ALNYLAM PHARMACEUTICALS, INC. - Quarter Report: 2013 March (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2013

OR

For the transition period from                      to                     

Commission File Number 000-50743

ALNYLAM PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in Its Charter)

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):

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, 2013, the registrant had 62,171,037 shares of Common Stock, $0.01 par value per share, outstanding.

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ALNYLAM PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

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)

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)

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. (the “Company” or “Alnylam”) are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“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. The Company’s condensed consolidated financial statements have also been prepared on a basis substantially consistent with, and should be read in conjunction with, the Company’s audited consolidated financial statements for the year ended December 31, 2012, which were included in the Company’s Annual Report on Form 10-K that was filed with the Securities and Exchange Commission (the “SEC”) on February 19, 2013. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year.

The accompanying condensed consolidated financial statements reflect the operations of the Company and Alnylam U.S., Inc., Alnylam Europe AG (“Alnylam Europe”) and Alnylam Securities Corporation, which are wholly-owned subsidiaries of the Company. 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

The Company computes basic net loss per common share by dividing net loss by the weighted average number of common shares outstanding. The Company computes 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:

Restricted Stock Awards

In January 2012, as part of its post-restructuring retention program, the Company granted an aggregate of 508,928 shares of restricted stock to its retained employees, excluding the Company’s chief executive officer and president and chief operating officer. These restricted stock awards were valued at $5.3 million on the grant date and vest in full on the second anniversary of the grant date.

The Company recognized an aggregate of $0.6 million and $0.5 million of stock-based compensation expense related to all outstanding restricted stock awards for the three months ended March 31, 2013 and 2012, respectively.

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Public Offering

In February 2012, the Company sold an aggregate of 8,625,000 shares of its common stock through an underwritten public offering at a price to the public of $10.75 per share. As a result of the offering, the Company received aggregate net proceeds of approximately $86.8 million, after deducting underwriting discounts and commissions and other estimated offering expenses of approximately $5.9 million.

In January 2013, the Company sold an aggregate of 9,200,000 shares of its common stock through an underwritten public offering at a price to the public of $20.13 per share. As a result of this offering, the Company received aggregate net proceeds of approximately $173.6 million, after deducting underwriting discounts and commissions and other estimated offering expenses of approximately $11.6 million.

Fair Value Measurements

The following tables present information about the Company’s assets that are measured at fair value on a recurring basis at March 31, 2013 and December 31, 2012, and indicate the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. 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. Financial assets measured at fair value on a recurring basis are summarized as follows, in thousands:

During the three months ended March 31, 2013, there were no transfers between Level 1 and Level 2 financial assets. The carrying amounts reflected in the Company’s condensed consolidated balance sheets for cash, collaboration receivables, other current assets, accounts payable and accrued expenses approximate fair value due to their short-term maturities.

Investments in Marketable Securities

The Company invests its excess cash balances in short-term and long-term marketable debt and equity securities. The Company classifies its investments in marketable debt securities as either held-to-maturity or available-for-sale based on facts and

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circumstances present at the time it purchased the securities. At each balance sheet date presented, the Company classified all of its investments in debt and equity securities as available-for-sale. The Company reports available-for-sale investments at fair value at each balance sheet date and includes any unrealized holding gains and losses (the adjustment to fair value) in accumulated other comprehensive loss, a component of stockholders’ equity. Realized gains and losses are determined using the specific identification method and are included in other income. The Company did not recognize any realized gains or losses from sales of its available-for-sale securities during the three months ended March 31, 2013, 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, the Company considers all available evidence to evaluate the extent to which the decline is “other than temporary” and, if so, marks the investment to market through a charge to its condensed consolidated statements of comprehensive loss. The Company did not record any impairment charges related to its fixed income marketable securities during the current period. The Company’s 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. The Company’s cash equivalents are composed of money market funds and commercial paper.

In the fourth quarter of 2012, the Company began accounting for its investment in Regulus Therapeutics Inc. (“Regulus”) as an available-for-sale marketable security. Intraperiod tax allocation rules require the Company to allocate its provision for income taxes between continuing operations and other categories of earnings, such as other comprehensive income. In periods in which the Company has a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, such as other comprehensive income, the Company must allocate the tax provision to the other categories of earnings. The Company then records a related tax benefit in continuing operations. The following table summarizes the fair value, accumulated other comprehensive income and intraperiod tax allocation regarding the Company’s investment in Regulus available-for-sale marketable securities at March 31, 2013 and December 31, 2012, and the activity for the three months ended March 31, 2013, in thousands:

The Company obtains fair value measurement data for its marketable securities from independent pricing services. The Company performs 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, the Company performs its 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 the Company’s marketable securities at March 31, 2013 and December 31, 2012, in thousands:

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Subsequent Events

The Company evaluated all events or transactions that occurred after March 31, 2013 through the date these condensed consolidated financial statements were issued. During this period, the Company did not have any material recognized or nonrecognized subsequent events.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board issued amendments to the accounting guidance for presentation of comprehensive income to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments did not change the current requirements for reporting net income or other comprehensive income, but require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is now required to present, either on the face of the statement where the net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about these amounts. For public companies, these amendments were effective prospectively for reporting periods beginning after December 15, 2012. The Company adopted this guidance on January 1, 2013. Other than a change in presentation, the adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

2. SIGNIFICANT AGREEMENTS

The following table summarizes the Company’s total consolidated net revenues from research collaborators, for the periods indicated, in thousands:

Platform Alliances

Takeda Alliance

In May 2008, the Company entered into a license and collaboration agreement (the “Takeda Agreement”) with Takeda to pursue the development and commercialization of RNAi therapeutics. Under the Takeda Agreement, the Company granted to Takeda a non-exclusive, worldwide, royalty-bearing license to the Company’s intellectual property, including delivery-related intellectual property, controlled by the Company as of the date of the agreement or during the five years thereafter, to develop, manufacture, use and commercialize RNAi therapeutics, subject to the Company’s existing contractual obligations to third parties. The license initially is limited to the fields of oncology and metabolic disease and may be expanded at Takeda’s option to include other therapeutic areas, subject to specified conditions. Under the Takeda Agreement, Takeda is the Company’s exclusive platform partner in the Asian territory, as defined in the Takeda Agreement, through May 2013.

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In consideration for the rights granted to Takeda under the Takeda Agreement, Takeda agreed to pay the Company $150.0 million in upfront and near-term technology transfer payments. In addition, the Company has the option, exercisable until the start of Phase III development, to opt-in under a 50-50 profit sharing agreement to the development and commercialization in the United States of up to four Takeda licensed products, and would be entitled to opt-in rights for two additional products for each additional field expansion, if any, elected by Takeda under the Takeda Collaboration Agreement. In June 2008, Takeda paid the Company an upfront payment of $100.0 million and agreed to pay to the Company an additional $50.0 million upon achievement of specified technology transfer milestones. Of this $50.0 million, $20.0 million was paid to the Company in October 2008, $20.0 million was paid to the Company in March 2010, and $10.0 million was paid to the Company in March 2011 (collectively, the “Technology Transfer Milestones”). If Takeda elects to expand its license to additional therapeutic areas, Takeda will be required to pay the Company $50.0 million for each additional field selected, if any. In addition, for each RNAi therapeutic product developed by Takeda, its affiliates and sublicensees, the Company is entitled to receive specified development, regulatory and commercialization milestone payments, totaling up to $171.0 million per product, together with up to a double-digit percentage royalty payment based on worldwide annual net sales, if any. The potential future milestone payments per product include up to $26.0 million for the achievement of specified development milestones, up to $40.0 million for the achievement of specified regulatory milestones and up to $105.0 million for the achievement of specified commercialization milestones. The Company could potentially earn the next milestone payment of $2.0 million under the Takeda Agreement based upon the achievement of a specified pre-clinical event by Takeda for an RNAi therapeutic product. For purposes of potential future revenue recognition, the Company does not believe this milestone or any future milestones are substantive. Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development, the Company may not receive any additional milestone payments or any royalty payments from Takeda.

