# ALNYLAM PHARMACEUTICALS, INC. (ALNY) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from ALNYLAM PHARMACEUTICALS, INC.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1178670/000117867024000008/alny-20231231.htm
Accession: 0001178670-24-000008
Filing date: 2024-02-15
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/ALNY/
All MD&A years: /company/ALNY/mda/
Previous year: /company/ALNY/mda/fy2022/ (FY 2022)
Next year: /company/ALNY/mda/fy2024/ (FY 2024)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are a global commercial-stage biopharmaceutical company that discovers, develops, manufactures and commercializes novel therapeutics based on RNAi. Our commercial products and broad pipeline of investigational RNAi therapeutics are focused in rare, specialty and select prevalent indications.

As described in Part I, Item 1. “Business” of this Annual Report on Form 10-K, we currently have five products that have received marketing approval, including one collaborated product, and multiple late-stage investigational programs advancing towards potential commercialization. In Part I, Item 1. “Business” you can also find a summary of key events in 2023 and 2024 to-date related to our marketed products and our clinical development programs.

We have incurred significant losses since we commenced operations in 2002 and as of December 31, 2023, we had an accumulated deficit of $7.01 billion. Historically, we have generated losses principally from costs associated with research and development activities, acquiring, filing and expanding intellectual property rights, and selling, general and administrative costs. As a result of planned expenditures for research and development activities relating to our research platform, our drug development programs, including clinical trial and manufacturing costs, the establishment of late-stage clinical and commercial capabilities, including global commercial operations, continued management and growth of our patent portfolio, collaborations and general corporate activities, we expect to incur additional operating losses. While we believe 2019 was our peak operating loss year, we expect to continue to incur annual operating losses, and will require substantial resources over the next several years as we expand our efforts to discover, develop and commercialize RNAi therapeutics, and aim to achieve financial self-sustainability by the end of 2025. We anticipate that our operating results will continue to fluctuate for the foreseeable future, therefore, period-to-period comparisons should not be relied upon as predictive of the results in future periods.

We currently have programs focused on a number of therapeutic areas and, as of December 31, 2023, we generate worldwide product revenues from four commercialized products, ONPATTRO, AMVUTTRA, GIVLAARI and OXLUMO, primarily in the U.S. and Europe. However, our ongoing development efforts may not be successful and we may not be able to commence sales of any other products and/or successfully market and sell ONPATTRO, AMVUTTRA, GIVLAARI, OXLUMO or any other approved products in the future. A substantial portion of our total revenues in recent years has been derived from collaboration revenues from collaborations with Roche, Regeneron and Novartis. In addition to revenues from the commercial sales of our approved products and potentially from sales of future products, we expect our sources of potential funding for the next several years to continue to be derived in part from existing and new strategic collaborations. Such collaborations include, or may include in the future, license and other fees, funded research and development, milestone payments and royalties on product sales by our licensors, including royalties on sales of Leqvio made by our collaborator, Novartis, as well as proceeds from the sale of equity or debt.

83

Table of Contents

Results of Operations

The following data summarizes the results of our operations:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","2023 vs 2022","","2022 vs 2021"],["(In thousands, except percentages)","","2023","","2022","","2021","","$ Change","","% Change","","$ Change","","% Change"],["Total revenues","","$","1,828,292","","","$","1,037,418","","","$","844,287","","","$","790,874","","","76","%","","$","193,131","","","23","%"],["Operating costs and expenses","","$","2,110,467","","","$","1,822,490","","","$","1,552,939","","","$","287,977","","","16","%","","$","269,551","","","17","%"],["Loss from operations","","$","(282,175)","","","$","(785,072)","","","$","(708,652)","","","$","502,897","","","(64)","%","","$","(76,420)","","","11","%"],["Net loss","","$","(440,242)","","","$","(1,131,156)","","","$","(852,824)","","","$","690,914","","","(61)","%","","$","(278,332)","","","33","%"]]
[[/GREPCENT_TABLE]]

For discussion of our 2022 results and a comparison with 2021 results please refer to “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 that was filed with the SEC on February 23, 2023.

