Recently, Alnylam Pharmaceuticals Inc. (ALNY) announced that it will trim its work force by 25%–30% following the end of its five-year agreement with Novartis (NVS).
The reduction in workforce is expected to reduce 2011 cash operating expenses by approximately $25 million. Furthermore, the company expects to incur a one-time charge of approximately $3 million due to the job-cut. Bulk of the amount is expected to be incurred in the third quarter of 2010. The company has reaffirmed its earlier guidance of ending 2010 with a cash balance in excess of $325 million.
We remind investors that the two companies had inked an RNA (Ribo Nucleic Acid) interference (RNAi) therapeutics deal in 2005. The initial duration of the agreement was three years. Novartis had the option to extend the agreement by one-year twice. Novartis exercised the option to extend the deal to the fifth and final year in July 2009. The deal ends in October 2010.
Novartis has fully exercised its right to select the final list of 31 exclusive disease targets for the discovery, development and subsequent commercialization of RNAi therapeutics by making use of Alnylam’s intellectual property and technology. Novartis will have to make significant milestone payments to Alnylam if certain development targets and annual net sales events are achieved. Novartis will not exercise its option to execute an adoption license under the terms of the original agreement.
Even though the agreement with Novartis is nearing its end, which has resulted in the job-cut, Alnylam still has collaborations with big pharmaceutical players, such as Biogen Idec (BIIB), Takeda, and Roche (RHHBY), based on its core RNAi technology. The company is utilizing the potentially revolutionary technology to build a pipeline of drug candidates to treat a wide array of diseases, such as respiratory syncytial virus, Parkinson’s disease, cystic fibrosis and spinal cord injury.
Our Recommendation
We believe that Alnylam’s current valuation adequately reflects its fairly balanced risk/reward profile. We see limited upside from current levels. This justifies our Zacks #3 Rank (short-term ‘Hold’ recommendation) and long-term Neutral stance on the stock.
ALNYLAM PHARMA (ALNY): Free Stock Analysis Report
BIOGEN IDEC INC (BIIB): Free Stock Analysis Report
NOVARTIS AG-ADR (NVS): Free Stock Analysis Report
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