Pursuant to the Takeda Agreement, the Company and Takeda are also collaborating on the research of RNAi therapeutics directed to one or two disease targets agreed to by the parties (the “Research Collaboration”), subject to the Company’s existing contractual obligations with third parties. Takeda also has the option, subject to certain conditions, to collaborate with the Company on the research and development of RNAi drug delivery technology for targets agreed to by the parties. In addition, through May 2013, Takeda has a right of first negotiation for the development and commercialization of the Company’s RNAi therapeutic products in the Asian territory, excluding the Company’s ALN-RSV, ALN-TTR and ALN-PCS programs. In addition to the 50-50 profit sharing option, the Company has a similar right of first negotiation to participate with Takeda in the development and commercialization of licensed products in the United States. The collaboration is governed by a joint technology transfer committee (the “JTTC”), a joint research collaboration committee (the “JRCC”) and a joint delivery collaboration committee (the “JDCC”), each of which is comprised of an equal number of representatives from each party.

The Company has determined that the deliverables under the Takeda Agreement include the license, the joint committees (the JTTC, JRCC and JDCC), the technology transfer activities and the services that the Company will be obligated to perform under the Research Collaboration. The Company also determined that, pursuant to the accounting guidance governing revenue recognition on multiple element arrangements, the license and undelivered services (i.e., the joint committees and the Research Collaboration) are not separable and, accordingly, the license and services are being treated as a single unit of accounting. When multiple deliverables are accounted for as a single unit of accounting, the Company bases its revenue recognition pattern on the final deliverable. Under the Takeda Agreement, the last elements to be delivered are the JDCC and JTTC services, each of which has a life of no more than seven years.

The Company is recognizing the upfront payment of $100.0 million and the Technology Transfer Milestones of $50.0 million, the receipt of which the Company believed was probable at the commencement of the collaboration, on a straight-line basis over seven years because the Company is unable to reasonably estimate the level of effort to fulfill these obligations, primarily because the effort required under the Research Collaboration is largely unknown, and therefore, cannot utilize a proportional performance model. As future milestones are achieved, if any, the Company will recognize as revenue a portion of the milestone payment equal to the percentage of the performance period completed when the milestone is achieved, multiplied by the amount of the milestone payment. At March 31, 2013, deferred revenue under the Takeda Agreement was $47.3 million.

Monsanto Alliance

In August 2012, the Company and Monsanto Company (“Monsanto”) entered into a license and collaboration agreement (the “Monsanto Agreement”), pursuant to which the Company granted to Monsanto a worldwide, exclusive, royalty bearing right and license, including the right to grant sublicenses, to the Company’s RNAi platform technology and intellectual property controlled by the Company as of the date of the Monsanto Agreement or during the 30 months thereafter, in the field of agriculture. The Monsanto Agreement also includes the transfer of technology from the Company to Monsanto and a collaborative research project (the “Monsanto Discovery Collaboration”). Under the Monsanto Agreement, Monsanto will be the Company’s exclusive collaborator in the agriculture field for a ten-year period (the “Exclusivity Period”).

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In consideration for the rights granted to Monsanto under the Monsanto Agreement, Monsanto paid the Company $29.2 million in upfront cash payments. Monsanto is also required to make near-term milestone payments to the Company upon the achievement of specified technology transfer and patent-related milestones. The Company is also entitled to receive additional funding for collaborative research efforts. In the aggregate, the Company can earn up to $5.0 million in potential future milestone payments and research funding under the Monsanto Agreement. In addition, Monsanto is required to pay to the Company a percentage of specified fees from certain sublicense agreements Monsanto may enter into that include access to the Company’s intellectual property, as well as low single-digit royalty payments on worldwide, net sales by Monsanto, its affiliates and sublicensees of certain Licensed Products (as defined in the Monsanto Agreement), if any. In December 2012, the Company received a milestone payment of $1.5 million of the $5.0 million in potential milestone payments under the Monsanto Agreement based upon the achievement of a specified patent-related event. The Company could potentially earn the next milestone payment of $2.5 million under the Monsanto Agreement based upon the completion of technology transfer activities. For purposes of potential future revenue recognition, the Company does not believe this milestone or any future milestones are substantive. Due to the uncertainty of the application of RNAi technology in the field of agriculture, the Company may not receive any additional milestone payments or any royalty payments from Monsanto.

The Company determined that the significant deliverables under the Monsanto Agreement include the license, the technology transfer activities and the services that the Company will be obligated to perform under the Monsanto Discovery Collaboration. The Company also determined that, pursuant to the accounting guidance governing revenue recognition on multiple element arrangements, the license and undelivered technical transfer activities and Monsanto Discovery Collaboration services do not have standalone value due to the specialized nature of the services to be provided by the Company. In addition, while Monsanto has the ability to grant sublicenses, it cannot grant access to certain of the Company’s proprietary technology. The uniqueness of the Company’s services and the limited sublicense right are indicators that standalone value is not present in the arrangement. Therefore the deliverables are not separable and, accordingly, the license and undelivered technical transfer activities and Monsanto Discovery Collaboration services are being treated as a single unit of accounting. When multiple deliverables are accounted for as a single unit of accounting, the Company bases its revenue recognition model on the final deliverable. Under the Monsanto Agreement, the last deliverable to be completed is the Monsanto Discovery Collaboration, which must be completed within five years. The Company is recognizing revenue under the Monsanto Agreement on a straight-line basis over five years. The Company is not utilizing a proportional performance model since it is unable to reasonably estimate the level of effort to fulfill these obligations, primarily because the effort required under the Monsanto Discovery Collaboration is largely unknown.

The Company received a payment of $29.2 million from Monsanto in August 2012, which was initially recorded as deferred revenue. Under the terms of the Monsanto Agreement, in the event that during the Exclusivity Period the Company ceases to own or otherwise exclusively control certain licensed patent rights in the agriculture field, for any reason other than Monsanto’s breach of the Monsanto Agreement or its negligence or willful misconduct, 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, then the Company would be required to pay Monsanto up to $5.0 million as liquidated damages, and Monsanto’s royalty obligations to the Company under the Monsanto Agreement would be reduced or, under certain circumstances, terminated. The Company has the right to cure any such loss of patent rights under the Monsanto Agreement. The Company has determined that this amount is not fixed and determinable and therefore, the Company has excluded this amount from its revenue model and is deferring the recognition of $5.0 million of revenue. The Company will continue to reassess when this amount can be considered fixed and determinable. If the achievement of a milestone is considered probable at the inception of the collaboration, the Company’s policy is to include the related payment in its revenue model. The Company concluded that the receipt of the technology transfer payment of $2.5 million is probable, and has therefore included this amount in the Company’s revenue model. As future milestones are achieved, if any, the Company will recognize as revenue a portion of the milestone payment equal to the percentage of the performance period completed when the milestone is achieved, multiplied by the amount of the milestone payment. At March 31, 2013, deferred revenue under the Monsanto Agreement was $27.3 million.

Product Alliances

Cubist Alliance

In January 2009, the Company entered into a license and collaboration agreement with Cubist Pharmaceuticals, Inc. (the “Cubist Agreement”) to develop and commercialize therapeutic products based on certain of the Company’s RNAi technology for the treatment of RSV infection. Licensed products initially included ALN-RSV01, as well as several other second-generation RNAi-based RSV inhibitors. In November 2009, the Company and Cubist entered into an amendment to the Cubist Agreement (the

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“Amendment”), which provided that the Company and Cubist would focus their collaboration and joint development efforts on ALN-RSV02, a second-generation compound, intended for use in pediatric patients. In December 2010, the Company and Cubist jointly made a portfolio decision to put the development of ALN-RSV02 on hold. Pursuant to the terms of the Amendment, the Company continued to develop ALN-RSV01 for adult transplant patients at its sole discretion and expense and Cubist had the right to opt into collaborating with the Company on ALN-RSV01, subject to specified conditions.

In consideration for the rights granted to Cubist under the Cubist Agreement, in January 2009, Cubist paid the Company an upfront cash payment of $20.0 million. Under the terms of the Cubist Agreement, the Company and Cubist shared responsibility for developing licensed products in North America and each was responsible for one-half of the related development costs, subject to the terms of the Amendment. The Company’s collaboration with Cubist for the development of licensed products in North America was governed by a joint steering committee comprised of an equal number of representatives from each party. Cubist had the sole right to commercialize licensed products in North America with costs associated with such activities and any resulting profits or losses to be split equally between the Company and Cubist.