Discussion of Results of Operations

Revenues

Total revenues consist of the following:

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,","","2023 vs 2022","","2022 vs 2021"],["(In thousands, except percentages)","","2023","","2022","","2021","","$ Change","","% Change","","$ Change","","% Change"],["Net product revenues","","$","1,241,474","","","$","894,329","","","$","662,138","","","$","347,145","","","39","%","","$","232,191","","","35","%"],["Net revenues from collaborations","","546,185","","","134,912","","","180,953","","","411,273","","","305","%","","(46,041)","","","(25)","%"],["Royalty revenue","","40,633","","","8,177","","","1,196","","","32,456","","","397","%","","6,981","","","*"],["Total","","$","1,828,292","","","$","1,037,418","","","$","844,287","","","$","790,874","","","76","%","","$","193,131","","","23","%"],["* Indicates the percentage change period over period is greater than 500%."]]
[[/GREPCENT_TABLE]]

84

Table of Contents

Net Product Revenues

Net product revenues consist of the following, by product and region:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","2023 vs 2022","","2022 vs 2021"],["(In thousands, except percentages)","2023","","2022","","2021","","$ Change","","% Change","","$ Change","","% Change"],["ONPATTRO"],["United States","$","97,739","","","$","246,748","","","$","213,210","","","$","(149,009)","","","(60)","%","","$","33,538","","","16","%"],["Europe","210,916","","","224,063","","","190,435","","","(13,147)","","","(6)","%","","33,628","","","18","%"],["Rest of World","45,891","","","86,797","","","71,092","","","(40,906)","","","(47)","%","","15,705","","","22","%"],["Total","354,546","","","557,608","","","474,737","","","(203,062)","","","(36)","%","","82,871","","","17","%"],["AMVUTTRA"],["United States","411,169","","","82,521","","","\u2014","","","328,648","","","398","%","","82,521","","","N/A"],["Europe","70,898","","","4,214","","","\u2014","","","66,684","","","*","","4,214","","","N/A"],["Rest of World","75,771","","","7,060","","","\u2014","","","68,711","","","*","","7,060","","","N/A"],["Total","557,838","","","93,795","","","\u2014","","","464,043","","","495","%","","93,795","","","N/A"],["GIVLAARI"],["United States","141,954","","","115,659","","","92,747","","","26,295","","","23","%","","22,912","","","25","%"],["Europe","57,498","","","48,670","","","30,895","","","8,828","","","18","%","","17,775","","","58","%"],["Rest of World","19,799","","","8,815","","","4,173","","","10,984","","","125","%","","4,642","","","111","%"],["Total","219,251","","","173,144","","","127,815","","","46,107","","","27","%","","45,329","","","35","%"],["OXLUMO"],["United States","38,159","","","27,698","","","18,876","","","10,461","","","38","%","","8,822","","","47","%"],["Europe","60,025","","","37,915","","","38,949","","","22,110","","","58","%","","(1,034)","","","(3)","%"],["Rest of World","11,655","","","4,169","","","1,761","","","7,486","","","180","%","","2,408","","","137","%"],["Total","109,839","","","69,782","","","59,586","","","40,057","","","57","%","","10,196","","","17","%"],["Total net product revenues","$","1,241,474","","","$","894,329","","","$","662,138","","","$","347,145","","","39","%","","$","232,191","","","35","%"]]
[[/GREPCENT_TABLE]]

Net product revenues increased during the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to the launch of AMVUTTRA in the third quarter of 2022, partially offset by a decrease of demand for ONPATTRO due to patient switches to AMVUTTRA. Additional growth was related to an increase in patients on GIVLAARI and OXLUMO.

Please see Note 3 to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for balances and activity in each product revenue allowance and reserve category for the years ended December 31, 2023 and 2022.

