public offerings by us if other selling stockholders are included in the registration.

The investor agreement provides that, until Genzyme owns less than 7.5% of our outstanding common stock, subject to Genzyme’s limited right to maintain its ownership percentage as described herein, in connection with new issuances of common stock, subject to certain exceptions, Genzyme will be entitled to a right of first offer to participate proportionally to maintain its then-current

 

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ownership percentage of our common stock. If Genzyme is not entitled to a right of first offer with respect to a new issuance, Genzyme will have the opportunity, on a post-transaction basis, to purchase additional shares sufficient to maintain its pre-transaction ownership percentage of our common stock (subject to the same 7.5% ownership threshold).

Finally, in the event Genzyme and its affiliates acquire at least 20% or more of our outstanding common stock, Genzyme will be entitled to appoint one individual to our board of directors. Genzyme will also be entitled to certain information rights, including with respect to financial information in the event Genzyme or its affiliates require such information for its own financial reporting purposes. The rights and restrictions under the investor agreement are subject to termination upon the occurrence of certain events.

We recorded the issuance of 8,766,338 shares of our common stock under the stock purchase agreement using the price of our common stock on the date the shares were issued to Genzyme. Based on the common stock price of $85.72, the fair value of the shares issued was $751.5 million, which was $51.5 million in excess of the proceeds received from Genzyme for the issuance of our common stock. This $51.5 million is being amortized on a straight-line basis over the performance period, which is currently approximately six years as described below. In addition, due to intraperiod tax allocation rules, upon closing of the equity transaction we recorded a benefit from income taxes of $15.2 million due to the Genzyme equity purchase being recorded in additional paid-in capital, net of tax.

In accordance with the investor agreement, as a result of our issuance of shares in connection with our acquisition of Sirna Therapeutics, Inc., or Sirna, in March 2014, Genzyme exercised its right to purchase an additional 344,448 shares of our common stock for $23.0 million. In addition, in January 2015, in connection with our public offering, Genzyme exercised its right to purchase directly from us, in concurrent private placements, 744,566 shares of common stock at the public offering price resulting in $70.7 million in proceeds to us. The sales of common stock to Genzyme were not registered as part of the public offering, though they were consummated simultaneously with the public offering.

Under the terms of the investor agreement, Genzyme also has the right each January to purchase a number of shares of our common stock based on the number of shares we issued during the previous year for compensation-related purposes. Genzyme exercised this right to purchase directly from us 196,251 shares of our common stock on January 22, 2015 for $18.3 million. The sale of these shares to Genzyme was consummated as a private placement.

In each instance, the purchase by Genzyme described above allowed Genzyme to maintain its ownership level of our common stock of approximately 12%.

We determined that the deliverables for the programs Genzyme is currently collaborating with us on include the licenses to our patisiran and revusiran clinical programs, which licenses were delivered to Genzyme upon the closing date of the transaction, and the associated development activities, joint steering committee participation and information exchange for these clinical programs. We also determined that, pursuant to the accounting guidance governing revenue recognition on multiple element arrangements, the license and associated undelivered development activities, joint steering committee participation and information exchange activities did not have standalone value due to the specialized nature of the services to be provided by us. In addition, while Genzyme has the ability to grant sublicenses, it cannot sublicense all or substantially all of its rights under the 2014 Genzyme collaboration. The uniqueness of our services and the limited sublicense rights are indicators that standalone value is not present in the arrangement. Therefore the deliverables are not separable and, accordingly, the license and undelivered services were treated as a single unit of accounting. When multiple deliverables are accounted for as a single unit of accounting, we base our revenue recognition model on the final deliverable. Under the 2014 Genzyme collaboration, the last deliverables for patisiran and revusiran are expected to be completed within approximately six years.

We determined that the total cash received from Genzyme under the now superseded 2012 Genzyme agreement reflects consideration for certain of the performance obligations for ALN-TTR programs included in the 2014 Genzyme collaboration. Therefore we are recognizing the $33.5 million of deferred revenue under the 2012 Genzyme agreement on a straight-line basis over the period of performance of the ALN-TTR programs, which, as noted above, is currently approximately six years. In addition, during the fourth quarter of 2014, we recognized as revenue a portion of the $25.0 million milestone payment earned in December 2014 equal to the percentage of the performance period completed when the milestone was earned. During the first quarter of 2015, we also recognized as revenue a portion of the $8.8 million in expense reimbursement due to us under the terms of the 2014 Genzyme collaboration equal to the percentage of the performance period completed to date. As future consideration is achieved, including any milestones or reimbursement for development activities, we will recognize as revenue a portion of these payments equal to the percentage of the performance period completed when the milestone or activities have been satisfied, multiplied by the amount of the payment. We will recognize the remaining portion of consideration received over the remaining performance period on a straight-line basis. At March 31, 2015, deferred revenue under the 2014 Genzyme collaboration was $13.7 million.

 

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We determined that the opt-in rights that Genzyme has for future Genetic Medicine programs represent separate and additional deliverables that Genzyme may receive from us in future periods. Upon each opt-in by Genzyme, we have determined that each program and the related activities will represent a single unit of accounting and, consistent with our accounting policies, we will base our revenue recognition period on the final deliverable associated with each future opt-in, if any.

3. FAIR VALUE MEASUREMENTS

The following tables present information about our assets that are measured at fair value on a recurring basis at March 31, 2015 and December 31, 2014, and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair value, in thousands:

 

Description		At March 31, 2015				Quoted Prices in Active Markets (Level 1)				Significant Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Cash equivalents		$	302,069			$	302,069			$	—			$	—
Marketable securities (fixed income):
Certificates of deposit			4,301				—				4,301				—
Commercial paper			43,346				—				43,346				—
Corporate notes			947,493				—				947,493				—
Municipal debt securities			9,019				—				9,019				—
U.S. government-sponsored enterprise securities			89,689				—				89,689				—
U.S. treasury securities			50,326				—				50,326				—
Marketable securities (Regulus equity holdings)			99,890				99,890				—				—
Total		$	1,546,133			$	401,959			$	1,144,174			$	—

 

Description		At December 31, 2014				Quoted Prices in Active Markets (Level 1)				Significant Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Cash equivalents		$	56,203			$	56,203			$	—			$	—
Marketable securities (fixed income):
Certificates of deposit			24,300				—				24,300				—
Commercial paper			40,796				—				40,796				—
Corporate notes			662,545				—				662,545				—
Municipal debt securities			9,005				—				9,005				—
U.S. government-sponsored enterprise securities			64,856				—				64,856				—
U.S. treasury securities			5,248				—				5,248				—
Marketable securities (Regulus equity holdings)			94,583				94,583				—				—
Total		$	957,536			$	150,786			$	806,750			$	—

During the three months ended March 31, 2015, there were no transfers between Level 1 and Level 2 financial assets. The carrying amounts reflected in our condensed consolidated balance sheets for cash, billed and unbilled collaboration receivables, other current assets, accounts payable and accrued expenses approximate fair value due to their short-term maturities.

4. MARKETABLE SECURITIES

The following tables summarize the fair value, accumulated other comprehensive income and intraperiod tax allocation regarding our investment in Regulus available-for-sale marketable securities at March 31, 2015 and 2014, and for the activity recorded for the three months ended March 31, 2015 and 2014, in thousands:

 

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Description		At December 31, 2014				Sales of Regulus Shares During Three Months Ended March 31, 2015				All Other Activity During Three Months Ended March 31, 2015				Balance at March 31, 2015
Carrying value		$	11,935			$	—			$	—			$	11,935
Accumulated other comprehensive income, before tax			82,648				—				5,307				87,955
Investment in equity securities of Regulus, as reported		$	94,583			$	—			$	5,307			$	99,890
Accumulated other comprehensive income, before tax		$	82,648			$	—			$	5,307			$	87,955
Intraperiod tax allocation recorded as a benefit from income taxes			(32,792	)			—				(431	)			(33,223	)
Intraperiod tax allocation recorded as an accrued liability			—				—				(2,004	)			(2,004	)
Accumulated other comprehensive income, net of tax		$	49,856			$	—			$	2,872			$	52,728

 

Description		At December 31, 2013				Sales of Regulus Shares During Three Months Ended March 31, 2014				All Other Activity During Three Months Ended March 31, 2014				Balance at March 31, 2014
Carrying value		$	12,449			$	—			$	—			$	12,449
Accumulated other comprehensive income, before tax			33,003				—				10,026				43,029
Investment in equity securities of Regulus, as reported		$	45,452			$	—			$	10,026			$	55,478
Accumulated other comprehensive income, before tax		$	33,003			$	—			$	10,026			$	43,029
Intraperiod tax allocation recorded as a benefit from income taxes			(13,267	)			—				(2,699	)			(15,966	)
Intraperiod tax allocation recorded as an accrued liability			—				—				(1,380	)			(1,380	)
Accumulated other comprehensive income, net of tax		$	19,736			$	—			$	5,947			$	25,683

We obtain fair value measurement data for our marketable securities from independent pricing services. We perform validation procedures to ensure the reasonableness of this data. This includes meeting with the independent pricing services to understand the methods and data sources used. Additionally, we perform our own review of prices received from the independent pricing services by comparing these prices to other sources and confirming those securities are trading in active markets.

The following tables summarize our marketable securities, other than our holdings in Regulus noted above, at March 31, 2015 and December 31, 2014, in thousands:

 

		At March 31, 2015
		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Certificates of deposit (Due within 1 year)		$	4,300			$	1			$	—			$	4,301
Commercial paper (Due within 1 year)			43,351				2				(7	)			43,346
Corporate notes (Due within 1 year)			566,815				64				(182	)			566,697
Corporate notes (Due after 1 year through 2 years)			381,069				53				(326	)			380,796
Municipal debt securities (Due within 1 year)			9,002				17				—				9,019
U.S. government-sponsored enterprise securities (Due within 1 year)			13,300				2				(1	)			13,301
U.S. government-sponsored enterprise securities (Due after 1 year through 2 years)			76,370				30				(12	)			76,388
U.S. treasury securities (Due within 1 year)			23,735				4				—				23,739
U.S. treasury securities (Due after 1 year through 2 years)			26,575				12				—				26,587
Total		$	1,144,517			$	185			$	(528	)		$	1,144,174

 

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		At December 31, 2014
		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Certificates of deposit (Due within 1 year)		$	24,300			$	—			$	—			$	24,300
Commercial paper (Due within 1 year)			40,785				11				—				40,796
Corporate notes (Due within 1 year)			449,044				14				(293	)			448,765
Corporate notes (Due after 1 year through 2 years)			214,510				—				(730	)			213,780
Municipal debt securities (Due after 1 year through 2 years)			9,002				3				—				9,005
U.S. government-sponsored enterprise securities (Due within 1 year)			13,069				—				(1	)			13,068
U.S. government-sponsored enterprise securities (Due after 1 year through 2 years)			51,879				—				(91	)			51,788
U.S. treasury securities (Due after 1 year through 2 years)			5,254				—				(6	)			5,248
Total		$	807,843			$	28			$	(1,121	)		$	806,750

5. COMMITMENTS AND CONTINGENCIES

Operating Leases

675 West Kendall Street

In April 2015, we entered into the BMR lease with BMR for laboratory and office space located at 675 West Kendall Street, Cambridge, Massachusetts. We intend to move our corporate headquarters to this location in early 2019.

Under the terms of the BMR lease, we will lease approximately 295,000 square feet of laboratory and office space. The term of the BMR lease will commence on May 1, 2018 and rent payments will become due commencing upon substantial completion of the building improvements, which is currently expected to be on or around February 1, 2019, and will continue for 15 years from the rent commencement date, with options to renew for two terms of five years each, subject to the terms of the BMR lease.

Annual rent under the BMR lease, exclusive of operating expenses and real property taxes, will be $19.8 million for the first year, with annual increases of 3% thereafter. Under the terms of the BMR lease, BMR will contribute a total of $56.1 million toward the cost of base building and tenant improvements.

The BMR lease contains customary provisions allowing BMR to terminate if we fail to remedy a breach of any of our obligations within specified time periods, or upon our bankruptcy or insolvency.

Under the terms of the BMR lease, for so long as we lease and occupy 70% or more of the rentable area of the leased premises and there are at least ten years remaining on the term of the BMR lease, we have a one-time right of first offer as to all of the rentable space in the building at 500 Kendall Street, Cambridge, Massachusetts, that is available for lease after the lease for such space that is currently in effect expires or terminates.

101 Main Street

In May 2015, we entered into a non-cancelable real property lease agreement with RREEF for office space located on several floors at 101 Main Street, Cambridge, Massachusetts. This lease supplements a lease entered into in March 2015 between us and RREEF for office space on the 10^th floor of the 101 Main Street location.

Under the terms of the 101 Main Street leases, we will lease approximately 72,000 square feet of office space at the 101 Main Street location. The term of the 10^th floor lease commenced in March 2015 and has a four-year term, with an option to renew for one

 

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five-year term, subject to the terms of the 10^th floor lease. The term of the additional lease at 101 Main Street will commence on January 1, 2016 and has a five and a half year term, with an option to renew for one five-year term, subject to the terms of the additional lease.

Initial annual rent for the 10^th floor lease and the additional lease, exclusive of operating expenses and real property taxes, will be $1.7 million and $3.5 million, respectively, with annual increases of $1/square foot under each lease thereafter. We expect rent payments to commence in May 2015 under the 10^th floor lease and in May 2016 under the additional lease.

The 101 Main Street leases contain customary provisions allowing RREEF to terminate the leases if we fail to remedy a breach of any of our obligations within specified time periods, or upon our bankruptcy or insolvency.

As a result of the BMR lease and 101 Main Street leases, we expect our operating lease obligations through 2034 will increase by approximately $409 million from the amount previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014.

Litigation

University of Utah Litigation

On March 22, 2011, The University of Utah, or Utah, filed a civil complaint in the United States District Court for the District of Massachusetts against us, Max Planck Gesellschaft Zur Foerderung Der Wissenschaften e.V. and Max Planck Innovation GmbH, together, Max Planck, the Whitehead Institute for Biomedical Research, or Whitehead, the Massachusetts Institute of Technology, or MIT, and the University of Massachusetts, or UMass, claiming a professor at Utah is the sole inventor or, in the alternative, a joint inventor, of the Tuschl patents. Utah is seeking changes to the inventorship of the Tuschl patents, unspecified damages and other relief. On October 31, 2011, we, Max Planck, Whitehead, MIT and UMass filed a motion to dismiss. Also on October 31, 2011, UMass filed a motion to dismiss on separate grounds, which we, Max Planck, Whitehead and MIT joined. On December 31, 2011, Utah filed a second amended complaint dropping UMass as a defendant and adding as defendants several UMass officials. In June 2012, the Court denied both motions to dismiss. We, Max Planck, Whitehead, MIT and UMass filed an appeal of the Court’s ruling on the motion to dismiss for lack of jurisdiction and a motion requesting that the Court stay the case pending the outcome of the appeal. In July 2012, the Court stayed discovery in the case pending the outcome of the defendants’ appeal. In August 2013, the United States Court of Appeals for the Federal Circuit, or CAFC, affirmed the lower Court’s ruling, in a split decision. In September 2013, we filed a petition with the CAFC for rehearing or rehearing en banc. In November 2013, the CAFC denied our petition for rehearing or rehearing en banc and remanded the case back to the lower Court. In February 2014, we filed a petition for writ of certiorari from the Supreme Court and a motion to stay the lower Court proceedings pending a decision from the Supreme Court on our petition. The lower Court granted our motion to stay the proceedings, however, in June 2014 the Supreme Court denied our petition for certiorari and remanded the case back to the United States District Court for the District of Massachusetts for trial, which is now scheduled to begin on November 2, 2015. On March 30, 2015, Utah voluntarily dismissed its sole inventorship claims leaving joint inventorship and state law damages claims pending. Utah subsequently clarified that such dismissal was with prejudice. On March 31, 2015, we filed motions for summary judgment seeking dismissal of all remaining claims. A ruling on these motions is expected in the third quarter of 2015.

Although we believe we have meritorious defenses and intend to vigorously defend ourselves in this matter, litigation is subject to inherent uncertainty and a court could ultimately rule against us. In addition, the defense of litigation and related matters are costly and may divert the attention of our management and other resources that would otherwise be engaged in other activities. We have not recorded an estimate of the possible loss associated with this legal proceeding due to the uncertainties related to both the likelihood and the amount of any possible loss or range of loss.

Our accounting policy for accrual of legal costs is to recognize such expenses as incurred.

 

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ITEM 2. MANAGEMENT’S 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, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Without limiting the foregoing, the words “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” “target,” “goal” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these words. 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 expressly disclaim any obligation to update any such forward-looking statements to reflect events or circumstances that arise after the date hereof. 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 in this Item 2 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as under 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 expertise, we are developing what we believe to be a reproducible and modular approach to develop RNAi therapeutics for a variety of human diseases.

Our research and development strategy is focused primarily on use of our proprietary N-acetylgalactosamine, or GalNAc-conjugate strategy for delivery of small interfering RNAs, or “siRNAs” – the molecules that mediate RNAi – toward liver-expressed genes involved in the cause or pathway of human diseases. We are also focused on clinical indications where there are high unmet medical needs, early biomarkers for the assessment of clinical activity in Phase 1 clinical studies, and a definable path for drug development, regulatory approval and commercialization.

Specifically, our pipeline of investigational RNAi therapeutics is focused in three Strategic Therapeutic Areas, or “STArs:” Genetic Medicines, with a broad pipeline of RNAi therapeutics for the treatment of rare diseases; Cardio-Metabolic Disease, with a pipeline of RNAi therapeutics toward genetically validated, liver-expressed disease targets for unmet needs in cardiovascular and metabolic diseases, such as dyslipidemia, hypertension, non-alcoholic steatohepatitis, or NASH, and type 2 diabetes; and Hepatic Infectious Disease, with a pipeline of RNAi therapeutics designed to address the major global health challenges of hepatic infectious diseases, including but not limited to hepatitis B viral infection, or HBV infection. In early 2015, we launched our Alnylam 2020 guidance for the advancement and commercialization of RNAi therapeutics as a whole new class of innovative medicines. Specifically, by the end of 2020, we expect to achieve a company profile with three marketed products and ten RNAi therapeutic clinical programs, including four in late stages of development, across our three STArs.

Based on our expertise in RNAi therapeutics and broad intellectual property estate we have formed alliances with leading pharmaceutical and life sciences companies, including Isis Pharmaceuticals, Inc., or Isis, Medtronic, Inc., or Medtronic, Novartis Pharma AG, or Novartis (which assigned its rights and obligations to Arrowhead Research Corporation, or Arrowhead, in early 2015), F. Hoffmann-La Roche Ltd, or Roche (which assigned its rights and obligations to Arrowhead), Takeda Pharmaceutical Company Limited, or Takeda, Kyowa Hakko Kirin Co., Ltd., or Kyowa Hakko Kirin, Cubist Pharmaceuticals, Inc., or Cubist (now a wholly-owned subsidiary of Merck&Co, Inc.), Ascletis BioScience Co., Ltd., or Ascletis, Monsanto Company, or Monsanto, Genzyme Corporation, a Sanofi company, or Genzyme, and The Medicines Company, or MDCO. We also 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 have incurred significant losses since we commenced operations in 2002 and expect such losses to continue for the foreseeable future. At March 31, 2015, we had an accumulated deficit of $1.0 billion. Historically, we have generated losses

 

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principally from costs associated with research and development activities, acquiring, filing and expanding intellectual property rights, and general administrative costs. As a result of planned expenditures for research and development activities relating to our drug development programs, including the optimization of drug delivery technologies, clinical trial and manufacturing costs, the establishment of late-stage clinical and commercial capabilities, continued management and growth of our patent portfolio, collaborations and general corporate activities, we expect to incur additional operating losses for the foreseeable future. We also 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.

Although we currently have programs focused on a number of therapeutic areas, we are unable to predict when, if ever, we will successfully develop or be able to commence sales of any product. To date, a substantial portion of our total net revenues has been derived from collaboration revenues from strategic alliances with Roche/Arrowhead, Takeda, Cubist, Novartis/Arrowhead, Monsanto and MDCO. We expect our sources of potential funding for the next several years to be derived primarily from new and existing strategic alliances, which may include license and other fees, funded research and development and milestone payments, and proceeds from the sale of equity or debt.

In January 2015, we sold an aggregate of 5,447,368 shares of our common stock through an underwritten public offering at a price to the public of $95.00 per share. As a result of the offering, which included the full exercise of the underwriters’ option to purchase additional shares, we received aggregate net proceeds of $496.4 million, after deducting underwriting discounts and commissions and other offering expenses of $21.1 million. We intend to use these proceeds for general corporate purposes, focused on achieving our Alnylam 2020 profile.

In addition, in January 2015, in connection with our public offering described above, Genzyme exercised its right under our investor agreement with Genzyme to purchase directly from us, in concurrent private placements, 744,566 shares of common stock, at the public offering price of $95.00 per share, resulting in proceeds to us of $70.7 million. The sales of common stock to Genzyme were not registered as part of the public offering, though they were consummated simultaneously with the public offering.

Under the investor agreement, Genzyme also has the right each January to purchase a number of shares of our common stock based on the number of shares we issued during the previous year for compensation-related purposes. Genzyme exercised this right to purchase directly from us 196,251 shares of our common stock in January 2015 for $18.3 million. The sale of these shares to Genzyme was consummated as a private placement.

In each instance, the purchase by Genzyme described above allowed Genzyme to maintain its ownership level of our common stock of approximately 12%.

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. In early 2015, we launched our guidance for the advancement and commercialization of RNAi therapeutics as a whole new class of innovative medicines. Specifically, by the end of 2020, we expect to achieve a company profile with three marketed products and ten RNAi therapeutic clinical programs, including four in late stages of development, across our three STArs.

Our broad pipeline of investigational RNAi therapeutics is focused in three STArs: Genetic Medicines, for the treatment of rare diseases; Cardio-Metabolic Disease, focused on genetically validated, liver-expressed genes for unmet needs in dyslipidemia, hypertension, NASH and type 2 diabetes; and Hepatic Infectious Disease, addressing major global health challenges, including but not limited to HBV infection. The following is a summary of our product development programs in each of our STArs as of April 30, 2015:

 

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During the first quarter of 2015 and recent period, we reported the following updates from our clinical-stage programs:

Genetic Medicine STAr:

 

•

We advanced investigational RNAi therapeutic programs for the treatment of transthyretin (TTR)-mediated amyloidosis, or ATTR amyloidosis.

 

•

We continued enrollment in our APOLLO Phase 3 study of patisiran in ATTR amyloidosis patients with familial amyloidotic polyneuropathy, or FAP.

 

•

In April 2015, we reported positive 12-month clinical data from our patisiran Phase 2 open-label extension, or OLE study, showing sustained TTR knockdown of up to a mean 88% and continued evidence for potential halting of neuropathy progression. Specifically, a mean 2.5 point decrease in neuropathy impairment score, or mNIS+7, was observed after 12 months of patisiran administration, comparing favorably to a 13-18 point increase in untreated patients with similar baseline characteristics, as estimated from published historical data sets. Patisiran was also found to be generally well tolerated out to 17 months of drug administration.

 

•

We continued enrollment in our ENDEAVOUR Phase 3 study of revusiran in ATTR amyloidosis patients with familial amyloidotic cardiomyopathy, or FAC.

 

•

We presented complete Phase 2 data with revusiran in patients with TTR cardiomyopathy, showing tolerability and an up to 98.2% knockdown of serum TTR.

 

•

We continued dosing FAC patients in our revusiran Phase 2 OLE study designed to evaluate the tolerability and clinical activity of revusiran with long-term dosing for up to two years.

 

•

We presented results from a retrospective natural history study evaluating disease progression in ATTR amyloidosis patients with FAC, showing a 140 meter decline in six minute walk distance at 18 months; the change in six minute walk distance at 18 months is a co-primary endpoint measure in our ENDEAVOUR Phase 3 study.

 

•

We advanced ALN-AT3 for the treatment of hemophilia and rare bleeding disorders, or RBD.

 

•

We reported positive initial results from a small number of subjects in a Phase 1 clinical trial of ALN-AT3, including an up to 70% knockdown of antithrombin, or AT, and initial evidence for the potential correction of the hemophilia phenotype with an up to 334% increase in thrombin generation and marked improvement in whole blood clotting.

 

•

We are transitioning to once-monthly subcutaneous dose cohorts in our ALN-AT3 Phase 1 study.

 

•

We have completed our chronic GLP toxicology studies of ALN-AT3, including a nine-month study in non-human primates and six-month studies in rat and hemophilia A mice, with No Adverse Effect Level, or NOAEL doses that support further advancement of the program.

