e10vk

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pug7amZuXEvZSbCoZP1VIRKj9rU93dC8tTP+nIc3X8Jfg8xqhcyObABQ795hkrAS N6oqeccj+DNKLD6jaGbSOA== 0000950123-10-018222.txt : 20100226 0000950123-10-018222.hdr.sgml : 20100226 20100226164406 ACCESSION NUMBER: 0000950123-10-018222 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20091231 FILED AS OF DATE: 20100226 DATE AS OF CHANGE: 20100226 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALNYLAM PHARMACEUTICALS, INC. CENTRAL INDEX KEY: 0001178670 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 770602661 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-50743 FILM NUMBER: 10640038 BUSINESS ADDRESS: STREET 1: 300 THIRD STREET CITY: CAMBRIDGE STATE: MA ZIP: 02142 BUSINESS PHONE: (617) 551-8200 MAIL ADDRESS: STREET 1: 300 THIRD STREET CITY: CAMBRIDGE STATE: MA ZIP: 02142 FORMER COMPANY: FORMER CONFORMED NAME: ALNYLAM PHARMACEUTICALS INC DATE OF NAME CHANGE: 20020724 10-K 1 b78674e10vk.htm ALNYLAM PHARMACEUTICALS, INC. e10vk

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 2009
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission File Number 000-50743

ALNYLAM PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware (State or Other Jurisdiction of Incorporation or Organization)		77-0602661 (I.R.S. Employer Identification No.)

300 Third Street, Cambridge, MA 02142
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code: (617) 551-8200
Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class		Name of Each Exchange on Which Registered

Common Stock, $0.01 par value per share		The Nasdaq Global Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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 þ No o

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 o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

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):


Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The aggregate market value of the voting Common Stock held by non-affiliates of the registrant, based on the last sale price of the registrant’s Common Stock at the close of business on June 30, 2009, was $916,012,936.

As of January 31, 2010, the registrant had 41,837,475 shares of Common Stock, $0.01 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for its 2010 annual meeting of stockholders, to be filed pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year end of December 31, 2009, are incorporated by reference into Part II, Item 5 and Part III of this Form 10-K.

ALNYLAM PHARMACEUTICALS, INC.
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2009

TABLE OF CONTENTS


PART I
	ITEM 1.	BUSINESS	2
	ITEM 1A.	RISK FACTORS	43
	ITEM 1B.	UNRESOLVED STAFF COMMENTS	67
	ITEM 2.	PROPERTIES	67
	ITEM 3.	LEGAL PROCEEDINGS	67
	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	67

PART II
	ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	68
	ITEM 6.	SELECTED CONSOLIDATED FINANCIAL DATA	70
	ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	71
	ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	101
	ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	102
	ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	143
	ITEM 9A.	CONTROLS AND PROCEDURES	143
	ITEM 9B.	OTHER INFORMATION	143

PART III
	ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	143
	ITEM 11.	EXECUTIVE COMPENSATION	143
	ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	144
	ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	144
	ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	144

PART IV
	ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	144
SIGNATURES			145
EX-10.9 Forms of Incentive Stock Option Agreement and Nonstatutory Stock Option Agreement
EX-10.16 2010 Annual Incentive Program
EX-10.39 Collaboration Agreement entered into as of October 29, 2009
EX-10.40 First Amendment to License and Collaboration Agreement entered into as of November 2, 2009
EX-21.1 Subsidiaries of the Registrant
EX-23.1 Consent of PricewaterhouseCoopers LLP
EX-23.2 Consent of Ernst & Young LLP, Independent Auditors of Regulus Therapeutics Inc.
EX-31.1 Section 302 Certification of the Chief Executive Officer
EX-31.2 Section 302 Certification of the Vice President of Finance and Treasurer
EX-32.1 Section 906 Certification of the Chief Executive Officer
EX-32.2 Section 906 Certification of the Vice President of Finance and Treasurer
EX-99.1 Regulus Therapeutics Inc.'s Financial Statements

This annual report on Form 10-K contains 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, that involve risks and uncertainties. All statements other than statements relating to historical matters should be considered forward-looking statements. When used in this report, the words “believe,” “expect,” “anticipate,” “will,” “plan,” “target,” “goal” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these words. Our actual results could differ materially from those discussed in the forward-looking statements as a result of a number of important factors, including the factors discussed in this annual report on Form 10-K, including those discussed in Item 1A of this report under the heading “Risk Factors,” and the risks discussed in our other filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis, judgment, belief or expectation only as of the date hereof. We explicitly disclaim any obligation to update these forward-looking statements to reflect events or circumstances that arise after the date hereof.

PART I


ITEM 1.	BUSINESS

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.

We are applying our technological expertise to build a pipeline of RNAi therapeutics to address significant medical needs, many of which cannot effectively be addressed with small molecules or antibodies, the current major classes of drugs. We are working to develop RNAi therapeutics that are delivered directly to specific sites of disease, as well as RNAi therapeutics that are administered systemically through the bloodstream by intravenous, subcutaneous or intramuscular approaches. Our lead RNAi therapeutic program, ALN-RSV01, is in Phase II clinical trials for the treatment of human respiratory syncytial virus, or RSV, infection, which is reported to be the leading cause of hospitalization in infants in the United States and also occurs in the elderly and in immune compromised adults. In February 2008, we reported positive results from our Phase II experimental RSV infection clinical trial, referred to as the GEMINI study. In July 2009, we and Cubist Pharmaceuticals, Inc., or Cubist, reported results from a Phase IIa clinical trial assessing the safety and tolerability of aerosolized ALN-RSV01 versus placebo in adult lung transplant patients naturally infected with RSV. This study achieved its primary objective of demonstrating the safety and tolerability of ALN-RSV01. In February 2010, we initiated a multi-center, global, randomized, double-blind, placebo-controlled Phase IIb clinical trial to evaluate the clinical efficacy endpoints, as well as safety, of aerosolized ALN-RSV01 in adult lung transplant patients naturally infected with RSV. The objective of this Phase IIb study is to repeat and extend the clinical results observed in the Phase IIa study.

We have formed collaborations with Cubist and Kyowa Hakko Kirin Co., Ltd., or Kyowa Hakko Kirin, for the development and commercialization of RNAi products for RSV. We have an agreement to jointly develop and commercialize certain RNAi products for RSV with Cubist in North America. Cubist has responsibility for developing and commercializing any such products in the rest of the world outside of Asia, and Kyowa Hakko Kirin has the responsibility for developing and commercializing any RNAi products for RSV in Asia. In November 2009, we and Cubist agreed that Alnylam would move forward with the development of ALN-RSV01, and together we would focus our collaboration and joint development efforts on ALN-RSV02, a second-generation compound, intended for use in pediatric patients. We and Cubist each bears one-half of the related development costs for ALN-RSV02. We are also continuing to develop ALN-RSV01 for adult transplant patients at our sole discretion and expense. Cubist has the right to resume the collaboration on ALN-RSV01 in the future, which right may be exercised for a specified period of time following the completion of our Phase IIb study, subject to the payment by

Cubist of an opt-in fee representing reimbursement of an agreed upon percentage of certain of our development expenses for ALN-RSV01.

In March 2009, we initiated a Phase I study for ALN-VSP, our second clinical program and our first systemically delivered RNAi therapeutic candidate. We are developing ALN-VSP for the treatment of liver cancers, including hepatocellular carcinoma, or HCC, and other solid tumors with liver involvement. This Phase I study is a multi-center, open label, dose escalation study to evaluate the safety, tolerability, pharmacokinetics and pharmacodynamics of intravenous ALN-VSP in up to approximately 55 patients with advanced solid tumors with liver involvement, including HCC.

In December 2009, we filed regulatory applications to initiate a clinical trial for ALN-TTR01, our second systemically delivered RNAi therapeutic candidate. We are developing ALN-TTR, which targets the transthyretin, or TTR, gene, for the treatment of TTR-mediated amyloidosis, or ATTR. We plan to initiate a Phase I trial of ALN-TTR01 in ATTR patients in the first half of 2010. ALN-TTR01 employs a first generation lipid nanoparticle, or LNP, formulation. In parallel, we are also advancing ALN-TTR02 utilizing second-generation LNPs.

We are also working on a number of programs in pre-clinical development, including ALN-HTT, an RNAi therapeutic candidate targeting the huntingtin gene, for the treatment of Huntington’s disease, which we are developing in collaboration with Medtronic, Inc., or Medtronic. We have additional discovery programs for RNAi therapeutics for the treatment of a broad range of diseases.

In addition, we are working internally and with third-party collaborators to develop capabilities to deliver our RNAi therapeutics directly to specific sites of disease, such as the delivery of ALN-RSV to the lungs. We are also working to extend our capabilities to advance the development of RNAi therapeutics that are administered systemically by intravenous, subcutaneous or intramuscular approaches. Over the past 12 to 18 months, we have made several of what we believe to be major advances relating to the delivery of RNAi therapeutics, both internally and together with our collaborators. We have numerous RNAi therapeutic delivery collaborations and intend to continue to collaborate with government, academic and corporate third parties to evaluate different delivery options.

We rely on the strength of our intellectual property portfolio relating to the development and commercialization of small interfering RNAs, or siRNAs, as therapeutics. This 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 companies, including Isis Pharmaceuticals, Inc., or Isis, Medtronic, Novartis Pharma AG, or Novartis, Biogen Idec Inc., or Biogen Idec, F. Hoffmann-La Roche Ltd, or Roche, Takeda Pharmaceutical Company Limited, or Takeda, Kyowa Hakko Kirin and Cubist. We have also entered into contracts with government agencies, including the National Institute of Allergy and Infectious Diseases, or NIAID, a component of the National Institutes of Health, or NIH. We have established collaborations with and, in some instances, received funding from major medical and disease associations. 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^tm program, and to research companies that commercialize RNAi reagents or services under our research product licenses.

which we are advancing in an internal effort referred to as Alnylam Biotherapeutics, has the potential to create new business opportunities. Additionally, during 2007, we and Isis established Regulus Therapeutics Inc., formerly Regulus Therapeutics LLC, or Regulus, a company focused on the discovery, development and commercialization of microRNA-based therapeutics. Because microRNAs are believed to regulate whole networks of genes that can be involved in discrete disease processes, microRNA-based therapeutics represent a possible new approach to target the pathways of human disease. Given the broad applications for RNAi technology, we believe additional opportunities exist for new ventures.

Below is a list of some of our key developments in 2009 and early 2010.

2009 and Early 2010 Key Developments

Product Pipeline and Scientific Developments


	•	We advanced development of our ALN-RSV program focused on the treatment of RSV infection. We and Cubist presented complete data from a Phase IIa randomized, double-blind study of inhaled ALN-RSV01 or placebo in RSV-infected adult lung transplant patients. This study achieved its primary objective of demonstrating safety and tolerability of ALN-RSV01. In order to repeat and extend the Phase IIa results, we recently initiated a multi-center, global, randomized, double-blind, placebo-controlled Phase IIb study of ALN-RSV01 in RSV-infected adult lung transplant patients.

	•	We initiated a Phase I multi-center, open label, dose escalation trial to evaluate the safety, tolerability, pharmacokinetics and pharmacodynamics of intravenous ALN-VSP in patients with advanced solid tumors with liver involvement, including HCC. ALN-VSP is our first systemic RNAi program and represents our first clinical program in oncology.

	•	We filed regulatory applications to initiate a clinical trial for our ALN-TTR program for ATTR. We expect to initiate a Phase I trial of ALN-TTR01 in ATTR patients in the first half of 2010. ALN-TTR01 is a systemically delivered RNAi therapeutic that employs first generation LNPs. In parallel, we are also advancing ALN-TTR02 utilizing second generation LNPs.

	•	We continued to advance additional development and pre-clinical programs including ALN-PCS, an RNAi therapeutic targeting PCSK9 for the treatment of hypercholesterolemia. We expect that ALN-PCS will be our next clinical candidate. In addition, in collaboration with Medtronic, we continued to advance ALN-HTT, an RNAi therapeutic targeting the huntingtin gene for Huntington’s disease.

	•	We have made what we believe to be several major advances relating to the delivery of RNAi therapeutics. In collaboration with scientists at the Massachusetts Institute of Technology, or MIT, and, separately, in collaboration with scientists at AlCana Technologies, Inc., or AlCana, Tekmira Pharmaceuticals Corporation, or Tekmira, and The University of British Columbia, or UBC, we published on the discovery of novel lipids that enable formulation of second generation LNPs with markedly enhanced gene silencing potency, with in vivo effects achieved at doses as low as 0.01 mg/kg in rodents and non-human primates.

	•	We formed new collaborations focused on the delivery of RNAi therapeutics. We formed a new research collaboration with scientists at UBC and AlCana, in addition to Tekmira, focused on the discovery of novel cationic lipids for use in LNPs for the systemic delivery of RNAi therapeutics. We also established a new collaboration with Isis focused on the development of single-stranded RNAi, or ssRNAi, technology.

	•	We launched Alnylam Biotherapeutics, which is an internal effort regarding the application of RNAi technology to improve the manufacturing processes for biologics. In particular, Alnylam Biotherapeutics is 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.

	•	During 2009, our scientists and scientists from Regulus demonstrated continued scientific leadership with the publication of 24 peer-reviewed scientific papers in some of the world’s top journals.

Business Execution


	•	We formed a strategic collaboration with Cubist for the development and commercialization of our ALN-RSV program. Our collaboration with Cubist is a 50-50 co-development and profit share arrangement in North America, and a milestone- and royalty-bearing license arrangement in the rest of the world outside of Asia, where we collaborate on the ALN-RSV program with Kyowa Hakko Kirin. In November 2009, we and Cubist agreed that Alnylam would move forward with the development of ALN-RSV01 in adult transplant patient populations, and together we would focus our collaboration and joint development efforts on ALN-RSV02 in pediatric patients.

	•	Novartis elected to extend our RNAi therapeutics collaboration for a fifth and final planned year, through October 2010, resulting in continued research and development funding to us.

	•	We and Roche initiated the drug discovery phase of our 2007 alliance. In addition, we received a milestone payment from Roche related to the initiation of pre-investigational new drug application, or IND, studies for an RNAi therapeutic product candidate.

	•	We and Isis continued our investment in Regulus with a $20.0 million Series A preferred equity financing.

	•	Regulus, of which we own 49%, formed a new collaboration with GlaxoSmithKline, or GSK, to develop and commercialize microRNA-based therapeutics targeting miR-122 in all fields, with hepatitis C virus, or HCV, infection, as the lead indication. This new collaboration includes the potential for Regulus to earn more than $150.0 million in upfront and milestone payments, in addition to royalties, on worldwide sales of products, if any, as Regulus and GSK advance microRNA-based therapeutics targeting miR-122.

Intellectual Property


	•	We advanced our intellectual property estate, receiving over 40 new patents worldwide during 2009.

	•	We joined GSK in donating intellectual property to a patent pool for neglected tropical diseases.

	•	We joined the Max Planck Society in taking legal action toward the Whitehead Institute for Biomedical Research, or Whitehead. Also named in the suit are MIT and the Board of Trustees of the University of Massachusetts, or UMass. The complaint alleges that Whitehead has breached its contractual obligations to Max Planck and us in the manner in which it is prosecuting the so-called “Tuschl I” patent applications and in its fiduciary duty to all of the co-owners of the Tuschl I patent series.

RNA Interference

RNAi is a natural biological pathway that occurs within cells and can be harnessed to selectively silence the activity of specific genes. The discovery of RNAi first occurred in plants and worms in 1998, and two of the scientists who made this discovery, Dr. Andrew Fire and Dr. Craig Mello, received the 2006 Nobel Prize for Physiology or Medicine.

Opportunity for Therapeutics Based on RNAi

Beginning in 1999, our scientific founders described and provided evidence that the RNAi mechanism occurs in mammalian cells and that its immediate trigger is a type of molecule known as a small interfering RNA, or siRNA. They showed that laboratory-synthesized siRNAs could be introduced into the cell and suppress production of specific target proteins by cleaving and degrading the messenger RNA, or mRNA, of the specific gene that encodes that specific protein. Because it is possible to design and synthesize siRNAs specific to any gene of interest, the entire human genome is accessible to RNAi, and we therefore believe that RNAi therapeutics have the potential to become a broad new class of drugs.

In May 2001, one of our scientific founders, Thomas Tuschl, Ph.D., published the first scientific paper demonstrating that siRNAs can be synthesized in the laboratory using chemical or biochemical methods and when introduced, or delivered, into mammalian cells can silence the activity of a specific gene. Since the Tuschl publication, the use of siRNAs has been broadly adopted by academic and industrial researchers for the

fundamental study of the function of genes. This has resulted in a significant number of publications focused on the use of RNAi and has made the 2001 paper one of the most cited papers in basic biologic research. Reflecting this, siRNAs are a growing segment of the market for research reagents and related products and services.

Beyond its use as a basic research tool, we believe that RNAi can form the basis of a completely new class of drugs for the treatment of disease. Drugs based on the RNAi mechanism could offer numerous opportunities and benefits, which may include:


	•	Ability to target proteins that cannot be targeted effectively by existing drug classes. Over the last decade, the understanding of human disease has advanced enormously and many proteins have been identified that play fundamental roles in human disease. Paradoxically, greater than 80% of these key proteins cannot be targeted effectively with existing drug approaches like small molecules or proteins such as monoclonal antibodies. These so called “undruggable” targets are potentially accessible to siRNAs as they are made by mRNAs that can be targeted with RNAi.

	•	Ability to treat a broad range of diseases. The ability to make siRNAs that target virtually any gene to suppress the production of virtually any protein whose presence or activity causes disease suggests a broad potential for application in a wide range of diseases.

	•	Inherently potent mechanism of action. We expect the inherent catalytic nature of the RNAi mechanism to allow for a high degree of potency and durability of effect for RNAi-based therapeutics, which we believe distinguishes RNAi from other approaches.

	•	Simplified discovery of product candidates. In contrast to the often arduous and slow drug discovery process for proteins and small molecules, the identification of siRNA product candidates has been, and we expect will continue to be, much simpler, quicker and less costly because it involves relatively standard processes that are directed by the known gene target sequences and can be applied in a similar fashion to many successive product candidates.

We have reported on our advances in developing siRNAs as potential drugs in a large number of peer-reviewed publications and meetings, including publications by Alnylam scientists in the journals Nature, Cell, Nature Medicine, Nature Biotechnology and Proceedings of the National Academy of Sciences, or PNAS.

Our Product Platform

Our product platform provides a capability for a systematic approach to identifying RNAi therapeutic candidates through sequence selection, potency selection, stabilization by chemical modification, improvement of biodistribution and cellular uptake by various chemical conjugates and formulations. Key to the therapeutic application of siRNAs is the ability to successfully deliver siRNAs to target tissues and achieve cellular uptake of the siRNA into the inside of the cell where the RNAi machinery, called RNA-induced silencing complex, or RISC, is active. In some tissues, including the lung and central nervous system, the direct RNAi delivery approach, which employs the direct or local application of siRNAs, achieves cellular uptake and gene knockdown. For other tissues, such as the liver, systemic RNAi delivery has been employed, where tissue access comes via intravenous or subcutaneous injection of the siRNA into the bloodstream and where cellular uptake can be achieved by the conjugation of the siRNA with other molecules, such as small chemical groups, or by formulation with other biomaterials, such as LNPs. siRNA delivery is a key focus for our internal research team and is also the focus of numerous current government, academic and corporate collaborations. We have demonstrated RNAi therapeutic activity towards multiple genes, in multiple organs and in multiple species, including humans, as demonstrated by our results in the GEMINI trial for ALN-RSV01.

We believe that we have made considerable progress in developing our product platform, as documented in several recent publications. Over the past 12 to 18 months, we have made several of what we believe to be major advances relating to the delivery of RNAi therapeutics, both internally and together with our collaborators. The first relates to the discovery of new LNP compositions that provide dramatic improvements in the potency of gene silencing as compared to first generation LNPs. Additionally, we believe we have discovered an important in vivo mechanism for delivery relating to the role of endogenous apolipoprotein E, or ApoE, a plasma protein involved in lipoprotein metabolism, in the delivery of certain LNPs into the cytoplasm of certain cells. The latter discovery has

allowed the specific targeting of LNPs and allows the possibility of delivery beyond the liver. We discuss these advances and our overall delivery efforts in more detail below in the section entitled “Delivery Initiatives.” With the progress we have made to date and expect to make in the future, we believe we will be well positioned to pursue multiple therapeutic opportunities.

Our progress has enabled us to advance a number of development programs for RNAi therapeutics that are administered directly to diseased tissues, including ALN-RSV01 and ALN-HTT. Our progress in achieving delivery of RNAi therapeutics through systemic RNAi was demonstrated by the advancement in early 2009 of our first systemically delivered RNAi therapeutic candidate ALN-VSP, for the treatment of liver cancers, to the clinic, and the filing of regulatory applications in December 2009 to initiate a clinical trial for ALN-TTR01, our second systemically delivered RNAi therapeutic candidate, for the treatment of ATTR. ALN-VSP and ALN-TTR01 both utilize a first generation LNP formulation known as stable nucleic acid-lipid particles, or SNALP, developed in collaboration with Tekmira. In parallel with ALN-TTR01, we are also advancing ALN-TTR02 utilizing the newer second-generation LNPs. In addition, we have published pre-clinical results from development programs for other systemically delivered RNAi therapeutic candidates, including ALN-PCS, for the treatment of hypercholesterolemia, which we recently identified as our next clinical candidate. ALN-PCS is being advanced using second-generation LNPs for systemic delivery. We recognize, however, that challenges remain with respect to the development of RNAi-based therapeutics, including achieving effective delivery of siRNAs to target cells and tissues, and we therefore regard further development of our product platform as an ongoing priority.

Our Product Pipeline

The following is a summary of our development programs as of January 31, 2010:

Our most advanced program is focused on the treatment of RSV, a virus that infects the respiratory tract. In January 2008, we completed our GEMINI study, a Phase II clinical trial designed to evaluate the safety, tolerability and anti-viral activity of ALN-RSV01 in adult subjects experimentally infected with RSV. In July 2009, we and Cubist reported results from a Phase IIa clinical trial assessing the safety and tolerability of aerosolized ALN-RSV01 versus placebo in adult lung transplant patients naturally infected with RSV. This study achieved its primary objective of demonstrating the safety and tolerability of ALN-RSV01. In February 2010, we initiated a multi-center, global, randomized, double-blind, placebo-controlled Phase IIb clinical trial to evaluate the clinical efficacy endpoints as well as safety of aerosolized ALN-RSV01 in adult lung transplant patients naturally infected with RSV. The objective of this Phase IIb study is to repeat and extend the clinical results observed in the Phase IIa study.

We have formed collaborations with Cubist and Kyowa Hakko Kirin for the development and commercialization of RNAi products for RSV. We have an agreement to jointly develop and commercialize certain RNAi products for RSV with Cubist in North America. Cubist has responsibility for developing and

commercializing any such products in the rest of the world outside of Asia, and Kyowa Hakko Kirin has the responsibility for developing and commercializing any RNAi products for RSV in Asia. In November 2009, we and Cubist agreed that Alnylam would move forward with the development of ALN-RSV01, and together we would focus our collaboration and joint development efforts on ALN-RSV02, a second-generation compound, intended for use in pediatric patients. We and Cubist each bears one-half of the related development costs for ALN-RSV02. We are also continuing to develop ALN-RSV01 for adult transplant patients at our sole discretion and expense. Cubist has the right to resume the collaboration on ALN-RSV01 in the future, which right may be exercised for a specified period of time following the completion of our Phase IIb trial, subject to the payment by Cubist of an opt-in fee representing reimbursement of an agreed upon percentage of certain of our development expenses for ALN-RSV01.

In March 2009, we initiated a Phase I study for ALN-VSP, our second clinical program and our first systemically delivered RNAi therapeutic candidate. We are developing ALN-VSP for the treatment of liver cancers, including HCC, and other solid tumors with liver involvement. This Phase I study is a multi-center, open label, dose escalation study to evaluate the safety, tolerability, pharmacokinetics and pharmacodynamics of intravenous ALN-VSP in up to approximately 55 patients with advanced solid tumors with liver involvement, including HCC.

In December 2009, we filed regulatory applications to initiate a clinical trial for ALN-TTR01, our second systemically delivered RNAi therapeutic candidate. We are developing ALN-TTR, which targets the TTR gene, for the treatment of ATTR. ALN-TTR targets wild-type and all mutant forms of TTR, and therefore is a potential therapeutic for the treatment of all forms of ATTR, including familial amyloidotic polyneuropathy, or FAP, and familial amyloidotic cardiomyopathy, or FAC. We plan to initiate a Phase I trial of ALN-TTR01 in ATTR patients in the first half of 2010. ALN-TTR01 employs a first generation LNP formulation. In parallel, we are also advancing ALN-TTR02 utilizing second-generation LNPs.

In January 2010, we announced that we expect ALN-PCS, a systemically delivered RNAi therapeutic candidate for the treatment of hypercholesterolemia, to be our next clinical candidate. ALN-PCS targets a gene called PCSK9. We are also working on a number of programs in pre-clinical development, including ALN-HTT, an RNAi therapeutic candidate for the treatment of Huntington’s disease, which we are developing jointly with Medtronic. We have additional discovery programs for RNAi therapeutics for the treatment of a broad range of diseases.

We have spent substantial funds over the past three years to develop our product pipeline and expect to continue to do so in the future. We incurred research and development costs of $108.7 million in 2009, $96.9 million in 2008 and $120.7 million in 2007. Research and development costs in 2007 included $27.5 million in license fees paid to certain entities, primarily Isis, in connection with our alliance with Roche.

Development Programs

Respiratory Syncytial Virus (RSV) Infection

Market Opportunity. RSV is a highly contagious virus that causes infections in both the upper and lower respiratory tract. RSV infects nearly every child by the age of two years and is responsible for a significant percentage of hospitalizations of infants, children with lung or congenital heart disease, the elderly and adults with immune-compromised systems, including lung transplant recipients. RSV infection typically results in cold-like symptoms, but can lead to more serious respiratory illnesses such as croup, pneumonia and bronchiolitis, and in extreme cases, severe illness and death. According to NIH, up to 125,000 children are hospitalized each year due to RSV infection. A study published in the New England Journal of Medicine estimates that over 170,000 elderly adults are hospitalized with RSV each year. In addition, experts estimate that the overall prevalence of lung transplants in the United States is between 8,000 to 10,000. The annual incidence of RSV infection in lung transplant patients can be up to ten percent.

Current Treatments. The only product currently approved for the treatment of RSV infection is Ribavirin, which is marketed as Virazole^® by Valeant Pharmaceuticals International, or Valeant. However, this product is approved only for treatment of hospitalized infants and young children with severe lower respiratory tract infections

due to RSV. Moreover, administration of the drug is complicated and requires elaborate environmental reclamation devices because of potential harmful effects on healthcare personnel exposed to the drug.

Two other products, a monoclonal antibody known as Synagis^® and an immune globulin called RespiGam^tm, have been approved for the prevention of severe lower respiratory tract disease caused by RSV in infants at high risk of such disease. Neither of these products is approved for treatment of an existing RSV infection.

Alnylam Program. In June 2007, we initiated the GEMINI study, a double-blind, placebo-controlled, randomized Phase II trial designed to evaluate the safety, tolerability and anti-viral activity of ALN-RSV01 in adult subjects experimentally infected with RSV. In total, 88 subjects were randomized one-to-one to receive either ALN-RSV01 or placebo treatment prior to and after experimental infection with a wild-type clinical strain of RSV. In February 2008, we reported positive results from the GEMINI study. ALN-RSV01 was found to be safe and well tolerated and demonstrated statistically significant anti-viral activity, including an approximate 40% reduction in viral infection rate and a 95% increase in infection-free patients (p<0.01), as compared to placebo.

In July 2009, we and Cubist reported results from a Phase IIa clinical trial assessing the safety and tolerability of aerosolized ALN-RSV01 versus placebo in adult lung transplant patients naturally infected with RSV. In total, 24 patients confirmed with RSV infection were randomized two-to-one to receive inhaled ALN-RSV01 or placebo once daily for three consecutive days. The study achieved its primary objective of demonstrating the safety and tolerability of ALN-RSV01. In particular, there were no drug-related serious adverse events or discontinuations, and there were no clinically significant differences in the overall adverse event profile between ALN-RSV01 and placebo. Importantly, there was no evidence of disease exacerbation related to ALN-RSV01 treatment. At the 90-day endpoint, all patients survived and the incidence of intubation, new respiratory infection, or acute rejection was comparable across ALN-RSV01 and placebo groups. In addition, 90-day clinical data were collected. The study was not powered to demonstrate clinical outcomes due to the small sample size and, accordingly, such data were therefore considered exploratory. Prospectively defined clinical secondary endpoints at 90 days included recovery of lung function (forced expiratory volume in the first second, or FEV₁) as measured by spirometry and clinical determination of new or progressive bronchiolitis obliterans syndrome, or BOS. Based on the data from this small study, ALN-RSV01 treatment was associated with a statistically significant decrease in the total incidence of new or progressive BOS at 90 days compared to placebo (p=0.02) with 50% of placebo patients showing new or progressive BOS as compared with only 7.1% of ALN-RSV01-treated patients. Despite the small patient numbers, we believe that these data may be important since the incidence of BOS following RSV infection in lung transplant patients can be a predictor of graft failure and overall survival. The incidence of BOS in lung transplant patients infected with RSV results in approximately 50% mortality within three to five years of onset.

In February 2010, we initiated a multi-center, global, randomized, double-blind, placebo-controlled Phase IIb clinical trial to evaluate the clinical efficacy endpoints as well as safety of aerosolized ALN-RSV01 in adult lung transplant patients naturally infected with RSV. The objective of this Phase IIb study is to repeat and extend the clinical results observed in the Phase IIa study described above. This study is expected to enroll 76 adult lung transplant patients who will be randomized in a one-to-one drug to placebo ratio. The primary endpoint is reduction in the incidence of new or progressive BOS.

Prior to the GEMINI and Phase IIa studies, ALN-RSV01 was shown in pre-clinical testing to be effective in both preventing and treating RSV infection in mice when administered intranasally. ALN-RSV01 also showed no significant toxicities in animal toxicology studies performed to enable the filing of an IND. We submitted an IND for ALN-RSV01 to the United States Food and Drug Administration, or FDA, in November 2005, and have completed a number of Phase I clinical trials in both the United States and Europe. In these Phase I trials, ALN-RSV01 was found to be generally safe and well tolerated when administered by single or repeat administration at doses up to 150 milligrams intranasally or at doses up to 0.6 milligrams per kilogram by nebulizer. The results of our completed ALN-RSV01 clinical trials have been presented at medical conferences. We also have an active program to identify second-generation RNAi-based RSV inhibitors, and have identified several candidates in pre-clinical studies. As discussed below, we and Cubist are focusing our collaboration and joint development efforts on ALN-RSV02, a second generation compound, intended for use in pediatric patients.

We have formed collaborations with Cubist and Kyowa Hakko Kirin for the development and commercialization of RNAi products for RSV. We have an agreement to jointly develop and commercialize

certain RNAi products for RSV with Cubist in North America. Cubist has responsibility for developing and commercializing any such products in the rest of the world outside of Asia, and Kyowa Hakko Kirin has the responsibility for developing and commercializing any RNAi products for RSV in Asia. In November 2009, we and Cubist agreed that Alnylam would move forward with the development of ALN-RSV01, and together we would focus our collaboration and joint development efforts on ALN-RSV02, a second-generation compound, intended for use in pediatric patients. We and Cubist each bears one-half of the related development costs for ALN-RSV02. As described above, we are also continuing to develop ALN-RSV01 for adult transplant patients at our sole discretion and expense and have recently initiated a Phase IIb study. Cubist has the right to resume the collaboration on ALN-RSV01 in the future, which right may be exercised for a specified period of time following the completion of our Phase IIb trial, subject to the payment by Cubist of an opt-in fee representing reimbursement of an agreed upon percentage of certain of our development expenses for ALN-RSV01.

Liver Cancer

Market Opportunity. An estimated 700,000 patients worldwide are diagnosed with primary liver cancer each year. HCC is the most common form of liver cancer and is responsible for about 90% of primary malignant liver tumors in adults. HCC is the sixth most common cancer in the world and the third leading cause of cancer-related deaths globally. In addition to primary liver cancer patients, in whom the disease starts in the liver, another 500,000 patients are identified each year with secondary liver cancer, whereby the primary tumor of another tissue, such as colorectal, stomach, pancreatic, breast, lung or skin, has metastasized to the liver.

Current Treatments. The treatment options for liver cancer are dependent on the stage of disease, site of tumor and condition of the patient, but can include surgical resection, radiation, chemotherapy, chemoembolism, liver transplantation and various combinations of these approaches. In November 2007, the FDA approved Sorafenib, also called Nexavar^®, for the treatment of un-resectable liver cancer. Even with relatively early diagnosis and resection, the prognosis remains very poor for liver cancer patients, who are often diagnosed late in their clinical course of disease. For primary liver cancer, with early diagnosis and a resectable tumor, the five-year disease free survival rate has been reported at approximately 20%. However, this applies only to about 15% of primary liver cancer patients. For most primary liver cancer patients, the disease is fatal within three to six months. The prognosis for secondary liver cancer is generally also very poor, due often to the late stage of the disease at the time of diagnosis and metastatic nature of the neoplasm. For example, in the absence of treatment, the prognosis for patients with hepatic colorectal metastases is extremely poor, with five-year survival rates of three percent or less. Among patients that can be treated with complete resection of hepatic colorectal metastases, only 30% to 40% will survive for five years following resection.

Alnylam Program. In December 2008, we submitted an IND to the FDA for ALN-VSP, our first systemically delivered RNAi therapeutic candidate for the treatment of liver cancers, including HCC, and other solid tumors with liver involvement. In March 2009, we initiated a Phase I, multi-center, open label, dose escalation study to evaluate the safety, tolerability, pharmacokinetics and pharmacodynamics of intravenous ALN-VSP in up to approximately 55 patients with advanced solid tumors with liver involvement, including HCC.

ALN-VSP contains two siRNAs formulated using a first generation LNP formulation known as SNALP, developed in collaboration with Tekmira. ALN-VSP is designed to target two genes critical in the growth and development of cancer: kinesin spindle protein, or KSP, and vascular endothelial growth factor, or VEGF. KSP is a key component of the cellular machinery that mediates chromosome separation during cell division, which is critical for tumor proliferation. As such, it represents an important target for blocking tumor growth. VEGF is a potent angiogenic factor that drives the development of blood vessels that are critical to ensuring adequate blood supply to the growing tumor.

Pre-clinical data in mouse tumor model studies have demonstrated efficacy of ALN-VSP, including suppression of these targeted genes, demonstration of an RNAi mechanism of action, formation of monoasters, a characteristic feature of KSP inhibition, anti-angiogenic effects resulting from VEGF inhibition, tumor reduction and extension of survival. Moreover, suppression of KSP has been shown in both hepatocellular and colorectal carcinoma models, and in liver tumors as well as metastases at other sites.

We believe our strategy of using an RNAi therapeutic targeting two well-validated genes critical for tumor proliferation and survival has the potential of achieving meaningful clinical benefit for patients with liver cancer. In addition, we believe that this is the first dual targeting RNAi therapeutic program to advance to clinical development. This is an important milestone, as we view the ability to design and formulate multiple siRNAs against more than one target as a potentially attractive feature of our RNAi therapeutics platform, particularly in the setting of oncology drug development.

TTR-Mediated Amyloidosis (ATTR)

Market Opportunity. ATTR is a hereditary, systemic disease caused by a mutation in the TTR gene. The resulting abnormal protein is deposited as TTR-containing amyloid fibrils in extrahepatic tissues, including the peripheral nervous system and the heart, which leads to FAP and FAC, respectively. FAP is associated with severe pain and loss of autonomic nervous function, known as neuropathy, whereas FAC is associated with heart failure. Typical onset for ATTR is between the fourth and sixth decades of life and the disease is often fatal within five to 15 years of onset. In its severest form, ATTR represents a tremendous unmet medical need with significant morbidity and mortality. ATTR is an orphan, or rare, disease, affecting approximately 50,000 people worldwide.

Current Treatments. There are no existing disease-modifying treatments to address ATTR. Currently, liver transplantation is the only available treatment for FAP. However, only a subset of FAP patients qualify for this costly and invasive procedure and, even following liver transplantation, the disease continues to progress for many of these patients, presumably due to normal TTR being deposited into preexisting fibrils. Moreover, there is a shortage of donors to provide healthy livers for transplantation into eligible patients. There are currently no therapies available to treat FAC.

Alnylam Program. ALN-TTR is an RNAi therapeutic candidate targeting the TTR gene for the treatment of ATTR. TTR is a carrier for thyroid hormone and retinol binding protein and is produced almost exclusively in the liver. Thus, we believe TTR is a suitable target for an RNAi therapeutic formulated to maximize delivery to liver cells. ALN-TTR targets wild-type and all mutant forms of TTR, including the V30M mutation, and therefore is a potential therapeutic for the treatment of all forms of ATTR, including FAP and FAC.

In December 2009, we filed regulatory applications for ALN-TTR01 and plan to initiate a Phase I trial in ATTR patients in the first half of 2010. ALN-TTR01 is a systemically delivered RNAi therapeutic candidate that employs the first-generation LNP formulation known as SNALP, developed in collaboration with Tekmira. In parallel, we are also advancing ALN-TTR02 utilizing second-generation LNPs.

In pre-clinical studies with hTTR V30M transgenic mice, ALN-TTR treatment led to potent and robust reduction of mutant V30M TTR mRNA levels in the liver and mutant protein levels in the circulation. In non-human primates, administration of ALN-TTR resulted in potent reduction of wild-type TTR. Moreover, durability studies in transgenic mice and non-human primates demonstrated reduction of TTR serum protein and liver mRNA levels for at least three weeks post-administration of ALN-TTR. When administered to hTTR V30M transgenic mice, ALN-TTR blocked the deposition of mutant V30M TTR protein in a number of tissues known to be affected by the disease, including sciatic nerve, sensory ganglion, intestine, esophagus and stomach. These tissues are all sites of TTR deposition in FAP patients, and are locations of amyloid pathology associated with sensory and autonomic neuropathy and severe gastrointestinal dysfunction.

Our findings demonstrate the potential therapeutic benefit of an RNAi therapeutic targeting TTR for the treatment of ATTR. Moreover, siRNA treatment may be superior to liver transplantation based on the ability to simultaneously reduce the expression of mutant, as well as wild-type, TTR. ATTR is also one example of a number of orphan-like indications where there is a very high unmet need and the potential for early biomarker data in clinical studies, enabling rapid proof-of-concept and a clear opportunity for a large therapeutic impact in patients.

Hypercholesterolemia

Market Opportunity. Coronary artery disease, or CAD, is the leading cause of mortality in the United States, responsible for 40% of all deaths annually. Hypercholesterolemia, defined as a high level of LDL cholesterol, or LDL-c, in the blood, is one of the major risk factors for CAD. Although current therapies are effective in many patients, studies have shown that as many as 45% of these patients do not achieve adequate control

of their high cholesterol level with existing treatments, which include drugs known as statins. Currently in the United States, there are almost 500,000 patients with high cholesterol levels not controlled by the use of existing lipid lowering therapies. These patients are said to have refractory or poorly controlled hypercholesterolemia and constitute a potential target population for our product candidate.

Current Treatments. The current standard of care for patients with hypercholesterolemia includes the use of several agents. The first treatment often prescribed is a drug from the statin family. Commonly prescribed statins include Lipitor^® (atorvastatin), Zocor^® (simvastatin), Crestor^® (rosuvastatin) and Pravachol^® (pravastatin). A different type of drug, such as Zetia^® (ezetimibe) and Vytorin^® (ezetimibe/simvastatin), which reduces dietary cholesterol uptake from the gut, may also be used either on its own or in combination with a statin. Despite these therapies, there are many patients who have refractory or poorly controlled hypercholesterolemia and require more intensive treatment. In addition, some patients do not tolerate current treatments and at least five percent of those treated with a statin have to stop because of side-effects. In patients with very high uncontrolled cholesterol levels, a procedure called lipid apheresis is used, which effectively removes cholesterol from the blood using a machine specifically designed for this process. However, this procedure is inconvenient and uncomfortable, requiring regular weekly visits to a doctor’s office.

Alnylam Program. In January 2010, we announced that we expect ALN-PCS, a systemically delivered RNAi therapeutic candidate targeting PCSK9 for the treatment of hypercholesterolemia, to be our next clinical candidate. ALN-PCS is being advanced using second-generation LNPs for systemic delivery.

PCSK9 is a widely acknowledged target for the treatment of hypercholesterolemia by lowering of LDL-c levels. PCSK9 is a protein that is produced by the liver but circulates in the bloodstream. The liver determines cholesterol levels, in part by taking up or absorbing LDL-c from the bloodstream. PCSK9 reduces the liver’s capacity to absorb LDL-c. Recent evidence indicates that, if PCSK9 activity could be reduced, the liver should increase its uptake of LDL-c and blood cholesterol levels should decrease. In fact, some individuals have been shown to have a genetic mutation in PCSK9 that lowers its activity and results in increased liver LDL-c uptake and lowered blood cholesterol levels. In turn, these individuals have been shown to have a dramatically reduced risk of CAD, including myocardial infarction or heart attack. In addition, studies have shown that PCSK9 levels are increased by statin therapy while LDL-c levels are decreased, suggesting that the introduction of a PCSK9 inhibitor to statin therapy may result in even further reductions in LDL-c levels.

We began our ALN-PCS program in collaboration with The University of Texas Southwestern Medical Center, or UTSW. As part of the UTSW collaboration, we and UTSW are testing RNAi therapeutic candidates targeting PCSK9 in certain UTSW animal models. Non-human primate data for our ALN-PCS program has demonstrated efficient silencing of PCSK9 and rapid and durable reductions in LDL blood cholesterol levels by greater than 50%.

Huntington’s Disease (HD)

Market Opportunity. Huntington’s disease, or HD, is a fatal, inherited and progressive brain disease that results in uncontrolled movements, loss of intellectual faculties, emotional disturbance and premature death. HD patients typically first start to develop the disease in their third or fourth decade of life and have an average survival of only 10 to 20 years after initial diagnosis. The disease is associated with the production of an altered form of a protein known as huntingtin, the presence of which is believed to trigger the death of important cells in the brain. This autosomal dominant, neurodegenerative disease afflicts approximately 30,000 patients in the United States. An estimated 150,000 additional people in the United States carry the mutant huntingtin gene and, therefore, have an approximate 50% risk of developing the disease in their lifetimes.

Current Treatments. The current treatment of this severe disease is supportive care and symptomatic therapy, with no drugs or therapies available that have been shown to slow the underlying disease progression and the inexorable erosion of the patient’s nerve cell functionality.

Alnylam Program. In collaboration with Medtronic, we are seeking to develop a novel drug-device product incorporating an RNAi therapeutic candidate targeting the huntingtin gene, delivered using an implantable infusion device, that will protect these cells by suppressing huntingtin mRNA and the disease causing protein. Alnylam scientists and collaborators have published and presented the data from our ALN-HTT program comprised of

in vitro, rodent and non-human primate data demonstrating that the administration of ALN-HTT results in robust silencing of the huntingtin gene and reduced expression of the huntingtin protein, achieves broad distribution following continuous direct central nervous system administration, and is safe and well tolerated in rats and non-human primates at clinically relevant doses.

The ALN-HTT program is part of a 50-50 co-development/profit share relationship with Medtronic for the United States market. Outside the United States, Medtronic will be solely responsible for the development and commercialization of the drug-device.

Discovery Programs

In addition to our development efforts on RSV, liver cancers, ATTR, hypercholesterolemia and HD, we are conducting research activities to discover RNAi therapeutics to treat various diseases. The diseases for which we have discovery programs include: viral hemorrhagic fever, including the Ebola virus, which can cause severe, often fatal infection and poses a potential biological safety risk and bioterrorism threat; Parkinson’s disease, a progressive brain disease, which is characterized by uncontrollable tremor, and, in some cases, may result in dementia; and progressive multifocal leukoencephalopathy, or PML, which is a disease of the central nervous system caused by viral infection in immune compromised patients. We are also pursuing other undisclosed internal pre-clinical programs.

In addition to these programs, as part of our collaborations with Novartis, Roche and Takeda, we have research activities to discover RNAi therapeutics directed to a number of undisclosed targets.

Our Collaboration and Licensing Strategy

Our business strategy is to develop and commercialize a pipeline of RNAi therapeutic products. As part of this strategy, we have entered into, and expect to enter into additional, collaboration and licensing agreements as a means of obtaining resources, capabilities and funding to advance our RNAi therapeutic programs.

Our collaboration strategy is to form (1) non-exclusive platform alliances where our collaborators obtain access to our capabilities and intellectual property to develop their own RNAi therapeutic products; and (2) 50-50 co-development and/or ex-U.S. market geographic partnerships on specific RNAi therapeutic programs. We have entered into broad, non-exclusive platform license agreements with Roche and Takeda, under which we are also collaborating with each of Roche and Takeda on RNAi drug discovery for one or more disease targets. We are pursuing 50-50 co-development programs with Cubist and Medtronic for the development and commercialization of ALN-RSV02 and ALN-HTT, respectively. In addition, we have entered into a product alliance with Kyowa Hakko Kirin for the development and commercialization of ALN-RSV in territories not covered by the Cubist agreement, which include Japan and other markets in Asia. We also have discovery and development alliances with Isis, Novartis and Biogen Idec.

We also seek opportunities to form new ventures in areas outside our core strategic focus. For example, during 2009, we established Alnylam Biotherapeutics, an internal effort regarding the application of RNAi technology to improve the manufacturing processes for biologics, which is comprised of recombinant proteins, monoclonal antibodies and vaccines. This initiative has the potential to create new business opportunities. In addition, during 2007, we formed Regulus, together with Isis, to capitalize on our technology and intellectual property in the field of microRNA-based therapeutics. Given the broad applications for RNAi technology, we believe additional opportunities exist for new ventures.

To generate revenues from our intellectual property rights, we 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. Our InterfeRx and research product licenses aim to generate modest near-term revenues that we can re-invest in the development of our proprietary RNAi therapeutics pipeline. As of January 31, 2010, we had granted such licenses, on both an exclusive and non-exclusive basis, to approximately 20 companies.

technologies. For example, we have entered into agreements with Tekmira, MIT, UBC and AlCana, among others, to focus on various delivery strategies. We have also entered into license agreements with Isis, Max-Planck-Innovation GmbH, Tekmira and MIT, as well as a number of other entities, to obtain rights to important intellectual property in the field of RNAi. In April 2009, we established a new collaboration with Isis to focus on the development of ssRNAi technology.

Finally, we seek funding for the development of our proprietary RNAi therapeutics pipeline from the government and foundations. In 2006, NIAID awarded us a contract to advance the development of a broad spectrum RNAi anti-viral therapeutic against hemorrhagic fever virus, including the Ebola virus. In 2007, the Defense Threat Reduction Agency, or DTRA, an agency of the United States Department of Defense, awarded us a contract to advance the development of a broad spectrum RNAi anti-viral therapeutic for hemorrhagic fever virus, which contract ended in February 2009. In addition, we have obtained funding for pre-clinical discovery programs from organizations such as The Michael J. Fox Foundation.

Strategic Alliances

We have formed, and intend to continue to form, strategic alliances to gain access to the financial, technical, clinical and commercial resources necessary to develop and market RNAi therapeutics. We expect these alliances to provide us with financial support in the form of upfront cash payments, license fees, equity investments, research and development funding, milestone payments and/or royalties or profit sharing based on sales of RNAi therapeutics.

Platform Alliances.

Roche. In July 2007, we and, for limited purposes, Alnylam Europe AG, or Alnylam Europe, entered into a license and collaboration agreement with Roche. Under the license and collaboration agreement, which became effective in August 2007, we granted Roche a non-exclusive license to our intellectual property to develop and commercialize therapeutic products that function through RNAi, subject to our existing contractual obligations to third parties. The license is initially limited to the therapeutic areas of oncology, respiratory diseases, metabolic diseases and certain liver diseases, and may be expanded to include up to 18 additional therapeutic areas, comprising substantially all other fields of human disease, as identified and agreed upon by the parties, upon payment to us by Roche of an additional $50.0 million for each additional therapeutic area, if any.

In consideration for the rights granted to Roche under the license and collaboration agreement, Roche paid us $273.5 million in upfront cash payments. In addition, in exchange for our contributions under the collaboration agreement, for each RNAi therapeutic product developed by Roche, its affiliates or sublicensees under the collaboration agreement, we are entitled to receive milestone payments upon achievement of specified development and sales events, totaling up to an aggregate of $100.0 million per therapeutic target, together with royalty payments based on worldwide annual net sales, if any. 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 Roche.

Under the license and collaboration agreement, we and Roche also agreed to collaborate on the discovery of RNAi therapeutic products directed to one or more disease targets, subject to our contractual obligations to third parties. In October 2009, we and Roche advanced our alliance to initiate this therapeutic collaboration stage, referred to as the Discovery Collaboration. Under this Discovery Collaboration, we and Roche are collaborating on the discovery and development of specific RNAi therapeutic products and each party contributes key delivery technologies in the effort, which is focused on specific disease targets. We and Roche intend to co-develop and co-commercialize RNAi therapeutic products in the U.S. market and we are eligible to receive additional milestone and royalty payments for products developed in the rest of the world, if any. After a pre-specified period of collaborative activities, each party will have the option to opt-out of the day-to-day development activities in exchange for reduced milestones and royalty payments in the future. The Discovery Collaboration is governed by the joint steering committee that is comprised of an equal number of representatives from each party.

The term of the license and collaboration agreement generally ends upon the later of ten years from the first commercial sale of a licensed product and the expiration of the last-to-expire patent covering a licensed product. We estimate that our fundamental RNAi patents covered under the license and collaboration agreement will expire both in and outside the United States generally between 2016 and 2025, subject to any potential patent term extensions

and/or supplemental protection certificates extending such term extensions in countries where such extensions may become available. Roche may terminate the license and collaboration agreement, on a licensed product-by-licensed product, licensed patent-by-licensed patent, and country-by-country basis, upon 180-days’ prior written notice to us, but is required to continue to make milestone and royalty payments to us if any royalties were payable on net sales of a terminated licensed product during the previous 12 months. The license and collaboration agreement may also be terminated by either party in the event the other party fails to cure a material breach under the license and collaboration agreement.

In connection with the execution of the license and collaboration agreement, we executed a common stock purchase agreement with Roche Finance Ltd, or Roche Finance, an affiliate of Roche. Under the terms of the common stock purchase agreement, in August 2007, Roche Finance purchased 1,975,000 shares of our common stock at $21.50 per share, for an aggregate purchase price of $42.5 million. Under the terms of the common stock purchase agreement, in the event we propose to sell or issue any of our equity securities, subject to specified exceptions, we agreed to grant to Roche Finance the right to acquire additional securities, such that Roche Finance would be able to maintain its ownership percentage in us. Roche Finance agreed that until August 9, 2010, neither it nor any specified affiliates will acquire any of our securities or assets (other than an acquisition resulting in such entities beneficially owning less than five percent of our total outstanding voting securities), participate in any tender or exchange offer, merger or other business combination involving us or seek to control our management, board of directors or policies, subject to specified exceptions. Roche Finance also agreed that neither it nor any specified affiliates would sell or transfer any of our equity securities during the period prior to August 9, 2009 and that it will limit the volume of such sales or transfers in a single day during the following one-year period, in each case, for so long as Roche Finance and such affiliates beneficially own more than two and one half percent of the total outstanding shares of our common stock.

In connection with the execution of the license and collaboration agreement and the common stock purchase agreement, we also executed a stock purchase agreement with Alnylam Europe and Roche Beteiligungs GmbH, or Roche Germany, an affiliate of Roche. Under the terms of the Alnylam Europe stock purchase agreement, we created a new, wholly-owned German limited liability company, Roche Kulmbach, into which substantially all of the non-intellectual property assets of Alnylam Europe were transferred, and Roche Germany purchased from us all of the issued and outstanding shares of Roche Kulmbach for an aggregate purchase price of $15.0 million. The Alnylam Europe stock purchase agreement included transition services that were performed by Roche Kulmbach employees at various levels through August 2008. We reimbursed Roche for these services at an agreed-upon rate.

In connection with the license and collaboration agreement and the common stock purchase agreement, during 2007, we paid $27.5 million in license fees to our licensors, primarily Isis, in accordance with the applicable license agreements with those parties.

Takeda. In May 2008, we entered into a license and collaboration agreement with Takeda to pursue the development and commercialization of RNAi therapeutics. Under the Takeda agreement, we granted to Takeda a non-exclusive, worldwide, royalty-bearing license to our intellectual property to develop, manufacture, use and commercialize RNAi therapeutics, subject to our 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 will be our exclusive platform partner in the Asian territory, as defined in the agreement, for a period of five years.

the agreement. If Takeda elects to expand its license to additional therapeutic areas, Takeda will be required to pay us $50.0 million for each of up to approximately 20 total additional fields selected, if any, comprising substantially all other fields of human disease, as identified and agreed upon by the parties. In addition, for each RNAi therapeutic product developed by Takeda, its affiliates and sublicensees, we are entitled to receive specified development and commercialization milestones, totaling up to $171.0 million per product, together with royalty payments based on worldwide annual net sales, if any. 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 Takeda.

Pursuant to the Takeda agreement, we and Takeda are also collaborating on the research of RNAi therapeutics directed to one or two disease targets agreed to by the parties, subject to our existing contractual obligations with third parties. Takeda also has the option, subject to certain conditions, to collaborate with us on the research and development of RNAi drug delivery technology for targets agreed to by the parties. In addition, Takeda has a right of first negotiation for the development and commercialization of our RNAi therapeutic products in the Asian territory, excluding our ALN-RSV program. In addition to our 50-50 profit sharing option, we have a similar right of first negotiation to participate with Takeda in the development and commercialization in the United States of licensed products. The collaboration is governed by a joint technology transfer committee, a joint research collaboration committee and a joint delivery collaboration committee, each of which is comprised of an equal number of representatives from each party.

The term of the Takeda agreement generally ends upon the later of (i) the expiration of our last-to-expire patent covering a licensed product and (ii) the last-to-expire term of a profit sharing agreement in the event we elect to enter into such an agreement. We estimate that our fundamental RNAi patents covered under the Takeda agreement will expire both in and outside the United States generally between 2016 and 2025, subject to any potential patent term extensions and/or supplemental protection certificates extending such term extensions in countries where such extensions may become available. The Takeda agreement may be terminated by either party in the event the other party fails to cure a material breach under the agreement. In addition, Takeda may terminate the agreement on a licensed product-by-licensed product or country-by-country basis upon 180-days’ prior written notice to us, provided, however, that Takeda is required to continue to make royalty payments to us for the duration of the royalty term with respect to a licensed product.

In connection with the Takeda agreement, during 2008, we paid $5.0 million of license fees to our licensors, primarily Isis, in accordance with the applicable license agreements with those parties.

Discovery and Development Alliances.

Isis. In April 2009, we and Isis amended and restated our existing strategic collaboration and license agreement, originally entered into in March 2004, to extend the broad cross-licensing arrangement regarding double-stranded RNAi that was established in 2004, pursuant to which Isis granted us licenses to its current and future patents and patent applications relating to chemistry and to RNA-targeting mechanisms for the research, development or commercialization of double-stranded RNA, or dsRNA, products. We have the right to use Isis technologies in our development programs or in collaborations and Isis has agreed not to grant licenses under these patents to any other organization for the discovery, development and commercialization of dsRNA products designed to work through an RNAi mechanism, except in the context of a collaboration in which Isis plays an active role. We granted Isis non-exclusive licenses to our current and future patents and patent applications relating to RNA-targeting mechanisms and to chemistry for research use. We also granted Isis the non-exclusive right to develop and commercialize dsRNA products developed using RNAi technology against a limited number of targets. In addition, we granted Isis non-exclusive rights to research, develop and commercialize single-stranded RNA products.

We agreed to pay Isis milestone payments, totaling up to approximately $3.4 million, upon the occurrence of specified development and regulatory events, and royalties on sales, if any, for each product that we or a collaborator develops using Isis intellectual property. In addition, we agreed to pay to Isis a percentage of specified fees from strategic collaborations we may enter into that include access to Isis intellectual property. Isis agreed to pay us, per therapeutic target, a license fee of $0.5 million, and milestone payments totaling approximately $3.4 million, payable upon the occurrence of specified development and regulatory events, and royalties on sales, if any, for each

product developed by Isis or a collaborator that utilizes our intellectual property. Isis has the right to elect up to ten non-exclusive target licenses under the agreement and has the right to purchase one additional non-exclusive target per year during the term of the collaboration.

As part of the amended and restated Isis agreement, we and Isis established a new collaborative effort focused on the development of ssRNAi technology. Under the amended and restated Isis agreement, we obtained from Isis a co-exclusive, worldwide license to Isis’ current and future patents and patent applications relating to chemistry and RNA-targeting mechanisms to research, develop and commercialize ssRNAi products. Each party has the opportunity to discover and develop drugs employing the ssRNAi technology. Under the terms of the amended and restated Isis agreement, we will potentially pay Isis up to an aggregate of $31.0 million in license fees, payable in four tranches, that include $11.0 million paid on signing, $10.0 million payable in October 2010, or if and when in vivo efficacy in rodents is demonstrated if sooner, $5.0 million upon achievement of in vivo efficacy in non-human primates, and $5.0 million upon initiation of the first clinical trial with an ssRNAi drug, subject to our right to unilaterally terminate the research program. We are funding research activities at a minimum of $3.0 million each year for three years with research and development activities conducted by both us and Isis. If we develop and commercialize drugs utilizing ssRNAi technology on our own or with a partner, we would be required to make milestone payments to Isis, totaling up to $18.5 million per product, as well as royalties. Also, Isis initially is eligible to receive up to 50% of any sublicense payments due to us from a third party based on our partnering of ssRNAi products, which amount will decline over time as our investment in the technology and drugs increases. In turn, we are eligible to receive up to five percent of any sublicense payments due to Isis from a third party based on Isis’ partnering of ssRNAi products.

We have the unilateral right to terminate the ssRNAi research program before September 30, 2010, in which event any licenses to ssRNAi products granted by Isis to us under the amended and restated Isis agreement, and any obligation thereunder by us to pay milestone payments, royalties or sublicense payments to Isis for such ssRNAi products, would also terminate.

The term of the Isis agreement generally ends upon the expiration of the last-to-expire patent licensed thereunder, whether such patent is a patent licensed by us to Isis, or vice versa. As the license will include additional patents, if any, filed to cover future inventions, if any, the date of expiration cannot be determined at this time.

Novartis. Beginning in September 2005, we entered into a series of transactions with Novartis which we refer to as our broad Novartis alliance. At that time, we and Novartis executed a stock purchase agreement and an investor rights agreement. When the transactions contemplated by the stock purchase agreement closed in October 2005, the investor rights agreement became effective and we and Novartis executed a research collaboration and license agreement. The collaboration and license agreement had an initial term of three years, with an option for two additional one-year extensions at the election of Novartis. In July 2009, Novartis elected to further extend the term for the fifth and final planned year, through October 2010.

Under the terms of the collaboration and license agreement, we and Novartis work together on a defined number of selected targets, as defined in the collaboration and license agreement, to discover and develop therapeutics based on RNAi. In consideration for rights granted to Novartis under the collaboration and license agreement, Novartis made an upfront payment of $10.0 million to us in October 2005, partly to reimburse prior costs incurred by us to develop in vivo RNAi technology. The collaboration and license agreement also includes terms under which Novartis has been providing us with research funding and development milestone payments, and may provide us in the future with sales milestone payments as well as royalties on annual net sales of products resulting from the collaboration, if any. The amount of research funding provided by Novartis under the collaboration and license agreement during the research term is dependent upon the number of active programs on which we are collaborating with them at any given time and the number of our employees that are working on those programs, in respect of which Novartis reimburses us at an agreed upon rate. Under the terms of the collaboration and license agreement, Novartis has the right to select up to 30 exclusive targets to include in the collaboration, which number may be increased to 40 under certain circumstances and upon additional payments. For RNAi therapeutic products developed under the agreement, if any, we would be entitled to receive milestone payments upon achievement of certain specified development and annual net sales events, up to an aggregate of $75.0 million per therapeutic product. Due to the uncertainty of pharmaceutical development and the high historical

failure rates generally associated with drug development, we may not receive any additional milestone payments or any royalty payments from Novartis.

Under the terms of the collaboration and license agreement, we retain the right to discover, develop, commercialize and manufacture compounds that function through the mechanism of RNAi, or products that contain such compounds as an active ingredient, with respect to targets not selected by Novartis for inclusion in the collaboration, provided that Novartis has a right of first offer with respect to an exclusive license for additional targets before we partner any of those additional targets with third parties.

The collaboration and license agreement also provides Novartis with a non-exclusive option to integrate into its operations our intellectual property relating to RNAi technology, excluding any technology related to delivery of nucleic acid based molecules. Novartis may exercise this integration option at any point during the research term, which term is currently expected to expire in the fourth quarter of 2010. In connection with the exercise of the integration option, Novartis would be required to make additional payments to us totaling $100.0 million, payable in full at the time of exercise, which payments would include an option exercise fee, a milestone based on the overall success of the collaboration, and pre-paid milestones and royalties that could become due as a result of future development of products using our technology. This amount would be offset by any license fees due to our licensors in accordance with the applicable license agreements with those parties. In addition, under this license grant, Novartis may be required to make milestone and royalty payments to us in connection with the development and commercialization of RNAi therapeutic products, if any. The license grant under the integration option, if exercised by Novartis, would be structured similarly to our non-exclusive platform licenses with Roche and Takeda.

Novartis may terminate the collaboration and license agreement in the event that we materially breach our obligations. We may terminate the agreement with respect to particular programs, products and/or countries in the event of specified material breaches by Novartis of its obligations, or in its entirety under specified circumstances for multiple such breaches.

Under the terms of the stock purchase agreement, in October 2005, Novartis purchased 5,267,865 shares of our common stock at a purchase price of $11.11 per share for an aggregate purchase price of $58.5 million, which, after such issuance, represented 19.9% of our outstanding common stock as of the date of issuance. In addition, under the investor rights agreement, we granted Novartis rights to acquire additional equity securities in the event that we propose to sell or issue any equity securities, subject to specified exceptions, as described in the investor rights agreement, such that Novartis would be able to maintain its then-current ownership percentage in our outstanding common stock. Pursuant to terms of the investor rights agreement, in May 2008, Novartis purchased 213,888 shares of our common stock at a purchase price of $25.29 per share resulting in a payment to us of $5.4 million. In May 2009, Novartis purchased 65,922 shares of our common stock at a purchase price of $17.50 per share, resulting in an aggregate payment to us of $1.2 million. This purchase allowed Novartis to maintain its ownership position of 13.4% of our outstanding common stock. The exercises of this right did not result in any changes to existing rights or any additional rights to Novartis. Further, during the term described in the investor rights agreement, Novartis is permitted to own no more than 19.9% of our outstanding shares. At December 31, 2009, Novartis owned 13.3% of our outstanding common stock.

Under the terms of the investor rights agreement, we also granted Novartis demand and piggyback registration rights under the Securities Act of 1933 for the shares of our common stock held by Novartis. Novartis agreed, until the later of (1) October 12, 2008 and (2) the date of termination or expiration of the selection term, which is currently expected to occur in 2010, not to acquire any of our securities, other than an acquisition resulting in Novartis and its affiliates beneficially owning less than 20% of our total outstanding voting securities, participate in any tender or exchange offer, merger or other business combination involving us or seek to control or influence our management, board of directors or policies, subject to specified exceptions described in the investor rights agreement.

In addition to the broad Novartis alliance, in February 2006, we entered into the Novartis flu alliance. Under the terms of the Novartis flu alliance, we and Novartis had joint responsibility for the development of RNAi therapeutics for pandemic flu. This program was stopped during 2008 and currently there are no specific resource commitments for this program.

Biogen Idec. In September 2006, we entered into a collaboration and license agreement with Biogen Idec. The collaboration is focused on the discovery and development of therapeutics based on RNAi for the potential treatment of PML. Under the terms of the Biogen Idec agreement, we granted Biogen Idec an exclusive license to distribute, market and sell certain RNAi therapeutics to treat PML and Biogen Idec has agreed to fund all related research and development activities. We received an upfront $5.0 million payment from Biogen Idec. In addition, upon the successful development and utilization of a product resulting from the collaboration, if any, Biogen Idec would be required to pay us milestone payments, totaling $51.0 million, and royalty payments on sales, if any. 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 Biogen Idec. The pace and scope of future development of this program is the responsibility of Biogen Idec. We expect to expend limited resources on this program in 2010.

Unless earlier terminated, the Biogen Idec agreement will remain in effect until the expiration of all payment obligations under the agreement. Either we or Biogen Idec may terminate the agreement in the event that the other party breaches its obligations thereunder. Biogen Idec may also terminate the agreement, on a country-by-country basis, without cause upon 90 days prior written notice.

Product Alliances.

Medtronic. In July 2007, we entered into an amended and restated collaboration agreement with Medtronic to pursue the development of therapeutic products for the treatment of neurodegenerative disorders. The amended and restated collaboration agreement supersedes the collaboration agreement entered into by the parties in February 2005, and continues the existing collaboration between the parties focusing on the delivery of RNAi therapeutics to specific areas of the brain using implantable infusion systems.

Under the terms of the amended and restated collaboration agreement, we and Medtronic are continuing our existing development program focused on developing a combination drug-device product for the treatment of Huntington’s disease. In addition, we and Medtronic may jointly agree to collaborate on additional product development programs for the treatment of other neurodegenerative diseases, which can be addressed by the delivery of siRNAs discovered and developed using our RNAi therapeutics platform to the human nervous system through implantable infusion devices developed by Medtronic. We are responsible for supplying the siRNA component and Medtronic is responsible for supplying the device component of any product resulting from the collaboration.

With respect to the initial product development program focused on Huntington’s disease, each party is funding 50% of the development efforts for the United States while Medtronic is responsible for funding development efforts outside the United States. Medtronic will commercialize any resulting products and pay royalties to us based on net sales of such products, if any, which royalties in the United States are designed to approximate 50% of the profit associated with the sale of such product and which royalties in Europe are similar to more traditional pharmaceutical royalties, in that they are intended to reflect each party’s contribution.

Each party has the right to opt-out of its obligation to fund the program under the agreement at certain stages, and the agreement provides for revised economics based on the timing of any such opt-out. Other than pursuant to the initial product development program, and subject to specified exceptions, neither party may research, develop, manufacture or commercialize products that use implanted infusion devices for the direct delivery of siRNAs to the human nervous system to treat Huntington’s disease during the term of such program.

The amended and restated collaboration agreement expires, on a product-by-product and country-by-country basis, upon expiration of the royalty term for the applicable product. The royalty term is the longer of a specified number of years from the first commercial sale of the applicable product and the expiration of the last-to-expire of specified patent rights. Royalties are paid at a lower level during any part of a royalty term in which specified patent coverage does not exist. Either party may terminate the amended and restated collaboration agreement on 60 days’ prior written notice if the other party materially breaches the agreement in specified ways and fails to cure the breach within the 60-day notice period. Either party may also terminate the agreement in the event that specified pre-clinical testing does not yield results meeting specified success criteria.

Kyowa Hakko Kirin. In June 2008, we entered into a license and collaboration agreement with Kyowa Hakko Kirin. Under the Kyowa Hakko Kirin agreement, we granted Kyowa Hakko Kirin an exclusive license to our intellectual property in Japan and other markets in Asia for the development and commercialization of an RNAi therapeutic for the treatment of RSV infection. The Kyowa Hakko Kirin agreement covers ALN-RSV01, as well as additional RSV-specific RNAi therapeutic compounds that comprise the ALN-RSV program. We retain all development and commercialization rights worldwide outside of the licensed territory, subject to our agreement with Cubist, described below.

Under the terms of the Kyowa Hakko Kirin agreement, in June 2008, Kyowa Hakko Kirin paid us an upfront cash payment of $15.0 million. In addition, Kyowa Hakko Kirin is required to make payments to us upon achievement of specified development and sales milestones totaling up to $78.0 million, and royalty payments based on annual net sales, if any, of RNAi therapeutics for RSV by Kyowa Hakko Kirin, its affiliates and sublicensees in the licensed territory. 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 Kyowa Hakko Kirin.