Net Revenues from Collaborations and Royalty Revenue

Net revenues from collaborations and royalty revenue consist of the following:

[[GREPCENT_TABLE]]
[["","Years Ended December 31,","","2023 vs 2022","","2022 vs 2021"],["(In thousands, except percentages)","2023","","2022","","2021","","$ Change","","% Change","","$ Change","","% Change"],["Roche","$","337,802","","","$","\u2014","","","$","\u2014","","","$","337,802","","","N/A","","$","\u2014","","","N/A"],["Regeneron Pharmaceuticals","100,468","","","87,844","","","113,226","","","12,624","","","14","%","","(25,382)","","","(22)","%"],["Novartis AG","86,727","","","43,159","","","49,120","","","43,568","","","101","%","","(5,961)","","","(12)","%"],["Other","21,188","","","3,909","","","18,607","","","17,279","","","442","%","","(14,698)","","","(79)","%"],["Total net revenues from collaborations","$","546,185","","","$","134,912","","","$","180,953","","","$","411,273","","","305","%","","$","(46,041)","","","(25)","%"],["Royalty revenue","$","40,633","","","$","8,177","","","$","1,196","","","$","32,456","","","397","%","","$","6,981","","","*"]]
[[/GREPCENT_TABLE]]

Net revenues from collaborations increased during the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily due to revenue recognized under our agreements with Roche and Novartis. During 2023, we recognized $337.8 million of revenue under our Collaboration and License Agreement with Roche, which was executed in July

85

Table of Contents

2023, and under our Novartis Collaboration Agreement we recognized an additional $30.0 million of revenue, compared to 2022, associated with the achievement of specified commercialization and regulatory milestones.

Royalty revenue increased during the year ended December 31, 2023, as compared to the year ended December 31, 2022, due to increased royalties earned from global net sales of Leqvio by our collaborator, Novartis.

Recognition of our combined net revenues from collaborations and royalty revenue is dependent on a variety of factors including the level of work reimbursed by collaborators, achievement of milestones under our collaboration agreements, and royalties associated with sales of Leqvio. We expect net revenues from collaboration will decrease in 2024, as compared to 2023, primarily driven by a reduction in the revenues recognized under our Roche Collaboration and License Agreement. We expect our royalty revenues will increase in 2024, as compared to 2023, due to the continued growth of royalties earned from global net sales of Leqvio by our collaborator, Novartis.

The amount of revenue from collaborations that we recognize, in part, is based on estimates of total costs to be incurred. These estimates reflect our historical experiences, current contractual requirements, and forecasted plans of development or manufacturing activities. We adjust these estimates for changes in actual costs incurred, contractual terms, and further forecasts. Such changes in estimates could have a significant impact on revenue and earnings in the period of the adjustment.

Operating Costs and Expenses

Operating costs and expenses consist of the following:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","2023 vs 2022","","2022 vs 2021"],["(In thousands, except percentages)","2023","","2022","","2021","","$ Change","","% Change","","$ Change","","% Change"],["Cost of goods sold","$","268,216","","","$","140,174","","","$","115,005","","","$","128,042","","","91","%","","$","25,169","","","22","%"],["Cost of goods sold as a percentage of net product revenues","21.6","%","","15.7","%","","17.4","%"],["Cost of collaborations and royalties","42,190","","","28,643","","","25,139","","","13,547","","","47","%","","3,504","","","14","%"],["Research and development","1,004,415","","","883,015","","","792,156","","","121,400","","","14","%","","90,859","","","11","%"],["Selling, general and administrative","795,646","","","770,658","","","620,639","","","24,988","","","3","%","","150,019","","","24","%"],["Total","$","2,110,467","","","$","1,822,490","","","$","1,552,939","","","$","287,977","","","16","%","","$","269,551","","","17","%"]]
[[/GREPCENT_TABLE]]

Cost of Goods Sold

Cost of goods sold as a percentage of net product revenues increased to 21.6% for the year ended December 31, 2023, as compared to 15.7% for the year ended December 31, 2022, primarily due to the following:

•Increased volume and rate of royalties payable on net sales of AMVUTTRA. Our collaborator is eligible to receive tiered royalties of 15% to 30% based on global annual net sales and therefore the growth in AMVUTTRA net sales during 2023 resulted in more net sales and a higher tier rate for the applicable royalties payable; and

•Increased excess and obsolete charges primarily due to cancelling manufacturing commitments and the impairment of ONPATTRO inventory that had been manufactured for future demand associated with the use of patisiran for the treatment of patients with ATTR amyloidosis with cardiomyopathy for which we did not receive regulatory approval in the U.S.