 

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•

We published pre-clinical study results documenting the safety, efficacy and durability of ALN-AT3 in rodent and non-human primate models of hemophilia.

 

•

We initiated our Phase 1/2 trial with ALN-CC5 that is being conducted initially in normal human volunteers and is expected to move subsequently to patients with paroxysmal nocturnal hemoglobinuria, or PNH.

Cardio-Metabolic STAr:

 

•

We continued dosing in our Phase 1 clinical trial with ALN-PCSsc in normal human volunteers with elevated LDL-C at baseline, completing the single ascending dose, or SAD phase of the study and initiating the multi-dose, or MD phase with or without statin co-administration.

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 effectiveness 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:

 

•

our ability to discover new product candidates;

 

•

our ability to progress product candidates into pre-clinical and clinical trials;

 

•

the scope, rate of progress and cost 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;

 

•

the scope, rate of progress and cost of any clinical trials we commence;

 

•

clinical trial results;

 

•

the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

 

•

the terms, timing and success of any collaboration, licensing and other arrangements that we may establish;

 

•

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;

 

•

the cost and timing of establishing sufficient sales, marketing and distribution capabilities;

 

•

the cost and timing of establishing sufficient clinical and commercial supplies for any product candidates and products that we may develop and ultimately commercialize;

 

•

limits on our ability to research, develop or manufacture our product candidates as a result of contractual obligations to third parties or intellectual property held by third parties;

 

•

the costs associated with legal activities, including litigation, arising in the course of our business activities and our ability to prevail in any such legal disputes; and

 

•

the effect of competing technological and market developments.

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

Our business strategy is to develop and commercialize a broad pipeline of RNAi therapeutic products directed towards our three STArs: Genetic Medicines; Cardio-Metabolic Diseases; and Hepatic Infectious Diseases. As part of this strategy, we have entered into, and expect to enter into additional, collaboration and licensing agreements as a means of obtaining resources, capabilities and funding to advance our investigational RNAi therapeutic programs.

 

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Our collaboration strategy is to form alliances that create significant value for ourselves and our collaborators in the advancement of RNAi therapeutics as a new class of innovative medicines. Specifically, with respect to our Genetic Medicine pipeline, we formed a broad strategic alliance with Genzyme in 2014 pursuant to which we retain development and commercial rights for our current and future Genetic Medicine products in North America and Western Europe, and Genzyme will develop and commercialize our current and future Genetic Medicine products principally in territories outside of North America and Western Europe, subject to certain broader rights. With respect to our Cardio-Metabolic and Hepatic Infectious Disease pipelines, we intend to seek future strategic alliances for these programs, while retaining significant product commercialization rights in the United States and European Union, or EU. We currently have a global alliance with MDCO for the development and commercialization of our ALN-PCSsc program.

We also seek to form or advance new ventures and opportunities in areas outside our primary focus on RNAi therapeutics. In 2007, we and Isis formed Regulus Therapeutics Inc., or Regulus, to capitalize on our technology and intellectual property in the field of microRNA therapeutics. Currently, we own approximately 12% of Regulus’ outstanding common stock.

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. We expect our InterfeRx and research product licenses to generate modest revenues that we can re-invest in the development of our proprietary RNAi therapeutics pipeline. As of March 31, 2015, we had granted such licenses, on both an exclusive and non-exclusive basis, to approximately 20 companies.

Since delivery of RNAi therapeutics has historically been an important objective of our research activities, we have also evaluated potential collaboration and licensing arrangements with other companies and academic institutions to gain access to delivery technologies. For example, we entered into agreements with Tekmira Pharmaceuticals Corporation, or TPC, Protiva Biotherapeutics, Inc., a wholly owned subsidiary of TPC, and together with TPC, referred to as Tekmira, The University of British Columbia, or UBC, and Acuitas Therapeutics Inc. (formerly AlCana Technologies, Inc.), or Acuitas, among others, related to various delivery technologies.

We have also entered into license agreements with Isis, Max Planck Innovation GmbH (formerly known as Garching Innovation GmbH), or Max Planck Innovation, Tekmira, Cancer Research Technology Limited, or CRT, and Whitehead Institute for Biomedical Research, or Whitehead, as well as a number of other entities, to obtain rights to intellectual property in the field of RNAi. Finally, we have sought, and may seek in the future, funding for the development of our proprietary RNAi therapeutics pipeline from the government and foundations.

Isis Agreement

In January 2015, we and Isis entered into a second amended and restated strategic collaboration and license agreement. The 2015 Isis agreement provides for certain new exclusive target cross-licenses of intellectual property on four disease targets, providing each company with exclusive RNA therapeutic license rights for two programs, and extends the parties’ existing non-exclusive technology cross-license, which was originally entered into in 2004 and was amended and restated in 2009, through April 2019. The 2015 Isis agreement is described under the heading “Strategic Alliances” in our Annual Report on Form 10-K for the year ended December 31, 2014.

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 and other uses; siRNAs directed to specific targets as treatments for particular diseases; delivery technologies, such as in the fields of carbohydrate conjugates and cationic liposomes; and all aspects of our specific development candidates.

 

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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 portfolio for RNAi therapeutics includes over 2,000 active cases and over 1,100 granted or issued patents, of which over 400 are issued or granted in the United States, the EU 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 technologies. To that end, in January 2014, we acquired Sirna’s RNAi assets, including an extensive patent estate. The granted patents, applications and know-how obtained through this acquisition further strengthens the breadth and depth of our intellectual property portfolio.

Given the importance of our intellectual property portfolio to our business operations, we intend to vigorously enforce our rights and defend against challenges that have arisen or may arise in this area.

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 “Management’s 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, 2014, which we filed with the SEC on February 13, 2015.

Results of Operations

The following data summarizes the results of our operations for the periods indicated, in thousands:

 

		Three Months Ended March 31,
		2015				2014
Net revenues from collaborators		$	18,537			$	8,275
Operating expenses			70,759				277,339
Loss from operations			(52,222	)			(269,064	)
Net loss		$	(50,777	)		$	(250,943	)

The decrease in operating expenses for the three months ended March 31, 2015 resulted primarily from a $224.7 million charge in the three months ended March 31, 2014 to in-process research and development expense in connection with the purchase of the Sirna RNAi assets from Merck Sharp & Dohme Corp., or Merck, which is described below under the heading “In-process research and development.”

Net revenues from collaborators

We generate revenues through research and development collaborations. The following table summarizes our total consolidated net revenues from collaborators, for the periods indicated, in thousands:

 

		Three Months Ended March 31,
Description		2015				2014
Monsanto		$	5,621			$	1,410
Takeda			5,493				5,493
The Medicines Company			1,983				1,266
Genzyme			1,817				—
Other			3,623				106
Total net revenues from collaborators		$	18,537			$	8,275

Net revenues from collaborators increased during the three months ended March 31, 2015 as compared to the three months ended March 31, 2014 due primarily to revenue recognized in connection with the September 2014 amendment of our remaining

 

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performance obligations under the Monsanto agreement, as well as services performed in connection with our performance obligations under agreements with MDCO and Genzyme. In addition, net revenues from other collaborators increased due to the achievement of certain non-recurring milestones from other sources.

We expect net revenues from collaborators to decrease during the remainder of 2015 on a comparative basis due primarily to the completion of our performance obligations under the Monsanto agreement in February 2015 and the planned completion of our revenue amortization under the Takeda agreement in May 2015. This decrease is expected to be partially offset by our accounting for reimbursement of development activities recognized as revenue under the 2014 Genzyme collaboration.

We had $60.7 million of deferred revenue at March 31, 2015, which consists primarily of payments we have received from collaborators, primarily Kyowa Hakko Kirin, MDCO and Genzyme, but have not yet recognized pursuant to our revenue recognition policies.

For the foreseeable future, we expect our revenues to be derived primarily from our alliances with Genzyme, MDCO and other strategic alliances, as well as any new collaborations and licensing activities.

Operating expenses

The following table summarizes 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 Ended March 31, 2015				% of Total Operating Expenses				Three Months Ended March 31, 2014				% of Total Operating Expenses
																		Increase (Decrease)
																		$				%
Research and development		$	58,035				82	%		$	43,758				16	%		$	14,277				33	%
In-process research and development			—				—	%			224,656				81	%			(224,656	)			(100	)%
General and administrative			12,724				18	%			8,925				3	%			3,799				43	%
Total operating expenses		$	70,759				100	%		$	277,339				100	%		$	(206,580	)			(74	)%

Research and development. The following table summarizes 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 Ended March 31, 2015				% of Expense Category				Three Months Ended March 31, 2014				% of Expense Category
																		Increase (Decrease)
																		$				%
Research and development
Clinical trial and manufacturing		$	24,019				42	%		$	12,752				29	%		$	11,267				88	%
Compensation and related			13,682				24	%			9,276				21	%			4,406				47	%
External services			6,583				11	%			3,299				8	%			3,284				100	%
Non-cash stock-based compensation			5,346				9	%			3,681				8	%			1,665				45	%
Facilities-related			4,736				8	%			4,354				10	%			382				9	%
Lab supplies and materials			1,913				3	%			1,333				3	%			580				44	%
License fees			230				*				8,384				19	%			(8,154	)			(97	)%
Other			1,526				3	%			679				2	%			847				125	%
Total research and development expenses		$	58,035				100	%		$	43,758				100	%		$	14,277				33	%

 

*	Indicates less than 1%

Research and development expenses increased during the three months ended March 31, 2015 as compared to the three months ended March 31, 2014 due primarily to additional expenses for clinical trial and manufacturing and external services resulting from the significant advancement of certain of our clinical and pre-clinical programs. In addition, compensation and related expenses increased during the three months ended March 31, 2015 as compared to the three months ended March 31, 2014 due primarily to a

 

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significant increase in headcount during the period as we expand and advance our development pipeline. Non-cash stock-based compensation expenses increased during the three months ended March 31, 2015 as compared to the three months ended March 31, 2014 due to a significant increase in headcount and an increase in the valuation of stock options granted. Partially offsetting these increases was a decrease in license fees during the three months ended March 31, 2015 as compared to the three months ended March 31, 2014 due to payments to certain entities made in 2014, primarily fees due to Isis as a result of the 2014 Genzyme collaboration.

We expect to continue to devote a substantial portion of our resources to research and development expenses, including for the advancement of our Genetic Medicine, Cardio-Metabolic Disease and Hepatic Infectious Disease STArs, to support our goal of three marketed products and ten programs in clinical development, including four late stage programs, by 2020. We expect that research and development expenses will increase for the remainder of 2015 as we continue to develop our pipeline and advance our product candidates into clinical trials.

A significant portion of our research and development costs are not tracked by project as they benefit multiple projects or our technology platform. However, certain of our collaboration agreements contain cost-sharing arrangements pursuant to which 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 have been reimbursed under 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.

In-process research and development. For the three months ended March 31, 2014, we incurred a $224.7 million charge to in-process research and development expense in connection with the purchase of the Sirna RNAi assets from Merck. Specifically, at the closing of the transaction, we paid Merck $25.0 million in cash and issued 2,142,037 shares of our common stock, resulting in a charge to in-process research and development expense of $199.3 million. We issued an additional 378,007 shares of common stock to Merck in May 2014 upon the completion of certain technology transfer activities during the second quarter of 2014. In the first quarter of 2014, we recorded a liability of $25.4 million associated with the then future obligation to issue these shares, which was also charged to in-process research and development expense. Upon completion of these technology transfer activities in the second quarter of 2014, we re-measured the expense recorded in connection with these shares using the then current price of our common stock, resulting in a credit of $3.9 million.

General and administrative. The following table summarizes 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 Ended March 31, 2015				% of Expense Category				Three Months Ended March 31, 2014				% of Expense Category				Increase (Decrease)
																		$				%
General and administrative
Consulting and professional services		$	5,236				41	%		$	3,772				42	%		$	1,464				39	%
Compensation and related			2,957				23	%			2,182				25	%			775				36	%
Non-cash stock-based compensation			2,890				23	%			1,910				21	%			980				51	%
Facilities-related			696				5	%			444				5	%			252				57	%
Other			945				8	%			617				7	%			328				53	%
Total general and administrative expenses		$	12,724				100	%		$	8,925				100	%		$	3,799				43	%

General and administrative expenses increased during the three months ended March 31, 2015 as compared to the three months ended March 31, 2014 due primarily to an increase in consulting and professional services expenses related to an increase in general business activities and certain professional services. In addition, compensation and related expenses increased during the three months ended March 31, 2015 as compared to the three months ended March 31, 2014 due primarily to an increase in headcount during the period as compared to the prior year period. Non-cash stock-based compensation expenses increased during the three months ended March 31, 2015 as compared to the three months ended March 31, 2014 due to an increase in headcount and an increase in the valuation of stock options granted. For the remainder of 2015, we expect that on a quarterly basis general and administrative expenses will remain consistent with the first quarter of 2015.

 

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Benefit from income taxes

Our benefit from income taxes was $0.4 million for the three months ended March 31, 2015 as compared to $17.9 million for the three months ended March 31, 2014. The decrease was due to the corresponding income tax benefit associated with the sale of common stock at the execution of the 2014 Genzyme collaboration being recorded net of tax to additional paid-in capital. In addition, we also recorded a reduced income tax benefit for the increase in the value of our investment in Regulus that we carried at fair market value during the same respective period.

Liquidity and Capital Resources

The following table summarizes our cash flow activities for the periods indicated, in thousands:

 

		Three Months Ended March 31,
		2015				2014
Net loss		$	(50,777	)		$	(250,943	)
Adjustments to reconcile net loss to net cash used in operating activities			11,742				215,134
Changes in operating assets and liabilities			12,780				(5,866	)
Net cash used in operating activities			(26,255	)			(41,675	)
Net cash used in investing activities			(341,328	)			(379,780	)
Net cash provided by financing activities			598,984				718,875
Net increase in cash and cash equivalents			231,401				297,420
Cash and cash equivalents, beginning of period			75,179				53,169
Cash and cash equivalents, end of period		$	306,580			$	350,589

Since we commenced operations in 2002, we have generated significant losses. At March 31, 2015, we had an accumulated deficit of $1.0 billion. At March 31, 2015, we had cash, cash equivalents and fixed income marketable securities of $1.45 billion, compared to cash, cash equivalents and fixed income marketable securities of $881.9 million at December 31, 2014, in each period excluding our investment in equity securities of Regulus.

In January 2015, we sold an aggregate of 5,447,368 shares of our common stock through an underwritten public offering at a price to the public of $95.00 per share. As a result of the offering, which included the full exercise of the underwriters’ option to purchase additional shares, we received aggregate net proceeds of $496.4 million, after deducting underwriting discounts and commissions and other offering expenses of $21.1 million. We intend to use these proceeds for general corporate purposes, focused on achieving our Alnylam 2020 profile with three marketed products and ten RNAi therapeutic clinical programs, including four in late stages of development, across our three STArs, by the end of 2020.

In February 2014, in connection with our 2014 Genzyme collaboration, we sold to Genzyme 8,766,338 shares of our common stock and Genzyme paid $700.0 million in aggregate cash consideration to us. In March 2014, as a result of our issuance of shares in connection with our acquisition of Sirna, Genzyme exercised its right under our investor agreement to purchase an additional 344,448 shares of our common stock and paid us $23.0 million. Genzyme also has the right each January to purchase a number of shares of our common stock based on the number of shares we issued during the previous year for compensation-related purposes. Genzyme exercised this right to purchase directly from us 196,251 shares of our common stock on January 22, 2015 for $18.3 million. In January 2015, in connection with our public offering described above, Genzyme also exercised its right to purchase directly from us, in concurrent private placements, 744,566 shares of common stock, resulting in proceeds to us of $70.7 million. Each of these purchases allowed Genzyme to maintain its ownership level of our outstanding common stock of approximately 12%.

We invest primarily in cash equivalents, U.S. government-sponsored enterprise securities, U.S. treasury securities, 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 related to our fixed income marketable securities at March 31, 2015.

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 three months ended March 31, 2015, net cash used in operating activities of $26.3 million was due primarily to our net loss. For the three months ended March 31, 2014, net cash used in operating activities of $41.7 million was due primarily to our net loss. In

 

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addition, net cash used in operating activities is adjusted for non-cash items to reconcile net loss to net cash used in or provided by operating activities. These non-cash adjustments have historically included stock-based compensation, in-process research and development, intraperiod tax allocation 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 execute on our Alnylam 2020 guidance through the advancement of 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 three months ended March 31, 2015, net cash used in investing activities of $341.3 million was due primarily to purchases of fixed income marketable securities. For the three months ended March 31, 2014, net cash used in investing activities of $379.8 million was due primarily to purchases of fixed income marketable securities.

Financing activities

For the three months ended March 31, 2015, net cash of $599.0 million provided by financing activities was due primarily to proceeds of $496.4 million received from our January 2015 underwritten public offering, proceeds of $89.0 million received from our issuances of common stock to Genzyme in January 2015, as well as proceeds of $13.6 million from the issuance of common stock in connection with stock option exercises. For the three months ended March 31, 2014, net cash of $718.9 million provided by financing activities was due primarily to proceeds of $723.0 million received from our issuance of common stock to Genzyme, as well as proceeds of $11.5 million from the issuance of common stock in connection with stock option exercises, partially offset by $15.7 million of payments for the repurchase of common stock for employee tax withholding.

Operating Capital Requirements

We do not know when, if ever, we will successfully develop or be able to commence sales of any product. Therefore, we anticipate that we will continue to generate significant losses for the foreseeable future as a result of planned expenditures for research and development activities relating to our drug development programs, including the optimization of drug delivery technologies, clinical trial and manufacturing costs, the establishment of late-stage clinical and commercial capabilities, continued management and growth of our patent portfolio, collaborations and general corporate activities. Based on our current operating plan, we believe that our existing cash, cash equivalents and fixed income marketable securities, including the proceeds from our public offering and Genzyme’s purchases of additional shares of our common stock in January 2015, together with the cash we expect to generate under our current alliances, will be sufficient to enable us to achieve our Alnylam 2020 guidance. For reasons discussed below, we may require significant additional funds earlier than we currently expect in order to develop, conduct clinical trials for and commercialize any product candidates.

In the future, we may seek additional funding through additional collaborative arrangements and public or private financings. In December 2012, we filed an automatically effective shelf registration statement with the SEC for an indeterminate number of shares. Additional funding may not be available to us on acceptable terms or at all. In addition, the terms of any additional financing may further 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. In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. If we are unable to obtain funding on a timely basis, we may be required to significantly delay or 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 and achieve desired clinical effects;

 

•

our ability to develop relatively standard procedures for selecting and modifying siRNA product candidates;

 

•

progress in our research and development programs, as well as what may be required by regulatory bodies to advance 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;

 

•

our ability to maintain and establish additional collaborative arrangements and/or new business initiatives;

 

•

the resources, time and costs required to successfully initiate and complete our pre-clinical and clinical trials, obtain regulatory approvals, and obtain and maintain licenses to third-party intellectual property;

 

•

our ability to manufacture, or contract with third parties for the manufacture of, our product candidates for clinical testing and commercial sale;

 

•

the resources, time and cost required for the preparation, filing, prosecution, maintenance and enforcement of patent claims;

 

•

the costs associated with legal activities, including litigation, arising in the course of our business activities and our ability to prevail in any such legal disputes;

 

•

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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations and Commitments” in our Annual Report on Form 10-K for the year ended December 31, 2014. We recently entered into real property leases for office and laboratory space at 675 West Kendall Street, Cambridge, MA and office space at 101 Main Street, Cambridge, MA. See Note 5 to our condensed consolidated financial statements included in Item 1, “Financial Statements (Unaudited),” of this quarterly report on Form 10-Q for a description of these lease agreements. As a result, we expect our operating lease obligations through 2034 will increase by approximately $409 million from the amount previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements see Note 2 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014. We did not adopt any new accounting pronouncements during the three months ended March 31, 2015 that had a material effect on our condensed consolidated financial statements.

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 fixed income marketable securities consist of primarily of U.S. government-sponsored enterprise securities, U.S. treasury securities, 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. If market interest rates were to increase immediately and uniformly by 50 basis points, or one-half of a percentage point, from levels at March 31, 2015, the net fair value of our interest-sensitive financial instruments would have resulted in a hypothetical decline of $5.1 million. We currently do not seek to hedge this exposure to fluctuations in interest rates. 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. Historically, foreign currency fluctuations have not been material. We did not record any impairment charges to our fixed income marketable securities during the three months ended March 31, 2015.

 

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ITEM 4. CONTROLS AND PROCEDURES.

Our management, with the participation of our chief executive officer (principal executive officer) and vice president of finance and treasurer (principal financial officer), evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2015. 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 SEC’s 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 company’s 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 March 31, 2015, 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 13a–15(f) and 15d–15(f) under the Exchange Act) occurred during the three months ended March 31, 2015 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.

University of Utah Litigation

On March 22, 2011, The University of Utah, or Utah, filed a civil complaint in the United States District Court for the District of Massachusetts against us, Max Planck Gesellschaft Zur Foerderung Der Wissenschaften e.V. and Max Planck Innovation, together, Max Planck, Whitehead, the Massachusetts Institute of Technology, or MIT, and the University of Massachusetts, or UMass, claiming a professor at Utah is the sole inventor or, in the alternative, a joint inventor, of the Tuschl patents. Utah is seeking changes to the inventorship of the Tuschl patents, unspecified damages and other relief. On October 31, 2011, we, Max Planck, Whitehead, MIT and UMass filed a motion to dismiss. Also on October 31, 2011, UMass filed a motion to dismiss on separate grounds, which we, Max Planck, Whitehead and MIT joined. On December 31, 2011, Utah filed a second amended complaint dropping UMass as a defendant and adding as defendants several UMass officials. In June 2012, the Court denied both motions to dismiss. We, Max Planck, Whitehead, MIT and UMass filed an appeal of the Court’s ruling on the motion to dismiss for lack of jurisdiction and a motion requesting that the Court stay the case pending the outcome of the appeal. In July 2012, the Court stayed discovery in the case pending the outcome of the defendants’ appeal. In August 2013, the United States Court of Appeals for the Federal Circuit, or CAFC, affirmed the lower Court’s ruling, in a split decision. In September 2013, we filed a petition with the CAFC for rehearing or rehearing en banc. In November 2013, the CAFC denied our petition for rehearing or rehearing en banc and remanded the case back to the lower Court. In February 2014, we filed a petition for writ of certiorari from the Supreme Court and a motion to stay the lower Court proceedings pending a decision from the Supreme Court on our petition. The lower Court granted our motion to stay the proceedings, however, in June 2014 the Supreme Court denied our petition for certiorari and remanded the case back to the United States District Court for the District of Massachusetts for trial, which is now scheduled to begin on November 2, 2015. On March 30, 2015, Utah voluntarily dismissed its sole inventorship claims leaving joint inventorship and state law damages claims pending. Utah subsequently clarified that such dismissal was with prejudice. On March 31, 2015, we filed motions for summary judgment seeking dismissal of all remaining claims. A ruling on these motions is expected in the third quarter of 2015.

Although we believe we have meritorious defenses and intend to vigorously defend ourselves in this matter, litigation is subject to inherent uncertainty and a court could ultimately rule against us. In addition, the defense of litigation and related matters are costly and may divert the attention of our management and other resources that would otherwise be engaged in other activities. We have not recorded an estimate of the possible loss associated with this legal proceeding due to the uncertainties related to both the likelihood and the amount of any possible loss or range of loss.

 

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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. All statements other than statements relating to historical matters should be considered forward-looking statements. When used in this report, the words “believe,” “expect,” “plan,” “anticipate,” “estimate,” “predict,” “may,” “could,” “should,” “intend,” “will,” “target,” “goal” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these words. 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 explicitly disclaim any obligation to update any forward-looking statements to reflect events or circumstances that arise after the date hereof. 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 a Clinical Stage Company

Because we are in clinical development, there is limited information about our ability to successfully overcome many of the risks and uncertainties encountered by companies in the biopharmaceutical industry.

As a company in clinical development, 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 tissues and cells;

 

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build and maintain a strong intellectual property portfolio;

 

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gain regulatory acceptance for the development and commercialization of our product candidates and market success for 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.

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. In addition, decisions by other companies with respect to their RNAi development efforts or their adoption of different or related technologies may increase skepticism in the marketplace regarding the potential for RNAi therapeutics.

Relatively few product candidates based on these discoveries have ever been tested in 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

 

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may not demonstrate in patients the chemical and pharmacological properties ascribed to them in laboratory studies, and 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, 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 become and remain consistently profitable.