The Company determined that the deliverables under the Cubist Agreement included the licenses, technology transfer related to the ALN-RSV program, the joint steering committee and the development and manufacturing services that the Company was obligated to perform during the development period. The Company also determined that, pursuant to the accounting guidance governing revenue recognition on multiple element arrangements, the licenses and undelivered services were not separable and, accordingly, the licenses and services were treated as a single unit of accounting. When multiple deliverables are accounted for as a single unit of accounting, the Company bases its revenue recognition pattern on the final deliverable. Under the Cubist Agreement, the last element to be delivered was the development and manufacturing services, which had an expected life of approximately eight years.

In February 2013, Cubist notified the Company that it would not exercise its opt-in right for ALN-RSV01. In light of this determination, the Company and Cubist mutually agreed to terminate the license and collaboration agreement effective as of February 6, 2013 (the “Effective Date”). As of the Effective Date, the parties have no further rights and obligations under the Cubist Agreement, as amended, notwithstanding anything to the contrary in the Cubist Agreement, as amended.

The Company was recognizing the upfront payment of $20.0 million on a straight-line basis over approximately eight years because the Company was unable to reasonably estimate the level of effort to fulfill its performance obligations, and therefore, could not utilize a proportional performance model. As a result of the termination of the Cubist Agreement in February 2013 and the end of the Company’s performance obligations thereunder, the Company recognized the remaining deferred revenue of $9.7 million during the three months ended March 31, 2013.

Genzyme Alliance

In October 2012, the Company and Genzyme entered into a license and collaboration agreement (the “Genzyme Agreement”) pursuant to which the Company granted to Genzyme an exclusive license in Japan and the Asia-Pacific region (“the Genzyme Territory”) to develop and commercialize RNAi therapeutics targeting transthyretin (“TTR”) for the treatment of transthyretin-mediated amyloidosis (“ATTR”) and other human diseases. The Genzyme Agreement covers ALN-TTR02 and ALN-TTRsc, and may in the future cover additional TTR-specific RNAi therapeutic compounds that comprise the Company’s TTR program (together, “ALN-TTR Licensed Products”), subject, in the case of Improvement Products (as defined in the Genzyme Agreement), to specified additional terms and conditions. Under the Genzyme Agreement, the Company retains all development and commercialization rights worldwide outside of the Genzyme Territory.

In consideration for the rights granted to Genzyme under the Genzyme Agreement, Genzyme paid the Company an upfront cash payment of $22.5 million. Upon achievement of certain milestones, the Company will be entitled to receive milestone payments, up to an aggregate of $50.0 million, including up to $25.0 million in specified development milestones and $25.0 million in specified regulatory milestones. In addition, the Company will be entitled to tiered royalties expected to yield an effective royalty rate percentage ranging from the mid-teens to mid-twenties based on annual net sales, if any, of ALN-TTR Licensed Products in the Genzyme Territory by Genzyme, its affiliates and sublicensees. The Company could potentially earn the next development milestone payment of $7.0 million under the Genzyme Agreement based upon the completion of a successful Phase II ALN-TTR clinical trial, as defined in the Genzyme Agreement. For purposes of potential future revenue recognition, the Company does not believe this milestone or any future milestones are substantive. Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development, the Company may not receive any milestone or royalty payments from Genzyme.

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Under the Genzyme Agreement, the parties will collaborate in the development of ALN-TTR Licensed Products, with Genzyme assuming primary responsibility for the development and commercialization of ALN-TTR Licensed Products in the Genzyme Territory and the Company retaining primary responsibility for the development and commercialization of ALN-TTR Licensed Products in the rest of the world. The collaboration between Genzyme and the Company is governed by a joint steering committee that will be comprised of an equal number of representatives from each party. Under the agreement, Genzyme is establishing a development plan for the ALN-TTR program relating to the development activities to be undertaken in the Genzyme Territory. Genzyme is responsible, at its expense, for all development activities under the development plan that are reasonably necessary for the regulatory approval and commercialization of an RNAi therapeutic for the treatment of ATTR in the Genzyme Territory. The Company and Genzyme intend to enter into a supply agreement to provide for supply of ALN-TTR Licensed Products to Genzyme for clinical trials, and, at Genzyme’s request, commercial sales. Genzyme may elect, at any time during the term of the Genzyme Agreement, to manufacture ALN-TTR Licensed Products itself or arrange for a third party to manufacture ALN-TTR Licensed Products.

Genzyme also has a right of first negotiation in the event that the Company desires to grant any third party rights to develop and/or commercialize an ALN-TTR Licensed Product for the treatment of ATTR or other human diseases outside of the Genzyme Territory.

The Genzyme Agreement originally provided that if development of an ALN-TTR Licensed Product was terminated by the Company or Genzyme under certain limited circumstances, Genzyme would have the right to terminate the Genzyme Agreement and the Company would be required to refund certain amounts paid by Genzyme to the Company under the Genzyme Agreement prior to such termination. In February 2013, the Company and Genzyme agreed to amend the Genzyme Agreement to remove this provision.

The Company has determined that the significant deliverables under the Genzyme Agreement include the license, the joint steering committee and any additional TTR-specific RNAi therapeutic compounds that comprise the ALN-TTR program. The Company 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 do not have standalone value due to the specialized nature of the services to be provided by the Company. In addition, while Genzyme has the ability to grant sublicenses, it cannot sublicense all or substantially all of its rights under the Genzyme Agreement. The uniqueness of the Company’s services and the limited sublicense right are indicators that standalone value is not present in the arrangement. Therefore the deliverables are not separable and, accordingly, the license and undelivered services are being treated as a single unit of accounting. When multiple deliverables are accounted for as a single unit of accounting, the Company bases its revenue recognition pattern on the final deliverable.

The Company is currently unable to reasonably estimate its period of performance under the Genzyme Agreement, as it is unable to estimate the timeline of its deliverables related to the deliverable for any additional TTR-specific RNAi therapeutic compounds. The Company is deferring all revenue under the Genzyme Agreement until it is able to reasonably estimate its period of performance. The Company will continue to reassess whether it can reasonably estimate the period of performance to fulfill its obligations under the Genzyme Agreement. At March 31, 2013, deferred revenue under the Genzyme Agreement was $22.5 million.

The Medicines Company Agreement

In February 2013, the Company and The Medicines Company (“MDCO”) entered into a license and collaboration agreement (the “MDCO Agreement”) pursuant to which the Company granted to MDCO an exclusive, worldwide license to develop, manufacture and commercialize RNAi therapeutics targeting proprotein convertase subtilisin/kexin type 9 (“PCSK9”), including ALN-PCS02 and ALN-PCSsc, for the treatment of hypercholesterolemia and other human diseases (collectively, “ALN-PCS Licensed Products”). ALN-PCS02 is an intravenously administered RNAi therapeutic for which the Company completed a Phase I clinical trial, and ALN-PCSsc is a subcutaneously administered RNAi therapeutic currently in pre-clinical development.

In consideration for the rights granted to MDCO under the MDCO Agreement, MDCO paid the Company an upfront cash payment of $25.0 million. Upon achievement of certain milestones, the Company will be entitled to receive milestone payments, up to an aggregate of $180.0 million, including up to $30.0 million in specified development milestones, $50.0 million in specified regulatory milestones and $100.0 million in specified commercialization milestones. In addition, the Company will be entitled to scaled double-digit royalties based on annual worldwide net sales, if any, of ALN-PCS Licensed Products by MDCO, its affiliates and sublicensees, subject to reduction under specified circumstances. The Company could potentially earn the next development milestone payment of $10.0 million under the MDCO Agreement based upon the initiation of the next clinical trial. For purposes of potential future revenue recognition, the Company does not believe this milestone or any future milestones are substantive. Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development, the Company may not receive any milestone or royalty payments from MDCO.