We anticipate variability in our cost of goods sold as a percentage of net product revenues in 2024, as compared to 2023. We expect our cost of goods sold will increase during 2024, as compared to 2023, primarily as a result of an expected increase in net product sales as well as increased royalties.

Cost of collaborations and royalties

Cost of collaborations and royalties increased during the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily due to increased demand of GalNAc material supplied to our collaborators to support certain product manufacturing and ongoing clinical trials and increased royalties payable to third parties on the net sales of licensed products by Novartis.

We expect our cost of collaborations and royalties will decrease during 2024, as compared to 2023, primarily due to a decrease in demand of GalNAc material supplied to our collaborators in support of certain product manufacturing as our collaborators begin to transition to producing the material independently.

86

Table of Contents

Research and Development

Research and development expenses consist of the following:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","2023 vs 2022","","2022 vs 2021"],["(In thousands, except percentages)","","2023","","2022","","2021","","$ Change","","% Change","","$ Change","","% Change"],["Clinical research and outside services","","$","485,732","","","$","438,418","","","$","418,985","","","$","47,314","","","11","%","","$","19,433","","","5","%"],["Compensation and related","","260,423","","","225,589","","","196,134","","","34,834","","","15","%","","29,455","","","15","%"],["Occupancy and all other costs","","160,987","","","126,847","","","108,622","","","34,140","","","27","%","","18,225","","","17","%"],["Stock-based compensation","","97,273","","","92,161","","","68,415","","","5,112","","","6","%","","23,746","","","35","%"],["Total","","$","1,004,415","","","$","883,015","","","$","792,156","","","$","121,400","","","14","%","","$","90,859","","","11","%"]]
[[/GREPCENT_TABLE]]

Research and development expenses increased during the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily due to the following:

•Increased compensation and related expenses as a result of increased headcount to support our R&D pipeline and development expenses;

•Increased clinical research and outside services primarily associated with zilebesiran as we reached full enrollment for our KARDIA-1 and KARDIA-2 clinical studies and additional costs associated with manufacturing batches associated with those clinical activities. Costs associated with clinical trials of other programs such as ALN-TTRsc04 and our ongoing early development studies also were higher when compared to 2022; and

•Increased occupancy and all other costs as a result of higher costs related to infrastructure and other professional services to support our growing clinical footprint.

During the years ended December 31, 2023 and 2022, in connection with advancing activities under our collaboration agreements, we incurred research and development expenses, primarily related to external development and clinical expenses, including the manufacture of clinical product.

The following table summarizes research and development expenses incurred, for which we recognize revenue, that are directly attributable to our collaboration agreements, by collaborator:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(In thousands)","","2023","","2022","","2021"],["Roche","","$","44,620","","","$","\u2014","","","$","\u2014"],["Regeneron Pharmaceuticals","","77,444","","","43,002","","","73,411"],["Other","","4,951","","","1,172","","","15,575"],["Total","","$","127,015","","","$","44,174","","","$","88,986"]]
[[/GREPCENT_TABLE]]

Selling, General and Administrative

Selling, general and administrative expenses consist of the following:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,","","2023 vs 2022","","2022 vs 2021"],["(In thousands, except percentages)","","2023","","2022","","2021","","$ Change","","% Change","","$ Change","","% Change"],["Compensation and related","","$","298,888","","","$","273,262","","","$","224,237","","","$","25,626","","","9","%","","$","49,025","","","22","%"],["Consulting and professional services","","226,664","","","226,941","","","201,841","","","(277)","","","\u2014","%","","25,100","","","12","%"],["Occupancy and all other costs","","145,687","","","131,967","","","97,259","","","13,720","","","10","%","","34,708","","","36","%"],["Stock-based compensation","","124,407","","","138,488","","","97,302","","","(14,081)","","","(10)","%","","41,186","","","42","%"],["Total","","$","795,646","","","$","770,658","","","$","620,639","","","$","24,988","","","3","%","","$","150,019","","","24","%"]]
[[/GREPCENT_TABLE]]

Selling, general and administrative expenses increased during the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily due to increased headcount and other investments supporting our strategic growth including the global launch of AMVUTTRA.