We have experienced significant operating losses since our inception. At March 31, 2015, we had an accumulated deficit of $1.0 billion. 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 product 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 revenues we generate over the next several years will be from alliances with pharmaceutical and biotechnology companies, but cannot be certain that we will be able to secure or maintain these alliances, or meet the obligations or achieve any milestones that we may be required to meet or achieve to receive payments. We anticipate that revenues derived from such sources will not be sufficient to make us consistently profitable.

We believe that 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, develop additional product candidates 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 our product candidates, and to manufacture and market any products that are approved for commercial sale. Because we cannot be certain of the length of time or activities associated with successful development of our product candidates, 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 and achieve desired clinical effects;

 

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our ability to develop relatively standard procedures for selecting and modifying siRNA product candidates;

 

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progress in our research and development programs, as well as what may be required by regulatory bodies to advance 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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our ability to maintain and establish additional collaborative arrangements and/or new business initiatives;

 

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the resources, time and costs required to initiate and complete our pre-clinical and clinical studies, obtain regulatory approvals, and obtain and maintain licenses to third-party intellectual property;

 

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our ability to manufacture, or contract with third parties for the manufacture of, our product candidates for clinical testing and commercial sale;

 

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•

the resources, time and cost required for the preparation, filing, prosecution, maintenance and enforcement of patent claims;

 

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the costs associated with legal activities, including litigation, arising in the course of our business activities and our ability to prevail in any such legal disputes;

 

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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.

If our estimates and predictions relating to these factors are incorrect, we may need to modify our operating plan.

Even if our estimates are correct, 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, under our shelf registration statement or otherwise, further dilution to our stockholders will result. In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. Moreover, our investor agreement with Genzyme provides Genzyme with the right, subject to certain exceptions, generally to maintain its ownership position in us until Genzyme owns less than 7.5% of our outstanding common stock, subject to certain additional limited rights of Genzyme to maintain its ownership percentage. In accordance with the investor agreement, as a result of our issuance of shares in connection with our acquisition of Sirna in March 2014, Genzyme exercised its right to purchase an additional 344,448 shares of our common stock. In January 2015, Genzyme also exercised its right to purchase 196,251 shares based on its 2014 compensation-related right and its right to purchase 744,566 shares in connection with our public offering. These purchases allowed Genzyme to maintain its ownership level of approximately 12% of our outstanding common stock. While the exercise of these rights by Genzyme has provided us with an additional $112.0 million in cash to date, and while we expect the exercise of these rights by Genzyme in the future will provide us with further additional cash, these exercises caused, and any future exercise of these rights by Genzyme 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 and, in the event of insolvency, would be paid before holders of equity securities received any distribution of corporate assets.

If we are unable to obtain funding on a timely basis, we may be required to significantly delay or curtail one or more of our research or development programs or undergo future reductions in our workforce or other corporate restructuring activities. 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 accounting principles generally accepted in the United States of America. 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, cash equivalents and fixed income marketable securities is subject to risks which may cause losses and affect the liquidity of these investments.

At March 31, 2015, we had $1.45 billion in cash, cash equivalents and fixed income marketable securities, excluding our investment in equity securities of Regulus. We historically have invested these amounts in corporate bonds, commercial paper, securities issued or sponsored 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. 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. The 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

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 product candidates. If we are unsuccessful in forming or maintaining these alliances on terms favorable to us, our business may not succeed.

We do not currently have any capability for sales or distribution and have early capability for marketing and market access, and limited capacity for drug development due to our growing pipeline of RNAi therapeutic opportunities. 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 such alliances in the future. Our collaboration strategy is to form alliances that create significant value for ourselves and our collaborators in the advancement of RNAi therapeutics as a new class of innovative medicines. Specifically, with respect to our Genetic Medicine pipeline, we formed a broad strategic alliance with Genzyme in 2014 pursuant to which we retain development and commercial rights for our current and future Genetic Medicine products in North America and Western Europe, and Genzyme will develop and commercialize our current and future Genetic Medicine products principally in territories outside of North America and Western Europe, subject to certain broader rights. With respect to our Cardio-Metabolic and Hepatic Infectious Disease pipelines, we intend to seek future strategic alliances for these programs, while retaining significant product commercialization rights in the United States and EU. We currently have a global alliance with MDCO to advance our ALN-PCS program.

In such alliances, we expect our current, and may expect our future, collaborators to provide substantial capabilities in clinical development, regulatory affairs, and/or marketing, sales and distribution. Under certain of our alliances, we also may expect our collaborators to develop, market and/or sell certain of our product candidates. We may have limited or no control over the development, 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 rely entirely on (i) Genzyme for the development and commercialization of patisiran, revusiran and potentially other of our Genetic Medicine programs in territories outside of North America and Western Europe under the 2014 Genzyme collaboration, and (ii) MDCO for later stage development and commercialization of ALN-PCSsc worldwide. If Genzyme and/or MDCO are not successful in their commercialization efforts, our future revenues from RNAi therapeutics for these indications may be adversely affected.

We may not be successful in entering into such alliances on terms favorable to us due to various factors, including our ability to successfully demonstrate proof of concept for our technology in humans, our ability to demonstrate the safety and efficacy of our specific drug candidates, our ability to manufacture or have third parties manufacture RNAi therapeutics, the strength of our intellectual property and/or concerns around challenges to our intellectual property. Even if we do succeed in securing any such alliances, we may not be able to maintain them if, for example, development or approval of a product candidate is delayed, challenges are raised as to the validity or scope of our intellectual property or sales of an approved drug are lower than we expected. In the case of the Monsanto agreement, if we cease to own or otherwise exclusively control certain licensed patent rights in the agriculture field, resulting in the loss of exclusivity with respect to Monsanto’s rights to such patent rights, and such loss of exclusivity has a material adverse effect on the licensed products (as defined in the agreement), we would be required to pay Monsanto up to $5.0 million in liquidated damages, and Monsanto’s royalty obligations to us would be reduced or, under certain circumstances, terminated.

Furthermore, any delay in entering into collaboration agreements would likely either delay the development and commercialization of certain of our product candidates and reduce their competitiveness even if they reach the market, or prevent the development of certain product candidates. Any such delay related to our collaborations could adversely affect our business.

For certain product 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 collaboration with MDCO. We may not, however, be able to enter into additional collaborations for certain other programs, 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 one or more of our product candidates, we may not have sufficient funds to develop that or other product candidates internally, or to bring our product candidates to market. If we do not have sufficient funds to develop and bring our product candidates to market, we will not be able to generate revenues from these product 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 product 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. In addition, our collaborators may have additional termination rights for convenience under certain circumstances. For example, our agreement with MDCO relating to the development and commercialization of ALN-PCS worldwide may be terminated by MDCO at any time upon four months’ prior written notice. 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 we have a dispute with a collaborator over the ownership of technology or other matters, or if a collaborator terminates its collaboration with us, for breach or otherwise, or determines not to pursue the research and development of RNAi therapeutics, it could delay our development of product candidates, result in the need for additional company resources to develop product candidates, require us to expend time and resources to develop sales and marketing capabilities outside of the United States and EU, make it more difficult for us to attract new collaborators and could adversely affect how we are perceived in the business and financial communities. For example, in March 2011, Tekmira filed a civil complaint against us claiming, among other things, misappropriation of its confidential and proprietary information and trade secrets. As a result of the litigation, which was settled in November 2012, we were required to expend resources and management attention that would otherwise have been engaged in other activities. In addition, in August 2013, we initiated binding arbitration proceedings to resolve a disagreement with Tekmira regarding the achievement by Tekmira of a $5.0 million milestone payment under our cross-license agreement relating to the manufacture of ALN-VSP clinical trial material for use in China. We currently expect that the Tekmira arbitration hearing will be held during May 2015.

Moreover, a collaborator, or in the event of a change in control of a collaborator or the assignment of a collaboration agreement to a third party, the successor entity or assignee, could determine that it is in its interests 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 collaborator’s 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.

If any of these occur, the development and commercialization of one or more product 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.

Our license and collaboration agreements with pharmaceutical companies are important to our business. If these pharmaceutical companies do not successfully develop drugs pursuant to these agreements, 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. In November 2010, Roche announced the discontinuation of certain activities in research and early development, including their RNAi research efforts. In October 2011, Arrowhead announced its acquisition of RNA therapeutics assets from Roche, including our license and collaboration agreement with Roche. As a result of the assignment, Arrowhead now has all of the rights and obligations of Roche under that agreement. The license is limited to four therapeutic areas and may be expanded to include additional therapeutic areas, upon payment to us by Arrowhead of an additional $50.0 million for each additional therapeutic area, if any. In addition, for each RNAi therapeutic product developed by Arrowhead, its affiliates, or sublicensees under the collaboration agreement, 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.

 

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In May 2008, we entered into a similar license and collaboration agreement with Takeda, which is limited to two therapeutic areas, and which may be expanded to include additional therapeutic areas, upon payment to us by Takeda of an additional $50.0 million for each additional therapeutic area, if any. For each RNAi therapeutic product developed by Takeda, its affiliates and sublicensees, we are entitled to receive specified development and commercialization milestone payments, totaling up to $171.0 million per product, together with royalty payments based on worldwide annual net sales, if any.

In September 2010, Novartis exercised its right under our collaboration and license agreement to select 31 designated gene targets, for which Novartis has exclusive rights to discover, develop and commercialize RNAi therapeutic products using our intellectual property and technology. Under the terms of the collaboration and license agreement, for any RNAi therapeutic products Novartis develops against these targets, we are 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 annual net sales of any such product, if any. During 2014, Novartis publically indicated that they no longer intended to invest in the development of certain RNAi therapeutics and intended to divest certain of their RNAi assets. In early 2015, Arrowhead announced its acquisition of these RNA therapeutics assets from Novartis, including our collaboration and license agreement with Novartis. As a result of the assignment, Arrowhead now has all of the rights and obligations of Novartis under that agreement for 30 designated gene targets.

Our receipt of milestone and/or payments under these agreements is dependent upon our partners’ ability to successfully develop and commercialize RNAi therapeutic products. If Takeda or Arrowhead fails to successfully develop products using our technology, we may not receive any milestone or royalty payments under our agreements with them.

We rely on third parties to conduct our clinical trials, and if they fail to fulfill their obligations, our development plans may be adversely affected.

We rely on independent clinical investigators, contract research organizations and other third-party service providers to assist us in managing, monitoring and otherwise carrying out our clinical trials. We have contracted, and we plan to continue to contract with, certain third parties to provide certain services, including site selection, enrollment, monitoring and data management services. Although we depend heavily on these parties, we do not control them and therefore, we cannot be assured that these third parties will adequately perform all of their contractual obligations to us. If our third-party service providers cannot adequately and timely fulfill their obligations to us, or if the quality and accuracy of our clinical trial data is compromised due to failure by such third party to adhere to our protocols or regulatory requirements or if such third parties otherwise fail to meet deadlines, our development plans may be delayed or terminated.

We have very limited manufacturing experience or resources and we must incur significant costs to develop this expertise and/or rely on third parties to manufacture our products.

We have very limited manufacturing experience. In order to develop our product candidates, apply for regulatory approvals and commercialize our products, if approved, we will need to develop, contract for, or otherwise arrange for the necessary manufacturing capabilities. Historically, our internal manufacturing capabilities were limited to small-scale production of material for use in in vitro and in vivo experiments that is not required to be produced under current good manufacturing practices, or cGMP, standards. During 2012, we developed cGMP capabilities and processes for the manufacture of patisiran for late-stage clinical trial use and early commercial supply.

We may manufacture limited quantities of clinical trial materials ourselves, but otherwise we rely on third parties to manufacture the materials we will require for any clinical trials that we initiate. There are a limited number of manufacturers that supply synthetic siRNAs. We currently rely on a few 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 potential synthesis and purification failures and contamination during the manufacturing process, which could result in unusable product and cause delays in our manufacturing timelines and ultimately delay our clinical trials, as well as additional expense to us. To fulfill our siRNA requirements, we may need to secure alternative suppliers of synthetic siRNAs and such alternative suppliers may not be readily available, or we may be unable to enter into agreements with them on reasonable terms and in a timely manner.

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, such as LNPs or conjugates. 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. In addition, the scale up of our delivery technologies could be very difficult. We also have very limited experience in such scale-up and manufacturing, requiring us to depend on a limited

 

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number of third parties, who might not be able to deliver in a timely manner, or at all. Failure by manufacturers to properly formulate our siRNAs for delivery could result in unusable product. Furthermore, a breach by such manufacturers of their contractual obligations or a dispute with such manufacturers would cause delays in our discovery and development efforts, as well as additional expense to us. Given the limited number of suppliers for our delivery technology and other materials, we have developed cGMP capabilities and processes for the manufacture of patisiran formulated bulk drug product for late-stage clinical use and early commercial supply, and in the future, we may also develop our own capabilities to manufacture drug substance, including siRNAs and siRNA conjugates for human clinical use. In developing these manufacturing capabilities by building our own manufacturing facility, we have incurred substantial expenditures. Also, we have had to, and will likely need to continue to, hire and train qualified employees to staff our new facility. We do not currently have a second source of supply for patisiran formulated bulk drug product. If we are unable to manufacture sufficient quantities of material or if we encounter problems with our facility in the future, we may also need to secure alternative suppliers of patisiran formulated bulk drug product and such alternative suppliers may not be available, or we may be unable to enter into agreements with them on reasonable terms and in a timely manner.

The manufacturing process for any products that we may develop is subject to the United States Food and Drug Administration, or FDA, and foreign regulatory authority approval process and we will need to meet, and 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 have existing, or enter into future, manufacturing arrangements with third parties, we depend, and will depend in the future, on these third parties to perform their obligations in a timely manner and consistent with contractual and regulatory requirements, including those related to quality control and quality assurance. The failure of a third-party manufacturer to perform its obligations as expected, or, to the extent we manufacture all or a portion of our product candidates ourselves, our failure to execute on our manufacturing requirements could adversely affect our business in a number of ways, including:

 

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we or our current or future collaborators may not be able to initiate or continue clinical trials of product candidates that are under development;

 

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we or our current or future collaborators 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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our facilities and those of our third party manufacturers, and our products could be the subject of inspections by regulatory authorities that could have a negative outcome and result in delays in supply;

 

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we may be required to cease distribution or recall some or all batches of our products or take action to recover clinical trial material from clinical trial sites; and

 

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ultimately, we may not be able to meet commercial demands for our products.

If any 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 on reasonable terms, if at all. In either scenario, our clinical trials or commercial distribution could be delayed significantly as we establish alternative supply sources. In some cases, the technical skills required to manufacture our products or product candidates may be unique or proprietary to the original manufacturer and we may have difficulty, or there may be contractual restrictions prohibiting us from, transferring such skills to a back-up or 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. We will also need to verify, such as through a manufacturing comparability study, that any new manufacturing process will produce our product according to the specifications previously submitted to or approved by the FDA or another regulatory authority. 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 or product candidates.

 

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We have no sales or distribution experience and only early capabilities for marketing and market access, and expect to invest significant financial and management resources to establish these capabilities.

We have no sales or distribution experience and only early capabilities for marketing and market access. We currently expect to rely heavily on third parties to launch and market certain of our product candidates in certain geographies, if approved. However, we intend to commercialize the majority of our products on our own in the United States and EU, and accordingly, we will need to develop internal sales, distribution and marketing capabilities as part of our core product strategy, which will require significant financial and management resources. For our Genetic Medicine programs where we will perform sales, marketing and distribution functions ourselves in North America and Western Europe, and for future Cardio-Metabolic and Hepatic Infectious Disease products we successfully develop where we intend to retain significant product commercialization rights in the United States and EU, 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.

If we are unable to develop our own sales, marketing and distribution capabilities, we will not be able to successfully commercialize our Genetic Medicine pipeline or our future Cardio-Metabolic and Hepatic Infectious Disease pipelines in our sales territories without reliance on third parties.

Credit and financial market conditions may exacerbate certain risks affecting our business from time to time.

Due to 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 our scientific, clinical and medical 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 person life insurance on any of our employees.

We have grown our workforce significantly over the past year and expect to continue to add a significant number of additional employees during 2015. 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 in order to support our growing research, development and commercialization efforts and initiatives, and our failure to do so could have an adverse effect on our ability to implement our future business plan.

We may have difficulty expanding our operations successfully as we evolve from a company primarily involved in discovery, pre-clinical testing and clinical development into one that develops and commercializes multiple drugs.

We expect that as we increase the number of product candidates we are developing we will also need to expand our operations. As noted above, we have grown our workforce significantly over the past year and expect to continue to add a significant number of additional employees during 2015. This expected growth will likely place a strain on our administrative and operational infrastructure, and we will likely need to develop additional infrastructure and capabilities to support our growth and obtain additional space to conduct our operations. If we are unable to develop such additional infrastructure or obtain sufficient space to accommodate our growth in a timely manner and on commercially reasonable terms, our business could be negatively impacted. As product 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. In addition, as our operations expand due to our development progress, we expect that we will need to manage additional relationships with various collaborators,

 

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suppliers and other organizations. Our ability to manage our operations and future growth will require us to continue to improve our operational, financial and management controls and systems, reporting systems and infrastructure, and policies 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.

Our business and operations could suffer in the event of system failures.

Despite the implementation of security measures, our internal computer systems and those of our contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war, and telecommunication and electrical failures. Such events could cause interruption of our operations. For example, the loss of pre-clinical trial data or data from completed or ongoing clinical trials for our product candidates could result in delays in our regulatory filings and development efforts and significantly increase our costs. To the extent that any disruption or security breach were to result in a loss of or damage to our data, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the development of our product candidates could be delayed.

Risks Related to Our Industry

Risks Related to Development, Clinical Testing and Regulatory Approval of Our Product Candidates

Any product candidates we develop may fail in development or be delayed to a point where they do not become commercially viable.

Before obtaining regulatory approval for the commercial distribution of our product 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 product 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, and the historical failure rate for product candidates is high. We currently have several programs in clinical development, including patisiran in a Phase 3 clinical trial, revusiran in a Phase 3 clinical trial, ALN-AT3 in a Phase 1 clinical trial, ALN-PCSsc in a Phase 1 clinical trial and ALN-CC5 in a Phase 1/2 clinical trial. We also expect to initiate a Phase 1 clinical trial for ALN-AS1 in mid-2015. However, we may not be able to further advance these or any other product candidate through clinical trials.

If we enter into clinical trials, the results from pre-clinical testing or early clinical trials of a product candidate may not predict the results that will be obtained in subsequent subjects or in subsequent human clinical trials of that product candidate or any other product candidate. For example, in early 2015, we announced updated results from our Phase 1 clinical trial of ALN-AT3, including initial clinical data on three subjects with hemophilia from the second dose cohort of this study. Although the initial clinical data on these three subjects are encouraging, the data are preliminary in nature, based on a limited number of subjects and the ALN-AT3 Phase 1 study is not complete. These data, or other positive data, may not continue for these subjects or occur for any future subjects in this study, and may not be repeated or observed in any future studies. There can be no assurance that this study will ultimately be successful or support further clinical advancement of this product candidate. There is a high failure rate for drugs proceeding through clinical studies. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in clinical development even after achieving promising results in earlier studies, and any such setbacks in our clinical development could have a material adverse effect on our business and operating results. Moreover, patisiran, revusiran and ALN-AT3 each employ novel delivery technologies that have yet to be extensively evaluated in human clinical trials and proven safe and effective. In May 2014, we reported the first human study results for our Enhanced Stabilization Chemistry, or ESC-GalNAc conjugate technology, which enables subcutaneous dosing with increased potency, durability and a wide therapeutic index. While these initial clinical results of ALN-AT3 demonstrated a greater than 50-fold potency improvement with ESC-GalNAc conjugates relative to standard template chemistry conjugates, we cannot assure you that we will see similar results with other clinical candidates.

In addition, we, the FDA or other applicable regulatory authorities, or an institutional review board, or IRB, or similar foreign review board or committee, may suspend clinical trials of a product candidate at any time for various reasons, including if we or they believe the healthy volunteer subjects or patients participating in such trials are being exposed to unacceptable health risks. Among other reasons, adverse side effects of a product candidate on healthy volunteer 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 product candidate for any or all indications of use.

Clinical trials of a new product candidate require the enrollment of a sufficient number of patients, including patients who are suffering from the disease the product 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 stage and severity of disease, the nature of the protocol, the proximity of patients to clinical sites, the availability of effective treatments for the relevant disease, and the eligibility criteria for the clinical trial. For example, we may experience difficulty enrolling our clinical trials,

 

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including, but not limited to, our clinical trials for patisiran, due to the small population of ATTR amyloidosis patients suffering from FAP and the availability of existing approved treatments, as well as other investigational treatments in development. Delays or difficulties in patient enrollment or difficulties retaining trial participants, including as a result of the availability of existing or other investigational treatments, can result in increased costs, longer development times or termination of a clinical trial.

Although our investigational RNAi therapeutics have been generally well tolerated in our clinical trials to date, in our ALN-VSP clinical trial, one patient with advanced pancreatic neuroendocrine cancer with extensive involvement of the liver developed hepatic failure five days following the second dose of ALN-VSP and subsequently died; this was deemed possibly related to the study drug. In our patisiran Phase 2 open label extension study in FAP patients, infusion reactions occurred in approximately 15% of patients, were mild in severity and did not result in any discontinuations. In our revusiran Phase 1 clinical trial, we observed injection site reactions, or ISRs, in a minority of subjects receiving revusiran or placebo. These were reported as being clinically mild and consisted of transient erythema associated in a minority of cases with edema and/or pain. In all cases, these reactions were self-limiting and resolved within approximately two hours of onset. In our revusiran Phase 2 trial in FAC and senile systemic amyloidosis, or SSA, patients, the most common adverse event was ISRs that occurred in 23% of patients. These were all mild in severity and were similar to the ISRs observed and previously reported in the revusiran Phase 1 study. The next most common adverse event was a low incidence of transient mild liver function test changes (15%) that, in all cases, resolved without discontinuing therapy. In three of four patients, these elevations appeared to be clinically insignificant and were less than one and a half times the upper limit of normal. One patient had an approximate four-fold elevation in liver transaminases that was deemed a serious adverse event and mild in severity; this event resolved during continued dosing. The occurrence of adverse events can result in the suspension or termination of clinical trials of a product candidate by us or the FDA or a foreign regulatory authority, or refusal to approve a particular product candidate for any or all indications of use.

Clinical trials also require the review, oversight and approval of IRBs, which 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 or foreign regulatory authorities 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 product 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 or confound 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 product candidate that is affected, or development of any of our other product candidates. We may also lose, or be unable to enter into, collaborative arrangements for the affected product candidate and for other product candidates we are developing.

A failure of one or 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 regulatory approval or our ability to commercialize our product candidates, including:

 

•

our pre-clinical tests or clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional pre-clinical testing or clinical trials, or we may abandon projects that we expect to be promising;

 

•

delays in filing investigational new drug, or IND, applications or comparable foreign applications or delays or failure in obtaining the necessary approvals from regulators or IRBs in order to commence a clinical trial at a prospective trial site, or their suspension or termination of a clinical trial once commenced;

 

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conditions imposed on us by an IRB, or 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 clinical trials or problems in obtaining or maintaining IRB approval of trials;

 

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delays in enrolling patients and volunteers into clinical trials, and variability in the number and types of patients and volunteers available for clinical trials;

 

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high drop-out rates for patients and volunteers in clinical trials;

 

•

negative or inconclusive results from our clinical trials or the clinical trials of others for product candidates similar to ours;

 

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inadequate supply or quality of product candidate materials or other materials necessary for the conduct of our clinical trials;

 

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greater than anticipated clinical trial costs;

 

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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;

 

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poor or disappointing effectiveness of our product candidates during clinical trials;

 

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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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failure of our third-party contractors or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a timely manner, or at all;

 

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governmental or regulatory delays and changes in regulatory requirements, policy and guidelines, including the imposition of additional regulatory oversight around clinical testing generally or with respect to our technology in particular; or

 

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varying interpretations of data by the FDA and similar foreign regulatory agencies.

Even if we successfully complete clinical trials of our product candidates, any given product candidate may not prove to be a safe and effective treatment for the disease for which it was being tested.

We may be unable to obtain United States or foreign regulatory approval and, as a result, unable to commercialize our product candidates.

Our product candidates are subject to extensive governmental regulations relating to, among other things, research, testing, development, manufacturing, safety, efficacy, approval, recordkeeping, reporting, labeling, storage, packaging, advertising and promotion, pricing, 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 product candidates we may develop will obtain the regulatory approvals necessary for us or our collaborators to begin selling them.

We have 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 type, complexity and novelty of the product candidate. The standards that the FDA and its foreign counterparts use when regulating us are not always applied predictably or uniformly and can change. 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. It is impossible to predict whether legislative changes will be enacted, or whether FDA or foreign regulations, guidance or interpretations will be changed, or what the impact of such changes, if any, may be.