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Under the MDCO Agreement, the parties will collaborate in the further development of ALN-PCS Licensed Products. The Company will retain responsibility for the development of ALN-PCS Licensed Products until Phase I Completion (as defined in the MDCO Agreement) at its cost, up to an agreed upon initial development cost cap. MDCO will assume all other responsibility for the development and commercialization of ALN-PCS Licensed Products, at its sole cost. Initially the collaboration will include the development of both ALN-PCS02 and ALN-PSCsc in parallel, provided that the parties intend to select one of ALN-PCS02 or ALN-PSCsc for ongoing development at a specified development stage, in accordance with the terms of the MDCO Agreement. The collaboration between MDCO and the Company will be governed by a joint steering committee that will be comprised of an equal number of representatives from each party. The Company will be solely responsible for obtaining supply of finished product reasonably required for the conduct of its obligations through Phase I Completion, and supplying MDCO with finished product reasonably required for the first Phase II clinical trial of an ALN-PCS Licensed Product conducted by MDCO, at the Company’s expense, provided such costs do not exceed the development costs cap, subject to certain exceptions. After such time, MDCO will have the sole right and responsibility to manufacture and supply ALN-PCS Licensed Product for development and commercialization under the MDCO development plan, subject to the terms of the MDCO Agreement. The Company also has certain obligations under the MDCO Agreement to transfer certain technology to MDCO.

The Company has determined that the significant deliverables under the MDCO Agreement include the license, the joint steering committee, technology transfer obligations, development activities through Phase I Completion and supply of product for a Phase II clinical trial. The Company also determined that, pursuant to the accounting guidance governing revenue recognition on multiple element arrangements, the license and collective undelivered activities and services do not have standalone value due to the specialized nature of the activities and services to be provided by the Company. In addition, while MDCO has the ability to grant sublicenses, it must receive the Company’s prior written consent to sublicense all or substantially all of its rights. The uniqueness of the Company’s services and the limited sublicense right are indicators that standalone value is not present in the arrangement. Therefore the deliverables are not separable and, accordingly, the license and undelivered services are being treated as a single unit of accounting. When multiple deliverables are accounted for as a single unit of accounting, the Company bases its revenue recognition pattern on the final deliverable. Under the MDCO Agreement, all deliverables are expected to be completed within five years. The Company is recognizing revenue under the MDCO Agreement on a straight-line basis over five years. The Company is not utilizing a proportional performance model since it is unable to reasonably estimate the level of effort to fulfill these obligations, primarily because the effort required under the development activities is largely unknown.

The Company received the upfront payment of $25.0 million from MDCO in February 2013, which was initially recorded as deferred revenue. As future milestones are achieved, if any, the Company will recognize as revenue a portion of the milestone payment equal to the percentage of the performance period completed when the milestone is achieved, multiplied by the amount of the milestone payment. At March 31, 2013, deferred revenue under the MDCO Agreement was $24.2 million.

3. COMMITMENTS AND CONTINGENCIES

Litigation

University of Utah Litigation

On March 22, 2011, The University of Utah (“Utah”) filed a civil complaint in the United States District Court for the District of Massachusetts against the Company, Max Planck Gesellschaft Zur Foerderung Der Wissenschaften e.V. and Max Planck Innovation GmbH (together, “Max Planck”), the Whitehead Institute for Biomedical Research (“Whitehead”), the Massachusetts Institute of Technology (“MIT”) and the University of Massachusetts (“UMass”), claiming a professor at Utah is the sole inventor or, in the alternative, a joint inventor, of the Tuschl patents. Utah did not serve the original complaint on the Company or the other defendants. On July 6, 2011, Utah filed an amended complaint alleging substantially the same claims against the Company, Max Planck, Whitehead, MIT and UMass. The amended complaint was served on the Company on July 14, 2011. Utah is seeking changes to the inventorship of the Tuschl patents, unspecified damages and other relief. On October 31, 2011, the Company, 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 the Company, Max Planck, Whitehead and MIT have joined. On December 31, 2011, the University 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. The Company, Max Planck, Whitehead, MIT and UMass have filed an appeal of the Court’s ruling on the motion to dismiss for lack of jurisdiction and have filed 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. Oral arguments in the appeal were heard in early March 2013 in the United States Court of Appeals for the Federal Circuit and the parties are awaiting a decision from that Court.

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Although the Company believes it has meritorious defenses and intends to vigorously defend itself in this matter, litigation is subject to inherent uncertainty and a court could ultimately rule against the Company. In addition, the defense of litigation and related matters are costly and may divert the attention of the Company’s management and other resources that would otherwise be engaged in other activities. The Company has 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.

The Company’s 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 the expertise we have built in RNAi, we are developing a set of biological and chemical methods and know-how that we apply in a systematic way to develop RNAi therapeutics for a variety of diseases.

Our core product strategy, which we refer to as “Alnylam 5x15,” is focused on the development and commercialization of novel RNAi therapeutics for the treatment of genetically defined targets for diseases with high unmet medical need. Under our core product strategy, we expect to have five RNAi therapeutic programs in clinical development, including programs in advanced stages, on our own or with one or more collaborators, by the end of 2015. As part of this strategy, our goal is to develop product candidates with the following shared characteristics: a genetically defined target and disease; the potential to have a significant impact in high unmet need patient populations; the ability to leverage our existing RNAi delivery platform; the opportunity to monitor an early biomarker in Phase I clinical trials for human proof of concept; and the existence of clinically relevant endpoints for the filing of a new drug application, or NDA, with a focused patient database and possible accelerated paths for commercialization. We are currently advancing five core programs in clinical or pre-clinical development: ALN-TTR, comprised of ALN-TTR02 and ALN-TTRsc, for the treatment of transthyretin-mediated amyloidosis, or ATTR; ALN-AT3 for the treatment of hemophilia and rare bleeding disorders, or RBD; ALN-AS1 for the treatment of acute intermittent porphyria, or AIP; ALN-PCS for the treatment of hypercholesterolemia; and ALN-TMP for the treatment of beta-thalassemia and iron-overload disorders. We are also advancing other early stage programs, including ALN-AAT, an RNAi therapeutic targeting the mutant Z-allele in alpha-1-antitrypsin deficiency, or AAT deficiency, for the treatment of AAT deficiency-associated liver disease. We intend to focus on developing and commercializing ALN-TTR02, ALN-TTRsc, ALN-AT3 and ALN-AS1 on our own in North and South America, Europe and other parts of the world. In February 2013, we entered into a global alliance with The Medicines Company, or MDCO, to advance our ALN-PCS program. We also intend to enter into global alliances to advance our ALN-TMP, ALN-AAT and potentially other programs.

While focusing our efforts on our core product strategy, we also intend to continue to advance additional development programs through existing or future alliances. We have two partner-based programs in clinical development, including ALN-RSV01 for the treatment of respiratory syncytial virus, or RSV, infection, and ALN-VSP for the treatment of liver cancers, as well as one candidate in pre-clinical development, ALN-HTT, for the treatment of Huntington’s disease, or HD.

We also continue to work internally and with third-party collaborators with the goal of developing new technologies to deliver our RNAi therapeutics both directly to specific sites of disease, and systemically by intravenous or subcutaneous administration. We have numerous RNAi therapeutic delivery collaborations and intend to continue to collaborate with academic and corporate third parties, as well as government entities, to evaluate different delivery options.

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We believe that the strength of our intellectual property portfolio relating to the development and commercialization of small interfering RNAs, or siRNAs, as therapeutics provides us a leading position with respect to this therapeutic modality. Our intellectual property portfolio includes ownership of, or exclusive rights to, issued patents and pending patent applications claiming fundamental features of siRNAs and RNAi therapeutics as well as those claiming crucial chemical modifications and promising delivery technologies. 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. 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.