We expect that research and development expenses combined with selling, general and administrative expenses will increase during 2024, as compared to 2023, as we continue to advance and develop our platform and pipeline, advance our product candidates, including collaborated programs, into later-stage development, prepare regulatory submissions and continue to build-out our global commercial and compliance infrastructure as well as launch our commercial products into additional

87

Table of Contents

markets, assuming regulatory approvals. However, we expect that certain expenses will be variable depending on the timing of manufacturing batches, clinical trial enrollment and results, regulatory review of our product candidates and programs, and stock-based compensation expenses due to our determination regarding the probability of vesting for performance-based awards.

Other (Expense) Income

Other (expense) income consists of the following:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","2023 vs 2022","","2022 vs 2021"],["(In thousands, except percentages)","2023","","2022","","2021","","$ Change","","% Change","","$ Change","","% Change"],["Interest expense","$","(121,221)","","","$","(155,968)","","","$","(143,021)","","","$","34,747","","","(22)","%","","$","(12,947)","","","9","%"],["Other expense, net"],["Interest income","95,561","","","24,808","","","1,579","","","70,753","","","285","%","","23,229","","","*"],["Realized and unrealized (losses) gains on marketable equity securities","(16,944)","","","(33,312)","","","55,695","","","16,368","","","(49)","%","","(89,007)","","","(160)","%"],["Change in fair value of development derivative liability","(90,997)","","","(94,659)","","","(38,433)","","","3,662","","","(4)","%","","(56,226)","","","146","%"],["Other","(17,741)","","","(6,204)","","","(19,312)","","","(11,537)","","","186","%","","13,108","","","(68)","%"],["Loss on the extinguishment of debt","\u2014","","","(76,586)","","","\u2014","","","76,586","","","(100)","%","","(76,586)","","","N/A"],["Total","$","(151,342)","","","$","(341,921)","","","$","(143,492)","","","$","190,579","","","(56)","%","","$","(198,429)","","","138","%"],["* Indicates the percentage change period over period is greater than 500%."]]
[[/GREPCENT_TABLE]]

Total other expense decreased during the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily due to increased interest income driven by higher market interest rates on our marketable debt securities, decreased interest expense as a result of a more favorable interest rate under the Convertible Senior Notes compared with the interest rate under the credit facility previously held with Blackstone and a $76.6 million loss on the extinguishment of the Blackstone credit agreement recognized in 2022.

Liquidity and Capital Resources

The following table summarizes our cash flow activities:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","$ Change"],["(In thousands)","2023","","2022","","2021","","2023 vs 2022","","2022 vs 2021"],["Net cash provided by (used in):"],["Operating activities","$","104,156","","","$","(541,274)","","","$","(641,693)","","","$","645,430","","","","","$","100,419"],["Investing activities","$","(336,350)","","","$","169,354","","","$","(273,300)","","","$","(505,704)","","","","","$","442,654"],["Financing activities","$","172,131","","","$","425,753","","","$","1,247,118","","","$","(253,622)","","","","","$","(821,365)"]]
[[/GREPCENT_TABLE]]

Operating Activities

Net cash provided by operating activities increased during the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to receipt of a $310.0 million up-front payment received in connection with the Roche Collaboration and License Agreement and $100.0 million payment from Regeneron in connection with achieving certain criteria during early clinical development for our CNS program, ALN-APP, in addition to cash receipts from increased product sales, offset by cash disbursements related to working capital payments.

Investing Activities

Net cash used in investing activities increased during the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to net activities related to our marketable debt securities as a result of an increase of cash invested in marketable debt securities.

