Christoph Burgstedt
Alnylam Pharmaceuticals (NASDAQ:ALNY) has built a solid base for itself with multiple product approvals in recent years, but there is still work to be done – de-risk the opportunity for Onpattro in TTR amyloidosis with cardiomyopathy (or ATTR-CM), deliver strong 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 about 8%, but have kept pace with the SPDR S&P Biotech ETF (XBI), and over the past year, the shares have significantly outperformed that biotech ETF (+28% versus -35%). With a fair value in the $225 – $240 range by my valuation approaches, I still believe this is a biotech worth owning.
Mixed Results In Q3, But Okay On Balance
Alnylam’s third quarter results weren’t as clean as investors may like, but the overall results weren’t bad. Total revenue rose 41% year over year, missing by 10%. The miss was driven largely by weaker than expected receipts from Novartis’s (NVS) launch in Leqvio (weaker royalties/milestones).
Net product revenue was up 39% yoy and 9% qoq and basically met expectations, albeit with some moving parts. The ATTR franchise saw 11% qoq revenue growth to $170M, with Amvuttra exceeding sell-side expectations ($25M versus $10M) and Onpattro coming in $11M light ($145M); on balance, Amvuttra’s launch is off to a better-than-expected start, and the Onpattro miss was a byproduct of higher-than-expected conversion of Onpattro patients to Amvuttra. Of the Amvuttra starts in the quarter, 40% of the patients were new to Alnylam.
Givlaari revenue rose 43% yoy and 2% qoq, with sales missing expectations by about 5%, while patient counts increased 10% sequentially. Oxlumo sales rose 10% yoy and declined 6%, missing by 16% ($3M). In the case of both Givlaari and Oxlumo, the expectation has long been for a slower ramp than the TTR franchise given the smaller number of identified untreated patients.
Alnylam met expectations on gross margin (84%) and came in better than expected on SG&A and R&D. I don’t get too excited about these line-items at this point in Alnylam’s lifecycle given the potential impact of timing (particularly in R&D, with events like trial starts).
The Debate On Onpattro Goes On … And Will Continue To Do So For A While
Despite a successful Phase III trial outcome (APOLLO-B), the debate over the future of Onpattro in ATTR-CM has not quieted down, and I don’t imagine it will for the foreseeable future.
Subsequent looks at APOLLO-B data in early September (at ISA) and early October (at HFSA) provided some insight on certain questions, but also created other questions. For endpoints like the six minute walk test (or 6MWT), the improvement from placebo (14.7 meters) was at the high end of the expected range (based upon the original report), and likewise with the Kansas City Cardiomyopathy Questionnaire (or KCCQ) (3.7 placebo-adjusted improvement). Cardiac events were lower in the Onpattro arm, and there was a trend of separation on all-cause mortality at 12 months.
On the other hand, looking at the time to first cardiac event, the improvement was driven by patients on Pfizer’s (PFE) tafamidis, with no separation in patients not on tafamidis at the start of the study. Likewise, the 6MWT didn’t show benefits in patients on baseline tafamidis or patients with Class III heart failure.
I’ve talked before about the difficulties inherent to comparing across trials and using sub-group analyses where the sub-groups are so small. I’ve also mentioned the reality that with tafamidis on the market, new ATTR-CM trials are enrolling healthier patients, skewing the results.
Overall, not much changes in my view of Onpattro’s role in tafamidis – the drug’s biggest near-term opportunity is in patients who don’t respond to tafamidis (around 15% to 20%) and in patients with more serious varieties. This should be around 25% to 30% of the overall ATTR-CM market, and my model for the drug has long assumed a low-20%’s market share, so I don’t consider this surprising.
Longer term, the real question is how Amvuttra performs in the HELIOS-B trial. Tafamidis is going to remain a significant factor in the market, but I do believe that Amvuttra could show more compelling mortality data.
Looking (Again) At The Pipeline
The biggest clinical event on Alnylam’s calendar in the HELIOS-B read-out in early 2024. Management has decided not to do an interim analysis, which I believe is a good decision. There will also be data later this year on twice-yearly dosing for Amvuttra, and this could be an important “quality of life” differentiation for the drug.
Management announced with third quarter earnings that it is pausing development, at least for now, of Amvuttra in Stargardt 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 isn’t willing to risk the ATTR franchise to pursue the Stargardt indication.
Management also announced that, due largely to slower enrollment, the ALN-PP study in early-onset Alzheimer’s will read out in the first quarter of 2023 instead of the fourth quarter of 2022. While anything tied to Alzheimer’s disease has significant commercial potential, this is also an important look (if not proof of concept) at the clinical performance of the company’s C16 conjugate, an important step in bringing RNAi therapies to CNS diseases.
Management has not given much in the way of detail so far, but did announce (with partner Regeneron (REGN)) in September that “promising” data from a Phase I study of ALN-HSD in patients with nonalcoholic steatohepatitis (or NASH) supported moving the drug into Phase II, and that study should begin before the end of 2022.
I also want to briefly discuss two other opportunities that aren’t in my model yet. 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 while Oxlumo is effective in its targeted indication (primary hyperoxaluria type 1) and the patient population is large (at least 1.5M people in the U.S.), I think this is a tough target. Ascorbic acid is a far larger contributor to oxalate in non-PH1 patients (40% to 50% according to literate), and I’m not sure how Oxlumo will perform in a setting where knocking down glycolate oxidase isn’t so important. Also, given that lifestyle changes can help reduce the incidence of kidney stones (avoiding foods high in vitamin C), I think it would be almost impossible to sustain orphan drug pricing in this setting.
The other indication/drug is ALN-XDH for gout. There are at least 50,000 refractory gout patients in the U.S. and EU (each), with long-term tolerability and compliance with existing approved treatments a real issue. While excessive XDH knockdown is a risk, if Alnylam can hit a healthy midpoint, this could be a $1B-plus drug.
The Outlook
Not too much has changed in my model since my last update, and the company’s ATTR franchise still makes up a little more than half of my total value estimate for Alnylam shares. I’ve modestly reduced my Leqvio assumptions on a slower commercial ramp, and my model doesn’t yet 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-based approach. In both cases, clinical candidates are heavily discounted based upon their stage of development, so future positive clinical updates can unlock meaningful incremental value.
The Bottom Line
Alnylam has multiple intriguing early-stage programs, but there aren’t many compounds in late-stage development now, so the clinical picture is somewhat barbell-shaped right now. What’s more, there are still ongoing doubts about how competitive Onpattro will be in ATTR-CM and whether Amvuttra will be significantly better. I’m still bullish on Alnylam’s ATTR-CM program, though, and while I acknowledge the risks inherent in early-stage biotech programs, I believe positive clinical data can and will unlock more value over the next two to three years. All told, I think Alnylam is an underappreciated biotech with a strong platform approach that is still worth owning today.
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