Because the drugs we are developing may represent a new class of drug, the FDA and its foreign counterparts have not yet established any definitive policies, practices or guidelines in relation to these drugs. 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 may 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 FDA’s standards, especially regarding drug safety, appear to have become more stringent.

Any delay or failure in obtaining required approvals could have a material adverse effect on our ability to generate revenues from the particular product candidate for which we are seeking approval. Furthermore, any regulatory approval to market a product may be subject to limitations on the approved uses for which we may market the product or the labeling or other restrictions. In addition, the FDA has the authority to require a Risk Evaluation and Mitigation Strategy, or REMS plan as part of a new drug application, or NDA, or after approval, which may impose further requirements or restrictions on the distribution or use of an approved drug, such as limiting prescribing to certain physicians or medical centers that have undergone specialized training, limiting treatment to patients who meet certain safe-use criteria and requiring treated patients to enroll in a registry. These limitations and restrictions may limit the size of the market for the product and affect reimbursement by third-party payors.

 

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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 varies among countries and 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 ensure approval by regulatory authorities outside the United States and vice versa.

Even if we obtain regulatory approvals, our marketed drugs will be subject to ongoing regulatory oversight. If we fail to comply with continuing U.S. and foreign requirements, our approvals could be limited or withdrawn, we could be subject to other penalties, 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 oversight, 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 surveillance to monitor the safety and efficacy of the drug product required as a condition of approval or agreed to by us. Any regulatory approvals that we receive for our product candidates may also be subject to limitations on the approved uses for which the product may be marketed. Other ongoing regulatory requirements include, among other things, submissions of safety and other post-marketing information and reports, registration and listing, as well as continued compliance with cGMP requirements and good clinical practices for any clinical trials that we conduct post-approval. In addition, we are conducting, and intend to continue to conduct, clinical trials for our product candidates, and we intend to seek approval to market our product candidates, in jurisdictions outside of the United States, and therefore will be subject to, and must comply with, regulatory requirements in those jurisdictions.

The FDA has significant post-market authority, including, for example, the authority to require labeling changes based on new safety information and to require post-market studies or clinical trials to evaluate serious safety risks related to the use of a drug and to require withdrawal of the product from the market. The FDA also has the authority to require a REMS plan after approval, which may impose further requirements or restrictions on the distribution or use of an approved drug.

The manufacturer and manufacturing facilities we use to make our product candidates, including our Cambridge facility, will also be subject to periodic review and inspection by the FDA and other regulatory agencies. To date, our manufacturing facility has not been subject to an inspection by any regulatory authority. The discovery of any new or previously unknown problems with us or our third-party manufacturers, or our or their manufacturing processes or facilities, may result in restrictions on the drug or manufacturer or facility, including withdrawal of the drug from the market. We have developed cGMP capabilities and processes for the manufacture of patisiran for Phase 3 clinical and early commercial use. We may not have the ability or capacity to manufacture material at a broader commercial scale in the future. 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 will also be subject to regulatory requirements and continuing regulatory review.

If we or our collaborators, manufacturers or service providers fail to comply with applicable continuing regulatory requirements in the United States or foreign jurisdictions in which we may seek to market our products, we or they may be subject to, among other things, fines, warning letters, holds on clinical trials, refusal by the FDA or foreign regulatory authorities to approve pending applications or supplements to approved applications, suspension or withdrawal of regulatory approval, product recalls and seizures, refusal to permit the import or export of products, operating restrictions, injunction, civil penalties 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 and efficacy of our product candidates, as demonstrated in clinical trials and as compared with alternative treatments, if any;

 

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relative convenience 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 adequate 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.

In addition, our estimates regarding the potential market size may be materially different from what we currently expect at the time we commence commercialization, which could result in significant changes in our business plan and may have a material adverse effect on our results of operations and financial condition.

If we or our collaborators, manufacturers or service providers fail to comply with healthcare laws and regulations, we or they could be subject to enforcement actions, which could affect our ability to develop, market and sell our products and may harm our reputation.

As a manufacturer of pharmaceuticals, we are subject to federal, state, and comparable foreign healthcare laws and regulations pertaining to fraud and abuse and patients’ rights. These laws and regulations include:

 

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the U.S. federal healthcare program anti-kickback law, which prohibits, among other things, persons from soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual for a healthcare item or service, or the purchasing or ordering of an item or service, for which payment may be made under a federal healthcare program such as Medicare or Medicaid;

 

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the U.S. federal false claims law, which prohibits, among other things, individuals or entities from knowingly presenting or causing to be presented, claims for payment by government-funded programs such as Medicare or Medicaid that are false or fraudulent, and which may apply to us by virtue of statements and representations made to customers or third parties;

 

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the U.S. federal Health Insurance Portability and Accountability Act and Health Information Technology for Economic and Clinical Health Act, which impose requirements relating to the privacy, security, and transmission of individually identifiable health information; and require notification to affected individuals and regulatory authorities of certain breaches of security of individually identifiable health information;

 

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the U.S. federal Open Payments requirements were implemented by The Centers for Medicare and Medicaid Services, or CMS, pursuant to The Patient Protection and Affordable Care Act, also referred to as the PPACA or the Affordable Care Act. Under the National Physician Payment Transparency Program, manufacturers of medical devices, biological products and drugs covered by Medicare, Medicaid and Children’s Health Insurance Programs report all transfers of value, including consulting fees, travel reimbursements, research grants, and other payments or gifts with values over $10 made to physicians and teaching hospitals; and

 

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state and foreign laws comparable to each of the above federal laws, such as, for example, anti-kickback and false claims laws applicable to commercial insurers and other non-federal payors, requirements for mandatory corporate regulatory compliance programs, and laws relating to government reimbursement programs, patient data privacy and security.

If our operations are found to be in violation of any such requirements, we may be subject to penalties, including civil or criminal penalties, criminal prosecution, monetary damages, the curtailment or restructuring of our operations, loss of eligibility to obtain approvals from the FDA, or exclusion from participation in government contracting, healthcare reimbursement or other government programs, including Medicare and Medicaid, or the imposition of a corporate integrity agreement with the Office of Inspector General of the Department of Health and Human Services, any of which could adversely affect our financial results. Although effective compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, these risks cannot be entirely eliminated. Any action against us for an alleged or suspected violation could cause us to incur significant legal

 

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expenses and could divert our management’s attention from the operation of our business, even if our defense is successful. In addition, achieving and sustaining compliance with applicable laws and regulations may be costly to us in terms of money, time and resources.

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, among others:

 

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adverse regulatory inspection findings;

 

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warning letters;

 

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voluntary or mandatory 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, or prohibitions against, importation or exportation of our products;

 

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suspension of review or refusal to approve pending applications or supplements to approved 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, up to and including criminal prosecution resulting in fines, exclusion from healthcare reimbursement programs and imprisonment.

Moreover, federal, state or foreign laws or regulations are subject to change, and while we, our collaborators, manufacturers and/or service providers currently may be compliant, that could change due to changes in interpretation, prevailing industry standards or the legal structure.

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. We are monitoring these regulations as several of our programs move into later stages of development, however, many of our programs are currently in the earlier 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 and potentially in other countries due to reference pricing.

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. Increasingly, the third-party payors who reimburse patients or healthcare providers, 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 or the amounts reimbursed for pharmaceutical products. If the price we are able to charge for any products we develop, or the reimbursement provided for such products, is inadequate in light of our development and other costs, our return on investment could be adversely affected.

 

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We currently expect that any drugs we develop may need to be administered under the supervision of a physician on an outpatient basis. Under currently applicable U.S. law, certain drugs that are not usually self-administered (including injectable drugs) may be eligible for coverage under the Medicare Part B program if:

 

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they are incident to a physician’s 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 standards of medical practice; and

 

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they have been approved by the FDA and meet other requirements of the statute.

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 or foreign regulatory authorities. 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 healthcare 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 adequate reimbursement rates from both government-funded and private payors for new drugs that we develop and for which we obtain regulatory approval 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 and legislative and regulatory proposals to broaden the availability of healthcare will continue to affect the business and financial condition of pharmaceutical and biopharmaceutical companies. A number of legislative and regulatory changes in the healthcare system in the United States and other major healthcare markets have been proposed in recent years, and such efforts have expanded substantially in recent years. These developments have included prescription drug benefit legislation that was enacted in 2003 and took effect in January 2006, healthcare reform legislation enacted by certain states, and major healthcare reform legislation that was passed by Congress and enacted into law in the United States in 2010. These developments could, directly or indirectly, affect our ability to sell our products, if approved, at a favorable price.

In particular, in March 2010, the PPACA was signed into law. This legislation changed the system of healthcare insurance and benefits intended to broaden coverage and control costs. The law also contains provisions that affect companies in the pharmaceutical industry and other healthcare related industries by imposing additional costs and changes to business practices. Provisions affecting pharmaceutical companies include the following:

 

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Mandatory rebates for drugs sold into the Medicaid program were increased, and the rebate requirement was extended to drugs used in risk-based Medicaid managed care plans.

 

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The 340B Drug Pricing Program under the Public Health Service Act was extended to require mandatory discounts for drug products sold to certain critical access hospitals, cancer hospitals and other covered entities.

 

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Pharmaceutical companies are required to offer discounts on brand-name drugs to patients who fall within the Medicare Part D coverage gap, commonly referred to as the “Donut Hole.”

 

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Pharmaceutical companies are required to pay an annual non-tax deductible fee to the federal government based on each company’s market share of prior year total sales of branded products to certain federal healthcare programs, such as Medicare, Medicaid, Department of Veterans Affairs and Department of Defense. Since we expect our branded pharmaceutical sales to constitute a small portion of the total federal health program pharmaceutical market, we do not expect this annual assessment to have a material impact on our financial condition.

 

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The law provides that approval of an application for a follow-on biologic product may not become effective until 12 years after the date on which the reference innovator biologic product was first licensed by the FDA, with a possible six-month extension for pediatric products. After this exclusivity ends, it will be easier for generic manufacturers to enter the market, which is likely to reduce the pricing for such products and could affect our profitability.

 

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The full effects of the U.S. healthcare reform legislation cannot be known until the law is fully implemented through regulations or guidance issued by the CMS and other federal and state healthcare agencies. The financial impact of the U.S. healthcare reform legislation over the next few years will depend on a number of factors, including, but not limited, to the policies reflected in implementing regulations and guidance, and changes in sales volumes for products affected by the new system of rebates, discounts and fees. This legislation may also have a positive impact on our future net sales, if any, by increasing the aggregate number of persons with healthcare coverage in the United States.

Moreover, we cannot predict what healthcare reform initiatives may be adopted in the future. Further federal and state legislative and regulatory developments are likely, 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 product candidates that we may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop drug candidates.

Our ability to obtain services, reimbursement or funding from the federal government may be impacted by possible reductions in federal spending.

Under the Budget Control Act of 2011, the failure of Congress to enact deficit reduction measures of at least $1.2 trillion for the years 2013 through 2021 triggered automatic cuts to most federal programs. These cuts included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, starting in 2013. Under the American Taxpayer Relief Act of 2012, which was enacted on January 1, 2013, the imposition of these automatic cuts was delayed until March 1, 2013. As required by law, President Obama issued a sequestration order on March 1, 2013. Certain of these automatic cuts have been implemented resulting in reductions in Medicare payments to physicians, hospitals, and other healthcare providers, among other things. The full impact on our business of these automatic cuts is uncertain.

If other federal spending is reduced, any budgetary shortfalls may also impact the ability of relevant agencies, such as the FDA or National Institutes of Health to continue to function. Amounts allocated to federal grants and contracts may be reduced or eliminated. These reductions may also impact the ability of relevant agencies to timely review and approve drug research and development, manufacturing, and marketing activities, which may delay our ability to develop, market and sell any products we may develop.

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, testing, 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 approved indications for which they may be used, or suspension or withdrawal of approvals. Regardless of the merits or eventual outcome, liability claims may also result in decreased demand for our products, injury to our reputation, costs to defend the related litigation, a diversion of management’s time and our resources, substantial monetary awards to trial participants or patients and a decline in our stock price. 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 product 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, development and manufacturing 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, development and manufacturing 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 facilities comply with the relevant guidelines of the City of Cambridge, the Commonwealth of Massachusetts and the Occupational Safety and Health Administration of the U.S. Department of Labor. Although

 

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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 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 United States 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. Similarly, the ultimate degree of protection that will be afforded to biotechnology inventions, including ours, in the United States and foreign countries, remains uncertain and is dependent upon the scope of the protection decided upon by patent offices, courts and lawmakers. Moreover, there are periodic discussions in the Congress of the United States and in international jurisdictions about modifying various aspects of patent law. For example, the America Invents Act includes a number of changes to the patent laws of the United States. If any of the enacted changes do not provide adequate protection for discoveries, including our ability to pursue infringers of our patents for substantial damages, our business could be adversely affected. One major provision of the America Invents Act, which took effect in March 2013, changed United States patent practice from a first-to-invent to a first-to-file system. If we fail to file an invention before a competitor files on the same invention, we no longer have the ability to provide proof that we were in possession of the invention prior to the competitor’s filing date, and thus would not be able to obtain patent protection for our invention. 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

 

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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, CRT, Isis, MIT, Whitehead, Max Planck Innovation, Tekmira and Arrowhead. 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.

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 European Patent Office, or 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 and modifications that we may need to apply to our siRNA therapeutic 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.

 

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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. For example, in March 2011, Tekmira filed a civil complaint against us alleging, among other things, misappropriation of the plaintiffs’ confidential and proprietary information and trade secrets. In November 2012, we settled this litigation and restructured our contractual relationship with Tekmira. In connection with this restructuring, we incurred a $65.0 million charge to operating expenses during the quarter ended December 31, 2012. In addition, during the pendency of the litigation, we incurred significant costs, and the defense of this litigation diverted the attention of our management and other resources that would otherwise have been engaged in other activities.

Furthermore, third parties may challenge the inventorship of our patents or licensed patents. For example, in March 2011, Utah filed a complaint in the United States District Court for the District of Massachusetts against us, Max Planck, Whitehead, MIT and UMass, claiming that a professor of Utah is the sole inventor, or in the alternative, a joint inventor of certain of our in-licensed patents. Utah is seeking correction of inventorship of the Tuschl patents, unspecified damages and other relief. In October 2011, we, Max Planck, Whitehead, MIT and UMass filed a motion to dismiss and UMass filed a motion to dismiss on separate grounds, which we, Max Planck, Whitehead and MIT joined. In December 2011, Utah filed a second amended complaint dropping UMass as a defendant and adding as defendants several UMass officials. In June 2012, the Court denied both motions to dismiss. We, Max Planck, Whitehead, MIT and UMass filed an appeal of the Court’s ruling on the motion to dismiss for lack of jurisdiction and a motion requesting that the Court stay the case pending the outcome of the appeal. In July 2012, the Court stayed discovery in the case pending the outcome of the defendants’ appeal. In August 2013, the United States Court of Appeals for the Federal Circuit, or CAFC, affirmed the lower Court’s ruling, in a split decision. In September 2013, we filed a petition with the CAFC for rehearing or rehearing en banc. In November 2013, the CAFC denied our petition for rehearing or rehearing en banc and remanded the case back to the lower Court. In February 2014, we filed a petition for writ of certiorari from the Supreme Court and a motion to stay the lower Court proceedings pending a decision from the Supreme Court on our petition. The lower Court granted our motion to stay the proceedings, however, in June 2014, the Supreme Court denied our petition for certiorari and remanded the case back to the United States District Court for the District of Massachusetts for trial, which is now scheduled to begin on November 2, 2015. On March 30, 2015, Utah voluntarily dismissed its sole inventorship claims leaving joint inventorship and state law damages claims pending. Utah subsequently clarified that such dismissal was with prejudice. On March 31, 2015, we filed motions for summary judgment seeking dismissal of all remaining claims. A ruling on these motions is expected in the third quarter of 2015.

In addition, in connection with certain license and collaboration agreements, we have agreed to indemnify certain third parties for certain costs incurred in connection with litigation relating to intellectual property rights or the subject matter of the agreements. 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 litigation would divert our management’s 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 delay our research and development efforts and limit our ability to continue our operations.

If any parties successfully claim that our creation or use of proprietary technologies infringes upon or otherwise violates 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.

 

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If we fail to comply with our obligations under any licenses or related agreements, we may be required to pay damages and could lose license or other rights that are necessary for developing and protecting our RNAi technology and any related product candidates that we develop, or we could lose certain rights to grant sublicenses.

Our current licenses impose, and any future licenses we enter into are likely to impose, various development, commercialization, funding, milestone, royalty, diligence, sublicensing, insurance, patent prosecution and enforcement, and other obligations on us. If we breach any of these obligations, or use the intellectual property licensed to us in an unauthorized manner, we may be required to pay damages and 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. For example, Tekmira has notified us that it believes it has achieved a $5.0 million milestone payment under our cross-license agreement relating to the manufacture of ALN-VSP clinical trial material for use in China. We have notified Tekmira that we do not believe that the milestone has been achieved under the terms of the cross-license agreement. In August 2013, we initiated binding arbitration proceedings seeking a declaratory judgment that Tekmira has not yet met the conditions of the milestone and is not entitled to payment at this time. If it is determined through arbitration that Tekmira has met the requirements of the milestone, we will have to pay Tekmira the milestone, plus potentially interest. We currently expect that the Tekmira arbitration hearing will be held during May 2015.

Moreover, our licensors may own or control intellectual property that has not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringing or otherwise violating the licensor’s rights. 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.

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

 

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future, for the treatment of conditions for which we may try to develop drugs. These drugs may be more effective, safer, less expensive, or marketed and sold more effectively, than any products we develop. For example, we are developing patisiran for the treatment of ATTR amyloidosis patients suffering from FAP. We are aware of other approved products used to treat this disease, as well as product candidates in various stages of clinical development. Patisiran may not compete favorably with these products and product candidates, and even if approved, it may not achieve commercial success.

If we successfully develop product 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 relative to alternative therapies, if any;

 

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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.

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 product candidates. Such competitors could also recruit our employees, which could negatively impact our level of expertise and the ability to execute on our business plan. 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 product candidates noncompetitive, obsolete or uneconomical.

We face competition from other companies that are working to develop novel drugs and technology platforms 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 may 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 multiple companies that are working in the field of RNAi. In addition, we granted licenses or options for licenses to Isis, Benitec Ltd., Arrowhead and its subsidiary, Calando Pharmaceuticals, Inc., Tekmira, Quark Pharmaceuticals, Inc., Sylentis S.A. 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.

In addition, as a result of agreements that we have entered into, Arrowhead, as the assignee of Roche, and Takeda have obtained non-exclusive licenses, and Arrowhead, as the assignee of Novartis, has obtained specific exclusive licenses for 30 gene targets, 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 therapeutics, antisense drugs target mRNAs, in order to suppress the activity of specific genes. Isis is currently marketing an antisense drug and has several antisense product candidates in clinical trials, including one for the treatment of ATTR amyloidosis. 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.

 

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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 has fluctuated and may continue to 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 stock volatility.

Our stock price may fluctuate for many reasons, including as a result of public announcements regarding the progress of our development efforts or the development efforts of our collaborators and/or competitors, the addition or departure of our key personnel, variations in our quarterly operating results and changes in market valuations of pharmaceutical and biotechnology companies. 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.

Sales of additional shares of our common stock, including by us or our directors and officers, could cause the price of our common stock to decline.

Sales of substantial amounts of our common stock in the public market, or the availability of such shares for sale, by us or others, including the issuance of common stock upon exercise of outstanding options, could adversely affect the price of our common stock.

Genzyme’s ownership of our common stock could delay or prevent a change in corporate control.

Genzyme currently holds approximately 12% of our outstanding common stock and has the right to increase its ownership up to 30%, as well as the right to maintain its ownership percentage through the term of our collaboration, subject to certain limitations. 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.

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 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.

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.

ITEM 5. OTHER INFORMATION.

On May 5, 2015, we entered into a non-cancelable real property lease agreement with RREEF for office space located on several floors at 101 Main Street, Cambridge, Massachusetts. This lease supplements a lease entered into in March 2015 between us and RREEF for office space on the 10^th floor of the 101 Main Street location.

Under the terms of the 101 Main Street leases, we will lease approximately 72,000 square feet of office space at the 101 Main Street location. The term of the 10^th floor lease commenced in March 2015 and has a four-year term, with an option to renew for one five-year term, subject to the terms of the 10^th floor lease. The term of the additional lease at 101 Main Street will commence on January 1, 2016 and has a five and a half year term, with an option to renew for one five-year term, subject to the terms of the additional lease.

Initial annual rent for the 10^th floor lease and the additional lease, exclusive of operating expenses and real property taxes, will be $1.7 million and $3.5 million, respectively, with annual increases of $1/square foot under each lease thereafter. We expect rent payments to commence in May 2015 under the 10^th floor lease and in May 2016 under the additional lease.

The 101 Main Street leases contain customary provisions allowing RREEF to terminate the leases if we fail to remedy a breach of any of our obligations within specified time periods, or upon our bankruptcy or insolvency.

ITEM 6. EXHIBITS.

 

10.1		2015 Annual Incentive Program.
10.2†		Second Amended and Restated Strategic Collaboration and License Agreement dated January 8, 2015 between Isis Pharmaceuticals, Inc. and the Registrant.
10.3†		Amendment to Research Collaboration and License Agreement dated as of February 27, 2015, by and between Novartis Institutes for BioMedical Research, Inc. (which assigned its rights and obligations to Arrowhead Research Corporation) and the Registrant.
31.1		Certification of principal executive officer pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
31.2		Certification of principal financial officer pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
32.1		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.
32.2		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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101		The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Comprehensive Loss, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements.

 

†	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.

 

				ALNYLAM PHARMACEUTICALS, INC.
Date: May 8, 2015				/s/ John M. Maraganore John M. Maraganore, Ph.D. Chief Executive Officer (Principal Executive Officer)
Date: May 8, 2015				/s/ Michael P. Mason Michael P. Mason Vice President of Finance and Treasurer (Principal Financial and Accounting Officer)

 

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Exhibit 10.1

Alnylam Pharmaceuticals, Inc.

2015 Annual Incentive Program

Summary Description

In February 2015, the Compensation Committee of the Board of Directors (the “Board”) of Alnylam Pharmaceuticals, Inc. (“Alnylam” or the “Company”) approved the 2015 Annual Incentive Program (the “Bonus Plan”) to incent and reward all regular employees based upon their performance relative to pre-established 2015 corporate and individual goals and objectives, and retain company employees by establishing an important element of Alnylam’s total rewards package consistent with Alnylam’s compensation philosophy and operating strategy.

Eligibility

All regular employees, who are employed by the Company both before October 15, 2015 and on December 31, 2015 (collectively, “Plan Participants”), are eligible to receive an annual cash bonus (a “Bonus Award”) based upon achievement of individual and corporate goals and objectives for 2015. The Compensation Committee may, in its discretion, include employees who join the Company after October 15, 2015 as Plan Participants. Bonus Awards for Plan Participants who have been employed with the Company for less than one year as of December 31, 2015 may be pro-rated by the Compensation Committee, in its discretion.

Goals

The corporate goals for 2015 were proposed by the Company’s executive officers and approved by the Board. Bonus Awards for the Company’s executive officers will be based entirely upon achievement of the corporate goals and each executive officer’s contributions to the achievement of those goals. Individual objectives for all other Plan Participants were approved by the employees’ direct supervisor.

Awards

Under the Bonus Plan, each Plan Participant has an established target award, as set forth in the table below, representing a percentage of the Plan Participant’s annual base salary at year-end (a “Target Award”).

 

2015 Annual Incentive Program Target Awards
Title/Level		Target Award (% of Base Salary)
Chief Executive Officer			60	%
President and Chief Operating Officer			50	%
Executive Vice President			50	%
Senior Vice President			40	%
Vice President			30	%
Senior Director			25	%
Director			20	%
Associate Director			15	%
Senior Professionals			10	%
All Other Regular Employees			7.5	%

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Bonus Awards under the Bonus Plan, if any, will be determined by first establishing a bonus pool (the “Bonus Pool”). The Bonus Pool will be calculated by (1) aggregating each Plan Participant’s Target Award and then (2) multiplying that sum by a modifier established by the Compensation Committee that is based on the Company’s performance as measured against the 2015 corporate goals (the “Corporate Performance Level”). The Corporate Performance Level for 2015 will range from 0% to 130%; provided, however, that the Corporate Performance Level can only exceed 100% upon the achievement of specified clinical development goals and further provided that, if the Corporate Performance Level for 2015 falls below a threshold of 50%, no Bonus Awards will be paid under the Bonus Plan.