Our collaboration with Kyowa Hakko Kirin is governed by a joint steering committee that is comprised of an equal number of representatives from each party. Under the agreement, Kyowa Hakko Kirin is establishing a development plan for the ALN-RSV program relating to the development activities to be undertaken in the licensed territory, with the initial focus on Japan. Kyowa Hakko Kirin 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 RSV in Japan and the rest of the licensed territory. We are responsible for supply of the product to Kyowa Hakko Kirin under a supply agreement unless Kyowa Hakko Kirin elects, prior to the first commercial sale of the product in the licensed territory, to manufacture the product itself or arrange for a third party to manufacture the product.

The term of the Kyowa Hakko Kirin agreement generally ends on a country-by-country basis upon the later of (1) the expiration of our last-to-expire patent covering a licensed product and (2) the tenth anniversary of the first commercial sale in the country of sale. We estimate that our principal patents covered under the Kyowa Hakko Kirin agreement will expire both in and outside the United States generally between 2016 and 2025. These patent rights are subject to any potential patent term extensions and/or supplemental protection certificates extending such term extensions in countries where such extensions may become available. Additional patent filings relating to the collaboration may be made in the future. The Kyowa Hakko Kirin agreement may be terminated by either party in the event the other party fails to cure a material breach under the agreement. In addition, Kyowa Hakko Kirin may terminate the agreement without cause upon 180-days’ prior written notice to us, subject to certain conditions.

Cubist. In January 2009, we entered into a license and collaboration agreement with Cubist to develop and commercialize therapeutic products based on certain of our RNAi technology for the treatment of RSV. Licensed products initially included ALN-RSV01, as well as several other second-generation RNAi-based RSV inhibitors. In November 2009, we and Cubist entered into an amendment to our license and collaboration agreement, which provides that we and Cubist will focus our collaboration and joint development efforts on ALN-RSV02, a second-generation compound, intended for use in pediatric patients. Consistent with the original license and collaboration agreement, we and Cubist each bears one-half of the related development costs for ALN-RSV02. Pursuant to the terms of the amendment, we are also continuing to develop ALN-RSV01 for adult transplant patients at our sole discretion and expense. Cubist has the right to resume the collaboration on ALN-RSV01 in the future, which right may be exercised for a specified period of time following the completion of our Phase IIb trial of ALN-RSV01 in adult lung transplant patients infected with RSV, subject to the payment by Cubist of an opt-in fee representing reimbursement of an agreed upon percentage of certain of our development expenses for ALN-RSV01.

Under the terms of the Cubist agreement, we and Cubist share responsibility for developing licensed products in North America and each bears one-half of the related development costs, subject to the terms of the November 2009 amendment. Our collaboration with Cubist for the development of licensed products in North America is governed by a joint steering committee comprised of an equal number of representatives from each party. Cubist will have 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 us and Cubist. Throughout the rest of the

world, referred to as the Royalty Territory, excluding Asia, where we have previously partnered our ALN-RSV program with Kyowa Hakko Kirin, Cubist has an exclusive, royalty-bearing license to develop and commercialize licensed products.

In consideration for the rights granted to Cubist under the agreement, in January 2009, Cubist paid us an upfront cash payment of $20.0 million. Cubist also has an obligation under the agreement to pay us milestone payments, totaling up to an aggregate of $82.5 million, upon the achievement of specified development and sales events in the Royalty Territory. In addition, if licensed products are successfully developed, Cubist will be required to pay us double digit royalties on net sales of licensed products in the Royalty Territory, if any, subject to offsets under certain circumstances. Upon achievement of certain development milestones, we will have the right to convert the North American co-development and profit sharing arrangement into a royalty-bearing license and, in addition to royalties on net sales in North America, will be entitled to receive additional milestone payments totaling up to an aggregate of $130.0 million upon achievement of specified development and sales events in North America, subject to the timing of the conversion by us and the regulatory status of a licensed product at the time of conversion. If we make the conversion to a royalty-bearing license with respect to North America, then North America becomes part of the Royalty Territory. 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 Cubist.

Unless terminated earlier in accordance with the agreement, the agreement expires on a country-by-country and licensed product-by-licensed product basis, (a) with respect to the Royalty Territory, upon the latest to occur of (1) the expiration of the last-to-expire Alnylam patent covering a licensed product, (2) the expiration of the Regulatory-Based Exclusivity Period (as defined in the Cubist agreement) and (3) ten years from first commercial sale in such country of such licensed product by Cubist or its affiliates or sublicensees, and (b) with respect to North America, if we have not converted North America into the Royalty Territory, upon the termination of the agreement by Cubist upon specified prior written notice. We estimate that our fundamental RNAi patents covered under the Cubist agreement will expire both in and outside of the United States generally between 2016 and 2025. Certain claims covering ALN-RSV compounds in the United States would expire in 2026. These patent rights are subject to any potential patent term extensions and/or supplemental protection certificates extending such term extensions in countries where such extensions may become available. In addition, more patent filings relating to the collaboration may be made in the future. Cubist has the right to terminate the agreement at any time (1) upon three months’ prior written notice if such notice is given prior to the acceptance for filing of the first application for regulatory approval of a licensed product or (2) upon nine months prior written notice if such notice is given after the acceptance for filing of the first application for regulatory approval. Either party may terminate the agreement in the event the other party fails to cure a material breach or upon patent-related challenges by the other party.

During the term of the Cubist agreement, neither party nor its affiliates may develop, manufacture or commercialize anywhere in the world, outside of Asia, a therapeutic or prophylactic product that specifically targets RSV, except for licensed products developed, manufactured or commercialized pursuant to the agreement.

microRNAi-based 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-based therapeutics as well as certain patents in the microRNA field. In addition, we made an initial cash contribution to Regulus of $10.0 million, resulting in us and Isis making initial capital contributions to Regulus of approximately equal aggregate value. In March 2009, we and Isis each purchased $10.0 million of Series A preferred stock of Regulus. We and Isis currently own approximately 49% and 51%, respectively, of Regulus and there are currently no other third party investors in Regulus. Regulus continues to operate 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 are not eligible to receive options to purchase Regulus common stock.

Regulus is exploring therapeutic opportunities that arise from alterations in microRNA expression. Since microRNAs are believed to regulate the expression of broad networks of genes and biological pathways, microRNA-based therapeutics define a new and potentially high-impact strategy to target multiple points on disease pathways. Conventional messenger RNAs are genetically encoded and in turn instruct the creation of proteins through the process of translation. However, these small microRNAs do not instruct creation of proteins but instead regulate the expression of other genes. There are approximately 700 microRNAs that have been identified in the human genome, and these are believed to regulate the expression of up to 30% of all human genes. Since microRNAs may act as master regulators for physiological pathways or genetic networks to achieve integrated biological functions, affecting the expression of multiple genes in the pathway of disease, microRNAs potentially represent an exciting new platform for drug discovery and development.

To date, microRNAs have been implicated in several disease areas such as cancer, viral infection, inflammatory diseases and metabolic disorders. Regulus’ most advanced program, which is in pre-clinical research, is a microRNA-based therapeutic candidate that targets miR-122. miR-122 is a liver-expressed microRNA that has been shown to be a critical endogenous host factor for the replication of HCV, and anti-miRs targeting miR-122 have been shown to block HCV infection. HCV infection is a significant disease worldwide, for which emerging therapies target viral genes and, therefore, are prone to viral resistance. Regulus is also pursuing a program that targets miR-21. Pre-clinical studies by Regulus and collaborators have shown that miR-21 is implicated in several therapeutic areas, including heart failure and fibrosis. In addition to these programs, Regulus is also actively exploring additional areas for development of microRNA-based therapeutics, including cancer, other viral diseases, metabolic disorders and inflammatory diseases.

In April 2008, Regulus entered into a worldwide strategic alliance with GSK to discover, develop and market novel microRNA-targeted therapeutics to treat inflammatory diseases such as rheumatoid arthritis and inflammatory bowel disease. In connection with this alliance, Regulus received $20.0 million in upfront payments from GSK, including a $15.0 million option fee and a loan of $5.0 million evidenced by a promissory note (guaranteed by Isis and us) that will convert into Regulus common stock under certain specified circumstances. Regulus could be eligible to receive development, regulatory and sales milestone payments for each of the four microRNA-targeted therapeutics discovered and developed as part of the alliance, and would also receive royalty payments on worldwide sales of products resulting from the alliance, if any. In May 2009, Regulus achieved the first demonstration of a pharmacological effect in immune cells by specific microRNA inhibition, the initial discovery milestone under the GSK alliance, which triggered a payment under the agreement.

In February 2010, Regulus and GSK established a new collaboration to develop and commercialize microRNA-based therapeutics targeting miR-122 in all fields, with HCV infection as the lead indication. This new collaboration includes the potential for Regulus to earn more than $150.0 million in upfront and milestone payments, in addition to royalties, on worldwide sales of products, if any, as Regulus and GSK advance microRNA-based therapeutics targeting miR-122.

We, Isis and Regulus have also entered into a license and collaboration agreement to pursue the discovery, development and commercialization of therapeutic products directed to microRNAs. Under the terms of the license and collaboration agreement, we and Isis assigned to Regulus specified patents and contracts covering microRNA-specific technology. In addition, each of us granted to Regulus an exclusive, worldwide license under our rights to other microRNA-related patents and know-how to develop and commercialize therapeutic products containing compounds that are designed to interfere with or inhibit a particular microRNA, subject to our and Isis’ existing contractual obligations to third parties. Regulus also has the right to request a license from us and Isis to develop and commercialize therapeutic products directed to other microRNA compounds, which license is subject to our and Isis’ approval and to each such party’s existing contractual obligations to third parties. Regulus granted to us and Isis an exclusive license to technology developed or acquired by Regulus for use solely within our respective fields (as defined in the license and collaboration agreement), but specifically excluding the right to develop, manufacture or commercialize the therapeutic products for which we and Isis granted rights to Regulus.

After a sufficient portfolio of data is obtained with respect to each microRNA therapeutic candidate developed by Regulus, Regulus may elect to continue to pursue the development and commercialization of products directed to such microRNA compound and related microRNA compounds, in which event Regulus would be obligated to pay us and Isis a royalty on net sales of any such resulting products. If Regulus decides not to continue to pursue the development and commercialization of products directed to particular microRNA compounds, either we or Isis may pursue development and commercialization of such Regulus products. Development and commercialization of such products by either party would be subject to the payment to Regulus of a specified upfront fee, milestone payments upon achievement of specified regulatory events, royalties on net sales and a portion of income received from sublicensing rights.

In addition, we are also a party to a services agreement with Isis and Regulus. Under the terms of the services agreement, we and Isis provide to Regulus certain research and development and general and administrative services, as set forth in an operating plan mutually agreed upon by us and Isis. Pursuant to this agreement, we and Isis are paid by Regulus for these services.

Alnylam Biotherapeutics

During 2009, we presented new data regarding the application of RNAi technology to improve the manufacturing processes for biologics, which is comprised of recombinant proteins, monoclonal antibodies and vaccines. This initiative, which we are advancing in an internal effort referred to as Alnylam Biotherapeutics, has 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 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 transfection of siRNAs into CHO cells when grown in suspension culture. Studies have demonstrated that silencing certain target genes involved in certain CHO cell apoptotic and metabolic pathways resulted in 40% to 60% improved cell viability as compared with untreated cells. As Alnylam Biotherapeutics advances the technology, it plans to seek partnerships with established biologic manufacturers, selling licenses, products and services.

Other RNAi Areas of Opportunity

We continue to seek additional opportunities to form new ventures in areas outside our core strategic interest. During 2008, we further expanded our technology platform with the acquisition of RNA activation, or RNAa, technology. As part of our overall strategy to be the leader in the field of RNA therapeutics, including RNAi and microRNA-based therapeutics, we consolidated key intellectual property in the emerging biological field of RNAa. RNAa technology has the potential to activate gene expression, which may have multiple potential therapeutic applications, including the treatment of certain genetic diseases and cancer. We have entered into exclusive license agreements with UTSW, the University of California San Francisco and the Salk Institute for Biological Studies. RNAa technology represents a potential new product platform in our efforts to advance innovative medicines to patients.

We are also evaluating various other opportunities in the areas of stem cell research, genomics, vaccines and other non-coding RNAs. Given the broad applications for RNAi technology, we believe additional opportunities exist for new ventures.

Licenses

To further enable the field and monetize our intellectual property rights, we have established our InterfeRx program and our research reagents and services licensing program.

InterfeRx Program. Our InterfeRx program consists of the licensing of our intellectual property to others for the development and commercialization of RNAi therapeutic products relating to specific targets outside our direct strategic focus. We expect to receive license fees, annual maintenance fees, milestone payments and royalties on sales of any resulting RNAi therapeutic products. Generally, we do not expect to collaborate with our InterfeRx licensees in the development of RNAi therapeutic products, but may do so in certain circumstances. To date, we

have granted InterfeRx licenses to a number of companies, including GeneCare Research Institute Co., Ltd., or GeneCare, Quark Biotech, Inc., or Quark, Calando Pharmaceuticals, Inc., or Calando, and Tekmira. In general, these licenses allow the licensees to discover, develop and commercialize RNAi therapeutics for a limited number of targets in return for upfront, milestone, license maintenance and/or royalty payments to us. In some cases, we also retained a right to negotiate the ability to co-promote and/or co-commercialize the licensed product, and in one case, we included the rights to discover, develop and commercialize RNAi therapeutics utilizing expressed RNAi (i.e., RNAi mediated by siRNAs generated from DNA constructs introduced into cells). In addition, Benitec Ltd., or Benitec, has an option to take an InterfeRx license, subject to certain conditions. We have granted InterfeRx licenses or options relating to approximately 20 gene targets and, as of January 31, 2010, only eight targets have been selected by InterfeRx partners.

Research Reagents and Services. We have granted approximately 15 licenses to our intellectual property for the development and commercialization of research reagents and services, and intend to enter into additional licenses on an ongoing basis. Our target licensees are vendors that provide siRNAs and related products and services for use in biological research. We offer these licenses in return for an initial license fee, annual renewal fees and royalties from sales of siRNA research reagents and services. No single research reagent or research services license is material to our business.

Delivery Initiatives

In May 2007, we entered into an agreement with the David H. Koch Institute for Integrative Cancer Research at MIT, under which we are sponsoring an exclusive five-year research program focused on the delivery of RNAi therapeutics. In December 2009, we and MIT announced the publication of new data in the journal PNAS describing further advancements in the discovery and development of LNPs based on novel “lipidoid” formulations for the systemic delivery of RNAi therapeutics. Lipidoids are lipid-like materials discovered for the delivery of RNAi therapeutics, and were originally described by us and our collaborators at MIT. In particular, the new research findings demonstrated the discovery, using a combinatorial chemistry-based approach, of new lipidoid materials that facilitate significantly improved in vivo potency for RNAi therapeutics. In in vivo studies, second generation LNPs employing novel lipidoids showed gene silencing of the clinically relevant gene, TTR, at doses as low as 0.03 mg/kg in non-human primates. Lipidoid formulations represent one of several approaches we are pursuing for systemic delivery of RNAi therapeutics.

In addition, during 2007, we obtained an exclusive worldwide license to the liposomal delivery formulation technology of Tekmira for the discovery, development and commercialization of LNP formulations for the delivery of RNAi therapeutics, and a non-exclusive worldwide license to certain liposomal delivery formulation technology of Protiva Biotherapeutics Inc., or Protiva, for the discovery, development and commercialization of certain LNP formulations for the delivery of RNAi therapeutics. In May 2008, Tekmira acquired Protiva. In connection with this acquisition, we entered into new agreements with Tekmira and Protiva, which provide us access to key existing and future technology and intellectual property for the systemic delivery of RNAi therapeutics with liposomal delivery technologies. Under these agreements, we continue to have exclusive rights to the Semple (U.S. Patent No. 6,858,225) and Wheeler (U.S. Patent Nos. 5,976,567 and 6,815,432) patents for RNAi, which we believe are critical for the use of LNP delivery technology. In July 2009, we and Tekmira agreed to jointly participate in a new research collaboration with scientists at UBC and AlCana focused on the discovery of novel lipids for use in LNPs for the systemic delivery of RNAi therapeutics. We are funding the collaborative research over a two-year period, and the work is being conducted by our scientists together with scientists at UBC and AlCana. We will receive exclusive rights to all new inventions as well as sole rights to sublicense any resulting intellectual property to our current and future collaborators. Tekmira will receive rights to use new inventions for their own RNAi therapeutic programs that are licensed under our InterfeRx program.

In January 2010, we announced the publication of new data in the journal Nature Biotechnology from our collaboration with Tekmira and scientists at UBC and AlCana. This new study employed a rational design approach for the discovery of novel lipids that can be incorporated into LNPs for systemic delivery of RNAi therapeutics. This research complements the combinatorial chemistry-based approach described above under our MIT collaboration and demonstrates the advantages of using multiple parallel approaches for optimizing LNPs. We have discovered novel lipids based on a medicinal chemistry effort exploring the structure-activity relationships in a lipid which has been used in certain first generation LNPs such as Tekmira’s SNALP formulations. In vivo data with these new LNPs showed that gene silencing in rodents was achieved following a single injection at doses as low as 0.01 mg/kg and that potent and selective silencing of the clinically relevant gene, TTR, was achieved at doses as low as 0.1 mg/kg in non-human primates. We expect that the significantly improved potency of these second generation LNPs will yield important advantages for advancement of RNAi therapeutics including potentially lowered material requirements, improved therapeutic index and expanded scope of delivery beyond the liver. Alnylam has exclusive rights to the novel lipids described in this work and sole rights to sublicense related intellectual property to its current and future collaborators. Tekmira has rights to use these new inventions for their own RNAi therapeutic programs that are licensed under our InterfeRx program.

As noted above, we are developing ALN-VSP, a systemically delivered RNAi therapeutic candidate, for the treatment of primary and secondary liver cancer. ALN-VSP contains two siRNAs formulated using the first generation LNP formulation known as SNALP, developed in collaboration with Tekmira. We also have rights to use SNALP technology in the advancement of our other systemically delivered RNAi therapeutic programs, and are advancing ALN-TTR01, for the treatment of ATTR, utilizing a first generation SNALP formulation. In parallel with ALN-TTR01, we are advancing ALN-TTR02 utilizing second-generation LNPs. In addition, we have published pre-clinical results from development programs for other systemically delivered RNAi therapeutic candidates, including ALN-PCS, for the treatment of hypercholesterolemia, which we recently identified as our next clinical candidate. ALN-PCS is being advanced using second-generation LNPs for systemic delivery.

In addition to the advances described above, in January 2010, we reported the discovery of a key mechanism related to the systemic delivery of RNAi therapeutics using LNPs. This pre-clinical research was performed in collaboration with scientists at the Max Planck Institute of Molecular Cell Biology and Genetics. The new data document a key mechanism for endogenous targeting of certain LNPs to the liver, provide alternative targeting strategies for the delivery of RNAi therapeutics to the liver, and highlight potential targeting approaches for delivery to non-liver tissues and cell types. Specifically, these in vitro and in vivo research findings establish the role of ApoE as an endogenous targeting ligand for neutrally charged ionizable LNPs, or iLNPs, but not certain cationic LNPs, or cLNPs, and demonstrate an alternative targeting strategy for the delivery of RNAi therapeutics to the liver using the carbohydrate N-acetylgalactosamine, or GalNAc, as an exogenous ligand.

We are pursuing additional approaches for delivery that include other LNP formulations, mimetic lipoprotein particles, or MLPs, siRNA conjugation strategies and ssRNAi, among others. In addition, we have other RNAi therapeutic delivery collaborations and intend to continue to collaborate with government, academic and corporate third parties to evaluate and gain access to different delivery technologies.

Government Funding

NIH. In September 2006, the NIAID, a component of NIH, awarded us a contract for up to $23.0 million over four years to advance the development of a broad spectrum RNAi anti-viral therapeutic for hemorrhagic fever virus, including the Ebola virus. As a result of the continued progress of this program, the NIAID appropriated the entire $23.0 million over the four-year term of the contract, which will be completed in September 2010.

Department of Defense. In August 2007, DTRA awarded us a contract to advance the development of a broad spectrum RNAi anti-viral therapeutic for hemorrhagic fever virus. The government initially committed to pay us up to $10.9 million through February 2009, which included a six-month extension granted by DTRA in July 2008. Following a program review in early 2009, we and DTRA determined not to continue this program and accordingly, the remaining funds of up to $27.7 million were not accessed.

Patents and Proprietary Rights

We have devoted considerable effort and resources to establish what we believe to be a strong intellectual property position relevant to RNAi therapeutic products and delivery technologies. In this regard, we have amassed 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 estate 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, or EU, and Japan. 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.

Intellectual Property Related to Fundamental Aspects and Uses of siRNA and RNAi-related Mechanisms

In this category, we include United States and foreign patents and patent applications that claim key aspects of siRNA architecture and RNAi-related mechanisms. Specifically included are patents and patent applications covering targeted cleavage of mRNA directed by RNA-like oligonucleotides, dsRNAs of particular lengths and particular structural features, such as blunt and/or overhanging ends. Our strategy has been to secure exclusive rights where possible and appropriate to key patents and patent applications that we believe cover fundamental aspects of RNAi. The following table lists patents and/or patent applications to which we have secured rights that we regard as being fundamental for the use of siRNAs as therapeutics.

Patent

First

Licensor/Owner

Subject Matter

Priority Date

Inventors

Status

Expiration Date*

Alnylam Rights

Isis

Inactivation of target mRNA

6/6/1996 and 6/6/1997

S. Crooke

U.S. 5,898,031, U.S. 6,107,094,
U.S. 7,432,250 & USSN 10/078,949 (allowed)
EP 0928290

Additional applications pending in the U.S. and several foreign jurisdictions

06/06/2016

06/06/2017

Exclusive rights for therapeutic purposes related to siRNAs**

Carnegie Institution of Washington

Double-stranded RNAs to induce RNAi

12/23/1997

A. Fire,
C. Mello

U.S. 6,506,559, U.S.
7,560,438 & U.S. 7,538,095

Additional applications
pending in the U.S.
and several foreign jurisdictions

12/18/2018

Non-exclusive rights for therapeutic purposes

Medical
College of Georgia Research Institute, Inc.

Methods for inhibiting gene expression using double-stranded RNA

1/28/1999

Y. Li,
M. Farrell, M. Kirby

AU 776150 (Australia)

Additional applications pending in the U.S., Europe
and Canada

1/28/2020

Exclusive rights

Patent

First

Licensor/Owner

Subject Matter

Priority Date

Inventors

Status

Expiration Date*

Alnylam Rights

Alnylam

Small double- stranded RNAs as therapeutic products

1/30/1999

R. Kreutzer,
S. Limmer

EP 1214945 (revoked/under appeal), EP 1550719 (granted/opposed), EP 1352061 (maintained/under appeal) & EP App. No. 02702247.4 (Intent to Grant), CA 2359180 (Canada), AU 778474 (Australia), ZA 2001/5909 (South Africa), DE 20023125 U1, DE 10066235 & DE 10080167 (Germany)
Additional applications pending in the U.S. and several foreign jurisdictions

01/29/2020

Owned

Alnylam

Composition and methods for inhibiting a target nucleic acid with double-stranded RNA

4/21/1999

C. Pachuk,
C. Satishchandran

AU 781598 (Australia)
Additional applications pending in the U.S. and several foreign jurisdictions

4/19/2020

Owned

Cancer
Research Technology Limited

RNAi uses in mammalian oocytes, preimplantation embryos and somatic cells

11/19/1999

M. Zernicka-Goetz,
M.J. Evans,
D.M. Glover

EP 1230375 (revoked/under appeal), SG 89569 (Singapore), AU 774285 (Australia)
Additional applications pending in the U.S. and several foreign jurisdictions

11/17/2020

Exclusive rights for therapeutic purposes

Massachusetts Institute of Technology, Whitehead Institute, Max Planck Gesellschaft***

Mediation of RNAi by small RNAs 21-23 base pairs long

3/30/2000

D.P. Bartel,
P.A. Sharp,
T. Tuschl, P.D. Zamore

EP 1309726, AU 2001249622 (Australia)
Additional applications pending in the U.S. and several foreign jurisdictions

03/30/2020

Non-exclusive rights for therapeutic purposes***

Max Planck Gesellschaft

Synthetic and chemically modified siRNAs as therapeutic products

12/01/2000, 04/24/2004 and 04/27/2004

T. Tuschl,
S. Elbashir,
W. Lendeckel

U.S. 7,056,704 & U.S. 7,078,196, EP 1407044, AU 2002235744 (Australia), ZA 2003/3929 (South Africa), SG 96891 (Singapore), NZ 52588 (New Zealand), JP 4 095 895 (Japan), RU 2322500 (Russia), CN 1568373 (China)
Additional applications pending in the U.S. and several foreign jurisdictions

11/29/2021

Exclusive
rights for therapeutic purposes

Alnylam

Methods for inhibiting a target nucleic acid via the introduction of a vector encoding a double-stranded RNA

1/31/2001

T. Giordano,
C. Pachuk,
C. Satishchandran

AU 785395 (Australia)
Additional applications pending in the U.S., Australia and Canada

1/31/2021

Owned

Cold Spring Harbor Laboratory

RNAi uses in mammalian cells

3/16/2001

D. Beach, G. Hannon

Pending in the U.S. and several foreign jurisdictions

Non-exclusive rights for therapeutic purposes

Stanford University

RNAi uses in vivo in mammalian liver

7/23/2001

M.A. Kay,
A.P. McCaffrey

AU 2002326410 (Australia)
Additional applications pending in the U.S. and several foreign jurisdictions

7/23/2021

Exclusive rights for therapeutic purposes


*		For applications filed after June 7, 1995, the patent term generally is 20 years from the earliest application filing date. However, under the Drug Price Competition and Patent Term Extension Act of 1984, known as the Hatch-Waxman Act, we may be able to apply for patent term extensions for our U.S. patents. We cannot predict whether or not any patent term extensions will be granted or the length of any patent term extension that might be granted.


**		We hold co-exclusive therapeutic rights with Isis. However, Isis has agreed not to license such rights to any third party, except in the context of a collaboration in which Isis plays an active role.

***		We hold exclusive rights to the interest owned by three co-owners. A separate entity, UMass, has licensed its purported interest separately to third parties.

We believe that we have a strong portfolio of broad rights to fundamental RNAi patents and patent applications. Many of these rights are exclusive, which we believe prevents potential competitors from commercializing products in the field of RNAi without taking a license from us. In securing these rights, we have focused on obtaining the strongest rights for those intellectual property assets we believe will be most important in providing competitive advantage with respect to RNAi therapeutic products.

We believe that the Crooke patent series, issued in several countries around the world, covers the use of all modified oligonucleotides to achieve enzyme-mediated cleavage of a target mRNA and, as such, has broad issued claims that cover RNAi. We have obtained rights to the Crooke patents through a license agreement with Isis. Under the terms of our amended and restated Isis agreement, Isis agreed not to grant licenses under these patents to any other organization for oligonucleotide products designed to work through an RNAi mechanism, except in the context of a collaboration in which Isis plays an active role.

Through our acquisition of Ribopharma AG, now known as Alnylam Europe, we own the entire Kreutzer-Limmer patent portfolio, which includes pending applications in the United States and many countries worldwide. The first patent to issue in the Kreutzer-Limmer series (EP 1144623) was granted in Europe in 2002, and specifically covered the use of small dsRNAs as therapeutics. This patent was revoked in appeal. The second European Kreutzer-Limmer patent (EP 1214945) to issue in the series was granted in Europe in 2005. This patent covers dsRNA structures of 15 to 49 successive nucleotide pairs in length. In January 2009, the European Patent Office, or EPO, ruled in favor of the opposing parties in an opposition proceeding related to the second Kreutzer-Limmer patent. We have appealed this ruling. In December 2008, the EPO granted a third patent in the Kreutzer-Limmer series (EP 1550719). This patent covers therapeutic dsRNAs which are 15 to 21 consecutive nucleotide pairs in length. The third Kreutzer-Limmer patent has been opposed. In July 2009, the EPO issued a Notice of Intent to Grant for a fourth patent in the Kreutzer-Limmer series (EP App. No. 02702247.4). This patent covers methods and medicaments having dsRNAs that are less than 25 nucleotides in length having a 3’ nucleotide overhang on the antisense strand which inhibit anti-apoptotic genes in tumor cells. We have also received grants for patents in the Kreutzer-Limmer series in several other countries, as reflected in the table above. The decision with respect to EP 1144623 and the outcome of the EP 1214945 opposition will only affect the granted or pending claims of other members of the Kreutzer-Limmer patent series to the extent the same issue arises in the formal examination or post-grant review proceedings of the other members of the series. We do not expect this to occur, but in the event it does, the ruling in the former proceeding would be controlling.

The Glover patent series has resulted in several patent grants, including in Europe (EP 1230375). The European Glover patent was revoked in June 2008 during opposition proceedings and our appeal of this decision is pending. Broad claims from this patent cover dsRNAs of any length or structure as mediators of RNAi in mammalian systems. We have an exclusive license to the Glover patent for therapeutic uses from Cancer Research Technology Limited.

The Tuschl patent applications filed by Whitehead, MIT, UMass and Max-Planck-Gesellschaft zur Forderung der Wissenschaften E.V. on the invention by Dr. Tuschl and his colleagues, which we call the Tuschl I patent series, cover compositions and methods important for RNAi discovery. While none of the applications in this family have been granted in the United States, the EPO recently granted patent EP 1309726. This patent consists of 19 claims broadly covering in vitro RNAi methods, including methods of reducing the expression of a gene, including those of mammalian or viral origin, with dsRNAs between 21 and 23 nucleotides in length. In addition, the patent also includes claims covering methods of examining the function of a gene, as well as the use of both unmodified and chemically modified dsRNAs. The Tuschl I series has also been granted in New Zealand (Patent 522045) and recently allowed in Korea. We are the exclusive licensee of the ownership interests of the Max Planck Society, MIT and Whitehead in the Tuschl I patent series for RNAi therapeutics.

The Tuschl patent applications filed by Max Planck Gesellschaft zur Förderung der Wissenschaften e.V. on the invention by Dr. Tuschl and his colleagues, which we call the Tuschl II patent series, cover what we believe are key

structural features of siRNAs. Specifically, the Tuschl II patents and patent applications include claims directed to synthetic siRNAs and the use of chemical modifications to stabilize siRNAs. In June 2006, the United States Patent and Trademark Office, or USPTO, issued U.S. Patent No. 7,056,704 and in July 2006 the USPTO issued U.S. Patent No. 7,078,196, each covering methods of making dsRNAs having a 3’ overhang structure. In September 2007, the EPO granted broad claims for the Tuschl II patent in Europe (EP 1407044). Five parties have filed Notices of Opposition in the EPO against EP 1407044. The Japanese Patent Office has granted the Tuschl II patent in Japan (JP 4 095 895) and the Chinese Patent Office has granted the Tuschl II patent in China (CN 1568373). We have also received grants for patents in the Tuschl II series in several other countries, as reflected in the table above. We have obtained an exclusive license to claims in the Tuschl II patent series uniquely covering the use of RNAi for therapeutic purposes.

The Fire and Mello patent owned by the Carnegie Institution covers the use of dsRNAs to induce RNAi. The Carnegie Institution has made this patent broadly available for licensing and we, like many companies, have taken a non-exclusive license to the patent for therapeutic purposes. We believe, however, that the claims of the Fire and Mello patent do not cover the structural features of dsRNAs that are important for the biological activity of siRNAs in mammalian cells. We believe that these specific features are the subjects of the Crooke, Kreutzer-Limmer, Glover and Tuschl II patents and patent applications for which we have secured exclusive rights.

The other pending patent applications listed in the table above either provide further coverage for structural features of siRNAs or relate to the use of siRNAs in mammalian cells. For some of these, we have exclusive rights, and for others, we have non-exclusive rights. In addition, in December 2008, we acquired the intellectual property assets of Nucleonics, Inc., a privately held biotechnology company. This acquisition included over 100 active patent filings, including 15 patents that have been granted worldwide, of which five have been granted in the United States and Europe. With this acquisition, we obtained patents and patent applications with early priority dates, notably the “Li & Kirby,” “Pachuk I” and “Giordano” patent families, that cover broad structural features of RNAi therapeutics, thus extending the breadth of our fundamental intellectual property.

Intellectual Property Related to Chemical Modifications

Our amended and restated collaboration and license agreement with Isis provides us with rights to practice the inventions covered by over 200 issued patents worldwide, as well as rights based on future chemistry patent applications through April 2014. These patents will expire both in and outside the United States generally between 2009 and 2029, subject to any potential patent term extensions and/or supplemental protection certificates extending such term extensions in countries where such extensions may become available. These inventions cover chemical modifications we may wish to incorporate into our RNAi therapeutic products. Under the terms of our amended and restated license agreement, Isis agreed not to grant licenses under these patents to any other organization for dsRNA products designed to work through an RNAi mechanism, except in the context of a collaboration in which Isis plays an active role.

In addition to licensing these intellectual property rights from Isis, we are also working to develop our own proprietary chemical modifications that may be incorporated into siRNAs to endow them with drug-like properties. We have filed a large number of patent applications relating to these novel and proprietary chemical modifications.

With the combination of the technology we have licensed from Isis, U.S. Patent No. 7,078,196, a patent in the Tuschl II patent series, and our own patent application filings, we possess issued claims that cover methods of making siRNAs that incorporate any of various chemical modifications, including the use of phosphorothioates, 2’-O-methyl, and/or 2’-fluoro modifications. These modifications are believed to be important for achieving “drug-like” properties for RNAi therapeutics. We hold exclusive worldwide rights to these claims for RNAi therapeutics.

Intellectual Property Related to siRNAs Directed to Specific Targets

We have filed a number of patent applications claiming specific siRNAs directed to various gene targets that correlate to specific diseases. While there may be a significant number of competing applications filed by other organizations claiming siRNAs to treat the same gene target, we were among the first companies to focus and file on RNAi therapeutics, and thus, we believe that a number of our patent applications may predate competing applications that others may have filed. Reflecting this, in August 2005, the EPO granted a broad patent,

which we call the Kreutzer-Limmer II patent, with 103 allowed claims on therapeutic compositions, methods and uses comprising siRNAs that are complementary to mRNA sequences in over 125 disease target genes. In July 2009, the EPO ruled in our favor in an opposition proceeding related to the Kreutzer-Limmer II patent. The decision has been appealed by the opponents. The Kreutzer-Limmer II patent will expire on January 9, 2022, subject to any potential patent term extensions and/or supplemental protection certificates extending such term extensions in countries where such extensions may become available. Some of these claimed gene targets are being pursued by our development and pre-clinical programs, such as those expressed by viral pathogens including RSV and influenza virus. In addition, the claimed targets include oncogenes, cytokines, cell adhesion receptors, angiogenesis targets, apoptosis and cell cycle targets, and additional viral disease targets, such as hepatitis C virus and HIV. The Kreutzer-Limmer II patent series is pending in the United States and many foreign countries. Moreover, a patent in the Tuschl II patent series, U.S. Patent No. 7,078,196, claims methods of preparing siRNAs that mediate cleavage of an mRNA in mammalian cells and, therefore, covers methods of making siRNAs directed toward any and all target genes. We hold exclusive worldwide rights to these claims for RNAi therapeutics.

With respect to specific siRNAs, we believe that patent coverage will result from demonstrating that particular compositions exert suitable biological and therapeutic effects. Accordingly, we are focused on achieving such demonstrations for siRNAs in key therapeutic programs.

Intellectual Property Related to the Delivery of siRNAs to Cells

We are pursuing internal research and collaborative approaches regarding the delivery of siRNAs to mammalian cells. These approaches include exploring technology that may allow delivery of siRNAs to cells through the use of cationic lipids, cholesterol and carbohydrate conjugation, peptide and antibody-based targeting, and polymer conjugations. Our collaborative efforts include working with academic and corporate third parties to examine specific embodiments of these various approaches to delivery of siRNAs to appropriate cell tissue, and in-licensing of the most promising technology. For example, we have obtained an exclusive license from UBC and Tekmira in the field of RNAi therapeutics to intellectual property covering cationic liposomes and their use to deliver nucleic acid to cells. The issued United States patents and foreign counterparts, including the Semple (U.S. Patent No 6,858,225) and Wheeler (U.S. Patent Nos. 5,976,567 and 6,815,432) patents, cover compositions, methods of making and methods of using cationic liposomes to deliver agents, such as nucleic acid molecules, to cells. These patents will expire both in and outside the United States on October 30, 2017, January 6, 2015 and June 7, 2015, respectively, subject to any potential patent term extensions and/or supplemental protection certificates extending such term extensions in countries where such extensions may become available.

Intellectual Property Related to Our Development Candidates

As our development pipeline matures, we have made and plan to continue to make patent filings that claim all aspects of our development candidates, including dose, method of administration and manufacture.

Patent Pool

In July 2009, we announced that we will contribute more than 1,500 patents or pending patent applications in our RNAi technology patent estate to a patent pool established by GSK in March 2009. We are the first company to add its patents to the approximately 800 patent filings GSK provided to the pool. The patent pool was formed to aid in the discovery and development of new medicines for the treatment of 16 neglected tropical diseases, or NTDs, as defined by the FDA, in the world’s least developed countries. Through our contribution to the patent pool, we are providing RNAi intellectual property, technology and know-how on a royalty-free, non-profit basis worldwide to research, develop and manufacture therapies for use in the least developed countries through licensing agreements with qualified third parties. Such organizations will be engaged in research efforts focused on discovery of new medicines for NTDs. In January 2010, we and GSK announced the appointment of BIO Ventures for Global Health, or BVGH, to administer the patent pool. As the patent pool’s administrator, BVGH will organize disease-specific meetings that identify the gaps in expertise and intellectual property that currently exist in product development for NTDs. BVGH will then help global health researchers work with industry to fill these gaps so that the resources made available by companies will be used to create medicines for NTDs faster and more efficiently.

Intellectual Property Challenges

As the field of RNAi therapeutics is maturing, patent applications are being fully processed by national patent offices around the world. There is uncertainty about which patents will issue, and, if they do, as to when, to whom, and with what claims. It is likely that there will be significant litigation and other proceedings, such as interference, reexamination and opposition proceedings, in various patent offices relating to patent rights in the RNAi field. For example, as noted above, various third parties have initiated oppositions to patents in our Kreutzer-Limmer and Tuschl II series in the EPO, as well as in other jurisdictions. We expect that additional oppositions will be filed in the EPO and elsewhere, and other challenges will be raised relating to other patents and patent applications in our portfolio. In many cases, the possibility of appeal exists for either us or our opponents, and it may be years before final, unappealable rulings are made with respect to these patents in certain jurisdictions. 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 June 2009, we joined with Max-Planck-Gesellschaft Zur Forderung Der Wissenschaften E.V. and Max-Planck-Innovation GmbH, collectively, Max Planck, in taking legal action against Whitehead, MIT and UMass. The complaint, initially filed in Suffolk County Superior Court in Boston, Massachusetts and subsequently removed to the U.S. District Court for the District of Massachusetts, alleges, among other things, that the defendants have improperly prosecuted the Tuschl I patent applications and wrongfully incorporated inventions covered by the Tuschl II patent applications into the Tuschl I patent applications, thereby potentially damaging the value of inventions reflected in the Tuschl I and Tuschl II patent applications. In the field of RNAi therapeutics, we are the exclusive licensee of the Tuschl I patent applications from Max Planck, MIT and Whitehead, and of the Tuschl II patent applications from Max Planck.

The complaint seeks to enjoin the defendants from taking any further action in connection with the prosecution of any Tuschl I application, a declaratory judgment and unspecified monetary damages. In August 2009, the court denied our motion for a preliminary injunction. In addition, in August 2009, Whitehead and UMass filed counterclaims against us and Max Planck, including for breach of contract. A trial on the merits was originally scheduled to begin in February 2010. In January 2010, we and Max Planck filed a motion for leave to file an amended complaint expanding upon the allegations in the original complaint. In January 2010, the court granted this motion allowing our amended complaint and postponed the start of the trial. We currently expect the trial to start in June 2010.

In addition, in September 2009, the USPTO granted Max Planck’s petition to revoke power of attorney in connection with the prosecution of the Tuschl I patent application. This action prevents the defendants from filing any papers with the USPTO in connection with further prosecution of the Tuschl I patent application without the agreement of Max Planck. Whitehead’s petition to overturn the ruling on Max Planck’s petition was denied.

Although we, along with Max Planck, are vigorously asserting our rights in this case, litigation is subject to inherent uncertainty and a court could ultimately rule against us. In addition, litigation is costly and may divert the attention of our management and other resources that would otherwise be engaged in running our business.

Competition

The pharmaceutical marketplace is extremely competitive, with hundreds of companies competing to discover, develop and market new drugs. We face a broad spectrum of current and potential competitors, ranging from very large, global pharmaceutical companies with significant resources, to other biotechnology companies with resources and expertise comparable to our own and to smaller biotechnology companies with fewer resources and expertise than we have. We believe that for most or all of our drug development programs, there will be one or more competing programs under development at other companies. In many cases, the companies with competing programs will have access to greater resources and expertise than we do and may be more advanced in those programs.

The competition we face can be grouped into three broad categories:


	•	other companies working to develop RNAi therapeutic products;

	•	companies developing technology known as antisense, which, like RNAi, attempts to silence the activity of specific genes by targeting the mRNAs copied from them; and

	•	marketed products and development programs for therapeutics that treat the same diseases for which we may also be developing treatments.

We are aware of several other companies that are working to develop RNAi therapeutic products. Some of these companies are seeking, as we are, to develop chemically synthesized siRNAs as drugs. Others are following a gene therapy approach, with the goal of treating patients not with synthetic siRNAs but with synthetic, exogenously-introduced genes designed to produce siRNA-like molecules within cells.

Companies working on chemically synthesized siRNAs include Merck & Co., Inc., or Merck, through its subsidiary Sirna Therapeutics, Inc., or Sirna, Roche, Takeda, Kyowa Hakko Kirin, Pfizer Inc.’s Research Technology Center, MDRNA, Inc., Calando, Quark, Silence Therapeutics plc, RXi Pharmaceuticals Corporation, Tekmira, Sylentis S.A., Dicerna Pharmaceuticals, Inc., Opko Health, Inc., ZaBeCor Pharmaceuticals and Abbott Laboratories. Many of these companies have licensed our intellectual property.

Companies working on gene therapy approaches to RNAi therapeutics include Benitec, Cequent Pharmaceuticals, Inc. and Targeted Genetics Corporation.

Companies working on microRNA-based therapeutics include Rosetta Genomics, Santaris Pharma A/S, miRagen Therapeutics, Inc. and Asuragen, Inc.

Antisense technology uses short, single-stranded, DNA-like molecules to block mRNAs encoding specific proteins. An antisense oligonucleotide, or ASO, contains a sequence of bases complementary to a sequence within its target mRNA, enabling it to attach to the mRNA by base-pairing. The attachment of the ASO may lead to breakdown of the mRNA, or may physically block the mRNA from associating with the protein synthesis machinery of the cell. In either case, production of the protein encoded by the mRNA may be reduced. Typically, the backbone of an ASO, the linkages that hold its constituent bases together, will carry a number of chemical modifications that do not exist in naturally occurring DNA. These modifications are intended to improve the stability and pharmaceutical properties of the ASO.

While we believe that RNAi drugs may potentially have significant advantages over ASOs, including greater potency and specificity, others are developing ASO drugs that are currently at a more advanced stage of development than RNAi drugs. For example, Isis has developed an ASO drug, Vitravene^®, which is currently on the market, and has several ASO product candidates in clinical trials. In addition, a number of other companies have product candidates in various stages of pre-clinical and clinical development. Included in these companies are Genta Incorporated and AVI BioPharma, Inc. Because of their later stage of development, ASOs, rather than siRNAs, may become the preferred technology for drugs that target mRNAs in order to turn off the activity of specific genes.

The competitive landscape continues to expand and we expect that additional companies will initiate programs focused on the development of RNAi therapeutic products using the approaches described above as well as potentially new approaches that may result in the more rapid development of RNAi therapeutics or more effective technologies for RNAi drug development or delivery.

Competing Drugs for RSV

The only product currently approved for the treatment of RSV infection is Ribavirin, which is marketed as Virazole by Valeant. This is approved only for treatment of hospitalized infants and young children with severe lower respiratory tract infections due to RSV. While it is also used to treat RSV infection in lung transplant patients, no randomized controlled trials of Ribavirin have been conducted in the lung transplant patient population. Ribavirin has been reported to have limited efficacy and limited anti-viral activity against RSV. Moreover, administration of the drug is complicated and requires elaborate environmental reclamation devices because of

potential harmful effects on health care personnel exposed to the drug. According to published reports by Valeant, sales of Virazole were $12.3 million in 2008.

Other current RSV therapies consist of primarily treating the symptoms or preventing the viral infection by using the prophylactic drug Synagis (palivizumab), which is marketed by MedImmune. Synagis is a neutralizing monoclonal antibody that prevents the virus from infecting the cell by blocking the RSV F protein. Synagis is injected intramuscularly once a month during the RSV season to prevent infection. According to published reports by MedImmune and AstraZeneca PLC, which acquired MedImmune during 2007, worldwide Synagis sales were approximately $1.1 billion in 2009. MedImmune is also developing motavizumab (formerly known as Numax^®), a humanized monoclonal antibody, which is being evaluated for its potential to prevent serious lower respiratory tract disease caused by RSV in pediatric patients at high risk of contracting RSV disease. MedImmune submitted a biologic license application for motavizumab to the FDA in early 2008 and received a complete response letter from the FDA in November 2008 requesting additional information. MedImmune submitted a response to the FDA in December 2009. MedImmune has also initiated a Phase I/IIa clinical trial of a live, attenuated intranasal vaccine in development to help prevent severe RSV infections and has several ongoing Phase I trials to evaluate a second live, attenuated intranasal vaccine in development to help prevent severe lower respiratory tract disease caused by RSV or parainfluenza virus 3. In addition, Novartis has a small molecule drug, RSV604, licensed from Arrow Therapeutics Ltd, which was last reported as being in Phase II clinical trials. RSV604 is an oral drug that targets the viral N protein.

Competing Drugs for Liver Cancer

There are a variety of surgical procedures, chemotherapeutics, radiation and other approaches that are used in the management of both primary and secondary liver cancer. However, for the majority of patients the prognosis remains poor with fatal outcomes within several months of diagnosis. In November 2007, the FDA approved Sorafenib, also called Nexavar^®, for the treatment of un-resectable liver cancer. Nexavar is the product of Onyx Pharmaceuticals, Inc., developed in collaboration with Bayer Pharmaceuticals Corporation. Worldwide sales of Nexavar were $843.5 million in 2009.

There are also a large number of drugs in various stages of clinical development as cancer therapeutics, although the efficacy and safety of these newer drugs are difficult to ascertain at this point of development.

Competing Drugs for TTR-Mediated Amyloidosis (ATTR)

Currently, liver transplantation is the only available treatment option for FAP. However, only a subset of FAP patients qualify for this costly and invasive procedure and, even following liver transplantation, the disease continues to progress for many patients, presumably due to normal TTR being deposited into preexisting fibrils. Moreover, there is a shortage of donors to provide healthy livers for transplantation into eligible patients. There are no existing disease-modifying treatments to address ATTR.

There are a few drugs in clinical development for the treatment of ATTR. FoldRx Pharmaceuticals, Inc. recently completed a Phase II/III trial of tafamidis for FAP and a Phase II trial of tafamidis for FAC. Tafamidis is a small-molecule compound that is intended to stabilize wild-type and variant TTR, prevent misfolding and inhibit the formation of TTR amyloid fibrils. In the Phase II/III study in patients suffering from FAP, tafamidis was found to halt disease progression, reduce the burden of disease after 18 months compared to placebo, and appeared to be safe and well tolerated. Researchers at Boston University, in collaboration with the National Institute of Neurological Disorders and Stroke, are currently conducting a Phase II/III study of diflunisal for the treatment of FAP. Diflunisal is a commercially available non-steroidal anti-inflammatory agent that has been found to stabilize TTR in vitro.

Competing Drugs for Hypercholesterolemia

The current standard of care for patients with hypercholesterolemia includes the use of several agents. Front line therapy consists of HMG CoA reductase inhibitors, commonly known as statins, which block production of cholesterol by the liver and increase clearance of LDL-c from the bloodstream. These include Lipitor, Zocor, Crestor and Pravachol. A different class of compounds, which includes Zetia and Vytorin, function by blocking cholesterol uptake from the diet and are utilized on their own or in combination with statins. Each of Lipitor, Crestor,

Zetia and Vytorin had sales of greater than $1.0 billion during 2009, according to published reports. With regard to future therapies, mipomersen, formerly ISIS 301012, is a lipid-lowering drug targeting apolipoprotein B-100 being developed by Isis in collaboration with Genzyme Corporation that is currently in Phase III development. Top line data from a Phase III study evaluating mipomersen in patients with homozygous familial hypercholesterolemia demonstrated a 25% reduction in LDL-c after 26 weeks of treatment versus three percent for placebo (p < 0.001). This study also met each of its three secondary endpoints of reduction in apoB, total cholesterol and non-HDL cholesterol (all p < 0.001). A weekly injectable therapeutic, mipomersen is being developed primarily for patients at significant cardiovascular risk who are unable to achieve target cholesterol levels with statins alone or who are intolerant of statins.

Competing Drugs for Huntington’s Disease (HD)

While certain drugs are currently used to treat some of the symptoms of HD, no drug has been approved in the United States for the treatment of the underlying disease. Current pharmacological therapy for HD is limited to the management or alleviation of neurobehavioral or movement abnormalities associated with the disease. No disease modifying, disease slowing or neuroprotective agent is currently approved or used to treat HD, although there are several drugs in development.

Avicena Group Inc.’s HD-02, an ultra-pure creatine, is a candidate for prophylactic use for HD which has shown potential neuroprotective properties in HD patients in Phase II trials. Medivation Inc.’s Dimebon^tm is an orally- available small molecule that is believed to block the mitochondrial permeability transition pore, or MPTP, the glutamate N-methyl D-asparate, or NMDA, receptor and cholinesterase activity. The safety and efficacy of Dimebon is currently being investigated in an international Phase III trial, in collaboration with Pfizer Inc. Results from a Phase II trial completed in early 2008 showed significantly improved cognitive function in patients with mild-to-moderate HD over placebo.

Other Competition

Finally, for many of the diseases that are the subject of our RNAi therapeutics discovery programs, there are already drugs on the market or in development. However, notwithstanding the availability of these drugs or drug candidates, we believe there currently exists sufficient unmet medical need to warrant the advancement of RNAi therapeutic programs.

Regulatory Matters

The research, testing, manufacture and marketing of drug products and their delivery systems are extensively regulated in the United States and the rest of the world. In the United States, drugs are subject to rigorous regulation by the FDA. The Federal Food, Drug, and Cosmetic Act and other federal and state statutes and regulations govern, among other things, the research, development, testing, manufacture, storage, record keeping, packaging, labeling, promotion and advertising, marketing and distribution of pharmaceutical products. Failure to comply with the applicable regulatory requirements may subject a company to a variety of administrative or judicially-imposed sanctions and the inability to obtain or maintain required approvals to test or market drug products. These sanctions could include warning letters, product recalls, product seizures, total or partial suspension of production or distribution, clinical holds, injunctions, fines, civil penalties or criminal prosecution.

The steps ordinarily required before a new pharmaceutical product may be marketed in the United States include non-clinical laboratory tests, animal tests and formulation studies, the submission to the FDA of an IND, which must become effective prior to commencement of clinical testing, adequate and well-controlled clinical trials to establish that the drug product is safe and effective for the indication for which FDA approval is sought, submission to the FDA of a new drug application, or NDA, satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance with current good manufacturing practice, or cGMP, requirements and FDA review and approval of the NDA. Satisfaction of FDA pre-market approval requirements typically takes several years, but may vary substantially depending upon the complexity of the product and the nature of the disease. Government regulation may delay or prevent marketing of potential products for a considerable period of time and impose costly procedures on a company’s activities.

Success in early stage clinical trials does not necessarily assure success in later stage clinical trials. Data obtained from clinical activities, including the data derived from our clinical trials for ALN-RSV01 and ALV-VSP, is not always conclusive and may be subject to alternative interpretations that could delay, limit or even prevent regulatory approval. Even if a product receives regulatory approval, later discovery of previously unknown problems with a product, including new safety risks, may result in restrictions on the product or even complete withdrawal of the product from the market.

Non-clinical tests include laboratory evaluation of product chemistry and formulation, as well as animal testing to assess the potential safety and efficacy of the product. The conduct of the non-clinical tests and formulation of compounds for testing must comply with federal regulations and requirements. The results of non-clinical testing are submitted to the FDA as part of an IND, together with manufacturing information, analytical and stability data, a proposed clinical trial protocol and other information.

A 30-day waiting period after the filing of an IND is required prior to such application becoming effective and the commencement of clinical testing in humans. If the FDA has not commented on, or questioned, the application during this 30-day waiting period, clinical trials may begin. If the FDA has comments or questions, these must be resolved to the satisfaction of the FDA prior to commencement of clinical trials. The IND approval process can result in substantial delay and expense. We, an institutional review board, or IRB, or the FDA may, at any time, suspend, terminate or impose a clinical hold on ongoing clinical trials. If the FDA imposes a clinical hold, clinical trials cannot commence or recommence without FDA authorization and then only under terms authorized by the FDA.

Clinical trials involve the administration of an investigational new drug to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted in compliance with federal regulations and requirements, including good clinical practices, or GCPs, under protocols detailing, among other things, the objectives of the trial and the safety and effectiveness criteria to be evaluated. Each protocol involving testing on human subjects in the United States, or in foreign countries if such tests are intended to support approval in the United States, must be submitted to the FDA as part of the IND. The study protocol and informed consent information for patients in clinical trials must be submitted to IRBs for approval prior to initiation of the trial.

Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, which may overlap or be combined. In Phase I, the initial introduction of the drug into healthy human subjects or patients, the drug is tested to primarily assess safety, tolerability, pharmacokinetics, pharmacological actions and metabolism associated with increasing doses. Phase II usually involves trials in a limited patient population, to assess the optimum dosage, identify possible adverse effects and safety risks, and provide preliminary support for the efficacy of the drug in the indication being studied.

If a compound demonstrates evidence of effectiveness and an acceptable safety profile in Phase II trials, Phase III trials are undertaken to further evaluate clinical efficacy and to further test for safety in an expanded patient population, typically at geographically dispersed clinical trial sites. Phase I, Phase II or Phase III testing of any product candidates may not be completed successfully within any specified time period, if at all. After successful completion of the required clinical testing, generally an NDA is prepared and submitted to the FDA.

We believe that any RNAi product candidate we develop, whether for RSV, liver cancers, ATTR, hypercholesterolemia, HD or the various indications targeted in our pre-clinical discovery programs, will be regulated as a new drug by the FDA. FDA approval of an NDA is required before marketing of the product may begin in the United States. The NDA must include the results of extensive clinical and other testing, as described above, and a compilation of data relating to the product’s pharmacology, chemistry, manufacture and controls. In addition, an NDA for a new active ingredient, new indication, new dosage form, new dosing regimen, or new route of administration must contain data assessing the safety and efficacy for the claimed indication in all relevant pediatric subpopulations, and support dosing and administration for each pediatric subpopulation for which the drug is shown to be safe and effective. In some circumstances, the FDA may grant deferrals for the submission of some or all pediatric data, or full or partial waivers. The cost of preparing and submitting an NDA is substantial. Under federal law, NDAs are subject to substantial application user fees and the sponsor of an approved NDA is also subject to annual product and establishment user fees.

The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency’s threshold determination that the NDA is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA. The review process is often significantly extended by FDA requests for additional information or clarification regarding information already provided in the submission. The FDA may also refer applications for novel drug products or drug products that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee. The FDA normally also will conduct a pre-approval inspection to ensure the manufacturing facility, methods and controls are adequate to preserve the drug’s identity, strength, quality, purity and stability, and are in compliance with regulations governing cGMPs.

If the FDA evaluation of the NDA and the inspection of manufacturing facilities are favorable, the FDA may issue an approval letter, which authorizes commercial marketing of the drug with specific prescribing information for a specific indication. As a condition of NDA approval, the FDA may require post-approval testing, including Phase IV trials, and surveillance to monitor the drug’s safety or efficacy and may impose other conditions, including labeling restrictions, which can materially impact the potential market and profitability of the drug. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.

While we believe that any RNAi therapeutic we develop will be regulated as a new drug under the Federal Food, Drug, and Cosmetic Act, the FDA could decide to regulate certain RNAi therapeutic products as biologics under the Public Health Service Act. Biologics must have a biologics license application, or BLA, approved prior to commercialization. Like NDAs, BLAs are subject to user fees. To obtain BLA approval, an applicant must provide non-clinical and clinical evidence and other information to demonstrate that the biologic product is safe, pure and potent, and like NDAs, must complete clinical trials that are typically conducted in three sequential phases (Phase I, II and III). Additionally, the applicant must demonstrate that the facilities in which the product is manufactured, processed, packaged or held meet standards, including cGMPs and any additional standards in the license designed to ensure its continued safety, purity and potency. Biologics establishments are subject to pre-approval inspections. The review process for BLAs is also time consuming and uncertain, and BLA approval may be conditioned on post-approval testing and surveillance. Once granted, BLA approvals may be suspended or revoked under certain circumstances, such as if the product fails to conform to the standards established in the license.

Once an NDA or BLA is approved, a product will be subject to certain post-approval requirements, including requirements for adverse event reporting, submission of periodic reports, recordkeeping, product sampling and distribution. Additionally, the FDA also strictly regulates the promotional claims that may be made about prescription drug products and biologics. In particular, a drug or biologic may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. In addition, the FDA requires substantiation of any claims of superiority of one product over another, including that such claims be proven by adequate and well-controlled head-to-head clinical trials. To the extent that market acceptance of our products may depend on their superiority over existing therapies, any restriction on our ability to advertise or otherwise promote claims of superiority, or requirements to conduct additional expensive clinical trials to provide proof of such claims, could negatively affect the sales of our products or our costs. We must also notify the FDA of any change in an approved product beyond variations already allowed in the approval. Certain changes to the product, its labeling or its manufacturing require prior FDA approval and may require the conduct of further clinical investigations to support the change. Such approvals may be expensive and time-consuming and, if not approved, the FDA will not allow the product to be marketed as modified.

If the FDA’s evaluation of the NDA or BLA submission or manufacturing facilities is not favorable, the FDA may refuse to approve the NDA or BLA or issue a complete response letter. The complete response letter describes the deficiencies that the FDA has identified in an application and, when possible, recommends actions that the applicant might take to place the application in condition for approval. Such actions may include, among other things, conducting additional safety or efficacy studies after which the sponsor may resubmit the application for further review. Even with the completion of this additional testing or the submission of additional requested

information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. With limited exceptions, the FDA may withhold approval of an NDA or BLA regardless of prior advice it may have provided or commitments it may have made to the sponsor.

Some of our product candidates may need to be administered using specialized drug delivery systems. We may rely on drug delivery systems that are already approved to deliver drugs like ours to similar physiological sites or, in some instances, we may need to modify the design or labeling of the legally available device for delivery of our product candidate. In such an event, the FDA may regulate the product as a combination product or require additional approvals or clearances for the modified device. In addition, to the extent the delivery device is owned by another company, we would need that company’s cooperation to implement the necessary changes to the device and to obtain any additional approvals or clearances. Obtaining such additional approvals or clearances, and cooperation of other companies, when necessary, could significantly delay, and increase the cost of obtaining marketing approval, which could reduce the commercial viability of a product candidate. To the extent that we rely on previously unapproved drug delivery systems, we may be subject to additional testing and approval requirements from the FDA above and beyond those described above.

Once an NDA or BLA is approved, the product covered thereby becomes a listed drug that can, in turn, be cited by potential competitors in support of approval of an abbreviated new drug application, or ANDA, upon expiration of relevant patents, if any. An approved ANDA provides for marketing of a drug product that has the same active ingredients in the same strength, dosage form and route of administration as the listed drug and has been shown through bioequivalence testing to be therapeutically equivalent to the listed drug. There is no requirement, other than the requirement for bioequivalence testing, for an ANDA applicant to conduct or submit results of non-clinical or clinical tests to prove the safety or effectiveness of its drug product. Drugs approved in this way are commonly referred to as generic equivalents to the listed drug, are listed as such by the FDA and can often be substituted by pharmacists under prescriptions written for the original listed drug.

Federal law provides for a period of three years of exclusivity following approval of a listed drug that contains previously approved active ingredients but is approved in a new dosage, dosage form, route of administration or combination, or for a new use, if the FDA deems that the sponsor was required to provide support from new clinical trials to obtain such marketing approval. During such three-year exclusivity period, the FDA cannot grant approval of an ANDA to commercially distribute a generic version of the drug based on that listed drug. However, the FDA can approve generic or other versions of that listed drug, such as a drug that is the same in every way but its indication for use, and thus the value of such exclusivity may be undermined. Federal law also provides a period of up to five years exclusively following approval of a drug containing no previously approved active ingredients, during which ANDAs for generic versions of those drugs cannot be submitted unless the submission accompanies a challenge to a listed patent, in which case the submission may be made four years following the original product approval.

Additionally, in the event that the sponsor of the listed drug has properly informed the FDA of patents covering its listed drug, applicants submitting an ANDA referencing that drug are required to make one of four patent certifications, including certifying that it believes one or more listed patents are invalid or not infringed. If an applicant certifies invalidity or non-infringement, it is required to provide notice of its filing to the NDA sponsor and the patent holder. If the patent holder then initiates a suit for patent infringement against the ANDA sponsor within 45 days of receipt of the notice, the FDA cannot grant effective approval of the ANDA until either 30 months have passed or there has been a court decision holding that the patents in question are invalid, unenforceable or not infringed. If the patent holder does not initiate a suit for patent infringement within the 45 days, the ANDA may be approved immediately upon successful completion of FDA review, unless blocked by a regulatory exclusivity period. If the ANDA applicant certifies that it does not intend to market its generic product before some or all listed patents on the listed drug expire, then the FDA cannot grant effective approval of the ANDA until those patents expire. The first of the ANDA applicants submitting substantially complete applications certifying that one or more listed patents for a particular product are invalid or not infringed may qualify for an exclusivity period of 180 days running from when the generic product is first marketed, during which subsequently submitted ANDAs cannot be granted effective approval. The 180-day generic exclusivity can be forfeited in various ways, including if the first applicant does not market its product within specified statutory timelines. If more than one applicant files a substantially complete ANDA on the same day, each such first applicant will be entitled to share the 180-day

exclusivity period, but there will only be one such period, beginning on the date of first marketing by any of the first applicants.

From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the approval, manufacturing and marketing of drug products. In addition, FDA regulations and guidance are often revised or reinterpreted by the agency in ways that may significantly affect our business and development of our product candidates and any products that we may commercialize. It is impossible to predict whether additional legislative changes will be enacted, or FDA regulations, guidance or interpretations changed, or what the impact of any such changes may be.

Foreign Regulation of New Drug Compounds

In addition to regulations in the United States, we are subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales and distribution of our products.

Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in all or most foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. Certain countries outside of the United States have a similar process that requires the submission of a clinical trial application much like the IND prior to the commencement of human clinical trials. In Europe, for example, a clinical trial application, or CTA, must be submitted to each country’s national health authority and an independent ethics committee, much like the FDA and IRB, respectively. Once the CTA is approved in accordance with a country’s requirements, clinical trial development may proceed. Similarly, all clinical trials in Australia require review and approval of clinical trial proposals by an ethics committee, which provides a combined ethical and scientific review process.

The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, the clinical trials must be conducted in accordance with GCP, which have their origin in the World Medical Association’s Declaration of Helsinki, the applicable regulatory requirements, and guidelines developed by the International Conference on Harmonization, or ICH, for GCP practices in clinical trials.

The approval procedure also varies among countries and can involve requirements for additional testing. The time required may differ from that required for FDA approval and may be longer than that required to obtain FDA approval. Although there are some procedures for unified filings in the EU, in general, each country has its own procedures and requirements, many of which are time consuming and expensive. Thus, there can be substantial delays in obtaining required approvals from foreign regulatory authorities after the relevant applications are filed.

In Europe, marketing authorizations may be submitted under a centralized or decentralized procedure. The centralized procedure is mandatory for the approval of biotechnology and many pharmaceutical products and provides for the grant of a single marketing authorization that is valid in all EU member states. The decentralized procedure is a mutual recognition procedure that is available at the request of the applicant for medicinal products that are not subject to the centralized procedure. We strive to choose the appropriate route of European regulatory filing to accomplish the most rapid regulatory approvals. However, our chosen regulatory strategy may not secure regulatory approvals on a timely basis or at all.

If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

Pharmaceutical Coverage, Pricing and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of any drug products for which we obtain regulatory approval. In the United States and markets in other countries, sales of any products for which we may receive regulatory approval for commercial sale will depend in part on the availability of reimbursement from third party payors. Third party payors include government health administrative authorities, managed care providers, private health insurers and other organizations. The process for determining whether a payor will provide coverage for a drug product may be separate from the process for setting the price or reimbursement rate

that the payor will pay for the drug product. Third party payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA-approved drugs for a particular indication. These third party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. In addition, significant uncertainty exists as to the reimbursement status of newly approved healthcare product candidates. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain FDA approvals. Our product candidates may not be considered medically necessary or cost-effective. A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.

Federal, state and local governments in the United States continue to consider legislation to limit the growth of healthcare costs, including the cost of prescription drugs. Future legislation could limit payments for pharmaceuticals such as the drug candidates that we are developing.

Different pricing and reimbursement schemes exist in other countries. In the European Community, governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate systems under which products may be marketed only after a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost-effectiveness of a particular product candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on health care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country.

The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and third party payors fail to provide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

Hazardous Materials

Our research and development processes involve the controlled use of hazardous materials, chemicals and radioactive materials and produce waste products. We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous materials and waste products. We do not expect the cost of complying with these laws and regulations to be material.

Manufacturing

We have no commercial manufacturing capabilities. We may manufacture drug substance for use in IND-enabling toxicology studies in animals at our own facility, but we have not manufactured any such material to date and we do not anticipate manufacturing the substantial portion of such material or any drug substance or finished product for human clinical use ourselves. We have contracted with several third-party contract manufacturing organizations for the supply of drug substance and finished product to meet our testing needs for pre-clinical toxicology and clinical testing. Commercial quantities of any drugs that we may seek to develop will have to be manufactured in facilities, and by processes, that comply with FDA regulations and other federal, state and local regulations, as well as comparable foreign regulations. We plan to rely on third parties to manufacture commercial quantities of drug substance and finished product for any product candidate that we successfully develop.

Under our agreements with Tekmira, we are obligated to utilize Tekmira for the manufacture of all LNP-formulated product candidates covered by Tekmira’s intellectual property beginning during pre-clinical development and continuing through Phase II clinical trials. During 2009, we and Tekmira entered into a

manufacturing and supply agreement under which we are committed to pay Tekmira a minimum of CAD$11.2 million (representing U.S.$9.2 million at the time of execution) through December 2011 for manufacturing services.

We believe we have sufficient manufacturing capacity through our third-party contract manufacturers to meet our current research and clinical needs. We believe that we have established, or will be able to develop or acquire, sufficient supply capacity to meet our anticipated needs. We also believe that with reasonably anticipated benefits from increases in scale and improvements in chemistry, we will be able to manufacture our product candidates at commercially competitive prices.

Scientific Advisors

We seek advice from our scientific advisory board, which consists of a number of leading scientists and physicians, on scientific and medical matters. Our scientific advisory board meets regularly to assess:


	•	our research and development programs;

	•	the design and implementation of our clinical programs;

	•	our patent and publication strategies;

	•	new technologies relevant to our research and development programs; and

	•	specific scientific and technical issues relevant to our business.