Financing Activities

Net cash provided by financing activities decreased during the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to greater cash received in 2022, including $136.2 million received from the issuance of convertible debt, net of repayment of the credit facility held with Blackstone and purchase of capped call transactions in September 2022, and greater net proceeds from the issuance of common stock in connection with stock option exercises and other types of equity.

88

Table of Contents

Additional Capital Requirements

We currently have programs focused on a number of therapeutic areas and, as of December 31, 2023, have received regulatory approval and commercially launched four products. However, our ongoing development efforts may not be successful and we may not be able to commence sales of any other products or successfully expand the approved indications for our approved products, including AMVUTTRA, in the future. In addition, we anticipate that we will continue to generate losses as a result of planned expenditures for research and development activities relating to our research platform, our drug development programs, including clinical trial and manufacturing costs, the establishment of late-stage clinical, manufacturing, commercial and compliance capabilities, including global operations, continued management and growth of our intellectual property including our patent portfolio, collaborations and general corporate activities.

Based on our current operating plan, we believe that our cash, cash equivalents and marketable securities as of December 31, 2023, together with the cash we expect to generate from product sales and under our current collaborations, will be sufficient to satisfy our near-term capital and operating needs for at least the next 12 months from the filing of this Annual Report on Form 10-K. Recent and expected working and other capital requirements, in addition to the above matters, also include the items described below:

•Amounts related to future lease payments for operating lease obligations at December 31, 2023 totaled $418.0 million, with $43.6 million expected to be paid within the next 12 months.

Cash outflows for capital expenditures were $62.2 million in 2023 and $72.1 million in 2022. We expect capital expenditures to increase in 2024 to support the increase in our manufacturing and production capacity needs.

•Amounts related to future long-term debt total $1.02 billion, of which we do not expect to make payments on principal within the next 12 months.

•Payments associated with the liability related to the sale of future royalties were approximately $21.6 million in 2023, with an estimated $58.2 million to be paid within the next 12 months.

•Amount associated with the achievement of a development milestone payable to Blackstone was $84.5 million as of December 31, 2023, with $21.1 million to be paid within the next 12 months.

Since we commenced operations in 2002, we have generated significant losses and as of December 31, 2023, we had an accumulated deficit of $7.01 billion. As of December 31, 2023, we had cash, cash equivalents and marketable securities of $2.44 billion, compared to $2.19 billion as of December 31, 2022.

Due to numerous factors described in more detail under the caption Part I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K, we may require significant additional funds earlier than we currently expect in order to continue to commercialize ONPATTRO, AMVUTTRA, GIVLAARI and OXLUMO, and to develop, conduct clinical trials for, manufacture and, if approved, commercialize additional product candidates.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities in our consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions and could have a material impact on our reported results. While our significant accounting policies are more fully described in the Notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be the most critical in understanding the judgments and estimates we use in preparing our consolidated financial statements:

Net Product Revenues

Our net product revenues are recognized, net of variable consideration related to certain allowances and accruals, at the time the customer obtains control of our product. We record reserves, based on contractual terms, for components related to product sold during the reporting period, as well as our estimate of product that remains in the distribution channel inventory at the end of the reporting period that we expect will be sold to qualified healthcare providers. On a quarterly basis, we update our estimates and record any needed adjustments in the period we identify the adjustments.

The estimates for our product revenue allowances and accruals are most significantly affected by chargebacks, which are contractual commitments with the government and other entities to sell products to qualified healthcare providers at prices lower than the list prices charged to the customer who directly purchases from us, and rebates that represent discount obligations under government programs, including Medicaid in the U.S. and similar programs in certain other countries, including countries in which we are accruing for estimated rebates because final pricing has not yet been negotiated. We are also subject to potential rebates in connection with our value-based agreements, or VBAs, with certain commercial payors.