The Bonus Pool will then be allocated among the Plan Participants based upon a consideration of each Plan Participant’s title/level and salary (as reflected by their Target Award percentage) and (i) with respect to Plan Participants who are executive officers, the Corporate Performance Level, as well as each executive officer’s contributions to achievement of the 2015 corporate goals, and (ii) with respect to all other Plan Participants, their 2015 year-end performance ratings, which shall be determined by their performance against their individual objectives for 2015, overall job performance and support of the Company’s core values.

The Compensation Committee retains the discretion under the Bonus Plan to adjust upward or downward any Bonus Award and/or the Bonus Pool as it deems appropriate.

In December 2015, the Compensation Committee plans to evaluate the Company’s performance against the established corporate goals, establish the Bonus Pool, if any, available under the Bonus Plan and approve the individual Bonus Awards for each executive officer. The Company’s management will evaluate the individual performance and contributions of the other Plan Participants, and determine the amount of the Bonus Awards to be granted from the Bonus Pool. This determination is expected to be made on or before December 31, 2015 and any Bonus Awards granted to Plan Participants under the Bonus Plan are expected to be made in cash and to be paid in January 2016.

Administration; Amendment

The Bonus Plan is administered by the Compensation Committee. The Compensation Committee has full power and authority to interpret and make all decisions regarding the Bonus Plan, and its decisions and interpretations are final and binding on all Plan Participants. The Compensation Committee or the full Board may amend the Bonus Plan in any manner at any time without the consent of any Plan Participant.

Exhibit 10.2

Execution Copy

SECOND AMENDED AND RESTATED

STRATEGIC COLLABORATION AND

LICENSE AGREEMENT

This Second Amended and Restated Strategic Collaboration and License Agreement (the “Agreement”) is executed this January 8, 2015 (the “Second Restatement Date”), between Isis Pharmaceuticals, Inc., a Delaware corporation having an address at 2855 Gazelle Court, Carlsbad, CA 92010 (“Isis”) and Alnylam Pharmaceuticals, Inc., a Delaware corporation having an address at 300 Third Street, Cambridge, MA 02142 (“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 continue to pursue RNAi therapeutics and the use of Double Stranded RNA. Alnylam has no present plans to pursue Single Stranded Products;

Isis and Alnylam are parties to the Amended and Restated Strategic Collaboration and License Agreement dated April 28, 2009 (as amended to date, the “First Restated Agreement”), which amended and restated the Strategic Collaboration and License Agreement dated March 11, 2004 (as amended through April 28, 2009 (the “First Restatement Date”), the “Original Agreement”) to, among other things, provide each Party with certain 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; and

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

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Isis and Alnylam now wish to amend and restate the First Restated Agreement to (i) reflect the termination of the Research Program and certain rights of Alnylam with respect to Single Stranded RNAi Compounds and Single Stranded RNAi Products, (ii) expand the First Restated Agreement by providing each other (x) non-exclusive licenses to certain additional Patents of the respective Parties and (y) exclusive licenses to research, develop and commercialize oligomeric compounds directed to certain RNA Targets in the Field.

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.

 

•

Enhance the patent positions of each Party with respect to certain Double Stranded RNA drugs.

 

•

Provide Isis with a means for participating in the success of RNAi therapeutics.

 

•

Enhance the potential of Isis to develop Single Stranded Compound drugs.

 

•

Provide Alnylam with exclusive rights to research, develop and commercialize oligomeric compounds for certain RNA Targets in the Field.

 

•

Provide Isis with exclusive rights to research, develop and commercialize oligomeric compounds for certain RNA Targets in the Field.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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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 Second Restatement Date, this Agreement restates and supersedes the First Restated Agreement as amended through the Second Restatement Date. The terms and conditions of the First Restated Agreement shall apply for the period from the First Restatement Date until the Second 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 [Intentionally Deleted]

4.2 [Intentionally Deleted]

4.3 Isis Enabled Targets for Single Stranded RNAi.

(a) Enabled Targets. Isis will have a pool (the “Enabled Target Pool”) containing [***] slots for which Isis can designate certain RNA Targets against which Isis intends to research, develop and commercialize a Single-Stranded RNAi Product (each such slot, an “Enabled Target Slot” and any RNA Target occupying such a slot, an “Enabled Target”); provided, however, that, each time Isis designates as a Development Candidate a Single Stranded RNAi Product Designed for one of Isis’

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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Enabled Targets, then (i) such Enabled Target will be considered to have graduated from Isis’ Enabled Target Pool (a “Graduated Enabled Target”), (ii) Isis will be permitted to designate a new Enabled Target to fill the open Enabled Target Slot in Isis’ Enabled Target Pool, and (iii) so long as Isis 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 Isis hereunder. For purposes of clarity, except as set forth in 6.1(h)(i) and 6.1(l), as applicable, Isis may not practice the Alnylam Patent Rights to research, develop or commercialize a Single Stranded RNAi Product other than a Single Stranded RNAi Product Designed for one of Isis’ Enabled Targets.

(b) [Intentionally Deleted]

(c) Designating Enabled Targets. From time to time after the Second Restatement Date Isis may designate an RNA Target as an Enabled Target upon written notice to Alnylam; provided, that there is an open Enabled Target Slot in the Enabled Target Pool. At no time during the period commencing with the Second Restatement Date and ending upon the expiration of the Alnylam Exclusive Target Royalty Term may Isis designate an Alnylam Exclusive Target as an Enabled Target.

(d) Removing Enabled Targets. From time to time after the Second Restatement Date Isis may remove an RNA Target from the Enabled Target Pool upon written notice to Alnylam (which removal will create an open Enabled Target Slot). In addition, on an Enabled Target-by-Enabled Target basis, if Isis 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 Isis added the applicable Enabled Target to the Enabled Target Pool, then such RNA Target will be automatically removed from the Enabled Target Pool. Once Isis removes an RNA Target from its Enabled Target Pool (whether voluntarily or by operation of this Section 4.3(d)), such RNA Target shall no longer be deemed an Enabled Target hereunder and Isis will be prevented from later adding such RNA Target to its Enabled Target Pool until [***] months have passed from the date such RNA Target was removed.

(e) [Intentionally Deleted]

(f) Confidentiality. The fact that Isis has designated or removed a particular RNA Target within the Enabled Target Pool is Confidential Information of Isis, subject to the provisions of Article 12. Alnylam shall not disclose such Confidential Information of Isis to any Third Party, including its Third Party collaborators, or use such Confidential Information to guide its own (or its Third Party collaborators’) decisions to pursue particular RNA Targets, but Alnylam can use such Confidential Information to decline a Third Party’s request for a license to such RNA Target.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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ARTICLE 5

LICENSES GRANTED BY ISIS TO ALNYLAM

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) Subject to the terms of Section 11.8, 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) [Intentionally Deleted].

(c) Subject to the terms of Section 11.8, 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) [Intentionally Deleted].

(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) Subject to the terms of Section 11.8, under Isis Extended Field Patents, a license to research, develop, make, have made, use, import, offer to sell and sell Double Stranded RNA and Double Stranded RNA Products, other than Alnylam Exclusive Target Products in the Field.

(h) Subject to the terms of Section 11.8, under Isis Exclusive Target Patents, a license to research, develop, make, have made, use, import, offer to sell and sell Alnylam Exclusive Target Products in the Field.

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 license from Isis to Alnylam granted in Section 5.1(a) is 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),

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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(e), (f), and (g) are worldwide and nonexclusive; and the license from Isis to Alnylam granted in Section 5.1(h) is 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 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. Alnylam is not permitted to grant sublicenses under the licenses granted in Section 5.1(f). Alnylam is not permitted to grant sublicenses under the license granted in Section 5.1(g) except that Alnylam is permitted to grant sublicenses in connection with a Bona Fide Third Party Collaboration. Alnylam is permitted to grant sublicenses under the license granted in Sections 5.1(h) except only that any such sublicense granted with respect to a Single Stranded Compound, Single Stranded Product, Single Stranded RNAi Compound or Single Stranded RNAi Product is subject to Isis’ prior written consent, which consent may be withheld in Isis’ sole discretion. Notwithstanding anything to the contrary in the foregoing, Alnylam is permitted to grant sublicenses under its licenses in Section 5.1 to its Affiliates.

(b) [Intentionally deleted]

(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.

(d) Notwithstanding the foregoing, (i) Alnylam acknowledged and permits the license Isis granted[***], as amended through the First 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) subject to the exclusive license grant to Alnylam in Section 5.1(h), Isis may continue to grant licenses to Third Parties under the Isis Patent Rights for the purpose of manufacturing and selling oligonucleotides; provided that, to the extent such licenses cover Double Stranded RNA Isis will restrict such licenses to [***] and will exclude Agricultural Field Products from such licenses granted after August 27, 2012.

5.3 Limitations on Licenses.

(a) The licenses granted under Section 5.1(a) through (g) above do not grant any rights to Alnylam to practice the Isis Excluded Technology. The licenses granted under Section 5.1(h) above do not grant any rights to Alnylam to practice the Isis Exclusive Target Excluded Technology. If Alnylam wishes to license any Isis Excluded Technology or Isis Exclusive Target Excluded Technology for which Isis has the right to grant a license or sublicense, Isis will negotiate in good faith an appropriate license.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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(b) Notwithstanding the licenses granted to Alnylam under Section 5.1, Isis retains its rights in the Isis Patent Rights, in the Joint Patents, and in the Isis Extended Field Patents (i) exclusively for the Isis Reserved DS-Targets, (ii) exclusively for the Isis Encumbered Targets, and (iii) exclusively for the Isis Exclusive Targets. Once a particular contractual restriction expires on an Isis Encumbered Target, Alnylam’s 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.

(c) Licenses to Isis Patent Rights, Isis Extended Field Patents and Isis Exclusive Target Patents 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 Second Restatement Date are set forth in Exhibit 5.3(c) attached hereto.

(d) Licenses to Isis Patent Rights, Isis Extended Field Patents and Isis Exclusive Target Patents that are subject to contractual obligations between Isis and Third Parties in effect as of the Second Restatement Date are licensed (i) subject to the restrictions and other terms described in the Isis Third Party Agreements, and (ii) with respect to Agricultural Field Products, to the extent Isis has the right under such Third Party Agreements to grant such a license for Agricultural Field Products. Prior to the Second Restatement Date, Isis has provided Alnylam with copies of the Isis Third Party Agreements, provided, that Isis may redact copies of out-licenses Isis has granted Third Parties so long as the redacted terms do not limit Alnylam’s rights hereunder or create obligations for Alnylam. Alnylam hereby agrees to comply, and to cause its sublicensees to comply, with such restrictions and other terms.

(e) Notwithstanding the exclusive nature of the license granted by Isis to Alnylam under Section 5.1(h), Isis may grant Permitted Licenses.

(f) The license to Isis Extended Field Patents granted in Section 5.1(g) does not include any rights with respect to Double Stranded RNA or Double Stranded RNA Products that are designed to modulate any Isis Retained Targets. Isis will endeavor in good faith and use commercially reasonable and diligent efforts to

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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take all actions reasonably necessary, without any obligation on the part of Isis to compensate any Person, to enable Isis to grant a license to Alnylam pursuant to Section 5.1(g) with respect to Double Stranded RNA and Double Stranded RNA Products that are designed to modulate each Isis Retained Target other than the Isis Retained Special Target(s), within [***] days after the Second Restatement Date, and will continue to do so until such ability to license Alnylam is obtained with respect to each Isis Retained Target other than the Isis Retained Special Target(s). Isis will promptly notify Alnylam when such ability to license Alnylam is obtained, and effective upon delivery of such notice to Alnylam, the applicable RNA Target will automatically no longer be an Isis Retained Target, and the Parties will update Schedule 1-69 accordingly as promptly as feasible.

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) in any Third Party collaboration 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 Diligence on Alnylam Exclusive Targets. For each Alnylam Exclusive Target, Alnylam will use Commercially Reasonable Efforts (either on its own, with an Affiliate or in a Bona Fide Third Party Collaboration) to develop and commercialize [***].

ARTICLE 6

LICENSES GRANTED BY ALNYLAM TO ISIS; AND

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) Subject to the terms of Section 11.8, 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) [Intentionally Deleted].

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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(c) Subject to the terms of Section 11.8, 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.

(d) [Intentionally Deleted].

(e) Subject to the terms of Section 11.8, 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) [Intentionally Deleted].

(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) Subject to the terms of Section 11.8, 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) [Intentionally Deleted].

(j) Under Alnylam’s 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.

(k) Subject to the terms of Section 11.8, a nonexclusive license under Alnylam Extended Field Patents to research, develop, make, have made, use, import, offer to sell and sell Single Stranded Products, other than Isis Exclusive Target Products in the Field.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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(l) Subject to the terms of Section 11.8, an exclusive license under Alnylam Exclusive Target Patents to research, develop, make, have made, use, import, offer to sell and sell Isis Exclusive Target Products in the Field.

6.2 License Option. For each RNA 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, subject to the terms of Section 11.8, Alnylam Current Motif and Mechanism Patents, Alnylam Current Chemistry Patents and Alnylam’s 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) [***] 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 Party’s rights or (iii) the date Isis [***] 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), 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(e), 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). With respect to the licenses granted by Alnylam pursuant to Section 6.1(h), 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 Program) 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 [***] if requested by Isis and approved in writing by Alnylam, such approval not to be unreasonably withheld). Isis is

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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not permitted to grant sublicenses under the license granted in Section 6.1(k), except that Isis is permitted to grant sublicenses in connection with a Bona Fide Third Party Collaboration. Isis is permitted to grant sublicenses under the license granted in Section 6.1(l), except only that any such sublicense granted with respect to a Double Stranded RNA or a Double Stranded RNA Product is subject to Alnylam’s prior written consent, which consent may be withheld in Alnylam’s sole discretion. Notwithstanding anything to the contrary in the foregoing, Isis is permitted to grant sublicenses under its licenses in Sections 6.1 and 6.2 to its Affiliates.

(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 RNA Targets other than the Alnylam Exclusive Targets solely for Antisense Drug Discovery Programs (each such slot, a “DS-Target Slot” and any RNA 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 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), Isis may not practice the Alnylam Patent Rights to 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 Second Restatement Date sets forth the Reserved DS-Targets as of the Second Restatement Date.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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(c) Removing/Adding DS-Targets. After the Second Restatement Date and no more than once in any [***] month period (a “Target Reallocation Period”), Isis may do any of the following:

(i) Remove an RNA Target from the Isis DS-Target Pool (which, following such removal will create an open DS-Target Slot); or

(ii) Add a new RNA 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 an RNA 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 an RNA Target from the Isis DS-Target Pool, Isis will be prevented from later adding such RNA Target to the Isis DS-Target Pool until [***] months have passed from the date Isis removed such RNA Target.

(d) New Target Request. When Isis wishes to add a new RNA Target to occupy a vacant DS-Target Slot, it will provide Alnylam with written notice (the “Request Notice”) of the RNA 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 [***] days 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 Alnylam’s receipt of the Request Notice. If, at such time, the Proposed Reserved DS-Target is (i) subject to Alnylam’s 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, (iii) the subject of Alnylam’s good faith negotiations to enter into a contractual obligation within the [***] months 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, or (iv) an Alnylam Exclusive 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 [***]

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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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 RNA Targets in the absence of a reasonable intent to discover and develop products that modulate such RNA 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 Alnylam’s reasonable business judgment.

(i) Confidentiality. The fact that Isis has designated or removed a particular RNA Target within the Isis DS-Target Pool is Confidential Information of Isis, or that Alnylam has rejected a particular RNA Target proposed for a DS-Target Slot or disallowed the redesignation of a particular RNA 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 RNA Targets, but Alnylam can use such Confidential Information of Isis to decline a Third Party’s request for a license to such RNA Target.

6.5 Limitations on Licenses.

(a) The licenses granted under Sections 6.1(a) through (k) and 6.2 above do not grant any rights to Isis to practice the Alnylam Excluded Technology. The license granted under Section 6.1(l) above does not grant any rights to Isis to practice the Alnylam Exclusive Target Excluded Technology. The licenses granted under Sections 6.1 and 6.2 above do not grant any rights to Isis to practice the Alnylam Extended Field Patents or the Alnylam Exclusive Target Patents with respect to Agricultural Products in

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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the Agricultural Field. If Isis wishes to license any Alnylam Excluded Technology or Alnylam Exclusive Target 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, Alnylam Extended Field Patents or Alnylam Exclusive Target Patents 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. To Alnylam’s knowledge, as of the Second Restatement Date, there are no Alnylam Extended Field Patents or Alnylam Exclusive Target Patents subject to such retained rights.

(c) Licenses to Alnylam Patent Rights, Alnylam Extended Field Patents and Alnylam Exclusive Target Patents that are subject to contractual obligations between Alnylam and Third Parties in effect as of the Second Restatement Date are licensed subject to the restrictions and other terms of the Alnylam Third Party Agreements. Prior to the Second Restatement Date, Alnylam has provided Isis with copies of the Alnylam Third Party Agreements, the Stanford Agreement and the CRT Agreement, provided in each case Alnylam may redact copies of out-licenses Alnylam has granted Third Parties so long as the redacted terms do not limit Isis’ rights hereunder or create obligations for Isis. 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:

(i) licensed by Alnylam under the Agreement effective as of September 17, 2003 between The Board of Trustees of the Leland Stanford Junior University (“Stanford University”) and Alnylam Pharmaceuticals, Inc. (as amended, the “Stanford Agreement”); provided that with respect to any such licensed Patents that are or become issued Patents, Isis shall have the option of expanding its licenses to Alnylam Patent Rights, Alnylam Extended Field Patents and/or Alnylam Exclusive Target Patents (as applicable) hereunder to include such issued Patents by notifying Alnylam of such election and paying 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 become payable by Alnylam to Stanford University pursuant to the Stanford Agreement as a result of such expansion of Isis’ licenses and Isis’ (and its Affiliates’ and sublicensees’) exercise of its rights thereunder. Upon exercise of such option, the Stanford Agreement will be an Alnylam Third Party Agreement and Exhibit 6.5(c) updated accordingly, such Patents will be licensed to Isis subject to the restrictions and other terms of the Stanford Agreement and Isis hereby agrees to comply, and to cause its sublicensees to comply, with such restrictions and other terms;

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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(ii) licensed by Alnylam under the License Agreement effective July 18, 2003 between Cancer Research Technology Limited (“CRT”) and Alnylam Pharmaceuticals, Inc. (as amended, the “CRT Agreement”); provided that with respect to any such licensed Patents that are or become issued Patents, Isis shall have the option of expanding its licenses to Alnylam Patent Rights, Alnylam Extended Field Patents and/or Alnylam Exclusive Target Patents (as applicable) hereunder to include such issued Patents by notifying Alnylam of such election and paying 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 become payable by Alnylam to CRT pursuant to the CRT Agreement as a result of such expansion of Isis’ licenses and Isis’ (and its Affiliates’ and sublicensees’) exercise of its rights thereunder. Upon exercise of such option, the CRT Agreement will be an Alnylam Third Party Agreement and Exhibit 6.5(c) updated accordingly, such Patents will be licensed to Isis subject to the restrictions and other terms of the CRT Agreement and Isis hereby agrees to comply, and to cause its sublicensees to comply, with such restrictions and other terms;

(iii) that are Additional Rights (as defined in Section 11.8) Controlled by Alnylam’s wholly-owned subsidiary Sirna Therapeutics, Inc. as of the Second Restatement Date. If during the License Term Isis wishes to include such Additional Rights under the licenses granted to it by Alnylam pursuant to Article 6, Isis will notify Alnylam of its desire to do so and will assume all financial and other obligations to the licensors and/or sellers of such Additional Rights to Alnylam arising from the grant to Isis of such licenses. The Parties will negotiate in good faith regarding sharing any upfront payments or similar acquisition costs incurred by Alnylam to acquire such Additional Rights.

(e) Notwithstanding the licenses and other rights granted to Isis under Sections 6.1 and 6.2, Alnylam retains its rights in the Alnylam Patent Rights, the Joint Patents and the Alnylam Extended Field Patents exclusively for Alnylam Exclusive Targets. Notwithstanding the exclusive nature of the license granted by Alnylam to Isis under Section 6.1(l), Alnylam may grant Permitted Licenses.

(f) The license to Alnylam Extended Field Patents granted in Section 6.1(k) does not include any rights with respect to Single Stranded Products that are designed to modulate any Isis Retained Targets.

6.6 Alnylam Covenant to Isis Regarding Exclusivity for Single Stranded RNAi Products. Alnylam hereby covenants to Isis, that, after the Second Restatement Date, Alnylam will not itself, and will not grant to a Third Party a license under the

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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Alnylam Current Motif and Mechanism Patents, Alnylam Current Chemistry Patents, and/or Alnylam’s 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 and/or import Single Stranded RNAi Compounds or Single Stranded RNAi Products that are not Isis Exclusive Target Products for [***]; (ii) and may grant licenses to Third Parties to, research, develop, make, have made, use and/or import Alnylam Exclusive Target Products; and (iii) 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 [***], or (B) granting any Third Party a license under the [***].

6.7 Diligence on Isis Exclusive Targets. For each Isis Exclusive Target, Isis will use Commercially Reasonable Efforts (either on its own, with an Affiliate or in a Bona Fide Third Party Collaboration) [***].

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) In connection with the First Restated Agreement, Alnylam paid Isis an additional, irrevocable, noncreditable and non-refundable license fee of $11,000,000.

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 (other than Agricultural Field Products) by Alnylam, its Affiliates or sublicensees (except Naked Sublicensees) equal to [***]% of Net Sales of such Products. 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 (other than an Agricultural Field Product) that arise from Alnylam acquiring access to new technologies after the Effective Date; provided, however that (x) the royalty due under this section can never be less than a floor of [***]% and (y) additional royalties arising as the result of the addition, pursuant to Section 11.8, of Isis Current Chemistry Patents, Isis Current Motif and Mechanism Patents to the Isis Patent Rights licensed to Alnylam cannot be used to reduce the royalty.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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(b) Subject to the terms and conditions of this Agreement, and during the Alnylam Extended Field Royalty Term, Alnylam will pay to Isis royalties on sales of Alnylam Extended Field Products (other than Agricultural Field Products) by Alnylam, its Affiliates or sublicensees equal to [***]% of Net Sales of such Products.

(c) Subject to the terms and conditions of this Agreement, and during the Alnylam Exclusive Target Royalty Term, Alnylam will pay to Isis royalties on sales of Alnylam Exclusive Target Products (other than Agricultural Field Products) by Alnylam, its Affiliates or sublicensees equal to [***]% of Net Sales of such Products. Upon expiration of the Alnylam Exclusive Target Royalty Term, the license granted under Section 5.1(h) will terminate.

(d) Subject to the terms and conditions of, and during the term of, this Agreement, Alnylam will pay to Isis royalties on sales of Agricultural Field Products by Alnylam, its Affiliates or sublicensees equal to [***]% of Agricultural Field Product Net Sales. Alnylam may not reduce the royalty due under this subsection (d) for any additional royalties that Alnylam owes to Third Parties on such Agricultural Field Products.

(e) The royalties payable to Isis pursuant to Section 7.2(c) are in addition to, and not in lieu of, the royalties payable to Isis pursuant to Section 7.2(a). Specifically, if an Alnylam Exclusive Target Product (other than an Agricultural Field Product) is subject to the payment of royalties to Isis pursuant to Section 7.2(c) during the applicable Alnylam Exclusive Target Royalty Term and is also an Alnylam Double Stranded RNA Product, then the royalty calculated pursuant to Section 7.2(a) above will also be payable to Isis with respect to such Alnylam Exclusive Target Product for so long as such Alnylam Exclusive Target Product is an Alnylam Double Stranded RNA Product. However, if an Alnylam Exclusive Target Product that is subject to the payment of royalties to Isis pursuant to Section 7.2(c) is also an Alnylam Extended Field Product, it will not be subject to additional royalties under Section 7.2(b). Otherwise, only one royalty shall be due under this Section 7.2 with respect to the same unit of Product and if during any period the application of Sections 7.2(a), (b) and/or (c) to such Product in a country would result in different royalty rates being applied in order to calculate the royalty due with respect to Net Sales of such Product in such country in such period, then the greatest applicable royalty rate shall be applied.

7.3 Research and Development Milestones.

(a) [Intentionally Deleted]

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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(b) [Intentionally Deleted]

(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 [***] days after the first achievement of each of the following events:

 

Milestone Event		Milestone Payment
Initiation of Phase I Trial		US$	375,000
Initiation of Phase III Trial		US$	750,000
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 RNA Target to trigger such milestone payment, whether such milestone is achieved by Alnylam or an Affiliate or sublicensee of Alnylam.

Notwithstanding the foregoing, the provisions of this Section 7.3(c) shall not apply to any Agricultural Field Product.