The current members of our scientific advisory board are:


Name		Position/Institutional Affiliation

David P. Bartel, Ph.D.		Member/Whitehead Institute for Biomedical Research; Professor/Massachusetts Institute of Technology; Investigator/Howard Hughes Medical Institute
Fritz Eckstein, Ph.D.		Professor/Max Planck Institute for Experimental Medicine
Robert S. Langer, Ph.D.		Institute Professor/Massachusetts Institute of Technology
Judy Lieberman, M.D., Ph.D.		Senior Investigator/Immune Disease Institute — Harvard Medical School; Professor/Harvard Medical School; Director, Division of AIDS/Harvard Medical School
Stephen N. Oesterle, M.D.*		Senior Vice President for Medicine and Technology/Medtronic, Inc.
Paul R. Schimmel, Ph.D.		Ernest and Jean Hahn Professor/Skaggs Institute for Chemical Biology, The Scripps Research Institute
Phillip A. Sharp, Ph.D.		Institute Professor/The Koch Institute for Integrative Cancer Research, Massachusetts Institute of Technology
Markus Stoffel, M.D., Ph.D.		Professor/Institute of Molecular Systems Biology, Swiss Federal Institute of Technology (ETH) Zurich
Thomas H. Tuschl, Ph.D.		Professor/Rockefeller University; Investigator/Howard Hughes Medical Institute
Phillip D. Zamore, Ph.D.		Gretchen Stone Cook Professor/University of Massachusetts Medical School; Investigator/Howard Hughes Medical Institute


*		Dr. Oesterle participates as an observer on our scientific advisory board.

Employees

As of January 31, 2010, we had 178 employees, 147 of whom were engaged in research and development. None of our employees are represented by a labor union or covered by a collective bargaining agreement, nor have we experienced work stoppages. We believe that relations with our employees are good.

Financial Information About Geographic Areas

See the section entitled “Segment Information” appearing in Note 2 to our consolidated financial statements for financial information about geographic areas. The Notes to our consolidated financial statements are contained in Part II, Item 8 of this annual report on Form 10-K.

Corporate Information

The company comprises four entities, Alnylam Pharmaceuticals, Inc. and three wholly owned subsidiaries (Alnylam U.S., Inc., Alnylam Europe AG and Alnylam Securities Corporation). Alnylam Pharmaceuticals, Inc. is a Delaware corporation that was formed in May 2003. Alnylam U.S., Inc. is also a Delaware corporation that was formed in June 2002. Alnylam Securities Corporation is a Massachusetts corporation that was formed in December 2006. Alnylam Europe AG, which was incorporated in Germany in June 2000 under the name Ribopharma AG, was acquired by Alnylam Pharmaceuticals, Inc. in July 2003. Our principal executive office is located at 300 Third Street, Cambridge, Massachusetts 02142, and our telephone number is (617) 551-8200.

Investor Information

We maintain an internet website at http://www.alnylam.com. The information on our website is not incorporated by reference into this annual report on Form 10-K and should not be considered to be a part of this annual report on Form 10-K. Our website address is included in this annual report on Form 10-K as an inactive technical reference only. Our reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, including our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K, and amendments to those reports, are accessible through our website, free of charge, as soon as reasonably practicable after these reports are filed electronically with, or otherwise furnished to, the Securities and Exchange Commission, or SEC. We also make available on our website the charters of our audit committee, compensation committee and nominating and corporate governance committee, our corporate governance guidelines and our code of business conduct and ethics. In addition, we intend to disclose on our web site any amendments to, or waivers from, our code of business conduct and ethics that are required to be disclosed pursuant to the SEC rules.

You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy and information statements, and other information regarding Alnylam and other issuers that file electronically with the SEC. The SEC’s Internet website address is http://www.sec.gov.

Executive Officers of the Registrant


Name	Age		Position

John M. Maraganore, Ph.D.		47	Chief Executive Officer and Director
Barry E. Greene		46	President and Chief Operating Officer
Akshay K. Vaishnaw, M.D., Ph.D.		47	Senior Vice President, Clinical Research
Patricia L. Allen		48	Vice President of Finance and Treasurer

John M. Maraganore, Ph.D. has served as our Chief Executive Officer and as a member of our board of directors since December 2002. Dr. Maraganore also served as our President from December 2002 to December 2007. From April 2000 to December 2002, Dr. Maraganore served as Senior Vice President, Strategic Product Development at Millennium Pharmaceuticals, Inc., a biopharmaceutical company. Dr. Maraganore serves as a member of the board of directors of the Biotechnology Industry Organization.

Barry E. Greene has served as our President and Chief Operating Officer since December 2007, as our Chief Operating Officer since he joined us in October 2003, and from February 2004 through December 2005, as our Treasurer. From February 2001 to September 2003, Mr. Greene served as General Manager of Oncology at Millennium Pharmaceuticals, Inc., a biopharmaceutical company. Mr. Greene serves as a member of the board of directors of Acorda Therapeutics, Inc., a biotechnology company.

Akshay K. Vaishnaw, M.D., Ph.D. has served as our Senior Vice President, Clinical Research since December 2008, and prior to that served as our Vice President, Clinical Research from the time he joined us in January 2006. From December 1998 through December 2005, Dr. Vaishnaw held various positions at Biogen Idec Inc. (formerly Biogen, Inc.), a biopharmaceutical company, most recently as Senior Director, Translational Medicine. Dr. Vaishnaw is a Member of the Royal College of Physicians, United Kingdom.

Patricia L. Allen has served as our Vice President of Finance since she joined us in May 2004, and as our Treasurer since January 2006. From March 1992 to May 2004, Ms. Allen held various positions at Alkermes, Inc., a biopharmaceutical company, most recently as Director of Finance. Ms. Allen is a certified public accountant.


ITEM 1A.	RISK FACTORS

Our business is subject to numerous risks. We caution you that the following important factors, among others, could cause our actual results to differ materially from those expressed in forward-looking statements made by us or on our behalf in filings with the SEC, press releases, communications with investors and oral statements. All statements other than statements relating to historical matters should be considered forward-looking statements. When used in this report, the words “believe,” “expect,” “anticipate,” “will,” “plan,” “target,” “goal” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these words. Any or all of our forward-looking statements in this annual report on Form 10-K and in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many factors mentioned in the discussion below will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially from those anticipated in forward-looking statements. We explicitly disclaim any obligation to update any forward-looking statements to reflect events or circumstances that arise after the date hereof. You are advised, however, to consult any further disclosure we make in our reports filed with the SEC.

Risks Related to Our Business

Risks Related to Being an Early Stage Company

Because we have a short operating history, there is a limited amount of information about us upon which you can evaluate our business and prospects.

Our operations began in 2002 and we have only a limited operating history upon which you can evaluate our business and prospects. In addition, as an early-stage company, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the biopharmaceutical area. For example, to execute our business plan, we will need to successfully:


	•	execute product development activities using unproven technologies related to both RNAi and to the delivery of siRNAs to the relevant cell tissue;

	•	build and maintain a strong intellectual property portfolio;

	•	gain regulatory acceptance for the development of our product candidates and market success for any products we commercialize;

	•	develop and maintain successful strategic alliances; and

	•	manage our spending as costs and expenses increase due to clinical trials, regulatory approvals and commercialization.

If we are unsuccessful in accomplishing these objectives, we may not be able to develop product candidates, commercialize products, raise capital, expand our business or continue our operations.

The approach we are taking to discover and develop novel RNAi therapeutics is unproven and may never lead to marketable products.

We have concentrated our efforts and therapeutic product research on RNAi technology, and our future success depends on the successful development of this technology and products based on it. Neither we nor any other company has received regulatory approval to market therapeutics utilizing siRNAs, the class of molecule we are trying to develop into drugs. The scientific discoveries that form the basis for our efforts to discover and develop new drugs are relatively new. The scientific evidence to support the feasibility of developing drugs based on these discoveries is both preliminary and limited. Skepticism as to the feasibility of developing RNAi therapeutics has been expressed in scientific literature. For example, there are potential challenges to achieving safe RNAi therapeutics based on the so-called off-target effects and activation of the interferon response.

Relatively few product candidates based on these discoveries have ever been tested in animals or humans. siRNAs may not naturally possess the inherent properties typically required of drugs, such as the ability to be stable in the body long enough to reach the tissues in which their effects are required, nor the ability to enter cells within these tissues in order to exert their effects. We currently have only limited data, and no conclusive evidence, to suggest that we can introduce these drug-like properties into siRNAs. We may spend large amounts of money trying to introduce these properties, and may never succeed in doing so. In addition, these compounds may not demonstrate in patients the chemical and pharmacological properties ascribed to them in laboratory studies, and they may interact with human biological systems in unforeseen, ineffective or harmful ways. As a result, we may never succeed in developing a marketable product, we may not become profitable and the value of our common stock will decline.

Further, our focus solely on RNAi technology for developing drugs, as opposed to multiple, more proven technologies for drug development, increases the risks associated with the ownership of our common stock. If we are not successful in developing a product candidate using RNAi technology, we may be required to change the scope and direction of our product development activities. In that case, we may not be able to identify and implement successfully an alternative product development strategy.

Risks Related to Our Financial Results and Need for Financing

We have a history of losses and may never become and remain consistently profitable.

We have experienced significant operating losses since our inception. As of December 31, 2009, we had an accumulated deficit of $299.8 million. To date, we have not developed any products nor generated any revenues from the sale of products. Further, we do not expect to generate any such revenues in the foreseeable future. We expect to continue to incur annual net operating losses over the next several years and will require substantial resources over the next several years as we expand our efforts to discover, develop and commercialize RNAi therapeutics. We anticipate that the majority of any revenue we generate over the next several years will be from alliances with pharmaceutical and biotechnology companies or funding from contracts with the government or foundations, but cannot be certain that we will be able to secure or maintain these alliances or contracts, or meet the obligations or achieve any milestones that we may be required to meet or achieve to receive payments.

We believe that to become and remain consistently profitable, we must succeed in discovering, developing and commercializing novel drugs with significant market potential. This will require us to be successful in a range of challenging activities, including pre-clinical testing and clinical trial stages of development, obtaining regulatory approval for these novel drugs and manufacturing, marketing and selling them. We may never succeed in these activities, and may never generate revenues that are significant enough to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we cannot become and remain consistently profitable, the market price of our common stock could decline. In addition, we may be unable to raise capital, expand our business, diversify our product offerings or continue our operations.

We will require substantial additional funds to complete our research and development activities and if additional funds are not available, we may need to critically limit, significantly scale back or cease our operations.

We have used substantial funds to develop our RNAi technologies and will require substantial funds to conduct further research and development, including pre-clinical testing and clinical trials of any product candidates, and to manufacture and market any products that are approved for commercial sale. Because the successful development of our products is uncertain, we are unable to estimate the actual funds we will require to develop and commercialize them.

Our future capital requirements and the period for which we expect our existing resources to support our operations may vary from what we expect. We have based our expectations on a number of factors, many of which are difficult to predict or are outside of our control, including:


	•	our progress in demonstrating that siRNAs can be active as drugs;

	•	our ability to develop relatively standard procedures for selecting and modifying siRNA product candidates;


	•	progress in our research and development programs, as well as the magnitude of these programs;

	•	the timing, receipt and amount of milestone and other payments, if any, from present and future collaborators, if any;

	•	the timing, receipt and amount of funding under current and future government contracts, if any;

	•	our ability to maintain and establish additional collaborative arrangements;

	•	the resources, time and costs required to initiate and complete our pre-clinical and clinical trials, obtain regulatory approvals, and obtain and maintain licenses to third-party intellectual property;

	•	the resources, time and cost required for the preparation, filing, prosecution, maintenance and enforcement of patent claims;

	•	the costs associated with legal activities arising in the course of our business activities;

	•	progress in the research and development programs of Regulus; and

	•	the timing, receipt and amount of sales and royalties, if any, from our potential products.

If our estimates and predictions relating to these factors are incorrect, we may need to modify our operating plan.

Even if our estimates are correct, we will be required to seek additional funding in the future and intend to do so through either collaborative arrangements, public or private equity offerings or debt financings, or a combination of one or more of these funding sources. Additional funds may not be available to us on acceptable terms or at all. In addition, the terms of any financing may 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 stockholders will result. In addition, our investor rights agreement with Novartis provides Novartis with the right generally to maintain its ownership percentage in us and our common stock purchase agreement with Roche contains a similar provision. In May 2008, Novartis purchased 213,888 shares of our common stock at a purchase price of $25.29 per share. In May 2009, Novartis purchased 65,922 shares of our common stock at a purchase price of $17.50 per share. These purchases allowed Novartis to maintain its ownership position of 13.4% of our outstanding common stock. While the exercise of these rights by Novartis has provided us with an aggregate of $6.6 million in cash, and the exercise in the future by Novartis or Roche may provide us with additional funding under some circumstances, this exercise and any future exercise of these rights by Novartis or Roche will also cause further dilution to our stockholders. Debt financing, if available, may involve restrictive covenants that could limit our flexibility in conducting future business activities and, in the event of insolvency, would be paid before holders of equity securities received any distribution of corporate assets. If we are unable to obtain funding on a timely basis, we may be required to significantly 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, product candidates or products that we would otherwise pursue on our own.

If the estimates we make, or the assumptions on which we rely, in preparing our consolidated financial statements prove inaccurate, our actual results may vary from those reflected in our projections and accruals.

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses, the amounts of charges accrued by us and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We cannot assure you, however, that our estimates, or the assumptions underlying them, will be correct.

The investment of our cash, cash equivalents and marketable securities are subject to risks which may cause losses and affect the liquidity of these investments.

At December 31, 2009, we had $435.3 million in cash, cash equivalents and marketable securities. We historically have invested these amounts in corporate bonds, commercial paper, securities issued by the U.S. government and municipal obligations, certificates of deposit and money market funds meeting the criteria of our investment policy, which is focused on the preservation of our capital. These investments are subject to general credit, liquidity, market and interest rate risks, including the impact of U.S. sub-prime mortgage defaults that have affected various sectors of the financial markets and caused credit and liquidity issues. We may realize losses in the fair value of these investments or a complete loss of these investments, which would have a negative effect on our consolidated financial statements. In addition, should our investments cease paying or reduce the amount of interest paid to us, our interest income would suffer. For example, due to market conditions, interest rates have fallen, and accordingly, our interest income decreased to $5.4 million for the year ended December 31, 2009, from $14.4 million for the year ended December 31, 2008. These market risks associated with our investment portfolio may have an adverse effect on our results of operations, liquidity and financial condition.

Risks Related to Our Dependence on Third Parties

Our collaboration with Novartis is important to our business. If this collaboration is unsuccessful, Novartis terminates this collaboration or this collaboration results in competition between us and Novartis for the development of drugs targeting the same diseases, our business could be adversely affected.

In October 2005, we entered into a collaboration agreement with Novartis. Under this agreement, Novartis can select up to 30 exclusive targets to include in the collaboration, which number may be increased to 40 under certain circumstances and upon additional payments. Novartis pays the costs to develop these product candidates and will commercialize and market any products derived from this collaboration. For RNAi therapeutic products developed under the agreement, if any, we are entitled to receive milestone payments upon achievement of certain specified development and annual net sales events, up to an aggregate of $75.0 million per therapeutic product, as well as royalties on the annual net sales, if any. If Novartis fails to successfully develop products using our technology, we may not receive any additional milestone payments or any royalty payments under this agreement. The Novartis agreement had an initial term of three years, with an option for two additional one-year extensions at the election of Novartis. In July 2009, Novartis elected to further extend the term of our collaboration agreement for the fifth and final planned year, through October 2010. Novartis may elect to terminate this collaboration prior to expiration in the event of a material uncured breach by us. Over the term of this agreement, we have received a substantial amount of funding from Novartis. If this collaboration is unsuccessful, if Novartis terminates this agreement prior to expiration or if Novartis does not elect to exercise its integration option described below, our business could be adversely affected.

Our agreement with Novartis also provides Novartis with a non-exclusive option to integrate into its operations our intellectual property relating to RNAi technology, excluding any technology related to delivery of nucleic acid based molecules. Novartis may exercise this integration option at any point during the research term, which term is currently expected to expire in the fourth quarter of 2010. In connection with the exercise of the integration option, Novartis would be required to make additional payments to us totaling $100.0 million, payable in full at the time of exercise, which payments would include an option exercise fee, a milestone based on the overall success of the collaboration and pre-paid milestones and royalties that could become due as a result of future development of products using our technology. This amount would be offset by any license fees due to our licensors in accordance with the applicable license agreements with those parties. In addition, under this license grant, Novartis may be required to make milestone and royalty payments to us in connection with the development and commercialization of RNAi therapeutic products, if any. The license grant under the integration option, if exercised, would be structured similarly to our non-exclusive platform licenses with Roche and Takeda. If Novartis elects to exercise this option, Novartis could become a competitor of ours in the development of RNAi-based drugs targeting the same diseases that we choose to target. Novartis has significantly greater financial resources and far more experience than we do in developing and marketing drugs, which could put us at a competitive disadvantage if we were to compete

with Novartis in the development of RNAi-based drugs targeting the same disease. Accordingly, the exercise by Novartis of this option could adversely affect our business.

Our agreement with Novartis allows us to continue to develop products on an exclusive basis on our own with respect to targets not selected by Novartis for inclusion in the collaboration. We may need to form additional alliances to develop products. However, our agreement with Novartis provides Novartis with a right of first offer, for a defined term, in the event that we propose to enter into an agreement with a third party with respect to such targets. This right of first offer may make it difficult for us to form future alliances around specific targets with other parties.

Our license and collaboration agreements with Roche and Takeda are important to our business. If Roche and/or Takeda do not successfully develop drugs pursuant to these agreements or these agreements result in competition between us and Roche and/or Takeda for the development of drugs targeting the same diseases, our business could be adversely affected.

In July 2007, we entered into a license and collaboration agreement with Roche. Under the license and collaboration agreement we granted Roche a non-exclusive license to our intellectual property to develop and commercialize therapeutic products that function through RNAi, subject to our existing contractual obligations to third parties. The license is limited to the therapeutic areas of oncology, respiratory diseases, metabolic diseases and certain liver diseases and may be expanded to include up to 18 additional therapeutic areas, comprising substantially all other fields of human disease, as identified and agreed upon by the parties, upon payment to us by Roche of an additional $50.0 million for each additional therapeutic area, if any. In addition, in exchange for our contributions under the collaboration agreement, for each RNAi therapeutic product developed by Roche, its affiliates, or sublicensees under the collaboration agreement, we are entitled to receive milestone payments upon achievement of specified development and sales events, totaling up to an aggregate of $100.0 million per therapeutic target, together with royalty payments based on worldwide annual net sales, if any. In May 2008, we entered into a similar license and collaboration agreement with Takeda, which is limited to the therapeutic areas of oncology and metabolic diseases, and which may be expanded to include up to 20 additional therapeutic areas, comprising substantially all other fields of human disease, as identified and agreed upon by the parties, upon payment to us by Takeda of an additional $50.0 million for each additional therapeutic area, if any. For each RNAi therapeutic product developed by Takeda, its affiliates and sublicensees, we are entitled to receive specified development and commercialization milestones, totaling up to $171.0 million per product, together with royalty payments based on worldwide annual net sales, if any. In addition, we have agreed that for a period of five years, we will not grant any other party rights to develop RNAi therapeutics in the Asian territory.

If Roche or Takeda fails to successfully develop products using our technology, we may not receive any milestone or royalty payments under these agreements. In addition, even if Takeda is not successful in its efforts, for a period of five years we will be limited in our ability to form alliances with other parties in the Asia territory. We also have the option under the Takeda agreement, 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 collaboration agreement. If Takeda fails to successfully develop products, we may not realize any economic benefit from these opt-in rights.

Finally, either Roche or Takeda could become a competitor of ours in the development of RNAi-based drugs targeting the same diseases that we choose to target. Each of these companies has significantly greater financial resources than we do and has far more experience in developing and marketing drugs, which could put us at a competitive disadvantage if we were to compete with either Roche or Takeda in the development of RNAi-based drugs targeting the same disease.

We may not be able to execute our business strategy if we are unable to enter into alliances with other companies that can provide business and scientific capabilities and funds for the development and commercialization of our product candidates. If we are unsuccessful in forming or maintaining these alliances on favorable terms, our business may not succeed.

We do not have any capability for sales, marketing or distribution and have limited capabilities for drug development. In addition, we believe that other companies are expending substantial resources in developing safe and effective means of delivering siRNAs to relevant cell and tissue types. Accordingly, we have entered into alliances with other companies and collaborators that we believe can provide such capabilities, and we intend to enter into additional alliances in the future. For example, we intend to enter into (1) non-exclusive platform alliances which will enable our collaborators to develop RNAi therapeutics and will bring in additional funding with which we can develop our RNAi therapeutics, and (2) alliances to jointly develop specific product candidates and to jointly commercialize RNAi therapeutics, if they are approved, and/or ex-U.S. market geographic partnerships on specific RNAi therapeutic programs. In such alliances, we may expect our collaborators to provide substantial capabilities in delivery of RNAi therapeutics to the relevant cell or tissue type, clinical development, regulatory affairs, and/or marketing, sales and distribution. For example, under our collaboration with Medtronic, we are jointly developing ALN-HTT, an RNAi therapeutic for HD, which would be delivered using an implanted infusion device developed by Medtronic. The success of this collaboration will depend, in part, on Medtronic’s expertise in the area of delivery of drugs by infusion device, something that they have never done before with our product candidates. In other alliances, we may expect our collaborators to develop, market and sell certain of our product candidates. We may have limited or no control over the development, sales, marketing and distribution activities of these third parties. Our future revenues may depend heavily on the success of the efforts of these third parties. For example, we are jointly developing and will commercialize certain RNAi products for RSV with Cubist in North America. We will rely entirely on Cubist for the development and commercialization of certain RNAi products for RSV in the rest of the world outside of Asia, where we will rely on Kyowa Hakko Kirin for development and commercialization of any RNAi products for RSV. If Cubist and Kyowa Hakko Kirin are not successful in their commercialization efforts, our future revenues from RNAi therapeutics for RSV may be adversely affected.

We may not be successful in entering into such alliances on favorable terms due to various factors, including Novartis’ right of first offer on our drug targets, our ability to successfully demonstrate proof of concept for our technology in man, our ability to demonstrate the safety and efficacy of our specific drug candidates, and the strength of our intellectual property. Even if we do succeed in securing such product alliances, we may not be able to maintain them if, for example, development or approval of a product candidate is delayed or sales of an approved drug are disappointing. Furthermore, any delay in entering into collaboration agreements could delay the development and commercialization of our product candidates and reduce their competitiveness even if they reach the market. Any such delay related to our collaborations could adversely affect our business.

For certain product candidates that we may develop, we have formed collaborations to fund all or part of the costs of drug development and commercialization, such as our collaborations with Novartis, Roche, Takeda, Cubist, Medtronic and NIAID. We may not, however, be able to enter into additional collaborations, and the terms of any collaboration agreement we do secure may not be favorable to us. If we are not successful in our efforts to enter into future collaboration arrangements with respect to a particular product candidate, we may not have sufficient funds to develop that or any other product candidate internally, or to bring any product candidates to market. If we do not have sufficient funds to develop and bring our product candidates to market, we will not be able to generate sales revenues from these product candidates, and this will substantially harm our business.

If any collaborator terminates or fails to perform its obligations under agreements with us, the development and commercialization of our product candidates could be delayed or terminated.

Our dependence on collaborators for capabilities and funding means that our business could be adversely affected if any collaborator terminates its collaboration agreement with us or fails to perform its obligations under that agreement. Our current or future collaborations, if any, may not be scientifically or commercially successful. Disputes may arise in the future with respect to the ownership of rights to technology or products developed with collaborators, which could have an adverse effect on our ability to develop and commercialize any affected product candidate.

Our current collaborations allow, and we expect that any future collaborations will allow, either party to terminate the collaboration for a material breach by the other party. Our agreement with Kyowa Hakko Kirin for the development and commercialization of RSV therapeutics for the treatment of RSV infection in Japan and other major markets in Asia may be terminated by Kyowa Hakko Kirin without cause upon 180-days’ prior written notice to us, subject to certain conditions, and our agreement with Cubist relating to the development and commercialization of certain RSV therapeutics in territories outside of Asia may be terminated by Cubist at any time upon as little as three months’ prior written notice, if such notice is given prior to the acceptance for filing of the first application for regulatory approval of a licensed product. If we were to lose a commercialization collaborator, we would have to attract a new collaborator or develop internal sales, distribution and marketing capabilities, which would require us to invest significant amounts of financial and management resources.

In addition, if a collaborator terminates its collaboration with us, for breach or otherwise, it would be difficult for us to attract new collaborators and could adversely affect how we are perceived in the business and financial communities. A collaborator, or in the event of a change in control of a collaborator, the successor entity, could determine that it is in its financial interest to:


	•	pursue alternative technologies or develop alternative products, either on its own or jointly with others, that may be competitive with the products on which it is collaborating with us or which could affect its commitment to the collaboration with us;

	•	pursue higher-priority programs or change the focus of its development programs, which could affect the collaborator’s commitment to us; or

	•	if it has marketing rights, choose to devote fewer resources to the marketing of our product candidates, if any are approved for marketing, than it does for product candidates developed without us.

If any of these occur, the development and commercialization of one or more product candidates could be delayed, curtailed or terminated because we may not have sufficient financial resources or capabilities to continue such development and commercialization on our own.

Regulus is important to our business. If Regulus does not successfully develop drugs pursuant to this license and collaboration agreement or Regulus is sold to Isis or a third-party, our business could be adversely affected.

In September 2007, we and Isis formed Regulus, of which we currently own approximately 49%, to discover, develop and commercialize microRNA-based therapeutics. Regulus is exploring therapeutic opportunities that arise from abnormal expression or mutations in microRNAs. Generally, we do not have rights to pursue microRNA-based therapeutics independently of Regulus. If Regulus is unable to discover, develop and commercialize microRNA-based therapeutics, our business could be adversely affected.

In addition, subject to certain conditions, we and Isis each have the right to initiate a buy-out of Regulus’ assets, including Regulus’ intellectual property and rights to licensed intellectual property. Following the initiation of such a buy-out, we and Isis will mutually determine whether to sell Regulus to us, Isis or a third party. We may not have sufficient funds to buy out Isis’ interest in Regulus and we may not be able to obtain the financing to do so. In addition, Isis may not be willing to sell their interest in Regulus. If Regulus is sold to Isis or a third party, we may lose our rights to participate in the development and commercialization of microRNA-based therapeutics. If we and Isis are unable to negotiate a sale of Regulus, Regulus will distribute and assign its rights, interests and assets to us and Isis in accordance with our percentage interests, except for Regulus’ intellectual property and license rights, to which each of us and Isis will receive co-exclusive rights, subject to certain specified exceptions. In this event, we could face competition from Isis in the development of microRNA-based therapeutics.

We rely on third parties to conduct our clinical trials, and if they fail to fulfill their obligations, our development plans may be adversely affected.

We rely on independent clinical investigators, contract research organizations and other third-party service providers to assist us in managing, monitoring and otherwise carrying out our clinical trials. We have and we plan to continue to contract with certain third-parties to provide certain services, including site selection, enrollment,

monitoring and data management services. Although we depend heavily on these parties, we do not control them and therefore, we cannot be assured that these third-parties will adequately perform all of their contractual obligations to us. If our third-party service providers cannot adequately fulfill their obligations to us on a timely and satisfactory basis or if the quality and accuracy of our clinical trial data is compromised due to failure to adhere to our protocols or regulatory requirements or if such third-parties otherwise fail to meet deadlines, our development plans may be delayed or terminated.

We have very limited manufacturing experience or resources and we must incur significant costs to develop this expertise or rely on third parties to manufacture our products.

We have very limited manufacturing experience. Our internal manufacturing capabilities are limited to small-scale production of non-cGMP material for use in in vitro and in vivo experiments. Some of our product candidates utilize specialized formulations, such as liposomes or LNPs, whose scale-up and manufacturing could be very difficult. We also have very limited experience in such scale-up and manufacturing, requiring us to depend on third parties, who might not be able to deliver in a timely manner, or at all. In order to develop products, apply for regulatory approvals and commercialize our products, we will need to develop, contract for, or otherwise arrange for the necessary manufacturing capabilities. We may manufacture clinical trial materials ourselves or we may rely on others to manufacture the materials we will require for any clinical trials that we initiate. Only a limited number of manufacturers supply synthetic siRNAs. We currently rely on several contract manufacturers for our supply of synthetic siRNAs. There are risks inherent in pharmaceutical manufacturing that could affect the ability of our contract manufacturers to meet our delivery time requirements or provide adequate amounts of material to meet our needs. Included in these risks are synthesis and purification failures and contamination during the manufacturing process, which could result in unusable product and cause delays in our development process, as well as additional expense to us. To fulfill our siRNA requirements, we may also need to secure alternative suppliers of synthetic siRNAs. In addition to the manufacture of the synthetic siRNAs, we may have additional manufacturing requirements related to the technology required to deliver the siRNA to the relevant cell or tissue type. In some cases, the delivery technology we utilize is highly specialized or proprietary, and for technical and legal reasons, we may have access to only one or a limited number of potential manufacturers for such delivery technology. Failure by these manufacturers to properly formulate our siRNAs for delivery could also result in unusable product and cause delays in our discovery and development process, as well as additional expense to us.

The manufacturing process for any products that we may develop is subject to the FDA and foreign regulatory authority approval process and we will need to contract with manufacturers who can meet all applicable FDA and foreign regulatory authority requirements on an ongoing basis. In addition, if we receive the necessary regulatory approval for any product candidate, we also expect to rely on third parties, including our commercial collaborators, to produce materials required for commercial supply. We may experience difficulty in obtaining adequate manufacturing capacity for our needs. If we are unable to obtain or maintain contract manufacturing for these product candidates, or to do so on commercially reasonable terms, we may not be able to successfully develop and commercialize our products.

To the extent that we enter into manufacturing arrangements with third parties, we will depend on these third parties to perform their obligations in a timely manner and consistent with regulatory requirements, including those related to quality control and quality assurance. The failure of a third-party manufacturer to perform its obligations as expected could adversely affect our business in a number of ways, including:


	•	we may not be able to initiate or continue clinical trials of products that are under development;

	•	we may be delayed in submitting regulatory applications, or receiving regulatory approvals, for our product candidates;

	•	we may lose the cooperation of our collaborators;

	•	we may be required to cease distribution or recall some or all batches of our products; and

	•	ultimately, we may not be able to meet commercial demands for our products.

If a third-party manufacturer with whom we contract fails to perform its obligations, we may be forced to manufacture the materials ourselves, for which we may not have the capabilities or resources, or enter into an agreement with a different third-party manufacturer, which we may not be able to do with reasonable terms, if at all. In some cases, the technical skills required to manufacture our product may be unique to the original manufacturer and we may have difficulty transferring such skills to a back-up nor alternate supplier, or we may be unable to transfer such skills at all. In addition, if we are required to change manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines. The delays associated with the verification of a new manufacturer could negatively affect our ability to develop product candidates in a timely manner or within budget. Furthermore, a manufacturer may possess technology related to the manufacture of our product candidate that such manufacturer owns independently. This would increase our reliance on such manufacturer or require us to obtain a license from such manufacturer in order to have another third party manufacture our products.

We have no sales, marketing or distribution experience and would have to invest significant financial and management resources to establish these capabilities.

We have no sales, marketing or distribution experience. We currently expect to rely heavily on third parties to launch and market certain of our product candidates, if approved. However, if we elect to develop internal sales, distribution and marketing capabilities, we will need to invest significant financial and management resources. For products where we decide to perform sales, marketing and distribution functions ourselves, we could face a number of additional risks, including:


	•	we may not be able to attract and build a significant marketing or sales force;

	•	the cost of establishing a marketing or sales force may not be justifiable in light of the revenues generated by any particular product; and

	•	our direct sales and marketing efforts may not be successful.

If we are unable to develop our own sales, marketing and distribution capabilities, we will not be able to successfully commercialize our products without reliance on third parties.

The current credit and financial market conditions may exacerbate certain risks affecting our business.

Due to the tightening of global credit, there may be a disruption or delay in the performance of our third-party contractors, suppliers or collaborators. We rely on third parties for several important aspects of our business, including significant portions of our manufacturing needs, development of product candidates and conduct of clinical trials. If such third parties are unable to satisfy their commitments to us, our business could be adversely affected.

Risks Related to Managing Our Operations

If we are unable to attract and retain qualified key management and scientists, staff consultants and advisors, our ability to implement our business plan may be adversely affected.

We are highly dependent upon our senior management and scientific staff. The loss of the service of any of the members of our senior management, including Dr. John Maraganore, our Chief Executive Officer, may significantly delay or prevent the achievement of product development and other business objectives. Our employment agreements with our key personnel are terminable without notice. We do not carry key man life insurance on any of our employees.

Although we have generally been successful in our recruiting efforts, as well as our retention of employees, we face intense competition for qualified individuals from numerous pharmaceutical and biotechnology companies, universities, governmental entities and other research institutions, many of which have substantially greater resources with which to reward qualified individuals than we do. We may be unable to attract and retain suitably qualified individuals, and our failure to do so could have an adverse effect on our ability to implement our business plan.

We may have difficulty managing our growth and expanding our operations successfully as we seek to evolve from a company primarily involved in discovery and pre-clinical testing into one that develops and commercializes drugs.

Since we commenced operations in 2002, we have grown substantially. As of December 31, 2009, we had 179 employees in our facility in Cambridge, Massachusetts. Our rapid and substantial growth may place a strain on our administrative and operational infrastructure. If product candidates we develop enter and advance through clinical trials, we will need to expand our development, regulatory, manufacturing, marketing and sales capabilities or contract with other organizations to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships with various collaborators, suppliers and other organizations. Our ability to manage our operations and growth will require us to continue to improve our operational, financial and management controls, reporting systems and procedures. We may not be able to implement improvements to our management information and control systems in an efficient or timely manner and may discover deficiencies in existing systems and controls.

Our business and operations could suffer in the event of system failures.

Despite the implementation of security measures, our internal computer systems and those of our contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Such events could cause interruption of our operations. For example, the loss of pre-clinical trial data or data from completed or ongoing clinical trials for our product candidates could result in delays in our regulatory filings and development efforts and significantly increase our costs. To the extent that any disruption or security breach were to result in a loss of or damage to our data, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the development of our product candidates could be delayed.

Risks Related to Our Industry

Risks Related to Development, Clinical Testing and Regulatory Approval of Our Product Candidates

Any product candidates we develop may fail in development or be delayed to a point where they do not become commercially viable.

Pre-clinical testing and clinical trials of new product candidates are lengthy and expensive and the historical failure rate for product candidates is high. We are developing our most advanced product candidate, ALN-RSV01, for the treatment of RSV infection. In January 2008, we completed our GEMINI study, a Phase II trial designed to evaluate the safety, tolerability and anti-viral activity of ALN-RSV01 in adult subjects experimentally infected with RSV. During 2009, we completed a Phase IIa trial assessing the safety and tolerability of ALN-RSV01 in adult lung transplant patients naturally infected with RSV and we intend to continue the ALN-RSV01 clinical development program for adult lung transplant patients, and pursue jointly with Cubist the development of ALN-RSV02, a second-generation RNAi therapeutic candidate, intended for use in pediatric patients with RSV infection. In February 2010, we initiated a Phase IIb clinical trial to evaluate the clinical efficacy endpoints as well as safety of aerosolized ALN-RSV01 in adult lung transplant patients naturally infected with RSV. The objective of this Phase IIb study is to repeat and extend the clinical results observed in the Phase IIa study. In addition, in March 2009, we initiated a Phase I study of ALN-VSP, our first systemically delivered RNAi therapeutic candidate. We are developing ALN-VSP for the treatment of primary and secondary liver cancer. We have also made regulatory filings to initiate a clinical trial for ALN-TTR01, our second systemically delivered RNAi therapeutic candidate, which targets the TTR gene for the treatment of ATTR. However, we may not be able to further advance these or any other product candidate through clinical trials. If we successfully enter into clinical studies, the results from pre-clinical testing or early clinical trials of a product candidate may not predict the results that will be obtained in subsequent human clinical trials. For example, ALN-RSV01 may not demonstrate the same results in the Phase IIb study as it did in our Phase IIa trial. In addition, ALN-VSP and our other systemically delivered therapeutic candidates, such as ALN-TTR, employ novel delivery formulations that have yet to be evaluated in human studies and have yet to be proven safe and effective in clinical trials. We, the FDA or other applicable regulatory authorities, or an IRB or

similar foreign review board or committee, may suspend clinical trials of a product candidate at any time for various reasons, including if we or they believe the subjects or patients participating in such trials are being exposed to unacceptable health risks. Among other reasons, adverse side effects of a product candidate on subjects or patients in a clinical trial could result in the FDA or foreign regulatory authorities suspending or terminating the trial and refusing to approve a particular product candidate for any or all indications of use.

Clinical trials of a new product candidate require the enrollment of a sufficient number of patients, including patients who are suffering from the disease the product candidate is intended to treat and who meet other eligibility criteria. Rates of patient enrollment are affected by many factors, including the size of the patient population, the age and condition of the patients, the nature of the protocol, the proximity of patients to clinical sites, the availability of effective treatments for the relevant disease, the seasonality of infections and the eligibility criteria for the clinical trial. Delays in patient enrollment or difficulties retaining study participants can result in increased costs, longer development times or termination of a clinical trial.

Clinical trials also require the review and oversight of IRBs, which approve and continually review clinical investigations and protect the rights and welfare of human subjects. Inability to obtain or delay in obtaining IRB approval can prevent or delay the initiation and completion of clinical trials, and the FDA or foreign regulatory authorities may decide not to consider any data or information derived from a clinical investigation not subject to initial and continuing IRB review and approval in support of a marketing application.

Our product candidates that we develop may encounter problems during clinical trials that will cause us, an IRB or regulatory authorities to delay, suspend or terminate these trials, or that will delay the analysis of data from these trials. If we experience any such problems, we may not have the financial resources to continue development of the product candidate that is affected, or development of any of our other product candidates. We may also lose, or be unable to enter into, collaborative arrangements for the affected product candidate and for other product candidates we are developing.

Delays in clinical trials could reduce the commercial viability of our product candidates. Any of the following could, among other things, delay our clinical trials:


	•	delays in filing INDs or comparable foreign applications or delays or failure in obtaining the necessary approvals from regulators or IRBs in order to commence a clinical trial at a prospective trial site, or their suspension or termination of a clinical trial once commenced;

	•	conditions imposed on us by the FDA or comparable foreign authorities regarding the scope or design of our clinical trials;

	•	problems in engaging IRBs to oversee trials or problems in obtaining or maintaining IRB approval of trials;

	•	delays in enrolling patients and volunteers into clinical trials, and variability in the number and types of patients and volunteers available for clinical trials;

	•	high drop-out rates for patients and volunteers in clinical trials;

	•	negative or inconclusive results from our clinical trials or the clinical trials of others for product candidates similar to ours;

	•	inadequate supply or quality of product candidate materials or other materials necessary for the conduct of our clinical trials;

	•	serious and unexpected drug-related side effects experienced by participants in our clinical trials or by individuals using drugs similar to our product candidates;

	•	poor effectiveness of our product candidates during clinical trials;

	•	unfavorable FDA or other regulatory agency inspection and review of a clinical trial site or records of any clinical or pre-clinical investigation;

	•	failure of our third party contractors or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a timely manner, or at all;


	•	governmental or regulatory delays and changes in regulatory requirements, policy and guidelines, including the imposition of additional regulatory oversight around clinical testing generally or with respect to our technology in particular; or

	•	varying interpretations of data by the FDA and similar foreign regulatory agencies.

Even if we successfully complete clinical trials of our product candidates, any given product candidate may not prove to be a safe and effective treatment for the diseases for which it was being tested.

The regulatory approval process may be delayed for any products we develop that require the use of specialized drug delivery devices, which may require us to incur additional costs and delay receipt of any potential product revenue.

Some product candidates that we develop may need to be administered using specialized drug delivery devices that deliver RNAi therapeutics directly to diseased parts of the body. For example, we believe that product candidates we develop for HD, Parkinson’s disease or other central nervous system diseases may need to be administered using such a device. For neurodegenerative diseases, we have entered into a collaboration agreement with Medtronic to pursue potential development of drug-device combinations incorporating RNAi therapeutics. We may not achieve successful development results under this collaboration and may need to seek other collaborations to develop alternative drug delivery systems, or utilize existing drug delivery systems, for the direct delivery of RNAi therapeutics for these diseases. While we expect to rely on drug delivery systems that have been approved by the FDA or other regulatory agencies to deliver drugs like ours to diseased parts of the body, we, or our collaborator, may need to modify the design or labeling of such delivery device for some products we may develop. In such an event, the FDA may regulate the product as a combination product or require additional approvals or clearances for the modified delivery device. Further, to the extent the specialized delivery device is owned by another company, we would need that company’s cooperation to implement the necessary changes to the device, or its labeling, and to obtain any additional approvals or clearances. In cases where we do not have an ongoing collaboration with the company that makes the device, obtaining such additional approvals or clearances and the cooperation of such other company could significantly delay and increase the cost of obtaining marketing approval, which could reduce the commercial viability of our product candidate. In summary, we may be unable to find, or experience delays in finding, suitable drug delivery systems to administer RNAi therapeutics directly to diseased parts of the body, which could negatively affect our ability to successfully commercialize these RNAi therapeutics.

We may be unable to obtain United States or foreign regulatory approval and, as a result, be unable to commercialize our product candidates.

Our product candidates are subject to extensive governmental regulations relating to, among other things, research, testing, development, manufacturing, safety, efficacy, recordkeeping, labeling, storage, marketing and distribution of drugs. Rigorous pre-clinical testing and clinical trials and an extensive regulatory approval process are required to be successfully completed in the United States and in many foreign jurisdictions before a new drug can be marketed. Satisfaction of these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. It is possible that none of the product candidates we may develop will obtain the regulatory approvals necessary for us or our collaborators to begin selling them.

We have very limited experience in conducting and managing the clinical trials necessary to obtain regulatory approvals, including approval by the FDA. The time required to obtain FDA and other approvals is unpredictable but typically takes many years following the commencement of clinical trials, depending upon the type, complexity and novelty of the product candidate. The standards that the FDA and its foreign counterparts use when regulating us are not always applied predictably or uniformly and can change. Any analysis we perform of data from pre-clinical and clinical activities is subject to confirmation and interpretation by regulatory authorities, which could delay, limit or prevent regulatory approval. We may also encounter unexpected delays or increased costs due to new government regulations, for example, from future legislation or administrative action, or from changes in FDA policy during the period of product development, clinical trials and FDA regulatory review. It is impossible to predict whether legislative changes will be enacted, or whether FDA or foreign regulations, guidance or interpretations will be changed, or what the impact of such changes, if any, may be.

Because the drugs we are intending to develop may represent a new class of drug, the FDA and its foreign counterparts have not yet established any definitive policies, practices or guidelines in relation to these drugs. While the product candidates that we are currently developing are regulated as new drugs under the Federal Food, Drug, and Cosmetic Act, the FDA could decide to regulate them or other products we may develop as biologics under the Public Health Service Act. The lack of policies, practices or guidelines may hinder or slow review by the FDA of any regulatory filings that we may submit. Moreover, the FDA may respond to these submissions by defining requirements we may not have anticipated. Such responses could lead to significant delays in the clinical development of our product candidates. In addition, because there may be approved treatments for some of the diseases for which we may seek approval, in order to receive regulatory approval, we will need to demonstrate through clinical trials that the product candidates we develop to treat these diseases, if any, are not only safe and effective, but safer or more effective than existing products. Furthermore, in recent years, there has been increased public and political pressure on the FDA with respect to the approval process for new drugs, and the number of approvals to market new drugs has declined.

Any delay or failure in obtaining required approvals could have a material adverse effect on our ability to generate revenues from the particular product candidate for which we are seeking approval. Furthermore, any regulatory approval to market a product may be subject to limitations on the approved indicated uses for which we may market the product or the labeling or other restrictions. These limitations and restrictions may limit the size of the market for the product and affect reimbursement by third-party payors.

We are also subject to numerous foreign regulatory requirements governing, among other things, the conduct of clinical trials, manufacturing and marketing authorization, pricing and third-party reimbursement. The foreign regulatory approval process varies among countries and includes all of the risks associated with FDA approval described above as well as risks attributable to the satisfaction of local regulations in foreign jurisdictions. Approval by the FDA does not ensure approval by regulatory authorities outside the United States and vice versa.

If our pre-clinical testing does not produce successful results or our clinical trials do not demonstrate safety and efficacy in humans, we will not be able to commercialize our product candidates.

Before obtaining regulatory approval for the sale of our product candidates, we must conduct, at our own expense, extensive pre-clinical tests and clinical trials to demonstrate the safety and efficacy in humans of our product candidates. Pre-clinical and clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. Success in pre-clinical testing and early clinical trials does not ensure that later clinical trials will be successful, and interim results of a clinical trial do not necessarily predict final results.

A failure of one of more of our clinical trials can occur at any stage of testing. We may experience numerous unforeseen events during, or as a result of, pre-clinical testing and the clinical trial process that could delay or prevent our ability to receive regulatory approval or commercialize our product candidates, including:


	•	regulators or IRBs may not authorize us to commence or continue a clinical trial or conduct a clinical trial at a prospective trial site;

	•	our pre-clinical tests or clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional pre-clinical testing or clinical trials, or we may abandon projects that we expect to be promising;

	•	enrollment in our clinical trials may be slower than we anticipate or participants may drop out of our clinical trials at a higher rate than we anticipate, resulting in significant delays;

	•	our third party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

	•	we might have to suspend or terminate our clinical trials if the participants are being exposed to unacceptable health risks;

	•	IRBs or regulators, including the FDA, may require that we hold, suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements, failure to achieve established success criteria, or if, in their opinion, the participants are being exposed to unacceptable health risks;


	•	the cost of our clinical trials may be greater than we anticipate;

	•	the supply or quality of our product candidates or other materials necessary to conduct our clinical trials may be insufficient or inadequate;

	•	effects of our product candidates may not be the desired effects or may include undesirable side effects or the product candidates may have other unexpected characteristics; and

	•	effects of our product candidates may not be clear, or we may disagree with regulatory authorities, including the FDA, about how to interpret the data generated in our clinical trials.

Even if we obtain regulatory approvals, our marketed drugs will be subject to ongoing regulatory review. If we fail to comply with continuing United States and foreign regulations, we could lose our approvals to market drugs and be subject to other penalties, and our business would be seriously harmed.

Following any initial regulatory approval of any drugs we may develop, we will also be subject to continuing regulatory review, including the review of adverse drug experiences and clinical results that are reported after our drug products are made commercially available. This would include results from any post-marketing tests or surveillance to monitor the safety and efficacy of the drug product required as a condition of approval. Any regulatory approvals that we receive for our product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed. Other ongoing regulatory requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMP requirements and GCP for any clinical trials that we conduct post-approval. In addition, we intend to conduct clinical trials for our product candidates, and to seek approval to market our product candidates, in jurisdictions outside of the United States, and therefore will be subject to, and must comply with, regulatory requirements in those jurisdictions.

The manufacturer and manufacturing facilities we use to make any of our product candidates will also be subject to periodic review and inspection by the FDA and other regulatory agencies. The discovery of any new or previously unknown problems with the product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers, manufacturing processes or facilities, may result in restrictions on the drug or manufacturer or facility, including withdrawal of the drug from the market. We do not have, and currently do not intend to develop, the ability to manufacture material for our clinical trials or on a commercial scale. We may manufacture clinical trial materials or we may contract a third party to manufacture these materials for us. Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured products ourselves, including reliance on the third-party manufacturer for regulatory compliance. Our product promotion and advertising is also subject to regulatory requirements and continuing regulatory review.

If we or our collaborators, manufacturers or service providers fail to comply with applicable continuing regulatory requirements in the United States or foreign jurisdictions in which we may seek to market our products, we or they may be subject to, among other things, fines, warning letters, holds on clinical trials, refusal by the FDA to approve pending applications or supplements to approved applications, suspension or withdrawal of regulatory approval, product recalls and seizures, refusal to permit the import or export of products, operating restrictions, civil penalties and criminal prosecution.

Even if we receive regulatory approval to market our product candidates, the market may not be receptive to our product candidates upon their commercial introduction, which will prevent us from becoming profitable.

The product candidates that we are developing are based upon new technologies or therapeutic approaches. Key participants in pharmaceutical marketplaces, such as physicians, third-party payors and consumers, may not accept a product intended to improve therapeutic results based on RNAi technology. As a result, it may be more difficult for us to convince the medical community and third-party payors to accept and use our product, or to provide favorable reimbursement.

Other factors that we believe will materially affect market acceptance of our product candidates include:


	•	the timing of our receipt of any marketing approvals, the terms of any approvals and the countries in which approvals are obtained;

	•	the safety and efficacy of our product candidates, as demonstrated in clinical trials;

	•	relative convenience and ease of administration of our product candidates;

	•	the willingness of patients to accept potentially new routes of administration;

	•	the success of our physician education programs;

	•	the availability of adequate government and third-party payor reimbursement;

	•	the pricing of our products, particularly as compared to alternative treatments; and

	•	availability of alternative effective treatments for the diseases that product candidates we develop are intended to treat and the relative risks, benefits and costs of the treatments.

Even if we develop an RNAi therapeutic product for the prevention or treatment of infection by hemorrhagic fever viruses such as Ebola, governments may not elect to purchase such a product, which could adversely affect our business.

We expect that governments will be the only purchasers of any products we may develop for the prevention or treatment of hemorrhagic fever viruses such as Ebola. In the future, we may also initiate additional programs for the development of product candidates for which governments may be the only or primary purchasers. However, governments will not be required to purchase any such products from us and may elect not to do so, which could adversely affect our business. For example, although the focus of our Ebola program is to develop RNAi therapeutic targeting gene sequences that are highly conserved across known Ebola viruses, if the sequence of any Ebola virus that emerges is not sufficiently similar to those we are targeting, any product candidate that we develop may not be effective against that virus. Accordingly, while we believe that any RNAi therapeutic we develop for the treatment of Ebola could be stockpiled by governments as part of their biodefense preparations, they may not elect to purchase such product, or if they purchase our products, they may not do so at prices and volume levels that are profitable for us. In addition, government contractors and subcontractors are generally subject to contractual and regulatory requirements that differ from typical commercial business arrangements. These requirements may make it more costly for us to serve government customers and may expose us to legal and regulatory liability risks that would not arise in sales to non-governmental customers.

If we or our collaborators, manufacturers or service providers fail to comply with healthcare laws and regulations, we or they could be subject to enforcement actions, which could affect our ability to develop, market and sell our products and may harm our reputation.

As a manufacturer of pharmaceuticals, we are subject to federal, state, and foreign health care laws and regulations pertaining to fraud and abuse and patients’ rights. These laws and regulations include:


	•	The U.S. federal health care program anti-kickback law, which prohibits, among other things, persons from soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual for a healthcare item or service, or the purchasing or ordering of an item or service, for which payment may be made under a federal healthcare program such as Medicare or Medicaid;

	•	The U.S. federal false claims law, which prohibits, among other things, individuals or entities from knowingly presenting or causing to be presented, claims for payment by government funded programs such as Medicare or Medicaid that are false or fraudulent, and which may apply to us by virtue of statements and representations made to customers or third parties;

	•	The U.S. federal Health Insurance Portability and Accountability Act, or HIPAA, and Health Information Technology for Economic and Clinical Health, or HITECH, Act, which prohibit executing a scheme to defraud health care programs; impose requirements relating to the privacy, security, and transmission of


		individually identifiable health information; and require notification to affected individuals and regulatory authorities of certain breaches of security of individually identifiable health information; and


	•	State laws comparable to each of the above federal laws, such as, for example, anti-kickback and false claims laws applicable to commercial insurers and other non-federal payors, requirements for mandatory corporate regulatory compliance programs, and laws relating to patient data privacy and security.

If our operations are found to be in violation of any such requirements, we may be subject to penalties, including civil or criminal penalties, monetary damages, the curtailment or restructuring of our operations, loss of eligibility to obtain approvals from the FDA, or exclusion from participation in government contracting or other government programs, any of which could adversely our financial results. Although effective compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, these risks cannot be entirely eliminated. Any action against us for an alleged or suspected violation could cause us to incur significant legal expenses and could divert our management’s attention from the operation of our business, even if our defense is successful. In addition, achieving and sustaining compliance with applicable laws and regulations may be costly to us in terms of money, time and resources.

If we or our collaborators, manufacturers or service providers fail to comply with applicable federal, state or foreign laws or regulations, we could be subject to enforcement actions, which could affect our ability to develop, market and sell our products successfully and could harm our reputation and lead to reduced acceptance of our products by the market. These enforcement actions include, among others:


	•	warning letters;

	•	voluntary or mandatory product recalls or public notification or medical product safety alerts to healthcare professionals;

	•	restrictions on, or prohibitions against, marketing our products;

	•	restrictions on, or prohibitions against, importation or exportation of our products;

	•	suspension of review or refusal to approve pending applications or supplements to approved applications;

	•	exclusion from participation in government-funded healthcare programs;

	•	exclusion from eligibility for the award of government contracts for our products;

	•	suspension or withdrawal of product approvals;

	•	product seizures;

	•	injunctions; and

	•	civil and criminal penalties and fines.

Any drugs we develop may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, thereby harming our business.

The regulations that govern marketing approvals, pricing and reimbursement for new drugs vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. Although we intend to monitor these regulations, our programs are currently in the early stages of development and we will not be able to assess the impact of price regulations for a number of years. As a result, we might obtain regulatory approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product and negatively impact the revenues we are able to generate from the sale of the product in that country.

Our ability to commercialize any products successfully also will depend in part on the extent to which reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Even if we succeed in bringing one or more products to

the market, these products may not be considered cost-effective, and the amount reimbursed for any products may be insufficient to allow us to sell our products on a competitive basis. Because our programs are in the early stages of development, we are unable at this time to determine their cost effectiveness or the likely level or method of reimbursement. Increasingly, the third-party payors who reimburse patients, such as government and private insurance plans, are requiring that drug companies provide them with predetermined discounts from list prices, and are seeking to reduce the prices charged for pharmaceutical products. If the price we are able to charge for any products we develop is inadequate in light of our development and other costs, our profitability could be adversely affected.

We currently expect that any drugs we develop may need to be administered under the supervision of a physician. Under currently applicable United States law, drugs that are not usually self-administered may be eligible for coverage by the Medicare program if:


	•	they are incident to a physician’s services;

	•	they are “reasonable and necessary” for the diagnosis or treatment of the illness or injury for which they are administered according to accepted standards of medical practice;

	•	they are not excluded as immunizations; and

	•	they have been approved by the FDA.

There may be significant delays in obtaining coverage for newly-approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA. Moreover, eligibility for coverage does not imply that any drug will be reimbursed in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim payments for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement may be based on payments allowed for lower-cost drugs that are already reimbursed, may be incorporated into existing payments for other services and may reflect budgetary constraints or imperfections in Medicare data. Net prices for drugs may be reduced by mandatory discounts or rebates required by government health care programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Third party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement rates. Our inability to promptly obtain coverage and profitable reimbursement rates from both government-funded and private payors for new drugs that we develop and for which we obtain regulatory approval could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products, and our overall financial condition.

We believe that the efforts of governments and third-party payors to contain or reduce the cost of healthcare and legislative and regulatory proposals to broaden the availability of healthcare will continue to affect the business and financial condition of pharmaceutical and biopharmaceutical companies. A number of legislative and regulatory changes in the healthcare system in the United States and other major healthcare markets have been proposed in recent years, and such efforts have expanded substantially in the last year. These developments have included prescription drug benefit legislation that was enacted and took effect in January 2006, healthcare reform legislation recently enacted by certain states, and major health care reform legislation that is currently pending in Congress. Many such proposals could, directly or indirectly, affect our ability to sell our products, if approved, at a favorable price. We cannot predict the initiatives that may be adopted in the future. Further federal and state legislative and regulatory developments are likely and we expect ongoing initiatives in the United States to increase pressure on drug pricing. Such reforms could have an adverse effect on anticipated revenues from product candidates that we may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop drug candidates.

There is a substantial risk of product liability claims in our business. If we are unable to obtain sufficient insurance, a product liability claim against us could adversely affect our business.

Our business exposes us to significant potential product liability risks that are inherent in the development, testing, manufacturing and marketing of human therapeutic products. Product liability claims could delay or prevent completion of our clinical development programs. If we succeed in marketing products, such claims could

result in an FDA investigation of the safety and effectiveness of our products, our manufacturing processes and facilities or our marketing programs, and potentially a recall of our products or more serious enforcement action, limitations on the approved indications for which they may be used, or suspension or withdrawal of approvals. Regardless of the merits or eventual outcome, liability claims may also result in injury to our reputation, costs to defend the related litigation, a diversion of management’s time and our resources, and substantial monetary awards to trial participants or patients. We currently have product liability insurance that we believe is appropriate for our stage of development and may need to obtain higher levels prior to marketing any of our product candidates. Any insurance we have or may obtain may not provide sufficient coverage against potential liabilities. Furthermore, clinical trial and product liability insurance is becoming increasingly expensive. As a result, we may be unable to obtain sufficient insurance at a reasonable cost to protect us against losses caused by product liability claims that could have a material adverse effect on our business.

If we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected.

Our research and development involves the use of hazardous materials, chemicals and various radioactive compounds. We maintain quantities of various flammable and toxic chemicals in our facilities in Cambridge that are required for our research and development activities. We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. We believe our procedures for storing, handling and disposing these materials in our Cambridge facility comply with the relevant guidelines of the City of Cambridge and the Commonwealth of Massachusetts. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards mandated by applicable regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of biohazardous materials.

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of these materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials. Additional federal, state and local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations.

Risks Related to Patents, Licenses and Trade Secrets

If we are not able to obtain and enforce patent protection for our discoveries, our ability to develop and commercialize our product candidates will be harmed.

Our success depends, in part, on our ability to protect proprietary methods and technologies that we develop under the patent and other intellectual property laws of the United States and other countries, so that we can prevent others from unlawfully using our inventions and proprietary information. However, we may not hold proprietary rights to some patents required for us to commercialize our proposed products. Because certain U.S. patent applications are confidential until the patents issue, such as applications filed prior to November 29, 2000, or applications filed after such date which will not be filed in foreign countries, third parties may have filed patent applications for technology covered by our pending patent applications without our being aware of those applications, and our patent applications may not have priority over those applications. For this and other reasons, we may be unable to secure desired patent rights, thereby losing desired exclusivity. Further, we may be required to obtain licenses under third-party patents to market our proposed products or conduct our research and development or other activities. If licenses are not available to us on acceptable terms, we will not be able to market the affected products or conduct the desired activities.

Our strategy depends on our ability to rapidly identify and seek patent protection for our discoveries. In addition, we may rely on third-party collaborators to file patent applications relating to proprietary technology that

we develop jointly during certain collaborations. The process of obtaining patent protection is expensive and time-consuming. If our present or future collaborators fail to file and prosecute all necessary and desirable patent applications at a reasonable cost and in a timely manner, our business will be adversely affected. Despite our efforts and the efforts of our collaborators to protect our proprietary rights, unauthorized parties may be able to obtain and use information that we regard as proprietary. While issued patents are presumed valid, this does not guarantee that the patent will survive a validity challenge or be held enforceable. Any patents we have obtained, or obtain in the future, may be challenged, invalidated, adjudged unenforceable or circumvented by parties attempting to design around our intellectual property. Moreover, third parties or the USPTO may commence interference proceedings involving our patents or patent applications. Any challenge to, finding of unenforceability or invalidation or circumvention of, our patents or patent applications would be costly, would require significant time and attention of our management and could have a material adverse effect on our business.

Our pending patent applications may not result in issued patents. The patent position of pharmaceutical or biotechnology companies, including ours, is generally uncertain and involves complex legal and factual considerations. The standards that the USPTO and its foreign counterparts use to grant patents are not always applied predictably or uniformly and can change. In addition, there are periodic discussions in the Congress of the United States and in international jurisdictions about modifying various aspects of patent law. If any such changes are enacted and do not provide adequate protection for discoveries, including our ability to pursue infringers of our patents for substantial damages, our business could be adversely affected. There is also no uniform, worldwide policy regarding the subject matter and scope of claims granted or allowable in pharmaceutical or biotechnology patents. Accordingly, we do not know the degree of future protection for our proprietary rights or the breadth of claims that will be allowed in any patents issued to us or to others.

We also rely to a certain extent on trade secrets, know-how and technology, which are not protected by patents, to maintain our competitive position. If any trade secret, know-how or other technology not protected by a patent were to be disclosed to or independently developed by a competitor, our business and financial condition could be materially adversely affected.

We license patent rights from third party owners. If such owners do not properly or successfully obtain, maintain or enforce the patents underlying such licenses, our competitive position and business prospects will be harmed.

We are a party to a number of licenses that give us rights to third party intellectual property that is necessary or useful for our business. In particular, we have obtained licenses from, among others, Cancer Research Technology Limited, Isis, MIT, Whitehead, Max Planck, Stanford University, Tekmira and UTSW. We also intend to enter into additional licenses to third party intellectual property in the future.

Our success will depend in part on the ability of our licensors to obtain, maintain and enforce patent protection for our licensed intellectual property, in particular, those patents to which we have secured exclusive rights. Our licensors may not successfully prosecute the patent applications to which we are licensed. Even if patents issue in respect of these patent applications, our licensors may fail to maintain these patents, may determine not to pursue litigation against other companies that are infringing these patents, or may pursue such litigation less aggressively than we would. Without protection for the intellectual property we license, other companies might be able to offer substantially identical products for sale, which could adversely affect our competitive business position and harm our business prospects. In addition, we sublicense our rights under various third-party licenses to our collaborators. Any impairment of these sublicensed rights could result in reduced revenues under our collaboration agreements or result in termination of an agreement by one or more of our collaborators.

In June 2009, we joined with Max Planck in taking legal action against Whitehead, MIT and UMass. The complaint, initially filed in Suffolk County Superior Court in Boston, Massachusetts and subsequently removed to the U.S. District Court for the District of Massachusetts, alleges, among other things, that the defendants have improperly prosecuted the Tuschl I patent applications and wrongfully incorporated inventions covered by the Tuschl II patent applications into the Tuschl I patent applications, thereby potentially damaging the value of inventions reflected in the Tuschl I and Tuschl II patent applications. In the field of RNAi therapeutics, we are the

exclusive licensee of the Tuschl I patent applications from Max Planck, MIT and Whitehead and of the Tuschl II patent applications from Max Planck.

Other companies or organizations may challenge our patent rights or may assert patent rights that prevent us from developing and commercializing our products.

RNAi is a relatively new scientific field, the commercial exploitation of which has resulted in many different patents and patent applications from organizations and individuals seeking to obtain patent protection in the field. We have obtained grants and issuances of RNAi patents and have licensed many of these patents from third parties on an exclusive basis. The issued patents and pending patent applications in the United States and in key markets around the world that we own or license claim many different methods, compositions and processes relating to the discovery, development, manufacture and commercialization of RNAi therapeutics. 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 manufacture and 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; and delivery technologies, such as in the field of cationic liposomes.

As the field of RNAi therapeutics is maturing, patent applications are being fully processed by national patent offices around the world. There is uncertainty about which patents will issue, and, if they do, as to when, to whom, and with what claims. It is likely that there will be significant litigation and other proceedings, such as interference, reexamination and opposition proceedings, in various patent offices relating to patent rights in the RNAi field. For example, various third parties have initiated oppositions to patents in our Kreutzer-Limmer and Tuschl II series in the EPO and in other jurisdictions. We expect that additional oppositions will be filed in the EPO and elsewhere, and other challenges will be raised relating to other patents and patent applications in our portfolio. In many cases, the possibility of appeal exists for either us or our opponents, and it may be years before final, unappealable rulings are made with respect to these patents in certain jurisdictions. The timing and outcome of these and other proceedings is uncertain and may adversely affect our business if we are not successful in defending the patentability and scope of our pending and issued patent claims. In addition, third parties may attempt to invalidate our intellectual property rights. Even if our rights are not directly challenged, disputes could lead to the weakening of our intellectual property rights. Our defense against any attempt by third parties to circumvent or invalidate our intellectual property rights could be costly to us, could require significant time and attention of our management and could have a material adverse effect on our business and our ability to successfully compete in the field of RNAi.

There are many issued and pending patents that claim aspects of oligonucleotide chemistry that we may need to apply to our siRNA therapeutic candidates. There are also many issued patents that claim targeting genes or portions of genes that may be relevant for siRNA drugs we wish to develop. Thus, it is possible that one or more

organizations will hold patent rights to which we will need a license. If those organizations refuse to grant us a license to such patent rights on reasonable terms, we may not be able to market products or perform research and development or other activities covered by these patents.

If we become involved in patent litigation or other proceedings related to a determination of rights, we could incur substantial costs and expenses, substantial liability for damages or be required to stop our product development and commercialization efforts.

Third parties may sue us for infringing their patent rights. Likewise, we may need to resort to litigation to enforce a patent issued or licensed to us or to determine the scope and validity of proprietary rights of others. In addition, a third party may claim that we have improperly obtained or used its confidential or proprietary information. Furthermore, in connection with a license agreement, we have agreed to indemnify the licensor for costs incurred in connection with litigation relating to intellectual property rights. The cost to us of any litigation or other proceeding relating to intellectual property rights, even if resolved in our favor, could be substantial, and the litigation would divert our management’s efforts. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. Uncertainties resulting from the initiation and continuation of any litigation could limit our ability to continue our operations.

If any parties successfully claim that our creation or use of proprietary technologies infringes upon their intellectual property rights, we might be forced to pay damages, potentially including treble damages, if we are found to have willfully infringed on such parties’ patent rights. In addition to any damages we might have to pay, a court could require us to stop the infringing activity or obtain a license. Any license required under any patent may not be made available on commercially acceptable terms, if at all. In addition, such licenses are likely to be non-exclusive and, therefore, our competitors may have access to the same technology licensed to us. If we fail to obtain a required license and are unable to design around a patent, we may be unable to effectively market some of our technology and products, which could limit our ability to generate revenues or achieve profitability and possibly prevent us from generating revenue sufficient to sustain our operations. Moreover, we expect that a number of our collaborations will provide that royalties payable to us for licenses to our intellectual property may be offset by amounts paid by our collaborators to third parties who have competing or superior intellectual property positions in the relevant fields, which could result in significant reductions in our revenues from products developed through collaborations.

If we fail to comply with our obligations under any licenses or related agreements, we could lose license rights that are necessary for developing and protecting our RNAi technology and any related product candidates that we develop, or we could lose certain exclusive rights to grant sublicenses.

Our current licenses impose, and any future licenses we enter into are likely to impose, various development, commercialization, funding, royalty, diligence, sublicensing, insurance and other obligations on us. If we breach any of these obligations, the licensor may have the right to terminate the license or render the license non-exclusive, which could result in us being unable to develop, manufacture and sell products that are covered by the licensed technology or enable a competitor to gain access to the licensed technology. In addition, while we cannot currently determine the amount of the royalty obligations we will be required to pay on sales of future products, if any, the amounts may be significant. The amount of our future royalty obligations will depend on the technology and intellectual property we use in products that we successfully develop and commercialize, if any. Therefore, even if we successfully develop and commercialize products, we may be unable to achieve or maintain profitability.

Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.

In order to protect our proprietary technology and processes, we rely in part on confidentiality agreements with our collaborators, employees, consultants, outside scientific collaborators and sponsored researchers, and other advisors. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover trade secrets and proprietary information, and in such cases we could not assert any trade

secret rights against such party. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

Risks Related to Competition

The pharmaceutical market is intensely competitive. If we are unable to compete effectively with existing drugs, new treatment methods and new technologies, we may be unable to commercialize successfully any drugs that we develop.

The pharmaceutical market is intensely competitive and rapidly changing. Many large pharmaceutical and biotechnology companies, academic institutions, governmental agencies and other public and private research organizations are pursuing the development of novel drugs for the same diseases that we are targeting or expect to target. Many of our competitors have:


	•	much greater financial, technical and human resources than we have at every stage of the discovery, development, manufacture and commercialization of products;

	•	more extensive experience in pre-clinical testing, conducting clinical trials, obtaining regulatory approvals, and in manufacturing, marketing and selling pharmaceutical products;

	•	product candidates that are based on previously tested or accepted technologies;

	•	products that have been approved or are in late stages of development; and

	•	collaborative arrangements in our target markets with leading companies and research institutions.

We will face intense competition from drugs that have already been approved and accepted by the medical community for the treatment of the conditions for which we may develop drugs. We also expect to face competition from new drugs that enter the market. We believe a significant number of drugs are currently under development, and may become commercially available in the future, for the treatment of conditions for which we may try to develop drugs. For instance, we are currently evaluating RNAi therapeutics for RSV, liver cancers, ATTR, hypercholesterolemia and HD, and have a number of additional discovery programs targeting other diseases. Virazole and Synagis are currently marketed for the treatment of certain RSV patients, and numerous drugs are currently marketed or used for the treatment of liver cancer, hypercholesterolemia and HD as well. These drugs, or other of our competitors’ products, may be more effective, safer, less expensive or marketed and sold more effectively, than any products we develop.