In addition, our expertise in RNAi therapeutics and broad intellectual property estate have allowed us to form alliances with leading pharmaceutical and life sciences companies, including Isis Pharmaceuticals, Inc., or Isis, Medtronic, Inc., or Medtronic, Novartis Pharma AG, or Novartis, Biogen Idec Inc., or Biogen Idec, F. Hoffmann-La Roche Ltd, or Roche (which assigned its rights and obligations to Arrowhead Research Corporation, or Arrowhead during 2011), Takeda Pharmaceutical Company Limited, or Takeda, Kyowa Hakko Kirin Co., Ltd., or Kyowa Hakko Kirin, Cubist Pharmaceuticals, Inc., or Cubist, Ascletis Pharmaceuticals (Hangzhou) Co., Ltd., or Ascletis, Monsanto Company, or Monsanto, Genzyme Corporation, or Genzyme and MDCO. We have previously entered, and in the future, we may enter, into contracts with government agencies. We also have established collaborations with and, in some instances, received funding from major medical and disease associations, including CHDI Foundation, Inc. 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 also seek to form or advance new ventures and opportunities in areas outside our primary focus on RNAi therapeutics. In 2007, we and Isis established Regulus Therapeutics Inc., or Regulus, a company focused on the discovery, development and commercialization of microRNA therapeutics. In October 2012, Regulus completed its initial public offering and currently, we own 17% of Regulus’ outstanding common stock. Through an internal effort we refer to as Alnylam Biotherapeutics, we are advancing the application of RNAi technology to improve the manufacturing processes for biologics, including recombinant proteins and monoclonal antibodies. We have formed, and may form additional, collaborations through this effort with third-party biopharmaceutical companies. In October 2011, we entered into a collaboration with GlaxoSmithKline, or GSK, for influenza vaccine production, with our VaxiRNA™ platform, an RNAi technology developed under our Alnylam Biotherapeutics initiative, for the enhanced production of viruses used in the manufacture of vaccine products. Given the broad applications for RNAi technology, in addition to our efforts on Alnylam Biotherapeutics and VaxiRNA, we believe new ventures and opportunities will be available to us.

In January 2012, we implemented a strategic corporate restructuring pursuant to which we reduced our overall workforce by approximately 33%, to approximately 115 employees. The goal of the strategic corporate restructuring was to align our resources to focus on what we believe to be our highest value opportunities, including a focus on our lead programs, while advancing other pipeline programs through existing alliances and new collaborations. The reduction in personnel costs, along with other external costs, resulted in significant savings in our 2012 operating expenses. The workforce reduction was substantially completed at the end of the first quarter of 2012. During the three months ended March 31, 2012, we substantially completed the implementation of the strategic corporate restructuring and recorded $3.9 million of restructuring-related costs in operating expenses, including employee severance, benefits and related costs. We paid substantially all of these restructuring costs during 2012. We do not expect to incur any additional significant costs associated with this restructuring.

In November 2012, we, Tekmira Pharmaceuticals Corporation, or TPC, Protiva Biotherapeutics, Inc., or Protiva, a wholly-owned subsidiary of TPC, and together with TPC, referred to as Tekmira, and AlCana Technologies, Inc., or AlCana, entered into a settlement agreement and general release resolving all ongoing litigation between the parties, as well as a patent interference proceeding between us and Protiva. The terms of the settlement agreement include mutual releases and dismissal with prejudice of all claims and counterclaims in connection with all of the litigation pending between the parties. Contemporaneously with the execution of the settlement agreement, we and Tekmira restructured our contractual relationship and entered into a cross-license agreement that supersedes the prior license and manufacturing agreements among us, TPC and Protiva. In connection with this restructuring, we incurred a $65.0 million charge to operating expenses for the year ended December 31, 2012.

We have incurred significant losses since we commenced operations in 2002 and expect such losses to continue for the foreseeable future. At March 31, 2013, we had an accumulated deficit of $516.0 million. Historically, we have generated losses 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 development of drug delivery technologies and clinical trial costs, extension of the capabilities

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of our technology platform, including through business initiatives, 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 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, Takeda, Cubist and Novartis, and from the United States government in connection with our development of treatments for hemorrhagic fever viruses, including Ebola. 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 December 2012, we filed an automatically effective shelf registration statement with the SEC for an indeterminate number of shares. In January 2013, we sold an aggregate of 9,200,000 shares of our common stock through an underwritten public offering at a price to the public of $20.13 per share. As a result of the offering, we received aggregate net proceeds of approximately $173.6 million, after deducting underwriting discounts and commissions and other estimated offering expenses of approximately $11.6 million. We intend to use these proceeds for general corporate purposes, ultimately focused on advancing our clinical pipeline, and in particular our ALN-TTR02, ALN-TTRsc, ALN-AT3 and ALN-AS1 programs, as well as for potential acquisitions of new businesses, technologies or products, working capital, capital expenditures and general and administrative expenses.

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. Under our core product strategy, we expect to have five RNAi therapeutic programs in clinical development by the end of 2015, including programs in advanced stages, on our own or with one or more collaborators. While focusing our efforts on our core product strategy, we also intend to continue to advance additional partner-based development programs through existing or future alliances. In addition, we continue to work internally and with third-party collaborators to develop new technologies to deliver our RNAi therapeutics both directly to specific sites of disease, and systemically by intravenous or subcutaneous administration.

Our most advanced core product development program, ALN-TTR, targets the transthyretin, or TTR, gene, for the treatment of ATTR. ATTR is an inherited, progressively debilitating and fatal disease caused by a mutation in the TTR gene. In May 2012, we reported final clinical results from our ALN-TTR01 Phase I, multinational clinical trial showing that ALN-TTR01 was generally safe and well tolerated and resulted in statistically significant lowering of both wild-type and mutant TTR serum levels in ATTR patients. ALN-TTR01 employs a first-generation lipid nanoparticle, or LNP, formulation and the ALN-TTR01 Phase I clinical trial has provided proof-of-concept data for our ALN-TTR program.

We are advancing ALN-TTR02 as our lead product candidate in our ALN-TTR program. ALN-TTR02 uses the same siRNA as ALN-TTR01, and a second-generation LNP delivery technology. In July 2012, we reported clinical results from our ALN-TTR02 Phase I clinical trial, which was conducted in the United Kingdom as a randomized, single-blind, placebo-controlled, single-ascending dose study, which enrolled 17 healthy volunteer subjects. The primary objective of the study was to evaluate the safety and tolerability of a single dose of ALN-TTR02. Secondary objectives of this study included the characterization of pharmacokinetics of ALN-TTR02 and the assessment of clinical activity as measured by effects on serum TTR levels through at least day 56 following a single dose. Preliminary data from this study showed that administration of ALN-TTR02 resulted in robust knockdown of serum TTR protein levels of up to 94% and the overall results were highly statistically significant (p<0.00001 by ANOVA). Suppression of TTR, the disease-causing protein in ATTR, was found to be rapid, dose dependent, durable and specific after a single dose, with a nearly 80% level of TTR suppression sustained at one month after just a single dose. ALN-TTR02 was found to be generally safe and well tolerated in this Phase I clinical trial, consistent with our broader clinical experience with LNP-formulated siRNAs. There were no serious adverse events or discontinuations in the study related to ALN-TTR02, and there were no significant adverse events associated with ALN-TTR02 up through 0.30 mg/kg. A moderate acute infusion reaction was observed in one subject receiving ALN-TTR02 at 0.50 mg/kg who was able to complete dosing with slowing of the infusion rate. There were no laboratory test abnormalities, including no changes in liver function tests, cytokines or C-reactive protein.

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In June 2012, we reported the initiation of a Phase II clinical trial of ALN-TTR02. The Phase II clinical trial is designed as an open-label, multi-center, multi-dose, dose-escalation trial expected to enroll approximately 20 ATTR patients. Patients are being enrolled into cohorts of increasing doses and are receiving ALN-TTR02 once every four weeks for two cycles. The primary objectives of this clinical trial are to evaluate the safety and tolerability of multiple doses of ALN-TTR02 and to measure clinical activity based on serial measurement of circulating serum TTR levels. We intend to expand this clinical trial to a total of approximately 30 patients with additional study sites to explore additional cohorts treated with a once-every-three week dosing regimen and a reduced steroid pre-medication regimen. We also intend to initiate an open-label extension, or OLE, study of ALN-TTR02 for patients treated in the Phase II clinical trial. The ALN-TTR02 OLE study will include a number of clinical endpoint measurements. Assuming positive results from the Phase II clinical trial, we expect to initiate a Phase III pivotal trial of ALN-TTR02 in ATTR patients with FAP. We recently reported that we have successfully completed certain long-term non-clinical studies supporting the start of the Phase III clinical trial and chronic dosing in humans.

The Committee for Orphan Medicinal Products of the European Medicines Agency has designated ALN-TTR02 as an orphan medicinal product for the treatment of familial amyloidotic polyneuropathy, or FAP. In addition, the United States Food and Drug Administration, or FDA, has also provided Orphan Drug Designation to ALN-TTR02 as a therapeutic for the treatment of FAP.