(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 RNA Target within [***] days after such MicroRNA Product reaches the initiation of [***], and not for any other MicroRNA Product that is an Alnylam Product that modulates the particular RNA Target.

7.4 Sublicensing Revenue on Naked Sublicenses. With respect to Sublicense Revenue from each Naked Sublicense granted by Alnylam and its Affiliates under this Agreement, Alnylam will pay Isis within [***] days following receipt by Alnylam of such Sublicense Revenue (a) fifty percent (50%) of all such Sublicense Revenue that does not constitute royalty payments, and (b) [***] 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.

7.5 Technology Access Fees from Certain Collaborations.

(a) Alnylam will pay Isis a percentage of Technology Access Fees received by Alnylam and its Affiliates pursuant to Bona Fide Discovery Collaborations and Development Collaborations entered into between Alnylam and a

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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Third Party. Alnylam shall make such payment to Isis within [***] days 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 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 Discovery Collaboration or Development Collaboration that involves the same Alnylam Double Stranded RNA Product that triggered such milestone payment.

If Alnylam grants a sublicense under the Isis Exclusive Target Patents where the Patents sublicensed thereunder include Patents that are also Isis Patent Rights, then such sublicense will be treated as a Bona Fide Discovery Collaboration for purposes of this Section 7.5(a) and Alnylam will pay Isis a percentage of Technology Access Fees received by Alnylam and its Affiliates in connection with such sublicense. However, if Alnylam grants a sublicense under the Isis Exclusive Target Patents and/or the Isis Extended Field Patents and the Patents sublicensed thereunder do not include Isis Patent Rights (and do not include Isis Exclusive Target Patents that are also Isis Patent Rights), then no payments are due under this Section 7.5(a).

(b) Notwithstanding the foregoing, for any Bona Fide 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 Discovery Collaboration agreement reaching [***] (in which event Alnylam shall pay Isis such minimum fee within [***] days following such initiation of [***]) or within [***] days 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 amounts paid Isis pursuant to Section 7.5(a) above as the result of the same Bona Fide 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 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. Notwithstanding the foregoing, the provisions of this Section 7.5(b) shall not apply to any Bona Fide Discovery Collaboration involving solely Agricultural Field Products.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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7.6 Allocation of Sublicense Income. Each time Alnylam enters into a collaboration or license agreement pursuant to which Alnylam grants a sublicense under the Isis Patent Rights to a Third Party that only relates to Double Stranded RNA (an “Isis IP Sublicense”), the CEO of Isis and the CEO of Alnylam will mutually discuss and agree in writing upon a good faith determination as to whether such Isis IP Sublicense is a Naked Sublicense or a Bona Fide Discovery Collaboration or Development Collaboration or Bona Fide Third Party Collaboration. 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, (5) Isis Single Stranded Product, or (6) Alnylam Exclusive Target Products. Alnylam shall make such payment to Isis within [***] days 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 RNA Target.

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

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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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 Effective 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 to Section 11.8, of Alnylam Current Chemistry Patents or Alnylam Current 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) Alnylam’s aggregate royalty obligations [***] existing as of the Effective Date [***] and (z) Alnylam’s aggregate royalty obligations to [***] 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 [***]%.

(c) Subject to the terms and conditions of this Agreement, and during the Isis Extended Field Royalty Term, Isis will pay to Alnylam royalties on sales of Isis Extended Field Products by Isis, its Affiliates or sublicensees equal to [***]% of Net Sales of such Products.

(d) Subject to the terms and conditions of this Agreement, and during the Isis Exclusive Target Royalty Term, Isis will pay to Alnylam royalties on sales of Isis Exclusive Target Products by Isis, its Affiliates or sublicensees equal to [***]% of Net Sales of such Products. Upon expiration of the Isis Exclusive Target Royalty Term, the license granted under Section 6.1(l) will terminate.

(e) The royalties payable to Alnylam pursuant to Section 8.2(d) are in addition to, and not in lieu of, the royalties payable to Alnylam pursuant to Sections 8.2(a) and (b), as applicable. Specifically, if an Isis Exclusive Target Product is subject to the payment of royalties to Alnylam pursuant to Section 8.2(d) during the applicable Isis Exclusive Target Royalty Term and is also a Double Stranded RNA Product that is an Isis Product or an Isis Single Stranded RNAi Product, as the case may be, then the royalty calculated pursuant to Section 8.2(a) or (b), as applicable, will also be payable to Alnylam with respect to such Isis Exclusive Target Product for so long as such Isis Exclusive Target Product is a Double Stranded RNA Product that is an Isis Product or an Isis Single Stranded RNAi Product, as the case may be. However, if an Isis

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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Exclusive Target Product that is subject to the payment of royalties to Alnylam pursuant to Section 8.2(d) is also an Isis Extended Field Product, it will not be subject to additional royalties under Section 8.2(c).

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 [***] days 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 RNA 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 RNA Target within [***] days 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 RNA Target.

(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 RNA Target within [***] days after such MicroRNA Product reaches the initiation of [***], and not for any other MicroRNA Product that is an Isis Product that modulates the particular RNA 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 Second Restatement Date, Isis will pay Alnylam, within [***] days following receipt by Isis of such Sublicense Revenue, [***] percent ([***]%) of all such Sublicense Revenue that does not constitute royalty payments.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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(b) In the event that Isis enters into 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 RNAi 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 [***] days following the execution of each such transaction, Isis, through its CEO, will provide Alnylam’s CEO a reasonably detailed and accurate description of such transaction for the purpose of enabling Alnylam’s CEO to perform the allocation described in this Section 8.4(b).

8.5 [Intentionally Deleted]

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 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 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 [***] days 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

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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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 [***] days 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.

(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 Party’s 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 firm’s 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.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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9.4 Taxes. If laws, rules or regulations require withholding of income taxes or other taxes imposed upon payments set forth in Article 7 or 8, each Party will make such withholding payments as required and subtract such withholding payments from the payments set forth in 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 [***] days from the receipt of such 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 [***] days 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 [***] days from Alnylam’s 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

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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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 RNA 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. The Parties agree that the provisions of this Section 10.2 shall not apply to licenses involving solely Agricultural Field Products.

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 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 other’s ownership of any Invention.

11.2 Filing and Prosecution of Patent Rights.

(a) [Intentionally Deleted]

(b) Except as set forth in Sections 11.2(f) and 11.2(h) 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, the Isis Extended Field Patents and the Isis Exclusive Target Patents.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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(c) Except as set forth in Section 11.2(g) and 11.2(h) 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, the Alnylam Extended Field Patents and the Alnylam Exclusive Target Patents.

(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 Patents that are licensed under this Agreement. Neither Party will initiate or participate in any opposition, reexamination, interference, litigation, inter partes review, post grant review or other proceeding for the purpose of narrowing or invalidating any claim in a Patent of the other Party; provided, however, that either Party may assert invalidity or non-infringement as a defense in any court proceeding bought by the other Party asserting infringement of a granted Patent that is not a Patent then licensed under this Agreement. Notwithstanding the above, if an interference is declared by the Patent and Trademark Office between two or more of the Parties respective Patents, the Parties agree to use good faith diligent efforts to resolve matters of priority and patentability and reach agreement or understanding as to patentable claims enjoying priority. In the event the Parties do not reach such agreement or understanding within [***] months after declaration of the interference by the Patent and Trademark Office (or such shorter period as necessary to comply with the Patent and Trademark Office calendar), then the Parties agree to submit such matter to arbitration under Section 17.6 and that the Party determined not to have priority of invention with request and agree to adverse judgment either by way of concession of priority or unpatentability or by disclaimer or abandonment of the contest according to the rules of interference practice in existence at the time. The Parties agree to file with the Patent and Trademark Office all agreements pertaining to settlement of the interference in accordance with the rules of interference practice in existence at the time.

(e) At the non-prosecuting Party’s request, the other Party will keep the requesting Party reasonably informed, and provide documentation, of all material matters relating to the preparation, filing, prosecution and maintenance of any designated Patent licensed to the non-prosecuting Party under this Agreement.

(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 (i) Isis Exclusive Target Patents that (1) claim (x) an oligomeric compound that hybridizes to and modulates an Alnylam Exclusive Target or (y) a method of using such oligomeric compound in the Field and (2) cover the manufacture, sale or use of an Alnylam Exclusive Target Product that is comprised of a

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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Double Stranded RNA or Double Stranded RNA Product (“Isis Special Target Patent”) and (ii) 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 or an Isis Special Target 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. If elections with respect to obtaining patent term extension or supplemental protection certificates or their equivalents in any country with respect to Isis Special Target Patents are available, Alnylam shall have the right (but not the obligation), in its sole discretion, to make any such election and make such filing as necessary to effect such election. Alnylam shall, in its sole discretion, seek and maintain all applicable data exclusivity periods (such as those periods listed in the FDA’s Orange Book (including any available pediatric extensions) or foreign equivalents) that are available for Alnylam Exclusive Target Products. Alnylam shall have sole authority with respect to the listing of any Isis Special Target Patents with respect to the Alnylam Exclusive Target Products in the Orange Book.

(g) Isis will be responsible for preparing, filing, prosecuting, maintaining and taking such other actions as are reasonably necessary or appropriate with respect to the Patents that (1) claim (x) an oligomeric compound that hybridizes to and modulates an Isis Exclusive Target or (y) a method of using such oligomeric compound in the Field and (2) cover the manufacture, sale or use of an Isis Exclusive Target Product that is comprised of a Single Stranded Compound or Single Stranded Product (“Alnylam Special Target Patent”). If Isis elects not to file for or continue the prosecution (including any interferences, oppositions, reissue proceedings and re-examinations) or maintenance of an Alnylam Special Target Patent in any country, then, Isis will notify Isis promptly in writing of its intention in sufficient time to enable Alnylam 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 Alnylam will have the right, but not the obligation, to file for or continue the prosecution or maintenance of such Patent in such country, and Isis will cooperate with Isis in regard thereto. If elections with respect to obtaining patent term extension or supplemental protection certificates or their equivalents in any country with respect to Alnylam Special Target Patents are available, Isis shall have the right (but not the obligation), in its sole discretion, to make any such election and make such filing as necessary to effect such election. Isis shall, in its sole discretion, seek and maintain all applicable data exclusivity periods (such as those periods listed in the FDA’s Orange Book (including any available pediatric extensions) or foreign equivalents) that are available for Isis Exclusive Target Products. Isis shall have sole authority with respect to the listing of any Alnylam Special Target Patents with respect to the Isis Exclusive Target Products in the Orange Book.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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(h) 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, in each case that are Controlled by Alnylam but excluding Joint Patents, Alnylam 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 Alnylam decides to discontinue the preparation, filing, prosecution or maintenance of such a Patent, Alnylam will notify Isis at least [***] days prior to any deadline that, if missed, would materially prejudice the Patent, and Isis will have the right, at Isis’ own expense, to prepare, file, prosecute and maintain such Patent.

11.3 Filing and Prosecution of Jointly Owned Patents.

(a) The Parties will mutually agree on which of the Parties will be designated as being the responsible Party for preparing, filing, prosecuting, maintaining and taking such other actions as are reasonably necessary or appropriate with respect to each 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) and (d) below, each Party will bear its own costs and expenses in filing, prosecuting, maintaining and extending the Alnylam Patent Rights, Alnylam Extended Field Patents, Alnylam Exclusive Target Patents, Isis Patent Rights, Isis Extended Field Patents and Isis Exclusive Target Patents, respectively.

(b) Except as set forth in Section 11.4(c) and (d) 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 and the Isis Special Target 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 or an Isis Special Target Patent in any country, and Isis assumes the continued prosecution of such Isis Special Patent or Isis Special Target 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 or Isis Special Target Patent for which Isis assumed prosecution.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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(d) Isis will bear [***]% of its own costs and expenses in filing, prosecuting, maintaining and extending the Alnylam Special Target Patents. If Isis elects not to file for or continue the prosecution (including any interferences, oppositions, reissue proceedings and re-examinations) or maintenance of an Alnylam Special Target Patent in any country, and Alnylam assumes the continued prosecution of such Alnylam Special Target Patent (as permitted by Section 11.2(g)) in such country, then the Parties will [***] all of Alnylam’s costs and expenses in filing, prosecuting, maintaining and extending the Alnylam Special Target Patent for which Alnylam 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, Joint Patents, Alnylam Extended Field Patents, Alnylam Exclusive Target Patents, Isis Extended Field Patents or Isis Exclusive Target Patents by any person that reasonably affects the other Party’s business and of which it becomes aware. The notice shall set forth the facts of such infringement or misappropriation in reasonable detail.

(b) Subject to subsections (c)(i) and (h) below, Alnylam will have the sole and exclusive right, in its sole discretion and at its expense, to assert and enforce (i) any Isis Patent Rights, Alnylam Patent Rights, Joint Patents, Alnylam Extended Field Patents, or Alnylam Exclusive Target 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 and (ii) any Isis Exclusive Target Patents against any party engaging in an unlicensed or unauthorized making, having made, using, selling, offering for sale or importing of any allegedly infringing oligomeric compound that hybridizes to and modulates an Alnylam Exclusive Target but only if such Isis Exclusive Target Patent is the only Patent Controlled by Alnylam that covers such allegedly infringing oligomeric compound.

(c)

(i) For any enforcement by Alnylam under subsection (b) above that includes Isis Patent Rights or Isis Exclusive Target Patents 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, Isis Extended Field Patents or Isis Exclusive Target Patents covering a [***] chemical modification is at risk.

(ii) Subject to subsection (b) above and subsection (h) below, Isis will have the sole and exclusive right, in its sole discretion and at its expense, to assert and enforce Alnylam Exclusive Target Patents against any party engaging in an unlicensed or unauthorized making, having made, using, selling, offering for sale or

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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importing of any allegedly infringing oligomeric compound that hybridizes to and modulates an Isis Exclusive Target but only if such Alnylam Exclusive Target Patent is the only Patent Controlled by Isis that covers such allegedly infringing oligomeric compound.

(d) Except as set forth in Sections 11.5(b), (c) and (h),

(i) Isis will have the sole and exclusive right, in its sole discretion and at its expense, to assert and enforce any (i) Isis Patent Rights, (ii) Isis Extended Field Patents, and (iii) Isis Exclusive Target Patents;

(ii) Alnylam will have the sole and exclusive right, in its sole discretion and at its expense, to assert and enforce any (i) Alnylam Patent Rights, (ii) Alnylam Extended Field Patents, (iii) Alnylam Exclusive Target Patents, and (iv) the Isis Special Patents; and

(iii) The Parties 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 by the terms of the Isis Third Party Agreements. The rights granted hereunder to Isis to enforce certain licensed in or jointly owned Alnylam Patent Rights are further limited as described in the Alnylam Third Party Agreements.

(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 licensed to the nonenforcing Party under this Agreement without prior written authorization of the nonenforcing Party.

(h) If the Party with enforcement rights under subsection (b), (c) or (d) above (the “Primary Party”) fails to initiate proceedings against any actual or suspected infringement within [***] days 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

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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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 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 Party’s 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 the applicable Products and distributed as such Net Sales would have been distributed.

11.6 If any Person asserts in writing or in any legal proceeding that any of the Isis Exclusive Target Patents or Alnylam Exclusive Target Patents are unenforceable based on any term or condition of this Agreement, the Parties shall amend this Agreement as may reasonably be required to effect the original intent of the Parties, including to preserve the enforceability of such Patents and the intended economic and non-economic effects of this Agreement.

11.7 [Intentionally Deleted]

11.8 Future Licenses. If after the First Restatement Date, a Party (the “Controlling Party”) invents or acquires rights or title to an invention claimed by a Patent that (i) would be included in the Isis Current Chemistry Patents, Isis Current Motif and Mechanism Patents, Isis Extended Field Patents or Isis Exclusive Target Patents if such Party is Isis or in the Alnylam Current Chemistry Patents, Alnylam Current Motif and Mechanism Patents, Alnylam Extended Field Patents or Alnylam Exclusive Target 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

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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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 Party’s 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 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 Party’s 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 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;

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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(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 Party’s Confidential Information that it is advised by counsel it is legally required to furnish; or

(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 (as defined in the First Restated Agreement) without the express prior written consent of Isis, and, subject to Section 4.3(f), neither Party shall disclose the other Party’s 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

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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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 Discovery Collaboration agreement, or Development Collaboration agreement or Bona Fide Third Party Collaboration agreement (or any material amendments thereto) that could reasonably be expected to be of strategic or financial importance to the other Party’s 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

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) Alnylam’s 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, Alnylam Extended Field Products or Alnylam Exclusive Target 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, Isis Extended Field Products or Isis Exclusive Target 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

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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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 Party’s 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 Second 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.

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 a 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 Product) to the extent such license is necessary to develop, make and have made, sell and import such 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

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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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 [Intentionally Deleted]

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 Article 7 or 8. Sections 4.3(f), 6.4(i), and 11.1, and Articles 1, 9, 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) 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.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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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, the First Restatement Date and the Second 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 Alnylam Representation and Warranty. Alnylam hereby represents and warrants to Isis that as of the effective date of the Agbio License Agreement, the Agbio License Agreement included a collaboration involving the discovery and/or development of Double Stranded RNA Products, in which Alnylam played 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/or development of such Double Stranded RNA Products.

15.3 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.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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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:

 

if to Isis, to:		Isis Pharmaceuticals, Inc.
		2855 Gazelle Court
		Carlsbad, CA 92010
		Attention: Chief Operating Officer
		Fax No.: +1 (760) 603-4652
with a copy to:		Attention: General Counsel
		Fax No.: +1 (760) 268-4922
if to Alnylam, to:		Alnylam Pharmaceuticals, Inc.
		300 Third Street
		Cambridge, MA 02142
		Attention: SVP and General Counsel
		Fax No.: +1 (617) 812-0353
with a copy to:		Faber Daeufer & Itrato PC
		950 Winter Street, Suite 4500
		Waltham, Massachusetts 02451
		Attention: Sumy C. Daeufer, Esq.
		Fax No.: +1 (781) 795-4747

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.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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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 [***].

(b) [Intentionally Deleted].

(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 [***] such Acquisition will be permitted to [***] pursuant to Section 6.4(a) shall be limited to [***] per calendar year, and (iii) the royalties payable by Isis with respect to Isis Single Stranded RNAi Products will be adjusted in accordance with Section 8.2(b).

(d) Notwithstanding anything in this Agreement to the contrary, following the closing of an Acquisition of a Party (the “Acquired Party”), the Parties agree that the other Party (the “Non-Acquired Party”) shall not obtain rights or access to the Patents controlled by the Acquirer (as defined below) or any of the Affiliates of such Acquirer (other than the Acquired Party and its Affiliates which exist immediately prior to the closing of such Acquisition (such Affiliates, the “Pre-Existing Affiliates”)); and the Acquirer and its Affiliates (other than the Acquired Party and its Pre-Existing Affiliates) shall not obtain rights or access to the Patents controlled by the Non-Acquired Party or any of its Affiliates pursuant to this Agreement, or be bound by the restrictions set forth in Section 6.6. For clarity but without limitation, the Non-Acquired Party’s rights in all Patents Controlled by the Acquired Party or any of its Pre-Existing Affiliates, which Patents exist as of the date of the closing of such Acquisition and are then licensed hereunder to the Non-Acquired Party, shall remain licensed to such Non-Acquired Party after the date of the closing of such Acquisition in accordance with and subject to the terms and conditions of this Agreement and shall not be affected in any manner by virtue of such Acquisition. “Acquirer” means, with respect to the Acquired Party, the Third Party that acquires such Acquired Party or its direct or indirect controlling Affiliate, or that acquires all or substantially all of the assets of the Acquired Party or its direct or indirect controlling Affiliate, in any case via an Acquisition.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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(e) 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. For clarity, however, the letter agreement between the Parties dated January 18, 2012 is not superseded by this Agreement and continues in full force and effect. 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 resolution by good faith negotiations within 30 days after such notice is received. Said designated officers are as follows:

 

For Isis:		Chief Operating Officer
For Alnylam:		President and Chief Operating Officer

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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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 other right hereunder or of any other breach or failure by said other Party whether of a similar nature or otherwise.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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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.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Second Restatement Date.

 

ISIS PHARMACEUTICALS, INC.				ALNYLAM PHARMACEUTICALS, INC.
By:		/s/ B. Lynne Parshall		By:		/s/ John Maraganore
Name:		B. Lynne Parshall		Name:		John Maraganore
Title:		Chief Operating Officer		Title:		Chief Executive Officer

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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EXHIBIT 1.1

DEFINITIONS

 

1.

“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 Second 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 Party’s 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.

 

2.	“Active Program” means with respect to an RNA Target and a Party, any ongoing drug discovery, development, or commercialization of a compound directed to such RNA Target being conducted by such Party (whether on its own or through a sublicensee).

 

3.

“Affiliate” with respect to a Person means any other Person controlling, controlled by, or under common control with such Person. 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.

 

4.

“Agbio License Agreement” shall mean that certain License and Collaboration Agreement with Monsanto Company dated as of August 27, 2012, as amended through the Second Restatement Date, and from time to time after the Second Restatement Date; provided Isis has approved by prior written consent any such amendment after the Second Restatement Date that would diminish Isis’ rights under this Agreement or increase Isis’ obligations under this Agreement; and provided further in each case Alnylam has provided Isis a copy of such amendment before, or promptly after executing such amendment.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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5.

“Agricultural Field” shall mean applications in agriculture, horticulture, forestry, aquaculture and/or the residential markets relating to plants, fish, arthropods and/or pests and pathogens thereof (e.g., home, lawn, and/or garden). The Agricultural Field excludes, without limitation, (a) all human and animal (other than fish and arthropods) therapeutic, prophylactic or diagnostic applications; (b) the development, sale and use of research reagent products for any purpose; and (c) modification of any cells, tissues or organisms for the purpose of manufacturing heterologous proteins, peptides or viruses for any purpose other than the modification of plants, plant cells, or plant tissues for the purpose of manufacturing heterologous proteins, peptides or viruses for application to plants, fish, arthropods and/or pests or pathogens thereof.

 

6.

“Agricultural Field Product” means a product that contains a Double Stranded RNA (including transgenic applications thereof) for application in the Agricultural Field that either (a) modulates the viability and/or biological processes (including expression of genes and/or proteins) of (i) plants, (ii) fish, (iii) arthropods, and/or (iv) pests or pathogens thereof; or (b) modifies plants, plant cells or plant tissues for the purpose of manufacturing heterologous proteins, peptides or viruses for application to (i) plants, (ii) fish, (iii) arthropods, and/or (iv) pests or pathogens thereof.

 

7.

“Agricultural Field Product Net Sales” will mean (a) the gross invoice price of Agricultural Field Products sold by Alnylam, its Affiliates and sublicensees (but with respect to Alnylam does not include Naked Sublicensees) to a Third Party; provided, that such Third Party is an end-user of such Licensed Product or a Third Party which purchases Agricultural Field Product(s) (whether in packaged form or bulk form) from Alnylam, its Affiliate or sublicensee and resells such Agricultural Field Product(s) to third parties in a manner consistent with normal trade practices in the Agricultural Field; less (b) the following items: (i) deductions actually incurred, allowed, paid, accrued or specifically allocated in financial statements in accordance with generally accepted accounting principles, in preparing and utilizing distribution channels for an Agricultural Field Product (including product returns, customer rebates, dealer incentives, volume discounts, seed service fees, cash discounts (pre-pay discounts), (ii) local competitive response, transportation or cargo insurance, taxes, duties or other governmental tariffs (other than income taxes), (iii) government-mandated rebates, and (iv) a reasonable reserve for bad debts, (and some of which items, by way of example, are currently identified as “crop loss and replant” and “seed action pack”) in all cases allocated to such Agricultural Field Products in accordance with generally accepted accounting principles and methodologies established by Alnylam, its Affiliates or sublicensee, as the case may be, and that are consistently applied by such party across all of such party’s products in the Agricultural Field; provided,

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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that such methodologies may be amended from time to time, upon notice to Isis to reflect general changes to such party’s methodologies, which changes are consistently applied by such selling party across such party’s products in the Agricultural Field and which changes are made in the ordinary course of such party’s business.

Isis and Alnylam agree that any reasonable definition of “net sales” customarily used in agricultural industry technology licensing or collaboration contracts that is agreed to under the Agbio License Agreement or subsequently agreed to by Alnylam (or a Third Party acquirer or assignee) and a sublicensee with respect to royalties payable to Alnylam from such sublicensee in an arms-length transaction under a particular sublicense will replace the definition of Agricultural Field Product Net Sales in this Agreement and will be used in calculating the royalty payment to Isis on sales of Agricultural Field Products (including, but not limited to, products that consist of an Agricultural Field Product and other technologies and/or materials (i.e., combination products)) sold pursuant to such sublicense and due under this Agreement.