If we successfully develop product candidates, and obtain approval for them, we will face competition based on many different factors, including:


	•	the safety and effectiveness of our products;

	•	the ease with which our products can be administered and the extent to which patients accept relatively new routes of administration;

	•	the timing and scope of regulatory approvals for these products;

	•	the availability and cost of manufacturing, marketing and sales capabilities;

	•	price;

	•	reimbursement coverage; and

	•	patent position.

Our competitors may develop or commercialize products with significant advantages over any products we develop based on any of the factors listed above or on other factors. Our competitors may therefore be more successful in commercializing their products than we are, which could adversely affect our competitive position and business. Competitive products may make any products we develop obsolete or noncompetitive before we can recover the expenses of developing and commercializing our product candidates. Such competitors could also

recruit our employees, which could negatively impact our level of expertise and the ability to execute on our business plan. Furthermore, we also face competition from existing and new treatment methods that reduce or eliminate the need for drugs, such as the use of advanced medical devices. The development of new medical devices or other treatment methods for the diseases we are targeting could make our product candidates noncompetitive, obsolete or uneconomical.

We face competition from other companies that are working to develop novel drugs using technology similar to ours. If these companies develop drugs more rapidly than we do or their technologies, including delivery technologies, are more effective, our ability to successfully commercialize drugs will be adversely affected.

In addition to the competition we face from competing drugs in general, we also face competition from other companies working to develop novel drugs using technology that competes more directly with our own. We are aware of multiple companies that are working in the field of RNAi. In addition, we granted licenses or options for licenses to Isis, GeneCare, Benitec, Calando, Tekmira, Quark and others under which these companies may independently develop RNAi therapeutics against a limited number of targets. Any of these companies may develop its RNAi technology more rapidly and more effectively than us. Merck was one of our collaborators and a licensee under our intellectual property for specified disease targets until September 2007, at which time we and Merck agreed to terminate our collaboration. As a result of its acquisition of Sirna in December 2006, and in light of the mutual termination of our collaboration, Merck, which has substantially more resources and experience in developing drugs than we do, may become a direct competitor.

In addition, as a result of agreements that we have entered into, Roche and Takeda have obtained, and Novartis has the right to obtain, broad, non-exclusive licenses to certain aspects of our technology that give them the right to compete with us in certain circumstances.

We also compete with companies working to develop antisense-based drugs. Like RNAi therapeutics, antisense drugs target mRNAs in order to suppress the activity of specific genes. Isis is currently marketing an antisense drug and has several antisense product candidates in clinical trials. The development of antisense drugs is more advanced than that of RNAi therapeutics, and antisense technology may become the preferred technology for drugs that target mRNAs to silence specific genes.

In addition to competition with respect to RNAi and with respect to specific products, we face substantial competition to discover and develop safe and effective means to deliver siRNAs to the relevant cell and tissue types. Safe and effective means to deliver siRNAs to the relevant cell and tissue types may be developed by our competitors, and our ability to successfully commercialize a competitive product would be adversely affected. In addition, substantial resources are being expended by third parties in the effort to discover and develop a safe and effective means of delivering siRNAs into the relevant cell and tissue types, both in academic laboratories and in the corporate sector. Some of our competitors have substantially greater resources than we do, and if our competitors are able to negotiate exclusive access to those delivery solutions developed by third parties, we may be unable to successfully commercialize our product candidates.

Risks Related to Our Common Stock

If our stock price fluctuates, purchasers of our common stock could incur substantial losses.

The market price of our common stock may fluctuate significantly in response to factors that are beyond our control. The stock market in general has recently experienced extreme price and volume fluctuations. The market prices of securities of pharmaceutical and biotechnology companies have been extremely volatile, and have experienced fluctuations that often have been unrelated or disproportionate to the operating performance of these companies. These broad market fluctuations could result in extreme fluctuations in the price of our common stock, which could cause purchasers of our common stock to incur substantial losses.

We may incur significant costs from class action litigation due to our expected stock volatility.

Our stock price may fluctuate for many reasons, including as a result of public announcements regarding the progress of our development efforts, the addition or departure of our key personnel, variations in our quarterly operating results and changes in market valuations of pharmaceutical and biotechnology companies. Recently, when the market price of a stock has been volatile as our stock price may be, holders of that stock have occasionally brought securities class action litigation against the company that issued the stock. If any of our stockholders were to bring a lawsuit of this type against us, even if the lawsuit is without merit, we could incur substantial costs defending the lawsuit. The lawsuit could also divert the time and attention of our management.

Novartis’ ownership of our common stock could delay or prevent a change in corporate control or cause a decline in our common stock should Novartis decide to sell all or a portion of its shares.

As of December 31, 2009, Novartis held 13.3% of our outstanding common stock and has the right to maintain its ownership percentage through the expiration or termination of our broad alliance. This concentration of ownership may harm the market price of our common stock by:


	•	delaying, deferring or preventing a change in control of our company;

	•	impeding a merger, consolidation, takeover or other business combination involving our company; or

	•	discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company.

In addition, if Novartis decides to sell all or a portion of its shares in a rapid or disorderly manner, our stock price could be negatively impacted.

Anti-takeover provisions in our charter documents and under Delaware law and our stockholder rights plan could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our certificate of incorporation and our bylaws may delay or prevent an acquisition of us or a change in our management. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team. These provisions include:


	•	a classified board of directors;

	•	a prohibition on actions by our stockholders by written consent;

	•	limitations on the removal of directors; and

	•	advance notice requirements for election to our board of directors and for proposing matters that can be acted upon at stockholder meetings.

In addition, our board of directors has adopted a stockholder rights plan, the provisions of which could make it difficult for a potential acquirer of Alnylam to consummate an acquisition transaction.

Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. These provisions would apply even if the proposed merger or acquisition could be considered beneficial by some stockholders.


ITEM 1B.	UNRESOLVED STAFF COMMENTS

Not applicable.


ITEM 2.	PROPERTIES

Our operations are based primarily in Cambridge, Massachusetts. As of January 31, 2010, we lease approximately 95,000 square feet of office and laboratory space in Cambridge, Massachusetts. The lease for this property expires in September 2016. We believe that the total space available to us under our current lease will meet our needs for the foreseeable future and that additional space would be available to us on commercially reasonable terms if required.


ITEM 3.	LEGAL PROCEEDINGS


ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our security holders during the fourth quarter of the fiscal year ended December 31, 2009.

PART II


ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock began trading on The NASDAQ Global Market on May 28, 2004 under the symbol “ALNY.” Prior to that time, there was no established public trading market for our common stock. The following table sets forth the high and low sale prices per share for our common stock on The NASDAQ Global Market for the periods indicated:


Year Ended December 31, 2008:	High		Low

First Quarter	$	35.19	$	22.25
Second Quarter	$	30.74	$	22.55
Third Quarter	$	36.37	$	25.07
Fourth Quarter	$	28.95	$	16.37


Year Ended December 31, 2009:	High		Low

First Quarter	$	26.36	$	14.82
Second Quarter	$	23.10	$	16.29
Third Quarter	$	24.75	$	19.00
Fourth Quarter	$	22.87	$	15.45

Holders of record

As of January 31, 2010, there were approximately 52 holders of record of our common stock. Because many of our shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of individual stockholders represented by these record holders.

Dividends

We have never paid or declared any cash dividends on our common stock. We currently intend to retain any earnings for future growth and, therefore, do not expect to pay cash dividends in the foreseeable future.

Securities Authorized for Issuance Under Equity Compensation Plans

We will file with the SEC a definitive Proxy Statement, which we refer to herein as the Proxy Statement, not later than 120 days after the close of the fiscal year ended December 31, 2009. The information required by this item relating to our equity compensation plans is incorporated herein by reference to the information contained under the section captioned “Equity Compensation Plan Information” of the Proxy Statement.

Stock Performance Graph

The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.

The comparative stock performance graph below compares the five-year cumulative total stockholder return (assuming reinvestment of dividends, if any) from investing $100 on December 31, 2004, to the close of the last trading day of 2009, in each of (i) our common stock, (ii) the NASDAQ Stock Market (U.S.) Index and (iii) the NASDAQ Pharmaceutical Index. The stock price performance reflected in the graph below is not necessarily indicative of future price performance.

Comparison of Five-Year Cumulative Total Return
Among Alnylam Pharmaceuticals, Inc.,
NASDAQ Stock Market (U.S.) Index and NASDAQ Pharmaceuticals Index


	12/31/2004		12/30/2005		12/29/2006		12/31/2007		12/31/2008		12/31/2009
Alnylam Pharmaceuticals, Inc.	$	100.00	$	178.85	$	286.48	$	389.29	$	331.06	$	235.88
Nasdaq Stock Market (U.S.) Index	$	100.00	$	102.13	$	112.19	$	121.68	$	58.64	$	84.28
Nasdaq Pharmaceutical Index	$	100.00	$	110.12	$	107.79	$	113.36	$	105.48	$	118.52


ITEM 6.	SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data for each of the five years in the period ended December 31, 2009 are derived from our audited consolidated financial statements. The selected consolidated financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements, and the related Notes, included elsewhere in this annual report on Form 10-K. Historical results are not necessarily indicative of future results.

Selected Consolidated Financial Data
(In thousands, except per share data)


	Year Ended December 31,
	2009			2008			2007			2006			2005

Statement of Operations Data:
Net revenues from research collaborators	$	100,533		$	96,163		$	50,897		$	26,930		$	5,716
Operating expenses(1)		148,644			123,998			144,074			66,431			49,188
Loss from operations		(48,111	)		(27,835	)		(93,177	)		(39,501	)		(43,472	)
Net loss		(47,590	)		(26,249	)		(85,466	)		(34,608	)		(42,914	)
Net loss per common share — basic and diluted	$	(1.14	)	$	(0.64	)	$	(2.21	)	$	(1.09	)	$	(1.96	)
Weighted average common shares outstanding — basic and diluted		41,633			41,077			38,657			31,890			21,949

(1) Non-cash stock-based compensation expenses included in operating expenses	$	19,727		$	16,382		$	14,472		$	8,304		$	4,597


	December 31,
	2009		2008		2007		2006		2005

Balance Sheet Data:
Cash, cash equivalents and marketable securities	$	435,316	$	512,709	$	455,602	$	217,260	$	80,002
Working capital		182,801		343,672		314,427		199,859		63,930
Total assets		481,385		554,676		493,791		240,006		98,348
Notes payable		—		—		6,758		9,136		7,395
Total stockholders’ equity		177,965		202,125		199,168		201,174		61,779


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

Overview

We are applying our technological expertise to build a pipeline of RNAi therapeutics to address significant medical needs, many of which cannot effectively be addressed with small molecules or antibodies, the current major classes of drugs. We are working to develop RNAi therapeutics that are delivered directly to specific sites of disease, as well as RNAi therapeutics that are administered systemically through the bloodstream by intravenous, subcutaneous or intramuscular approaches. Our lead RNAi therapeutic program, ALN-RSV01, is in Phase II clinical trials for the treatment of human respiratory syncytial virus, or RSV, infection, which is reported to be the leading cause of hospitalization in infants in the United States and also occurs in the elderly and in immune compromised adults. In February 2008, we reported positive results from our Phase II experimental RSV infection clinical trial, referred to as the GEMINI study. In July 2009, we and Cubist Pharmaceuticals, Inc., or Cubist, reported results from a Phase IIa clinical trial assessing the safety and tolerability of aerosolized ALN-RSV01 versus placebo in adult lung transplant patients naturally infected with RSV. In February 2010, we initiated a multi-center, global, randomized, double-blind, placebo-controlled Phase IIb clinical trial to evaluate the clinical efficacy endpoints, as well as safety of aerosolized ALN-RSV01 in adult lung transplant patients naturally infected with RSV.

In March 2009, we initiated a Phase I study for ALN-VSP, our second clinical program and our first systemically delivered RNAi therapeutic candidate. We are developing ALN-VSP for the treatment of liver cancers, including hepatocellular carcinoma, or HCC, and other solid tumors with liver involvement. The Phase I study is a multi-center, open label, dose escalation study to evaluate the safety, tolerability, pharmacokinetics and pharmacodynamics of intravenous ALN-VSP in up to approximately 55 patients with advanced solid tumors with liver involvement, including HCC.

We are also working on a number of programs in pre-clinical development, including ALN-HTT, an RNAi therapeutic candidate targeting the huntingtin gene, for the treatment of Huntington’s disease, or HD, which we are developing in collaboration with Medtronic, Inc., or Medtronic. We have additional discovery programs for RNAi therapeutics for the treatment of a broad range of diseases.

In addition, our expertise in RNAi therapeutics and broad intellectual property estate have allowed us to form alliances with leading companies, including Isis Pharmaceuticals, Inc., or Isis, Medtronic, Novartis Pharma AG, or Novartis, Biogen Idec Inc., or Biogen Idec, F. Hoffmann-La Roche Ltd, or Roche, Takeda Pharmaceutical Company Limited, or Takeda, Kyowa Hakko Kirin and Cubist. We have also entered into contracts with government agencies, including the National Institute of Allergy and Infectious Diseases, or NIAID, a component of the National Institutes of Health, or NIH. We have established collaborations with and, in some instances, received funding from major medical and disease associations. 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^tm program and to research companies that commercialize RNAi reagents or services under our research product licenses.

We also seek opportunities to form new ventures in areas outside our core strategic focus. For example, during 2009, we presented new data regarding the application of RNAi technology to improve the manufacturing processes for biologics, which is comprised of recombinant proteins, monoclonal antibodies and vaccines. This initiative, which we are advancing in an internal effort referred to as Alnylam Biotherapeutics, has the potential to create new business opportunities. Additionally, in 2007, we and Isis established Regulus Therapeutics Inc., formerly Regulus Therapeutics LLC, or Regulus, a company focused on the discovery, development and commercialization of microRNA-based therapeutics. Because microRNAs are believed to regulate whole networks of genes that can be involved in discrete disease processes, microRNA-based therapeutics represent a possible new approach to target the pathways of human disease. Given the broad applications for RNAi technology, we believe additional opportunities exist for new ventures.

Alnylam commenced operations in June 2002. We have focused our efforts since inception primarily on business planning, research and development, acquiring, filing and expanding intellectual property rights, recruiting management and technical staff, and raising capital. Since our inception, we have generated significant losses. As of December 31, 2009, we had an accumulated deficit of $299.8 million. Through December 31, 2009, we have funded our operations primarily through the net proceeds from the sale of equity securities and payments we have received under strategic alliances. Through December 31, 2009, a substantial portion of our total net revenues have been collaboration revenues derived from our strategic alliances with Roche,

Takeda and Novartis, and from the United States government in connection with our development of treatments for hemorrhagic fever viruses, including Ebola. We expect our revenues to continue to be derived primarily from new and existing strategic alliances, government and foundation funding, and license fee revenues.

We currently have programs focused in a number of therapeutic areas. However, we are unable to predict when, if ever, we will successfully develop or be able to commence sales of any product. We have never achieved profitability on an annual basis and we expect to incur additional losses over the next several years. We expect our net losses to continue due primarily to research and development activities relating to our drug development programs, collaborations and other general corporate activities. 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. Our sources of potential funding for the next several years are expected to be derived primarily from payments under new and existing strategic alliances, which may include license and other fees, funded research and development payments and milestone payments, government and foundation funding, and proceeds from the sale of equity.

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. Our most advanced program is focused on the treatment of RSV infection and is in Phase II clinical studies. In March 2009, we initiated a Phase I study for ALN-VSP, our second clinical program and our first systemically delivered RNAi therapeutic candidate for the treatment of primary and secondary liver cancer. In December 2009, we filed regulatory applications to initiate a clinical trial for ALN-TTR01, our second systemically delivered RNAi therapeutic candidate. We are developing ALN-TTR, which targets the TTR gene, for the treatment of ATTR. We plan to initiate a Phase I trial of ALN-TTR01 in ATTR patients in the first half of 2010. ALN-TTR01 employs a first generation LNP formulation. In parallel, we are also advancing ALN-TTR02 utilizing second-generation LNPs. In January 2010, we announced that we expect ALN-PCS, a systemically delivered RNAi therapeutic candidate for the treatment of hypercholesterolemia, to be our next clinical candidate. We also have a development program focused on the treatment of HD. In addition, we have discovery programs to develop RNAi therapeutics for the treatment of a broad range of diseases, such as viral hemorrhagic fever, including the Ebola virus, Parkinson’s disease, progressive multifocal leukoencephalopathy, or PML, and other undisclosed programs, as well as several other diseases that are the subject of our strategic alliances. We are working internally and with third-party collaborators to develop capabilities to deliver our RNAi therapeutics both directly to the specific sites of disease and systemically, and we intend to continue to collaborate with government, academic and corporate third parties to evaluate different delivery options.

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:


	•	our ability to progress product candidates into pre-clinical and clinical trials;

	•	the scope, rate and progress of our pre-clinical trials and other research and development activities, including those related to developing safe and effective ways of delivering siRNAs into cells and tissues;

	•	the scope, rate of progress and cost of any clinical trials we commence;

	•	clinical trial results;

	•	the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

	•	the terms, timing and success of any collaborative, licensing and other arrangements that we may establish;


	•	the cost, timing and success of regulatory filings and approvals or potential changes in regulations that govern our industry or the way in which they are interpreted or enforced;

	•	the cost and timing of establishing sufficient sales, marketing and distribution capabilities;

	•	the cost and timing of establishing sufficient clinical and commercial supplies of any products that we may develop; and

	•	the effect of competing technological and market developments.

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 projects on schedule, or at all, and the potential consequences of failing to do so, are set forth in Part I, Item 1A of this annual report on Form 10-K under the heading “Risk Factors.”

Strategic Alliances

A significant component of our business plan is to enter into strategic alliances and collaborations with pharmaceutical and biotechnology 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. Our collaboration strategy is to form (1) non-exclusive platform alliances where our collaborators obtain access to our capabilities and intellectual property to develop their own RNAi therapeutic products; and (2) 50-50 co-development and/or ex-U.S. market geographic partnerships on specific RNAi therapeutic programs. We have entered into broad, non-exclusive platform license agreements with Roche and Takeda, under which we are also collaborating with each of Roche and Takeda on RNAi drug discovery for one or more disease targets. We are pursuing 50-50 co-development programs with Cubist and Medtronic for the development and commercialization of ALN-RSV02 and ALN-HTT, respectively. In addition, we have entered into a product alliance with Kyowa Hakko Kirin for the development and commercialization of ALN-RSV in territories not covered by the Cubist agreement, which include Japan and other markets in Asia. We also have discovery and development alliances with Isis, Novartis and Biogen Idec.

We also seek opportunities to form new ventures in areas outside our core strategic focus. For example, during 2009, we established Alnylam Biotherapeutics, an internal effort regarding the application of RNAi technology to improve the manufacturing processes for biologics, an approach that has the potential to create new business opportunities. This initiative is focused on applying RNAi technologies to the biologics marketplace, which is comprised of recombinant proteins, monoclonal antibodies, and vaccines. In addition, during 2007, we formed Regulus, together with Isis, to capitalize on our technology and intellectual property in the field of microRNA-based therapeutics. Given the broad applications for RNAi technology, we believe additional opportunities exist for new ventures.

Since delivery of RNAi therapeutics remains a major objective of our research activities, we also look to form collaboration and licensing agreements with other companies and academic institutions to gain access to delivery technologies. For example, we have entered into agreements with Tekmira Pharmaceuticals Corporation, or Tekmira, the Massachusetts Institute of Technology, or MIT, The University of British Columbia, or UBC, and AlCana Technologies, Inc., or AlCana, among others, to focus on various delivery strategies. We have also entered into license agreements with Isis, Max Planck Innovation GmbH, Tekmira and MIT, as well as a number of other entities, to obtain rights to important intellectual property in the field of RNAi. In April 2009, we established a new collaboration with Isis focused on the development of single-stranded RNAi, or ssRNAi, technology.

Additionally, we seek funding for the development of our proprietary RNAi therapeutics pipeline from the government and foundations. In 2006, NIAID awarded us a contract to advance the development of a broad spectrum RNAi anti-viral therapeutic against hemorrhagic fever virus, including the Ebola virus. In 2007, the Defense Threat Reduction Agency, or DTRA, an agency of the United States Department of Defense, awarded us a contract to advance the development of a broad spectrum RNAi anti-viral therapeutic for hemorrhagic fever virus, which contract ended in February 2009. In addition, we have obtained funding for pre-clinical discovery programs from organizations such as The Michael J. Fox Foundation.

In September 2007, we terminated our amended and restated research collaboration and license agreement with Merck & Co., Inc., or Merck. Pursuant to the termination agreement, all license grants of intellectual property to develop, manufacture and/or commercialize RNAi therapeutic products under the amended and restated research collaboration and license agreement ceased as of the date of the termination agreement, subject to certain specified exceptions. The termination agreement further provides that, subject to certain conditions, we and Merck will each retain sole ownership and rights in our own intellectual property.

Platform Alliances.

Under the license and collaboration agreement, we and Roche also agreed to collaborate on the discovery of RNAi therapeutic products directed to one or more disease targets, subject to our contractual obligations to third parties. In October 2009, we and Roche advanced our alliance to initiate this therapeutic collaboration stage, referred to as the Discovery Collaboration. Under the Discovery Collaboration, we and Roche are collaborating on the discovery and development of specific RNAi therapeutic products and each party contributes key delivery technologies in the effort, which is focused on specific disease targets. We and Roche intend to co-develop and co-commercialize RNAi therapeutic products in the U.S. market and we are eligible to receive additional milestone and royalty payments for products developed in the rest of the world, if any. After a pre-specified period of collaborative activities, each party will have the option to opt-out of the day-to-day development activities in exchange for reduced milestones and royalty payments in the future. The Discovery Collaboration is governed by the joint steering committee that is comprised of an equal number of representatives from each party.

the non-intellectual property assets of Alnylam Europe were transferred, and Roche Germany purchased from us all of the issued and outstanding shares of Roche Kulmbach for an aggregate purchase price of $15.0 million. The Alnylam Europe stock purchase agreement included transition services that were performed by Roche Kulmbach employees at various levels through August 2008. We reimbursed Roche for these services at an agreed-upon rate.

In consideration for the rights granted to Takeda under the Takeda agreement, Takeda agreed to pay us $150.0 million in upfront and near-term technology transfer payments. In addition, we have 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 agreement. In June 2008, Takeda paid us an upfront payment of $100.0 million. Takeda is also required to make the additional $50.0 million in payments to us upon achievement of specified technology transfer milestones, $20.0 million of which was achieved in September 2008 and paid in October 2008, $20.0 million of which is due upon achievement of specified technology transfer activities, but no later than May 2010, and $10.0 million of which is due upon the achievement of specified technology transfer activities within 24 to 36 months after execution of the agreement. If Takeda elects to expand its license to additional therapeutic areas, Takeda will be required to pay us $50.0 million for each of up to approximately 20 total additional fields selected, if any, comprising substantially all other fields of human disease, as identified and agreed upon by the parties. In addition, for each RNAi therapeutic product developed by Takeda, its affiliates and sublicensees, we are entitled to receive specified development and commercialization milestones, totaling up to $171.0 million per product, together with royalty payments based on worldwide annual net sales, if any. 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 Takeda.

Pursuant to the Takeda agreement, we and Takeda are also collaborating on the research of RNAi therapeutics directed to one or two disease targets agreed to by the parties, subject to our existing contractual obligations with third parties. Takeda also has the option, subject to certain conditions, to collaborate with us on the research and development of RNAi drug delivery technology for targets agreed to by the parties. In addition, Takeda has a right of first negotiation for the development and commercialization of our RNAi therapeutic products in the Asian territory, excluding our ALN-RSV program. In addition to our 50-50 profit sharing option, we have a similar right of first negotiation to participate with Takeda in the development and commercialization in the United States of licensed products. The collaboration is governed by a joint technology transfer committee, or JTTC, a joint research collaboration committee, or JRCC, and a joint delivery collaboration committee, or JDCC, each of which is comprised of an equal number of representatives from each party.

In connection with the Takeda agreement, during 2008, we paid $5.0 million of license fees to our licensors, primarily Isis, in accordance with the applicable license agreements with those parties. These fees were charged to research and development expense.

Discovery and Development Alliances.

future patents and patent applications relating to chemistry and to RNA-targeting mechanisms for the research, development and commercialization of double-stranded RNA, or dsRNA products. We have the right to use Isis technologies in our development programs or in collaborations, and Isis has agreed not to grant licenses under these patents to any other organization for the discovery, development or commercialization of dsRNA products designed to work through an RNAi mechanism, except in the context of a collaboration in which Isis plays an active role. We granted Isis non-exclusive licenses to our current and future patents and patent applications relating to RNA-targeting mechanisms and to chemistry for research use. We also granted Isis the non-exclusive right to develop and commercialize dsRNA products developed using RNAi technology against a limited number of targets. In addition, we granted Isis non-exclusive rights to research, develop and commercialize single-stranded RNA products.

Isis agreed to pay us, per therapeutic target, a license fee of $0.5 million, and milestone payments totaling approximately $3.4 million, payable upon the occurrence of specified development and regulatory events, and royalties on sales, if any, for each product developed by Isis or a collaborator that utilizes our intellectual property. Isis has the right to elect up to ten non-exclusive target licenses under the agreement and has the right to purchase one additional non-exclusive target per year during the term of the collaboration.

costs incurred by us to develop in vivo RNAi technology. The collaboration and license agreement also includes terms under which Novartis has been providing us with research funding and development milestone payments, and may provide us in the future with sales milestone payments as well as royalties on annual net sales of products resulting from the collaboration, if any. The amount of research funding provided by Novartis under the collaboration and license agreement during the research term is dependent upon the number of active programs on which we are collaborating with them at any given time and the number of our employees that are working on those programs, in respect of which Novartis reimburses us at an agreed upon rate. Under the terms of the collaboration and license agreement, Novartis has the right to select up to 30 exclusive targets to include in the collaboration, which number may be increased to 40 under certain circumstances and upon additional payments. For RNAi therapeutic products developed under the agreement, if any, we would be entitled to receive milestone payments upon achievement of certain specified development and annual net sales events, up to an aggregate of $75.0 million per therapeutic product. Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development, we may not receive additional milestone payments or any royalty payments from Novartis.

The collaboration and license agreement also provides Novartis with a non-exclusive option to integrate into its operations our intellectual property relating to RNAi technology, excluding any technology related to delivery of nucleic acid based molecules. Novartis may exercise this integration option at any point during the research term, which term is currently expected to expire in the fourth quarter of 2010. In connection with the exercise of the integration option, Novartis would be required to make additional payments to us totaling $100.0 million, payable in full at the time of exercise, which payments would include an option exercise fee, a milestone based on the overall success of the collaboration and pre-paid milestones and royalties that could become due as a result of future development of products using our technology. This amount would be offset by any license fees due to our licensors in accordance with the applicable license agreements with those parties. In addition, under this license grant, Novartis may be required to make milestone and royalty payments to us in connection with the development and commercialization of RNAi therapeutic products, if any. The license grant under the integration option, if exercised by Novartis, would be structured similarly to our non-exclusive platform licenses with Roche and Takeda.

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 Biogen Idec. The pace and scope of future development of this program is the responsibility of Biogen Idec. We expect to expend limited resources on this program in 2010.

Product Alliances.

territory. We are responsible for supply of the product to Kyowa Hakko Kirin under a supply agreement unless Kyowa Hakko Kirin elects, prior to the first commercial sale of the product in the licensed territory, to manufacture the product itself or arrange for a third party to manufacture the product.

In connection with the Cubist agreement, during 2009, we paid $1.0 million of license fees to our licensors, primarily Isis, in accordance with the applicable license agreements with those parties. These fees were charged to research and development expense.

Delivery Initiatives

We are working internally and with third-party collaborators to extend our capabilities in developing technology to achieve effective and safe delivery of RNAi therapeutics to a broad spectrum of organ and tissue types. In connection with these efforts, we have entered into a number of agreements to evaluate and gain access to certain delivery technologies. In some instances, we are also providing funding to support the advancement of these delivery technologies. We believe that we have made considerable progress in developing our product platform. Over the past 12 to 18 months, we have made several of what we believe to be major advances relating to the delivery of RNAi therapeutics, both internally and together with our collaborators. The first relates to the discovery of new LNP compositions that provide dramatic improvements in the potency of gene silencing as compared to first generation

LNPs. Additionally, we believe we have discovered an important in vivo mechanism for delivery relating to the role of endogenous apolipoprotein E, or ApoE, a plasma protein involved in lipoprotein metabolism, in the delivery of certain LNPs into the cytoplasm of certain cells. The latter discovery has allowed the specific targeting of LNPs and allows the possibility of delivery beyond the liver. We discuss these advances and our overall delivery efforts in more detail in the section entitled “Delivery Initiatives” found in Part I, Item 1 of this annual report on Form 10-K.

In May 2007, we entered into an agreement with the David H. Koch Institute for Integrative Cancer Research at MIT, under which we are sponsoring an exclusive five-year research program focused on the delivery of RNAi therapeutics. In addition, during 2007, we obtained an exclusive worldwide license to the liposomal delivery formulation technology of Tekmira for the discovery, development and commercialization of LNP formulations for the delivery of RNAi therapeutics and a non-exclusive worldwide license to certain liposomal delivery formulation technology of Protiva Biotherapeutics Inc., or Protiva, for the discovery, development and commercialization of certain LNP formulations for the delivery of RNAi therapeutics. In May 2008, Tekmira acquired Protiva. In connection with this acquisition, we entered into new agreements with Tekmira and Protiva, which provide us access to key existing and future technology and intellectual property for the systemic delivery of RNAi therapeutics with liposomal delivery technologies. Under these agreements, we continue to have exclusive rights to the Semple (U.S. Patent No. 6,858,225) and Wheeler (U.S. Patent Nos. 5,976,567 and 6,815,432) patents for RNAi, which we believe are critical for the use of LNP delivery technology. In July 2009, we and Tekmira agreed to jointly participate in a new research collaboration with scientists at UBC and AlCana focused on the discovery of novel lipids for use in LNPs for the systemic delivery of RNAi therapeutics. We are funding the collaborative research over a two-year period, and the work is being conducted by our scientists together with scientists at UBC and AlCana. We will receive exclusive rights to all new inventions as well as sole rights to sublicense any resulting intellectual property to our current and future collaborators. Tekmira will receive rights to use new inventions for their own RNAi therapeutic programs that are licensed under our InterfeRx program.

We are developing ALN-VSP, a systemically delivered RNAi therapeutic candidate, for the treatment of primary and secondary liver cancer. ALN-VSP contains two siRNAs formulated using the first generation LNP formulation known as stable nucleic acid-lipid particles, or SNALP, developed in collaboration with Tekmira. We also have rights to use SNALP technology in the advancement of our other systemically delivered RNAi therapeutic programs, and are advancing ALN-TTR01, for the treatment of ATTR, utilizing a first generation SNALP formulation. In parallel with ALN-TTR01, we are advancing ALN-TTR02 utilizing second-generation LNPs. In addition, we have published pre-clinical results from development programs for other systemically delivered RNAi therapeutic candidates, including ALN-PCS, for the treatment of hypercholesterolemia, which we recently identified as our next clinical candidate. ALN-PCS is being advanced using second-generation LNPs for systemic delivery.

In connection with Tekmira’s acquisition of Protiva, in May 2008 we made an equity investment of $5.0 million in Tekmira, purchasing 2,083,333 shares of Tekmira common stock at a price of $2.40 per share, which represented a premium of $1.00 per share, or an aggregate of $2.1 million. This premium was calculated on the difference between the purchase price and the closing price of Tekmira’s common stock on the effective date of the acquisition. We allocated this $2.1 million premium to the expansion of our access to key technology and intellectual property rights and, accordingly, recorded a charge to research and development expense during the year ended December 31, 2008. During 2008, we recorded an impairment charge of $1.6 million related to our investment in Tekmira, as the decrease in the fair value of this investment was deemed to be other than temporary.

Government Funding

NIH. In September 2006, the NIAID, a component of NIH, awarded us a contract for up to $23.0 million over four years to advance the development of a broad spectrum RNAi anti-viral therapeutic for hemorrhagic fever virus, including the Ebola virus. As a result of the continued progress of this program, the NIAID has appropriated the entire $23.0 million over the four-year term of the contract, which will be completed in September 2010.

microRNAi-based Therapeutics

Regulus. In September 2007, we and Isis established Regulus, a company focused on the discovery, development and commercialization of microRNA-based therapeutics. Regulus combines our and Isis’ technologies, know-how and intellectual property relating to microRNA-based therapeutics. Since microRNAs are believed to regulate the expression of broad networks of genes and biological pathways, microRNA-based therapeutics define a new and potentially high-impact strategy to target multiple points on disease pathways.

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-based therapeutics as well as certain patents in the microRNA field. In addition, we made an initial cash contribution to Regulus of $10.0 million, resulting in us and Isis making initial capital contributions to Regulus of approximately equal aggregate value. In addition, in March 2009, we and Isis each purchased $10.0 million of Series A preferred stock of Regulus. We and Isis currently own approximately 49% and 51%, respectively, of Regulus and there are currently no other third party investors in Regulus. Regulus continues to operate 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 are not eligible to receive options to purchase Regulus common stock.

Regulus’ most advanced program, which is in pre-clinical research, is a microRNA-based therapeutic candidate that targets miR-122. miR-122 is a liver-expressed microRNA that has been shown to be a critical endogenous host factor for the replication of HCV, and anti-miRs targeting miR-122 have been shown to block HCV infection. HCV infection is a significant disease worldwide, for which emerging therapies target viral genes and, therefore, are prone to viral resistance. Regulus is also pursuing a program that targets miR-21. Pre-clinical studies by Regulus and collaborators have shown that miR-21 is implicated in several therapeutic areas, including heart failure and fibrosis. In addition to these programs, Regulus is also actively exploring additional areas for development of microRNA-based therapeutics, including cancer, other viral diseases, metabolic disorders and inflammatory diseases.

In April 2008, Regulus entered into a worldwide strategic alliance with GlaxoSmithKline, or GSK, to discover, develop and market novel microRNA-targeted therapeutics to treat inflammatory diseases such as rheumatoid arthritis and inflammatory bowel disease. In connection with this alliance, Regulus received $20.0 million in upfront payments from GSK, including a $15.0 million option fee and a loan of $5.0 million evidenced by a promissory note (guaranteed by us and Isis) that will convert into Regulus common stock under certain specified circumstances. Regulus could be eligible to receive development, regulatory and sales milestone payments for each of the four microRNA-targeted therapeutics discovered and developed as part of the alliance, and would also receive royalty payments on worldwide sales of products resulting from the alliance, if any. In May 2009, Regulus achieved the first demonstration of a pharmacological effect in immune cells by specific microRNA inhibition, the initial discovery milestone under the GSK alliance, which triggered a payment under the agreement.

Alnylam Biotherapeutics

During 2009, we presented new data regarding the application of RNAi technology to improve the manufacturing processes for biologics, which is comprised of recombinant proteins, monoclonal antibodies, and vaccines. This initiative, which we are advancing in an internal effort referred to as Alnylam Biotherapeutics, has 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 cells, 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 transfection of siRNAs into CHO cells when grown in suspension culture. As Alnylam Biotherapeutics advances the technology, it plans to seek partnerships with established biologic manufacturers, selling licenses, products and services.

Critical Accounting Policies and Estimates

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

Revenue Recognition

Our business strategy includes entering into collaborative license and development agreements with biotechnology and pharmaceutical companies for the development and commercialization of our product candidates. The terms of the agreements typically include non-refundable license fees, funding of research and development, payments based upon achievement of clinical and pre-clinical development milestones, manufacturing services and royalties on product sales.

Non-refundable license fees are recognized as revenue upon delivery of the license only if we have a contractual right to receive such payment, the contract price is fixed or determinable, the collection of the resulting receivable is reasonably assured and we have no further performance obligations under the license agreement. Multiple element arrangements, such as license and development arrangements, are analyzed to determine whether the deliverables, which often include a license and performance obligations such as research and steering committee services, can be separated or whether they must be accounted for as a single unit of accounting. We recognize upfront license payments as revenue upon delivery of the license only if the license has stand-alone value and the fair value of the undelivered performance obligations, typically including research and/or steering committee services, can be determined. If the fair value of the undelivered performance obligations can be determined, such obligations would then be accounted for separately as performed. If the license is considered to either not have stand-alone value or have stand-alone value but the fair value of any of the undelivered performance obligations cannot be determined, the arrangement would then be accounted for as a single unit of accounting and the license payments and payments for performance obligations are recognized as revenue over the estimated period of when the performance obligations are performed.

Whenever we determine that an arrangement should be accounted for as a single unit of accounting, we must determine the period over which the performance obligations will be performed and revenue will be recognized. Revenue will be recognized using either a proportional performance or straight-line method. We recognize revenue using the proportional performance method when we can reasonably estimate the level of effort required to complete our performance obligations under an arrangement and such performance obligations are provided on a best-efforts basis. Direct labor hours or full-time equivalents are typically used as the measure of performance.

Revenue recognized under the proportional performance method would be determined by multiplying the total payments under the contract, excluding royalties and payments contingent upon achievement of substantive milestones, by the ratio of level of effort incurred to date to estimated total level of effort required to complete our performance obligations under the arrangement. Revenue is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned, as determined using the proportional performance method, as of the period ending date.

If we cannot reasonably estimate the level of effort required to complete our performance obligations under an arrangement, then revenue under the arrangement will be recognized as revenue on a straight-line basis over the period we expect to complete our performance obligations. Revenue is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned, as determined using the straight-line method, as of the period ending date.

Significant management judgment is required in determining the level of effort required under an arrangement and the period over which we are expected to complete our performance obligations under an arrangement. Steering committee services that are not inconsequential or perfunctory and that are determined to be performance obligations are combined with other research services or performance obligations required under an arrangement, if any, in determining the level of effort required in an arrangement and the period over which we expect to complete our aggregate performance obligations.

Many of our collaboration agreements entitle us to additional payments upon the achievement of performance-based milestones. If the achievement of a milestone is considered probable at the inception of the collaboration, the related milestone payment is included with other collaboration consideration, such as upfront fees and research funding, in our revenue model. Milestones that involve substantial effort on our part and the achievement of which are not considered probable at the inception of the collaboration are considered “substantive milestones.” Substantive milestones are included in our revenue model when achievement of the milestone is considered probable. As future substantive milestones are achieved, 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, will be recognized as revenue upon achievement of such milestone. The remaining portion of the milestone will be recognized over the remaining performance period using the proportional performance or straight-line method. Milestones that are tied to regulatory approval are not considered probable of being achieved until such approval is received. Milestones tied to counter-party performance are not included in our revenue model until the performance conditions are met.

Steering committee services that are not inconsequential or perfunctory and that are determined to be performance obligations are combined with other research services or performance obligations required under an arrangement, if any, in determining the level of effort required in an arrangement and the period over which we expect to complete our aggregate performance obligations.

For revenue generating arrangements where we, as a vendor, provide consideration to a licensor or collaborator, as a customer, we apply the accounting standard that governs such transactions. This standard addresses the accounting for revenue arrangements where both the vendor and the customer make cash payments to each other for services and/or products. A payment to a customer is presumed to be a reduction of the selling price unless we receive an identifiable benefit for the payment and we can reasonably estimate the fair value of the benefit received. Payments to a customer that are deemed a reduction of selling price are recorded first as a reduction of revenue, to the extent of both cumulative revenue recorded to date and probable future revenues, which include any unamortized deferred revenue balances, under all arrangements with such customer, and then as an expense. Payments that are not deemed to be a reduction of selling price would be recorded as an expense.

We evaluate our collaborative agreements for proper classification in our consolidated statements of operations based on the nature of the underlying activity. Transactions between collaborators recorded in our consolidated statements of operations are recorded on either a gross or net basis, depending on the characteristics of the collaborative relationship. We generally reflect amounts due under our collaborative agreements related to cost-sharing of development activities as a reduction of research and development expense.

Although we follow detailed guidelines in measuring revenue, certain judgments affect the application of our revenue policy. For example, in connection with our existing collaboration agreements, we have recorded on our balance sheet short-term and long-term deferred revenue based on our best estimate of when such revenue will be recognized. Short-term deferred revenue consists of amounts that are expected to be recognized as revenue in the next 12 months. Amounts that we expect will not be recognized prior to the next 12 months are classified as long-term deferred revenue. However, this estimate is based on our current operating plan and, if our operating plan should change in the future, we may recognize a different amount of deferred revenue over the next 12-month period.

The estimate of deferred revenue also reflects management’s estimate of the periods of our involvement in certain of our collaborations. Our performance obligations under these collaborations consist of participation on steering committees and the performance of other research and development services. In certain instances, the timing of satisfying these obligations can be difficult to estimate. Accordingly, our estimates may change in the future. Such changes to estimates would result in a change in revenue recognition amounts. If these estimates and judgments change over the course of these agreements, it may affect the timing and amount of revenue that we recognize and record in future periods.

As of December 31, 2009, we had short-term and long-term deferred revenue of $81.9 million and $189.9 million, respectively, related to our collaborations.

Novartis. In consideration for rights granted to Novartis under the collaboration and license agreement, Novartis made an upfront payment of $10.0 million to us in October 2005 to partly reimburse costs previously incurred by us to develop in vivo RNAi technology. The collaboration and license agreement includes terms under which Novartis is providing us with research funding. In addition, for RNAi therapeutic products developed under the agreement, if any, we are entitled to receive milestone payments upon achievement of certain specified development and annual net sales events, up to an aggregate of $75.0 million per therapeutic product. We initially recorded as deferred revenue the non-refundable $10.0 million upfront payment and the $6.4 million premium that represented the difference between the purchase price and the closing price of our common stock on the date of the stock purchase from Novartis. In addition to these payments, research funding and certain milestone payments, the receipt of which is considered probable, are being amortized into revenue using the proportional performance method over the estimated duration of the collaboration and license agreement, or ten years. Under this method, we estimate the level of effort to be expended over the term of the agreement and recognize revenue based on the lesser of the amount calculated based on the proportional performance of total expected revenue or the amount of non-refundable payments earned.

As future substantive milestones are achieved, and to the extent they are within the period of performance, milestone payments will be recognized as revenue on a proportional performance basis over the contract’s entire performance period, starting with the contract’s commencement. A portion of the milestone payment, equal to the percentage of total performance completed when the milestone is achieved, multiplied by the milestone payment, will be recognized as revenue upon achievement of the milestone. The remaining portion of the milestone will be recognized over the remaining performance period under the proportional performance method.

We believe our estimated period of performance under the Novartis collaboration and license agreement is ten years, which includes the three-year initial term of the agreement, the two one-year extensions elected by Novartis and limited support as part of a technology transfer until 2015, the fifth anniversary of the termination of the collaboration and license agreement. We continue to use an expected term of ten years in our proportional performance model. We reevaluate the expected term when new information is known that could affect our estimate. In the event our period of performance is different than we estimated, revenue recognition will be adjusted on a prospective basis.

Roche. We received aggregate proceeds from Roche of $331.0 million in August 2007. We initially recorded $278.2 million of these proceeds as deferred revenue in connection with this alliance. We allocated $51.3 million

and $1.5 million for financial statement purposes related to the common stock issuance and the net book value of Alnylam Europe, respectively. In exchange for our contributions under the collaboration agreement, for each RNAi therapeutic product developed by Roche, its affiliates or sublicensees under the collaboration agreement, we are entitled to receive milestone payments upon achievement of specified development and sales events, totaling up to an aggregate of $100.0 million per therapeutic target, together with royalty payments based on worldwide annual net sales, if any. In addition, we agreed with Roche to collaborate on the discovery of RNAi therapeutic products directed to one or more disease targets, subject to our existing contractual obligations to third parties. In October 2009, we and Roche advanced our alliance to initiate this therapeutic collaboration stage. Under this Discovery Collaboration, we and Roche are collaborating on the discovery and development of specific RNAi therapeutic products and each party contributes key delivery technologies in the effort, which is focused on specific disease targets. The Discovery Collaboration is governed by the joint steering committee that is comprised of an equal number of representatives from each party.

We have determined that the deliverables under the Roche alliance include the license, the Alnylam Europe assets and employees, the steering committees (joint steering committee and future technology committee) and the services that we are performing under the Discovery Collaboration. We have determined that, pursuant to the accounting guidance governing revenue recognition on multiple element arrangements, the license and assets of Alnylam Europe are not separable from the undelivered services (i.e., the steering committees and Discovery Collaboration) and, accordingly, the license and the services are being treated as a single unit of accounting. When multiple deliverables are accounted for as a single unit of accounting, we base our revenue recognition pattern on the final deliverable. Under the Roche alliance, the steering committee services and the Discovery Collaboration services are the final deliverables and all such services will end, contractually, five years from the effective date of the license and collaboration agreement. We are recognizing the Roche-related revenue on a straight-line basis over five years because we cannot reasonably estimate the total level of effort required to complete our service obligations under the license and collaboration agreement in order to utilize a proportional performance model. As future substantive milestones are achieved, 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, will be recognized as revenue upon achievement of such milestone. The remaining portion of the milestone will be recognized over the remaining performance period on a straight-line basis.

Takeda. In consideration for the rights granted to Takeda under the Takeda agreement, Takeda agreed to pay us $150.0 million in upfront and near-term technology transfer payments. In June 2008, Takeda paid us an upfront payment of $100.0 million. Takeda is also required to make an additional $50.0 million in payments to us upon achievement of specified technology transfer milestones, $20.0 million of which was paid in October 2008, $20.0 million of which is due upon achievement of specified technology transfer activities, but no later than May 2010, and $10.0 million of which is due upon achievement of specified technology transfer activities within 24 to 36 months after execution of the agreement. If Takeda elects to expand its license to additional therapeutic areas, Takeda will be required to pay us $50.0 million for each of up to approximately 20 total additional fields selected, if any, comprising substantially all other fields of human disease, as identified and agreed upon by the parties. In addition, for each RNAi therapeutic product developed by Takeda, its affiliates and sublicensees, we are entitled to receive specified development and commercialization milestones, totaling up to $171.0 million per product, together with royalty payments based on worldwide annual net sales, if any.

Pursuant to the Takeda agreement, we and Takeda have also agreed to collaborate on the research of RNAi therapeutics directed to one or two disease targets agreed to by the parties, subject to our existing contractual obligations with third parties. Takeda also has the option, subject to certain conditions, to collaborate with us on the research and development of RNAi drug delivery technology for targets agreed to by the parties. In addition, Takeda has a right of first negotiation for the development and commercialization of our RNAi therapeutic products in the Asian territory, excluding our ALN-RSV program. In addition to our 50-50 profit sharing option, we have a similar right of first negotiation to participate with Takeda in the development and commercialization in the United States of licensed products. The collaboration is governed by a JTTC, a JRCC and a JDCC, each of which is comprised of an equal number of representatives from each party.

We have 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 we will be obligated to perform

under the research collaboration with Takeda. We have 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. 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. We are recognizing the upfront payment of $100.0 million, the first technology transfer milestone of $20.0 million and the $30.0 million of remaining technology transfer milestones, the receipt of which we believe is probable, on a straight-line basis over seven years because we are unable to reasonably estimate the level of effort to fulfill these obligations, primarily because the effort required under the research collaboration is largely unknown, in order to utilize a proportional performance model. As future substantive milestones are achieved, 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, will be recognized as revenue upon achievement of such milestone. The remaining portion of the milestone will be recognized over the remaining performance period on a straight-line basis.

Kyowa Hakko Kirin. Under the terms of the Kyowa Hakko Kirin agreement, in June 2008, Kyowa Hakko Kirin paid us an upfront cash payment of $15.0 million. In addition, Kyowa Hakko Kirin is required to make payments to us upon achievement of specified development and sales milestones totaling up to $78.0 million, and royalty payments based on annual net sales, if any, of RNAi therapeutics for RSV by Kyowa Hakko Kirin, its affiliates and sublicenses in the licensed territory.

Our collaboration with Kyowa Hakko Kirin is governed by a joint steering committee that is comprised of an equal number of representatives from each party. Kyowa Hakko Kirin 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 RSV in Japan and the rest of the licensed territory. We are responsible for supply of the product to Kyowa Hakko Kirin under a supply agreement unless Kyowa Hakko Kirin elects, prior to the first commercial sale of the product in the licensed territory, to manufacture the product itself or arrange for a third party to manufacture the product.

We have determined that the deliverables under the Kyowa Hakko Kirin agreement include the license, the joint steering committee, the manufacturing services and any additional RSV-specific RNAi therapeutic compounds that comprise the ALN-RSV program. We have determined that, pursuant to the accounting guidance governing revenue recognition on multiple element arrangements, the individual deliverables are not separable and, accordingly, must be accounted for as a single unit of accounting. We are currently unable to reasonably estimate our period of performance under the Kyowa Hakko Kirin agreement, as we are unable to estimate the timeline of our deliverables related to the fixed-price option granted to Kyowa Hakko Kirin for any additional compounds. We are deferring all revenue under the Kyowa Hakko Kirin agreement until we are able to reasonably estimate our period of performance. We will continue to reassess whether we can reasonably estimate the period of performance to fulfill our obligations under the Kyowa Hakko Kirin agreement.

Cubist. Under the terms of the Cubist agreement, we and Cubist share responsibility for developing licensed products in North America and each bears one-half of the related development costs, subject to the terms of the November 2009 amendment. Our collaboration with Cubist for the development of licensed products in North America is governed by a joint steering committee comprised of an equal number of representatives from each party. Cubist will have 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 us and Cubist. Throughout the rest of the world, referred to as the Royalty Territory, excluding Asia, where we have previously partnered our ALN-RSV program with Kyowa Hakko Kirin, Cubist has an exclusive, royalty-bearing license to develop and commercialize licensed products.

convert the North American co-development and profit sharing arrangement into a royalty-bearing license and, in addition to royalties on net sales in North America, will be entitled to receive additional milestone payments totaling up to an aggregate of $130.0 million upon achievement of specified development and sales events in North America, subject to the timing of the conversion by us and the regulatory status of a licensed product at the time of conversion. If we make the conversion to a royalty-bearing license with respect to North America, then North America becomes part of the Royalty Territory. 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 Cubist.

We have determined that the deliverables under the Cubist agreement include the licenses, technology transfer related to the ALN-RSV program, the joint steering committee and the development and manufacturing services that we are obligated to perform during the development period. We have determined that, pursuant to the accounting guidance governing revenue recognition on multiple element arrangements, the licenses and undelivered services are not separable and, accordingly, the licenses and services are being treated as a single unit of accounting. Under the Cubist agreement, the last element to be delivered is the development and manufacturing services, which have an expected life of approximately eight years. We are recognizing the upfront payment of $20.0 million on a straight-line basis over approximately eight years because we are unable to reasonably estimate the level of effort to fulfill our performance obligations in order to utilize a proportional performance model. As future substantive milestones are achieved, 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, will be recognized as revenue upon achievement of such milestone. The remaining portion of the milestone will be recognized over the remaining performance period on a straight-line basis.

Under the terms of the Cubist agreement, we and Cubist share responsibility for developing licensed products in North America and each bears one-half of the related development costs, provided that under the terms of the November 2009 amendment, we are funding the advancement of ALN-RSV01 for adult lung transplant patients and Cubist retains an opt-in right. For revenue generating arrangements that involve cost sharing between both parties, we present the results of activities for which we act as the principal on a gross basis and report any payments received from (made to) other collaborators based on other applicable GAAP, or, in the absence of other applicable GAAP, analogy to authoritative accounting literature or a reasonable, rational and consistently applied accounting policy election. As we are not considered the principal under the Cubist agreement, we record any amounts due from Cubist as a reduction of research and development expense.

Government Contracts. Revenue under government cost reimbursement contracts is recognized as we perform the underlying research and development activities.

Accounting for Income Taxes

In January 2007, we adopted a newly issued accounting standard which requires additional accounting and disclosure about uncertain tax positions. This standard clarifies the accounting for income tax positions by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. It also provides guidance on the derecognition of previously recognized deferred tax items, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. Under this standard, we recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the tax position. The tax benefits recognized in our financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

We operate in the United States and Germany where our income tax returns are subject to audit and adjustment by local tax authorities. The nature of the uncertain tax positions is often very complex and subject to change and the amounts at issue can be substantial. We develop our cumulative probability assessment of the measurement of uncertain tax positions using internal experience, judgment and assistance from professional advisors. Estimates are refined as additional information becomes known. Any outcome upon settlement that differs from our current estimate may result in additional tax expense in future periods.

We recognize income taxes when transactions are recorded in our consolidated statements of operations, with deferred taxes provided for items that are recognized in different periods for financial statement and tax reporting purposes. We record a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized. In addition, we estimate our exposures relating to uncertain tax positions and establish reserves for such exposures when they become probable and reasonably estimable.

For the years ended December 31, 2009 and 2008, we recorded a provision for income taxes of $0.6 million and $0.7 million, respectively. We provide income tax expense for federal alternative minimum tax, state and foreign taxes. We generated U.S. taxable income during 2009 and 2008 due to the recognition of certain proceeds received from the Roche and Takeda alliances. Our 2009 and 2008 U.S. taxable income will be offset by net operating loss carryforwards and other deferred tax attributes. However, we were subject to federal alternative minimum tax and state income taxes in 2009 and 2008.

At December 31, 2009, we had a valuation allowance against our net deferred tax assets to the extent it is more likely than not that the assets will not be realized. At December 31, 2009, we had utilized all federal and Massachusetts state net operating loss carryforwards and all foreign tax credits. At December 31, 2009, we had $2.2 million of state research and development tax credit carryforwards derived from stock option exercises that are available to reduce future Massachusetts tax liabilities. At December 31, 2009, the California state net operating loss carryforward was $8.6 million (related to Regulus, located in California). We have placed a valuation allowance against the state net operating loss and state credit deferred tax assets as it is unlikely that we will realize these assets. Ownership changes, as defined in the Internal Revenue Code, including those resulting from the issuance of common stock in connection with our public offerings, may limit the amount of net operating loss and tax credit carryforwards that can be utilized to offset future taxable income or tax liability. The amount of the limitation is determined in accordance with Section 382 of the Internal Revenue Code. We have determined that there is no limitation on the utilization of net operating loss and tax credit carryforwards in accordance with Section 382 of the Internal Revenue Code in 2009.

Accounting for Stock-Based Compensation

Effective January 1, 2006, we adopted a newly issued accounting standard addressing recognition and disclosure of stock compensation. We adopted the fair value recognition provisions of this standard, using the modified prospective transition method. All stock-based awards granted to non-employees are accounted for at their fair value and compensation expense is generally recognized over the vesting period of the award. Determining the amount of stock-based compensation to be recorded requires us to develop estimates of fair values of stock options as of the grant date. We calculate the grant date fair values using the Black-Scholes valuation model. Our expected stock price volatility assumption is based on a combination of the historical and implied volatility of our publicly traded stock. For stock option grants issued during the year ended December 31, 2009, we used a weighted-average expected stock-price volatility assumption of 56%. Our expected life assumption is based on the equal weighting of our historical data and the historical data of our pharmaceutical and biotechnology peers. Our weighted average expected term was 6.2 years for the year ended December 31, 2009. We utilize a dividend yield of zero based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends. The risk-free interest rate used for each grant is based on the U.S. Treasury yield curve in effect at the time of grant for instruments with a similar expected life.

As of December 31, 2009, the estimated fair value of unvested employee awards was $44.7 million, net of estimated forfeitures. This amount will be recognized over the weighted average remaining vesting period of approximately 1.5 years for these awards. Stock-based employee compensation expense was $18.9 million for the year ended December 31, 2009. However, the total amount of stock-based compensation expense recognized in any future period cannot be predicted at this time because it will depend on levels of stock-based payments granted in the future as well as the portion of the awards that actually vest. The stock compensation accounting standard requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered option. We currently expect, based on an analysis of our historical forfeitures, that approximately 83% of our options will actually vest, and therefore have applied an annual

forfeiture rate of 4.5% to all unvested options as of December 31, 2009. Ultimately, the actual expense recognized over the vesting period will only be for those shares that vest.

Accounting for Joint Venture

We account for our interest in Regulus using the equity method of accounting. We reviewed the consolidation guidance that defines a variable interest entity, or VIE, and concluded that Regulus currently qualifies as a VIE. The founding investor rights agreement contains transfer restrictions on each of Isis’ and our interests and, as a result, we and Isis are considered related parties. Because we and Isis are related parties and collectively own 100% of Regulus, the determination of which entity would be considered the primary beneficiary is based on which entity is most closely associated with Regulus. Following consolidation guidance, we have concluded that Isis is the primary beneficiary and, accordingly, we have not consolidated Regulus and account for our investment under the equity method of accounting. Under new consolidation guidance effective January 1, 2010, we do not expect Isis to continue to consolidate Regulus.

Estimated Liability for Development Costs

We record accrued liabilities related to expenses for which service providers have not yet billed us with respect to products or services that we have received, specifically related to ongoing pre-clinical studies and clinical trials. These costs primarily relate to third-party clinical management costs, laboratory and analysis costs, toxicology studies and investigator fees. We have multiple product candidates in concurrent pre-clinical studies and clinical trials at multiple clinical sites throughout the world. In order to ensure that we have adequately provided for ongoing pre-clinical and clinical development costs during the period in which we incur such costs, we maintain an accrual to cover these expenses. We update our estimate for this accrual on at least a quarterly basis. The assessment of these costs is a subjective process that requires judgment. Upon settlement, these costs may differ materially from the amounts accrued in our consolidated financial statements. Our historical accrual estimates have not been materially different from our actual amounts.

Results of Operations

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


	Year Ended December 31,
	2009			2008			2007

Net revenues from research collaborators	$	100,533		$	96,163		$	50,897
Operating expenses		148,644			123,998			144,074
Loss from operations		(48,111	)		(27,835	)		(93,177	)
Net loss	$	(47,590	)	$	(26,249	)	$	(85,466	)

Discussion of Results of Operations for 2009 and 2008

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


	Year Ended
	December 31,
	2009		2008

Roche	$	56,884	$	54,427
Takeda		21,732		12,794
Novartis		9,811		11,635
Government contract		7,471		14,172
Other research collaborator		3,593		928
InterfeRx program, research reagent license and other		1,042		2,207

Total net revenues from research collaborators	$	100,533	$	96,163

Revenues increased for the year ended December 31, 2009 as compared to the year ended December 31, 2008 primarily as a result of a full year of revenues from our May 2008 alliance with Takeda. We are recognizing as revenue the $150.0 million in upfront and technology transfer milestone payments made or due to us under the Takeda alliance on a straight-line basis over seven years, which equates to approximately $5.0 million per quarter. Also contributing to the increase in 2009 were higher revenues under the Roche alliance related primarily to a development milestone achieved in 2009. Under the Roche alliance, we are recognizing revenue on a straight-line basis over five years, which equates to approximately $14.0 million per quarter.

The decrease in Novartis revenues during the year ended December 31, 2009 as compared to the year ended December 31, 2008 was due in part to a reduction in the number of resources allocated to the broad Novartis alliance. The Novartis collaboration and related portion of Novartis revenues are currently expected to end in the fourth quarter of 2010. The Novartis collaboration and license agreement provides Novartis with a non-exclusive option to integrate into its operations our intellectual property relating to RNAi technology, excluding any technology related to delivery of nucleic acid based molecules. Novartis may exercise this integration option at any point during the research term. In connection with the exercise of the integration option, Novartis would be required to make additional payments to us totaling $100.0 million, payable in full at the time of exercise, which payments would include an option exercise fee, a milestone based on the overall success of the collaboration, and pre-paid milestones and royalties that could become due as a result of future development of products using our technology. Novartis’ exercise of this integration option would increase revenues substantially.

For the year ended December 31, 2009 as compared to the year ended December 31, 2008, government contract revenues decreased primarily as a result of the wind down of our collaboration with DTRA. Following a program review, in February 2009, we and DTRA determined not to continue this program and accordingly, the remaining funds were not accessed.

Other research collaborator revenues increased in the year ended December 31, 2009 as compared to the year ended December 31, 2008 due primarily to our alliance with Cubist. In consideration for the rights granted to Cubist under the agreement, in January 2009, Cubist paid us an upfront cash payment of $20.0 million. We are recognizing this $20.0 million payment as revenue on a straight-line basis over approximately eight years.

The decrease in InterfeRx program, research reagent license and other revenues for the year ended December 31, 2009 compared to the prior year was due to milestone payments from certain InterfeRx licensees received in 2008.

Total deferred revenue of $271.8 million at December 31, 2009 consists of payments received from collaborators, primarily Roche, Takeda, Kyowa Hakko Kirin and Cubist, that we have yet to recognize pursuant to our revenue recognition policies.

For the foreseeable future, we expect our revenues to continue to be derived primarily from our alliances with Roche, Takeda, Novartis and Cubist, as well as other strategic alliances, collaborations, government and foundation funding, 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:


			% of					% of
			Total					Total
			Operating					Operating			Increase
	2009		Expenses			2008		Expenses			$		%

Research and development	$	108,730		73	%	$	96,883		78	%	$	11,847		12	%
General and administrative		39,914		27	%		27,115		22	%		12,799		47	%

Total operating expenses	$	148,644		100	%	$	123,998		100	%	$	24,646		20	%

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:


			% of					% of			Increase
			Expense					Expense			(Decrease)
	2009		Category			2008		Category			$			%

Research and development
Compensation and related	$	21,632		20	%	$	17,664		18	%	$	3,968			22	%
External services		20,642		19	%		22,852		24	%		(2,210	)		(10	)%
Clinical trial and manufacturing		18,880		17	%		13,342		14	%		5,538			42	%
License fees		13,632		13	%		12,624		13	%		1,008			8	%
Facilities-related		11,612		11	%		10,439		11	%		1,173			11	%
Non-cash stock-based compensation		11,415		10	%		9,575		10	%		1,840			19	%
Lab supplies and materials		8,106		7	%		8,095		8	%		11				*
Other		2,811		3	%		2,292		2	%		519			23	%

Total research and development expenses	$	108,730		100	%	$	96,883		100	%	$	11,847			12	%


*		Indicates less than 1%

Research and development expenses increased during the year ended December 31, 2009 due primarily to increased clinical program and manufacturing expenses associated with our ALN-TTR pre-clinical program and our ALN-VSP clinical trial. Also contributing to the increase in research and development expenses for the year ended December 31, 2009 was an increase in compensation and related, non-cash stock-based compensation and facilities-related expenses due primarily to additional research and development headcount to support our alliances and expanding product pipeline. Partially offsetting these increases, external services expenses decreased during the year ended December 31, 2009 as a result of lower pre-clinical activities due primarily to the wind down of our collaboration with DTRA. In addition, under the terms of our January 2009 agreement with Cubist, we and Cubist each were responsible for one-half of the development costs for our ALN-RSV program through November 2009. In November 2009, we and Cubist agreed to focus our collaboration and joint development efforts on ALN-RSV02 for use in pediatric patients. In turn, Alnylam is funding the advancement of ALN-RSV01 for adult lung transplant patients and Cubist retains an opt-in right. For the year ended December 31, 2009, we recorded amounts due from Cubist of $5.3 million as a reduction to research and development expenses.

We expect to continue to devote a substantial portion of our resources to research and development expenses and we expect that research and development expenses will remain consistent or increase slightly in 2010 as we continue development of our and our collaborators’ product candidates and focus on continuing to develop drug delivery-related technologies.

We do not track actual costs for most of our research and development programs or our personnel and personnel-related costs on a project-by-project basis because our most-advanced programs are in the early stages of clinical development. In addition, a significant portion of our research and development costs are not tracked by project as they benefit multiple projects or our technology platform. However, our collaboration agreements contain cost-sharing arrangements whereby certain costs incurred under the project are reimbursed. 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 are reimbursed under our 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:


			% of					% of			Increase
			Expense					Expense			(Decrease)
	2009		Category			2008		Category			$			%

General and administrative
Consulting and professional services	$	19,903		50	%	$	9,281		34	%	$	10,622			114	%
Non-cash stock-based compensation		8,312		21	%		6,807		25	%		1,505			22	%
Compensation and related		6,383		16	%		5,763		21	%		620			11	%
Facilities-related		2,634		7	%		2,401		9	%		233			10	%
Insurance		747		2	%		682		3	%		65			10	%
Other		1,935		4	%		2,181		8	%		(246	)		(11	)%

Total general and administrative expenses	$	39,914		100	%	$	27,115		100	%	$	12,799			47	%

The increase in general and administrative expenses during the year ended December 31, 2009 was due primarily to higher consulting and professional services expenses related to business activities, primarily legal activities, a description of which is set forth in Part I, Item 3 of this annual report on Form 10-K. Also contributing to the increase were higher non-cash stock-based compensation and compensation and related expenses due to a modest increase in general and administrative headcount over the past year to support our growth. We expect that general and administrative expenses, excluding expenses associated with legal activities, will remain consistent or increase slightly in 2010.

Other income (expense)

We incurred $4.9 million equity in loss of joint venture (Regulus Therapeutics Inc.) for the year ended December 31, 2009 as compared to $9.3 million for the year ended December 31, 2008 related to our share of the net losses incurred by Regulus. Through December 31, 2008, we were recognizing the first $10.0 million of losses of Regulus as equity in loss of joint venture (Regulus Therapeutics Inc.) in our consolidated statements of operations because we were responsible for funding those losses through our initial $10.0 million cash contribution. Beginning in January 2009, in connection with the conversion of Regulus to a C corporation, we are recognizing approximately 49% of the income and losses of Regulus. The carrying value of our investment in joint venture (Regulus Therapeutics Inc.) immediately prior to the conversion to a C corporation exceeded 49% of the net assets of Regulus by approximately $0.8 million. Upon conversion, this amount was allocated to the intellectual property of Regulus and, because the intellectual property was determined to be in-process research and development, the $0.8 million was recorded as a charge to expense. This charge is included in equity in loss of joint venture (Regulus Therapeutics Inc.) in the consolidated statements of operations for the year ended December 31, 2009. Separate financial information for Regulus is included in Exhibit 99.1 to this annual report on Form 10-K.

Interest income was $5.4 million in 2009 as compared to $14.4 million in 2008. The decrease in 2009 was due primarily to significantly lower average interest rates.

Interest expense was zero in 2009 as compared to $0.9 million in 2008. Interest expense in 2008 was related to borrowings under our lines of credit used to finance capital equipment purchases. In December 2008, we repaid the aggregate outstanding balance under these credit lines.

Other income was $0.6 million in 2009 as compared to other expense of $1.9 million in 2008. Other income in 2009 consisted primarily of realized gains on sales of marketable securities. Included in other expense in 2008 was an impairment charge of $1.6 million related to our May 2008 investment in Tekmira, as the decrease in the fair value of this investment was deemed to be other than temporary.

Income taxes, primarily as a result of our alliances with Roche and Takeda, was a provision for income taxes of $0.6 million and $0.7 million for the years ended December 31, 2009 and 2008, respectively.

Discussion of Results of Operations for 2008 and 2007

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


	Year Ended
	December 31,
	2008		2007

Roche	$	54,427	$	17,571
Government contract		14,172		9,800
Takeda		12,794		—
Novartis		11,635		14,670
InterfeRx program, research reagent license and other		2,207		1,526
Other research collaborator		928		7,330

Total net revenues from research collaborators	$	96,163	$	50,897

Revenues increased significantly for the year ended December 31, 2008 as compared to the year ended December 31, 2007 primarily as a result of our August 2007 alliance with Roche, as well as our May 2008 alliance with Takeda. Under the Roche alliance, $278.2 million was being recognized as revenue on a straight-line basis over five years, which equates to approximately $14.0 million per quarter. In connection with the Roche alliance, Roche Kulmbach employees performed certain transition services for us at various levels through August 2008. We reimbursed Roche for these services at an agreed-upon rate. We recorded as contra revenue (a reduction of revenues) $1.0 million and $4.2 million for these services during the years ended December 31, 2008 and 2007, respectively. Under the Takeda alliance, the $150.0 million in upfront and technology transfer milestone payments made or due to us are being recognized as revenue on a straight-line basis over seven years, which equates to approximately $5.0 million per quarter.

For the year ended December 31, 2008 as compared to the year ended December 31, 2007, government contract revenues increased primarily as a result of our collaboration with DTRA, which began in the third quarter of 2007.