In addition to ALN-TTR02, we are advancing ALN-TTRsc, which utilizes our GalNAc conjugate delivery technology enabling subcutaneous dose administration. In March 2013, we reported the initiation of a Phase I clinical trial of ALN-TTRsc in the United Kingdom. The Phase I clinical trial is designed as a randomized, double-blind, placebo-controlled, single- and multi-dose, dose-escalation trial, enrolling up to 40 healthy volunteer subjects. The primary objective of this study is to evaluate the safety and tolerability of single and multiple doses of subcutaneously administered ALN-TTRsc. Secondary objectives include assessment of clinical activity of ALN-TTRsc as measured by serum TTR levels.

We intend to directly commercialize ALN-TTR02 and ALN-TTRsc in North and South America, Europe and other parts of the world. In October 2012, we and Genzyme entered into a license and collaboration agreement pursuant to which we granted to Genzyme an exclusive license in Japan and the Asia-Pacific region, known as the Genzyme territory, to develop and commercialize specified RNAi therapeutics targeting TTR for the treatment of ATTR and other human diseases. We retain all development and commercialization rights worldwide outside of the Genzyme territory.

Our second core product development program is ALN-AT3, an RNAi therapeutic targeting antithrombin, or AT, a genetically defined target, for the treatment of hemophilia and RBD. ALN-AT3 is a novel therapeutic approach aimed at re-balancing the coagulation cascade and normalizing hemostasis in severe hemophilia A and B patients, including patients with inhibitors against their replacement factor. ALN-AT3 also has potential as a treatment for RBD patients and patients with other bleeding disorders. In December 2012, we presented pre-clinical data showing that subcutaneous administration of ALN-AT3 in non-human primates resulted in potent, dose-dependent and durable knockdown in serum AT, resulting in significant increases in thrombin generation. ALN-AT3 utilizes our GalNAc-siRNA conjugate delivery technology, enabling subcutaneous dose administration with potential for a once-weekly or twice-monthly dosing regimen. We plan to file an investigational new drug application, or IND, for ALN-AT3 and to initiate a Phase I clinical trial during 2013. We intend to directly commercialize ALN-AT3 in North and South America, Europe and other parts of the world, and we intend to seek a partner for this program in Japan and other Asian territories.

Our third core development program is ALN-AS1, an RNAi therapeutic targeting aminolevulinate synthase 1, or ALAS-1, for the treatment of AIP. AIP is an ultra-rare autosomal dominant disease caused by loss of function mutations in porphobilinogen deaminase, or PBGD, an enzyme in the heme biosynthesis pathway. ALN-AS1 is a GalNAc conjugate siRNA administered subcutaneously. Inhibition of ALAS-1 is known to reduce the accumulation of heme precursors that cause the clinical manifestations of AIP. ALN-AS1 has the potential to be a therapy for the treatment of acute porphyria attacks, as well as a prophylactic approach for the prevention of recurrent attacks. We expect to select a final development candidate during 2013, with the goal of advancing ALN-AS1 into the clinic. We intend to directly commercialize ALN-AS1 in North and South America, Europe and other parts of the world, and we intend to seek a partner for this program in Japan and other Asian territories.

Our fourth core development program is ALN-PCS for the treatment of hypercholesterolemia. We are developing ALN-PCS for the treatment of hypercholesterolemia. ALN-PCS targets a gene called proprotein convertase subtilisin/kexin type 9, or PCSK9, which is involved in the regulation of LDL receptor levels on hepatocytes and the metabolism of LDL cholesterol, or LDL-c, which is also commonly referred to as “bad” cholesterol.

In April 2012, we reported clinical data from our Phase I clinical trial of ALN-PCS02. ALN-PCS02 employs the same LNP formulation used for ALN-TTR02. The Phase I clinical trial was conducted in the United Kingdom as a randomized, single-blind, placebo-controlled, single-ascending dose study in healthy volunteer subjects with elevated baseline LDL-c (greater than 116mg/dL). The primary objective of the clinical trial was to evaluate the safety and tolerability of a single dose of ALN-PCS02. Secondary

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objectives included assessment of pharmacodynamic effects of the drug on plasma PCSK9 protein levels and evaluation of clinical efficacy as measured by LDL-c levels. The clinical trial was performed in the absence of statins or other lipid lowering therapy. A total of 32 subjects were enrolled into six sequential dose cohorts ranging from 0.015 to 0.400 mg/kg in a three-to-one randomization of drug to placebo.

In this clinical trial, as reported in April 2012, administration of ALN-PCS02 resulted in rapid, dose-dependent and durable reductions in LDL-c of up to 50% relative to baseline and placebo, with a statistically significant mean reduction of 41% (p<0.01) at the 0.400 mg/kg dose level. In addition, ALN-PCS administration resulted in rapid, dose-dependent and durable knockdown of PCSK9 protein levels in plasma with a maximal 84% reduction relative to baseline and placebo, with a statistically significant mean reduction of 68% in the highest dose group of 0.400 mg/kg (p<0.0001). There was also a dose-dependent increase in the proportion of subjects who achieved “target” levels of LDL-c of less than 100 mg/dL (p<0.05). ALN-PCS02 was found to be safe and well tolerated in this study and there were no serious adverse events related to study drug administration. There were no drug-related discontinuations and no liver enzyme elevations. A mild, transient rash, observed in 16 subjects, including four who received placebo, is believed to be related to steroid pre-medication provided to subjects receiving both ALN-PCS, as well as those receiving placebo. There were no significant changes compared to baseline in levels of high-density lipoprotein, or HDL, also referred to as “good” cholesterol, consistent with the phenotype observed in human PCSK9 loss-of-function mutations.

We are also developing ALN-PCSsc, a subcutaneously administered RNAi therapeutic currently in pre-clinical development. We have presented pre-clinical data from our ALN-PCSsc program demonstrating potent knockdown of the PCSK9 target gene with an ED 50 of less than 0.3 mg/kg after a single subcutaneous dose.

In February 2013, we and MDCO entered into a license and collaboration agreement pursuant to which we granted to MDCO an exclusive, worldwide license to develop, manufacture and commercialize RNAi therapeutics targeting PCSK9, including ALN-PCS02 and ALN-PCSsc, for the treatment of hypercholesterolemia and other human diseases. A description of our agreement with MDCO is included below under the heading “Strategic Alliances.”

We are also developing ALN-TMP, a systemically delivered RNAi therapeutic targeting transmembrane protease, serine 6, or Tmprss6, for the treatment of beta-thalassemia and iron-overload disorders. Pre-clinical animal model studies with ALN-TMP have demonstrated corrective effects on iron overload in addition to broader disease modifying effects including improvements in hemoglobin levels, spleen histopathology and globin gene expression. We plan to partner our ALN-TMP program prior to initiating a Phase I clinical trial.

As noted above, while focusing our efforts on our core product strategy, we also intend to continue to advance additional partner-based development programs through existing or future alliances. We have two partner-based programs in clinical development, ALN-RSV for the treatment of RSV and ALN-VSP for the treatment of liver cancers.

We have a collaboration with Kyowa Hakko Kirin for the development and commercialization of RNAi products for the treatment of RSV in Asia. We also had an agreement with Cubist, pursuant to which Cubist had the right to opt into collaborating with us on ALN-RSV01, subject to certain conditions. In February 2013, Cubist notified us that it would not exercise its opt-in right for ALN-RSV01. In light of this determination, we and Cubist mutually agreed to terminate our license and collaboration agreement. As a result of the termination, the parties have no further rights and obligations under the license and collaboration agreement, notwithstanding anything to the contrary in the agreement. During 2012, we met with the FDA and European regulatory authorities regarding the results of the ALN-RSV01 Phase IIb clinical trial and obtained preliminary guidance on the design of a potential Phase III clinical trial. We intend to seek another partner to advance the ALN-RSV01 program into a Phase III clinical trial and intend to finalize plans with the regulatory authorities and a new partner, if and when identified.