89

Table of Contents

We use the expected value method, which is the sum of probability-weighted amounts in a range of possible consideration amounts, or the most likely amount method, which is the single most likely amount in a range of possible considerations, to estimate variable consideration related to our product revenues. We use the expected value method to estimate variable consideration for chargebacks, certain rebates, and other incentives and we use the most likely amount method for certain rebates and trade discounts and allowances.

A 10% increase or decrease in these estimates impacts net sales by a corresponding increase or decrease of approximately $13.0 million.

Net Revenues from Collaborations

We earn revenue in connection with collaboration agreements which allow our collaborators to utilize our technology platforms and develop product candidates.

For elements of collaboration arrangements that are accounted for pursuant to Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, or ASC 606, we identify the performance obligations and allocate the total consideration we expect to receive on a relative standalone selling price basis to each performance obligation. Key assumptions to determine the standalone selling price may include forecasted revenues, development timelines, reimbursement rates for personnel costs, the expected number of targets or indications expected to be pursued under each license, discount rates and probabilities of technical and regulatory success. We recognize revenue associated with each performance obligation as the control over the promised goods or services transfer to our collaborator which occurs either at a point in time or over time. If control transfers over time, revenue is recognized by using a method of measuring progress that best depicts the transfer of goods or services, for example based on actual costs incurred relative to total forecasted costs to be incurred over the period the transfer of goods or services occurs. We evaluate the measure of progress and related inputs each reporting period and any resulting adjustments to revenue are recorded on a cumulative catch-up basis. Revenue to be recognized is equal to the total transaction price multiplied by the ratio of actual expense incurred divided by total forecasted expense.

A 10% increase or decrease in the transaction price impacts net revenues from collaborators by a corresponding increase or decrease of approximately $43.0 million. A 10% increase or decrease in the total forecasted costs to be incurred over the period the transfer of goods or services occurs impacts net revenues from collaborators by a corresponding decrease or increase of approximately $39.0 million.

Liability Related to the Sale of Future Royalties

We account for the liability related to the sale of future royalties as a debt financing, as we have significant continuing involvement in the generation of the cash flows. Interest on the liability related to the sale of future royalties will be recognized using the effective interest rate method over the life of the related royalty stream.

The liability related to the sale of future royalties and the related interest expense are based on our current estimates of future royalties and commercial milestones expected to be paid over the life of the arrangement, which we determine by using third-party forecasts of Leqvio’s global net revenue. Third-party forecasts are updated periodically as new data is obtained with respect to Leqvio’s global launch progress or as sales information becomes available. Increases, decreases or a shift in timing of estimated revenues affects the interest rate utilized in the calculation of the liability related to the sale of future royalties.

An increase or decrease of 10% to the interest rate would result in an increase or decrease to our liability related to the sale of future royalties of approximately $33.9 million.

Development Derivative Liability

In August 2020, we entered into a co-development agreement, referred to as the Funding Agreement, with BXLS V Bodyguard – PCP L.P. and BXLS Family Investment Partnership V – ESC L.P., collectively referred to as Blackstone Life Sciences, pursuant to which Blackstone Life Sciences will provide up to $150.0 million in funding for the clinical development of vutrisiran and zilebesiran, two of our cardiometabolic programs. As consideration for Blackstone Life Sciences’ funding for certain vutrisiran and zilebesiran clinical development costs, we have agreed to pay Blackstone Life Sciences fixed success-based payments upon achievement of specific milestones for vutrisiran and zilebesiran as well as a 1% royalty on net sales of vutrisiran for ten years.

The development derivative liability is recorded at fair value and represents our current estimate of the expected future payments to Blackstone Life Sciences. The development derivative liability is based on the probability weighted present value of the estimated cash flows pursuant to contractual terms of the Funding Agreement. The most significant assumptions in determining the development derivative liability are the probability of success for the clinical development and regulatory approval of vutrisiran and zilebesiran and our current cost of borrowing. Estimates of the probability of success and our cost of borrowing are based on what we believe to be reasonable and supportable assumptions and require management’s judgment. Actual results could vary materially from these estimates.

90

Table of Contents

Recent Accounting Pronouncements

Please read Note 2 to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for a description of recent accounting pronouncements.