The increase in InterfeRx program, research reagent license and other revenues for the year ended December 31, 2008 compared to the prior year was due to milestone payments from certain InterfeRx licensees received in 2008.

The decrease in Novartis revenues during the year ended December 31, 2008 as compared to the year ended December 31, 2007 was due in part to the wind down of the Novartis flu alliance.

Other research collaborator revenues decreased in the year ended December 31, 2008 as compared to the year ended December 31, 2007 due primarily to our termination of the Merck collaboration agreement in September 2007. We were recognizing the remaining deferred revenue under the Merck agreement on a straight-line basis over the remaining period of expected performance of four years. As a result of the termination, we recognized an aggregate of $3.5 million during the third quarter of 2007, which represented all of the remaining deferred revenue under the Merck agreement. In addition, during 2008, we reduced the number of resources allocated to, and received lower external expense reimbursement under, our collaboration with Biogen Idec. The pace and scope of future development under this collaboration is the responsibility of Biogen Idec.

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:


			% of					% of
			Total					Total			Increase
			Operating					Operating			(Decrease)
	2008		Expenses			2007		Expenses			$			%

Research and development	$	96,883		78	%	$	120,686		84	%	$	(23,803	)		(20	)%
General and administrative		27,115		22	%		23,388		16	%		3,727			16	%

Total operating expenses	$	123,998		100	%	$	144,074		100	%	$	(20,076	)		(14	)%


			% of					% of			Increase
			Expense					Expense			(Decrease)
	2008		Category			2007		Category			$			%

Research and development
External services	$	22,852		24	%	$	18,417		15	%	$	4,435			24	%
Compensation and related		17,664		18	%		13,201		11	%		4,463			34	%
Clinical trial and manufacturing		13,342		14	%		20,662		17	%		(7,320	)		(35	)%
License fees		12,624		13	%		42,207		35	%		(29,583	)		(70	)%
Facilities-related		10,439		11	%		8,511		7	%		1,928			23	%
Non-cash stock-based compensation		9,575		10	%		9,363		8	%		212			2	%
Lab supplies and materials		8,095		8	%		6,154		5	%		1,941			32	%
Other		2,292		2	%		2,171		2	%		121			6	%

Total research and development expenses	$	96,883		100	%	$	120,686		100	%	$	(23,803	)		(20	)%

Research and development expenses decreased during the year ended December 31, 2008 as compared to the year ended December 31, 2007 due primarily to higher license fees during the prior period consisting of $27.5 million in payments to certain entities, primarily Isis, as a result of our alliance with Roche, a non-cash license fee of $7.9 million and a cash license fee of $0.4 million related to the issuance of our stock to Tekmira during 2007 in connection with our original license agreement with Tekmira, and $6.0 million in payments for drug delivery-related activities. Partially offsetting this decrease was $5.0 million in payments made in 2008 to certain entities, primarily Isis, as a result of the Takeda alliance, as well as a charge of $2.1 million in connection with our Tekmira license agreement and $3.2 million associated with various intellectual property assets.

Clinical trial and manufacturing expenses decreased during the year ended December 31, 2008 as compared to the year ended December 31, 2007 as a result of higher clinical trial and manufacturing expenses in the prior period in support of our clinical program for RSV, for which we began Phase II trials in June 2007.

Partially offsetting these decreases, external services expenses increased during the year ended December 31, 2008 as compared to the year ended December 31, 2007 as a result of higher expenses related to our government programs, our RSV program and our pre-clinical programs for the treatment of liver cancer and HD, as well as higher expenses associated with our drug delivery-related collaborations. In addition, compensation and related, lab supplies and materials, and facilities-related expenses increased during the year ended December 31, 2008 as compared to the prior year due to additional research and development headcount to support our alliances and expanding product pipeline.


			% of					% of			Increase
			Expense					Expense			(Decrease)
	2008		Category			2007		Category			$			%

General and administrative
Consulting and professional services	$	9,281		34	%	$	8,547		36	%	$	734			9	%
Non-cash stock-based compensation		6,807		25	%		5,109		22	%		1,698			33	%
Compensation and related		5,763		21	%		4,647		20	%		1,116			24	%
Facilities-related		2,401		9	%		2,486		11	%		(85	)		(3	)%
Insurance		682		3	%		654		3	%		28			4	%
Other		2,181		8	%		1,945		8	%		236			12	%

Total general and administrative expenses	$	27,115		100	%	$	23,388		100	%	$	3,727			16	%

The increase in general and administrative expenses during the year ended December 31, 2008 as compared to the prior year was due primarily to an increase in general and administrative headcount during 2008 to support our growth and higher non-cash stock-based compensation.

Other income (expense)

Equity in loss of joint venture (Regulus Therapeutics Inc.) was $9.3 million and $1.1 million during the years ended December 31, 2008 and 2007, respectively, related to our share of the net losses incurred by Regulus, which was formed in September 2007. The increase was a result of Regulus ramping up its operations throughout 2008. Separate financial information for Regulus is included in Exhibit 99.1 to this annual report on Form 10-K.

Interest income was $14.4 million in 2008 as compared to $15.4 million in 2007. The decrease was due to lower average interest rates during the year ended December 31, 2008, partially offset by higher average cash, cash equivalent and marketable securities balances.

Interest expense was $0.9 million in 2008 as compared to $1.1 million in 2007. Interest expense in each period was related to borrowings under our lines of credit used to finance capital equipment purchases. In December 2008, we repaid the aggregate outstanding balance under these credit lines.

Included in other expense during the year ended December 31, 2008 was an impairment charge of $1.6 million related to our May 2008 investment in Tekmira, as the decrease in the fair value of this investment was deemed to be other than temporary.

Our provision for income taxes was $0.7 million for year ended December 31, 2008 primarily as a result of our 2007 alliance with Roche. Income tax expense was $5.2 million for the prior year primarily as a result of the sale of our German operations to Roche in August 2007 for $15.0 million.

Liquidity and Capital Resources

The following table summarizes our cash flow activities for the periods indicated, in thousands:


	Year Ended December 31,
	2009			2008			2007

Net loss	$	(47,590	)		$(26,249	)	$	(85,466	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities		25,857			27,840			29,834
Changes in operating assets and liabilities		(50,412	)		63,900			252,151

Net cash (used in) provided by operating activities		(72,145	)		65,491			196,519
Net cash provided by (used in) investing activities		14,433			17,936			(277,425	)
Net cash provided by financing activities		3,509			3,155			58,635
Effect of exchange rate on cash		(121	)		53			(527	)

Net (decrease) increase in cash and cash equivalents		(54,324	)		86,635			(22,798	)
Cash and cash equivalents, beginning of period		191,792			105,157			127,955

Cash and cash equivalents, end of period	$	137,468			$191,792		$	105,157

Since we commenced operations in 2002, we have generated significant losses. As of December 31, 2009, we had an accumulated deficit of $299.8 million. As of December 31, 2009, we had cash, cash equivalents and marketable securities of $435.3 million, compared to cash, cash equivalents and marketable securities of $512.7 million as of December 31, 2008. We invest primarily in cash equivalents, U.S. government and municipal 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 to our fixed income marketable securities as of December 31, 2009.

Operating activities

We have required significant amounts of cash to fund our operating activities as a result of net losses since our inception. The decrease in net cash provided by operating activities for the year ended December 31, 2009 compared to the year ended December 31, 2008 was due primarily to our net loss and other changes in our working capital. We had a decrease in deferred revenue of $58.2 million for year ended December 31, 2009, partially offset by an increase in accounts payable of $9.9 million. We had an increase in deferred revenue of $66.7 million for the year ended December 31, 2008 due primarily to the proceeds received from our Takeda and Kyowa Hakko Kirin alliances. Cash used in operating activities is adjusted for non-cash items to reconcile net loss to net cash provided by or used in operating activities. These non-cash adjustments consist primarily of stock-based compensation, equity in loss of joint venture (Regulus Therapeutics Inc.) and 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 year ended December 31, 2009, net cash provided by investing activities of $14.4 million resulted primarily from net sales and maturities of marketable securities of $23.2 million and a decrease in restricted cash of $6.2 million resulting from the release of letters of credit in connection with the amendment of our facility lease and the termination of our sublease agreement. Offsetting these amounts was a $10.0 million investment in Regulus and purchases of property and equipment of $4.9 million. For the year ended December 31, 2008, net cash provided by

investing activities of $17.9 million resulted primarily from net sales and maturities of marketable securities of $28.8 million. Offsetting this amount was purchases of property and equipment of $10.8 million.

Financing activities

For the year ended December 31, 2009, net cash provided by financing activities of $3.5 million was due to proceeds of $1.2 million from our issuance of common stock to Novartis in May 2009, as well as proceeds of $2.4 million from the issuance of common stock in connection with stock option exercises. For the year ended December 31, 2008, net cash provided by financing activities was $3.2 million due to proceeds of $5.4 million from our issuance of common stock to Novartis in May 2008, as well as proceeds of $4.5 million from the issuance of common stock in connection with stock option exercises, offset by $6.8 million for repayments of notes payable.

In March 2006, we entered into an agreement with Oxford Finance Corp., or Oxford, to establish an equipment line of credit for up to $7.0 million to help support capital expansion of our facility in Cambridge, Massachusetts and capital equipment purchases. During 2006, we borrowed an aggregate of $4.2 million from Oxford pursuant to the agreement. In May 2007, we borrowed an aggregate of $1.0 million from Oxford pursuant to the agreement. In March 2004, we entered into an equipment line of credit with Lighthouse Capital Partners V, L.P., or Lighthouse, to finance leasehold improvements and equipment purchases of up to $10.0 million. On the maturity of each equipment advance under the Lighthouse line of credit, we were required to pay, in addition to the principal and interest due, an additional amount of 11.5% of the original principal. This amount was being accrued over the applicable borrowing period as additional interest expense. In December 2008, we repaid the aggregate outstanding balance under the Oxford and Lighthouse credit lines.

During the current downturn in global financial markets, some companies have experienced difficulties accessing their cash equivalents, investment securities and raising capital generally, which have had a material adverse impact on their liquidity. In addition, the current economic downturn has severely diminished the availability of capital and may limit our ability to access these markets to obtain financing in the future. Based on our current operating plan, we believe that our existing cash, cash equivalents and fixed income marketable securities, for which we have not recognized any impairment charges, together with the cash we expect to generate under our current alliances, including our Novartis, Roche, Takeda and Cubist alliances, will be sufficient to fund our planned operations for at least the next several years, during which time we expect to further the development of our product candidates, conduct clinical trials, extend the capabilities of our technology platform and continue to prosecute patent applications and otherwise build and maintain our patent portfolio. However, 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 longer term, we may seek additional funding through additional collaborative arrangements and public or private financings. Additional funding may not be available to us on acceptable terms or at all. In addition, the terms of any financing may 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. If we are unable to obtain funding on a timely basis, we may be required to significantly 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:


	•	our progress in demonstrating that siRNAs can be active as drugs;

	•	our ability to develop relatively standard procedures for selecting and modifying siRNA product candidates;

	•	progress in our research and development programs, as well as the magnitude of these programs;

	•	the timing, receipt and amount of milestone and other payments, if any, from present and future collaborators, if any;

	•	the timing, receipt and amount of funding under current and future government contracts, if any;


	•	our ability to maintain and establish additional collaborative arrangements;

	•	the resources, time and costs required to successfully initiate and complete our pre-clinical and clinical trials, obtain regulatory approvals, and obtain and maintain licenses to third-party intellectual property;

	•	the resources, time and cost required for the preparation, filing, prosecution, maintenance and enforcement of patent claims;

	•	the costs associated with legal activities arising in the course of our business activities;

	•	progress in the research and development programs of Regulus; and

	•	the timing, receipt and amount of sales and royalties, if any, from our potential products.

Off-Balance Sheet Arrangements

In connection with our license agreements with Max-Planck-Gesellschaft Zur Forderung Der Wissenschaften E.V. and Max-Planck-Innovation GmbH, collectively, Max Planck, relating to the Tuschl I and II patent applications, we are required to indemnify Max Planck for certain damages arising in connection with the intellectual property rights licensed under the agreements. Under this indemnification agreement with Max Planck, we are responsible for paying the costs of any litigation relating to the license agreements or the underlying intellectual property rights. These amounts are charged to general and administrative expense. In addition, we are a party to a number of agreements entered into in the ordinary course of business, which contain typical provisions that obligate us to indemnify the other parties to such agreements upon the occurrence of certain events. These indemnification obligations are considered off-balance sheet arrangements in accordance with GAAP. To date, other than the costs associated with the litigation described in Part I, Item 3 of this annual report on Form 10-K, which we are responsible for under our indemnification agreement with Max Planck, we have not encountered material costs as a result of such obligations and have not accrued any liabilities related to such obligations in our consolidated financial statements. See Note 7 to our consolidated financial statements included in this annual report on Form 10-K for further discussion of these indemnification agreements.

Contractual Obligations

In the table below, we set forth our enforceable and legally binding obligations and future commitments as of December 31, 2009, as well as obligations related to contracts that we are likely to continue, regardless of the fact that they were cancelable as of December 31, 2009. Some of the figures that we include in this table are based on management’s estimate and assumptions about these obligations, including their duration, the possibility of renewal, anticipated actions by third parties, and other factors. Because these estimates and assumptions are necessarily subjective, the obligations we will actually pay in future periods may vary from those reflected in the table.


	Payments Due by Period
			2011 and		2013 and
Contractual Obligations	2010		2012		2014		After 2014		Total

Operating lease obligations(1)	$	3,727	$	7,725	$	8,385	$	7,878	$	27,715
Purchase commitments(2)		12,273		3,782		—		—		16,055
Technology-related commitments(3)		18,225		6,558		1,041		6,823		32,647

Total contractual cash obligations	$	34,225	$	18,065	$	9,426	$	14,701	$	76,417


(1)		Relates to our Cambridge, Massachusetts non-cancelable operating lease agreement.

(2)		Includes commitments related to purchase orders, clinical and pre-clinical agreements, and other purchase commitments for goods or services.

(3)		Relates to our fixed payment obligations under license agreements, as well as other payments related to technology research and development. Includes a potential $10.0 million milestone payable to Isis during the fourth quarter. A description of the amended and restated Isis agreement is included above under “Strategic Alliances — Isis” in this annual report on Form 10-K.

We in-license technology from a number of sources. Pursuant to these in-license agreements, we will be required to make additional payments if and when we achieve specified development and regulatory milestones. To the extent we are unable to reasonably predict the likelihood, timing or amount of such payments, we have excluded them from the table above.

Recent Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board, or FASB, issued the FASB Accounting Standards Codification, or ASC. Effective in the third quarter of 2009, the ASC became the single source for all authoritative GAAP recognized by the FASB, and is required to be applied to financial statements issued for interim and annual periods ending after September 15, 2009. The ASC does not change GAAP and did not impact our consolidated financial statements.

In October 2009, the FASB issued a new accounting standard, which amends existing revenue recognition accounting pronouncements and provides accounting principles and application guidance on whether multiple deliverables exist, how the arrangement should be separated and the consideration allocated. This standard eliminates the requirement to establish the fair value of undelivered products and services and instead provides for separate revenue recognition based upon management’s estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. Previously, accounting principles required that the fair value of the undelivered item be the price of the item either sold in a separate transaction between unrelated third parties or the price charged for each item when the item is sold separately by the vendor. This was difficult to determine when the product was not individually sold because of its unique features. If the fair value of all of the elements in the arrangement was not determinable, then revenue was deferred until all of the items were delivered or fair value was determined. This new approach is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. We are currently evaluating the potential impact of this accounting standard on our consolidated financial statements.

In June 2009, the FASB issued a new accounting standard, which has not yet been integrated into the ASC. Accordingly, it will remain authoritative until integrated. Statement of Financial Accounting Standards, or SFAS, No. 167, “Amendments to FASB Interpretation No. 46(R),” or SFAS 167, amends previously issued accounting guidance for the consolidation of a VIE to require an enterprise to determine whether its variable interest or interests give it a controlling financial interest in a VIE. This amended consolidation guidance for VIEs also replaces the existing quantitative approach for identifying which enterprise should consolidate a VIE, which was based on which enterprise was exposed to a majority of the risks and rewards, with a qualitative approach, based on which enterprise has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. This new accounting standard has broad implications and may affect how we account for the consolidation of common structures, such as joint ventures, equity method investments, collaboration and other agreements, and purchase arrangements. Under this revised consolidation guidance, more entities may meet the definition of a VIE, and the determination about who should consolidate a VIE is required to be evaluated continuously. We have completed our evaluation of the impact of adopting this standard and determined that the adoption will not have an impact on our consolidated financial statements.

100


ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As part of our investment portfolio, we own financial instruments that are sensitive to market risks. The investment portfolio is used to preserve our capital until it is required to fund operations, including our research and development activities. Our marketable securities consist of U.S. government and municipal obligations, high-grade corporate notes and commercial paper. All of our investments in debt securities are classified as “available-for-sale” and are recorded at fair value. Our available-for-sale investments in debt securities are sensitive to changes in interest rates and changes in the credit ratings of the issuers. Interest rate changes would result in a change in the net fair value of these financial instruments due to the difference between the market interest rate and the market interest rate at the date of purchase of the financial instrument. If market interest rates were to increase immediately and uniformly by 50 basis points, or one-half of a percentage point, from levels at December 31, 2009, the net fair value of our interest-sensitive financial instruments would have resulted in a hypothetical decline of $1.6 million. A downgrade in the credit rating of an issuer of a debt security or further deterioration of the credit markets could result in a decline in the fair value of the debt instruments. Our investment guidelines prohibit investment in auction rate securities and we do not believe we have any direct exposure to losses relating from mortgage-based securities or derivatives related thereto such as credit-default swaps. We have not recorded any impairment charges to our fixed income marketable securities as of December 31, 2009.

101


ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


	Page

Management’s Annual Report on Internal Control Over Financial Reporting		103
Report of Independent Registered Public Accounting Firm		104
Consolidated Balance Sheets as of December 31, 2009 and 2008		105
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2009, 2008 and 2007		106
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2007, 2008 and 2009		107
Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007		108
Notes to Consolidated Financial Statements		109

102

Management’s Annual Report on Internal Control Over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:


	•	Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

	•	Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

	•	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2009. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

Based on our assessment, management concluded that, as of December 31, 2009, the Company’s internal control over financial reporting is effective based on those criteria.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2009 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report. This report appears on page 104.

103

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Alnylam Pharmaceuticals, Inc.:

In our opinion, based on our audits and the report of other auditors, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows present fairly, in all material respects, the financial position of Alnylam Pharmaceuticals, Inc. and its subsidiaries at December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We did not audit the financial statements of Regulus Therapeutics Inc., an approximate 49 percent-owned equity investment, which were audited by other auditors whose report thereon has been furnished to us. Our opinion expressed herein, insofar as it relates to the Company’s net investment in (approximately $6.4 million and $1.6 million at December 31, 2009 and 2008, respectively) and equity in the net loss (approximately $4.9 million, $9.3 million and $1.1 million for the year ended December 31, 2009 and 2008 and for the period from September 6, 2007 (inception) to December 31, 2007, respectively) of Regulus Therapeutics Inc., is based solely on the report of the other auditors. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits and the report of other auditors provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

February 26, 2010

104

ALNYLAM PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)


	December 31,
	2009			2008

ASSETS
Current assets:
Cash and cash equivalents	$	137,468		$	191,792
Marketable securities		143,934			238,596
Collaboration receivables		6,044			4,188
Prepaid expenses and other current assets		4,151			4,674
Deferred tax assets		1,937			875

Restricted cash		—			2,999

Total current assets		293,534			443,124
Marketable securities		153,914			82,321
Property and equipment, net		18,324			19,194
Deferred tax assets, net of current portion		8,556			4,507
Investment in joint venture (Regulus Therapeutics Inc.)		6,435			1,583
Intangible assets, net		622			795
Restricted cash, net of current portion		—			3,152

Total assets	$	481,385		$	554,676


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	12,489		$	2,588
Accrued expenses		9,833			9,328
Income taxes payable		5,644			6,111
Deferred rent		838			1,561
Deferred revenue		81,929			79,864

Total current liabilities		110,733			99,452
Deferred rent, net of current portion		2,609			2,732
Deferred revenue, net of current portion		189,884			250,121
Other long-term liabilities		194			246

Total liabilities		303,420			352,551

Commitments and contingencies (Notes 7 and 12)		—			—
Stockholders’ equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized and no shares issued and outstanding at December 31, 2009 and 2008		—			—
Common stock, $0.01 par value, 125,000,000 shares authorized; 41,837,427 shares issued and outstanding at December 31, 2009; 41,413,828 shares issued and outstanding at December 31, 2008		418			414
Additional paid-in capital		476,663			452,767
Accumulated other comprehensive income		716			1,186
Accumulated deficit		(299,832	)		(252,242	)

Total stockholders’ equity		177,965			202,125

Total liabilities and stockholders’ equity	$	481,385		$	554,676

The accompanying notes are an integral part of these consolidated financial statements.

105

ALNYLAM PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except per share amounts)


	Year Ended December 31,
	2009			2008			2007

Net revenues from research collaborators	$	100,533		$	96,163		$	50,897

Operating expenses:
Research and development(1)		108,730			96,883			120,686
General and administrative(1)		39,914			27,115			23,388

Total operating expenses		148,644			123,998			144,074

Loss from operations		(48,111	)		(27,835	)		(93,177	)

Other income (expense):
Equity in loss of joint venture (Regulus Therapeutics Inc.)		(4,910	)		(9,290	)		(1,075	)
Interest income		5,385			14,414			15,393
Interest expense		—			(872	)		(1,083	)
Other income (expense)		628			(1,947	)		(279	)

Total other income (expense)		1,103			2,305			12,956

Loss before income taxes		(47,008	)		(25,530	)		(80,221	)
Provision for income taxes		(582	)		(719	)		(5,245	)

Net loss	$	(47,590	)	$	(26,249	)	$	(85,466	)

Net loss per common share — basic and diluted	$	(1.14	)	$	(0.64	)	$	(2.21	)

Weighted average common shares used to compute basic and diluted net loss per common share		41,633			41,077			38,657

Comprehensive loss:
Net loss	$	(47,590	)	$	(26,249	)	$	(85,466	)
Foreign currency translation		(121	)		53			(598	)
Unrealized (loss) gain on marketable securities		(349	)		833			258

Comprehensive loss	$	(48,060	)	$	(25,363	)	$	(85,806	)


(1)		Non-cash stock-based compensation expenses included in operating expenses are as follows:


Research and development	$	11,415	$	9,575	$	9,363
General and administrative		8,312		6,807		5,109

The accompanying notes are an integral part of these consolidated financial statements.

106

ALNYLAM PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)


											Accumulated
					Additional			Deferred			Other						Total
	Common Stock				Paid-in			Stock-based			Comprehensive			Accumulated			Stockholders’
	Shares		Amount		Capital			Compensation			Income			Deficit			Equity

Balance at December 31, 2006		37,050,631	$	371	$	340,779		$	(89	)	$	640		$	(140,527	)	$	201,174
Exercise of common stock options		1,247,808		12		9,232			—			—			—			9,244
Issuance of common stock		2,474,528		25		59,874			—			—			—			59,899
Stock-based compensation expense		—		—		14,364			89			—			—			14,453
Foreign currency translation		—		—		—			—			(598	)		—			(598	)
Joint venture stock-based compensation (Regulus Therapeutics Inc.)		—		—		204			—			—			—			204
Unrealized gain on marketable securities		—		—		—			—			258			—			258
Net loss		—		—		—			—			—			(85,466	)		(85,466	)

Balance at December 31, 2007		40,772,967		408		424,453			—			300			(225,993	)		199,168
Exercise of common stock options		377,228		4		3,782			—			—			—			3,786
Issuance of common stock		263,633		2		6,507			—			—			—			6,509
Stock-based compensation expense		—		—		16,381			—			—			—			16,381
Foreign currency translation		—		—		—			—			53			—			53
Joint venture stock-based compensation (Regulus Therapeutics Inc.)		—		—		1,644			—			—			—			1,644
Unrealized gain on marketable securities		—		—		—			—			833			—			833
Net loss		—		—		—			—			—			(26,249	)		(26,249	)

Balance at December 31, 2008		41,413,828		414		452,767			—			1,186			(252,242	)		202,125
Exercise of common stock options		275,908		3		1,459			—			—			—			1,462
Issuance of common stock		147,691		1		2,507			—			—			—			2,508
Stock-based compensation expense		—		—		19,727			—			—			—			19,727
Foreign currency translation		—		—		—			—			(121	)		—			(121	)
Joint venture stock-based compensation (Regulus Therapeutics Inc.)		—		—		(238	)		—			—			—			(238	)
Tax benefit from stock-based compensation		—		—		441			—			—			—			441
Unrealized loss on marketable securities		—		—		—			—			(349	)		—			(349	)
Net loss		—		—		—			—			—			(47,590	)		(47,590	)

Balance at December 31, 2009		41,837,427	$	418	$	476,663		$	—		$	716		$	(299,832	)	$	177,965

The accompanying notes are an integral part of these consolidated financial statements.

107

ALNYLAM PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Year Ended December 31,
	2009			2008			2007

Cash flows from operating activities:
Net loss	$	(47,590	)	$	(26,249	)	$	(85,466	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		5,992			5,726			4,082
Deferred income taxes		(5,163	)		(5,501	)		1,889
Non-cash stock-based compensation		19,727			18,026			14,676
Non-cash license expense		—			—			7,909
Charge for 401(k) company stock match		461			382			407
Equity in loss of joint venture (Regulus Therapeutics Inc.)		4,910			7,646			871
Tax benefit from stock-based compensation		441			—			—
Impairment on equity investment		—			1,561			—
Realized gain on sale of marketable securities		(511	)		—			—
Changes in operating assets and liabilities:
Proceeds from landlord tenant improvements		—			581			2,621
Collaboration receivables		(1,856	)		843			(1,194	)
Prepaid expenses and other assets		523			(1,748	)		(4,348	)
Accounts payable		9,901			(1,238	)		(264	)
Income taxes payable		(467	)		2,614			3,497
Accrued expenses and other		(341	)		(3,821	)		6,843
Deferred revenue		(58,172	)		66,669			244,996

Net cash (used in) provided by operating activities		(72,145	)		65,491			196,519

Cash flows from investing activities:
Purchases of property and equipment		(4,949	)		(10,764	)		(7,788	)
Disposals of property and equipment		—			—			2,342
Decrease (increase) in restricted cash		6,151			—			(839	)
Purchases of marketable securities		(481,339	)		(482,244	)		(544,394	)
Sales and maturities of marketable securities		504,570			511,044			283,254
Investment in joint venture (Regulus Therapeutics Inc.)		(10,000	)		(100	)		(10,000	)

Net cash provided by (used in) investing activities		14,433			17,936			(277,425	)

Cash flows from financing activities:
Proceeds from issuance of common stock		2,355			4,505			61,011
Proceeds from issuance of shares to Novartis		1,154			5,408			—
Proceeds from notes payable		—			—			957
Repayments of notes payable		—			(6,758	)		(3,333	)

Net cash provided by financing activities		3,509			3,155			58,635

Effect of exchange rate on cash		(121	)		53			(527	)

Net (decrease) increase in cash and cash equivalents		(54,324	)		86,635			(22,798	)
Cash and cash equivalents, beginning of period		191,792			105,157			127,955

Cash and cash equivalents, end of period	$	137,468		$	191,792		$	105,157

Supplemental disclosure of cash flows
Cash paid for interest	$	—		$	1,499		$	890
Cash paid for income taxes, net	$	5,836		$	2,671		$	—
Supplemental disclosure of non-cash financing activities
Common stock issued in connection with license agreements	$	—		$	—		$	7,909

The accompanying notes are an integral part of these consolidated financial statements.

108

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.	NATURE OF BUSINESS

Alnylam Pharmaceuticals, Inc. (the “Company” or “Alnylam”) commenced operations on June 14, 2002 as a biopharmaceutical company seeking to develop and commercialize novel therapeutics based on RNA interference (“RNAi”). Alnylam is focused on discovering, developing and commercializing RNAi therapeutics by establishing strategic alliances with leading pharmaceutical and biotechnology companies, establishing and maintaining a strong intellectual property position in the RNAi field, generating revenues through licensing agreements and ultimately developing and commercializing RNAi therapeutics for its own account. The Company has devoted substantially all of its efforts to business planning, research and development, acquiring, filing and expanding intellectual property rights, recruiting management and technical staff, and raising capital.


2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The Company comprises four entities, Alnylam Pharmaceuticals, Inc. (the parent company) and three wholly-owned subsidiaries (Alnylam U.S., Inc., Alnylam Europe AG (“Alnylam Europe”) and Alnylam Securities Corporation). Alnylam Pharmaceuticals, Inc. is a Delaware corporation that was formed on May 8, 2003. Alnylam U.S., Inc. is also a Delaware corporation that was formed on June 14, 2002. Alnylam Securities Corporation is a Massachusetts corporation that was formed on December 19, 2006. Alnylam Europe was incorporated in Germany in June 2000 under the name Ribopharma AG. The Company acquired Alnylam Europe in July 2003.

The accompanying consolidated financial statements reflect the operations of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The Company uses the equity method of accounting to account for its investment in Regulus Therapeutics Inc., formerly Regulus Therapeutics LLC (“Regulus”).

Reclassifications

Certain reclassifications have been made to prior years’ consolidated financial statements to conform to the 2009 presentation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Concentrations of Credit Risk and Significant Customers

Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents and marketable securities. As of December 31, 2009 and 2008, substantially all of the Company’s cash, cash equivalents and marketable securities were invested in money market mutual funds, commercial paper, corporate notes, and U.S. government and municipal securities through highly rated financial institutions.

To date, the Company’s revenues from collaborations have been generated from primarily F. Hoffmann-La Roche Ltd and certain of its affiliates (collectively, “Roche”), Takeda Pharmaceutical Company Limited (“Takeda”), and Novartis Pharma AG and one of its affiliates (collectively, “Novartis”). Novartis owned approximately 13.3% of the Company’s outstanding common stock as of December 31, 2009. The Company

109

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

has also generated revenues from the National Institute of Allergy and Infectious Diseases (“NIAID”), a component of the National Institutes of Health (“NIH”), Cubist Pharmaceuticals, Inc. (“Cubist”), and the Defense Threat Reduction Agency (“DTRA”), an agency of the United States Department of Defense.

The following table summarizes customers with net revenues that represent greater than 10% of the Company’s net revenues from research collaborators, for the periods indicated:


	Year Ended
	December 31,
	2009			2008			2007

Roche		57	%		57	%		35	%
Takeda		22	%		13	%		—
Novartis		10	%		12	%		29	%
NIAID		—			—			15	%

The following table summarizes customers with amounts due that represent greater than 10% of the Company’s collaboration receivables balance:


	As of December 31,
	2009			2008

Novartis		40	%		55	%
Roche		27	%		—
NIAID		14	%		22	%
Cubist		11	%		—
DTRA		—			10	%

Fair Value Measurements

Effective January 1, 2008, the Company adopted a newly issued accounting standard which addresses how companies should measure fair value when they are required to do so for recognition or disclosure purposes. The standard provides a common definition of fair value and is intended to make the measurement of fair value more consistent and comparable as well as to improve disclosures about those measures. This standard formalizes the measurement principles to be utilized in determining fair value for purposes such as derivative valuation and impairment analysis. For recognition purposes, on a recurring basis, the Company is required to measure certain cash equivalents and available-for-sale investments at fair value. Changes in the fair value of these investments historically have been insignificant. The Company’s adoption of this standard has had no impact on its operating results or financial position.

Effective January 1, 2009, the Company adopted a newly issued accounting standard for fair value measurements of all nonfinancial assets and nonfinancial liabilities not recognized or disclosed at fair value in the financial statements on a recurring basis. The Company’s adoption of this accounting standard for these nonfinancial assets and nonfinancial liabilities did not impact its consolidated financial statements, and the Company did not have any nonfinancial assets or nonfinancial liabilities that would be recognized or disclosed at fair value on a recurring basis as of December 31, 2009.

The following tables present information about the Company’s assets that are measured at fair value on a recurring basis as of December 31, 2009 and 2008, 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

110

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

where there is little, if any, market activity for the asset or liability. Financial assets and liabilities measured at fair value on a recurring basis are summarized as follows, in thousands:


			Quoted
			Prices in		Significant		Significant
	As of		Active		Observable		Unobservable
	December 31,		Markets		Inputs		Inputs
Description	2009		(Level 1)		(Level 2)		(Level 3)

Cash equivalents	$	129,113	$	129,113	$	—	$	—
Marketable securities (fixed income)
Government obligations		185,087		—		185,087		—
Corporate notes		89,220		—		89,220		—
Commercial paper		12,994		—		12,994		—
Municipal notes		8,700		—		8,700		—
Marketable securities (equity holdings)		1,847		—		1,847		—

Total	$	426,961	$	129,113	$	297,848	$	—


			Quoted
			Prices in		Significant		Significant
	As of		Active		Observable		Unobservable
	December 31,		Markets		Inputs		Inputs
Description	2008		(Level 1)		(Level 2)		(Level 3)

Cash equivalents	$	187,057	$	167,293	$	19,764	$	—
Marketable securities (fixed income)
Government obligations		196,000		—		196,000		—
Corporate notes		68,136		—		68,136		—
Commercial paper		56,133		—		56,133		—
Marketable securities (equity holdings)		648		—		648		—

Total	$	507,974	$	167,293	$	340,681	$	—

The carrying amounts reflected in the Company’s 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 circumstances present at the time it purchased the securities. As of 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 as of each balance sheet date and includes any unrealized holding gains and losses (the adjustment to fair value) in stockholders’ equity. Realized gains and losses are determined using the specific identification method and are included in investment income. 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 consolidated statements of operations. The Company did not record any impairment charges related to its fixed income marketable securities during the years ended December 31, 2009, 2008 or 2007. During 2008, the Company recorded an impairment charge of $1.6 million related to its equity investment in Tekmira Pharmaceuticals Corporation (“Tekmira”), as the decrease in the fair value of this investment was deemed to be other than temporary. The Company’s marketable securities are classified as cash equivalents if the original

111

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 following tables summarize the Company’s marketable securities at December 31, 2009 and 2008, in thousands:


	December 31, 2009
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value

Municipal notes (Due within 1 year)	$	8,698	$	2	$	—		$	8,700
Commercial paper (Due within 1 year)		12,991		3		—			12,994
Corporate notes (Due within 1 year)		36,976		52		(24	)		37,004
Corporate notes (Due after 1 year through 2 years)		52,085		169		(38	)		52,216
U.S. Government obligations (Due within 1 year)		85,061		205		(30	)		85,236
U.S Government obligations (Due after 1 year through 2 years)		100,005		96		(250	)		99,851
Equity securities		1,345		502		—			1,847

Total	$	297,161	$	1,029	$	(342	)	$	297,848


	December 31, 2008
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value

Commercial paper (Due within 1 year)	$	56,014	$	119	$	—		$	56,133
Corporate notes (Due within 1 year)		37,504		262		(102	)		37,664
Corporate notes (Due after 1 year through 2 years)		30,497		81		(106	)		30,472
U.S. Government obligations (Due within 1 year)		143,872		927		—			144,799
U.S Government obligations (Due after 1 year through 2 years)		50,649		552		—			51,201
Equity securities		1,345		—		(697	)		648

Total	$	319,881	$	1,941	$	(905	)	$	320,917

Revenue Recognition

The Company has entered into collaboration agreements with biotechnology and pharmaceutical companies, including Novartis, Biogen Idec Inc. (“Biogen Idec”), Roche, Takeda, Kyowa Hakko Kirin Co., Ltd. (“Kyowa Hakko Kirin”), Cubist and Merck & Co., Inc. (“Merck”). The terms of the Company’s collaboration agreements typically include non-refundable license fees, funding of research and development, payments based upon achievement of clinical and pre-clinical development milestones, manufacturing services and royalties on product sales.

Non-refundable license fees are recognized as revenue upon delivery of the license only if the Company has a contractual right to receive such payment, the contract price is fixed or determinable, the collection of the resulting receivable is reasonably assured and the Company has no further performance obligations under the license agreement. Multiple element arrangements, such as license and development arrangements, are analyzed to determine whether the deliverables, which often include a license and performance obligations such as research and steering committee services, can be separated or whether they must be accounted for as a single unit of accounting.

112

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company recognizes upfront license payments as revenue upon delivery of the license only if the license has stand-alone value and the fair value of the undelivered performance obligations, typically including research and/or steering committee services, can be determined. If the fair value of the undelivered performance obligations can be determined, such obligations are accounted for separately as such obligations are fulfilled. If the license is considered to either not have stand-alone value or have stand-alone value but the fair value of any of the undelivered performance obligations cannot be determined, the arrangement would then be accounted for as a single unit of accounting and the license payments and payments for performance obligations are recognized as revenue over the estimated period of when the performance obligations are performed.

Whenever the Company determines that an arrangement should be accounted for as a single unit of accounting, the Company determines the period over which the performance obligations will be performed and revenue will be recognized. Revenue will be recognized using either a proportional performance or straight-line method. The Company recognizes revenue using the proportional performance method when the level of effort required to complete its performance obligations under an arrangement can be reasonably estimated and such performance obligations are provided on a best-efforts basis. Direct labor hours or full-time equivalents are typically used as the measure of performance. Revenue recognized under the proportional performance method would be determined by multiplying the total payments under the contract, excluding royalties and payments contingent upon achievement of substantive milestones, by the ratio of level of effort incurred to date to estimated total level of effort required to complete the Company’s performance obligations under the arrangement. Revenue is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned, as determined using the proportional performance method, as of the period ending date.

If the level of effort to complete its performance obligations under an arrangement cannot be reasonably estimated, then revenue under the arrangement would be recognized as revenue on a straight-line basis over the period the Company is expected to complete its performance obligations. Revenue is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned, as determined using the straight-line method, as of the period ending date.

Many of the Company’s collaboration agreements entitle it to additional payments upon the achievement of performance-based milestones. If the achievement of a milestone is considered probable at the inception of the collaboration, the related milestone payment is included with other collaboration consideration, such as upfront fees and research funding, in the Company’s revenue model. Milestones that involve substantial effort on the Company’s part and the achievement of which are not considered probable at the inception of the collaboration are considered “substantive milestones.” Substantive milestones are included in the Company’s revenue model when achievement of the milestone is considered probable. As future substantive milestones are achieved, 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, will be recognized as revenue upon achievement of such milestone. The remaining portion of the milestone will be recognized over the remaining performance period using the proportional performance or straight-line method. Milestones that are tied to regulatory approval are not considered probable of being achieved until such approval is received. Milestones tied to counter-party performance are not included in the Company’s revenue model until the performance conditions are met.

Steering committee services that are not inconsequential or perfunctory and that are determined to be performance obligations are combined with other research services or performance obligations required under an arrangement, if any, in determining the level of effort required in an arrangement and the period over which the Company expects to complete its aggregate performance obligations.

For revenue generating arrangements where the Company, as a vendor, provides consideration to a licensor or collaborator, as a customer, the Company applies the accounting standard that governs such transactions. This standard addresses the accounting for revenue arrangements where both the vendor and the customer make cash payments to each other for services and/or products. A payment to a customer is presumed to be a reduction of the selling price unless the Company receives an identifiable benefit for the payment and it can reasonably estimate the

113

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

fair value of the benefit received. Payments to a customer that are deemed a reduction of selling price are recorded first as a reduction of revenue, to the extent of both cumulative revenue recorded to date and probable future revenues, which include any unamortized deferred revenue balances, under all arrangements with such customer, and then as an expense. Payments that are not deemed to be a reduction of selling price would be recorded as an expense.

The Company evaluates its collaborative agreements for proper classification in its consolidated statements of operations based on the nature of the underlying activity. Transactions between collaborators recorded in the Company’s consolidated statements of operations are recorded on either a gross or net basis, depending on the characteristics of the collaborative relationship. The Company generally reflects amounts due under its collaborative agreements related to cost-sharing of development activities as a reduction of research and development expense.

Revenue under government cost reimbursement contracts is recognized as the Company performs the underlying research and development activities.

Amounts received prior to satisfying the above revenue recognition criteria are recorded as deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized within the next 12 months are classified as long-term deferred revenue. As of December 31, 2009, the Company had short-term and long-term deferred revenue of $81.9 million and $189.9 million, respectively, related to its collaborations.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured under enacted tax laws. A valuation allowance is required to offset any net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax asset will not be realized.

The Company accounts for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors that include, but are not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position.

Research and Development Costs

Research and development costs are expensed as incurred. Included in research and development costs are wages, benefits and other operating costs, facilities, supplies, external services, clinical trial and manufacturing costs and overhead directly related to the Company’s research and development operations as well as costs to acquire technology licenses.

The Company has entered into several license agreements for rights to utilize certain technologies. The terms of the licenses may provide for upfront payments, annual maintenance payments, milestone payments based upon certain specified events being achieved and royalties on product sales. Costs to acquire and maintain licensed technology that has not reached technological feasibility and does not have alternative future use are charged to research and development expense as incurred. During the years ended December 31, 2009, 2008 and 2007, the Company charged to research and development expense costs associated with license fees of $13.6 million, $12.6 million and $42.2 million, respectively. License fees for 2007 were primarily the result of $27.5 million in payments to certain entities, primarily Isis Pharmaceuticals, Inc. (“Isis”), in connection with the Roche alliance and $14.7 million in charges for licenses for certain delivery technologies.

114

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Estimated Liability for Development Costs

The Company records accrued liabilities related to expenses for which service providers have not yet billed the Company with respect to products or services that the Company has received, specifically related to ongoing pre-clinical studies and clinical trials. These costs primarily relate to third-party clinical management costs, laboratory and analysis costs, toxicology studies and investigator fees. The Company has multiple product candidates in concurrent pre-clinical studies and clinical trials at multiple clinical sites throughout the world. In order to ensure that the Company has adequately provided for ongoing pre-clinical and clinical development costs during the period in which the Company incurs such costs, the Company maintains an accrual to cover these expenses. The Company updates the estimate for this accrual on at least a quarterly basis. The assessment of these costs is a subjective process that requires judgment. Upon settlement, these costs may differ materially from the amounts accrued in the Company’s consolidated financial statements. The Company’s historical accrual estimates have not been materially different from the Company’s actual amounts.

Accounting for Stock-Based Compensation

Effective January 1, 2006, the Company adopted a newly issued accounting standard addressing recognition and disclosure of stock compensation. The Company adopted the fair value recognition provisions of this standard using the modified-prospective-transition method. The Company has stock option plans and an employee stock purchase plan under which it grants equity instruments that are required to be evaluated under this standard. For stock options granted to non-employees compensation expense is generally recognized over the vesting period of the award, which is generally the period during which services are rendered by such non-employees. At the end of each financial reporting period prior to vesting, the value of these options (as calculated using the Black-Scholes option-pricing model) is re-measured using the then-current fair value of the Company’s common stock. Stock options granted by the Company to non-employees, other than members of the Company’s Board of Directors and Scientific Advisory Board members, generally vest over a four-year service period. The Company accounts for non-employee grants as an expense over the vesting period of the underlying stock.

Accounting for Joint Venture

The Company accounts for its interest in Regulus using the equity method of accounting. The Company reviewed the consolidation guidance that defines a variable interest entity (“VIE”) and concluded that Regulus currently qualifies as a VIE. The founding investor rights agreement (“Investor Rights Agreement”) contains transfer restrictions on each of Isis’ and the Company’s interests and, as a result, the Company and Isis are considered related parties. Because the Company and Isis are related parties and collectively own 100% of Regulus, the determination of which entity would be considered the primary beneficiary is based on which entity is most closely associated with Regulus. Following consolidation guidance, the Company has concluded that Isis is the primary beneficiary and, accordingly, the Company has not consolidated Regulus and accounts for its investment under the equity method of accounting. Under new consolidation guidance effective January 1, 2010, the Company does not expect Isis to continue to consolidate Regulus.

Comprehensive Loss

Comprehensive loss is comprised of net loss and certain changes in stockholders’ equity that are excluded from net loss. The Company includes foreign currency translation adjustments in other comprehensive loss for Alnylam Europe as the functional currency is not the United States dollar. The Company also includes unrealized gains and losses on certain marketable securities in other comprehensive loss.

Net Loss Per Common Share

Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by

115

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

dividing net loss attributable to common stockholders 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:


	December 31,
	2009		2008		2007

Options to purchase common stock		7,927		7,037		5,304
Unvested restricted common stock		—		29		57
Options that were exercised before vesting		—		—		11

		7,927		7,066		5,372

Segment Information

The Company operates in a single reporting segment, the discovery, development and commercialization of RNAi therapeutics.

Subsequent Events

The Company evaluated all events or transactions that occurred after December 31, 2009 up through the date these consolidated financial statements were issued. During this period, the Company did not have any material recognizable or unrecognizable subsequent events.

Recent Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (“FASB”) issued the FASB Accounting Standards Codification (“ASC”). Effective in the third quarter of 2009, the ASC became the single source for all authoritative GAAP recognized by the FASB, and is required to be applied to financial statements issued for interim and annual periods ending after September 15, 2009. The ASC does not change GAAP and did not impact the Company’s consolidated financial statements.

In October 2009, the FASB issued a new accounting standard, which amends existing revenue recognition accounting pronouncements and provides accounting principles and application guidance on whether multiple deliverables exist, how the arrangement should be separated, and the consideration allocated. This standard eliminates the requirement to establish the fair value of undelivered products and services and instead provides for separate revenue recognition based upon management’s estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. Previously, accounting principles required that the fair value of the undelivered item be the price of the item either sold in a separate transaction between unrelated third parties or the price charged for each item when the item is sold separately by the vendor. This was difficult to determine when the product was not individually sold because of its unique features. If the fair value of all of the elements in the arrangement was not determinable, then revenue was deferred until all of the items were delivered or fair value was determined. This new approach is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company is currently evaluating the potential impact of this accounting standard on its consolidated financial statements.

116

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”) amends previously issued accounting guidance for the consolidation of a VIE to require an enterprise to determine whether its variable interest or interests give it a controlling financial interest in a VIE. This amended consolidation guidance for VIEs also replaces the existing quantitative approach for identifying which enterprise should consolidate a VIE, which was based on which enterprise was exposed to a majority of the risks and rewards, with a qualitative approach, based on which enterprise has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. This new accounting standard has broad implications and may affect how the Company accounts for the consolidation of common structures, such as joint ventures, equity method investments, collaboration and other agreements, and purchase arrangements. Under this revised consolidation guidance, more entities may meet the definition of a VIE, and the determination about which entity should consolidate a VIE is required to be evaluated continuously. The Company has completed an evaluation of the impact of adopting this standard and determined that the adoption will not have an impact on its consolidated financial statements.


3.	SIGNIFICANT AGREEMENTS

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


	Year Ended December 31,
	2009		2008		2007

Roche	$	56,884	$	54,427	$	17,571
Takeda		21,732		12,794		—
Novartis		9,811		11,635		14,670
Government contract		7,471		14,172		9,800
Cubist		2,672		—		—
Biogen Idec		921		928		3,427
Merck		—		—		3,903
Other		1,042		2,207		1,526

Total net revenues from research collaborators	$	100,533	$	96,163	$	50,897

Platform Alliances

Roche Alliance

In July 2007, the Company and, for limited purposes, Alnylam Europe, entered into a License and Collaboration Agreement (the “LCA”) with Roche. Under the LCA, which became effective in August 2007, the Company granted Roche a non-exclusive license to the Company’s intellectual property to develop and commercialize therapeutic products that function through RNAi, subject to the Company’s existing contractual obligations to third parties. The license is initially limited to the therapeutic areas of oncology, respiratory diseases, metabolic diseases and certain liver diseases, and may be expanded to include up to 18 additional therapeutic areas, comprising substantially all other fields of human disease, as identified and agreed upon by the parties, upon payment to the Company by Roche of an additional $50.0 million for each additional therapeutic area, if any.

In consideration for the rights granted to Roche under the LCA, Roche paid the Company $273.5 million in upfront cash payments. In addition, in exchange for the Company’s contributions under the LCA, for each RNAi therapeutic product developed by Roche, its affiliates or sublicensees under the LCA, the Company is entitled to receive milestone payments upon achievement of specified development and sales events, totaling up to an

117

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

aggregate of $100.0 million per therapeutic target, together with royalty payments based on worldwide annual net sales, if any.

Under the LCA, the Company and Roche also agreed to collaborate on the discovery of RNAi therapeutic products directed to one or more disease targets (“Discovery Collaboration”), subject to the Company’s existing contractual obligations to third parties. In October 2009, the Company and Roche advanced their alliance to initiate this therapeutic collaboration stage. Under this Discovery Collaboration, the Company and Roche are collaborating on the discovery and development of specific RNAi therapeutic products and each party contributes key delivery technologies in the effort, which is focused on specific disease targets. The Company and Roche intend to co-develop and co-commercialize RNAi therapeutic products in the U.S. market and the Company is eligible to receive additional milestone and royalty payments for products developed in the rest of the world, if any. After a pre-specified period of collaborative activities, each party will have the option to opt-out of the day-to-day development activities in exchange for reduced milestones and royalty payments in the future. The Discovery Collaboration is governed by the joint steering committee that is comprised of an equal number of representatives from each party.

The term of the LCA generally ends upon the later of ten years from the first commercial sale of a licensed product and the expiration of the last-to-expire patent covering a licensed product. Roche may terminate the LCA, on a licensed product-by-licensed product, licensed patent-by-licensed patent, and country-by-country basis, upon 180-days’ prior written notice, but is required to continue to make milestone and royalty payments to the Company if any royalties were payable on net sales of a terminated licensed product during the previous 12 months. The LCA may also be terminated by either party in the event the other party fails to cure a material breach under the LCA.

In July 2007, the Company executed a Common Stock Purchase Agreement (the “Common Stock Purchase Agreement”) with Roche Finance Ltd, an affiliate of Roche (“Roche Finance”). Under the terms of the Common Stock Purchase Agreement, on August 9, 2007, Roche Finance purchased 1,975,000 shares of the Company’s common stock at $21.50 per share, for an aggregate purchase price of $42.5 million. The Company recorded this issuance using the closing price of the Company’s common stock on August 9, 2007, the date the shares were issued to Roche. Based on the closing price of $25.98, the fair value of the shares issued was $51.3 million, which was $8.8 million in excess of the proceeds received from Roche for the issuance of the Company’s common stock. As a result, the Company allocated $8.8 million of the upfront payment from the LCA to the common stock issuance.

Under the terms of the Common Stock Purchase Agreement, in the event the Company proposes to sell or issue any of its equity securities, subject to specified exceptions, it has agreed to grant to Roche Finance the right to acquire, at fair value, additional securities, such that Roche Finance would be able to maintain its ownership percentage in the Company.

In connection with the execution of the LCA and the Common Stock Purchase Agreement, the Company also executed a Share Purchase Agreement (the “Alnylam Europe Purchase Agreement”) with Alnylam Europe and Roche Beteiligungs GmbH, an affiliate of Roche (“Roche Germany”). Under the terms of the Alnylam Europe Purchase Agreement, which became effective in August 2007, the Company created a new, wholly-owned German limited liability company (“Roche Kulmbach”) into which substantially all of the non-intellectual property assets of Alnylam Europe were transferred, and Roche Germany purchased from the Company all of the issued and outstanding shares of Roche Kulmbach for an aggregate purchase price of $15.0 million. The Alnylam Europe Purchase Agreement also included transition services that were performed by Roche Kulmbach employees at various levels through August 2008. The Company reimbursed Roche for these services at an agreed-upon rate. The Company recorded as contra revenue (a reduction of revenues) $1.0 million and $4.2 million for these services for the years ended December 31, 2008 and 2007, respectively.

In addition, in connection with the closing of the Alnylam Europe Purchase Agreement, the Company granted restricted stock of the Company to certain employees of Roche Kulmbach. In connection with the closing, the Company also accelerated the unvested portion of the outstanding stock options of certain Alnylam Europe

118

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

employees. The Company recorded $3.8 million of stock-based compensation expense during 2007 related to the restricted share grants and the stock option modifications.

In summary, the Company received upfront payments totaling $331.0 million under the Roche alliance, which include an upfront payment under the LCA of $273.5 million, $42.5 million under the Common Stock Purchase Agreement and $15.0 million for the Roche Kulmbach shares under the Alnylam Europe Purchase Agreement. The Company initially recorded $278.2 million of these proceeds as deferred revenue in connection with the Roche alliance. The Company allocated $51.3 million and $1.5 million for financial statement purposes related to the common stock issuance and the net book value of Alnylam Europe, respectively.

The Company has determined that the deliverables under the Roche alliance include the license, the Alnylam Europe assets and employees, the steering committees (joint steering committee and future technology committee) and the services that the Company is obligated to perform under the Discovery Collaboration. The Company has determined that, pursuant to the accounting guidance governing revenue recognition on multiple element arrangements, the license and assets of Alnylam Europe are not separable from the undelivered services (i.e., the steering committees and Discovery Collaboration) and, accordingly the license and the 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 Roche alliance, the steering committee services and the Discovery Collaboration services are the final deliverables and all such services will end, contractually, five years from the effective date of the LCA.

The Company is recognizing the Roche-related revenue on a straight-line basis over five years because the Company cannot reasonably estimate the total level of effort required to complete its service obligations under the LCA in order to utilize a proportional performance model. As future substantive milestones are achieved, 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, will be recognized as revenue upon achievement of such milestone. The remaining portion of the milestone will be recognized over the remaining performance period on a straight-line basis.

In connection with the LCA and the Common Stock Purchase Agreement, during 2007, the Company paid $27.5 million of license fees to the Company’s licensors, primarily Isis, in accordance with the applicable license agreements with those parties. These fees were charged to research and development expense.

Takeda Alliance

In May 2008, the Company entered into a license and collaboration agreement (the “Takeda Collaboration Agreement”) with Takeda to pursue the development and commercialization of RNAi therapeutics. Under the Takeda Collaboration Agreement, the Company granted Takeda a non-exclusive, worldwide, royalty-bearing license to the Company’s intellectual property 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 Collaboration Agreement, Takeda will be the Company’s exclusive platform partner in the Asian territory, as defined in the Takeda Collaboration Agreement, for a period of five years.

In consideration for the rights granted to Takeda under the Takeda Collaboration 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. Takeda is also required to make the additional $50.0 million in payments to the Company upon

119

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

achievement of specified technology transfer milestones, $20.0 million of which was achieved in September 2008 and paid in October 2008, $20.0 million of which is due upon achievement of specified technology transfer activities, but no later than May 2010, and $10.0 million of which is due upon achievement of specified technology transfer activities within 24 to 36 months after execution of the Takeda Collaboration Agreement (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 of up to approximately 20 total additional fields selected, if any, comprising substantially all other fields of human disease, as identified and agreed upon by the parties. In addition, for each RNAi therapeutic product developed by Takeda, its affiliates and sublicensees, the Company is entitled to receive specified development and commercialization milestones, totaling up to $171.0 million per product, together with royalty payments based on worldwide annual net sales, if any.

Pursuant to the Takeda Collaboration 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, 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 program. 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 in the United States of licensed products. The collaboration between the Company and Takeda 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 term of the Takeda Collaboration Agreement generally ends upon the later of (1) the expiration of the Company’s last-to-expire patent covering a licensed product and (2) the last-to-expire term of a profit sharing agreement in the event the Company elects to enter into such an agreement. The Takeda Collaboration Agreement may be terminated by either party in the event the other party fails to cure a material breach under the agreement. In addition, Takeda may terminate the agreement on a licensed product-by-licensed product or country-by-country basis upon 180-days’ prior written notice to the Company, provided, however, that Takeda is required to continue to make royalty payments to the Company for the duration of the royalty term with respect to a licensed product.

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 has 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 Collaboration 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, the first Technology Transfer Milestone of $20.0 million and the $30.0 million of remaining Technology Transfer Milestones, the receipt of which the Company believes is probable, 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, in order to utilize a proportional performance model. As future substantive milestones are achieved, 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, will be recognized as revenue upon achievement of such milestone. The remaining portion of the milestone will be recognized over the remaining performance period on a straight-line basis.

120

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In connection with the Takeda Collaboration Agreement, during 2008, the Company paid $5.0 million of license fees to the Company’s licensors, primarily Isis, in accordance with the applicable license agreements with those parties. These fees were charged to research and development expense.

Discovery and Development Alliances

Isis Collaboration and License Agreement

In April 2009, the Company and Isis amended and restated their existing strategic collaboration and license agreement (as amended and restated, the “Amended and Restated Isis Agreement”), originally entered into in March 2004, to extend the broad cross-licensing arrangement regarding double-stranded RNAi that was established in 2004, pursuant to which Isis granted the Company licenses to its current and future patents and patent applications relating to chemistry and to RNA-targeting mechanisms for the research, development and commercialization of double-stranded RNA (“dsRNA”) products. The Company has the right to use Isis technologies in its development programs or in collaborations and Isis has agreed not to grant licenses under these patents to any other organization for the discovery, development or commercialization of dsRNA products designed to work through an RNAi mechanism, except in the context of a collaboration in which Isis plays an active role. The Company granted Isis non-exclusive licenses to its current and future patents and patent applications relating to RNA-targeting mechanisms and to chemistry for research use. The Company also granted Isis the non-exclusive right to develop and commercialize dsRNA products developed using RNAi technology against a limited number of targets. In addition, the Company granted Isis non-exclusive rights to research, develop and commercialize single-stranded RNA products.

Under the terms of the Isis agreement, the Company paid Isis an upfront license fee of $5.0 million. The Company also agreed to pay Isis milestone payments, totaling up to approximately $3.4 million, upon the occurrence of specified development and regulatory events, and royalties on sales, if any, for each product that the Company or a collaborator develops using Isis intellectual property. In addition, the Company agreed to pay to Isis a percentage of specified fees from strategic collaborations the Company may enter into that include access to the Isis intellectual property.

Isis agreed to pay the Company, per therapeutic target, a license fee of $0.5 million, and milestone payments totaling approximately $3.4 million, payable upon the occurrence of specified development and regulatory events, and royalties on sales, if any, for each product developed by Isis or a collaborator that utilizes the Company’s intellectual property. Isis has the right to elect up to ten non-exclusive target licenses under the agreement and has the right to purchase one additional non-exclusive target per year during the term of the collaboration.

As part of the Amended and Restated Isis Agreement, the Company and Isis established a new collaborative effort focused on the development of single stranded RNAi (“ssRNAi”) technology. Under the Amended and Restated Isis Agreement, the Company obtained from Isis a co-exclusive, worldwide license to Isis’ current and future patents and patent applications relating to chemistry and RNA-targeting mechanisms to research, develop and commercialize ssRNAi products. Each of the Company and Isis has the opportunity to discover and develop drugs employing the ssRNAi technology. Under the terms of the Amended and Restated Isis Agreement, the Company will potentially pay Isis up to an aggregate of $31.0 million in license fees, payable in four tranches, that include $11.0 million paid on signing, $10.0 million payable in October 2010, or if and when in vivo efficacy in rodents is demonstrated if sooner, $5.0 million upon achievement of in vivo efficacy in non-human primates, and $5.0 million upon initiation of the first clinical trial with an ssRNAi drug, subject to the Company’s right to unilaterally terminate the research program. The Company is funding research activities at a minimum of $3.0 million each year for three years with research and development activities conducted by both the Company and Isis. If the Company develops and commercializes drugs utilizing ssRNAi technology on its own or with a partner, the Company would be required to make milestone payments to Isis, totaling up to $18.5 million per product, as well as royalties. Also, Isis initially is eligible to receive up to 50% of any sublicense payments due to the Company from a third party based on the Company’s partnering of ssRNAi products, which

121

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

amount will decline over time as the Company’s investment in the technology and drugs increases. In turn, the Company is eligible to receive up to five percent of any sublicense payments due to Isis from a third party based on Isis’ partnering of ssRNAi products.

The Company has the unilateral right to terminate the ssRNAi research program before September 30, 2010, in which event any licenses to ssRNAi products granted by Isis to the Company under the Amended and Restated Isis Agreement, and any obligation thereunder by the Company to pay milestone payments, royalties or sublicense payments to Isis for such ssRNAi products, would also terminate.

The term of the Amended and Restated Isis Agreement generally ends upon the expiration of the last-to-expire patent licensed thereunder, whether such patent is a patent licensed by the Company to Isis, or vice versa. As the license will include additional patents, if any, filed to cover future inventions, if any, the date of expiration cannot be determined at this time.

During 2009, as a result of certain payments received by the Company in connection with the Cubist alliance, the Company paid $1.0 million to Isis. During 2008, as a result of certain payments received by the Company in connection with the Takeda alliance, the Company paid $4.6 million to Isis. During 2007, as a result of certain payments received by the Company in connection with the Roche alliance, the Company paid $26.5 million to Isis. These license fees were charged to research and development expense in the respective periods.

Novartis Broad Alliance

Beginning in September 2005, the Company entered into a series of transactions with Novartis. In September 2005, the Company and Novartis executed a stock purchase agreement (the “Stock Purchase Agreement”) and an investor rights agreement (the “Investor Rights Agreement”). In October 2005, in connection with the closing of the transactions contemplated by the Stock Purchase Agreement, the Investor Rights Agreement became effective and the Company and Novartis executed a research collaboration and license agreement (the “Collaboration and License Agreement”) (collectively the “Novartis Agreements”). The Collaboration and License Agreement had an initial term of three years, with an option for two additional one-year extensions at the election of Novartis. In July 2009, Novartis elected to further extend the term for the fifth and final planned year, through October 2010.

Under the terms of the Stock Purchase Agreement, in October 2005, Novartis purchased 5,267,865 shares of the Company’s common stock at a purchase price of $11.11 per share for an aggregate purchase price of $58.5 million, which, after such issuance, represented 19.9% of the Company’s outstanding common stock as of the date of issuance. In addition, under the Investor Rights Agreement, the Company granted Novartis rights to acquire additional equity securities in the event that the Company proposes to sell or issue any equity securities, subject to specified exceptions, as described in the Investor Rights Agreement, such that Novartis would be able to maintain its then-current ownership percentage in the Company’s outstanding common stock. Pursuant to terms of the Investor Rights Agreement, in May 2008, Novartis purchased 213,888 shares of the Company’s common stock at a purchase price of $25.29 per share resulting in a payment to the Company of $5.4 million. In May 2009, Novartis purchased 65,922 shares of the Company’s common stock at a purchase price of $17.50 per share, resulting in an aggregate payment to the Company of $1.2 million. This purchase allowed Novartis to maintain its ownership position of 13.4% of the Company’s outstanding common stock. The exercises of this right did not result in any changes to existing rights or any additional rights to Novartis. Further, during the term described in the Investor Rights Agreement, Novartis is permitted to own no more than 19.9% of the Company’s outstanding shares. At December 31, 2009, Novartis owned 13.3% of the Company’s outstanding common stock.

Under the terms of the Collaboration and License Agreement, the Company and Novartis are working together on a defined number of selected targets, as defined in the Collaboration and License Agreement, to discover and develop therapeutics based on RNAi. In consideration for the rights granted to Novartis under the Collaboration and License Agreement, Novartis made upfront payments totaling $10.0 million to the Company in October 2005, partly to reimburse prior costs incurred by the Company to develop in vivo RNAi technology. The Collaboration and

122

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

License Agreement also includes terms under which Novartis is providing the Company with research funding and development milestone payments, and may provide the Company in the future with sales milestone payments as well as royalties on annual net sales of products resulting from the Collaboration and License Agreement, if any. The amount of research funding provided by Novartis under the Collaboration and License Agreement during the research term is dependent upon the number of active programs on which the Company is collaborating with Novartis at any given time and the number of Company employees that are working on those programs, in respect of which Novartis reimburses the Company at an agreed upon rate. Under the terms of the Collaboration and License Agreement, Novartis has the right to select up to 30 exclusive targets to include in the collaboration, which number may be increased to 40 under certain circumstances and upon additional payments. For RNAi therapeutic products developed under the Collaboration and License Agreement, if any, the Company would be entitled to receive milestone payments upon achievement of certain specified development and annual net sales events, up to an aggregate of $75.0 million per therapeutic product.

Under the terms of the Collaboration and License Agreement, the Company retains the right to discover, develop, commercialize and manufacture compounds that function through the mechanism of RNAi, or products that contain such compounds as an active ingredient, with respect to targets not selected by Novartis for inclusion in the collaboration, provided that Novartis has a right of first offer with respect to an exclusive license for additional targets before the Company partners any of those additional targets with third parties.

The Collaboration and License Agreement also provides Novartis with a non-exclusive option to integrate into its operations the Company’s intellectual property relating to RNAi technology, excluding any technology related to delivery of nucleic acid based molecules (the “Integration Option”). Novartis may exercise this Integration Option at any point during the research term, which term is currently expected to expire in the fourth quarter of 2010. In connection with the exercise of the Integration Option, Novartis would be required to make additional payments to the Company totaling $100.0 million, payable in full at the time of exercise, which payments would include an option exercise fee, a milestone based on the overall success of the collaboration, and pre-paid milestones and royalties that could become due as a result of future development of products using the Company’s technology. This amount would be offset by any license fees due to the Company’s licensors in accordance with the applicable license agreements with those parties. In addition, under this license grant, Novartis may be required to make milestone and royalty payments to the Company in connection with the development and commercialization of RNAi therapeutic products, if any. The license grant under the Integration Option, if exercised by Novartis, would be structured similarly to the Company’s non-exclusive platform licenses with Roche and Takeda.

Novartis may terminate the Collaboration and License Agreement in the event that the Company materially breaches its obligations. The Company may terminate the Collaboration and License Agreement with respect to particular programs, products and/or countries in the event of specified material breaches by Novartis of its obligations, or in its entirety under specified circumstances for multiple such breaches.

The Company initially deferred the non-refundable $10.0 million upfront payment and the $6.4 million premium received that represented the difference between the purchase price and the closing price of the common stock of the Company on the date of the stock purchase from Novartis. These payments, in addition to research funding and certain milestone payments, the receipt of which is considered probable, together total $64.8 million, and are being amortized into revenue using the proportional performance method over the estimated duration of the Collaboration and License Agreement or ten years. Under this model, the Company estimates the level of effort to be expended over the term of the agreement and recognizes revenue based on the lesser of the amount calculated based on proportional performance of total expected revenue or the amount of non-refundable payments earned.

123

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

will be recognized as revenue upon achievement of the milestone. The remaining portion of the milestone will be recognized over the remaining performance period under the proportional performance method.

The Company believes the estimated period of performance under the Collaboration and License Agreement is ten years, which includes the three-year initial term of the agreement, two one-year extensions elected by Novartis and limited support as part of a technology transfer until 2015, the fifth anniversary of the termination of the Collaboration and License Agreement. The Company continues to use an expected term of ten years in its proportional performance model. The Company reevaluates the expected term when new information is known that could affect the Company’s estimate. In the event the Company’s period of performance is different than estimated, revenue recognition will be adjusted on a prospective basis.

Novartis Pandemic Flu Alliance

In February 2006, the Company entered into an alliance with Novartis for the development of RNAi therapeutics for pandemic flu (“Novartis Flu Agreement”). Under the terms of the Novartis Flu Agreement, the Company and Novartis had joint responsibility for development of RNAi therapeutics for pandemic flu. This program was stopped during 2008 and currently there are no specific resource commitments for this program.

Biogen Idec Collaboration Agreement

In September 2006, the Company entered into a Collaboration and License Agreement (the “Biogen Idec Collaboration Agreement”) with Biogen Idec focused on the discovery and development of therapeutics based on RNAi for the potential treatment of progressive multifocal leukoencephalopathy (“PML”). Under the terms of the Biogen Idec Collaboration Agreement, the Company granted Biogen Idec an exclusive license to distribute, market and sell certain RNAi therapeutics to treat PML and Biogen Idec has agreed to fund all related research and development activities. The Company received an upfront $5.0 million payment from Biogen Idec. In addition, upon the successful development and utilization of a product resulting from the collaboration, if any, Biogen Idec would be required to pay the Company milestone payments, totaling $51.0 million, and royalty payments on sales, if any.

The Company is recognizing revenue under the Biogen Idec collaboration on a straight-line basis over five years because the Company cannot reasonably estimate the total level of effort required to fulfill its obligations under this collaboration. The pace and scope of future development of this program is the responsibility of Biogen Idec.

Unless earlier terminated, the Biogen Idec Collaboration Agreement will remain in effect until the expiration of all payment obligations under the agreement. Either the Company or Biogen Idec may terminate the agreement in the event that the other party breaches its obligations thereunder. Biogen Idec may also terminate the agreement, on a country-by-country basis, without cause upon 90-days’ prior written notice.