In July 2012, we formed a strategic collaboration with Ascletis, a privately held US-China joint venture pharmaceutical company, for the development of ALN-VSP. Under the agreement, we have granted Ascletis exclusive rights to develop and commercialize ALN-VSP in China, including Hong Kong, Macau and Taiwan. We retain all rights to develop and commercialize ALN-VSP in the rest of the world. We may use the data generated in China by Ascletis under this strategic collaboration for development of ALN-VSP in the rest of the world and Ascletis may potentially receive sublicense payments based on any such future partnerships. We plan to partner our ALN-VSP program prior to initiating a Phase II clinical trial outside of the Ascletis territory.

In addition to ALN-RSV and ALN-PCS, we are also supporting the development of ALN-HTT, a novel drug-device product incorporating an RNAi therapeutic candidate targeting the huntingtin gene, delivered using an implantable infusion device, for the treatment of HD, in collaboration with Medtronic. ALN-HTT is currently in pre-clinical development.

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In addition to our core development efforts on ATTR, hemophilia and RBD, AIP, hypercholesterolemia and beta-thalassemia and iron-overload disorders, and our additional partner-based programs in RSV, liver cancer and HD, we are conducting additional research activities to discover novel RNAi therapeutic product candidates that we can partner with third parties with a focus on genetically defined targets and diseases. These include ALN-AAT, an RNAi therapeutic targeting AAT deficiency for the treatment of AAT deficiency-associated liver disease, amongst others programs.

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 efficacy 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:

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 development 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

A significant component of our business plan is to enter into strategic alliances and collaborations with leading pharmaceutical and life sciences companies, academic institutions, research foundations and others, as appropriate, to gain access to funding, capabilities, technical resources and intellectual property to further our development efforts and to generate revenues. We also seek to form or advance new ventures and opportunities in areas outside our primary focus on RNAi therapeutics.

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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 near-term revenues that we can re-invest in the development of our proprietary RNAi therapeutics pipeline. At March 31, 2013, we had granted such licenses, on both an exclusive and non-exclusive basis, to approximately 20 companies.

Since delivery of RNAi therapeutics remains a major objective of our research activities, we also look to form collaboration and licensing arrangements with other companies and academic institutions to gain access to delivery technologies. For example, we have entered into agreements with Arrowhead, the Massachusetts Institute of Technology, or MIT, The University of British Columbia, or UBC, and AlCana, among others, to focus on various delivery strategies. We have also entered into license agreements with Isis, Max Planck Innovation GmbH (formerly known as Garching Innovation GmbH), or Max Planck Innovation, Tekmira, MIT, 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.

The Medicines Company Alliance

In February 2013, we and MDCO entered into a license and collaboration agreement pursuant to which we granted to MDCO an exclusive, worldwide license to develop, manufacture and commercialize RNAi therapeutics targeting PCSK9, including ALN-PCS02 and ALN-PCSsc, for the treatment of hypercholesterolemia and other human diseases. In consideration for the rights granted to MDCO under the MDCO agreement, MDCO paid us an upfront cash payment of $25.0 million. In addition, MDCO is required to make payments to us upon the achievement of specified clinical development, regulatory approval and commercialization milestones totaling up to $180.0 million, and to pay us scaled double-digit royalties based on annual worldwide net sales, if any, of licensed products by MDCO, its affiliates and sublicensees, subject to reduction under specified circumstances. Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development, we may not receive any milestone or royalty payments from MDCO.

Under the MDCO agreement, we and MDCO will collaborate in the further development of licensed products. We will retain responsibility for the development of licensed products until Phase I completion, as defined in the MDCO agreement, at our cost, up to an agreed upon initial development cost cap. MDCO will assume all other responsibility for the development and commercialization of licensed products, at its sole cost. Initially the collaboration will include the development of both ALN-PCS02 and ALN-PSCsc in parallel, provided that we and MDCO intend to select one of ALN-PCS02 or ALN-PSCsc for ongoing development at a specified development stage, in accordance with the terms of the MDCO agreement. See Note 2 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a more detailed description of the MDCO agreement.

The Genzyme Alliance

In February 2013, we and Genzyme entered into an amendment to our license and collaboration agreement to remove a provision providing that if development of a licensed product was terminated by us or Genzyme under certain limited circumstances, Genzyme would have the right to terminate the Genzyme agreement and we would subsequently be required to refund certain amounts paid by Genzyme to us under the agreement prior to such termination.

Alnylam Biotherapeutics

Since 2009, we have advanced our efforts regarding the application of RNAi technologies to improve the manufacturing processes for biologics, including recombinant proteins and monoclonal antibodies. These applications of RNAi technology, which we are advancing in an internal effort we refer to as Alnylam Biotherapeutics, have the potential to create new business opportunities. In particular, we are advancing RNAi technologies to improve the quantity and quality of biologics manufacturing processes using mammalian cell culture, such as Chinese hamster ovary, or CHO, cells. This RNAi technology potentially could be applied to the improvement of manufacturing processes for existing marketed drugs, new drugs in development and for the emerging biosimilars market. We have developed proprietary delivery lipids that enable the efficient delivery of siRNAs into CHO cells when grown in

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suspension culture, as well as other cell systems that are used for the manufacture of biologics. Studies have demonstrated that silencing certain target genes involved in certain CHO cell apoptotic and metabolic pathways resulted in improved cell viability as compared with untreated cells. Additional studies demonstrated the ability to target a viral infection of CHO cells and alter glycosylation pathways. We have formed several collaborations around our Alnylam Biotherapeutics initiative with leading biotechnology and pharmaceutical companies and may seek additional collaborations with established biologic manufacturers, selling licenses, products and services.

VaxiRNA

We are also applying RNAi technology to improve the manufacturing processes for vaccines in an effort called VaxiRNA. The VaxiRNA platform stems from work we have performed as part of our Alnylam Biotherapeutics efforts. With VaxiRNA, we are using siRNAs that silence specific genes in vaccine production systems, such as cells or chicken eggs, which limit or prevent the efficient growth of viruses used in the manufacture of vaccine products. New innovations in vaccine manufacturing are needed to enable the scale and speed of global immunization for a number of pathogens. In October 2011, we formed a VaxiRNA collaboration with GSK for influenza vaccine production. Under the terms of the agreement, GSK has agreed to provide research funding and certain success-based milestone payments to us. If successfully applied in the manufacture of commercial product, we will also have the right to receive payments on unit product sales, if any. In addition, GSK has obtained an option for VaxiRNA applications toward two additional vaccine products. In 2012, we received a $3.2 million development milestone payment from GSK under this agreement related to progress in our collaboration.

microRNA Therapeutics

Regulus. In September 2007, we and Isis established Regulus, a company focused on the discovery, development and commercialization of microRNA therapeutics. Regulus leverages our and Isis’ technologies, know-how and intellectual property relating to microRNA therapeutics.

Regulus, which initially was established as a limited liability company, converted to a C corporation as of January 2, 2009 and changed its name to Regulus Therapeutics Inc. In consideration for our and Isis’ initial interests in Regulus, we and Isis each granted Regulus exclusive licenses to our intellectual property for certain microRNA therapeutics as well as certain patents in the microRNA field. Regulus operates as an independent company with a separate board of directors, scientific advisory board and management team, some of whom have options to purchase common stock of Regulus. Members of the board of directors of Regulus who are our employees or Isis’ employees have not been eligible to receive options to purchase Regulus common stock. In October 2012, Regulus completed an underwritten initial public offering, raising $50.9 million in gross proceeds, including proceeds from the exercise by the underwriters of their over-allotment option. Currently, we own approximately 17% of Regulus’ outstanding common stock.

Regulus is exploring therapeutic opportunities that arise from microRNA dysregulation. Since microRNAs are believed to regulate broad networks of genes and biological pathways, microRNA therapeutics define a new and potentially high-impact strategy to target multiple nodes on disease pathways. microRNAs are small non-coding RNAs that regulate the expression of other genes. More than 500 microRNAs have been identified to date in humans, each of which is believed to interact with a specific set of genes that control key aspects of cell biology. Since microRNAs may act as master regulators of the genome and are often found to be dysregulated in disease, microRNAs potentially represent an exciting new platform for drug discovery and development. Regulus is advancing microRNA therapeutics in several areas including oncology, fibrosis, hepatitis C virus and metabolic diseases.

