Alnylam offers a proven and underappreciated RNAi platform, but questions remain about the ATTR program

Stephen Simpson profile picture

Christoph Burgstedt

Alnylam Pharmaceuticals (NASDAQ:ALNY) has built a strong foundation for itself with multiple product approvals in recent years, but there is still work to be done: de-risk the Onpattro opportunity in TTR amyloidosis with cardiomyopathy (or ATTR-CM), HELIOS-B data, and continue to deliver promising new compounds from the company’s ongoing clinical projects.

Since my last update, Alnylam shares are down 8%, but have kept pace with SPDR S&P Biotechnology ETF (XBI), and over the past year, the stock has significantly outperformed that biotech ETF (+28% vs. -35%). With a fair value in the $225-$240 range based on my valuation approaches, I still believe this biotech is worth owning.

Mixed results in the third quarter, but good on the balance sheet

Alnylam’s third quarter results weren’t as clean as investors would like, but overall results weren’t bad. Total revenue was up 41% year over year, losing 10%. The failure was largely due to weaker-than-expected earnings from NovartisLaunch of (NVS) in Leqvio (weaker royalties/milestones).

Product net revenue was up 39% year-over-year and 9% quarter-over-quarter and basically met expectations, albeit with some moving parts. The ATTR franchise saw revenue growth 11% quarter-on-quarter to $170 million, with Amvuttra beating sell-side expectations ($25 million vs. $10 million) and Onpattro with $11 million ($145 million); Overall, the launch of Amvuttra is off to a better start than expected, and the loss of Onpattro was a byproduct of a higher than expected conversion of patients from Onpattro to Amvuttra. Of the Amvuttra initiations in the quarter, 40% of patients were new to Alnylam.

Givlaari revenue increased 43% year-over-year and 2% quarter-over-quarter, with sales missing expectations by approximately 5%, while the number of patients increased 10% sequentially. Oxlumo sales increased 10% year over year and decreased 6%, losing 16% ($3 million). In the case of Givlaari and Oxlumo, the expectation has long been a slower ramp-up than the TTR franchise given the lower number of identified untreated patients.

Alnylam met expectations on gross margin (84%) and performed better than expected on SG&A and R&D expenses. I’m not too excited about these line items at this point in the Alnylam life cycle given the potential impact of time (particularly on R&D, with events like the start of testing).

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The Onpattro debate continues… and will continue to do so for a while

Despite the successful outcome of the Phase III trial (APOLLO-B), the debate about Onpattro’s future in ATTR-CM has not died down, and I don’t imagine it will in the foreseeable future.

Later looks at APOLLO-B data in early September (at ISA) and early October (at HFSA) provided insight into certain questions, but also raised other questions. For endpoints such as the six-minute walk test (or 6MWT), the placebo improvement (14.7 meters) was at the high end of the expected range (based on the original report), and the same with the Cardiomyopathy Questionnaire Kansas City (or KCCQ) (3.7 placebo-adjusted improvement). Cardiac events were fewer in the Onpattro arm and there was a trend of separation in all-cause mortality at 12 months.

On the other hand, looking at time to first cardiac event, the improvement was driven by patients in Pfizer‘s (PFE) tafamidis, with no separation in patients not taking tafamidis at baseline. Similarly, 6MWT did not show benefit in patients with initial tafamidis or patients with class III heart failure.

I have spoken before about the difficulties inherent in comparing between trials and in using subgroup analyzes where the subgroups are very small. I also mentioned the reality that with tafamidis on the market, new ATTR-CM trials are enrolling healthier patients, skewing the results.

In general, there is not much change in my opinion about the role of Onpattro in tafamidis: the drug’s greatest short-term opportunity is in patients who do not respond to tafamidis (about 15% to 20%) and in patients with more severe varieties . This should be about 25-30% of the overall market for ATTR-CM, and my model for the drug has long assumed a low 20% market share, so I don’t find this surprising.

In the longer term, the real question is how Amvuttra performs in the HELIOS-B test. Tafamidis will continue to be a strong player in the market, but I think Amvuttra could show more convincing mortality data.

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Looking (again) at the pipeline

The biggest clinical event on the Alnylam calendar in the HELIOS-B reading in early 2024. Management has decided not to do an interim analysis, which I think is a good decision. There will also be data later this year on twice-yearly dosing of Amvuttra, and this could be an important “quality of life” differentiation for the drug.

Management announced with third-quarter earnings that it is halting the development, at least for now, of Amvuttra in Stargardt’s disease (a rare form of macular degeneration). The recently passed Inflation Reduction Act includes a provision that makes drugs with more than one orphan indication eligible for price negotiation, and management is unwilling to risk the ATTR franchise to pursue the Stargardt indication.

Management also announced that, due in large part to slower enrollment, the ALN-PP Early-Onset Alzheimer’s Study will be read in the first quarter of 2023 instead of the fourth quarter of 2022. While all related with Alzheimer’s disease has significant commercial potential, this is also an important look (if not a proof of concept) at the clinical performance of the company’s C16 conjugate, an important step in bringing RNAi therapies to CNS diseases.

The management has not given many details so far, but announced (with partner Regeneron (REGN)) in September that “promising” data from a phase I study of ALN-HSD in patients with non-alcoholic steatohepatitis (or NASH) supported moving the drug to phase II, and that study should start before the end of of 2022.

I also want to briefly discuss two other opportunities that are not yet in my model. The first is a market expansion opportunity for Oxlumo: using the drug in patients with recurrent kidney stones. Data should be available in the first half of 2023, and although Oxlumo is effective in its specific indication (primary hyperoxaluria type 1) and the patient population is large (at least 1.5 million people in the US) , I think this is a difficult goal . Ascorbic acid is a much larger contributor to oxalate in patients who do not have PH1 (40% to 50% depending on the literate), and I am not sure how Oxlumo will work in an environment where removing glycolate oxidase is not as important. Also, since lifestyle changes can help reduce the incidence of kidney stones (avoid foods rich in vitamin C), I believe it would be almost impossible to maintain orphan drug prices in this setting.

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The other indication/drug is ALN-XDH for gout. There are at least 50,000 patients with refractory gout in the US and EU (in each), with long-term tolerability and adherence to existing approved treatments being a real issue. While excessive removal of XDH is a risk, if Alnylam can reach a healthy middle ground, it could be a $1 billion-plus drug.

the perspective

Not much has changed in my model since my last update, and the company’s ATTR franchise still accounts for a little over half of my estimated total value for Alnylam stock. I’ve modestly scaled back my Leqvio assumptions on a slower commercial ramp, and my model still doesn’t include opportunities like chronic kidney stones (Oxlumo), NASH (ALN-HSD), gout (ALN-XHD), or Alzheimer’s (ALN-AAP).

I value Alnylam using two different approaches: long-term discounted cash flow and a peak sales approach. In both cases, clinical candidates are heavily discounted based on their stage of development, so future positive clinical upgrades can unlock significant incremental value.

The bottom line

Alnylam has multiple intriguing early-stage programs, but there aren’t many compounds in late-stage development right now, so the clinical picture is stick-shaped at the moment. Also, there are still questions about how competitive Onpattro will be in ATTR-CM and whether Amvuttra will be significantly better. However, I remain bullish on Alnylam’s ATTR-CM program and while I recognize the risks inherent in early-stage biotech programs, I believe positive clinical data may drive more value in the next two to three years. All told, I think Alnylam is an underrated biotech with a strong platform focus that is still worth owning today.

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