Merck Agreement

In July 2006, the Company executed an Amended and Restated Research Collaboration and License Agreement (the “Amended License Agreement”) with Merck. In September 2007, the Company and Merck terminated the Amended License Agreement (the “Termination Agreement”). Pursuant to the Termination Agreement, all license grants of intellectual property to develop, manufacture and/or commercialize RNAi therapeutic products under the Amended License Agreement ceased as of the date of the Termination Agreement, subject to certain specified exceptions. The Termination Agreement further provides that, subject to certain conditions, the Company and Merck will each retain sole ownership and rights in their own intellectual property. The Company has no remaining deliverables under the Amended License Agreement. The Company was recognizing the remaining deferred revenue of $3.5 million under the Amended License Agreement, related to upfront cash payments and additional license fee payments received from Merck, on a straight-line basis over the

124

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

remaining period of expected performance of four years. As a result of the Termination Agreement, the Company recognized this remaining deferred revenue of $3.5 million during 2007.

Product Alliances

Kyowa Hakko Kirin Alliance

In June 2008, the Company entered into a License and Collaboration Agreement (the “Kyowa Hakko Kirin Agreement”) with Kyowa Hakko Kirin. Under the Kyowa Hakko Kirin Agreement, the Company granted Kyowa Hakko Kirin an exclusive license to its intellectual property in Japan and other markets in Asia (the “Licensed Territory”) for the development and commercialization of an RNAi therapeutic for the treatment of respiratory syncytial virus (“RSV”) infection. The Kyowa Hakko Kirin Agreement covers ALN-RSV01, as well as additional RSV-specific RNAi therapeutic compounds that comprise the ALN-RSV program (“Additional Compounds”). The Company retains all development and commercialization rights worldwide outside of the Licensed Territory, subject to our agreement with Cubist, described below.

Under the terms of the Kyowa Hakko Kirin Agreement, in June 2008, Kyowa Hakko Kirin paid the Company an upfront cash payment of $15.0 million. In addition, Kyowa Hakko Kirin is required to make payments to the Company upon achievement of specified development and sales milestones totaling up to $78.0 million, and royalty payments based on annual net sales, if any, of RNAi therapeutics for RSV by Kyowa Hakko Kirin, its affiliates and sublicensees in the licensed territory.

The collaboration between Kyowa Hakko Kirin and the Company is governed by a joint steering committee that is comprised of an equal number of representatives from each party. Under the agreement, Kyowa Hakko Kirin is establishing a development plan for the ALN-RSV program relating to the development activities to be undertaken in the Licensed Territory, with the initial focus on Japan. Kyowa Hakko Kirin 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 RSV in Japan and the rest of the Licensed Territory. The Company is responsible for supply of the product to Kyowa Hakko Kirin under a supply agreement unless Kyowa Hakko Kirin elects, prior to the first commercial sale of the product in the Licensed Territory, to manufacture the product itself or arrange for a third party to manufacture the product.

The term of the Kyowa Hakko Kirin agreement generally ends on a country-by-country basis upon the later of (1) the expiration of the Company’s last-to-expire patent covering a licensed product and (2) the tenth anniversary of the first commercial sale in the country of sale. Additional patent filings relating to the collaboration may be made in the future. The Kyowa Hakko Kirin agreement may be terminated by either party in the event the other party fails to cure a material breach under the agreement. In addition, Kyowa Hakko Kirin may terminate the agreement without cause upon 180-days’ prior written notice to the Company, subject to certain conditions.

The Company has determined that the deliverables under the Kyowa Hakko Kirin Agreement include the license, the joint steering committee, the manufacturing services and any Additional Compounds. The Company has determined that, pursuant to the accounting guidance governing revenue recognition on multiple element arrangements, the individual deliverables are not separable and, accordingly, must be accounted for 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 Kyowa Hakko Kirin Agreement, as it is unable to estimate the timeline of its deliverables related to the fixed-price option granted to Kyowa Hakko Kirin for any Additional Compounds. The Company is deferring all revenue under the Kyowa Hakko Kirin 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 Kyowa Hakko Kirin Agreement.

125

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Cubist Alliance

In January 2009, the Company entered into a license and collaboration agreement with Cubist (the “Cubist Agreement”) to develop and commercialize therapeutic products (“Licensed 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 “Amendment”), which provides that the Company and Cubist will focus their collaboration and joint development efforts on ALN-RSV02, a second-generation compound, intended for use in pediatric patients. Consistent with the original Cubist Agreement, the Company and Cubist each bears one-half of the related development costs for ALN-RSV02. Pursuant to the terms of the Amendment, the Company is also continuing to develop ALN-RSV01 for adult transplant patients at its sole discretion and expense. Cubist has the right to resume the collaboration on ALN-RSV01 in the future, which right may be exercised for a specified period of time following the completion of the Company’s Phase IIb trial of ALN-RSV01 in adult lung transplant patients infected with RSV, subject to the payment by Cubist of an opt-in fee representing reimbursement of an agreed upon percentage of certain of the Company’s development expenses for ALN-RSV01.

Under the terms of the Cubist Agreement, the Company and Cubist share responsibility for developing Licensed Products in North America and each bears 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 is governed by a joint steering committee comprised of an equal number of representatives from each party. Cubist will have 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. Throughout the rest of the world (the “Royalty Territory”), excluding Asia, where the Company has previously partnered its ALN-RSV program with Kyowa Hakko Kirin, Cubist has an exclusive, royalty-bearing license to develop and commercialize Licensed Products.

In consideration for the rights granted to Cubist under the Cubist Agreement, in January 2009, Cubist made a $20.0 million upfront cash payment to the Company. Cubist also has an obligation under the Cubist Agreement to pay the Company milestone payments, totaling up to an aggregate of $82.5 million, upon the achievement of specified development and sales events in the Royalty Territory. In addition, if Licensed Products are successfully developed, Cubist will be required to pay to the Company royalties on net sales of Licensed Products in the Royalty Territory, if any, subject to offsets under certain circumstances. Upon achievement of certain development milestones, the Company will have the right to convert the North American co-development and profit sharing arrangement into a royalty-bearing license and, in addition to royalties on net sales in North America, will be entitled to receive additional milestone payments totaling up to an aggregate of $130.0 million upon achievement of specified development and sales events in North America, subject to the timing of the conversion by the Company and the regulatory status of Licensed Products at the time of conversion. If the Company makes the conversion to a royalty-bearing license with respect to North America, then North America becomes part of the Royalty Territory.

During the term of the Cubist Agreement, neither party nor its affiliates may develop, manufacture or commercialize anywhere in the world, outside of Asia, a therapeutic or prophylactic product that specifically targets RSV, except for Licensed Products developed, manufactured or commercialized pursuant to the Cubist Agreement.

126

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2025. Certain claims covering ALN-RSV compounds in the United States would expire in 2026. These patent rights are subject to any potential patent term extensions and/or supplemental protection certificates extending such term extensions in countries where such extensions may become available. In addition, more patent filings relating to the collaboration may be made in the future. Cubist has the right to terminate the Cubist Agreement at any time (1) upon three months’ prior written notice if such notice is given prior to the acceptance for filing of the first application for regulatory approval of a Licensed Product or (2) upon nine months prior written notice if such notice is given after the acceptance for filing of the first application for regulatory approval. Either party may terminate the Cubist Agreement in the event the other party fails to cure a material breach or upon patent-related challenges by the other party.

The Company has determined that the deliverables under the Cubist Agreement include the licenses, technology transfer related to the ALN-RSV program, the joint steering committee and the development and manufacturing services that the Company is obligated to perform during the development period. The Company has determined that, pursuant to the accounting guidance governing revenue recognition on multiple element arrangements, the licenses and undelivered services are not separable and, accordingly, the licenses 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 Cubist Agreement, the last element to be delivered is the development and manufacturing services, which have an expected life of approximately eight years.

The Company is recognizing the upfront payment of $20.0 million on a straight-line basis over approximately eight years because the Company is unable to reasonably estimate the level of effort to fulfill its performance obligations in order to utilize a proportional performance model. As future substantive milestones are achieved, 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, will be recognized as revenue upon achievement of such milestone. The remaining portion of the milestone will be recognized over the remaining performance period on a straight-line basis.

Under the terms of the Cubist Agreement, the Company and Cubist share responsibility for developing Licensed Products in North America and each bears one-half of the related development costs, provided that under the terms of the Amendment, the Company is funding the advancement of ALN-RSV01 for adult lung transplant patients and Cubist retains an opt-in right. For revenue generating arrangements that involve cost sharing between the parties, the Company presents the results of activities for which it acts as the principal on a gross basis and reports any payments received from (made to) other collaborators based on other applicable GAAP or, in the absence of other applicable GAAP, analogy to authoritative accounting literature or a reasonable, rational and consistently applied accounting policy election. As the Company is not considered the principal under the Cubist Agreement, the Company records any amounts due from Cubist as a reduction of research and development expense. For the year ended December 31, 2009, the Company and Cubist incurred $11.4 million under the Cubist Agreement, of which $11.0 million was incurred by the Company. During the year ended December 31, 2009, amounts due from Cubist of $5.3 million were recorded as a reduction to research and development expense. As such, the Company recorded net research and development expenses of $5.7 million in its consolidated statements of operations for the year ended December 31, 2009.

In connection with the Cubist Agreement, during 2009, the Company paid $1.0 million of license fees to the Company’s licensors, primarily Isis, in accordance with the applicable license agreements with those parties. These fees were charged to research and development expense.

127

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Government Funding

NIH Contract

In September 2006, NIAID awarded the Company a contract for up to $23.0 million over four years to advance the development of a broad spectrum RNAi anti-viral therapeutic for hemorrhagic fever virus, including the Ebola virus. As a result of the continued progress of this program, the NIAID has appropriated the entire $23.0 million over the four-year term of the contract, which will be completed in September 2010. The Company recognizes revenue under government cost reimbursement contracts as it performs the underlying research and development activities. At December 31, 2009, there was $3.7 million of remaining funds available under the NIAID contract.

Department of Defense Contract

In August 2007, DTRA awarded the Company a contract to advance the development of a broad spectrum RNAi anti-viral therapeutic for hemorrhagic fever virus. The government initially committed to pay the Company up to $10.9 million through February 2009, which included a six-month extension granted by DTRA in July 2008. Following a program review in early 2009, the Company and DTRA determined not to continue this program and accordingly, the remaining funds of up to $27.7 million were not accessed. The Company recognizes revenue under government cost reimbursement contracts as it performs the underlying research and development activities.

Delivery Technology

The Company is working internally and with third-party collaborators to extend its capabilities in developing technology to achieve efficacious and safe delivery of RNAi therapeutics to a broad spectrum of organ and tissue types. In connection with these efforts, the Company has entered into a number of agreements to evaluate and gain access to certain delivery technologies. In some instances, the Company is also providing funding to support the advancement of these delivery technologies.

In January 2007, the Company obtained an exclusive worldwide license to the liposomal delivery formulation technology of Tekmira for the discovery, development and commercialization of lipid nanoparticle formulations for the delivery of RNAi therapeutics. In connection with its original agreement with Tekmira, the Company issued to Tekmira 361,990 shares of common stock. These shares had a value of $7.9 million at the time of issuance, which amount was expensed during the first quarter of 2007. In May 2008, Tekmira acquired Protiva Biotherapeutics Inc. (“Protiva”). In connection with this acquisition, the Company entered into new agreements with Tekmira and Protiva which provide the Company with access to key existing and future technology and intellectual property for the systemic delivery of RNAi therapeutics with liposomal delivery technologies. In addition, the Company made an equity investment of $5.0 million in Tekmira, purchasing 2,083,333 shares of Tekmira common stock at a price of $2.40 per share, which represented a premium of $1.00 per share, or an aggregate of $2.1 million. This premium was calculated as the difference between the purchase price and the closing price of Tekmira’s common stock on the effective date of the acquisition. The Company allocated this $2.1 million premium to the expansion of the Company’s access to key technology and intellectual property rights and, accordingly, recorded a charge to research and development expense during the second quarter of 2008. The Company recorded this investment as an available-for-sale security in marketable securities on its consolidated balance sheets. During the year ended December 31, 2008, the Company recorded an impairment charge of $1.6 million related to its investment in Tekmira, as the decrease in the fair value of this investment was deemed to be other than temporary.

128

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


4.	INTANGIBLE ASSETS

Intangible assets at December 31, 2009 and 2008 are as follows, in thousands:


	December 31,
	2009			2008

Core technology	$	2,410		$	2,410
Less: accumulated amortization:		(1,788	)		(1,615	)

	$	622		$	795

During the years ended December 31, 2009, 2008 and 2007, the Company recorded $0.2 million, $0.2 million and $0.3 million, respectively, of amortization expense related to core technology and workforce intangibles acquired from its acquisition of Ribopharma AG in 2003, of which the entire amount is included in research and development expenses. Workforce intangibles were fully amortized during 2007. Core technology is being amortized over its estimated useful life of ten years through 2013. The Company expects annual amortization expense related to the core technology intangible asset to be $0.2 million through 2012 and $0.1 million in 2013.


5.	PROPERTY AND EQUIPMENT

Property and equipment consist of the following at December 31, 2009 and 2008, in thousands:


				December 31,
	Useful Life			2009			2008

Laboratory equipment		5 years		$	16,126		$	12,617
Computer equipment and software		3 years			3,193			2,653
Furniture and fixtures		5 years			1,730			1,532
Leasehold improvements			*		18,851			18,126
Construction in progress		—			—			23

					39,900			34,951
Less: accumulated depreciation					(21,576	)		(15,757	)

				$	18,324		$	19,194


*		shorter of asset life or lease term

During the years ended December 31, 2009, 2008 and 2007, the Company recorded $5.8 million, $5.4 million and $3.8 million, respectively, of depreciation expense related to its property and equipment.


6.	NOTES PAYABLE

Equipment Lines of Credit

In March 2006, the Company entered into an agreement with Oxford Finance Corporation (“Oxford”) to establish an equipment line of credit for up to $7.0 million to help support capital expansion of the Company’s facility in Cambridge, Massachusetts and capital equipment purchases. The agreement allowed the Company to draw down amounts under the line of credit through December 31, 2007 upon adherence to certain conditions. During 2006 and 2007, the Company borrowed an aggregate of $5.2 million from Oxford pursuant to the agreement at fixed rates ranging from 10.0% to 10.4%. In December 2008, the Company repaid the outstanding balance of $1.7 million under the Oxford line of credit.

In March 2004, the Company entered into an agreement with Lighthouse Capital Partners V, L.P. (“Lighthouse”) to establish an equipment line of credit for $10.0 million. In June 2005, the parties amended

129

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the agreement to allow the Company the ability to draw down amounts under the line of credit through December 31, 2005 upon adherence to certain conditions. Interest on the outstanding principal balance accrued at fixed rates of 9.25% to 10.25%. On the maturity of each equipment advance under the line of credit, the Company was required to pay, in addition to the principal and interest due, an additional amount of 11.5% of the original principal. This amount was accrued over the applicable borrowing period as additional interest expense. In December 2008, the Company repaid the outstanding balance of $2.2 million under the Lighthouse line of credit.

At December 31, 2009 and 2008, the Company had no outstanding debt.


7.	COMMITMENTS AND CONTINGENCIES

Manufacturing Commitment

In January 2009, the Company and Tekmira entered into a manufacturing and supply agreement (the “Tekmira Supply Agreement”) under which the Company committed to pay Tekmira a minimum of CAD$11.2 million (representing U.S.$9.2 million at the time of execution) over a three-year period beginning in January 2009. As of December 31, 2009, there was CAD$6.3 million (representing U.S.$6.0 million at December 31, 2009) of outstanding obligations under the Tekmira Supply Agreement, CAD$3.5 million (representing U.S.$3.3 million at December 31, 2009) of which the Company will pay in 2010 and CAD$2.8 million (representing U.S.$2.7 million at December 31, 2009) of which the Company will pay in 2011.

Purchase Commitments

The Company has future purchase commitments totaling $10.1 million at December 31, 2009. These commitments are related to purchase orders, clinical and pre-clinical agreements, and other purchase commitments for goods or services. The Company has commitments of $9.0 million, $0.9 million and $0.2 million in 2010, 2011 and 2012, respectively.

Technology License Commitments

The Company has licensed from third parties the rights to use certain technologies in its research process as well as in any products the Company may develop including these licensed technologies. In accordance with the related license agreements, the Company is required to make certain fixed payments to the licensor or a designee of the licensor over various agreement terms. Many of these agreement terms are consistent with the remaining lives of the underlying intellectual property that the Company has licensed. At December 31, 2009, the Company was committed to make the following fixed, cancellable payments under existing license agreements, in thousands:


Year Ending December 31,

2010	$	18,225	(1)
2011		4,585
2012		1,973
2013		498
2014		543
Thereafter		6,823

Total	$	32,647


(1)		Includes a potential $10.0 million milestone payable to Isis related to the continuation of the Company’s ssRNAi collaboration. The Company has the unilateral right to terminate the portions of the Amended and Restated Isis Agreement related to ssRNAi before September 30, 2010, in which event any licenses to ssRNAi products granted by Isis to the Company under the Amended and Restated Isis Agreement, and any obligation

130

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


		thereunder by the Company to pay milestone payments to Isis for such ssRNAi products, would also terminate. The remainder of the Amended and Restated Isis Agreement would remain in full force and effect.

Operating Lease

The Company leases office and laboratory space in Cambridge, Massachusetts for its corporate headquarters under a non-cancelable operating lease agreement. The Company also had a lease in Kulmbach, Germany through August 2007. Total rent expense, including operating expenses, under these operating leases was $5.1 million, $4.6 million and $4.7 million for the years ended December 31, 2009, 2008 and 2007, respectively.

In 2003, the Company entered into an operating lease to rent laboratory and office space in Cambridge, Massachusetts (the “Premises”) through September 2011. In March 2006, the Company amended its lease agreement to rent additional space at the Premises. Pursuant to the terms of the lease agreement, the Company secured a $2.3 million letter of credit as security for the Premises.

In October 2007, the Company subleased from Archemix Corp. (“Archemix”) additional office and laboratory space at the Premises (the “Sublease”). In connection with the execution of the Sublease, the Company issued a letter of credit in favor of Archemix in the amount of $0.8 million.

In June 2009, the Company entered into an agreement with its landlord further amending provisions of its 2003 lease (the “Amendment”). The Amendment provides for the lease of the entire second floor of the Premises, including space previously subleased by the Company from Archemix under the Sublease. Following execution of the Amendment, the Company leases and occupies approximately 95,000 square feet of office and laboratory space at the Premises under the lease, as amended. The term of the lease was extended an additional five years and now expires in September 2016. The Company has the option to extend the lease for two successive five-year extensions.

In connection with the execution of the Amendment and the concurrent termination of the Sublease, the landlord and Archemix released to the Company an aggregate of $3.2 million being held under letters of credit as security deposits for the lease and the Sublease. This balance was previously classified as long-term restricted cash in the Company’s consolidated balance sheet and was reclassified to cash and cash equivalents in 2009.

The Company received $7.3 million in leasehold improvement incentives from its landlords in connection with its leases. These leasehold improvement incentives are being accounted for as a reduction in rent expense ratably over the lease term. The balance from these leasehold improvement incentives is included in current portion of deferred rent and deferred rent, net of current portion in the consolidated balance sheets at December 31, 2009 and 2008.

Future minimum payments under this non-cancelable lease are approximately as follows, in thousands:


Year Ending December 31,

2010	$	3,727
2011		3,773
2012		3,952
2013		4,110
2014		4,275
Thereafter		7,878

Total	$	27,715

Litigation

In June 2009, the Company joined with Max-Planck-Gesellschaft Zur Forderung Der Wissenschaften E.V. and Max-Planck-Innovation GmbH (collectively, “Max Planck”), in taking legal action against the Whitehead Institute for Biomedical Research (“Whitehead”), the Massachusetts Institute of Technology (“MIT”) and the Board of

131

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Trustees of the University of Massachusetts (“UMass”). The complaint, initially filed in Suffolk County Superior Court in Boston, Massachusetts and subsequently removed to the U.S. District Court for the District of Massachusetts, alleges, among other things, that the defendants have improperly prosecuted the Tuschl I patent applications and wrongfully incorporated inventions covered by the Tuschl II patent applications into the Tuschl I patent applications, thereby potentially damaging the value of inventions reflected in the Tuschl I and Tuschl II patent applications. In the field of RNAi therapeutics, the Company is the exclusive licensee of the Tuschl I patent applications from Max Planck, MIT and Whitehead, and of the Tuschl II patent applications from Max Planck.

The complaint seeks to enjoin the defendants from taking any further action in connection with the prosecution of any Tuschl I application, a declaratory judgment and unspecified monetary damages. In August 2009, the court denied the Company’s motion for a preliminary injunction. In addition, in August 2009, Whitehead and UMass filed counterclaims against the Company and Max Planck, including for breach of contract. A trial on the merits was originally scheduled to begin in February 2010. In January 2010, the Company and Max Planck filed a motion for leave to file an amended complaint expanding upon the allegations in the original complaint. In January 2010, the court granted this motion allowing the amended complaint and postponed the start of the trial. The Company currently expects the trial to start in June 2010.

In addition, in September 2009, the U.S. Patent and Trademark Office (“USPTO”), granted Max Planck’s petition to revoke power of attorney in connection with the prosecution of the Tuschl I patent application. This action prevents the defendants from filing any papers with the USPTO in connection with further prosecution of the Tuschl I patent application without the agreement of Max Planck. Whitehead’s petition to overturn the ruling on Max Planck’s petition was denied.

Although the Company, along with Max Planck, are vigorously asserting their rights in this case, litigation is subject to inherent uncertainty and a court could ultimately rule against the Company and Max Planck. In addition, litigation is costly and may divert the attention of the Company’s management and other resources that would otherwise be engaged in running the Company’s business. The Company has not recorded an estimated liability associated with the legal proceedings described above due to the uncertainties related to both the likelihood and the amount of any potential loss.

Indemnifications

Licensor indemnification — In connection with the Company’s license agreements with Max Planck relating to the Tuschl I and Tuschl II patent applications, the Company is required to indemnify Max Planck for certain damages arising in connection with the intellectual property rights licensed under the agreements. Under the Max Planck indemnification agreement, the Company is responsible for paying the costs of any litigation relating to the license agreements or the underlying intellectual property rights, including the costs associated with the litigation described above. These costs are charged to general and administrative expense. The Company believes that the probability of receiving a claim for damages is remote and, as such, no amounts have been accrued related to this indemnification at December 31, 2009 and 2008.

The Company is also a party to a number of agreements entered into in the ordinary course of business, which contain typical provisions that obligate the Company to indemnify the other parties to such agreements upon the occurrence of certain events. Such indemnification obligations are usually in effect from the date of execution of the applicable agreement for a period equal to the applicable statute of limitations.

The maximum potential future liability of the Company under any such indemnification provisions is uncertain. The Company has determined that the estimated aggregate fair value of its potential liabilities under all such indemnification provisions is minimal and has not recorded any liability related to such indemnification provisions at December 31, 2009 or 2008.

132

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


8.	STOCKHOLDERS’ EQUITY

Preferred Stock

The Company has authorized up to 5,000,000 shares of preferred stock, $0.01 par value per share, for issuance. The preferred stock will have such rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be determined by the Company’s Board of Directors upon its issuance. At December 31, 2009 and 2008, there were no shares of preferred stock outstanding.

Stockholder Rights Agreement

On July 13, 2005, the Board of Directors of the Company declared a dividend of one right (collectively, the “Rights”) to buy one one-thousandth of a share of newly designated Series A Junior Participating Preferred Stock (“Series A Junior Preferred Stock”) for each outstanding share of the Company’s common stock to stockholders of record at the close of business on July 26, 2005. Initially, the Rights are not exercisable and will be attached to all certificates representing outstanding shares of common stock, and no separate Rights Certificates will be distributed. The Rights will expire at the close of business on July 13, 2015 unless earlier redeemed or exchanged. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including the right to vote or to receive dividends. Subject to the terms and conditions of the Rights Agreement entered into by the Company with Computershare (formerly EquiServe Trust Company, N.A.), as Rights Agent (the “Rights Agreement”), the Rights will become exercisable upon the earlier of (1) ten business days following the later of (a) the first date of a public announcement that a person or group (an “Acquiring Person”) acquires, or obtained the right to acquire, beneficial ownership of 20 percent or more of the outstanding shares of common stock of the Company or (b) the first date on which an executive officer of the Company has actual knowledge that an Acquiring Person has become such or (2) ten business days following the commencement of a tender offer or exchange offer that would result in a person or group beneficially owning more than 20 percent of the outstanding shares of common stock of the Company. Each Right entitles the holder to purchase one one-thousandth of a share of Series A Junior Preferred Stock at an initial purchase price of $80.00 in cash, subject to adjustment. In the event that any person or group becomes an Acquiring Person, unless the event causing the 20% threshold to be crossed is a Permitted Offer (as defined in the Rights Agreement), each Right not owned by the Acquiring Person will entitle its holder to receive, upon exercise, that number of shares of common stock of the Company (or in certain circumstances, cash, property or other securities of the Company) which equals the exercise price of the Right divided by 50% of the current market price (as defined in the Rights Agreement) per share of such common stock at the date of the occurrence of the event. In the event that, at any time after any person or group becomes an Acquiring Person, (i) the Company is consolidated with, or merged with and into, another entity and the Company is not the surviving entity of such consolidation or merger (other than a consolidation or merger which follows a Permitted Offer) or if the Company is the surviving entity, but shares of its outstanding common stock are changed or exchanged for stock or securities (of any other person) or cash or any other property, or (ii) more than 50% of the Company’s assets or earning power is sold or transferred, each holder of a Right (except Rights which previously have been voided as set forth in the Rights Agreement) shall thereafter have the right to receive, upon exercise, that number of shares of common stock of the acquiring company which equals the exercise price of the Right divided by 50% of the current market price of such common stock at the date of the occurrence of the event.


9.	STOCK INCENTIVE PLANS

Stock Plans

In June 2009, the Company’s stockholders approved an amendment and restatement of the Company’s 2004 Stock Incentive Plan (the “Amended and Restated 2004 Plan”), which replaced the Company’s 2004 Stock Incentive Plan, as amended (the “2004 Plan”). As of December 31, 2009, the Amended and Restated 2004 Plan provides for the granting of stock options to purchase up to 12,366,485 shares of common stock. Prior to the

133

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

adoption of the Amended and Restated 2004 Plan, the Company was authorized to grant both options and restricted stock awards under the 2004 Plan. As of the effective date of the Amended and Restated 2004 Plan, the Company may only grant options under the Amended and Restated 2004 Plan, provided that the terms and conditions of any restricted stock awards outstanding under the 2004 Plan will continue to be governed by the Amended and Restated 2004 Plan.

In June 2009, the Company’s stockholders also approved the Company’s 2009 Stock Incentive Plan (the “2009 Plan”). The 2009 Plan provides for the granting of stock options, restricted stock awards and units, stock appreciation rights and other stock-based awards to purchase up to 2,200,000 shares of common stock. The 2009 Plan has a fungible share pool. Any award that is not a full value award shall be counted against the authorized share limits specified in the 2009 Plan as one share for each share of common stock subject to award, and all full value awards, defined in the 2009 Plan as restricted stock awards or other stock-based awards, shall be counted as one and a half shares for each one share of common stock subject to such full value award. In addition, the 2009 Plan includes a non-employee director stock option program under which each eligible non-employee director is entitled to (1) a grant of an option to purchase 30,000 shares of common stock upon his or her initial appointment to the Board of Directors, or such other amount as the Board of Directors deems appropriate, and (2) a subsequent annual grant of an option to purchase 15,000 shares of common stock based on continued service, made on the date of each annual meeting of stockholders, provided the non-employee director has served as a director for at least six months and is serving as a director immediately prior to and following such annual meeting. The chairman of the audit committee will receive an additional annual grant of an option to purchase 10,000 shares of common stock based on continued service. Stock options granted by the Company to non-employee directors upon their appointment to the Board of Directors vest as to one-third of such shares on each of the first, second and third anniversaries of the date of grant, and at each year’s annual meeting at which they serve as a director vest in full on the first anniversary of the date of grant.

At December 31, 2009, an aggregate of 11,555,081 shares of common stock were reserved for issuance under the Company’s stock plans, including outstanding options to purchase 7,926,653 shares of common stock and 3,628,428 shares available for future grant under the Company’s stock plans. Each option shall expire within ten years of issuance. Stock options granted by the Company to employees generally vest as to 25% of the shares on the first anniversary of the grant date and 6.25% of the shares at the end of each successive three-month period until fully vested.

Stock-Based Compensation

The Company recorded $18.9 million, $14.3 million and $11.9 million of stock-based compensation expense for the years ended December 31, 2009, 2008 and 2007, respectively, related to employee stock options and the employee stock purchase plan.

The Company accounts for non-employee grants as an expense over the vesting period of the underlying stock options. At the end of each financial reporting period prior to vesting, the value of these options (as calculated using the Black-Scholes option-pricing model) is re-measured using the then-current fair value of the Company’s common stock. The Company recognized $0.8 million, $2.1 million and $2.6 million of non-employee stock-based compensation expense for the years ended December 31, 2009, 2008 and 2007, respectively.

The Company granted the members of Regulus’ scientific advisory board and board of directors options to purchase 30,000 and 68,500 shares of common stock during 2008 and 2007, respectively. In addition, the Company granted options to purchase 60,000 shares of common stock to two officers of Regulus during 2008 and 60,000 shares of common stock to the chief executive officer of Regulus in 2007. In addition to the total stock-based compensation expense stated above, the Company recorded ($0.2) million, $1.6 million and $0.2 million of stock-based compensation expense related to these option grants in equity in loss of joint venture (Regulus Therapeutics Inc.) in its consolidated statements of operations for the years ended December 31, 2009, 2008 and 2007, respectively.

134

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Regulus became a C corporation on January 2, 2009. Upon conversion to a C corporation, certain options granted to the members of Regulus’ scientific advisory board and board of directors in 2008 and 2007 were forfeited. In addition, upon conversion to a C corporation, certain options granted to two officers and the chief executive officer of Regulus were also forfeited. Prior expense recognized for forfeited shares was reversed in 2009.

In connection with the closing of the sale of Roche Kulmbach to Roche, the Company granted 95,109 shares of restricted stock of the Company to certain employees of Roche Kulmbach. In connection with the closing, the Company also accelerated 177,233 of unvested outstanding stock options of certain Alnylam Europe employees. The Company recorded $3.8 million of stock-based compensation expense during 2007 related to the restricted stock grants and the stock option modifications.

Total compensation cost for all stock-based payment arrangements for the years ended December 31, 2009, 2008 and 2007 was $19.5 million, $18.0 million and $14.7 million, respectively. No amounts relating to the stock-based compensation have been capitalized.

Valuation Assumptions for Stock Plans and Employee Stock Purchase Plan

The fair value of stock options at date of grant, based on the following assumptions, was estimated using the Black-Scholes option-pricing model. The Company’s expected stock-price volatility assumption for 2009, 2008 and the three months ended December 31, 2007 is based on a combination of implied volatilities of its publicly traded stock option prices as well as the historical volatility of the Company’s publicly traded stock. During the nine months ended September 30, 2007, the Company’s expected stock-price volatility assumption was based on a combination of implied volatilities of similar entities whose share or option prices are publicly available as well as the historical volatility of the Company’s publicly traded stock. The expected life assumption for 2009, 2008 and for the three months ended December 31, 2007 is based on the equal weighting of the Company’s historical data and the historical data of the Company’s pharmaceutical and biotechnology peers. During the nine months ended September 30, 2007, the expected life assumption was based on the simplified method, which averages the contractual term of the Company’s options (ten years) with the ordinary vesting term (2.2 years). The dividend yield assumption is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. The risk-free interest rate used for each grant is equal to the zero coupon rate for instruments with a similar expected life. The Company currently expects, based on an analysis of its historical forfeitures, that approximately 83% of its options will actually vest, and therefore have applied an annual forfeiture rate of 4.5% to all unvested options as of December 31, 2009. The Company will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior expense if the actual forfeitures are higher than estimated.


	2009			2008			2007

Risk-free interest rate		2.0-3.0	%		1.5-3.5	%		4.4-4.7	%
Expected dividend yield		—			—			—
Expected option life		6.1-6.3 years			5.7-6.3 years			6.0-6.1 years
Expected volatility		53-66	%		66-67	%		64-67	%

At December 31, 2009, there remained $44.7 million of unearned compensation expense related to unvested employee stock options to be recognized as expense over a weighted-average period of approximately 1.5 years.

135

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stock Option Activity

The following table summarizes the activity of the Company’s stock option plans:


				Weighted
				Average
	Number of			Exercise
	Options			Price

Outstanding, December 31, 2008		7,037,214		$	19.87
Granted		1,650,088		$	17.63
Exercised		(275,908	)	$	5.30
Cancelled		(484,741	)	$	27.52

Outstanding, December 31, 2009		7,926,653		$	19.44

Exercisable at December 31, 2007		1,913,468		$	7.49
Exercisable at December 31, 2008		2,903,479		$	12.87
Exercisable at December 31, 2009		4,113,776		$	17.14

The weighted average remaining contractual life for options outstanding and exercisable at December 31, 2009 was 7.7 years and 6.6 years, respectively.

The aggregate intrinsic value of options outstanding at December 31, 2009 was $20.9 million, of which $19.2 million related to exercisable options. The intrinsic value of options exercised was $4.3 million, $8.2 million and $24.6 million for the years ended December 31, 2009, 2008 and 2007, respectively. The weighted average fair value of stock options granted was $9.84, $15.02 and $16.58 per share for the years ended December 31, 2009, 2008 and 2007, respectively.

The aggregate intrinsic value of options expected to vest at December 31, 2009 and 2008 was $1.6 million and $10.6 million, respectively. The weighted average fair value of stock options expected to vest was $12.56 and $12.10 per share as of December 31, 2009 and 2008, respectively. The weighted average remaining contractual life for options expected to vest at December 31, 2009 and 2008 was 8.3 years and 9.0 years, respectively, and the weighted average exercise price for these options was $21.92 and $24.76 per share on December 31, 2009 and 2008, respectively.

Restricted Stock Awards

The following table summarizes the activity of the Company’s restricted stock awards:


				Weighted
				Average
	Number of			Grant Date
	Awards			Fair Value

Unvested at December 31, 2008		28,518		$	25.98
Granted		—		$	—
Vested		(28,518	)	$	25.98
Forfeited		—		$	—

Unvested at December 31, 2009		—		$	—

The total fair value of restricted stock awards that vested during the years ended December 31, 2009, 2008 and 2007 was $0.7 million, $0.7 million and $1.0 million, respectively. The Company did not have any unvested or unissued restricted stock awards at December 31, 2009.

136

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Employee Stock Purchase Plan

In 2004, the Company adopted the 2004 Employee Stock Purchase Plan (the “2004 Purchase Plan”) with 315,789 shares authorized for issuance. Under the 2004 Purchase Plan as adopted, the Company made one offering each year, at the end of which employees could purchase shares of common stock through payroll deductions made over the term of the offering. Initially, the annual offering period began on the 1st day of November each year and ended on the 31st day of October the following year. In June 2007, the compensation committee of the Board of Directors amended the offering period of the 2004 Purchase Plan to provide that each offering period will be for a period of six months, beginning with the offering period commencing on November 1, 2007. The per-share purchase price at the end of the offering is equal to the lesser of 85% of the closing price of the common stock at the beginning or end of the offering period. The Company issued 59,267, 35,065 and 29,723 shares during the years ended December 31, 2009, 2008 and 2007, respectively, and as of December 31, 2009, 99,412 shares were available for issuance under the 2004 Purchase Plan.

The weighted average fair value of stock purchase rights granted as part of the 2004 Purchase Plan was $7.20, $9.51 and $10.61 per share for the years ended December 31, 2009, 2008 and 2007, respectively. The fair value was estimated using the Black-Scholes option-pricing model. The Company used a weighted-average stock-price volatility of 66%, expected option life assumption of six months and a risk-free interest rate of 0.7%. The Company recorded $0.4 million, $0.3 million and $0.2 million of stock-based compensation expense for the years ended December 31, 2009, 2008 and 2007, respectively, related to the 2004 Purchase Plan.


10.	INCOME TAXES

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. A valuation allowance is established when uncertainty exists as to whether all or a portion of the net deferred tax assets will be realized. Components of the net deferred tax asset (liability) as of December 31, 2009, 2008 and 2007 are as follows, in thousands:


	2009			2008			2007

Deferred tax assets:
Net operating loss carryforwards	$	496		$	496		$	49,910
Research and development credits		—			298			3,582
Foreign tax credits		—			—			3,072
Capitalized research and development and start-up costs		7,729			9,558			12,750
Deferred revenue		92,811			74,423			2,745
Deferred compensation		12,433			7,532			3,237
Intangible assets		9,551			5,422			1,540
Partnership interest		2,666			756			—
Other		1,037			1,930			3,674

Total deferred tax assets		126,723			100,415			80,510
Deferred tax liabilities:
Intangible assets		(194	)		(246	)		(365	)
Deferred tax asset valuation allowance		(116,230	)		(95,033	)		(80,510	)

Net deferred tax asset (liability)	$	10,299		$	5,136		$	(365	)

137

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The provision for income taxes for the years ended December 31, 2009 and 2008 was as follows, in thousands:


	2009			2008

U.S.:
Current	$	5,987		$	5,978
Deferred		(5,111	)		(5,382	)

Total U.S.		876			596

Foreign:
Current		(242	)		242
Deferred		(52	)		(119	)

Total Foreign		(294	)		123

Provision for income taxes	$	582		$	719

The Company’s effective income tax rate differs from the statutory federal income tax rate as follows for the years ended December 31, 2009, 2008 and 2007:


	2009			2008			2007

At U.S. federal statutory rate		35.0	%		35.0	%		34.0	%
State taxes, net of federal effect		(0.6	)		(0.5	)		5.8
Foreign tax credit		—			—			3.8
Foreign dividends		—			—			(6.6	)
Stock compensation		(4.2	)		(6.0	)		(2.4	)
Other		(0.3	)		(0.3	)		—
Other permanent items		0.1			(0.3	)		1.6
Deemed gain on Roche Germany transaction		—			—			(6.3	)
Research credits		—			—			0.4
Valuation allowance		(31.3	)		(30.7	)		(36.7	)

Effective income tax rate		(1.3	)%		(2.8	)%		(6.4	)%

The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. The Company has concluded, in accordance with the applicable accounting standards, that it is more likely than not that the Company may not realize the benefit of all its deferred tax assets. Accordingly, a valuation allowance has been recorded against the deferred tax assets that management believes will not be realized. The Company reevaluates the positive and negative evidence on a quarterly basis. The valuation allowance increased by $21.2 million, $14.5 million and $29.6 million for the years ended December 31, 2009, 2008 and 2007, respectively, due primarily to recognition of deferred revenue for tax purposes.

During 2009 and 2008, the Company utilized certain tax attributes, including net operating loss and tax credit carryforwards as a result of the recognition of revenue for certain proceeds received from strategic alliances. However, the Company also generated a deferred tax asset related to the recognition of this revenue for tax purposes. As a result, the Company has recorded a net deferred tax asset to the extent it is more likely than not that the asset will be realized. The remaining deferred tax assets are subject to a valuation allowance as it is more likely than not that those assets will not be realized.

The deferred tax assets above exclude $9.5 million of deductions related to the exercise of stock options subsequent to the adoption of the 2006 accounting standard on stock based compensation. This amount represents an excess tax benefit and has not been included in the gross deferred tax assets. At December 31, 2009, the Company

138

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

had $2.2 million of state research and development tax credit carryforwards derived from stock option exercises that are available to reduce future Massachusetts tax liabilities.

At December 31, 2009, the state net operating loss carryforward was $8.6 million. This attribute is available to reduce the Company’s future California state tax liability and expires at various dates through 2018. Ownership changes, as defined in the Internal Revenue Code, including those resulting from the issuance of common stock in connection with the Company’s public offerings, may limit the amount of net operating loss that can be utilized to offset future taxable income or tax liability. The Company has determined that there is no limitation on the utilization of net operating loss carryforwards in accordance with Section 382 of the Internal Revenue Code in 2009.

The Company continues to recognize fully its tax benefits which are offset by a valuation allowance to the extent that it is more likely than not that the deferred tax assets will not be realized. At December 31, 2009, the Company had no unrecognized tax benefits.

The tax years 2002 through 2008 remain open to examination by major taxing jurisdictions to which the Company is subject, which are primarily in the United States, as carryforward attributes generated in years past may still be adjusted upon examination by the Internal Revenue Service or state tax authorities if they have or will be used in a future period. The Company is currently not under examination by the Internal Revenue Service or any other jurisdictions for any tax years. The Company recognizes both accrued interest and penalties related to unrecognized benefits in income tax expense. The Company has not recorded any interest and penalties on any unrecognized tax benefits since its inception.


11.	401(K) SAVINGS PLAN

The Company sponsors a savings plan for its employees in the United States, who meet certain eligibility requirements, which is designed to be a qualified plan under section 401(k) of the Internal Revenue Code (the “401(k) Plan”). Participants may contribute up to 60% of their annual base salary to the 401(k) Plan, subject to certain limitations. Beginning in April 2006, the Company began matching in its common stock up to 3% of a participant’s base salary. Employer common stock matches vest anywhere from immediately to two years, depending on years of service with the Company. Employees have the ability to transfer funds from the Company stock fund to other plan funds as they choose, subject to blackout periods. The Company issued 22,502, 14,679 and 12,706 shares of common stock during the years ended December 31, 2009, 2008 and 2007, respectively, in connection with matching contributions under the 401(k) Plan.


12.	REGULUS

In September 2007, the Company and Isis established Regulus, a company focused on the discovery, development and commercialization of microRNA-based therapeutics, a potential new class of drugs to treat the pathways of human disease. Regulus, which initially was established as a limited liability company, converted to a C corporation in January 2009 and changed its name to Regulus Therapeutics Inc.

In consideration for the Company’s and Isis’ initial interests in Regulus, each party granted Regulus exclusive licenses to its intellectual property for certain microRNA-based therapeutic applications as well as certain patents in the microRNA field. In addition, the Company made an initial cash contribution to Regulus of $10.0 million, resulting in the Company and Isis making approximately equal aggregate initial capital contributions to Regulus. Additionally, in March 2009, the Company and Isis each purchased $10.0 million of Series A preferred stock of Regulus under the Investor Rights Agreement. The Company and Isis currently own approximately 49% and 51%, respectively, of Regulus and there are currently no other third party investors in Regulus. Regulus continues to operate 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 employees of the Company or Isis are not eligible to receive options to purchase Regulus common stock.

139

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company, Isis and Regulus also entered into a license and collaboration agreement (the “Regulus Collaboration Agreement”) to pursue the discovery, development and commercialization of therapeutic products directed to microRNAs. Under the terms of the Regulus Collaboration Agreement, the Company and Isis each assigned to Regulus specified patents and contracts covering microRNA-specific technology. In addition, each of the Company and Isis granted to Regulus an exclusive, worldwide license under its rights to other microRNA-related patents and know-how to develop and commercialize therapeutic products containing compounds that are designed to interfere with or inhibit a particular microRNA, subject to the Company’s and Isis’ existing contractual obligations to third parties. Regulus was also granted the right to request a license from the Company and Isis to develop and commercialize therapeutic products directed to other microRNA compounds, which license is subject to the Company’s and Isis’ approval and to each such party’s existing contractual obligations to third parties. Regulus also granted to the Company and Isis an exclusive license to technology developed or acquired by Regulus for use solely within the Company’s and Isis’ respective fields (as defined in the Regulus Collaboration Agreement), but specifically excluding the right to develop, manufacture or commercialize the therapeutic products for which the Company and Isis granted rights to Regulus.

The Regulus Collaboration Agreement ends if, prior to first commercial sale of any product, all development activities cease under the collaboration. The Regulus Collaboration Agreement otherwise expires, on a product-by-product and country-by-country basis, upon the later of expiration of marketing exclusivity for such product or a specified number of years from first commercial sale. If Regulus, the Company or Isis commits an uncured material breach of the Regulus Collaboration Agreement, the Regulus Collaboration Agreement may be terminated with respect to the breaching party or a buy-out may be initiated, depending on the nature of the breach.

In September 2007, the Company and Isis also executed a Services Agreement (the “Services Agreement”) with Regulus. Under the terms of the Services Agreement, the Company and Isis provide to Regulus, for the benefit of Regulus, certain research and development and general and administrative services for which they are paid by Regulus.

In April 2008, Regulus entered into a worldwide strategic alliance with GlaxoSmithKline (“GSK”) to discover, develop and commercialize up to four novel microRNA-targeted therapeutics to treat inflammatory diseases such as rheumatoid arthritis and inflammatory bowel disease. In connection with this alliance, Regulus received $20.0 million in upfront payments from GSK, including a $15.0 million option fee and a loan of $5.0 million evidenced by a promissory note (guaranteed by Isis and the Company) that will convert into Regulus common stock under certain specified circumstances. Regulus could be eligible to receive development, regulatory and sales milestone payments for each of the microRNA-targeted therapeutics discovered and developed as part of the alliance. Regulus would also receive royalty payments on worldwide sales of products resulting from the alliance, if any.

In February 2010, Regulus and GSK established a new collaboration to develop and commercialize microRNA-based therapeutics targeting miR-122 in all fields, with hepatitis C virus infection as the lead indication. This new collaboration includes the potential for Regulus to earn more than $150.0 million in upfront and milestone payments, in addition to royalties, on worldwide sales of products, if any, as Regulus and GSK advance microRNA-based therapeutics targeting miR-122.

The Company has reviewed the consolidation guidance that defines a VIE and concluded that Regulus currently qualifies as a VIE. The Investor Rights Agreement contains transfer restrictions on each of Isis’ and the Company’s interests and, as a result, Isis and the Company are considered related parties under the consolidation guidance. The Company has assessed which entity would be considered the primary beneficiary under the consolidation guidance and has concluded that Isis is the primary beneficiary and, accordingly, the Company has not consolidated Regulus.

The Company accounts for its investment in Regulus using the equity method of accounting. Through December 31, 2008, the Company was recognizing the first $10.0 million of losses of Regulus as equity in loss of joint venture (Regulus Therapeutics Inc.) in its consolidated statements of operations because the Company was responsible for funding those losses through its initial $10.0 million cash contribution. Beginning in January 2009,

140

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

in connection with the conversion of Regulus to a C corporation, the Company is recognizing approximately 49% of the income and losses of Regulus. The carrying value of the Company’s investment in joint venture (Regulus Therapeutics Inc.) immediately prior to the conversion to a C corporation exceeded 49% of the net assets of Regulus by approximately $0.8 million. Upon conversion, this amount was allocated to the intellectual property of Regulus and, because the intellectual property was determined to be in-process research and development, the $0.8 million was recorded as a charge to expense. This charge is included in equity in loss of joint venture (Regulus Therapeutics Inc.) in the consolidated statements of operations for the year ended December 31, 2009. Under the equity method, the reimbursement of expenses to the Company is recorded as a reduction to research and development expenses. At December 31, 2009, the Company’s investment in the joint venture was $6.4 million, which is recorded as an investment in joint venture (Regulus Therapeutics Inc.) in the consolidated balance sheets under the equity method. Summary results of Regulus’ operations for the years ended December 31, 2009, 2008 and 2007 and balance sheets as of December 31, 2009 and 2008 are presented in the table below, in thousands:


	2009			2008			2007

Statement of Operations Data:
Net revenues	$	3,013		$	2,111		$	120
Operating expenses(1)		11,789			12,029			1,541

Loss from operations		(8,776	)		(9,918	)		(1,421	)
Other income		13			256			138
Income tax expense		(141	)		—			—

Net loss	$	(8,904	)	$	(9,662	)	$	(1,283	)


(1) Non-cash stock-based compensation expenses included in operating expenses	$	99		$	2,017		$	412


	2009		2008

Balance Sheet Data:
Cash and cash equivalents	$	16,228	$	22,411
Working capital		25,115		16,467
Total assets		32,930		23,678
Notes payable		6,291		5,179
Total stockholders’ equity		12,939		1,745

Separate financial information for Regulus is included in Exhibit 99.1 to this annual report on Form 10-K.

141

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


13.	QUARTERLY FINANCIAL DATA (UNAUDITED)

The following information has been derived from unaudited consolidated financial statements that, in the opinion of management, include all recurring adjustments necessary for a fair presentation of such information.


	Three Months Ended
	March 31,			June 30,			September 30,			December 31,
	2009			2009			2009			2009
	(In thousands, except per share data)

Revenues	$	25,057		$	24,601		$	24,249		$	26,626
Operating expenses		33,037			47,013			33,899			34,695
Net loss		(7,889	)		(22,702	)		(9,208	)		(7,791	)
Net loss per common share — basic and diluted	$	(0.19	)	$	(0.55	)	$	(0.22	)	$	(0.19	)
Weighted average common shares — basic and diluted		41,399			41,520			41,708			41,812


	Three Months Ended
	March 31,			June 30,			September 30,			December 31,
	2008			2008			2008			2008
	(In thousands, except per share data)

Revenues	$	22,192		$	23,833		$	25,734		$	24,404
Operating expenses		26,149			36,664			28,968			32,217
Net loss		(1,239	)		(12,760	)		(2,858	)		(9,392	)
Net loss per common share — basic and diluted	$	(0.03	)	$	(0.31	)	$	(0.07	)	$	(0.23	)
Weighted average common shares — basic and diluted		40,736			40,908			41,197			41,375

142


ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.


ITEM 9A.	CONTROLS AND PROCEDURES

Our management, with the participation of our chief executive officer and vice president of finance and treasurer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2009. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2009, the Company’s chief executive officer and vice president of finance and treasurer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Management’s report on our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) and the independent registered public accounting firm’s report on the effectiveness of our internal control over financial reporting are included in Item 8 of this annual report on Form 10-K and are incorporated herein by reference.

No change in our internal control over financial reporting occurred during the fiscal quarter ended December 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


ITEM 9B.	OTHER INFORMATION

None.

PART III


ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is incorporated herein by reference to the information contained under the sections captioned “Proposal One — Election of Class I Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance” of the Proxy Statement. The information required by this item relating to executive officers is included in “Part I, Item 1 — Business- Executive Officers of the Registrant” of this annual report on Form 10-K.


ITEM 11.	EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference to the information contained under the sections captioned “Information about Executive Officer and Director Compensation,” “Compensation Committee Interlocks and Insider Participation”, “Employment Arrangements” and “Compensation Committee Report” of the Proxy Statement.

143


ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated herein by reference to the information contained under the sections captioned “Security Ownership of Certain Beneficial Owners and Management” “Information about Executive Officer and Director Compensation” and “Securities Authorized for Issuance Under Equity Compensation Plans” of the Proxy Statement.


ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated herein by reference to the information contained under the sections captioned “Corporate Governance,” “Employment Arrangements” and “Certain Relationships and Related Transactions” of the Proxy Statement.


ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated herein by reference to the information contained under the sections captioned “Corporate Governance,” “Principal Accountant Fees and Services” and “Pre-Approval Policies and Procedures” of the Proxy Statement.

PART IV


ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) (1) Financial Statements

The following consolidated financial statements are filed as part of this report under “Item 8 — Financial Statements and Supplementary Data”:


	Page

Management’s Annual Report on Internal Control Over Financial Reporting		103
Report of Independent Registered Public Accounting Firm		104
Consolidated Balance Sheets as of December 31, 2009 and 2008		105
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2009, 2008 and 2007		106
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2007, 2008 and 2009		107
Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007		108
Notes to Consolidated Financial Statements		109

(a) (2) List of Schedules

All schedules to the consolidated financial statements are omitted as the required information is either inapplicable or presented in the consolidated financial statements.

(a) (3) List of Exhibits

The exhibits which are filed with this report or which are incorporated herein by reference are set forth in the Exhibit Index hereto.

144

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 26, 2010.

ALNYLAM PHARMACEUTICALS, INC.


	By:	/s/ John M. Maraganore, Ph.D.

John M. Maraganore, Ph.D.

Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, the Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated as of February 26, 2010.


Name				Title


/s/ John M. Maraganore, Ph.D. John M. Maraganore, Ph.D.				Director and Chief Executive Officer (Principal Executive Officer)

/s/ Patricia L. Allen Patricia L. Allen				Vice President of Finance and Treasurer (Principal Financial and Accounting Officer)

/s/ John K. Clarke John K. Clarke				Director

/s/ Victor J. Dzau, M.D. Victor J. Dzau, M.D.				Director

/s/ Vicki L. Sato, Ph.D. Vicki L. Sato, Ph.D.				Director

/s/ Paul R. Schimmel, Ph.D. Paul R. Schimmel, Ph.D.				Director

/s/ Edward M. Scolnick, M.D. Edward M. Scolnick, M.D.				Director

/s/ Phillip A. Sharp, Ph.D. Phillip A. Sharp, Ph.D.				Director

/s/ Kevin P. Starr Kevin P. Starr				Director

/s/ James L. Vincent James L. Vincent				Director

145

EXHIBIT INDEX


Exhibit No.			Exhibit

	3	.1	Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q filed on August 11, 2005 (File No. 000-50743) for the quarterly period ended June 30, 2005 and incorporated herein by reference)
	3	.2	Amended and Restated Bylaws of the Registrant (filed as Exhibit 3.4 to the Registrant’s Registration Statement on Form S-1 (File No. 333-113162) and incorporated herein by reference)
	4	.1	Specimen certificate evidencing shares of common stock (filed as Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1 (File No. 333-113162) and incorporated herein by reference)
	4	.2	Rights Agreement dated as of July 13, 2005 between the Registrant and EquiServe Trust Company, N.A., as Rights Agent, which includes as Exhibit A the Form of Certificate of Designations of Series A Junior Participating Preferred Stock, as Exhibit B the Form of Rights Certificate and as Exhibit C the Summary of Rights to Purchase Preferred Stock (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on July 14, 2005 (File No. 000-50743) and incorporated herein by reference)
	10	.1*	2002 Employee, Director and Consultant Stock Plan, as amended, together with forms of Incentive Stock Option Agreement, Non-qualified Stock Option Agreement and Restricted Stock Agreement (filed as Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1 (File No. 333-113162) and incorporated herein by reference)
	10	.2*	2003 Employee, Director and Consultant Stock Plan, as amended, together with forms of Incentive Stock Option Agreement, Non-qualified Stock Option Agreement and Restricted Stock Agreement (filed as Exhibit 10.2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-113162) and incorporated herein by reference)
	10	.3*	Amended and Restated 2004 Stock Incentive Plan (filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on August 7, 2009 (File No. 000-50743) for the quarterly period ended June 30, 2009 and incorporated herein by reference)
	10	.4*	Forms of Incentive Stock Option Agreement and Nonstatutory Stock Option Agreement under 2004 Stock Incentive Plan, as amended (filed as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on August 11, 2005 (File No. 000-50743) for the quarterly period ended June 30, 2005 and incorporated herein by reference)
	10	.5*	Form of Nonstatutory Stock Option Agreement under 2004 Stock Incentive Plan granted to John M. Maraganore, Ph.D., on December 21, 2004 (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 28, 2004 (File No. 000-50743) and incorporated herein by reference)
	10	.6*	Form of Nonstatutory Stock Option Agreement under 2004 Stock Incentive Plan granted to James L. Vincent on July 12, 2005 (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 13, 2005 (File No. 000-50743) and incorporated herein by reference)
	10	.7*	Form of Restricted Stock Agreement under 2004 Stock Incentive Plan issued to James L. Vincent on July 12, 2005 (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on July 13, 2005 (File No. 000-50743) and incorporated herein by reference)
	10	.8*	2009 Stock Incentive Plan (filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on August 7, 2009 (File No. 000-50743) for the quarterly period ended June 30, 2009 and incorporated herein by reference)
	10	.9*#	Forms of Incentive Stock Option Agreement and Nonstatutory Stock Option Agreement under 2009 Stock Incentive Plan
	10	.10	Investor Rights Agreement entered into as of March 11, 2004 by and between the Registrant and Isis Pharmaceuticals, Inc. (filed as Exhibit 10.25 to the Registrant’s Registration Statement on Form S-1 (File No. 333-113162) and incorporated herein by reference)
	10	.11	Stock Purchase Agreement, dated as of September 6, 2005, by and between the Registrant and Novartis Pharma AG (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 12, 2005 (File No. 000-50743) and incorporated herein by reference)
	10	.12	Investor Rights Agreement, dated as of September 6, 2005, by and between the Registrant. and Novartis Pharma AG (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on September 12, 2005 (File No. 000-50743) and incorporated herein by reference)

146


Exhibit No.			Exhibit

	10	.13*	Letter Agreement between the Registrant and John M. Maraganore, Ph.D. dated October 30, 2002 (filed as Exhibit 10.7 to the Registrant’s Registration Statement on Form S-1 (File No. 333-113162) and incorporated herein by reference)
	10	.14*	Letter Agreement between the Registrant and Barry E. Greene dated September 29, 2003 (filed as Exhibit 10.10 to the Registrant’s Registration Statement on Form S-1 (File No. 333-113162) and incorporated herein by reference)
	10	.15*	Letter Agreement between the Registrant and John A. Schmidt, M.D. (filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on November 4, 2009 (File No. 000-50743) for the quarterly period ended September 30, 2009 and incorporated herein by reference)
	10	.16*#	2010 Annual Incentive Program
	10	.17	Lease, dated as of September 26, 2003 by and between the Registrant and Three Hundred Third Street LLC (filed as Exhibit 10.15 to the Registrant’s Registration Statement on Form S-1 (File No. 333-113162) and incorporated herein by reference)
	10	.18	First Amendment to Lease, dated March 16, 2006, by and between the Registrant and ARE-MA Region No. 28, LLC (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on March 17, 2006 (File No. 000-50743) and incorporated herein by reference)
	10	.19	Second Amendment to Lease, dated June 26, 2009, by and between the Registrant and ARE-MA Region No. 28, LLC (filed as Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed on August 7, 2009 (File No. 000-50743) for the quarterly period ended June 30, 2009 and incorporated herein by reference)
	10	.20†	License Agreement between Cancer Research Technology Limited and Alnylam U.S., Inc. dated July 18, 2003 (filed as Exhibit 10.16 to the Registrant’s Registration Statement on Form S-1 (File No. 333-113162) and incorporated herein by reference)
	10	.21†	License Agreement between the Carnegie Institution of Washington and Alnylam Europe, AG, effective March 1, 2002, as amended by letter agreements dated September 2, 2002 and October 28, 2003 (filed as Exhibit 10.17 to the Registrant’s Registration Statement on Form S-1 (File No. 333-113162) and incorporated herein by reference)
	10	.22†	License Agreement by and between the Cold Spring Harbor Laboratory and Alnylam U.S., Inc. dated December 30, 2003 (filed as Exhibit 10.18 to the Registrant’s Registration Statement on Form S-1 (File No. 333-113162) and incorporated herein by reference)
	10	.23†	Co-exclusive License Agreement between Garching Innovation GmbH (now known as Max Planck Innovation GmbH) and Alnylam U.S., Inc. dated December 20, 2002, as amended by Amendment dated July 8, 2003 together with Indemnification Agreement by and between Garching Innovation GmbH (now known as Max Planck Innovation GmbH) and Alnylam Pharmaceuticals, Inc. effective April 1, 2004 (filed as Exhibit 10.19 to the Registrant’s Registration Statement on Form S-1 (File No. 333-113162) and incorporated herein by reference)
	10	.24†	Co-exclusive License Agreement between Garching Innovation GmbH (now known as Max Planck Innovation GmbH) and Alnylam Europe, AG dated July 30, 2003 (filed as Exhibit 10.20 to the Registrant’s Registration Statement on Form S-1 (File No. 333-113162) and incorporated herein by reference)
	10	.25	Agreement between the Registrant, Garching Innovation GmbH (now known as Max Planck Innovation GmbH), Alnylam U.S., Inc. and Alnylam Europe AG dated June 14, 2005 (filed as Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q filed on August 11, 2005 (File No. 000-50743) for the quarterly period ended June 30, 2005 and incorporated herein by reference)
	10	.26†	Agreement between The Board of Trustees of the Leland Stanford Junior University and Alnylam U.S., Inc. effective as of September 17, 2003 (filed as Exhibit 10.21 to the Registrant’s Registration Statement on Form S-1 (File No. 333-113162) and incorporated herein by reference)
	10	.27†	Research Collaboration and License Agreement effective as of October 12, 2005 by and between the Registrant and Novartis Institutes for BioMedical Research, Inc. (filed as Exhibit 10.23 to the Registrant’s Annual Report on Form 10-K filed on March 2, 2009 (File No. 000-50743) for the quarterly and annual period ended December 31, 2008)

147


Exhibit No.			Exhibit

	10	.28†	Collaboration and License Agreement dated September 20, 2006, by and between the Registrant and Biogen Idec Inc. (filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on November 9, 2006 (File No. 000-50743) for the quarterly period ended September 30, 2006 and incorporated herein by reference)
	10	.29†	License and Collaboration Agreement, entered into as of July 8, 2007, by and among F. Hoffmann-La Roche, Ltd, Hoffmann-La Roche Inc., the Registrant and, for limited purposes, Alnylam Europe AG (filed as Exhibit 10.26 to the Registrant’s Annual Report on Form 10-K filed on March 2, 2009 (File No. 000-50743) for the quarterly and annual period ended December 31, 2008)
	10	.30	Common Stock Purchase Agreement dated as of July 8, 2007 between the Registrant and Roche Finance Ltd (filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on November 8, 2007 (File No. 000-50743) for the quarterly period ended September 30, 2007 and incorporated herein by reference)
	10	.31†	Share Purchase Agreement, dated as of July 8, 2007, among Alnylam Europe AG, the Registrant and Roche Pharmaceuticals GmbH (filed as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on November 8, 2007 (File No. 000-50743) for the quarterly period ended September 30, 2007 and incorporated herein by reference)
	10	.32†	Amended and Restated Collaboration Agreement, entered into as of July 27, 2007, by and between the Registrant and Medtronic, Inc. (filed as Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed on November 8, 2007 (File No. 000-50743) for the quarterly period ended September 30, 2007 and incorporated herein by reference)
	10	.33†	Termination Agreement, dated as of September 18, 2007, by and between Merck & Co., Inc. and the Registrant (filed as Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q filed on November 8, 2007 (File No. 000-50743) for the quarterly period ended September 30, 2007 and incorporated herein by reference)
	10	.34†	License and Collaboration Agreement entered into as of May 27, 2008 by and among Takeda Pharmaceutical Company Limited and the Registrant (filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on August 8, 2008 (File No. 000-50743) for the quarterly period ended June 30, 2008 and incorporated herein by reference)
	10	.35†	License and Collaboration Agreement entered into as of January 9, 2009 by and between the Registrant and Cubist Pharmaceuticals, Inc. (filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on May 8, 2009 (File No. 000-50743) for the quarterly period ended March 31, 2009 and incorporated herein by reference)
	10	.36†	Amended and Restated License and Collaboration Agreement, entered into as of January 1, 2009, by and among the Registrant, Isis Pharmaceuticals, Inc. and Regulus Therapeutics Inc. (filed as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on May 8, 2009 (File No. 000-50743) for the quarterly period ended March 31, 2009 and incorporated herein by reference)
	10	.37†	Founding Investor Rights Agreement entered into as of January 1, 2009, by and among Regulus Therapeutics Inc., Isis Pharmaceuticals, Inc. and the Registrant (filed as Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed on May 8, 2009 (File No. 000-50743) for the quarterly period ended March 31, 2009 and incorporated herein by reference)
	10	.38†	Amended and Restated Strategic Collaboration and License Agreement effective as of April 28, 2009 between Isis Pharmaceuticals, Inc. and the Registrant (filed as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on August 7, 2009 (File No. 000-50743) for the quarterly period ended June 30, 2009 and incorporated herein by reference)
	10	.39†#	Collaboration Agreement entered into as of October 29, 2009 by and among F. Hoffmann-La Roche Ltd, Hoffmann-La Roche Inc. and the Registrant
	10	.40†#	First Amendment to License and Collaboration Agreement entered into as of November 2, 2009 by and between the Registrant and Cubist Pharmaceuticals, Inc.
	21	.1#	Subsidiaries of the Registrant
	23	.1#	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm

148


Exhibit No.			Exhibit

	23	.2#	Consent of Ernst & Young LLP, Independent Auditors of Regulus Therapeutics Inc.
	31	.1#	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Rule 13(a)- 14(a)/15d-14(a), by Chief Executive Officer
	31	.2#	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Rule 13(a)- 14(a)/15d-14(a), by Vice President of Finance and Treasurer
	32	.1#	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Chief Executive Officer
	32	.2#	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Vice President of Finance and Treasurer
	99	.1#	Regulus Therapeutics Inc.’s Financial Statements


*		Management contracts or compensatory plans or arrangements required to be filed as an exhibit hereto pursuant to Item 15(a) of Form 10-K.

†		Indicates confidential treatment requested as to certain portions, which portions were omitted and filed separately with the Securities and Exchange Commission pursuant to a Confidential Treatment Request.

#		Filed herewith.

149

EX-10.9 2 b78674exv10w9.htm EX-10.9 FORMS OF INCENTIVE STOCK OPTION AGREEMENT AND NONSTATUTORY STOCK OPTION AGREEMENT exv10w9

Exhibit 10.9

ALNYLAM PHARMACEUTICALS, INC.

Incentive Stock Option Agreement
Granted Under 2009 Stock Incentive Plan

1. Grant of Option.

This agreement evidences the grant by Alnylam Pharmaceuticals, Inc,, a Delaware corporation (the “Company”), on , 20[ ] (the “Grant Date”) to [ ], an employee of the Company (the “Participant”), of an option to purchase, in whole or in part, on the terms provided herein and in the Company’s 2009 Stock Incentive Plan (the “Plan”), a total of [ ] shares (the “Shares”) of common stock, $.0001 par value per share, of the Company (“Common Stock”) at $[ ] per Share. Unless earlier terminated, this option shall expire at 5:00 p.m., Eastern time, on [ ] (the “Final Exercise Date”).

It is intended that the option evidenced by this agreement shall be an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the “Code”). Except as otherwise indicated by the context, the term “Participant”, as used in this option, shall be deemed to include any person who acquires the right to exercise this option validly under its terms.

2. Vesting Schedule.

This option will become exercisable (“vest”) as to 25% of the original number of Shares on the first anniversary of the Grant Date and as to an additional 6.25% of the original number of Shares at the end of each successive three-month period following the first anniversary of the Grant Date until the fourth anniversary of the Grant Date.

The right of exercise shall be cumulative so that to the extent the option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all Shares for which it is vested until the earlier of the Final Exercise Date or the termination of this option under Section 3 hereof or the Plan.

3. Exercise of Option.

(a) Form of Exercise. Each election to exercise this option shall be in writing, signed by the Participant, and received by the Company at its principal office, accompanied by this agreement, and payment in full in the manner provided in the Plan. The Participant may purchase less than the number of shares covered hereby, provided that no partial exercise of this option may be for any fractional share or for fewer than ten whole shares.

(b) Continuous Relationship with the Company Required. Except as otherwise provided in this Section 3, this option may not be exercised unless the Participant, at the time he or she exercises this option, is, and has been at all times since the Grant Date, an employee or

officer of, or consultant or advisor to, the Company or any parent or subsidiary of the Company as defined in Section 424(e) or (f) of the Code (an “Eligible Participant”).

(c) Termination of Relationship with the Company. If the Participant ceases to be an Eligible Participant for any reason, then, except as provided in paragraphs (d) and (e) below, the right to exercise this option shall terminate three months after such cessation (but in no event after the Final Exercise Date), provided that this option shall be exercisable only to the extent that the Participant was entitled to exercise this option on the date of such cessation. Notwithstanding the foregoing, if the Participant, prior to the Final Exercise Date, violates the non-competition or confidentiality provisions of any employment contract, confidentiality and nondisclosure agreement or other agreement between the Participant and the Company, the right to exercise this option shall terminate immediately upon such violation.

(d) Exercise Period Upon Death or Disability. If the Participant dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to the Final Exercise Date while he or she is an Eligible Participant and the Company has not terminated such relationship for “cause” as specified in paragraph (e) below, this option shall be exercisable, within the period of one year following the date of death or disability of the Participant, by the Participant (or in the case of death by an authorized transferee), provided that this option shall be exercisable only to the extent that this option was exercisable by the Participant on the date of his or her death or disability, and further provided that this option shall not be exercisable after the Final Exercise Date.