 

8.

“Alnylam Current Chemistry Patents” means all Chemistry Patents (i) Controlled by Alnylam as of the First Restatement Date or any time thereafter until the Second Restatement Date and (ii) having an earliest priority date of no later than April 30, 2014, provided, however that (a) for any such Chemistry Patents that are acquired, licensed or invented after the First Restatement Date 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 Current Chemistry Patent; and (b) Alnylam Current Chemistry Patents do not include Patents that constitute Alnylam Excluded Technology. Without limitation the Patents listed on Schedule 1-8 attached hereto are Alnylam Current Chemistry Patents, except to the extent such Patents claim Alnylam Excluded Technology.

 

9.

“Alnylam Current Motif and Mechanism Patents” means all Motif and Mechanism Patents (i) Controlled by Alnylam as of the First Restatement Date or any time thereafter until the Second Restatement Date and (ii) having an earliest priority date of no later than April 30, 2014, provided, however that (a) for any such Motif and Mechanism Patents that are acquired, licensed or invented after the First Restatement Date 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 Motif and Mechanism Patent; and (b) Alnylam Motif and Mechanism Patents do not include Patents that constitute Alnylam Excluded Technology. Without limitation the Patents listed on Schedule 1-9 attached hereto are Alnylam Current Motif and Mechanism Patents, except to the extent such Patents claim Alnylam Excluded Technology.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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10.	“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.

 

11.

“Alnylam Excluded Technology” means (a) inhibitors to specific genes or gene families, (b) Manufacturing Patents, (c) 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, (d) formulation and delivery technologies and (e) the specific technology listed on Schedule 1-11 attached hereto.

 

12.	“Alnylam Exclusive Target” means an RNA Target or protein product of (a) the antithrombin gene (AT, also known as AT3) or (b) the aminolevulinate synthase gene 1 (AS1), which genes are further identified and described on Exhibit B.

 

13.

“Alnylam Exclusive Target Excluded Technology” means (a) Manufacturing Patents, (b) 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, (c) formulation and delivery technologies, and (d) the specific technology listed on Schedule 1-13 attached hereto.

 

14.

“Alnylam Exclusive Target Patents” means all Patents that are Controlled by Alnylam on or prior to the [***] anniversary of the Second Restatement Date that (a) claim (x) an oligomeric compound that hybridizes to and modulates an Isis Exclusive Target or (y) a method of using such oligomeric compound in the Field; or (b) are Chemistry Patents or Motif and Mechanism Patents other than those described in clause (a) above; provided, however that (A) for any such Patents that are acquired, licensed or invented after the First Restatement Date 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 Exclusive Target Patent; and (B) Alnylam Exclusive Target Patents do not include (I) Patents that constitute Alnylam Exclusive Target Excluded Technology, or (II) Patents Controlled by Alnylam that specifically claim an oligomeric compound that hybridizes to and modulates an Alnylam Exclusive Target (or method of using such oligomeric compound in the Field). Alnylam Exclusive Target Patents include, without limitation, the Patents listed on Schedule 1-14 attached hereto.

 

15.	“Alnylam Exclusive Target Product” means an oligomeric compound (a) that hybridizes to and modulates an Alnylam Exclusive Target, and (b) the manufacture, sale or use of which is covered by a Valid Claim within the Isis Exclusive Target Patents. For purposes of determining whether a royalty is

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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payable by Alnylam under Section 7.2(c), an oligomeric compound that hybridizes to and modulates an Alnylam Exclusive Target will continue to be considered an Alnylam Exclusive Target Product during the applicable Alnylam Exclusive Target Royalty Term for such compound in a country if the manufacture, sale or use of such compound in such country is covered by a Valid Claim within the Isis Exclusive Target Patents at the time of First Commercial Sale of such compound in such country.

 

16.

“Alnylam Exclusive Target Royalty Term” means, on a Product-by-Product and country-by-country basis, the period commencing with the First Commercial Sale of an Alnylam Exclusive Target Product and ending on the later of the expiration of (i) the last-to-expire Valid Claim of an Isis Exclusive Target Patent that covers the manufacture, use, or sale of such Alnylam Exclusive Target Product in such country, and (ii) any period of regulatory data protection or market exclusivity or similar regulatory protection afforded by the Regulatory Authorities in such country, including any such periods listed in the FDA’s Orange Book, and all international equivalents.

 

17.

“Alnylam Extended Field Patents” means all Chemistry Patents and Motif and Mechanism Patents Controlled by Alnylam on and after the Second Restatement Date and having any earliest priority date between May 1, 2014 and April 30, 2019, inclusive; provided, however that (a) for any such Chemistry Patents or 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 Extended Field Patent; and (b) Alnylam Extended Field Patents do not include Patents that constitute Alnylam Excluded Technology. Alnylam Extended Field Patents include, without limitation, the Patents listed on Schedule 1-17 attached hereto.

 

18.	“Alnylam Extended Field Product” means a Double Stranded RNA Product the manufacture, sale or use of which is covered by a Valid Claim within the Isis Extended Field Patents.

 

19.

“Alnylam Extended Field Royalty Term” means, on a Product-by-Product and country-by-country basis, the period commencing with the First Commercial Sale of an Alnylam Extended Field Product and ending on the expiration of the last-to-expire Valid Claim of an Isis Extended Field Patent that covers the manufacture, use or sale of such Alnylam Extended Field Product in such country.

 

20.

“Alnylam Patent Rights” means Alnylam Current Motif and Mechanism Patents and Alnylam Current 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 which covers the manufacture, use or sale of such Isis Single Stranded RNAi Product, will be considered an Alnylam Patent Right.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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21.	“Alnylam Product” means an Alnylam Double Stranded RNA Product or MicroRNA 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.

 

22.	“Alnylam Special Target Patent” has the meaning set forth in Section 11.2(g).

 

23.	“Alnylam Third Party Agreements” means the in-license and other agreements between Alnylam and a Third Party listed on Exhibit 6.5(c).

 

24.	“Antisense Drug Discovery Program” means an antisense drug discovery program that investigates multiple different mechanisms of modulating an RNA Target to identify a drug candidate, with a predominant emphasis on potential drug candidates that are single-stranded.

 

25.	“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.

 

26.

“Bona Fide Discovery Collaboration” means (a) with respect to Double Stranded RNA Products that are not Agricultural Field Products, 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 such Double Stranded RNA Products from the point in time at which the relevant RNA Target has been designated through the initiation [***]; and (b) with respect to Agricultural Field Products, a collaboration involving the discovery and/or 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/or development of such Double Stranded RNA Products. A Bona Fide Discovery Collaboration for Double Stranded RNA Products that are not Agricultural Field Products may continue beyond the initiation of such [***]. For Isis Products that are Double Stranded RNA Products, a Bona Fide Discovery Collaboration must be an Antisense Drug Discovery Program. For Alnylam, collaborations that do not include or involve Isis Patent Rights licensed from Isis under Section 5.1(a) (and do not include Isis Exclusive Target Patent Rights that are also Isis Patent Rights), shall not constitute Bona Fide Discovery Collaborations. For Isis, collaborations that do not include or involve Alnylam Patent Rights licensed from Alnylam pursuant to

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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Section 6.2, shall not constitute Bona Fide Discovery Collaborations. A Party’s experimentation relating to the discovery and development of Double Stranded RNA Products that modulate a relevant RNA 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 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 Discovery Collaboration agreement will be aggregated to constitute a single Bona Fide Discovery Collaboration. The Agbio License Agreement is deemed a Bona Fide Discovery Collaboration for purposes of this Agreement.

 

27.

“Bona Fide Third Party Collaboration” means, with respect to a Party a collaboration between such Party and a Third Party involving the discovery, development and/or commercialization of, (a) in the case of Alnylam, an Alnylam Extended Field Product or an Alnylam Exclusive Target Product, as the case may be or (b) in the case of Isis, an Isis Extended Field Product or an Isis Exclusive Target Product, as the case may be. For Alnylam, such collaborations that do not include or involve Isis Extended Field Patents or Isis Exclusive Target Patents licensed from Isis hereunder shall not constitute Bona Fide Third Party Collaborations. For Isis, such collaborations that do not include or involve Alnylam Extended Field Patents or Alnylam Exclusive Target Patents licensed from Alnylam hereunder shall not constitute Bona Fide Third Party Collaborations.

 

28.	“Business Day” means a weekday on which banking institutions in Boston, Massachusetts are open for business. For purposes of clarity, a Business Day shall not include any Saturday or Sunday or federal or Commonwealth of Massachusetts holiday.

 

29.	“Calendar Quarter” means the respective periods of three (3) consecutive calendar months ending on March 31, June 30, September 30 and December 31.

 

30.

“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

 

31.

“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

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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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).

 

32.

“Control” or “Controlled” means, with respect to any Patent or other intellectual property right, possession of the right by a Party or its Affiliates (whether by ownership, license or otherwise, other than pursuant to a license granted under this Agreement), 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.

 

33.

“Confidential Information” means information which is (a) of a confidential and proprietary nature; and (b) not readily available to that Party’s 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.

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 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.

Confidential Information will not include any information that the receiving Party can establish by written records:

 

(i)

was known by it prior to the receipt of Confidential Information from the disclosing Party;

 

(ii)

was disclosed to the receiving Party by a Third Party having the right to do so;

 

(iii)

was, or subsequently became, in the public domain through no fault of the receiving Party, its officers, directors, employees or agents; or

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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(iv)

was concurrently or subsequently developed by personnel of the receiving Party without having had access to the disclosing Party’s Confidential Information.

 

34.	“CRT” has the meaning set forth in Section 6.5(d)(ii).

 

35.	“CRT Agreement” has the meaning set forth in Section 6.5(d)(ii).

 

36.	“Designed for” means, when used in relation to a specified RNA Target, a Single Stranded RNAi Compound that is [***] to [***] of the specified [***] via [***].

 

37.	“Development Candidate” means a Single Stranded RNAi Product for which [***] have commenced.

 

38.

“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 Alnylam, collaborations that do not include or involve Isis Patent Rights licensed from Isis under Sections 5.1(a) (and do not include Isis Exclusive Target Patent Rights that are also Isis Patent Rights), shall not constitute Development Collaborations. For Isis, collaborations that do not include or involve Alnylam Patent Rights licensed from Alnylam pursuant to Sections 6.1(a), (h), (i) or Section 6.2, shall not constitute Development Collaborations.

 

39.

“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.

 

40.	“Double Stranded RNA Product” means (a) a pharmaceutical composition that contains a Double Stranded RNA or (b) an Agricultural Field Product.

 

41.	“Effective Date” means March 11, 2004.

 

42.	“Enabled Target” has the meaning set forth in Section 4.3(a).

 

43.	“Enabled Target Pool” has the meaning set forth in Section 4.3(a).

 

44.	“Enabled Target Slot” has the meaning set forth in Section 4.3(a).

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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45.	“Field” means the treatment and/or prevention of all human or animal diseases.

 

46.	“First Commercial Sale” means, with respect to a country and a Product, the first sale for end use or consumption of such Product in such country after all required Marketing Approvals in such country have been obtained.

 

47.	“Graduated Enabled Target” has the meaning set forth in Section 4.3(a).

 

48.	“IND” means an Investigational New Drug Application or similar foreign application or submission for approval to conduct human clinical investigations.

 

49.	“IND-Enabling Studies” means the pharmacokinetic and toxicology studies required to meet the regulations for filing an IND.

 

50.	“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.

 

51.

“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.

 

52.

“Isis Current Chemistry Patents” means all Chemistry Patents (i) Controlled by Isis as of the First Restatement Date or any time thereafter until the Second Restatement Date and (ii) having an earliest priority date of no later than April 30, 2014; provided, however that (a) for any such Chemistry Patents that are acquired, licensed or invented after the First Restatement Date 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 Current Chemistry Patent; and (b) Isis Current Chemistry Patents do not include Patents that constitute Isis Excluded Technology. Without limitation the Patents listed on Schedule 1-52 attached hereto are Isis Current Chemistry Patents, except to the extent such Patents claim Isis Excluded Technology.

 

53.

“Isis Current Motif and Mechanism Patents” means all Motif and Mechanism Patents (i) Controlled by Isis as of the First Restatement Date or any time thereafter until the Second Restatement Date and (ii) having an earliest priority date of no later than April 30, 2014; provided, however that (a) for any such Motif and Mechanism Patents that are acquired, licensed or invented after the First Restatement Date 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 Motif and Mechanism Patent; and (b) Isis Current Motif and Mechanism

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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Patents do not include Patents that constitute Isis Excluded Technology. Without limitation the Patents listed on Schedule 1-53 attached hereto are Isis Current Motif and Mechanism Patents, except to the extent such Patents claim Isis Excluded Technology.

 

54.	“Isis DS-Target Pool” has the meaning set forth in Section 6.4(a).

 

55.	“Isis Enabled Target Pool” has the meaning set forth in Section 4.3(a).

 

56.

“Isis Encumbered Target” means an RNA Target (a) to which Isis has a contractual obligation to a Third Party existing as of the Second Restatement Date that precludes Isis from granting a license under Section 5 with respect to such RNA 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 an RNA Target will cease to be an Isis Encumbered Target.

 

57.

“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 Patents; (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 1-57 attached hereto.

 

58.	“Isis Exclusive Target” means an RNA Target or protein product of (a) the Factor X1 gene (FX1) or (b) the Apo(a) gene (Apoa1), which genes are further identified and described on Exhibit A.

 

59.

“Isis Exclusive Target Excluded Technology” means (a) Manufacturing Patents, (b) analytical technologies, kits and assays, including without limitation methods, systems and compositions of matter for amplifying, quantifying, detecting, characterizing or identifying nucleic acids or non-oligomeric ligands thereto, (c) formulation and delivery technologies, and (d) the specific technology listed on Schedule 1-59 attached hereto.

 

60.

“Isis Exclusive Target Patents” means all Patents Controlled by Isis on or prior to the [***] anniversary of the Second Restatement Date that (a) claim (x) an oligomeric compound that hybridizes to and modulates an Alnylam Exclusive Target or (y) a method of using such oligomeric compound in the Field; or (b) are Chemistry Patents or Motif and Mechanism Patents other than Patents described in clause (a) above; provided, however that (A) for any such Patents that are acquired, licensed or invented after the Restatement Date that include financial or

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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other obligations to a Third Party, the provisions of Section 11.8 will govern whether such Patent will be included as an Isis Exclusive Target Patent; and (B) Isis Exclusive Target Patents do not include (I) Patents that constitute Isis Exclusive Target Excluded Technology, (II) Patents Controlled by Isis that specifically claim an oligomeric compound that hybridizes to and modulates an Isis Exclusive Target (or method of using such oligomeric compound in the Field). Isis Exclusive Target Patents include, without limitation, the Patents listed on Schedule 1-60 attached hereto, except to the extent such Patents claim Isis Exclusive Target Excluded Technology.

 

61.

“Isis Exclusive Target Product” means an oligomeric compound that (a) hybridizes to and modulates an Isis Exclusive Target, and (b) the manufacture sale or use of which is covered by a Valid Claim within the Alnylam Exclusive Target Patents. For purposes of determining whether a royalty is payable by Isis under Section 8.2(d), an oligomeric compound that hybridizes to and modulates an Isis Exclusive Target will continue to be considered an Isis Exclusive Target Product during the applicable Isis Exclusive Target Royalty Term for such compound in a country if the manufacture, sale or use of such compound in such country is covered by a Valid Claim within the Alnylam Exclusive Target Patents at the time of First Commercial Sale of such compound in such country.

 

62.

“Isis Exclusive Target Royalty Term” means, on a Product-by-Product and country-by-country basis, the period commencing with the First Commercial Sale of an Isis Exclusive Target Product and ending on the later of the expiration of (i) the last-to-expire Valid Claim of an Alnylam Exclusive Target Patent that covers the manufacture, use or sale of such Isis Exclusive Target Product in such country, and (ii) any period of regulatory data protection or market exclusivity or similar regulatory protection afforded by the Regulatory Authorities in such country, including any such periods listed in the FDA’s Orange Book, and all international equivalents.

 

63.

“Isis Extended Field Patents” means all Chemistry Patents and Motif and Mechanism Patents Controlled by Isis on and after the Second Restatement Date and having any earliest priority date between May 1, 2014 and April 30, 2019, inclusive; provided, however that (a) for any such Chemistry Patents or 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 Extended Field Patent; and (b) Isis Extended Field Patents do not include Patents that constitute Isis Excluded Technology. Isis Extended Field Patents include, without limitation, the Patents listed on Schedule 1-63 attached hereto, except to the extent such Patents claim Isis Excluded Technology.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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64.	“Isis Extended Field Product” means any Single Stranded Product the manufacture sale or use of which is covered by a Valid Claim within the Alnylam Extended Field Patents.

 

65.

“Isis Extended Field Royalty Term” means, on a Product-by-Product and country-by-country basis, the period commencing with the First Commercial Sale of an Isis Extended Field Product and ending on the expiration of the last-to-expire Valid Claim of an Alnylam Extended Field Patent that covers the manufacture, use or sale of such Isis Extended Field Product in such country.

 

66.	“Isis Manufacturing Patents” means the Patents specifically listed on Schedule 1-66 attached hereto. The Parties may agree in writing from time to time to add additional Patents to Schedule 1-66 attached hereto.

 

67.	“Isis Patent Rights” means Isis Current Motif and Mechanism Patents, and Isis Current Chemistry Patents.

 

68.

“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.

 

69.	“Isis Retained Target” means each RNA Target that is subject to certain Third Party obligations of Isis and described on Schedule 1-69 attached hereto, as such schedule is updated from time to time pursuant to Section 5.3(f).

 

70.	“Isis Retained Special Target” means each RNA Target designated as such on Schedule 1-69 attached hereto.

 

71.

“Isis Single Stranded Product” means any single stranded oligomeric compound (a) that hybridizes in whole or in part to, and modulates the amount or activity of, an RNA Target, (b) is not a Double Stranded RNA or Double Stranded RNA Product, (c) is not a Single Stranded RNAi Compound, Single Stranded RNAi Product or Isis Single Stranded RNAi Product, and (d) the manufacture, sale or use of which is covered by a Valid Claim within the Alnylam Patent Rights.

 

72.	“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.

 

73.	“Isis Special Patents” means the Patents specifically listed on Schedule 1-73 attached hereto. The Parties may mutually agree in writing from time to time to add additional Patents to Schedule 1-73 attached hereto.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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74.	“Isis Special Target Patent” has the meaning set forth in Section 11.2(f).

 

75.	“Isis Third Party Agreements” means the agreements between Isis and a Third Party listed on Exhibit 5.3(d).

 

76.	“Joint Invention” has the meaning set forth in Section 11.1(b).

 

77.	“Joint Patent” has the meaning set forth in Section 11.1(b).

 

78.

“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

 

79.	“License Term” means the period from the Second Restatement Date until the date of expiry of the last to expire of the Patents licensed hereunder.

 

80.	“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 $[***].

 

81.

“Manufacturing Patents” means Patent claims claiming (1) a method of joining together component pieces of an oligomeric compound; (2) an improved method of making a component piece where such component piece is disclosed prior to the first filing of the Patent claiming such improved method; (3) in the case of concurrently-filed Patents claiming a new component piece and disclosing multiple methods of making the new component piece in a separate concurrently-filed Patent, the method(s) most suitable for making the new component piece at large scale (provided at least one method must be treated under this Agreement as claimed under a Chemistry Patent and not under a Manufacturing Patent); or (4) compounds used in such methods of joining together component pieces, other than the component pieces themselves and precursors of such component pieces. Thus, for example, Manufacturing Patents include claims to methods such as deprotection, capping, loading onto a solid support, and cleaving from a solid support, all of which are methods used in the process of assembling oligomeric compounds from component pieces; and reagents, such as solid supports themselves, useful in such methods.

 

82.	“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.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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83.

“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 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.

 

84.	“MicroRNA Product” means a pharmaceutical product that contains a MicroRNA Construct.

 

85.

“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.

 

86.

“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 Discovery Collaboration or (c) a Bona Fide Third Party 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 that are not Isis Products for which Isis has exercised its option under Section 6.2 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 Patent Rights shall not constitute Naked Sublicenses.

 

87.	“Naked Sublicensee” means a Third Party that obtains a Naked Sublicense from Alnylam in accordance with the terms of this Agreement.

 

88.	“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.

 

89.

“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

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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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 charge or provision of invoice and used by such third party.

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.

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).

Notwithstanding anything in this Agreement to the contrary, where the term “Net Sales” is used in this Agreement to apply to Agriculture Field Products, in such context the term “Net Sales” shall be replaced with “Agricultural Field Product Net Sales”.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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Isis and Alnylam agree that any reasonable definition of “net sales” customarily used in drug discovery, development or commercialization licensing or collaboration contracts that is agreed to by a Party (or a Third Party acquirer or assignee) and a sublicensee with respect to royalties payable to such Party from such sublicensee in an arms-length transaction under a particular sublicense will replace the definition of Net Sales in this Agreement and will be used in calculating the royalty payment to the other Party on sales of Products (other than Agricultural Field Products) sold pursuant to such sublicense and due under this Agreement, for so long as the same definition of net sales is used to calculate the royalty payable from the applicable sublicensee to such Party.

 

90.	“Other Isis Sublicense” has the meaning set forth in Section 8.4(b).

 

91.

“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.

 

92.

“Permitted Licenses” means (1) licenses granted by Isis or Alnylam (as the case may be) before or after the Second Restatement Date to any Third Party under the Alnylam Exclusive Target Patents (where Alnylam is the granting Party) or the Isis Exclusive Target Patents (where Isis is the granting Party) to (a) use oligonucleotides (or supply oligonucleotides to end users) solely to conduct pre-clinical research, or (b) enable such Third Party to manufacture or formulate oligonucleotides, where (i) such Third Party is primarily engaged in providing contract manufacturing or services and is not primarily engaged in drug discovery, development or commercialization of therapeutics; and (ii) the granting Party does not assist such Third Party to identify, discover or make an Alnylam Exclusive Target Product (where Isis is the granting Party) or an Isis Exclusive Target Product (where Alnylam is the granting Party); and (2) material transfer, collaboration, sponsored research or similar agreements with academic collaborators or non-profit institutions solely to conduct noncommercial Research.

 

93.	“Person” means any person, organization, corporation or other business entity.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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94.	“Product” means an Alnylam Product, an Isis Product, an Alnylam Extended Field Product, an Isis Extended Field Product, an Alnylam Exclusive Target Product, or an Isis Exclusive Target Product, as the case may be.

 

95.

“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.

 

96.	“Research Program” means the Parties’ research collaboration focused on Single Stranded RNAi Compounds and conducted pursuant to the First Restated Agreement.

 

97.	“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. The Research Program Patents are listed on Schedule 1-97 attached hereto.

 

98.

“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.

 

99.	“Reserved DS-Target” has the meaning set forth in Section 6.4(a).

 

100.	“RNA Target” means a ribonucleic acid transcript with a defined sequence and/or function, including all splice variants and mutant forms of such transcript.

 

101.

“Single Stranded Compound” means a single stranded oligomeric compound (a) that hybridizes in whole or in part to, and modulates the amount or activity of, an RNA Target, and (b) is not a Double Stranded RNA, a Double Stranded RNA Product, a Single Stranded RNAi Compound, or a Single Stranded RNAi Product.

 

102.	“Single Stranded Product” means a pharmaceutical composition that contains a Single Stranded Compound and is not a Double Stranded RNA, a Double Stranded RNA Product, a Single Stranded RNAi Compound, or a Single Stranded RNAi Product.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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103.

“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.

Working via the RISC or RNAi mechanism means that the compound is capable of, in an in vitro cell culture assay, causing cleavage of the target mRNA at the [***], as evidenced for example by a [***] assay.

 

104.	“Single Stranded RNAi Product” means a pharmaceutical composition that contains a Single Stranded RNAi Compound.

 

105.	“Stanford University” has the meaning set forth in Section 6.5(d)(i).

 

106.	“Stanford Agreement” has the meaning set forth in Section 6.5(d)(i).

 

107.

“Sublicense Revenue” means any payments that (1) with respect to Alnylam, Alnylam receives from a sublicensee in consideration of a Naked Sublicense, 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 (other than sublicenses of rights under Sections 6.1(k) or (l)), 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.

 

108.