Regulus has entered into a number of strategic alliances with leading pharmaceutical companies, including GSK, sanofi-aventis, Biogen Idec and AstraZeneca. Each of Alnylam and Isis is entitled to receive specified sublicense income in connection with certain collaborative agreements entered into by Regulus, as well as royalties on net sales, if any, of certain products developed by Regulus or its collaborators, in each case subject to the terms and conditions of the license and collaboration agreement among Regulus, Isis and Alnylam.

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

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

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 1,800 active cases and over 700 granted or issued patents, of which over 300 are issued or granted in the United States, the European Union 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.

Our expertise in RNAi therapeutics and broad intellectual property portfolio have allowed us to form alliances with leading companies, including Isis, Medtronic, Novartis, Biogen, Roche/Arrowhead, Takeda, Kyowa Hakko Kirin, Cubist, Ascletis, Monsanto, Genzyme and MDCO, as well as enter into license agreements with other biotechnology companies interested in developing RNAi therapeutic products and research companies that commercialize RNAi reagents or services.

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, 2012, which we filed with the SEC on February 19, 2013.

Results of Operations

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

Net Revenues from Research Collaborators

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

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Net revenues from research collaborators decreased during the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 due primarily to the completion of our remaining performance obligations under the Roche/Arrowhead alliance in August 2012. This decrease was partially offset by recognition of the remaining deferred revenue under the Cubist agreement of $9.7 million due to the termination of the Cubist agreement in February 2013 and the end of our performance obligations thereunder. In addition, the decrease was partially offset by revenues recorded under our recent agreements with Monsanto and MDCO. We expect net revenues from research collaborators to decrease for the remainder of 2013 as compared to the amount recorded for the three months ended March 31, 2013, due to the recognition of the remaining revenue under the Cubist agreement during the first quarter of 2013.

We also had $139.5 million of deferred revenue at March 31, 2013, which consists of payments we have received from collaborators, primarily Takeda, Kyowa Hakko Kirin, Monsanto, Genzyme and MDCO, but have not yet recognized pursuant to our revenue recognition policies.

For the foreseeable future, we expect our revenues to continue to be derived primarily from our alliances with Takeda, Monsanto and MDCO, and other strategic alliances, as well as 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:

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:

Research and development expenses increased during the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 due primarily to additional expenses related to the advancement of our ALN-TTR02, ALN-TTRsc and ALN-AT3 programs. This increase was partially offset by a one-time charge related to our January 2012 strategic corporate restructuring, including employee severance, benefits and other related costs, that was recorded during the three months ended March 31, 2012.

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We expect to continue to devote a substantial portion of our resources to research and development expenses as we continue development of our and our collaborators’ product candidates and focus on continuing to develop drug delivery-related technologies, however, we expect that research and development expenses will remain consistent for the remainder of 2013.

A significant portion of our research and development costs are not tracked by project as they benefit multiple projects or our technology platform and because our most-advanced programs are not yet in late-stage clinical development. However, our collaboration agreements contain cost-sharing arrangements pursuant to which certain costs incurred under the project are reimbursed by the counterparty to such agreement. 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.

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:

General and administrative expenses decreased significantly during the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 due primarily to a decrease in consulting and professional services related to business activities, primarily legal activities related to litigation with Tekmira that was resolved in November 2012. Also included in the three months ended March 31, 2012 is a one-time charge related to our January 2012 strategic corporate restructuring, including employee severance, benefits and other related costs. For the remainder of 2013, we expect that general and administrative expenses will remain consistent.

Other income (expense)

We incurred zero and $0.9 million of equity in loss of joint venture (Regulus Therapeutics Inc.) for the three months ended March 31, 2013 and 2012, respectively, related to our share of the net losses incurred by Regulus. In October 2012, Regulus completed an initial public offering, resulting in our ownership percentage decreasing from approximately 44% to 17% of Regulus’ outstanding common stock. Based upon our new ownership percentage of 17%, as well as qualitative factors, we do not believe that we have the ability to exercise significant influence over the operating decisions and financial policies of Regulus and therefore have discontinued the equity method of accounting for Regulus. Accordingly, beginning in October 2012, we have accounted for our investment in Regulus as an available-for-sale marketable security.

Interest income was $0.2 million for each of the three months ended March 31, 2013 and 2012.

Our benefit from income taxes was $0.6 million for the three months ended March 31, 2013 as compared to zero for the three months ended March 31, 2012. The increase was due to our recognition of corresponding income tax benefit associated with 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:

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Since we commenced operations in 2002, we have generated significant losses. At March 31, 2013, we had an accumulated deficit of $516.0 million. At March 31, 2013, we had cash, cash equivalents and fixed income marketable securities of $400.8 million, compared to cash, cash equivalents and fixed income marketable securities of $226.2 million at December 31, 2012. Included in our December 31, 2012 cash, cash equivalents and fixed income marketable securities are the proceeds from our sale, in February 2012, of an aggregate of 8,625,000 shares of our common stock through an underwritten public offering at a price to the public of $10.75 per share. As a result of this offering, we received aggregate net proceeds of approximately $86.8 million, after deducting underwriting discounts and commissions and other estimated offering expenses of approximately $5.9 million. Included in our March 31, 2013 cash, cash equivalents and fixed income marketable securities are the proceeds from our sale, in January 2013, of an aggregate of 9,200,000 shares of our common stock through an underwritten public offering at a price to the public of $20.13 per share. As a result of this offering, we received aggregate net proceeds of approximately $173.6 million, after deducting underwriting discounts and commissions and other estimated offering expenses of approximately $11.6 million. We intend to use the proceeds from these offerings for general corporate purposes, ultimately focused on advancing our clinical pipeline, in particular our ALN-TTR02, ALN-TTRsc, ALN-AT3 and ALN-AS1 programs, as well as for potential acquisitions of new businesses, technologies or products, working capital, capital expenditures, and general and administrative expenses.

We invest primarily in cash equivalents, U.S. government obligations, 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, 2013.

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, 2013, net cash used in operating activities of $1.0 million was due primarily to our net loss partially offset by an increase in deferred revenue of $7.2 million. For the three months ended March 31, 2012, net cash used in operating activities of $30.2 million was due primarily to our net loss and a decrease in deferred revenue of $20.1 million. In 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 consist primarily of stock-based compensation, 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 develop and advance 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, 2013, net cash used in investing activities of $130.8 million was due primarily to $129.0 million of net purchases of fixed income marketable securities and $1.8 million of fixed asset additions. For the three months ended March 31, 2012, net cash used in investing activities of $65.6 million resulted primarily from net purchases of fixed income marketable securities.

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Financing activities

For the three months ended March 31, 2013, net cash of $178.2 million provided by financing activities was due primarily to proceeds of $173.6 million received from our January 2013 underwritten public offering, as well proceeds of $4.6 million from the issuance of common stock in connection with stock option exercises. For the three months ended March 31, 2012, net cash of $87.3 million was due primarily to proceeds of $86.8 million received from our February 2012 underwritten public offering.

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 development of drug delivery technologies and clinical trial costs, extension of the capabilities of our technology platform, including through business initiatives, continued management and growth of our patent portfolio, collaborations and general corporate activities. In February 2012, we sold an aggregate of 8,625,000 shares of our common stock through an underwritten public offering at a price to the public of $10.75 per share. As a result of the offering, we received aggregate net proceeds of approximately $86.8 million, after deducting underwriting discounts and commissions and other estimated offering expenses of approximately $5.9 million. In January 2013, we sold an aggregate of 9,200,000 shares of our common stock through an underwritten public offering at a price to the public of $20.13 per share. As a result of this offering, we received aggregate net proceeds of approximately $173.6 million, after deducting underwriting discounts and commissions and other estimated offering expenses of approximately $11.6 million. We intend to use the proceeds from these offerings for general corporate purposes, ultimately focused on advancing our clinical pipeline, in particular our ALN-TTR02, ALN-TTRsc, ALN-AT3 and ALN-AS1 programs, as well as for potential acquisitions of new businesses, technologies or products, working capital, capital expenditures, and general and administrative expenses. Based on our current operating plan, we believe that our existing cash, cash equivalents and fixed income marketable securities, together with the cash we expect to generate under our current alliances, will be sufficient to fund our planned operations through at least the end of 2016. 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. As a condition to providing additional funds to us, future investors may also 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:

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