(e) Termination for Cause. If, prior to the Final Exercise Date, the Participant’s employment is terminated by the Company for Cause (as defined below), the right to exercise this option shall terminate immediately upon the effective date of such termination of employment. “Cause” shall mean willful misconduct by the Participant or willful failure by the Participant to perform his or her responsibilities to the Company (including, without limitation, breach by the Participant of any provision of any employment, consulting, advisory, nondisclosure, non-competition or other similar agreement between the Participant and the Company), as determined by the Company, which determination shall be conclusive. The Participant’s employment shall be considered to have been terminated for Cause if the Company determines, within 30 days after the Participant’s resignation, that termination for Cause was warranted.

4. Tax Matters.

(a) Withholding. No Shares will be issued pursuant to the exercise of this option unless and until the Participant pays to the Company, or makes provision satisfactory to the Company for payment of, any federal, state or local withholding taxes required by law to be withheld in respect of this option.

(b) Disqualifying Disposition. If the Participant disposes of Shares acquired upon exercise of this option within two years from the Grant Date or one year after such Shares were acquired pursuant to exercise of this option, the Participant shall notify the Company in writing of such disposition.

- 2 -

5. Transfer Restrictions. This option may not be sold, assigned, transferred, pledged or otherwise encumbered by the Participant, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the lifetime of the Participant, this option shall be exercisable only by the Participant.

6. Provisions of the Plan.

This option is subject to the provisions of the Plan (including the provisions relating to amendments to the Plan), a copy of which is furnished to the Participant with this option.

IN WITNESS WHEREOF, the Company has caused this option to be executed under its corporate seal by its duly authorized officer. This option shall take effect as a sealed instrument.


	ALNYLAM PHARMACEUTICALS, INC.
	By:
		Name:
		Title:

- 3 -

PARTICIPANT’S ACCEPTANCE

The undersigned hereby accepts the foregoing option and agrees to the terms and conditions thereof. The undersigned hereby acknowledges receipt of a copy of the Company’s 2009 Stock Incentive Plan.


	PARTICIPANT:

	Address:

- 4 -

ALNYLAM PHARMACEUTICALS, INC.

Nonstatutory Stock Option Agreement
Granted Under 2009 Stock Incentive Plan

1. Grant of Option.

This agreement evidences the grant by Alnylam Pharmaceuticals, Inc., a Delaware corporation (the “Company”), on , 20[ ] (the “Grant Date”) to [ ], an [employee], [consultant], [director] of the Company (the “Participant”), of an option to purchase, in whole or in part, on the terms provided herein and in the Company’s 2009 Stock Incentive Plan (the “Plan”), a total of [ ] shares (the “Shares”) of common stock, $0001 par value per share, of the Company (“Common Stock”) at $[ ] per Share. Unless earlier terminated, this option shall expire at 5:00 p.m., Eastern time, on [ ] (the “Final Exercise Date”).

It is intended that the option evidenced by this agreement shall not be an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the “Code”). Except as otherwise indicated by the context, the term “Participant”, as used in this option, shall be deemed to include any person who acquires the right to exercise this option validly under its terms.

2. Vesting Schedule.

3. Exercise of Option.

- 5 -

employees, officers, directors, consultants, or advisors of which are eligible to receive option grants under the Plan (an “Eligible Participant”).

(e) Termination for Cause. If, prior to the Final Exercise Date, the Participant’s employment or other relationship with the Company is terminated by the Company for Cause (as defined below), the right to exercise this option shall terminate immediately upon the effective date of such termination of employment or other relationship. “Cause” shall mean willful misconduct by the Participant or willful failure by the Participant to perform his or her responsibilities to the Company (including, without limitation, breach by the Participant of any provision of any employment, consulting, advisory, nondisclosure, non-competition or other similar agreement between the Participant and the Company), as determined by the Company, which determination shall be conclusive. The Participant’s employment or other relationship shall be considered to have been terminated for “Cause” if the Company determines, within 30 days after the Participant’s resignation, that termination for Cause was warranted.

4. Withholding.

No Shares will be issued pursuant to the exercise of this option unless and until the Participant pays to the Company, or makes provision satisfactory to the Company for payment of, any federal, state or local withholding taxes required by law to be withheld in respect of this option.

- 6 -

6. Provisions of the Plan.

This option is subject to the provisions of the Plan (including the provisions relating to amendments to the Plan), a copy of which is furnished to the Participant with this option.

IN WITNESS WHEREOF, the Company has caused this option to be executed under its corporate seal by its duly authorized officer. This option shall take effect as a sealed instrument.


	ALNYLAM PHARMACEUTICALS, INC.
	By:
		Name:
		Title:

- 7 -

PARTICIPANT’S ACCEPTANCE

The undersigned hereby accepts the foregoing option and agrees to the terms and conditions thereof. The undersigned hereby acknowledges receipt of a copy of the Company’s 2009 Stock Incentive Plan.


	PARTICIPANT:

		Address:

- 8 -

EX-10.16 3 b78674exv10w16.htm EX-10.16 2010 ANNUAL INCENTIVE PROGRAM exv10w16

Exhibit 10.16

Alnylam Pharmaceuticals, Inc.
2010 Annual Incentive Program

Summary Description

In February 2010, the Compensation Committee of the Board of Directors (the “Board”) of Alnylam Pharmaceuticals, Inc. (“Alnylam” or the “Company”) established the 2010 Annual Incentive Program (the “Bonus Plan”) to incent and reward eligible leadership employees based upon their performance relative to pre-established 2010 corporate and individual goals and objectives, and retain company leadership by establishing an important element of Alnylam’s total rewards package consistent with Alnylam’s compensation philosophy and operating strategy.

Eligibility

Members of Alnylam’s Leadership Team, as defined by Alnylam’s Chief Executive Officer, including the Chief Executive Officer, President and Chief Operating Officer, Vice Presidents, and Directors and equivalent level leadership team members, that are employed by the Company before July 1, 2010 and on the day awards are granted under the Bonus Plan, are eligible to receive an annual cash bonus based upon the achievement of individual and corporate goals and objectives for 2010 (collectively, “Plan Participants”).

Goals

The corporate goals for 2010 were proposed by the Company’s Executive Officers and approved by the Board. Individual objectives focus on contributions that facilitate the achievement of the Company’s corporate goals. The Compensation Committee approved the individual objectives for the Company’s Executive Officers and Vice Presidents. The individual objectives for the other Plan Participants have been approved by the Company’s Chief Executive Officer.

Awards

Awards under the Bonus Plan, if any, will be determined by first establishing a Plan Participant’s individual award, which will be based upon performance against individual objectives for 2010. Each Plan Participant has an established target opportunity under the Bonus Plan, as set forth in the table below, representing a percentage of the Plan Participant’s base salary for 2010. The individual award will range from 0% to 100% of the Plan Participant’s target opportunity (capped at 100% of the target opportunity) based upon the Plan Participant’s individual performance against his or her 2010 objectives.


2010 Annual Incentive Program Target Opportunities
Band - Title	Target Opportunity
Chief Executive Officer		50	%
President and Chief Operating Officer		30	%
Senior Vice President/Vice President		20	%
Senior Director/Director		12	%
Associate Director		7	%

A corporate performance modifier will then be applied to the individual award. The corporate performance modifier will range from 0% to 100% and will be based upon the Company’s performance against the 2010 corporate goals; provided, however, that if corporate performance for 2010 falls below a threshold of 50%, the corporate performance modifier will be 0%. The Compensation Committee retains the ability under the Bonus Plan to exercise its discretion in adjusting an award higher or lower as it deems appropriate under the specific circumstances. At the end of 2010, the Compensation Committee will evaluate individual and corporate performance against the established goals and objectives and determine the amount of the awards, if any, to be granted under the Bonus Plan. All awards under the Bonus Plan will be made in cash and paid in January 2011.

Administration; Amendment

The Bonus Plan will be administered by the Compensation Committee of the Board. The Compensation Committee shall have full power and authority to interpret and make all decisions regarding the Bonus Plan, which decisions and interpretations shall be final and binding on all Plan Participants. The Compensation Committee or the full Board may amend the Bonus Plan in any manner at any time without the consent of any Plan Participant.

EX-10.39 4 b78674exv10w39.htm EX-10.39 COLLABORATION AGREEMENT ENTERED INTO AS OF OCTOBER 29, 2009 exv10w39

Exhibit 10.39

Execution Version

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

COLLABORATION AGREEMENT

BY AND AMONG

ALNYLAM PHARMACEUTICALS, INC.

AND

F. HOFFMANN-LA ROCHE LTD

AND

HOFFMANN-LA ROCHE INC.

TABLE OF CONTENTS


	Page
ARTICLE I DEFINITIONS		1

ARTICLE II MANAGEMENT OF COLLABORATIVE ACTIVITIES		1

Section 2.1 Joint Steering Committee		1
Section 2.2 Joint Commercialization Team		3
Section 2.3 Appointment of Subcommittees, Project Teams and Alliance Managers		5
Section 2.4 JSC and JCT Decisions by Consensus		5
Section 2.5 JSC or JCT Deadlocks; Dispute Resolution; Decision-Making Authority		5

ARTICLE III LICENSE GRANTS; EXCLUSIVITY		7

Section 3.1 License Grants to Roche		7
Section 3.2 License Grants to Alnylam		10
Section 3.3 Sublicensing Terms		11
Section 3.4 Third Party Contractors		11
Section 3.5 Retained Rights		11
Section 3.6 No Implied Licenses		11
Section 3.7 Exclusivity Covenant		11

ARTICLE IV COLLABORATION OVERVIEW; DEVELOPMENT OF LICENSED PRODUCT(S); OPT-OUT RIGHTS		13

Section 4.1 Collaboration Overview		13
Section 4.2 Joint Research Plan; Amendments		13
Section 4.3 Selection of Program Targets		13
Section 4.4 Selection of Development Candidate		14
Section 4.5 Development Plan; Amendments		15
Section 4.6 Exchange of Know-How		15
Section 4.7 Records and Reports		16
Section 4.8 Development Costs		16
Section 4.9 Opt-Out Right		16

ARTICLE V COMMERCIALIZATION		18

Section 5.1 Commercialization Activities		18
Section 5.2 Commercialization Costs		18
Section 5.3 Commercialization Plan		19

ARTICLE VI MANUFACTURE AND SUPPLY		19

Section 6.1 Pre-Candidate Selection Supply		19

-i-


	Page
Section 6.2 Supply for IND-Enabling Studies and Clinical Studies		19
Section 6.3 Supply Agreement		20
Section 6.4 Transition of Manufacturing Responsibilities to Continuing Party		21
Section 6.5 Backup Manufacturing Rights		22
Section 6.6 Technical Regulatory Documentation		22
Section 6.7 Auditing Rights		22

ARTICLE VII REGULATORY MATTERS		23

Section 7.1 Regulatory Filings		23
Section 7.2 Product Complaints; Pharmacovigilance		24
Section 7.3 Product Withdrawals and Recalls		24
Section 7.4 Regulatory Compliance		24
Section 7.5 Debarment		24

ARTICLE VIII DILIGENCE		25

Section 8.1 General		25
Section 8.2 Development and Commercialization		26

ARTICLE IX FINANCIAL PROVISIONS		26

Section 9.1 Event Payments		26
Section 9.2 Profit-sharing and sharing of Commercialization Costs		29
Section 9.3 Royalties		30
Section 9.4 Withholding Taxes		36
Section 9.5 Financial Records		36
Section 9.6 Audits		36
Section 9.7 Late Payments		37

ARTICLE X INTELLECTUAL PROPERTY OWNERSHIP, PROTECTION AND RELATED MATTERS		37

Section 10.1 Inventorship		37
Section 10.2 Ownership of Collaboration IP		37
Section 10.3 Prosecution and Maintenance of Patent Rights		38
Section 10.4 Third Party Infringement		40
Section 10.5 Claimed Infringement; Third Party Challenges to Patent Rights		42
Section 10.6 Third Party Technology		43
Section 10.7 Patent Marking		44
Section 10.8 Product Labeling		44

ARTICLE XI CONFIDENTIALITY		44

Section 11.1 Confidential Information		44
Section 11.2 Employee and Advisor Obligations		45
Section 11.3 Publicity		46
Section 11.4 Publications		46
Section 11.5 Clinical Trial Registry		46

-ii-


	Page
ARTICLE XII REPRESENTATIONS AND WARRANTIES		47

Section 12.1 Mutual Representations and Warranties		47
Section 12.2 Representations and Warranties of Alnylam		47
Section 12.3 Representations and Warranties of Roche		48
Section 12.4 No Warranties		48

ARTICLE XIII INDEMNIFICATION; INSURANCE		49

Section 13.1 Indemnification by Roche		49
Section 13.2 Indemnification by Alnylam		49
Section 13.3 Product Liability Claims		50
Section 13.4 Claims for Indemnification with respect to Third Parties		50
Section 13.5 Insurance		51

ARTICLE XIV TERM AND TERMINATION		51

Section 14.1 Term		51
Section 14.2 Termination for Cause		51
Section 14.3 Termination for Patent Challenge		52
Section 14.4 Termination At Will		52
Section 14.5 Effects of Termination		54
Section 14.6 Effect of Expiration or Termination; Survival		59

ARTICLE XV MISCELLANEOUS		59

Section 15.1 Choice of Law		59
Section 15.2 Notices		59
Section 15.3 Severability		60
Section 15.4 Interpretation		61
Section 15.5 Integration		61
Section 15.6 Independent Contractors; No Agency		61
Section 15.7 Assignment; Successors		61
Section 15.8 Execution in Counterparts; Facsimile Signatures		62
Section 15.9 Waivers		62
Section 15.10 No Consequential or Punitive Damages		62
Section 15.11 Actions of Affiliates		62
Section 15.12 Expenses		62
Section 15.13 No Third Party Beneficiaries		62
Section 15.14 Bankruptcy		63
Section 15.15 Change of Control		63

-iii-


EXHIBITS
EXHIBIT A		Definitions
EXHIBIT B-1		Certain Alnylam Pre-Existing Alliance Agreements
EXHIBIT B-2		Certain Listed Alnylam Third Party Agreements
EXHIBIT B-3		Manufacturing Agreements
EXHIBIT C		Joint Research Plan
EXHIBIT D		Supply Agreement Term Sheet
EXHIBIT E		Financial Appendix
EXHIBIT F		Press Release
EXHIBIT G		Baseball Arbitration Provisions

-iv-

COLLABORATION AGREEMENT

This Collaboration Agreement (this “Agreement”) is entered into as of the 29^th day of October 2009 (the “Effective Date”), by and among F. Hoffmann-La Roche Ltd, a Swiss corporation (“Roche Basel”), having a place of business at Grenzacherstrasse 124, CH-4070 Basel, Switzerland, and Hoffmann-La Roche Inc., a New Jersey corporation (“Roche Nutley”), having a place of business at 340 Kingsland Street, Nutley, New Jersey 07110, U.S.A. (Roche Basel and Roche Nutley, collectively, “Roche”), and Alnylam Pharmaceuticals, Inc., a Delaware corporation, having a place of business at 300 Third Street, 3rd Floor, Cambridge, Massachusetts 02142, U.S.A. (“Alnylam”).

INTRODUCTION

WHEREAS, Alnylam and Roche are parties to a License and Collaboration Agreement dated as of July 8, 2007, as supplemented by the letter agreement dated May 29, 2009 between the Parties (the “LCA”), pursuant to which Alnylam granted to Roche certain non-exclusive licenses to Alnylam’s proprietary RNAi platform technology;

WHEREAS, pursuant to the LCA, Alnylam and Roche have agreed to pursue a collaboration regarding the Discovery and Development of potential RNAi Compounds directed to certain Targets through at least initiation of IND-Enabling Studies; and

WHEREAS, Alnylam and Roche desire to undertake a collaboration regarding an RNAi Product initially directed to the [**], and to apply Alnylam’s proprietary lipid nanoparticle (LNP) technology, Roche’s proprietary dynamic polyconjugate (DPC) technology and other relevant technologies to such collaboration, on the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the Parties hereby agree as follows:

ARTICLE I

DEFINITIONS

The definitions are set forth on Exhibit A.

ARTICLE II

MANAGEMENT OF COLLABORATIVE ACTIVITIES

Section 2.1 Joint Steering Committee. The Parties hereby establish a joint committee to facilitate the Collaboration as follows:

(a) Composition of the Joint Steering Committee. The Discovery and Development elements of the Collaboration shall be conducted under the direction of a joint steering committee (the “JSC”) comprised of three (3) named representatives of Roche and three (3) named representatives of Alnylam or such other number of representatives as the Parties may from time to time mutually agree. Each Party shall appoint its respective representatives to the

JSC from time to time, and may substitute one or more of its representatives, in its sole discretion, effective upon notice to the other Party of such change. Each Party shall have at least one JSC representative who is a senior employee (vice president level or above), and all JSC representatives shall have appropriate expertise and ongoing familiarity with the Collaboration. Each Party’s respective representatives to the Joint Future Technology Committee may initially serve as such Party’s representatives to the JSC hereunder. Additional representatives or consultants may from time to time, by mutual consent of the Parties, be invited to attend JSC meetings, provided such representatives’ and consultants are subject to written obligations that are no less stringent than the confidentiality obligations and restrictions on use set forth in Article IX. All proceedings for the JSC shall take place in English. Each Party shall bear its own expenses relating to attendance at such meetings by its representatives.

(b) JSC Chairperson. The chairperson of the JSC (the “JSC Chairperson”) shall rotate every twelve (12) months between Alnylam and Roche. The chairman of the Joint Future Technology Committee may serve as the initial JSC Chairperson. The JSC Chairperson’s responsibilities shall include (i) scheduling meetings at least [**] per Calendar Quarter, but more frequently if the JSC determines it necessary; (ii) setting agendas for meetings with solicited input from other members; and (iii) confirming and delivering minutes to the JSC for review and final approval.

(c) Meetings; Minutes. The first JSC meeting shall be held within [**] days after the Effective Date, and the JSC shall meet in accordance with a schedule established by mutual agreement of the Parties, but no less frequently than [**] each Calendar Quarter, with the location for such meetings alternating between Alnylam facilities in Massachusetts and Roche facilities in the U.S. (or such other locations as are determined by the JSC). Alternatively, the JSC may meet by means of teleconference, videoconference or other similar communications equipment, but at least [**] meetings per Calendar Year shall be conducted in person. A secretary shall be appointed for each meeting and shall prepare minutes of the meeting, it being understood that the secretary and the JSC Chairperson shall not be representatives of the same Party (that is, if the JSC Chairperson is a representative of Roche, the secretary shall be a representative of Alnylam, and vice versa).

(d) JSC Responsibilities. The JSC shall have the following responsibilities with respect to the Collaboration, unless and until either Party exercises its Opt-Out Right or the JSC otherwise dissolves:

(i) reviewing, proposing to the Parties, and deciding, as necessary, (A) each annual update to the Joint Research Plan or the Development Plan, as applicable (with the goal of finalizing such annual update by [**] of each Calendar Year), and (B) any modifications to the Joint Research Plan or the Development Plan, as applicable, in each case excluding any budgets;

(ii) regularly assessing, and updating the Parties as necessary on, the progress of the Parties in their conduct of the Joint Research Plan or the Development Plan, as applicable, against the timelines contained therein;

-2-

(iii) reviewing relevant data generated during the course of the Program and advising the Parties on general Development strategy and issues of priority;

(iv) coordinating the Parties’ efforts in the Discovery or Development of the Licensed Product(s) in the Field in the Territory, including regulatory matters;

(v) establishing procedures for the calculation and maintenance of Development Costs incurred by each Party consistent with the guidelines set forth on Exhibit E;

(vi) review, discuss and coordinate the scientific presentation and publication strategy relating to Licensed Products in the Field in the Territory prior to First Commercial Sale; and

(vii) performing such other activities as the Parties agree in writing shall be the responsibility of the JSC.

For purposes of clarity, (I) it is expected that with respect to the sharing of information regarding the Licensed Product(s), each Party will, through the JSC and through regular communication between each Party’s designated Alliance Manager (if the JSC remains in place), keep the other Party promptly informed at a reasonably detailed level about all activities related to the Discovery, Development, Manufacture and Commercialization of the Licensed Product(s) in the Field in each of the Major Market Countries and the rest of the Territory, and will promptly provide information reasonably requested of such Party by the other Party related thereto, and (II) the JSC shall have the authority to update or modify the Joint Research Plan or the Development Plan (in each case, excluding the budget), and to determine the allocation of resources among the various items set forth in the Joint Research Plan or Development Plan budget, provided that the JSC does not alter the overall budget or either Party’s overall financial obligations under the Joint Research Plan or Development Plan, as applicable.

(e) Dissolution of JSC. The JSC shall be dissolved (i) if at the time of the First Commercial Sale of Licensed Product in the Territory there is no further Development contemplated for any Licensed Products for any indication beyond the indication approved on First Commercial Sale, or (ii) at such time as any exercise by either Party of its Opt-Out Right becomes effective under Section 4.9, in which case the JSC shall be dissolved solely with respect to the Opt-Out Product(s); provided that, after August 9, 2012, Alnylam shall have the right, but shall not be obligated, to participate on the JSC. If Alnylam elects not to participate in the JSC, then Roche shall have the right to make all decisions related to the Discovery and Development of Licensed Products under the Collaboration, subject to Section 2.5(d), Roche’s diligence obligations under Article VIII, and other applicable terms and conditions of this Agreement.

Section 2.2 Joint Commercialization Team.

(a) Establishment of JCT. Commencing with the earlier of (x) initiation of the first Phase III Study of Licensed Product, and (y) the date [**] prior to the anticipated launch of the first Licensed Product in the Territory, unless and until either Party exercises its Opt-Out Right, the Parties will establish a joint commercialization team (“JCT”) to coordinate the Commercialization of the Licensed Product(s) in the United States. The provisions of Sections 2.1(a) (with each Party’s respective representatives to the JSC initially serving as such Party’s

-3-

representatives to the JCT hereunder), 2.1(b) (with the chairman of the JSC serving as the initial JCT chairperson), 2.1(c) and 2.4 relating to the operation of the JSC shall also apply to the JCT.

(b) Dissolution of the JCT. The JCT shall be dissolved solely with respect to the applicable Opt-Out Products upon the effective date of either Party’s exercise of its Opt-Out Right; provided, however, that after August 9, 2012, Alnylam shall have the right, but not the obligation, to participate on the JCT. If Alnylam elects not to participate in the JCT, then Roche shall have the right to make all decisions related to the Commercialization of Licensed Products in the U.S. under the Collaboration, subject to Section 2.5(d), Roche’s diligence obligations under Article VIII, and other applicable terms and conditions of this Agreement.

(i) reviewing, commenting on and advising the Parties on the initial Commercialization Plan;

(ii) reviewing, proposing to the Parties, and deciding, as necessary, (A) each annual update to the Commercialization Plan (with the goal of finalizing such annual update by [**] of each Calendar Year), and (B) any modifications to the Commercialization Plan, in each case excluding any budgets;

(iii) regularly assessing, and updating the Parties as necessary on, the progress of the Parties in their conduct of the Commercialization Plan against the timelines contained therein;

(iv) advising the Parties on general Commercialization strategy and issues of priority;

(v) coordinating the Parties’ efforts in the Commercialization of the Licensed Product(s) in the Field in the Territory, including regulatory matters;

(vi) coordinating with the JSC regarding Development matters as necessary or appropriate to Commercialization of the Licensed Product(s) in the United States;

(vii) performing such other activities as the Parties agree in writing shall be the responsibility of the JCT;

(viii) coordinate the Parties’ efforts with respect to the initiation and conduct of any Post-Approval Studies proposed to be conducted for Licensed Product(s) in the United States;

(ix) review, discuss and coordinate the scientific presentation and publication strategy relating to Licensed Product(s) in the Field in the Territory following First Commercial Sale; and

(viii) attempting to resolve any and all disputes within the JCT’s purview relating to the Commercialization of the Licensed Product(s) by consensus pursuant to Section 2.5.

-4-

(d) Limitations on JCT Authority. For purposes of clarity, the JCT shall have the authority to update or modify the Commercialization Plan (in each case, excluding the budget), and to determine the allocation of resources among the various items set forth in the Commercialization Plan budget, provided that the JCT does not alter the overall budget for the United States or either Party’s overall financial obligations under the Commercialization Plan.

Section 2.3 Appointment of Subcommittees, Project Teams and Alliance Managers. The JSC shall be empowered to create such subcommittees of itself and project teams as it may deem appropriate or necessary. Each such subcommittee and project team shall report to the JSC, which shall have authority to approve or reject recommendations or actions proposed thereby subject to the terms of this Agreement. Each Party shall also designate an alliance manager (each, an “Alliance Manager”), who shall be responsible for the day-to-day coordination of the Collaboration and will serve to facilitate communication between the Parties. Each Party may change its designated Alliance Manager from time to time upon written notice to the other Party. Among the subcommittees contemplated, it is expected that the JSC will establish a joint project development team (“JPDT”) to share information through regular communications regarding the Development of Licensed Product(s) in the Territory, a joint finance team (“JFT”) regarding cost sharing and budgeting, and other joint teams as necessary regarding Manufacturing, patent and other matters. After August 9, 2012, Alnylam shall have the right, but not the obligation, to participate on any of the subcommittees contemplated in this Section 2.3.

Section 2.4 JSC and JCT Decisions by Consensus. Decisions within the purview of the JSC or, if applicable, the JCT shall be made by consensus, with the representatives of each Party collectively having one vote on behalf of such Party. For each meeting of the JSC or, if applicable, the JCT at least two (2) representatives of each Party shall constitute a quorum. Action on any matter may be taken at a meeting, by teleconference, videoconference or by written agreement, as may be mutually agreed by the Parties.

Section 2.5 JSC or JCT Deadlocks; Dispute Resolution; Decision-Making Authority.

(a) The JSC (or, if applicable, the JCT) shall attempt to resolve any and all disputes over any matter that is within such committee’s purview relating to the Collaboration by consensus.

(b) If the JSC (or, if applicable, the JCT) is unable to reach a consensus with respect to a dispute within such committee’s purview, then the dispute shall be submitted to escalating levels of Alnylam and Roche senior management for review. If such dispute cannot be resolved despite escalation, then the Executive Officers of Alnylam and Roche shall attempt to resolve such dispute.

(c) If, despite the Executive Officers’ efforts to resolve a dispute pursuant to clause (b), the Executive Officers cannot reach an agreement regarding such dispute within [**] days after submission to them for resolution, then:

(i) unless either Party has exercised its Opt-Out Right hereunder, if the dispute relates to the Development of the Licensed Product(s) prior to First Phase II

-5-

Completion, then [**] shall have the final decision-making authority over operational matters related to any Clinical Study conducted by [**];

(ii) unless either Party has exercised its Opt-Out Right hereunder, [**] shall have final decision-making authority over Development and Commercialization activities that are specific to the ROW Territory so long as such decision does not materially negatively affect Development and Commercialization activities that are specific to the U.S.;

(iii) the Party that is responsible for booking sales in the U.S. shall have final decision-making authority over (A) the price and commercial terms of Licensed Product(s) in the U.S., (B) a policy governing the handling of all returns, recalls, order processing, invoicing and collection, distribution, and inventory and receivables for Licensed Product(s) in the U.S., (C) (1) any label or other written, printed or graphic matter upon (aa) any container or wrapper utilized with Licensed Product(s) in the U.S. or (bb) any written material accompanying any container or wrapper utilized with Licensed Product(s) in the U.S. including package inserts, and (2) any communication or program associated with the promotion of Licensed Product(s) in the U.S., including such communications and programs that (aa) specifically identify or describe Licensed Product(s) or (bb) otherwise support Licensed Product(s) or raise awareness of the Field, and (D) whether or not to recall or withdraw Licensed Product(s) in the U.S.; provided, however, that, such Party shall have the obligation to give due consideration to any recommendations or opinions offered by the other Party, consistent with the principle of setting the wholesale price of Licensed Product(s) to its maximum potential without regard to its effect on other products, to the extent permitted by applicable Laws; and

(iv) if the dispute does not fall within clause (i), (ii) or (iii) above, then neither Party may implement any activities that would result from resolution of the matter until consent of the other Party is achieved; it being understood that, in the event that either Party exercises its Opt-Out Right, the Continuing Party shall have final decision-making authority with respect the Discovery, Development, Commercialization and Manufacture of the Opt-Out Product(s), subject to Section 2.5(d), the Continuing Party’s diligence obligations under Article VIII, and other applicable terms and conditions of this Agreement.

(d) Notwithstanding anything in this Agreement to the contrary, in no event may the JSC, the JCT or either Party have the unilateral right to amend any term of this Agreement. In addition, in no event shall either Party have the unilateral right to:

(i) increase the other Party’s obligations or reduce the other Party’s rights under this Agreement in connection with the Program Target(s) or Licensed Product(s), including any obligation to devote additional personnel or financial resources to a specific activity or project to be conducted by the other Party under the Joint Research Plan, Development Plan, or Commercialization Plan as applicable;

(ii) determine whether the events required for the payment of any event payments hereunder have occurred;

(iii) determine whether a Party has fulfilled or breached any of its obligations under this Agreement;

-6-

(iv) make a decision that is expressly stated in this Agreement to require the other Party’s approval or consent, or the mutual agreement of the Parties; or

(v) otherwise expand such Party’s rights or reduce such Party’s obligations under this Agreement in connection with the Program Target(s) or Licensed Product(s).

ARTICLE III

LICENSE GRANTS; EXCLUSIVITY

Section 3.1 License Grants to Roche. Subject to the terms and conditions of this Agreement and to Alnylam Third Party Obligations:

(a) License During the Research Term. Alnylam hereby grants to Roche an exclusive, non-royalty-bearing right and license, with the right to grant sublicenses as set forth in Section 3.1(d), under Alnylam’s rights to the Alnylam Technology, to perform the activities assigned to Roche under the Joint Research Plan in the Field in the Territory during the Research Term.

(b) License if Alnylam has not Opted-Out. Unless Alnylam exercises its Opt-Out Right (in which case Section 3.1(c) shall apply), subject to Alnylam’s retained rights under Section 3.5, Alnylam hereby grants to Roche an exclusive right and license, with the right to grant sublicenses as set forth in Section 3.1(d), under Alnylam’s rights to the Alnylam Technology, to Develop, Manufacture and Commercialize the Licensed Product(s) in the Field in the Territory. Such license shall be (i) subject to event payments pursuant to Section 9.1 and shall be royalty-bearing for the Royalty Term of each Licensed Product in each country of the ROW Territory as set forth in Section 9.3(a), and (ii) subject to the Parties’ rights and obligations with respect to sharing of Profits and costs in the United States as set forth in Section 4.8 and Section 9.2.

(c) License if Alnylam Opts-Out. If Alnylam exercises its Opt-Out Right, Alnylam hereby grants to Roche an exclusive right and license, with the right to grant sublicenses as set forth in Section 3.1(d), under Alnylam’s rights to the Alnylam Technology as has been incorporated into, or has been used in or (as documented in the Joint Research Plan, the Development Plan or the Commercialization Plan, or any approved JSC or JCT minutes, as applicable) has been intended for use in, the Development, Manufacture or Commercialization of the Licensed Product(s) under this Agreement as of the effective date of Alnylam’s exercise of such Opt-Out Right, to Develop, Manufacture and Commercialize such Licensed Product(s) in the Field in the Territory. Such license shall be subject to event payments pursuant to Section 9.1 and shall be royalty-bearing for the Royalty Term of each Licensed Product in each country of the Territory as set forth in Section 9.3(b).

-7-

(d) Roche Sublicense Rights.

(i) Roche shall have the right to grant sublicenses under the licenses granted to it pursuant to Sections 3.1(a), 3.1(b) and 3.1(c), and the right to grant licenses of its rights under any Joint Collaboration IP, to (x) an entity that is its Affiliate for so long as such entity remains an Affiliate of Roche and complies in all material respects with the obligations of Roche under this Agreement, or (y) to Third Party Contractors retained by Roche in accordance with Section 3.4. Roche hereby guarantees the full payment and performance of its Affiliates under this Agreement. In addition, Roche shall have the right to grant sublicenses under the licenses granted to it pursuant to Sections 3.1(a), 3.1(b) and 3.1(c), and the right to grant licenses of its rights under any Joint Collaboration IP, to Third Parties subject to the limitations of Section 3.1(d)(ii), Section 3.1(d)(iii) and Section 3.3.

(ii) Unless and until Alnylam has exercised its Opt-Out Right, and subject to Section 3.1(d)(iii), Roche shall not have any right to grant to any Third Party any sublicenses of its rights and the licenses granted to it under this Agreement, or any licenses under Roche’s interest in any Joint Collaboration IP, in each case to Discover, Develop, Manufacture and Commercialize the Licensed Product(s) in the Field:

(A) for the United States, without the prior written consent of Alnylam; and

(B) for any of the Major EU Countries, without first notifying Alnylam of such proposed sublicense or license, on a sublicense-by-sublicense or license-by-license basis, including the Major EU Country(ies) proposed to be covered by the sublicense or license and any other terms as may be reasonably requested by Alnylam to allow Alnylam to decide whether or not to pursue the negotiation of such sublicense or license. If Alnylam notifies Roche within [**] days after receipt of such notice from Roche that Alnylam does not want to pursue the negotiation of such sublicense (or Alnylam is silent during such 30-day period), Roche shall be free to negotiate and enter into a sublicense agreement with a Third Party for a period of [**] months, after the expiration of which the terms of this Section 3.1(d)(ii)(B) shall once again apply. If Alnylam notifies Roche within such [**]-day period that Alnylam desires to pursue such negotiations, the Parties shall negotiate in good faith and seek to finalize commercially reasonable terms of such sublicense or license within an additional [**] days. If the Parties are able to finalize the terms of such sublicense within such [**]-day period, the Parties shall enter into such agreement, either in the form of an amendment to this Agreement or a side letter, and the Development Plan or Commercialization Plan, as the case may be, shall be updated as necessary by mutual agreement of the Parties. If the Parties are unable to finalize the terms of such sublicense or license within such additional [**]-day period, Roche may enter into negotiations with a Third Party with respect to such proposed sublicense or license; provided, however, that if the terms offered to such Third Party are more favorable in the aggregate to such Third Party than the terms last offered to Alnylam during the [**]-day negotiation period set forth above, and Alnylam has at least comparable relevant capabilities as the respective sublicensee(s), then Roche shall first offer such more favorable terms to Alnylam.

-8-

(iii) Without limiting Section 3.1(d)(ii) above, any sublicenses granted by Roche hereunder shall be consistent with the sublicense terms and requirements under the LCA, and Roche shall provide Alnylam with reasonable notice of any such sublicense granted hereunder.

(e) Certain Limitations to Licenses Granted to Roche.

(i) The grants by Alnylam under Alnylam Technology set forth in Section 3.1 are subject to, and are limited to the extent of, the rights that Alnylam has previously granted and is required to grant under Alnylam Technology to Alnylam Pre-Existing Alliance Parties under the terms of the Alnylam Pre-Existing Alliance Agreements. As and to the extent that such rights previously granted to Alnylam Pre-Existing Alliance Parties under Alnylam Technology (whether such rights are previously or subsequently exercised) lapse, terminate or otherwise revert to Alnylam, they shall be automatically included in the rights under Alnylam Technology granted to Roche with respect to the Licensed Product(s) under Sections 3.1(a), 3.1(b) and 3.1(c) without any further consideration from Roche. For purposes of clarity, this Section 3.1(e)(i) is not intended to expand the rights or licenses granted to Roche if Alnylam exercises its Opt-Out Right prior to August 9, 2012, nor to expand the rights or licenses granted to Roche beyond those described in Section 3.1(c) or Section 14.5(b)(ix) (as applicable).

(ii) Roche acknowledges that an Alnylam Pre-Existing Alliance Party may from time to time request rights under Alnylam Technology with respect to a particular Target that Alnylam is required, pursuant to the terms of an Alnylam Pre-Existing Alliance Agreement, to grant such rights to such Alnylam Pre-Existing Alliance Party with respect to such Target.

(iii) For the avoidance of doubt, the grants by Alnylam under Alnylam Technology set forth in Sections 3.1(a), 3.1(b) and 3.1(c) include, subject to Section 3.1(f), the sublicense of Alnylam Technology that is not owned by Alnylam. Roche’s rights and licenses under such Alnylam Technology are limited to the rights granted by Listed Alnylam Counterparties to Alnylam under the Listed Alnylam Third Party Agreements, and Roche shall comply, and cause its Affiliates and Licensee Partners to comply, with those restrictions and other terms applicable to sublicensees under such agreements, copies of which have been or will be made available to Roche, as applicable. Without limiting the generality of the foregoing, Roche acknowledges that certain obligations are imposed on sublicensees of certain of the sublicensed Alnylam Technology, and agrees to comply (to the extent access to obligations and requirements have been made available to Roche in unredacted form), and to require its Affiliates and Licensee Partners to comply, with such obligations and requirements. Notwithstanding the foregoing, at the request of Roche, which request shall be made within the [**] period prior to First Commercial Sale of the first Licensed Product, Alnylam shall use commercially reasonable efforts to seek to harmonize the accounting and royalty reporting provisions under the Listed Alnylam Third Party Agreements with the accounting and royalty reporting provisions set forth in this Agreement.

(f) [**] Patent Rights. Notwithstanding anything to the contrary herein, the licenses to Alnylam Patent Rights hereunder initially shall not include licenses to Patent Rights licensed by Alnylam or its Affiliates under the Non-Exclusive License Agreement between [**]

-9-

and Alnylam, dated [**] (the “[**] Agreement”), which Patent Rights Roche shall have the option, exercisable upon written notice to Alnylam at any time during the Term prior to August 9, 2012, to license solely with respect to Licensed Product(s) under this Collaboration. Upon such election, for no additional consideration from Roche (i) the license granted to Roche under Alnylam’s rights to Alnylam Patent Rights pursuant to Sections 3.1(a), 3.1(b) and 3.1(c) of this Agreement shall include such Patent Rights with respect to the designated Licensed Product(s), and (ii) the [**] Agreement shall be deemed a Listed Alnylam Third Party Agreement and Exhibit B-2 hereof shall be amended accordingly.

Section 3.2 License Grants to Alnylam. Subject to the terms and conditions of this Agreement:

(a) License During the Research Term. Roche hereby grants to Alnylam an exclusive, non-royalty-bearing right and license, with the right to grant sublicenses as set forth in Section 3.2(d), under Roche’s rights to the Roche Technology, to perform the activities assigned to Alnylam under the Joint Research Plan in the Field in the Territory during the Research Term.

(b) License if Roche has not Opted-Out. Unless Roche exercises its Opt-Out Right (in which case Section 3.2(c) shall apply), Roche hereby grants to Alnylam an exclusive right and license, with the right to grant sublicenses as set forth in Section 3.2(d), under Roche’s rights to the Roche Technology, to carry out Development, Commercialization and Manufacturing activities to the extent contemplated in the Development Plan, the Commercialization Plan, the Supply Agreement (as applicable) or as otherwise agreed by the Parties hereunder. Such license shall be subject to the Parties’ rights and obligations with respect to sharing of Profits and costs in the United States as set forth in Section 4.8 and Section 9.2.

(c) License if Roche Opts-Out. If Roche exercises its Opt-Out Right, Roche hereby grants to Alnylam an exclusive right and license, with the right to grant sublicenses as set forth in Section 3.2(d), under Roche’s rights to the Roche Technology as has been incorporated into, or has been used in or (as documented in the Joint Research Plan, the Development Plan or the Commercialization Plan, or any approved JSC or JCT minutes, as applicable) has been intended for use in, the Development, Manufacture or Commercialization of the Licensed Product(s) under this Agreement as of the effective date of Roche’s exercise of such Opt-Out Right, to Develop, Manufacture and Commercialize such Licensed Product(s) in the Field in the Territory. Such license shall be subject to event payments pursuant to Section 9.1 and shall be royalty-bearing for the Royalty Term of each Licensed Product in each country of the Territory as set forth in Section 9.3(c).

(d) Alnylam Sublicense Rights.

(i) Alnylam shall have the right to grant sublicenses under the licenses granted to it pursuant to Sections 3.2(a), 3.2(b) and 3.2(c), and the right to grant licenses of its rights under any Joint Collaboration IP, to (x) an entity that is its Affiliate for so long as such entity remains an Affiliate of Alnylam and complies in all material respects with the obligations of Alnylam under this Agreement, and (y) to Alnylam’s Third Party Contractors in accordance with Section 3.4. Alnylam hereby guarantees the full payment and performance of its Affiliates under this Agreement.

-10-

(ii) Unless and until Roche has exercised its Opt-Out Right, Alnylam shall not have any right to grant to any Third Party any sublicenses of its rights and the licenses granted to it under this Agreement, or any licenses under Alnylam’s interest in any Joint Collaboration IP, in each case to Discover, Develop, Manufacture and Commercialize the Licensed Product(s) in the Field in the Territory, without the prior written consent of Roche.

Section 3.3 Sublicensing Terms.

(a) Each sublicense agreement shall be consistent with the terms and conditions of this Agreement. Each Party shall remain liable to the other Party for each of such Party’s (or its Affiliate’s) sublicensees’ failure to comply with all applicable restrictions, limitations and obligations under the sublicense agreement and this Agreement. No sublicense granted by a Party hereunder may be assigned, transferred or further sublicensed to any Third Party without the prior written consent of such Party.

(b) Each Party shall provide a redacted copy of any sublicense agreement entered into by such Party to the other Party (such redactions to exclude only the financial terms of such sublicense and other information normally redacted from a document filed with the U.S. Securities and Exchange Commission), (i) if such sublicense impacts upon one or more of the Major Market Countries, and (ii) upon request by such other Party, in any country other than a Major Market Country.

Section 3.4 Third Party Contractors. Either Party may perform its Collaboration responsibilities hereunder through the use of Third Party Contractors; provided that such Party shall remain primarily liable for such Party’s obligations under this Agreement; and provided further that such Party shall ensure that any such Third Party Contractor is under an obligation to assign, or grant an exclusive, sublicensable license, to such Party under all Know-How, Patent Rights, and other intellectual property rights discovered, conceived, invented or reduced to practice by such Third Party Contractor pursuant to the conduct of such Party’s Collaboration responsibilities hereunder and related to any Program Target, RNAi Product or Licensed Product hereunder.

Section 3.5 Retained Rights. Notwithstanding anything in this Agreement to the contrary, Alnylam retains all rights necessary under Alnylam Technology, and Roche retains all rights necessary under Roche Technology, to perform such Party’s obligations and exercise such Party’s rights under this Agreement, including conducting the activities assigned to such Party under the Joint Research Plan, Development Plan or Commercialization Plan, as the case may be.

Section 3.6 No Implied Licenses. Except as explicitly set forth in this Agreement, neither Party grants to the other Party any license, express or implied, under its intellectual property rights.

Section 3.7 Exclusivity Covenant. Subject to Alnylam Third Party Obligations and Section 15.15:

(a) During the Research Term and for a period of [**] thereafter, neither Party nor such Party’s Affiliates shall, except pursuant to this Agreement, directly or indirectly,

-11-

conduct Development of, Manufacture or Commercialize, anywhere in the Territory, any Competitive Product, or grant any rights to a Third Party to do any of the foregoing.

(b) After the Research Term, during the period of Development prior to the first Regulatory Approval in the Territory of a Licensed Product under the Program for the given Program Target(s) to which such Licensed Product is directed, neither Party nor such Party’s Affiliates shall, except pursuant to this Agreement, directly or indirectly, conduct Development of, Manufacture or Commercialize, anywhere in the Territory, any Competitive Product directed to such given Program Target(s), or grant any rights to a Third Party to do any of the foregoing. Without limiting the foregoing exclusivity with respect to any Program Target(s) that remain in the Program, if either Party exercises its Opt-Out Right during such period of Development prior to the first Regulatory Approval for any Opt-Out Product(s) in the Territory and the other Party assumes the unilateral Development and Commercialization of such Opt-Out Product(s), the opting-out Party and its Affiliates shall not, except pursuant to this Agreement, directly or indirectly, conduct Development in a Phase II Study of, or Commercialize, anywhere in the Territory, any Competitive Product directed against the same Program Target(s) as the Opt-Out Product(s), or grant any rights to a Third Party to do any of the foregoing, for a period of [**] from and after the effective date of such opt-out.

(c) For a period of [**] after the first Regulatory Approval in the Territory for a Licensed Product under the Program for the given Program Target(s) to which such Licensed Product is directed, neither Party nor such Party’s Affiliates shall, except pursuant to this Agreement, directly or indirectly, conduct Development in a Phase III Study of, or Commercialize, anywhere in the Territory, any Competitive Product directed to such given Program Target(s), or grant any rights to a Third Party to do any of the foregoing. Without limiting the foregoing exclusivity with respect to any Program Target(s) that remain in the Program, if either Party exercises its Opt-Out Right during such period of [**] after the first Regulatory Approval for any Opt-Out Product(s) in the Territory and the other Party assumes the unilateral Development and Commercialization of such Opt-Out Product(s), the opting-out Party and its Affiliates shall not, except pursuant to this Agreement, directly or indirectly, conduct Development in a Phase III Study of, or Commercialize, anywhere in the Territory, any Competitive Product directed against the same Program Target(s) as the Opt-Out Product(s), or grant any rights to a Third Party to do any of the foregoing, for a period of [**] from and after the effective date of such opt-out.

(d) For purposes of clarity, nothing in clause (a), (b) or (c) above is intended to prohibit the Party exercising the Opt-Out Right with respect to any Opt-Out Product(s) from continuing to Develop, Manufacture and Commercialize any Licensed Product(s) other than the Opt-Out Product(s), or from performing its Manufacturing obligations hereunder with respect to any Opt-Out Product(s), pursuant to, and in accordance with the terms of, this Agreement.

-12-

ARTICLE IV

COLLABORATION OVERVIEW;
DEVELOPMENT OF LICENSED PRODUCT(S);
OPT-OUT RIGHTS

Section 4.1 Collaboration Overview. During the Research Term, the Parties will collaborate in the initial Discovery and Development of an RNAi Product directed to [**] or, subject to mutual agreement of the Parties pursuant to Section 4.3 with respect to an additional Program Target, another RNAi Product directed to both [**] and such additional Program Target, in the Field in the Territory. Following the Research Term, subject to either Party’s exercise of its Opt-Out Rights, the Parties will collaborate in the continued Development and Commercialization of the Licensed Product(s); provided that the Parties will Develop the Licensed Product(s) in the Field for the United States in accordance with the allocations of Development responsibilities set forth in the Development Plan as amended from time-to-time in accordance with Section 4.5; it being understood that Alnylam shall have operational responsibility for all Licensed Product Development activities prior to and through First Phase II Completion. For purposes of clarity, this Agreement does not contemplate the Development of multiple RNAi Products each directed to a different Program Target under the Collaboration, unless the Parties otherwise mutually agree to do so and mutually agree on the terms pursuant to which such Development of such RNAi Products may be undertaken. In addition the Agreement contemplates that the Parties will Develop the Licensed Product(s) for the U.S. and the Major EU Countries under a single global Development Plan governing Development of the Licensed Product(s) from IND-Enabling Studies onward; provided that none of Alnylam’s participation rights or decision-making authority with respect to any activities under the Development Plan that are relevant for the U.S. shall be diminished by virtue of the Development Plan covering activities for both the U.S. and ROW Territory.

Section 4.2 Joint Research Plan; Amendments. The initial Discovery and pre-IND Enabling Development of the Licensed Product(s) shall be governed by the Joint Research Plan during the Research Term. In addition to annual updates or modifications to the Joint Research Plan decided by the JSC pursuant to Section 2.1(d), either Party may develop and submit to the JSC from time to time proposed amendments to the Joint Research Plan (excluding any amendment to the budget, which amendment shall require the approval of both Parties outside the JSC). Upon approval of such proposed amendments by the JSC (subject to the limitations set forth in Section 2.1(d)), the Joint Research Plan shall be amended accordingly.

Section 4.3 Selection of Program Targets.

(a) As of the Effective Date, the Parties have selected [**] as the subject of the Program to be progressed by the Parties during the Research Term.

(b) Prior to [**], Roche shall have the right to propose, in accordance with the remainder of this Section 4.3, additional Targets directed to [**] until up to one (1) additional Target is accepted by Alnylam as a Program Target pursuant to Section 4.3(d) below. Notwithstanding anything in this Agreement to the contrary, Roche shall not have the right to propose any Blocked Target, VEGF or KSP for inclusion as a Program Target hereunder.

-13-

(c) Alnylam shall submit any additional Target proposed by Roche in accordance with clause (b) above to Novartis in accordance with Section 2.6 of the LCA. Alnylam hereby waives, and Roche shall not be required to [**] with respect to the Target proposed by Roche pursuant to this Section 4.3 which would otherwise have been payable to Alnylam pursuant to Section 2.6 of the LCA. If Roche submits multiple Targets simultaneously, then the Parties shall agree to present [**] to Novartis, unless the Parties otherwise mutually agree that such [**].

(d) Subject to Novartis’ rejection or waiver of each proposed additional Target pursuant to clause (c) above, if Alnylam provides, in its sole discretion, written approval of such proposed additional Target (such approval not to be unreasonably withheld by Alnylam), such Target shall be deemed a Program Target for all purposes hereunder.

(e) If Novartis or Alnylam (approval not to be unreasonably withheld by Alnylam) rejects any proposed Target, Roche shall have the right to propose that an additional Target meeting the requirements set forth in Section 4.3(b) be included in the Program. If Roche does not propose any additional Target for inclusion as a Program Target by [**], then Roche’s right to propose an additional Program Target pursuant to this Section 4.3 shall have no further force or effect, and the sole subject of the Program and the Collaboration shall remain [**]. Once the first such additional proposed Target is included in the Program, Alnylam shall have no obligation to waive, and Roche shall thereafter be obligated to [**], unless the Parties otherwise mutually agree that such [**] shall be waived.

(f) For purposes of clarity, while the Parties contemplate that Roche may use Alnylam Platform Patent Rights or Alnylam Platform Know-How under the LCA to perform activities with respect to the Program Target during the Term, any activities conducted with respect to a Program Target shall be conducted pursuant to this Agreement (and not pursuant to the LCA), and the terms of this Agreement (and not the LCA) shall govern the Parties’ respective rights and obligations with respect to such Program Target and corresponding RNAi Products and Licensed Products, including financial obligations.

Section 4.4 Selection of Development Candidate. During the Research Term, using the candidate selection criteria set forth in the Joint Research Plan as a guide, each Party shall use Diligent Efforts to conduct studies under the Program with the goal of identifying at least one (1) RNAi Product directed to a Program Target (or, subject to Section 4.3, both Program Targets) that are suitable for advancement as a development candidate into IND-Enabling Studies under this Agreement. Within [**] days following the completion of activities under the Joint Research Plan,

(a) the Parties may mutually agree on the selection of at least one (1) RNAi Product directed to a Program Target (or both Program Targets, if applicable) as a development candidate hereunder and on a Development Plan pursuant to which the Parties shall pursue the Development of such development candidate under the Program, in which event the Program, and each Party’s rights and obligations under this Agreement, shall continue as to such RNAi Product(s) and such Program Target(s), subject to either Party’s exercise of its Opt-Out Right(s); or

-14-

(b) if the Parties are unable to mutually agree on the selection of at least one (1) development candidate hereunder, or are able to mutually agree on the selection of at least one (1) development candidate but are unable to mutually agree on a Development Plan for such development candidate, then (i) the Parties may agree to discontinue the Program, and all Discovery and Development activities hereunder, in which event this Agreement shall be terminated, subject to the Parties’ mutual agreement on the terms of any necessary wind-down, or (ii) a Party may exercise its Opt-Out Right at Candidate Selection Stage with respect to a particular RNAi Product Developed under the Program during the Research Term pursuant to Section 4.9; provided, that, if a Party has no bona fide interest in pursuing the Program or any RNAi Product Developed under the Program, such Party shall have a good faith obligation to exercise its Opt-Out Right hereunder. Notwithstanding the above, in no event shall each Party progress the same development candidate separately because of being unable to mutually agree on a Development Plan for such development candidate.

Section 4.5 Development Plan; Amendments.

(a) Within [**] days following the completion of activities under the Joint Research Plan, the Parties shall prepare an initial Development plan (as such plan may be updated or amended from time to time in accordance with this Agreement, the “Development Plan”) that will cover Development activities commencing with IND-Enabling Studies through Phase I Completion with respect to the proposed development candidate(s) under the Program, including a [**] budget for Development Costs. Each annual update to the Development Plan shall cover Development activities through completion of the next phase of Development and a [**] budget (or longer, if the Development activities covered by the Development Plan extend for longer than [**]).

(b) Unless and until either Party exercises its Opt-Out Right, in addition to annual updates or modifications to the Development Plan decided by the JSC pursuant to Section 2.1(d), either Party may develop and submit to the JSC from time to time proposed amendments to the Development Plan (excluding any amendment to the budget, which amendment shall require the approval of both Parties outside the JSC). Upon approval of such proposed amendments by the JSC (subject to the limitations set forth in Section 2.1(d)), the Development Plan shall be amended accordingly.

Section 4.6 Exchange of Know-How. During the Research Term, each Party shall make available to the other Party, at no cost or expense to such other Party, such Alnylam Know-How or Roche Know-How, as the case may be, as is requested by such other Party in connection with such other Party’s performance of its obligations under the Joint Research Plan or in connection with the identification, evaluation or selection of development candidates. Upon selection of the first development candidate under this Agreement and thereafter during the Term, each Party shall make available to the other Party, at no cost or expense to such other Party, such Alnylam Know-How or Roche Know-How, as the case may be, as is requested by such other Party in connection with the Discovery, Development or Commercialization of Licensed Products hereunder, including all data from any and all clinical trials and preclinical studies and non-clinical development work for Licensed Products that are in existence as of the completion of all activities under the Joint Research Plan. Upon selection of the first development candidate under this Agreement and thereafter during the Term, each Party shall promptly update the other Party

-15-

as to Alnylam Know-How or Roche Know-How, as the case may be, that has not previously been provided to such other Party under this Agreement, and shall promptly provide to such other Party any such additional Alnylam Know-How or Roche Know-How, as the case may be, as may be reasonably requested by such other Party.

Section 4.7 Records and Reports.

(a) Each Party will maintain scientific records, in sufficient detail and in good scientific manner appropriate for patent and regulatory purposes, which will fully and properly reflect all work done and results achieved in the performance of the Discovery, Development and Manufacturing activities with respect to the Licensed Product(s) by such Party and its permitted Third Party Contractors and permitted Licensee Partners. Each Party will [**] under this Agreement. All such records, and the information disclosed therein, as well as all disclosures made pursuant to Sections 2.1(d), 4.6 and 4.7(b), will be maintained in confidence by the recipient in accordance with Article IX and will only be used for purposes of Discovery, Development, Manufacture and Commercialization of Licensed Product(s) under this Agreement.

(b) In addition to the other disclosure obligations set forth in this Section 4.7, at times and in a manner to be reasonably agreed by the Parties, each Party shall [**] such disclosure. Upon the request of either Party, the other Party shall [**] such Party; provided that in any such case the [**]. If requested by either Party or the JSC, the Parties shall [**] other Party. In addition to the foregoing, if required by a Regulatory Authority(ies) or if it is reasonably necessary for a Party or its Related Party(ies) to [**] such Party. Section 4.7(b) shall apply [**].

(c) For purposes of clarity, nothing in Section 4.6 or this Section 4.7 shall obligate a Party to disclose any Know-How or grant any rights to the other Party that are beyond the scope of the licenses granted to such other Party under Section 3.1, 3.2 or 14.5 (as applicable).

Section 4.8 Development Costs. During the Research Term, each Party shall be responsible for its own internal and out-of-pocket costs of performing activities assigned to such Party under the Joint Research Plan. Following the Research Term, unless and until either Party exercises its Opt-Out Right, the Parties shall each share fifty percent (50%) of Development Costs, as calculated in accordance with the Financial Appendix (Exhibit E).

Section 4.9 Opt-Out Right.

(a) Exercise of Opt-Out Right.

(i) Within [**] days after any of the following stages of Development or Commercialization of a Licensed Product under the Program (each such stage, an “Opt-Out Point”), each Party shall have the right, in its sole discretion, to opt-out of further Development and Commercialization of the Licensed Product(s) under the Program, in its entirety or on a Licensed Product-by-Licensed Product basis (each such Licensed Product, an “Opt-Out Product”), by providing written notice to the other Party citing this Section 4.9(a):

-16-

(A) [**];

(B) [**];

(D) [**]; and

(E) Thereafter on [**] months prior written notice [**] annually during the [**] quarter of the other Party’s fiscal year.

(ii) If a Party exercise its Opt-Out Right, then the other Party may (A) assume the unilateral Development and Commercialization of the Opt-Out Product(s), in which case such Party shall become the Continuing Party with respect to such Opt-Out Product(s); or (B) decide not to elect to assume such Development and Commercialization of the Opt-Out Product(s), in which case such Party shall be deemed to have terminated this Agreement at will pursuant to Section 14.4 solely with respect to such Opt-Out Product(s) (it being understood that the Parties shall have the right to continue to Collaborate on the Development and Commercialization of the remaining Licensed Product(s) under the Program subject to the terms and conditions of this Agreement).

(iii) Notwithstanding anything in this Agreement to the contrary, in no event shall either Party have the right to unilaterally Develop and Commercialize a Licensed Product beyond Phase I Completion at the same time that the Parties are also Collaborating on the Development and Commercialization of a Licensed Product in a Phase II Study or beyond hereunder.

(iv) For purposes of clarity, (A) no exercise by a Party of its Opt-Out Right shall constitute a breach of such Party’s obligations under this Agreement, and (B) if a Party exercises its Opt-Out Right under this Section 4.9, then such Party shall be deemed to have opted-out of the Program, in its entirety or with respect to the Opt-Out Product(s), as applicable, for the entire Territory, regardless of whether any Licensed Product was being Developed under the Program for sale, or was being sold, in a particular part of the Territory.

(b) Effect of Opt-Out by a Party. If a Party exercises its Opt-Out Right, subject to the Continuing Party’s right to terminate its licenses under Section 14.4 or 14.5(e), upon the effective date of such Party’s exercise of its Opt-Out Right, the following shall occur:

(i) The Party that exercises its Opt-Out Right hereunder shall discontinue its participation, and shall have no further operational rights or obligations (except Manufacturing obligations hereunder, if any), with respect to the particular Opt-Out Product(s);

(ii) If applicable, the Parties shall perform a final reconciliation of applicable Profits, Development Costs and Commercialization Costs (as applicable) for the Opt-Out Product(s) under the Program pursuant to Exhibit E and neither Party shall have any further right to share in Profits, or any further obligation to share in Development Costs or Commercialization Costs (as applicable), with respect to such Opt-Out Product(s) pursuant to Sections 4.8 and 9.2; provided, however, that the Party that exercises its Opt-Out Right at or after

-17-

First Phase II Completion shall remain responsible for its share of the costs of any Clinical Study(ies) conducted, or committed to the conducted, by the other Party with respect to such Opt-Out Product(s) at the time of the notice of the opt-out, through completion or earlier termination of such Clinical Study(ies);

(iii) If Roche is the Party opting out, the licenses granted to Roche under Section 3.1 for the given Opt-Out Product(s) shall terminate and, if Alnylam decides to continue to unilaterally pursue the Development and Commercialization of such Opt-Out Product(s) as the Continuing Party hereunder, (A) the license granted to Alnylam under Section 3.2(c) for the given Opt-Out Product(s) shall apply (subject to compliance with the financial obligations set forth therein) and (B) the terms of Sections 14.5(a)(iv), 14.5(a)(v), 14.5(a)(vi) and 14.5(a)(x) shall apply;

(iv) If Alnylam is the Party opting out, the licenses granted to Alnylam under Section 3.2 (or Section 14.5(a)(ix), as the case may be) for the given Opt-Out Product(s) shall terminate, and, if Roche decides to continue to unilaterally pursue the Development and Commercialization of such Opt-Out Product(s) as the Continuing Party hereunder, (A) the license granted to Roche under Section 3.1(c) (or Section 14.5(b)(ix), as the case may be) for the given Opt-Out Product(s) shall apply (subject to compliance with the financial obligations set forth therein), and (B) the terms of Sections 14.5(b)(iv), 14.5(b)(v), 14.5(b)(vi) and 14.5(b)(x) shall apply;

(v) Article VI (or the Supply Agreement) and Section 3.7 shall apply in accordance with its terms; and

(vi) As between the Parties, the Continuing Party (if any) shall have sole right and responsibility for the Development, Commercialization and (except to the extent that the opting-out Party remains responsible under Article VI or the Supply Agreement) Manufacture of the Opt-Out Product(s) in accordance with the terms of this Agreement, subject to diligence obligations pursuant to Section 8.2, provided, that such Continuing Party no longer be bound by the Development Plan or Commercialization Plan (as applicable).

ARTICLE V

COMMERCIALIZATION

Section 5.1 Commercialization Activities. Subject to the terms and conditions of this Agreement, the Commercializing Party or Commercializing Parties (as the case may be) shall be responsible for Commercializing the Licensed Product(s) in the Field in the Territory. Where Alnylam and Roche are both Commercializing Parties in the United States, unless otherwise mutually agreed by the Parties, Roche shall be responsible for booking sales in the U.S., which shall encompass setting the price and commercial terms of Licensed Product, as well as setting a policy governing the handling of all returns, recalls, order processing, invoicing and collection, distribution, and inventory and receivables for, Licensed Product(s) in the U.S.

Section 5.2 Commercialization Costs. If neither Party exercises its Opt-Out Right, then the Parties shall share in Profits and Commercialization Costs as set forth in Section 9.2;

-18-

provided, however, that each Party shall be responsible for conducting the activities assigned to such Party under the Commercialization Plan, including all costs thereof.

Section 5.3 Commercialization Plan.

(a) Unless and until either Party has exercised its Opt-Out Right, commencing no later than [**] prior to the anticipated launch of the first Licensed Product, the Parties shall prepare and deliver to the JCT an initial written plan and budget that describes in detail the Commercialization activities (including pre-launch and launch activities, if applicable, but excluding Manufacturing activities which shall be addressed as set forth in Article VI) to be undertaken with respect to Licensed Product(s) in the United States in the next Calendar Year and the dates by which such activities are targeted to be accomplished (as such plan may be updated or amended from time to time in accordance with this Agreement, the “Commercialization Plan”). The Commercialization Plan (including the budget) shall allocate activities between the Parties, and shall contain sufficient detail with respect to Commercialization tactics and other matters to enable the JCT to conduct a meaningful review of the Commercialization Plan. The Parties shall seek to finalize the initial Commercialization Plan for the United States no later than [**] prior to launch of the first Licensed Product in the United States. It is intended that the Commercialization Plan will contemplate that the Parties will co-promote Licensed Product in the United States in a manner that reflects each Parties’ capabilities and that is consistent with each Parties’ promotional efforts for its own products of similar market potential. The Parties shall negotiate in good faith a co-promotion agreement that is consistent with the terms of this Agreement, taking into account the Parties’ respective capabilities, including terms related to term of co-promotion activities, auditing of sales details, mechanisms to address underperformance and failure to perform details at agreed upon levels, sales force training, and other customary terms, with a view to finalizing and entering into such co-promotion agreement as soon as reasonably practicable.

(b) In addition to annual updates or modifications to the Commercialization Plan decided by the JCT pursuant to Section 2.2(c), either Party may develop and submit to the JCT from time to time proposed amendments to the Commercialization Plan (excluding any amendment to the budget, which amendment shall require the approval of both Parties outside the JCT). Upon approval of such proposed amendments by the JCT (subject to the limitations set forth in Section 2.2(d)), the Commercialization Plan shall be amended accordingly.

ARTICLE VI

MANUFACTURE AND SUPPLY

Section 6.1 Pre-Candidate Selection Supply. From and after the Effective Date and before Candidate Selection Stage, each Party will be responsible for supplying its own demands for API Bulk Drug Substance, Delivery Compound, and Formulated Bulk (as applicable) in quantities that are sufficient for the conduct of Discovery activities as defined in the Joint Research Plan.

Section 6.2 Supply for IND-Enabling Studies and Clinical Studies.

-19-

(a) Subject to Section 6.3 and Section 6.4, from and after Candidate Selection Stage, the Parties will agree on a single-source supply strategy and on which Party will be responsible for Manufacturing supplies for IND-Enabling Studies and Clinical Studies. The responsible Party will use Diligent Efforts, either itself or through Third Parties, to Manufacture, in accordance with applicable cGMP, pre-clinical and clinical supply of API Bulk Drug Substance, Delivery Compound, Formulated Bulk and Finished Product (as applicable), in quantities that are reasonably sufficient for the conduct of Development of the Licensed Product(s) by the Parties under the Development Plan. If either Party exercises its Opt-Out Right and such Party has been the supplying Party for pre-clinical or clinical supply of API Bulk Drug Substance, Delivery Compound, Formulated Bulk or Finished Product (as applicable), prior to the effective date of such opt-out, unless otherwise mutually agreed by the Parties, such Party shall be obligated to continue to undertake such Manufacturing until completion of the transfer of Manufacturing to the Continuing Party according to Section 6.4, but no longer than [**], if Development is earlier than Phase I Completion, and no longer than [**], if Development is after Phase I Completion. For purposes of clarity, upon either Party’s exercise of its Opt-Out Right hereunder, the Continuing Party shall have the right to Manufacture API Bulk Drug Substance, Delivery Compound, Formulated Bulk or Finished Product, by itself (or any Related Party) or using a Third Party manufacturer.

(b) Each Party shall pay the supplying Party the following amounts (or the Parties shall share as Development Costs, as the case may be) for pre-clinical and clinical supply of API Bulk Drug Substance, Delivery Compound, Formulated Bulk or Finished Product, as applicable: (i) if neither Party has exercised its Opt-Out Right, the supplying Party’s FBMC in the United States and the supplying Party’s FBMC in the ROW Territory, or (ii) if either Party has exercised its Opt-Out Right, subject to the principles set forth in Paragraph 6 of Exhibit D, the supplying Party’s FBMC plus [**] percent ([**]%) for the entire Territory. A Party’s FBMC for API Bulk Drug Substance, Delivery Compound, Formulated Bulk and Finished Product (as applicable) supplied by such Party to the other Party pursuant to this Section 6.2 for Development in the United States shall be included as Development Costs.

(c) The terms of Exhibit D hereof (the “Supply Agreement Term Sheet”) shall govern the Manufacture and supply of API Bulk Drug Substance, Delivery Compound, Formulated Bulk and Finished Product (as applicable) for pre-clinical and clinical Development purposes until such time as the Parties enter into a Supply Agreement hereunder.

Section 6.3 Supply Agreement. Subject to Section 6.4, the Parties contemplate that upon the earlier of (a) the effective date of either Party’s exercise of its Opt-Out Right, or (b) initiation of the first Phase II Study under the Program, the Parties shall agree to commence discussions to finalize the terms of a supply agreement for clinical and commercial supply of API Bulk Drug Substance, Delivery Compound, Formulated Bulk or Finished Product (as applicable) based on the Supply Agreement Term Sheet (the “Supply Agreement”). The Parties shall use Diligent Efforts to complete such discussions and execute the Supply Agreement within [**] after either the exercise of a Party’s Opt-Out Right or the initiation of the first Phase II Study, as the case may be. The transfer price for commercial supply of API Bulk Drug Substance, Delivery Compound, Formulated Bulk or Finished Product (as applicable) shall be (i) if neither Party has exercised its Opt-Out Right, the supplying Party’s FBMC in the United States and the supplying Party’s FBMC plus [**] percent ([**]%) in the ROW Territory, or (ii) if either Party has

-20-

exercised its Opt-Out Right, subject to the principles set forth in Paragraph 6 of Exhibit D, the supplying Party’s FBMC plus [**] percent ([**]%) for the entire Territory. In no event shall any sale or transfer by the supplying Party of API Bulk Drug Substance, Delivery Compound, Formulated Bulk or Finished Product to the other Party under this Agreement be included in the calculation of Net Sales hereunder.

Section 6.4 Transition of Manufacturing Responsibilities to Continuing Party.