“Technology Access Fee” means any payments that Alnylam receives from granting a Third Party access (through sublicense or otherwise) to the Isis Patent Rights (including to Isis Exclusive Target Patent Rights that are also Isis Patent Rights) as part of a Bona Fide Discovery Collaboration or Development

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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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 Alnylam’s 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 Alnylam’s 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, and payments received by Alnylam pursuant to the Agbio License Agreement that are specifically committed to reimburse Alnylam for the cost of Patent prosecution, maintenance and/or defense of Patents covering or claiming Agricultural Field Products; provided, however, that any payments received by Alnylam but not applied to reimburse Alnylam for such expenses will be Technology Access Fees, (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 Alnylam’s 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.

 

109.	“Third Party” means any party other than Isis or Alnylam and their respective Affiliates.

 

110.

“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.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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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 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. With respect to any joint patents indicated on this schedule, the licenses granted by Isis to Alnylam in the Agreement are limited to the extent of the joint owner’s rights in such joint patents.

Isis has cases with joint inventorship with the [***] following entities:

[***]

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

---

Exhibit 5.3(c) Part II, Joint Patent Rights

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. A total of 1 page was omitted.

[***]

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

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EXHIBIT 5.3(D)

ISIS THIRD PARTY AGREEMENTS

The following schedule of Isis Third Party Agreements is provided by Isis to Alnylam, in connection with 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.

AGREEMENTS PROVIDING RIGHTS TO THIRD PARTIES IN CERTAIN ISIS PATENT RIGHTS

[***]

AGREEMENTS GRANTING THIRD PARTIES RIGHTS TO CONDUCT TARGET VALIDATION

[***]

RESEARCH LICENSE AGREEMENTS

[***]

AGREEMENTS CONTAINING CROSS-LICENSES TO NEW TECHNOLOGY ARISING FROM PARTNER COLLABORATIONS

[***]

GOVERNMENT RIGHTS IN ISIS IP

 

1.	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.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

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EXHIBIT 6.5(c)

ALNYLAM THIRD PARTY AGREEMENTS

In-License Agreements

 

1.

Co-Exclusive License Agreement between Max-Planck-Innovation GmbH (formerly Garching Innovation GmbH) and Alnylam Pharmaceuticals, Inc., dated December 20, 2002, as amended by Amendment dated July 2, 2003, the Requirements Amendment effective June 15, 2005, the Waiver Amendment effective August 9, 2007 and the Amendment to the Alnylam Co-Exclusive License Agreement dated as of March 14, 2011, by and between Alnylam Pharmaceuticals, Inc., on the one hand, and Whitehead Institute for Biomedical Research, Massachusetts Institute of Technology and Max-Planck-Innovation GmbH, on the other hand; and Co-Exclusive License Agreement between Max Planck Innovation GmbH (formerly Garching Innovation GmbH) and Alnylam Europe AG (formerly Ribopharma AG), dated July 30, 2003.

Other Third Party Agreements

 

1.

Amended and Restated License and Collaboration Agreement among Alnylam, Isis and Regulus Therapeutics Inc., dated January 1, 2009, as amended on June 7, 2010, October 25, 2011, and August 2, 2013.

 

2.

License and Collaboration Agreement between Alnylam and Takeda Pharmaceutical Company Limited dated May 27, 2008, as amended by letter agreements dated March 16, 2011 and August 18, 2009.

 

3.

License and Collaboration Agreement between Alnylam and F. Hoffmann-La Roche Ltd. and Hoffmann-La Roche Inc. dated July 8, 2007, as amended by that certain letter amendment dated May 29, 2008. This License and Collaboration Agreement has been assigned to Arrowhead Research Corporation.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

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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 Alnylam’s agreements with [***]) of therapeutic and prophylactic LICENSED PRODUCTS (as defined in Alnylam’s agreements with [***]) by Alnylam and its SUBLICENSEES (as defined in Alnylam’s 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 [***] of any additional running royalties to be paid to such third party up to [***] 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 [***] 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 Alnylam’s 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 Alnylam’s royalty obligations to [***] with respect to sales by Isis, its Affiliates and its sublicensees of any Isis Product.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

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Schedule 1-8

Alnylam Current Chemistry Patents

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. A total of 20 pages were omitted.

[***]

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

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Schedule 1-9

Alnylam Current Motif and Mechanism Patents

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. A total of 68 pages were omitted.

[***]

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

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Schedule 1.11

Alnylam Excluded Technology

 

1.	All patent rights licensed to Alnylam under the license agreement between the [***] and Alnylam dated [***].

 

2.	All patent rights licensed to Alnylam under the license agreement between [***] dated [***].

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

---

Schedule 1-13

Alnylam Exclusive Target Excluded Technology

[***]

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

---

Schedule 1-14

Alnylam Exclusive Target Patents

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. A total of 84 pages were omitted.

[***]

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

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Schedule 1-17

Alnylam Extended Field Patents

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. A total of 1 page was omitted.

[***]

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

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Isis Current Chemistry Patents Schedule 1-52

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. A total of 48 pages were omitted.

[***]

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

---

Isis Current Motif and Mechanism Patents Schedule 1-53

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. A total of 9 pages were omitted.

[***]

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

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ISIS EXCLUDED TECHNOLOGY SCHEDULE 1-57

The following schedule of Excluded Technology is provided by Isis Pharmaceuticals, Inc. to Alnylam Pharmaceuticals, Inc., in connection with 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.

INTELLECTUAL PROPERTY COVERING:

 

•

RNA processing, including modulation of [***];

 

•

PNA chemistry licensed or acquired from [***];

 

•

[***] chemistry licensed or acquired from [***];

 

•

[***] a Gene Target.

 

2.

[***]/4’-THIO CHEMISTRY.

4’-thio chemistries including patents licensed in from [***]

In addition, the following Patents in-licensed from [***] are excluded:

 

Isis Docket Number		Country		Status		Patent Number		Granted Date		Title
[***]		[***]		[***]		[***]		[***]		[***]
[***]		[***]		[***]		[***]		[***]		[***]

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

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3.

MCGILL UNIVERSITY (B)

In addition to certain manufacturing technology excluded by definition, the following Patents in-licensed from McGill University are excluded:

 

Isis Docket Number		Country		Status		Title
[***]		[***]		[***]		[***]

 

4.

WALDER PATENTS (B)

The Walder Patents are excluded. “Walder Patents” means and includes[***].

 

5.

MERCK NUCLEOSIDE

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.

 

6.

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.

 

7.

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.

 

8.

MAX-PLANCK-INNOVATION GMBH.

Isis is not granting Alnylam any sublicense under the Co-Exclusive License Agreement dated April 27, 2009 among Isis, Alnylam and Max-Planck-Innovation GmbH.

 

 

(A)	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.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

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ISIS EXCLUSIVE TARGET EXCLUDED TECHNOLOGY SCHEDULE 1-59

The following schedule of Isis Exclusive Target Excluded Technology is provided by Isis Pharmaceuticals, Inc. to Alnylam Pharmaceuticals, Inc., in connection with 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 Isis Exclusive Target Excluded Technology and any other schedule or terms of the Agreement, this schedule will govern.

 

1.

INTELLECTUAL PROPERTY COVERING:

 

•

RNA processing, including modulation of [***];

 

•

PNA chemistry licensed or acquired from [***];

 

•

[***] chemistry licensed or acquired from [***];

 

•

[***] a Gene Target.

 

2.

[***]/4’-THIO CHEMISTRY.

4’-thio chemistries including patents licensed in from [***]

In addition, the following Patents in-licensed from [***] are excluded:

 

Isis Docket Number		Country		Status		Patent Number		Granted Date		Title
[***]		[***]		[***]		[***]		[***]		[***]
[***]		[***]		[***]		[***]		[***]		[***]

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

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3.

MCGILL UNIVERSITY (B)

In addition to certain manufacturing technology excluded by definition, the following Patents in-licensed from McGill University are excluded:

 

Isis Docket Number		Country		Status		Title
[***]		[***]		[***]		[***]

 

4.

WALDER PATENTS (B)

The Walder Patents are excluded. “Walder Patents” means and includes [***].

 

5.

MERCK NUCLEOSIDE

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.

 

6.

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.

 

7.

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.

 

8.

MAX-PLANCK-INNOVATION GMBH.

Isis is not granting Alnylam any sublicense under the Co-Exclusive License Agreement dated April 27, 2009 among Isis, Alnylam and Max-Planck-Innovation GmbH.

 

 

(A)	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.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

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Isis Exclusive Target Patents Schedule 1-60

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. A total of 46 pages were omitted.

[***]

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

---

Isis Extended Field Patents Schedule 1-63

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. A total of 1 page was omitted.

[***]

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

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Isis Manufacturing Patents Schedule 1-66

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. A total of 5 pages were omitted.

[***]

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

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SCHEDULE 1-69

ISIS RETAINED TARGETS

Isis Retained Special Targets:

[***]

Other Isis Retained Targets:

[***]

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

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Isis Special Patents Schedule 1-73

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. A total of 1 page was omitted.

[***]

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

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Research Program Patents Schedule 1-97

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. A total of 1 page was omitted.

[***]

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

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Exhibit A

Isis Exclusive Targets

1. The human Factor XI gene (also known as coagulation factor XI, plasma thromboplastin antecedent, F11, FXI) and its protein product. As of the Second Restatement Date, the gene has NCBI Gene ID 2160, an example of an identifier for the Factor XI gene is NCBI RefSeq code NM_000128 and an example of an identifier for the Factor XI protein product is NCBI RefSeq code NP_000119.

2. The human Apo(a) gene (also known as apolipoprotein(a); LPA; Lipoprotein, Lp(a); Lp(a)) and its protein product. As of the Second Restatement Date, the gene has NCBI Gene ID 4018, an example of an identifier for the Apo(a) gene is NCBI RefSeq code NM_005577 and an example of an identifier for the Apo(a) protein product is NCBI RefSeq code NP_005568.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

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Exhibit B

Alnylam Exclusive Targets

1. The human antithrombin gene and its protein product, antithrombin (also known as SERPINC1, antithrombin3, AT3 and ATIII). As of the Second Restatement Date, an example of an identifier for the antithrombin gene is NCBI RefSeq code NM_000488 and an example of an identifier for the antithrombin protein product is NCBI RefSeq code NP_000479.

2. The human ALAS-1 gene and its protein product ALAS-1 (also known as ALAS, ALAS3, ALASH, aminolevulinate delta-synthase, Delta-ALA synthase, Delta-Aminolevulinate synthase 1, 5-aminolevulinic acid synthase 1, ALAS-H, 5-aminolevulinate synthase, MIG4, aminolevulinate synthase-1, AS1). As of the Second Restatement Date, an example of an identifier for the ALAS-1 gene is NCBI RefSeq code NM_000688 and an example of an identifier for the ALAS-1 protein product is NCBI RefSeq code NP_000679.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

Exhibit 10.3

EXECUTION VERSION

AMENDMENT TO THE RESEARCH COLLABORATION AND LICENSE AGREEMENT

This Amendment to the Research Collaboration and License Agreement (this “Amendment”) is entered into as of February 27, 2015, by and between Novartis Institutes for BioMedical Research, Inc., a corporation organized and existing under the laws of Delaware, with its principal place of business at 250 Massachusetts Avenue, Cambridge, Massachusetts 02139, and Alnylam Pharmaceuticals, Inc., a corporation organized and existing under the laws of Delaware, with its principal place of business at 300 Third Street, 3rd Floor, Cambridge, Massachusetts 02142.

RECITALS:

WHEREAS, Alnylam and Novartis have previously entered into that certain Research Collaboration and License Agreement, dated October 12, 2005, as amended by those two letter agreements dated May 26, 2010 and April 27, 2011 (as amended, the “Agreement”).

WHEREAS, Alnylam and Novartis desire to amend certain terms of the Agreement as set forth in this Amendment.

NOW, THEREFORE, in consideration of the respective representations, warranties, covenants and agreements contained in this Amendment, and for other valuable consideration, the receipt and adequacy of which are hereby acknowledged, Alnylam and Novartis agree as follows:

 

1.	Definitions. All terms used in this Amendment and not otherwise defined in this Amendment will have the same meanings ascribed to them in the Agreement.

 

2.

Targets.

 

(a)

The Parties understand and agree that Exhibit A attached to this Amendment sets forth:

 

(i)

those Targets that were subject to an Active Program (and have not become an Abandoned Program by operation of this Amendment or otherwise), and thus as of the date first written above continue to give rise to Discovered RNAi Compounds, Collaboration Products and Licensed Products under the Agreement (collectively, “Active Program Targets”); and

 

(ii)

those Targets that Novartis previously obtained, and continues to have as of the date first written above (including after this Amendment goes into effect), its rights as set forth in Section 8.1(a)(iv)(x) of the Agreement (collectively, “Novartis Section 8 Targets”).

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

---

EXECUTION VERSION

 

(b)

The Parties understand and agree that the Targets listed on Exhibit B, by operation of this Amendment as of the date first written above, no longer come within the scope of Novartis’ licenses and other rights under the Agreement. Each such Target will hereafter be treated as an “Abandoned Program” thereunder, and further the consequences set forth in Section 8.4(b) of the Agreement will hereafter apply to such Target (collectively, “Former Active Program Targets”).

 

3.	Milestone Payment.

 

(a)

The Parties understand and agree that $[***] of the Payment Amount of $[***] set forth in the first row of the table of Section 4.4(b) will be due and payable to Alnylam on the tenth Business Day after the date first written above, which $[***] will be creditable against such $[***] from such row if such corresponding Milestone Event is achieved thereafter (but not creditable against any other payments payable by Novartis to Alnylam under the Agreement). Such $[***] payment will be made by Novartis to Alnylam without any deduction, reduction or right of set-off of any kind, and notwithstanding any other contrary terms in the Agreement or subsequent events.

 

(b)

In consideration of the foregoing payment to be made by Novartis to Alnylam, the Parties hereby agree to the additional terms set forth on Exhibit C.

 

4.	IP and Other Amendments.

 

(a)

The definition of “Alnylam Know-How” is hereby deleted in its entirety and replaced with the following: “Alnylam Know-How” shall mean Know-How first Controlled by Alnylam on or before March 31, 2016 (and expressly excluding Know-How first Controlled by Alnylam thereafter), including Broad RNAi Know-How.”.

 

(b)

In the definition of “Broad RNAi Know-How”, the clause “all Know-How now or in the future Controlled by Alnylam,” is hereby deleted in its entirety and replaced with the following: “ “all Know-How first Controlled by Alnylam on or before March 31, 2016 (and expressly excluding Know-How first Controlled by Alnylam thereafter),”.

 

(c)

The definition of “Alnylam Patent Rights” is hereby deleted in its entirety and replaced with the following: “ “Alnylam Patent Rights” shall mean (a) Patent Rights first Controlled by Alnylam on or before March 31, 2016 (and expressly excluding Patent Rights first Controlled by Alnylam thereafter, except for those claims of Patent Rights expressly included by the following clause (b)), and (b) claims of Patent Rights first Controlled by Alnylam after March 31, 2016 to the extent that (1) those Patent Rights claim priority to, and (2) those claims are fully supported and enabled by, in each case ((1) and (2)) any such Patent Rights so first Controlled on or before March 31, 2016 and included in the foregoing clause (a). “Alnylam Patent Rights” will include the Broad RNAi Patent Rights.”.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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EXECUTION VERSION

 

(d)

In the definition of “Broad RNAi Patent Rights”, the clause “shall mean the Patent Rights listed on Schedule 1(b), the Patents licensed to Alnylam under the Listed Alnylam Third Party Agreements, and all other Patents now or in the future Controlled by Alnylam that Cover” is hereby deleted in its entirety and replaced with the following: “ “shall mean (1)(x) the Patent Rights listed on Schedule 1(b), (y) the Patents licensed to Alnylam under the Listed Alnylam Third Party Agreements, and (z) all other Patent Rights, in each case ((x) through (z)) to the extent first Controlled by Alnylam on or before March 31, 2016 (and expressly excluding Patent Rights first Controlled by Alnylam thereafter, except for those claims of Patent Rights expressly included by the following clause (2)), and (2) claims of Patent Rights first Controlled by Alnylam after March 31, 2016 to the extent that (A) those Patent Rights claim priority to, and (B) those claims are fully supported and enabled by, in each case ((A) and (B)) any such Patent Rights so first Controlled on or before March 31, 2016 and included in the foregoing clause (1), in each case ((1) and (2)) that Cover”.

 

(e)

Each of Sections 2.5 and 2.7 of the Agreement is hereby deleted in its entirety, and each is hereby replaced with the following: “Intentionally Omitted”.

 

(f)

Exhibit D sets forth additional reporting obligations of Novartis.

 

(g)

The following is hereby added between the”);” and the “and” at the end of Section 8.1(a)(iv)(x): “the foregoing license may be sublicensed by Novartis subject to and conditioned upon the following:

(1) any such sublicense complies in full with, and is subject to, Section 3.1(d)(ii) and (not clause (i) thereof); any such sublicensee will have no right to grant further sublicenses;

(2) a Selected Target, and those RNAi Compounds (and Licensed Products containing such RNAi Compounds) against such Selected Target, may be so sublicensed only if [***] by Novartis for at least one RNAi Compound against such Selected Target; for clarity, an RNAi Compound (and Licensed Products containing such RNAi Compound) may be so sublicensed only if Novartis [***] for such RNAi Compound, or Novartis [***] for another RNAi Compound against the same Selected Target as such first RNAi Compound;

(3) the total number of any such sublicenses by Novartis under such license may not exceed [***] (and for clarity any such sublicense may apply to more than one of such Selected Targets and corresponding RNAi Compounds and Licensed Products containing such RNAi Compounds);

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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EXECUTION VERSION

 

(4) at least [***] days before granting any such sublicense (or any option or other right to any such sublicense), Novartis will notify Alnylam in writing of the identity of such proposed sublicensee (the “Sublicensee Notice”). Within [***] days after receiving such Sublicensee Notice from Novartis, Alnylam will notify Novartis whether or not Alnylam is then in a dispute with such proposed sublicensee, or has reasonable ground for believing that the proposed sublicensee is practicing any Know-How or Patent Rights (including any Alnylam Intellectual Property) owned or in-licensed by Alnylam, its collaborators or any of their respective Affiliates without any valid license or other authorization (and without reference to any safe harbor or other defense under 35 U.S.C. § 271(e)(1) and its counterparts under non-U.S. law). In the event Alnylam reasonably believes such sublicensee is practicing such Know-How or Patent Rights without a valid license or other authorization it shall have the right to object in writing to such sublicensee, setting forth reasonable substantiation supporting its objection, and in that event Novartis will not grant any sublicense to such sublicensee;

(5) if Novartis does not receive any notice from Alnylam as described in subsection (4) above within [***] days after Alnylam’s receipt of the Sublicensee Notice from Novartis, then Novartis may notify Alnylam that if it does not receive an objection from Alnylam on the grounds permitted above within [***] business days, it will proceed with the proposed sublicense, provided, that, Novartis will resubmit any proposed sublicensee to Alnylam if any such sublicense is not granted within [***] days of the initial Sublicensee Notice being received by Alnylam even if the proposed sublicensee is the same; (6) Novartis will provide to Alnylam a copy of any agreement containing any such sublicense so granted (or any option or other right to any such sublicense so granted), provided that Novartis may redact financials from such agreement; and

(6) any such sublicensee will commit, as a condition of such sublicense, to use Commercially Reasonable Efforts (with references to “Party” in such definition referring to such sublicensee and “Collaboration Product” referring to RNAi Compounds (and Licensed Products containing such RNAi Compounds)) to Develop and Commercialize RNAi Compounds (and Licensed Products containing such RNAi Compounds) that are the subject of such sublicense; such obligation will be on a Selected Target-by Selected Target basis if RNAi Compounds against more than one Selected Target are the subject of such sublicense; if such sublicensee fails to comply with the foregoing diligence obligation, then Novartis will notify Alnylam of such failure and terminate such sublicense as to the relevant Selected Target, upon Alnylam’s written request.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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EXECUTION VERSION

 

5.	Updated Notice Addresses.

 

(a)

Alnylam hereby designates the following as its corrected notice address under Section 9.3 of the Agreement:

If to Alnylam:

Alnylam Pharmaceuticals, Inc.

300 Third Street, 3rd Floor

Cambridge, Massachusetts 02142

Attention:         General Counsel

Fax:        (617) 551-8101

With a copy (which shall not constitute notice) to:

Goodwin Procter LLP

53 State Street

Boston, MA 02109

Attention:         Kingsley L. Taft, Esq.

Fax:        (617) 523-1231

 

(b)

Novartis hereby designates the following as its corrected notice address under Section 9.3 of the Agreement:

If to Novartis:

Novartis Institutes for BioMedical Research, Inc.

250 Massachusetts Avenue

Cambridge, Massachusetts 02139

Attention:         General Counsel

Fax:        (617) 871-3354

 

6.	General Terms.

 

(a)

Except as expressly amended hereby, the remaining terms of the Agreement will remain in fall force and effect.

 

(b)

In the event of any conflict between the provisions of the Agreement and this Amendment, the provisions of this Amendment will govern and control.

 

(c)

The Agreement, as amended by this Amendment, constitutes the entire agreement between Alnylam and Novartis with respect to the subject matter contained in this Amendment and therein, and supersedes all previous agreements, whether written or oral.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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(d)

This Amendment will be governed by and interpreted under the laws of in effect in the Commonwealth of Massachusetts, excluding its conflicts of laws principles.

 

(e)

This Amendment may be executed in counterparts, each of which counterparts, when so executed and delivered, will be deemed to be an original, and all of which counterparts, taken together, will constitute one and the same instrument even if both Parties have not executed the same counterpart. Signatures provided by facsimile transmission will be deemed to be original signatures.

 

(f)

If, under applicable Law any provision of this Amendment is invalid or unenforceable, or otherwise directly or indirectly affects the validity of any other material provision(s) of the Agreement (“Severed Amendment Clause”), then, it is mutually agreed that this Amendment will endure except for the Severed Clause. The Parties will consult and use their best efforts to agree upon a valid and enforceable provision which will be a reasonable substitute for such Severed Amendment Clause in light of the intent of this Agreement.

[Remainder of Page Intentionally Left Blank]

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

 

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EXECUTION VERSION

 

IN WITNESS WHEREOF, Alnylam and Novartis have caused this Amendment to be duly executed by their authorized representatives, as of the date first written above.

 

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

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EXECUTION VERSION

 

Exhibit A

Active Program Targets and Novartis Section 8 Targets

Active Program Targets:

[***]

[***]

[***]

[***]

[***]

[***]

Novartis Section 8 Targets:

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

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EXECUTION VERSION

 

Exhibit B

Former Active Program Targets and Former Novartis Section 8 Targets

Former Active Program Targets:

[***]

[***]

 

*	The Parties understand and agree that [***] had become an Abandoned Program prior to this Amendment, but have included [***] here for the sake of completeness.

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

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EXECUTION VERSION

 

Exhibit C

Additional Terms

The Parties understand agree that:

 

1.

[***]

 

2.

[***]

 

3.

[***]

 

4.

The Parties agree that Section 9.8 of the Agreement permits Novartis to assign the Agreement to a Third Party in connection with a sale or transfer of all or substantially all of the Novartis business of developing and commercializing RNAi Products notwithstanding continued business of Novartis using [***]

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

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EXECUTION VERSION

 

Exhibit D

Additional Novartis Reporting Obligations

Once per calendar year, on or around December 31, Novartis shall submit a report to Alnylam that contains the following information:

[***]

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934.

EXHIBIT 31.1

CERTIFICATION

I, John M. Maraganore, Ph.D., certify that:

 

1)

I have reviewed this Quarterly Report on Form 10-Q of Alnylam Pharmaceuticals, Inc.;

 

2)

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3)

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4)

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5)

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 8, 2015						/s/ John M. Maraganore
						John M. Maraganore, Ph.D.
						Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION

I, Michael P. Mason, certify that:

 

1)

I have reviewed this Quarterly Report on Form 10-Q of Alnylam Pharmaceuticals, Inc.;

 

2)

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3)

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4)

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5)

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 8, 2015						/s/ Michael P. Mason
						Michael P. Mason
						Vice President of Finance and Treasurer

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT

TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Alnylam Pharmaceuticals, Inc. (the “Company”) for the quarter ended March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, John M. Maraganore, Ph.D., Chief Executive Officer of the Company, hereby certifies, pursuant to Section 1350 of Chapter 63 of Title 18, United States Code, that to his knowledge:

 

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: May 8, 2015						/s/ John M. Maraganore
						John M. Maraganore, Ph.D.
						Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT

TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Alnylam Pharmaceuticals, Inc. (the “Company”) for the quarter ended March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Michael P. Mason, Vice President of Finance and Treasurer of the Company, hereby certifies, pursuant to Section 1350 of Chapter 63 of Title 18, United States Code, that to his knowledge:

 

(1)

the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: May 8, 2015						/s/ Michael P. Mason
						Michael P. Mason
						Vice President of Finance and Treasurer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.