(a) The Parties contemplate that, at any time following the selection of a development candidate pursuant to Section 4.4 (but in no event later than First Phase II Completion), in lieu of Section 6.3 or 6.5, the Parties may agree to transfer responsibility for Manufacturing API Bulk Drug Substance, Delivery Compound, Formulated Bulk and Finished Product (as applicable) to (i) one of the Commercializing Parties as may be mutually agreed by the Parties, (ii) if either Party has exercised its Opt-Out Right, the Continuing Party, or (iii) a Third Party manufacturer designated by such Commercializing Party or Continuing Party, as the case may be. The undertaking of such transfer shall not exceed a time period to be mutually agreed by the Parties.

(b) Promptly after a decision of the Parties pursuant to Section 6.4(a) to transfer Manufacturing of the API Bulk Drug Substance, Delivery Compound, Formulated Bulk or Finished Product (as applicable) to the Commercializing Party or to a Third Party supplier designated by the Commercializing Party, the other Party will transfer to the Commercializing Party or to such Third Party supplier all documents and Manufacturing information and other Know-How Controlled by such Party and used in the Manufacture of the API Bulk Drug Substance, Delivery Compound, Formulated Bulk and Finished Product as of the date of such decision to transfer Manufacturing (as applicable) (“Manufacturing Technology”).

(c) Unless and until either Party exercises its Opt-Out Right, the costs and expenses incurred in connection with any such transfer of Manufacturing Technology under this Section 6.4 shall be included as Development Costs or included in the calculation of Profit, as applicable. After such transition, unless and until either Party exercises its Opt-Out Right, the Commercializing Party’s FBMC for API Bulk Drug Substance, Delivery Compound, Formulated Bulk and Finished Product (as applicable) supplied for Development in the United States shall be included as Development Costs, and the Commercializing Party’s FBMC for API Bulk Drug Substance, Delivery Compound, Formulated Bulk and Finished Product (as applicable) supplied for Commercialization in the United States shall be included in the calculation of Profit as set forth on Exhibit E.

(d) From and after such time, if any, as responsibility for Manufacturing API Bulk Drug Substance, Delivery Compound, Formulated Bulk or Finished Product is transitioned to the Commercializing Party, the Commercializing Party shall use Diligent Efforts to Manufacture or have Manufactured and supply sufficient quantities of the API Bulk Drug Substance, Delivery Compound, Formulated Bulk or Finished Product (as applicable) to enable such Party (or both Parties, if applicable) to respond on a timely basis to customer demand for the Licensed Product(s) in the Territory.

-21-

(e) Notwithstanding anything in this Agreement to the contrary, if, at any time prior to any transfer of Manufacturing responsibility for a particular API Bulk Drug Substance, Delivery Compound, Formulated Bulk or Finished Product (as applicable) to one Party hereunder, the Parties determine by mutual agreement that the Manufacture and supply of such API Bulk Drug Substance, Delivery Compound, Formulated Bulk or Finished Product (as applicable) by a Party to the other Party hereunder is no longer necessary in light of the Development or Commercialization activities and objectives under the Joint Research Plan, Development Plan or Commercialization Plan, as the case may be, and each Party’s requirements and resources, such Party shall no longer be obligated to Manufacture and supply such API Bulk Drug Substance, Delivery Compound, Formulated Bulk or Finished Product (as applicable), or to undertake the transfer of Manufacturing technology or any other Manufacturing-related obligations related to such API Bulk Drug Substance, Delivery Compound, Formulated Bulk or Finished Product (as applicable), pursuant to this Article VI; provided, however, that this shall not relieve either Party of any of its other Manufacturing obligations hereunder.

Section 6.5 Backup Manufacturing Rights. Notwithstanding any of the foregoing in this Article VI, upon request by the purchasing Party at any time following the selection of a development candidate pursuant to Section 4.4 hereof, and at such purchasing Party’s cost, the supplying Party shall enable the purchasing Party to purchase API Bulk Drug Substance, Delivery Compound, Formulated Bulk and Finished Product (as applicable) directly from the supplying Party’s existing Third Party suppliers in such a manner that such purchasing Party shall be assured of a secondary source of API Bulk Drug Substance, Delivery Compound, Formulated Bulk and Finished Product (as applicable) unless and until Manufacturing responsibility is transitioned to one Party under Section 6.3 or the supplying Party is relieved of its Manufacturing obligations pursuant to Section 6.3(e). If a Third Party supplier for the API Bulk Drug Substance, Delivery Compound, Formulated Bulk and Finished Product (as applicable) does not exist or has not yet been established at the time of such request, or the purchasing Party reasonably determines that the supplying Party is otherwise unable to procure direct supply from such secondary source (e.g., due to the Third Party supplier’s refusal to enter into a direct supply arrangement with the purchasing Party or due to the supplying Party’s failure to promptly undertake necessary action), the supplying Party shall, upon the purchasing Party’s request and at the supplying Party’s cost, transfer all relevant Manufacturing Technology Controlled by such supplying Party and used in the Manufacture of API Bulk Drug Substance, Delivery Compound, Formulated Bulk and Finished Product (as applicable) as of the date of such request by the purchasing Party to a Third Party designated by the purchasing Party and reasonably acceptable to the supplying Party (such acceptance not to be unreasonably withheld, conditioned or delayed) to enable such Third Party designated manufacturer to supply to such purchasing Party the API Bulk Drug Substance, Delivery Compound, Formulated Bulk and Finished Product (as applicable) as a secondary source and solely for purposes of this Agreement.

Section 6.6 Technical Regulatory Documentation. If the supplying Party is not the Lead Regulatory Party, then the supplying Party will be responsible for delivering all technical documentation necessary for regulatory submissions to the Lead Regulatory Party.

Section 6.7 Auditing Rights. In addition to the provisions of financial audits regarding cost of API Bulk Drug Substance, Delivery Compound, Formulated Bulk and Finished Product

-22-

(FBMC) detailed in Section 9.6, both Parties grant to each other the right at any time and from time to time, upon reasonable advance notice and during business hours, as applicable, to inspect the manufacturing facilities of API Bulk Drug Substance, Delivery Compound, Formulated Bulk and Finished Product, including those of all possible sub-contractors (to the extent agreed to by such sub-contractors), which are engaged in the manufacture, preparation, shipping, processing or warehousing for the sole purpose of reviewing the other Party’s compliance with applicable cGMP, reasonable quality assurance/control standards and applicable EH&S regulations agreed by the Parties in the quality agreement (cGMP agreement). Each Party shall bear its own out-of-pocket expenses and costs related to such audit.

ARTICLE VII

REGULATORY MATTERS

Section 7.1 Regulatory Filings.

(a) Except as may be otherwise specified by the JSC or JCT (as applicable), or as otherwise required for a Party to perform its obligations under this Agreement, unless and until either Party exercises its Opt-Out Right, Roche (or its Related Parties) shall be the holder of all Regulatory Approvals (including NDA submissions) for the Licensed Product(s) in the Territory; provided that Alnylam shall be the holder of all INDs and IND submissions for Licensed Product(s) in the Territory. The Party taking the lead with respect to a particular regulatory filing hereunder (each, the “Lead Regulatory Party”) shall be Alnylam through First Phase II Completion and Roche thereafter, unless and until either Party exercises its Opt-Out Right, in which case the Continuing Party shall be the Lead Regulatory Party. Promptly following First Phase II Completion (or earlier in countries for which Roche is Lead Regulatory Party), Alnylam shall transfer to Roche all INDs and IND submissions for Licensed Product(s) in the Territory, to the extent permitted by applicable Laws and subject to Section 7.1(c).

(b) The Lead Regulatory Party shall have the right, with respect to regulatory activities within its purview, to (i) oversee, monitor and coordinate all regulatory actions, communications and filings with, and submissions to, each Regulatory Authority, (ii) be responsible for interfacing, corresponding and meeting with each Regulatory Authority, and (iii) be responsible for maintaining all applicable regulatory filings. The Lead Regulatory Party shall allow the other Party’s representative(s) to attend Health Authority (“HA”) meetings with respect to a Licensed Product, through Phase II Completion for such Licensed Product throughout the Territory and, solely with respect to the U.S., following Phase II Completion. The Lead Regulatory Party shall notify the other Party reasonably in advance of any such HA meeting(s) to permit the other Party a reasonable opportunity to prepare for and attend such meeting, and shall provide the other Party with copies of all material HA correspondence and relevant documents that the Lead Regulatory Party either receives from, or submits to, the HA throughout the Territory with respect to a Licensed Product.

(c) Except as may be otherwise specified by the JSC or JCT (as applicable), or as otherwise required for a Party to perform its obligations under this Agreement, each Party and its Related Parties shall have the right to cross-reference all INDs, Regulatory Approvals and all other regulatory filings filed by the other Party or such other Party’s respective Related

-23-

Parties in the Territory with respect to the Development, Manufacture or Commercialization of the Licensed Product(s) by such Party hereunder. For purposes of clarity, following First Phase II Completion (or earlier in countries in which Roche is the Lead Regulatory Party), it is contemplated that Roche shall file all INDs and IND submissions directly with the appropriate Regulatory Authorities.

Section 7.2 Product Complaints; Pharmacovigilance.

(a) Each Party will maintain a record of any and all complaints it receives with respect to the Licensed Product(s), and will use Diligent Efforts to ensure that its Related Parties maintain such records. Each Party will notify the other Party in reasonable detail of any complaint it receives with respect to the Licensed Product(s) within sufficient time to allow the other Party and its Related Parties to comply with any and all regulatory and other requirements imposed upon them in any jurisdiction in which the Licensed Product(s) is being marketed or tested in Clinical Studies or Post-Approval Studies.

(b) In addition, each Party shall promptly notify the other Party if such Party becomes aware of any information or circumstance that is likely to have a material adverse effect on the Development, Manufacture or Commercialization of the Licensed Product(s) in the Territory. The Parties agree that they will execute a separate pharmacovigilance agreement (“Pharmacovigilance Agreement”), if legally required, specifying the procedure for the information exchange of adverse events which may occur during the Development of the first Licensed Product in the Territory.

Section 7.3 Product Withdrawals and Recalls. If any Regulatory Authority (a) threatens, initiates or advises any action against a Party or such Party’s Affiliates or Licensee Partners to remove any Licensed Product(s) from the market in the Territory, or (b) requires or advises a Party or such Party’s Affiliates or Licensee Partners to distribute a “Dear Doctor” letter or its equivalent regarding use of such Licensed Product(s) in the Territory, then such Party shall notify the other Party of such event within [**] Business Days (or sooner if required by applicable Law) after such Party becomes aware of the action, threat, advice or requirement (as applicable). The Party that is responsible for booking sales in the U.S. shall decide whether to recall or withdraw such Licensed Product(s) in the U.S., and the Commercializing Party shall decide whether to recall or withdraw such Licensed Product(s) in any other territory, at such Party’s own cost and expense; provided, however, that the Parties will discuss in good faith whether to recall or withdraw such Licensed Product(s), or to place a recalled or withdrawn Licensed Product(s) back on the market, in the relevant Territory. The deciding Party shall keep the other Party reasonably apprised of the efforts undertaken by such Party to recall or withdraw such Licensed Product(s), or to place such Licensed Product(s) back on the market, in the relevant Territory, and the other Party shall reasonably cooperate in such efforts.

Section 7.4 Regulatory Compliance. Each Party agrees that in performing its obligations under this Agreement, it shall comply in all material respects with all applicable FDA and other current international regulatory requirements and standards, including FDA’s cGMP and Good Clinical Practices, and comparable foreign regulatory standards, and other applicable Laws.

Section 7.5 Debarment.

-24-

(a) Each Party hereby certifies that it has not been debarred under the provisions of the Generic Drug Enforcement Act of 1992, 21 U.S.C. Sec. 335a(a) and (b). If during the term of this Agreement a Party or any of its employees engaged in the performance of activities under this Agreement (i) becomes debarred; or (ii) receives notice of an action or threat of an action with respect to its debarment (“Debarred Party”), at a time period when the Debarred Party is performing activities under this Agreement (and not if such Debarred Party only has a financial interest in the Agreement), then the Debarred Party (i) shall immediately notify the other Party, and (ii) shall immediately cease all activities relating to this Agreement, except to the extent permitted by applicable Laws and necessary to preserve the safety and welfare of any human subjects in any ongoing Clinical Studies.

(b) If a Party becomes debarred, or if a Party receives notice or otherwise becomes aware that (i) a debarment action has been brought against such Party or any of its employees engaged in the performance of activities under this Agreement; or (ii) such Party has been threatened with a debarment action, in each case other than if such Party only has a financial interest in the Agreement and is performing no activities under this Agreement, then the other Party shall have the right to terminate this Agreement immediately upon written notice to the Debarred Party.

(c) Each Party hereby certifies that it has not and will not use in any capacity the services of any individual, corporation, partnership or association which has been debarred under 21 U.S.C. Sec. 335(a) or (b) in the performance of any activities in connection with this Agreement. If a Party becomes aware of the debarment or threatened debarment of any individual, corporation, partnership or association providing services to such Party which directly or indirectly relate to the activities under this Agreement (but not if such Party only has a financial interest in the Agreement), then such Party shall notify the other Party immediately. Upon the receipt of such notice or if the other Party otherwise becomes aware of such debarment or threatened debarment (other than if such Party only has a financial interest in the Agreement), the other Party shall have the right to terminate this Agreement immediately upon written notice to such Party.

(d) Termination by a Party under this Section shall be deemed termination under Section 14.5(a) if the Debarred Party is Roche or Section 14.5(b) if the Debarred Party is Alnylam.

ARTICLE VIII

DILIGENCE

Section 8.1 General. Each of Alnylam and Roche shall use Diligent Efforts (a) to execute and to perform, or cause to be performed, the activities assigned to such Party under the Joint Research Plan and, unless and until either Party exercises its Opt-Out Right, under the Development Plan (as applicable), (b) with respect to technology Controlled by such Party, to apply, in the conduct of Discovery and Development activities under the Joint Research Plan or the Development Plan (as applicable), the technology that such Party believes to be the optimal technology to yield the desired results and data under the Program, and (c) to cooperate with the other in carrying out the Joint Research Plan and the Development Plan (as applicable), in each

-25-

case in good scientific manner and in compliance with applicable Law, Good Clinical Practice and Good Laboratory Practice.

Section 8.2 Development and Commercialization. Subject to the obligation to update the JSC and JCT, and without limiting the generality of Section 8.1, unless and until either Party exercises its Opt-Out Right with respect to a particular Licensed Product(s), Roche will be solely responsible for, and with respect to the Major EU Countries shall use Diligent Efforts with respect to, the Development and Commercialization of such Licensed Product(s) in the Field in the ROW Territory. Without limiting the generality of the immediately foregoing sentence, the Commercializing Party(-ies) shall use Diligent Efforts to seek and obtain Regulatory Approval for the Licensed Product(s) in each Major Market Country, and to Commercialize the Licensed Product(s) in those countries in the Territory in which such Commercializing Party has obtained Regulatory Approval.

ARTICLE IX

FINANCIAL PROVISIONS

Section 9.1 Event Payments.

(a) Development Events.

(i) Until such time as either Party exercises its Opt-Out Right, Roche shall pay Alnylam [**] percent ([**]%) of the payments set forth in Column A below upon achievement of the corresponding event set forth below by or on behalf of Roche or any of its Related Parties.

(ii) If Alnylam unilaterally exercises its Opt-Out Right, Roche shall pay Alnylam an amount equal to [**] percent ([**]%) of the amount set forth in Column B, Column C, Column D or Column E in the chart below (as applicable) corresponding to the Opt-Out Point at which Alnylam exercised its Opt-Out Right, upon achievement of the corresponding event set forth below by or on behalf of Roche or any of its Related Parties from and after the effective date of Alnylam’s exercise of such Opt-Out Right.

(iii) If Roche unilaterally exercises its Opt-Out Right, Alnylam shall pay Roche the following percentages of the amount set forth in Column B, Column C, Column D or Column E in the chart below (as applicable) corresponding to the Opt-Out Point at which Roche exercised its Opt-Out Right, upon achievement of the corresponding event set forth below by or on behalf of Alnylam or any of its Related Parties from and after the effective date of Roche’s exercise of such Opt-Out Right:

(A) [**] percent ([**]%) if opt-out occurs at or before First Phase II Completion; and

(B) [**] percent ([**]%) if opt-out occurs after First Phase II Completion.

-26-


	Payments
	(In US$[])**
	Column A	Column B	Column C	Column D	Column E
Development Event	[]**	[]**	[]**	[]**	[]**
(1) Initiation of the first Phase I Study for Licensed Product	[**]	[**]	[**]	[**]	[**]
(2) Initiation of the first Phase II Study for Licensed Product	[**]	[**]	[**]	[**]	[**]
(3) Initiation of the first Phase III Study for Licensed Product for the first (1st) Indication	[**]	[**]	[**]	[**]	[**]
(4) Initiation of the first Phase III Study for Licensed Product for a second (2nd) Indication	[**]	[**]	[**]	[**]	[**]
(5) First filing of an NDA in the United States for Licensed Product for the first (1st) Indication	[**]	[**]	[**]	[**]	[**]
(6) First filing of an NDA in the EU or with the EMEA for Licensed Product for the first (1st) Indication	[**]	[**]	[**]	[**]	[**]
(7) First filing of an NDA in Japan for Licensed Product for the first (1st) Indication	[**]	[**]	[**]	[**]	[**]
(8) First filing of an NDA in the United States for Licensed Product for a second (2nd) Indication	[**]	[**]	[**]	[**]	[**]
(9) Regulatory Approval in the U.S. for Licensed Product for the first (1st) Indication	[**]	[**]	[**]	[**]	[**]

-27-


	Payments
	(In US$[])**
	Column A	Column B	Column C	Column D	Column E
Development Event	[]**	[]**	[]**	[]**	[]**
(10) Regulatory Approval in the EU or from the EMEA for Licensed Product for the first (1st) Indication	[**]	[**]	[**]	[**]	[**]
(11) Regulatory Approval in Japan for Licensed Product for the first (1st) Indication	[**]	[**]	[**]	[**]	[**]
(12) Regulatory Approval in the U.S. for Licensed Product for a second (2nd) Indication	[**]	[**]	[**]	[**]	[**]

Total Development Event Payments	[]**	[]**	[]**	[]**	[]**

The event payments set forth in this Section 9.1(a) are payable once for each Licensed Product to achieve the applicable event. If, upon achievement of a particular event for a Licensed Product, any previous (i.e., higher in the above table) event payment has not been paid for such Licensed Product, then each event payment payable upon achievement of any such previous event shall become payable with the payment of the event payment for the subsequent event then achieved. For purposes of clarity, if a Party opts-out, in no event shall the Continuing Party be responsible for payment of any previous event payment that was payable, but not paid, by the Party opting-out.

(b) Sales Events.

(i) Until such time as either Party exercises its Opt-Out Right, Roche shall pay Alnylam [**] percent ([**]%) of the amount set forth in Column A upon achievement of the corresponding event set forth below by or on behalf of Roche or any of its Related Parties.

(ii) If Alnylam unilaterally exercises its Opt-Out Right, Roche shall pay Alnylam [**] percent ([**]%) of the amount set forth in Column B, Column C, Column D or Column below (as applicable) corresponding to the Opt-Out Point at which Alnylam exercised its Opt-Out Right, upon achievement of the corresponding event set forth below by or on behalf of Roche or any of its Related Parties from and after the effective date of Alnylam’s exercise of such Opt-Out Right.

(iii) If Roche unilaterally exercises its Opt-Out Right, Alnylam shall pay Roche [**] percent ([**]%) of the amount set forth in Column B, Column C, Column D or

-28-

Column E below (as applicable) corresponding to the Opt-Out Point at which Alnylam exercised its Opt-Out Right, upon achievement of the corresponding event set forth below by or on behalf of Alnylam or any of its Related Parties from and after the effective date of Roche’s exercise of such Opt-Out Right.

Payments

(In US$[**])

Column A

Column B

Column C

Column D

Column E

Sales Event

[**]

Aggregate Worldwide Annual Net Sales of all Licensed Products in the Territory equal to or greater than $[**]

[**]

Aggregate Worldwide Annual Net Sales of all Licensed Products in the Territory equal to or greater than $[**]

[**]

Total Sales Event Payments

[**]

(c) Achievement of Events. Where Roche is obligated to make a payment to Alnylam under Sections 9.1(a) or 9.1(b), Roche shall notify Alnylam within [**] Business Days after achievement or occurrence of an event under Section 9.1(a) or 9.1(b), and Alnylam shall deliver an invoice reflecting such event and the payment amount to Roche. Where Alnylam is obligated to make a payment to Roche under Sections 9.1(a) or 9.1(b), Alnylam shall notify Roche within [**] Business Days after achievement or occurrence of an event under Section 9.1(a) or 9.1(b), and Roche shall deliver to invoice reflecting such event and the payment amount to Alnylam. Each event payment under Section 9.1(a) and 9.1(b) shall be deemed earned as of the achievement or occurrence of the related event and, except as expressly provided otherwise pursuant to Section 9.1(a), shall be paid within [**] days after such achievement or occurrence.

(d) Event Payments Payable Only Once. Each event payment under this Section 9.1 shall be payable only once, upon the first achievement of the applicable event or, in the case of Section 9.1(b), upon the first achievement of the applicable Net Sales threshold in a given Calendar Year. If more than one of the sales events set forth in Section 9.1(b) first occurs based on sales of Licensed Product in the same Calendar Year, all of such event payments shall be paid for such Calendar Year.

Section 9.2 Profit-sharing and sharing of Commercialization Costs.

(a) Allocation of Profit and Commercialization Costs in the United States. If neither Party has exercised its Opt-Out Right, the Parties shall [**] in Profit for as long as

-29-

Licensed Product(s) are sold in the United States during the Term, as well as [**] of the Commercialization Costs for as long as Licensed Product(s) are sold in the United States during the Term. Profit and Commercialization Costs shall be calculated in accordance with the Financial Appendix (Exhibit E).

(b) Effect of Opt-Out. For purposes of clarity, notwithstanding any of the foregoing in this Section 9.2, if either Party exercises its Opt-Out Right, and the other Party elects to continue Developing and Commercializing the Licensed Product(s), then (i) neither Party shall have any further rights or obligations to share in Profit and Commercialization Costs as set forth in clause (a) above, and (ii) the Party that is deemed the Commercializing Party with respect to such Licensed Product(s) under this Agreement shall be obligated to pay the other Party (A) event payments pursuant to Section 9.1 upon achievement by the Commercializing Party or its Related Parties of the relevant events with respect to such Licensed Product(s), and (B) royalties pursuant to Section 9.3 with respect to Net Sales of such Licensed Product(s) by such Commercializing Party or its Related Parties.

Section 9.3 Royalties.

(a) Ex-US Royalties Payable by Roche if Neither Party Opts-Out. Subject to the remainder of this Section 9.3, if neither Party has exercised its Opt-Out Right, Roche shall pay, or cause to be paid, to Alnylam the following royalties on Annual Net Sales of each Licensed Product in the ROW Territory during the Royalty Term:


	Incremental Royalty
	Rate
	Applicable to Such
Annual Net Sales of a Licensed Product in the ROW Territory during the applicable Calendar Year:	Annual Net Sales
Less than or equal to $[**]		[**]	%
Greater than $[], but less than or equal to $[]		[**]	%
Greater than $[], but less than or equal to $[]		[**]	%
Greater than $[], but less than or equal to $[]		[**]	%
Greater than $[], but less than or equal to $[]		[**]	%
Greater than $[], but less than or equal to $[]		[**]	%
Greater than $[**]		[**]	%

By way of example, if Annual Net Sales of a Licensed Product are [**] dollars and no deductions were to apply under the remainder of this Section 9.3, then the royalty payable by Roche to Alnylam under this Section 9.3(a) would be as follows:

[**]

Total Royalty Due

[**]

-30-

(b) Worldwide Royalties Payable by Roche if Alnylam Opts-Out. Subject to the remainder of this Section 9.3, if Alnylam exercises its Opt-Out Right and Roche elects to continue Developing and Commercializing the Licensed Product(s), Roche shall pay, or cause to be paid, to Alnylam royalties on Annual Net Sales of each Licensed Product in the Territory during the Royalty Term, at the royalty rates set forth below corresponding to the Opt-Out Point at which Alnylam exercised its Opt-Out Right:

Incremental Royalty Rate Applicable to Such Portion of

Annual Net Sales of a Licensed

Annual Net Sales

Product in the Territory during

Column A

Column B

Column C

Column D

the applicable Calendar Year:

[**]

Less than or equal to $[**]

[**]

Greater than $[**], but less than or equal to $[**]

[**]

Greater than $[**], but less than or equal to $[**]

[**]

Greater than $[**], but less than or equal to $[**]

[**]

Greater than $[**], but less than or equal to $[**]

[**]

Greater than $[**], but less than or equal to $[**]

[**]

Greater than $[**]

[**]

By way of example, if Alnylam opted-out at First Phase II Completion and Annual Net Sales of a Licensed Product are [**] dollars and no deductions were to apply under the remainder of this Section 9.3, then the royalty payable by Roche to Alnylam under this Section 9.3(b) would be as follows:

[**]

Total Royalty Due

[**]

-31-

(c) Worldwide Royalties Payable by Alnylam if Roche Opts-Out. Subject to the remainder of this Section 9.3, if Roche exercises its Opt-Out Right and Alnylam elects to continue Developing and Commercializing the Licensed Product(s), then Alnylam shall pay, or cause to be paid, to Roche royalties on Annual Net Sales of each such Licensed Product in the Territory during the Royalty Term, at the following percentages of the royalty rates set forth below corresponding to the Opt-Out Point at which Roche exercised its Opt-Out Right:

(i) [**] percent ([**]%) if opt-out occurs at or before First Phase II Completion; and

(ii) [**] percent ([**]%) if opt-out occurs after First Phase II Completion.

Incremental Royalty Rate Applicable to Such Portion of

Annual Net Sales

Column A

Column B

Column C

Column D

Annual Net Sales of a Licensed Product in the Territory during the applicable Calendar Year:

[**]

Less than or equal to $[**]

[**]

Greater than $[**], but less than or equal to $[**]

[**]

Greater than $[**], but less than or equal to $[**]

[**]

Greater than $[**], but less than or equal to $[**]

[**]

Greater than $[**], but less than or equal to $[**]

[**]

Greater than $[**], but less than or equal to $[**]

[**]

Greater than $[**]

[**]

By way of example, if Roche opted-out at First Phase II Completion and Annual Net Sales of a Licensed Product are [**] dollars and no deductions were to apply under the remainder of this Section 9.3, then [**]% would be applied to the royalty rates set forth in Column B above and the royalty payable by Alnylam to Roche under this Section 9.3(c) would be as follows:

-32-

[**]

Total Royalty Due

[**]

(d) Royalties Payable Only Once. For the avoidance of doubt, the Commercializing Party’s obligation to pay royalties under this Section 9.3 is imposed only once with respect to the same unit of Licensed Product, including by reason of such Licensed Product being Covered by more than one Valid Claim of Alnylam Platform Patent Rights, Alnylam Patent Rights, Roche Patent Rights, Alnylam Collaboration Patent Rights, Roche Collaboration Patent Rights or Joint Collaboration Patent Rights.

(e) Expiration of Patent Coverage. If no Valid Claim of the Alnylam Platform Patent Rights, Alnylam Patent Rights, Roche Patent Rights, Alnylam Collaboration Patent Rights, Roche Collaboration Patent Rights or Joint Collaboration Patent Rights Covers a Licensed Product in a given country, and the Manufacture of such Licensed Product is not Covered by a Valid Claim of any such Patent Rights in the country of Manufacture, then the royalty rate applicable to such Licensed Product in such country shall be reduced to [**] percent ([**]%) of the applicable royalty rate set forth in Section 9.3(a), 9.3(b) or 9.3(c) (as applicable) for any remaining portion of the Royalty Term which applies to such Licensed Product in such country.

(f) Royalty Stacking. The Commercializing Party shall be entitled to deduct, from the royalty payments payable by such Commercializing Party under Section 9.3(a), 9.3(b) or 9.3(c), as applicable, for a reporting period, [**] percent ([**]%) of Required Third Party Payments paid by such Commercializing Party with respect to Licensed Products during the applicable reporting period; provided that in no event shall a deduction under this Section 9.3(f) reduce any royalty payment payable by the Commercializing Party under Section 9.3(a), 9.3(b) or 9.3(c), as applicable, by more than [**] percent ([**]%).

(g) Payments in Respect of Third Party In-Licenses.

(i) In addition to any royalty set forth in Section 9.3(a), 9.3(b) or 9.3(c) which may be payable by Roche as the Commercializing Party during the Royalty Term, Roche shall reimburse Alnylam for [**] percent ([**]%) of all royalty payments payable (each such payment, a “Listed Third Party Payment,” collectively, the “Listed Third Party Payments”) to Third Parties pursuant to Listed Alnylam Third Party Agreements in respect of Net Sales of Licensed Products; provided that in no event shall the royalty payments payable by Roche as the Commercializing Party hereunder in respect of such Listed Third Party Payments in any reporting period exceed in the aggregate [**] percent ([**]%) of Net Sales of Licensed Products for such reporting period. The Parties shall cooperate to coordinate such reimbursements by Roche as the Commercializing Party in a manner that ensures all amounts payable by Roche

-33-

hereunder pursuant to Listed Alnylam Third Party Agreements are paid in a timely manner and otherwise in compliance with such Third Party agreements.

(ii) Roche, if the Commercializing Party, shall have the right to have an independent public accountant reasonably acceptable to Alnylam audit Alnylam’s books and records solely for purposes of verifying such Listed Third Party Payments, which right shall be exercisable [**] per year solely with respect to records covering up to the [**] Calendar Years prior to audit notification, upon reasonable advance notice and during Alnylam’s business hours, subject to the confidentiality provisions of Article IX hereof. Audit results and findings shall be shared by the Parties. If the audit reveals an overpayment by Roche, as the Commercializing Party, under this Section 9.3(g), the amount of such overpayment shall be credited towards any future reimbursement amounts payable by Roche, as the Commercializing Party, under this Section 9.3(g), subject to Section 9.3(h). If the audit reveals an underpayment by Roche, Roche shall make up such underpayment within [**] days. The failure of Roche to request verification of any Listed Third Party Payments hereunder within the [**] Calendar Year period set forth above shall be deemed acceptance of the calculation of such Listed Third Party Payments.

(h) Deductions. Notwithstanding anything in this Agreement to the contrary, in no event shall total deductions under Sections 9.3(e) and 9.3(f) reduce any quarterly royalty payment by Roche as the Commercializing Party in respect of Net Sales of a given Licensed Product to less than [**] percent ([**]%) more than Alnylam owes with respect to royalty payments payable to Third Parties pursuant to Listed Alnylam Third Party Agreements based solely on Net Sales of such given Licensed Product. Alnylam (if Roche is the Commercializing Party) shall have the burden of demonstrating the amount of royalty payments payable to Third Parties pursuant to Listed Alnylam Third Party Agreements. Any deductions allowable under Sections 9.3(e) and 9.3(f) which cannot be used against any quarterly royalty payment payable by Roche as the Commercializing Party hereunder due to the foregoing limitation may be carried forward and used against future quarterly royalty payments that are payable by Roche as the Commercializing Party hereunder, subject to the limitation set forth above.

(i) Loss of Listed Third Party Agreements. If Roche is the Commercializing Party and Alnylam ceases to be a licensee of Alnylam Patent Rights under any Listed Alnylam Third Party Agreement other than as a result of any action or omission by Roche, and Roche directly licenses such terminated Patent Rights (“Terminated Patent Rights”) from that Third Party, then Roche may deduct the full amount of any consideration paid to such Third Party for such license(s) that is attributable to Licensed Products Covered by such Terminated Patent Rights from any royalties otherwise payable to Alnylam hereunder; provided, that prior to Roche, as the Commercializing Party, entering into any such license of such Terminated Patent Rights from such Third Party, Roche shall notify Alnylam of its intent to do so and shall provide to Alnylam an opportunity to explain its rationale for ceasing to license such Terminated Patent Rights and Roche shall consider in good faith such rationale. If Roche does not agree with Alnylam’s rationale, then, at Roche’s request, Alnylam shall use commercially reasonable efforts to reinstate the license for such Terminated Patent Rights within a [**] day period; provided, however, that Alnylam shall not be required to continue to undertake such efforts if the Third Party requires payments which are incremental to what would otherwise be owed to such Third Party had such Terminated Patent Rights not been terminated, or the imposition of additional terms and conditions. If Alnylam is unable to reinstate the license, then Roche, as the

-34-

Commercializing Party, may obtain a direct license for such Terminated Patent Rights from such Third Party; provided, that in no event shall total deductions under this Section 9.3(i) reduce any quarterly royalty payment by Roche in respect of Net Sales of a given Licensed Product to less than the amount that Alnylam owes with respect to royalty payments payable to Third Parties pursuant to then-current Listed Alnylam Third Party Agreements based solely on Net Sales of such given Licensed Product.

(j) Duration of Royalty Payments; First Commercial Sale. The royalties payable under Section 9.3(a), 9.3(b) or 9.3(c), as applicable, shall be paid on a country-by-country basis on each Licensed Product commencing upon the occurrence of the First Commercial Sale of such Licensed Product until the expiration of the applicable Royalty Term for such Licensed Product. The Commercializing Party shall notify the other Party of the occurrence of First Commercial Sale of each Licensed Product within [**] days after its occurrence.

(k) Payment of Royalty. The Commercializing Party shall calculate royalties on Net Sales quarterly as of March 31, June 30, September 30 and December 31 (each being the last day of an “Accounting Period”) and shall pay royalties on Net Sales within the [**] days after the end of each Accounting Period in which such Net Sales occur. Royalties on Net Sales shall be paid in U.S. Dollars.

(l) Reporting. With each payment the Commercializing Party shall provide in writing for the relevant Accounting Period the following information on a Licensed Product-by-Licensed Product and country-by-country basis, including without limitation the United States, each of the Major Market Countries, and each territory in the rest of world in which Licensed Product(s) are sold: (a) Adjusted Gross Sales; (b) Net Sales; (c) the total royalties payable for the applicable period; and (d) any other reasonable information necessary for Alnylam to comply with its reporting and payment obligations to Third Parties under Alnylam Third Party Obligations (if the Commercializing Party is Roche), subject to Alnylam’s obligations under Section 3.1(e).

(m) Currency Computation. Whenever calculating royalties requires conversion from any currency, the Commercializing Party shall make such conversion as follows:

(i) If Roche is the Commercializing Party, when calculating the Adjusted Gross Sales for countries other than the United States, Roche shall convert the amount of such sales in currencies other than Swiss Francs into Swiss Francs using for internal foreign currency translation Roche’s then current standard practices actually used on a consistent basis in preparing its audited financial statements. Upon converting the amount of Adjusted Gross Sales into Swiss Francs, Roche shall convert into US Dollars (or other currency), using the daily rate (Reuters) at the last working day for the applicable period.

(ii) If Alnylam is the Commercializing Party, when calculating the Adjusted Gross Sales for countries other than the United States, Alnylam shall convert the amount of such sales directly into US Dollars (or other currency), using the daily rate (Reuters) at the last working day for the applicable period.

-35-

Section 9.4 Withholding Taxes. Any tax required to be withheld by the Commercializing Party under the laws of any country for the account of the other Party shall be promptly paid by such Commercializing Party for and on behalf of the other Party to the appropriate governmental authority, and such Commercializing Party shall furnish to the other Party with proof of payment of such tax. Any such tax actually paid on a Party’s behalf shall be deducted from royalty payments due to such Party hereunder. The Commercializing Party shall assist the other Party in minimizing the withholding taxes applicable to any payment made by such Commercializing Party and in claiming tax refunds at the other Party’s request.

Section 9.5 Financial Records. Each Party shall keep, and shall require its Affiliates and Licensee Partners to keep, for [**] years, full, true and accurate books of account containing all particulars that may be necessary for the purpose of calculating all amounts payable under this Agreement or to verify compliance with this Agreement, including Development Costs, Commercialization Costs, Net Sales, FBMC, royalties, event payments, and other payments and the elements required to calculate Profit share, Development Cost share, Commercialization Cost share or royalty payments hereunder. Such books of accounts shall be kept at their principal places of business.

Section 9.6 Audits.

(a) At the expense of Alnylam, Alnylam has the right to engage an independent public accountant reasonably acceptable to Roche to perform, on behalf of Alnylam, an audit of such books and records of Roche and its Affiliates and Licensee Partners, that are deemed necessary by Alnylam’s independent public accountant to verify amounts paid or payable under this Agreement for the period or periods requested by Alnylam and the correctness of any report or payments made under this Agreement. Upon timely request and at least [**] Business Days’ prior written notice from Alnylam, such audit shall be conducted in the countries specifically requested by Alnylam, during regular business hours in such a manner as to not unnecessarily interfere with Roche’s (or its Affiliates’ or Licensee Partners’, as the case may be) normal business activities, and shall be limited to results in the [**] Calendar Years prior to audit notification. Such audit shall not be performed more frequently than [**] per Calendar Year nor more frequently than [**] with respect to records covering any specific period of time. All information, data documents and abstracts herein referred to shall be used only for the purpose of verifying royalty statements and other amounts payable under this Agreement, or compliance with this Agreement, shall be treated as Confidential Information of Roche subject to the obligations of this Agreement and need neither be retained more than [**] after completion of an audit hereof, if an audit has been requested; nor more than [**] years from the end of the Calendar Year to which each shall pertain; nor more than [**] after the date of termination of this Agreement. Audit results and findings shall be shared by the Parties. If the audit reveals an overpayment, Alnylam shall reimburse Roche for the amount of the overpayment within [**] days. If the audit reveals an underpayment, Roche shall make up such underpayment within [**] days with interest as set forth in Section 9.7. In addition, if the underpayment is equal to or greater than five percent (5%) of the amount that was otherwise due, Roche shall pay all of the costs of such audit. The failure of Alnylam to request verification of any royalty calculation within the period during which corresponding records must be maintained shall be deemed acceptance of the royalty reporting.

-36-

(b) At the expense of Roche, Roche has the right to engage an independent public accountant reasonably acceptable to Alnylam to perform, on behalf of Roche, an audit of such books and records of Alnylam and its Affiliates and Licensee Partners, that are deemed necessary by Roche’s independent public accountant to verify amounts paid or payable under this Agreement for the period or periods requested by Roche and the correctness of any report or payments made under this Agreement. Upon timely request and at least [**] Business Days’ prior written notice from Roche, such audit shall be conducted in the countries specifically requested by Roche, during regular business hours in such a manner as to not unnecessarily interfere with Alnylam’s (or its Affiliates’ or Licensee Partners’, as the case may be) normal business activities, and shall be limited to results in the [**] Calendar Years prior to audit notification. Such audit shall not be performed more frequently than once per Calendar Year nor more frequently than [**] with respect to records covering any specific period of time. All information, data documents and abstracts herein referred to shall be used only for the purpose of verifying royalty statements and other amounts payable under this Agreement, or compliance with this Agreement, shall be treated as Confidential Information of the audited Party subject to the obligations of this Agreement and need neither be retained more than [**] after completion of an audit hereof, if an audit has been requested; nor more than [**] years from the end of the Calendar Year to which each shall pertain; nor more than [**] after the date of termination of this Agreement. Audit results and findings shall be shared by the Parties. If the audit reveals an overpayment, Roche shall reimburse Alnylam for the amount of the overpayment within [**] days. If the audit reveals an underpayment, Alnylam shall make up such underpayment within [**] days with interest as set forth in Section 9.7. In addition, if the underpayment is equal to or greater than five percent (5%) of the amount that was otherwise due, Alnylam shall pay all of the costs of such audit. The failure of Roche to request verification of any royalty calculation within the period during which corresponding records must be maintained shall be deemed acceptance of the royalty reporting.

Section 9.7 Late Payments. A Party shall pay the other Party interest on the aggregate amount of any payments payable by such Party that are not paid on or before the date such payments are due under this Agreement at a rate per annum equal to the lesser of the one month London Interbank Offering Rate of interest plus one percent (1%), as reported by The Wall Street Journal for the applicable period, or the highest rate permitted by applicable Law, calculated on the number of days such payment is delinquent.

ARTICLE X

INTELLECTUAL PROPERTY OWNERSHIP, PROTECTION AND RELATED MATTERS

Section 10.1 Inventorship. Inventorship for patentable inventions conceived or reduced to practice during the course of the performance of activities pursuant to this Agreement shall be determined in accordance with United States patent laws for determining inventorship.

Section 10.2 Ownership of Collaboration IP.

(a) Subject to the licenses and rights granted to Roche under this Agreement, Alnylam shall own the entire right, title and interest in and to Alnylam Collaboration IP. Subject

-37-

to the licenses and rights granted to Alnylam under this Agreement, Roche shall own the entire right, title and interest in and to Roche Collaboration IP.

(b) The Parties shall jointly own any Joint Collaboration IP. Subject to (a) the rights granted to each Party under this Agreement, including the licenses granted to a Party under Section 3.1(c) or Section 3.2(c) and patent prosecution, maintenance and enforcement rights and obligations of each Party hereunder, (b) the restrictions on licensing set forth in Sections 3.1(d) and 3.2(d), (c) the exclusivity obligations of the Parties set forth in Section 3.7, and (d) the payment obligations set forth in Section 4.8 and Article VII, each Party shall have the right to use, sell, keep, license, sublicense or assign its interest in Joint Collaboration IP (except for Product Specific Know-How or Product Specific Patent Rights) and otherwise undertake all activities a sole owner might undertake with respect to such Joint Collaboration IP (except for Product Specific Know-How or Product Specific Patent Rights) without the consent of and without accounting to the other Party.

Section 10.3 Prosecution and Maintenance of Patent Rights.

(a) Roche Technology (Other than Product Specific Patent Rights). Roche shall have the sole right to, at Roche’s discretion, file, prosecute, and maintain (including the defense of any interference or opposition proceedings) all Patent Rights comprising Roche Technology (other than Roche Collaboration Patent Rights that constitute Product Specific Patent Rights) in Roche’s name.

(b) Alnylam Technology (Other than Product Specific Patent Rights). Alnylam shall have the sole right to, at Alnylam’s discretion, file, prosecute, and maintain (including the defense of any interference or opposition proceedings) all Patent Rights comprising Alnylam Technology (other than Alnylam Collaboration Patent Rights that constitute Product Specific Patent Rights) in Alnylam’s name.

(i) Roche shall have the first right, but not the obligation, to, at Roche’s discretion, file, prosecute, and maintain (including the defense of any interference or opposition proceedings) Roche Collaboration Patent Rights that constitute Product Specific Patent Rights. Roche shall provide to Alnylam copies of all prosecution filings related to such Product Specific Patent Rights sent to or received from patent offices in the Territory, unless otherwise directed by Alnylam, and, with respect to patent applications containing such Product Specific Patent Rights having information not previously filed that is intended to be submitted to patent offices in the Territory, shall use reasonable efforts to provide Alnylam with a draft of each such filing reasonably in advance of submission and shall consider in good faith any comments regarding such draft application that Alnylam may timely provide. If Roche decides (A) not to file a patent application on Roche Collaboration Know-How that would contain Product Specific Know-How, (B) to abandon prosecution of any Roche Collaboration Patent Right that would constitute a Product Specific Patent Right, or (C) not to otherwise maintain or extend any such Product Specific Patent Right, Roche shall give Alnylam written notice sufficiently in advance of any loss of rights to allow Alnylam to file, prosecute, maintain or extend, as the case may be, such Product Specific Patent Rights, in Roche’s name.

-38-

(ii) Alnylam shall have the first right, but not the obligation, to, at Alnylam’s discretion, file, prosecute, and maintain (including the defense of any interference or opposition proceedings) Alnylam Collaboration Patent Rights that constitute Product Specific Patent Rights. Alnylam shall provide to Roche copies of all prosecution filings related to such Product Specific Patent Rights sent to or received from patent offices in the Territory, unless otherwise directed by Roche, and, with respect to patent applications containing such Product Specific Patent Rights having information not previously filed that is intended to be submitted to patent offices in the Territory, shall use reasonable efforts to provide Roche with a draft of each such filing reasonably in advance of submission and shall consider in good faith any comments regarding such draft application that Roche may timely provide. If Alnylam decides (A) not to file a patent application on Alnylam Collaboration Know-How that would contain Product Specific Know-How, (B) to abandon prosecution of any Alnylam Collaboration Patent Right that would constitute a Product Specific Patent Right, or (C) not to otherwise maintain or extend any such Product Specific Patent Right, Alnylam shall give Roche written notice sufficiently in advance of any loss of rights to allow Roche to file, prosecute, maintain or extend, as the case may be, such Product Specific Patent Rights, in Alnylam’s name.

(d) Joint Collaboration Patent Rights.

(i) Alnylam shall have the first right, but not the obligation, to, at Alnylam’s discretion, file, conduct prosecution, and maintain (including the defense of any interference or opposition proceedings), all Joint Collaboration Patent Rights, in the names of both Alnylam and Roche. Roche shall use Diligent Efforts to make available to Alnylam or its authorized attorneys, agents or representatives, such of its employees as Alnylam in its reasonable judgment deems necessary in order to assist it in obtaining patent protection for such Joint Collaboration Patent Rights. Each Party shall sign, or use Diligent Efforts to have signed, all legal documents reasonably necessary to file and prosecute patent applications or to obtain or maintain patents in respect of such Joint Collaboration Patent Rights, at its own cost.

(ii) If Alnylam elects not to seek or continue to seek or maintain patent protection on any Joint Collaboration IP in the Territory, Roche shall have the right to, at Roche’s discretion, to seek, prosecute and maintain in any country in the Territory patent protection on such Joint Collaboration IP in the names of both Alnylam and Roche. Alnylam shall use Diligent Efforts to make available to Roche its authorized attorneys, agents or representatives, such of Alnylam’s employees as are reasonably necessary to assist Roche in obtaining and maintaining the patent protection described under this Section 10.3(d)(ii). Alnylam shall sign or use Diligent Efforts to have signed all legal documents reasonably necessary to file and prosecute such patent applications or to obtain or maintain such patents.

(iii) With respect to Joint Collaboration Patent Rights, the Party filing, prosecuting and maintaining such Patent Rights shall provide the other Party, within [**] Business Days after submitting or receiving such filings or correspondence, with copies of all filings and correspondence submitted to and received from patent offices in the Territory and, with respect to substantive filings and correspondence to be submitted to patent offices in the Territory, shall use reasonable efforts to provide the other Party with drafts of such filings and correspondence reasonably in advance of submission and shall consider in good faith any comments regarding such filings and correspondence that the other Party may timely provide.

-39-

(e) Effects of Opt-Out. Notwithstanding any of the foregoing in this Section 10.3, if either Party exercises its Opt-Out Right, then the Continuing Party shall have the first right, but not the obligation, to, at such Continuing Party’s discretion, file, prosecute, and maintain (including the defense of any interference or opposition proceedings) all Alnylam Collaboration Patent Rights, Roche Collaboration Patent Rights and Joint Collaboration Patent Rights, in each case solely to the extent that such Patent Rights constitute Product Specific Patent Rights. The Party that is not the Continuing Party shall have the step-in rights described in Section 10.3(c) or Section 10.3(d), as applicable.

(f) Patent Term Extensions. The Parties shall cooperate, if necessary and appropriate, with each other in gaining patent term extensions (including those extensions available under U.S. Drug Price Competition and Patent Term Restoration Act of 1984, the Supplementary Certificate of Protection of Member States of the EU and other similar measures in any other country) wherever applicable to Patent Rights Controlled by either Party that Cover the Licensed Product(s) in the Territory. The Parties shall, if necessary and appropriate, use reasonable efforts to agree upon a joint strategy relating to patent term extensions, but, in the absence of mutual agreement with respect to any extension issue, the patent or the claims of the patent shall be selected on the basis of the scope, enforceability and remaining term of the patent in the relevant country or region. All filings for such extensions shall be made by the Party responsible for filing, prosecuting and maintaining such Patent Rights in accordance with this Section 10.3.

(g) Patent Expenses. The patent filing, prosecution and maintenance expenses incurred after the Effective Date with respect to Patent Rights (“Patent Expenses”) relating to Alnylam Technology and Roche Technology shall be borne by the Party responsible for filing, prosecuting and maintaining such Patent Rights under this Section 10.3, and any Patent Expenses related to Joint Collaboration Patent Rights shall be shared equally by the Parties.

Section 10.4 Third Party Infringement.

(a) Notices. Each Party shall promptly report in writing to the other Party any (i) known or suspected infringement of any Alnylam Technology or Roche Technology being used in the Collaboration, including any Joint Collaboration IP, or (ii) unauthorized use or misappropriation of any Confidential Information or Know-How of a Party by a Third Party of which it becomes aware, in each case only to the extent relevant to the Development, Manufacture or Commercialization of the Licensed Product(s) and involving a Competitive Product (“Competitive Infringement”) in the Territory, and shall provide the other Party with all available evidence supporting such infringement, or unauthorized use or misappropriation.

(b) Rights to Enforce.

(i) First Right to Enforce. Subject to Sections 10.4(b)(ii) and 10.4(iii), the Commercializing Party shall have the sole and exclusive right to initiate an infringement or other appropriate suit anywhere in the world against any Third Party who at any time has infringed, or is suspected of infringing, any Patent Rights, or of using without proper authorization any Know-How, comprising the Commercializing Party’s Patent Rights, Know-How, or Collaboration IP. Notwithstanding anything contained herein to the contrary, and

-40-

subject to Sections 10.4(b)(ii) and 10.4(iii), outside the U.S., the Commercializing Party shall have the first right to initiate an infringement or other appropriate suit against any Third Party with respect to a Competitive Infringement in the Territory of any Product Specific Patent Rights or Product Specific Know-How regardless of which Party Controls such Product Specific Patent Rights or Product Specific Know-How. If both Parties are Commercializing Parties in the U.S., then Roche shall have the sole and exclusive right to initiate an infringement or other appropriate suit.

(ii) Requests to Initiate Enforcement Action. If the Commercializing Party, or Roche in the case of co-Commercialization in the U.S., elects not to initiate such suit with respect to any such Product Specific Patent Rights or Product Specific Know-How Controlled by Alnylam, or otherwise does not commence suit with respect to such Product Specific Patent Rights or Product Specific Know-How within [**] days, reduced to [**] days in the case of a certification filed pursuant to 21 U.S.C. §355(b)(2)(A)(iv) or 355(j)(2)(A)(vii)(IV), then the non-Commercializing Party shall have the right to initiate such suit with respect to such Product Specific Patent Rights or Product Specific Know-How and to join the Commercializing Party as a party if required.

(iii) Effect of Opt-Out. Notwithstanding any of the foregoing in this Section 10.4, if either Party exercises its Opt-Out Right, then the Continuing Party shall have the first right to initiate an infringement or other appropriate suit anywhere in the world against any Third Party who at any time has infringed, or is suspected of infringing, any Patent Rights, or of using without proper authorization any Know-How, comprising Alnylam Collaboration IP, Roche Collaboration IP or Joint Collaboration IP, as the case may be, that constitute Product Specific Patent Rights or Product Specific Know-How. The Party that is not the Continuing Party shall have the right to request that the Continuing Party initiate action as described above in clause (ii).

(i) The Party having the right to initiate any infringement suit under Section 10.4(b) shall have the sole and exclusive right to select counsel for any such suit and shall pay all expenses of the suit, including attorneys’ fees and court costs and reimbursement of the other Party’s reasonable out-of-pocket expense in rendering assistance requested by the initiating Party; provided that with respect to any such suit, the Parties may mutually agree to jointly bear such costs and expenses, in which case the allocation of recoveries described below may be adjusted as mutually agreed by the Parties. If required under applicable Law in order for the initiating Party to initiate or maintain such suit, or if either Party is unable to initiate or prosecute such suit solely in its own name or it is otherwise advisable to obtain an effective legal remedy, in each case, the other Party shall join as a party to the suit and will execute and cause its Affiliates to execute all documents necessary for the initiating Party to initiate litigation to prosecute and maintain such action. In addition, at the initiating Party’s request, the other Party shall provide reasonable assistance to the initiating Party in connection with an infringement suit at no charge to the initiating Party except for reimbursement by the initiating Party of reasonable out-of-pocket expenses incurred in rendering such assistance. The non-initiating Party shall have the right to participate and be represented in any such suit by its own counsel at its own expense.

-41-

(ii) If the Parties obtain from a Third Party, in connection with such suit, any damages, license fees, royalties or other compensation (including any amount received in settlement of such litigation) in respect of a Competitive Infringement in the ROW Territory (if neither Party has exercised its Opt-Out Right) or the entire Territory, such amounts shall be allocated, subject to any adjustment to such allocation agreed by the Parties in connection with an agreement to jointly bear the costs and expenses of the infringement action as described above, as follows:

(A) first, to reimburse each Party for all expenses of the suit incurred by such Party, including attorneys’ fees and disbursements, court costs and other litigation expenses; and

(B) then, [**] percent ([**]%) of the remainder to be paid to the Party initiating the suit and [**] percent ([**]%) of the remainder to be paid to the other Party.

(iii) With respect to any such suit in the United States (if neither Party has exercised its Opt-Out Right), any damages, license fees, royalties or other compensation (including any amount received in settlement of such litigation) in respect of a Competitive Infringement in the United States, shall be included in the calculation of Development Cost or Commercialization Cost, as applicable.

Section 10.5 Claimed Infringement; Third Party Challenges to Patent Rights.

(a) If a Party (i) becomes aware of any claim that the Development, Manufacture or Commercialization of the Licensed Product(s) in the Territory infringes the Patent Rights of any Third Party or (ii) receives any notices regarding or becomes party to any action in which a Third Party challenges or denies the validity or enforceability of any Patent Rights licensed to the other Party hereunder, or any claim thereof (A) Controlled by such Party in the United States, (B) Covering Licensed Product, (C) specific to Licensed Product and (D) not broadly applicable to RNAi Products, such Party shall promptly notify the other Party.

(b) With respect to any matter described in the foregoing clause (a)(i), in any such instance, the Parties shall cooperate and shall mutually agree upon an appropriate course of action, which may include settlement of such claim. Each Party shall have an equal right to participate in any settlement discussions that are held with such Third Parties.

(c) If there is a dispute between the Parties as to whether or not Third Party Patent Rights at issue in such matter described in the foregoing clause (a)(i) Cover Licensed Product, the Parties agree to select an independent patent counsel to decide whether or not the subject Third Party Patent Rights Cover Licensed Product. The Parties agree that if such patent counsel determines that such Third Party Patent Rights Cover Licensed Product, they will accept such determination for purposes of calculating Commercialization Costs under Section 9.2 or royalties under Section 9.3, as the case may be. If the decision is that such Third Party Patent Rights do not Cover Licensed Product, either Party may still obtain a license, but shall be solely responsible for any payment obligations to the Third Party.

-42-

(d) With respect to any matter described in the foregoing clause (a)(ii), the Parties shall cooperate and shall mutually agree upon an appropriate course of action, and the Party responsible for filing, prosecuting and maintaining such Patent Rights pursuant to Section 10.3 shall have responsibility for defending the patentability, validity or enforceability of such Patent Rights in such action. If neither Party has exercised its Opt-Out Right, the reasonable out-of-pocket costs incurred by the defending Party or any of its Related Parties with respect to such action described in the foregoing clause (a)(ii) shall be included in Commercialization Costs as set forth in Section 5.2. For the avoidance of doubt, the costs incurred by a defending Party or any of its Related Parties with respect to an action of the kind described in the foregoing clause (a)(ii), but with respect to Patent Rights outside the United States, shall be borne solely by the Party defending such action; provided that, if such matter arises in the context of an action brought by a Party pursuant to Section 10.4, the costs of such action shall be borne as provided in Section 10.4.

(e) Each Party shall also provide to the other Party copies of any other notices it receives or has received from Third Parties regarding any patent nullity actions, any declaratory judgment actions and any alleged infringement or misappropriation of Third Party intellectual property relating to the Development, Manufacture or Commercialization of Licensed Product in the Territory. Such notices shall be provided promptly, but in no event after more than [**] days after receipt thereof.

Section 10.6 Third Party Technology.

(a) If after the Effective Date, (i) Alnylam or any of its Affiliates acquires from a Third Party Know-How or Patent Rights that would fall within the definition of Alnylam Patent Rights but for payment obligations to such Third Party, or (ii) Roche or any of its Affiliates acquires from a Third Party Know-How or Patent Rights that would fall within the definition of Roche Patent Rights but for payment obligations to such Third Party (the foregoing clauses (i) and (ii), collectively, “Third Party Technology”), then the Party acquiring the Third Party Technology shall promptly so notify the other Party and provide such other Party with a copy of the agreement and a written description of the payment obligations that would be allocated to the other Party hereunder.

(b) Roche may elect to include Third Party Technology acquired by Alnylam or any of its Affiliates in the rights and licenses granted to Roche under Section 3.1 with respect to the Discovery, Development, Manufacture or Commercialization of the Licensed Product(s) in the Field in the Territory by providing written notice to Alnylam of such election, and, in such event, (i) Roche shall be obligated to pay Alnylam the applicable amounts payable to such Third Party for such Third Party Technology, if Roche is the Commercializing Party, in accordance with Section 9.3(g) and subject to deduction from royalties payable to Alnylam pursuant to Section 9.3(f), (ii) such Third Party Technology shall be deemed included within the definition of Alnylam Patent Rights and Alnylam Know-How, as applicable, and (iii) the agreement with the Third Party under which such Third Party Technology was acquired shall be included in the definition of Listed Alnylam Third Party Agreements. Notwithstanding anything in this Agreement to the contrary, neither Alnylam nor any of its Affiliates shall enter into any agreement with any Third Party or take any other action that would prevent such Third Party

-43-

Technology acquired by Alnylam or any of its Affiliates from becoming Alnylam Technology upon Roche’s election in accordance with this Section 10.6(b).

(c) Alnylam may elect to include Third Party Technology acquired by Roche or any of its Affiliates in the rights and licenses granted to Alnylam pursuant to Section 3.2 with respect to the Discovery, Development, Manufacture or Commercialization of the Licensed Product(s) in the Field in the Territory by providing written notice to Roche of such election, and, in such event, (i) Alnylam shall be obligated to pay Roche the applicable amounts payable to such Third Party for such Third Party Technology, if Alnylam is the Commercializing Party, in accordance with Section 9.3(g) and subject to deduction from royalties payable to Roche pursuant to Section 9.3(f), and (ii) such Third Party Technology shall be deemed included within the definition of Roche Patent Rights and Roche Know-How, as applicable. Notwithstanding anything in this Agreement to the contrary, neither Roche nor any of its Affiliates shall enter into any agreement with any Third Party or take any other action that would prevent such Third Party Technology acquired by Roche or any of its Affiliates from becoming Roche Technology upon Alnylam’s election in accordance with this Section 10.6(c).

Section 10.7 Patent Marking. Each Party agrees to comply with the patent marking statutes in each country in which a Licensed Product is sold by such Party or its Related Parties.

Section 10.8 Product Labeling.

(a) Each Party and its Affiliates shall retain all right, title and interest in and to its and their respective corporate names and logos.

(b) To the extent permitted under applicable Laws:

(i) the Licensed Product(s) offered for sale in the United States shall carry the Commercializing Party’s name and logo; and

(ii) provided neither Party exercises its Opt-Out Right all written promotional materials associated with the Licensed Product(s) in the United States shall indicate that the Licensed Product(s) was co-developed by the Parties.

(c) Each Party shall have the right to monitor the quality of the Licensed Products on which such Party’s name and logo appear in accordance with reasonable quality control procedures to be agreed upon by the Parties.

ARTICLE XI

CONFIDENTIALITY

Section 11.1 Confidential Information. All Confidential Information disclosed by a Party to the other Party in connection with the activities contemplated by this Agreement shall not be used by the receiving Party except in connection with the activities and licenses contemplated by this Agreement, shall be maintained in confidence by the receiving Party, and shall not otherwise be disclosed by the receiving Party to any other Person, without the prior

-44-

written consent of the disclosing Party, except to the extent that the Confidential Information (as determined by competent documentation):

(a) was known or used by the receiving Party or its Affiliates prior to its date of disclosure to the receiving Party; or

(b) either before or after the date of the disclosure to the receiving Party or its Affiliates, is lawfully disclosed to the receiving Party or its Affiliates by sources other than the disclosing Party who are rightfully in possession of the Confidential Information and not subject to an obligation of confidentiality or non-use owed to the disclosing Party; or

(c) either before or after the date of the disclosure to the receiving Party or its Affiliates, becomes published or generally known to the public other than through the wrongful act or default of the receiving Party or its Affiliates or its or its Affiliates’ representatives; or

(d) is independently developed by the receiving Party or its Affiliates without reference to or reliance upon the Confidential Information.

Notwithstanding anything set forth herein to the contrary, this Article IX shall not prohibit the receiving Party from disclosing Confidential Information of the disclosing Party to defend or prosecute litigation; provided that, to the extent practicable, the receiving Party provides prior written notice of such disclosure to the disclosing Party and assists the disclosing Party in its reasonable and lawful efforts to avoid or minimize the degree of such disclosure. Notwithstanding the foregoing provisions of this Section 9.1, either Party may only disclose the terms of this Agreement if such Party reasonably determines, based on advice from its counsel, that it is required to make such disclosure by applicable Law, regulation or legal process, including without limitation by the rules or regulations of the United States Securities and Exchange Commission or similar regulatory agency in a country other than the United States or of any stock exchange or NASDAQ, or pursuant to relevant accounting standards, such as IFRS or GAAP, in which event such Party shall provide prior notice of such intended disclosure to the other Party sufficiently in advance to enable the other Party to seek confidential treatment or other protection for such information unless the disclosing Party is prevented by Law from providing such advance notice and shall disclose only such terms of this Agreement as such disclosing Party reasonably determines, based on advice from its counsel, are required by applicable Law or legal process to be disclosed. Alnylam shall be permitted to disclose in confidence (pursuant to a written agreement with confidentiality obligations no less restrictive than set forth herein) the terms of this Agreement to the extent Alnylam is contractually obligated to do so pursuant to Alnylam Third Party Obligations; provided, that Alnylam shall redact such portions as Roche reasonably requests.

Section 11.2 Employee and Advisor Obligations. Each Party agrees that it may provide Confidential Information received from the other Party (including the terms of this Agreement) only to its and its Affiliates’ (a) employees, consultants, advisors and contractors who have a need to know such information in order for the receiving Party to exercise its rights or perform its obligations under this Agreement, and (b) potential and existing investors, lenders and acquirors, in each case who have an obligation to treat such information and materials as

-45-

confidential under terms no less restrictive than those set forth herein; provided, that such Party shall redact such portions as the other Party reasonably requests.

Section 11.3 Publicity. Upon execution of this Agreement, the Parties shall jointly issue a press release announcing the execution of this Agreement in form and substance substantially as set forth on Exhibit F hereto. Thereafter, neither Party shall issue any press release or public announcement relating to this Agreement or the Collaboration or Licensed Products without the prior written approval of the other Party, which approval shall not be unreasonably withheld, conditioned or delayed, except that a Party may issue a press release or public announcement if required by Law, including by the rules or regulations of the United States Securities and Exchange Commission or similar regulatory agency in a country other than the United States or of any stock exchange or NASDAQ or pursuant to relevant accounting standards, such as IFRS or GAAP; provided that the other Party has received prior notice of such intended press release or public announcement if practicable under the circumstances and the Party subject to the requirement includes in such press release or public announcement only such information relating to this Agreement as is necessary to comply with applicable Law. The rights of approval and notice granted to a Party in accordance with the preceding sentence shall only apply for the first time that specific information is to be disclosed, and shall not apply to the subsequent disclosure of substantially similar information that has previously been made public other than through a breach of this Agreement by the issuing Party or its Affiliates.

Section 11.4 Publications. A Party (the “Publishing Party”) shall provide the other Party with a copy of any proposed publication or presentation at least [**] days (or at least [**] days in the case of abstracts or oral presentations) prior to submission for publication by the Publishing Party or its Affiliates so as to provide such other Party with an opportunity to recommend any changes it reasonably believes are necessary to continue to maintain the Confidential Information disclosed by the other Party to the Publishing Party in accordance with the requirements of this Agreement. The incorporation of such recommended changes shall not be unreasonably refused; and if such other Party notifies the Publishing Party in writing, within [**] days after receipt of the copy of the proposed publication or presentation (or at least [**] days in the case of oral presentations), that such publication or presentation in its reasonable judgment (a) contains an invention, solely or jointly conceived or reduced to practice by the other Party, for which the other Party reasonably desires to obtain patent protection or (b) could be expected to have a material adverse effect on the commercial value of any Confidential Information disclosed by the other Party to the Publishing Party, the Publishing Party shall prevent such publication or delay such publication for a mutually agreeable period of time. In the case of inventions, a delay shall be for a period reasonably sufficient to permit the timely preparation and filing of a patent application(s) on such invention, and in no event less than [**] days from the date of notice from the non-Publishing Party. In the case of Confidential Information, any of the non-Publishing Party’s Confidential Information shall be deleted as requested.

Section 11.5 Clinical Trial Registry. Unless and until Roche exercises its Opt-Out Right hereunder, (a) Roche, in accordance with its internal policies and procedures, shall have the right to publish all Clinical Studies with respect to the Licensed Product(s) and results thereof on the clinical trial registries which are maintained by or on behalf of Roche, and (b) Alnylam shall have the right to access Roche’s clinical trial registry via a link from Alnylam’s clinical trial registry, and, in accordance with applicable Law, to post Clinical Study information with respect to the Licensed Product(s) on clinicaltrials.gov or any other mandated registry.

-46-

ARTICLE XII

REPRESENTATIONS AND WARRANTIES

Section 12.1 Mutual Representations and Warranties.

(a) Representations of Authority. Each Party represents and warrants to the other Party that, as of the Effective Date, it has full corporate right, power and authority to enter into this Agreement and to perform its obligations under this Agreement.

(b) Consents. Each Party represents and warrants to the other Party that all necessary consents, approvals and authorizations of all government authorities and other Persons required to be obtained by it as of the Effective Date in connection with the execution, delivery and performance of this Agreement have been obtained.

(c) No Conflict. Each Party represents and warrants to the other Party that the execution and delivery of this Agreement and the performance of its obligations hereunder (i) does not violate or conflict with the provisions of its certificate of incorporation or by-laws, (ii) does not conflict with or violate any requirement of applicable Laws effective as of the Effective Date, and (iii) does not and will not conflict with, violate, breach or constitute a default under any contractual obligations of it or any of its Affiliates existing as of the Effective Date.

(d) Authorization and Binding Nature. Each Party represents and warrants to the other Party that the execution, delivery and performance of this Agreement and the performance of all obligations hereunder have been duly authorized by all requisite corporate action on the part of such Party and this Agreement constitutes valid and legally binding obligations of such Party, limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the enforcement of creditors’ rights generally and (ii) as may be limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

(e) Employee Obligations. Each Party represents and warrants that all of its employees, officers and consultants have executed agreements or have existing obligations under Law requiring assignment to such Party of all intellectual property and proprietary rights made during the course of and as the result of their association with such Party, and obligating such individuals to maintain as confidential the Confidential Information of such Party and of a Third Party which such Party may receive.

Section 12.2 Representations and Warranties of Alnylam. Alnylam represents and warrants to Roche that, as of the Effective Date:

(a) Organization and Good Standing. Alnylam is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware.

-47-

(b) Authority. Alnylam and its Affiliates have the right and authority to grant the licenses to Roche set forth in Sections 3.1(a), 3.1(b) and 3.1(c) of this Agreement as contemplated under this Agreement.

(c) Listed Alnylam Third Party Agreements. Exhibit B-2 identifies all Listed Alnylam Third Party Agreements existing as of the Effective Date, excluding Listed Third Party Agreements (as defined in the LCA). All such Listed Alnylam Third Party Agreements are in full force and effect, and no dispute presently exists between Alnylam and Listed Alnylam Counterparties under the agreements listed on Exhibit B-2 or Alnylam Pre-Existing Alliance Parties under the agreements listed on Exhibit B-1 that would place in jeopardy any of the licenses granted by Alnylam under this Agreement.

(d) Alnylam Pre-Existing Alliance Agreements. Exhibit B-1 identifies all Alnylam Pre-Existing Alliance Agreements existing as of the Effective Date, excluding the Pre-Existing Alliance Agreements (as defined in the LCA).

(e) Protecting IP Rights. Alnylam and its Affiliates have taken reasonable measures to protect the Alnylam Technology, consistent with prudent commercial practices in the biotechnology industry.

Section 12.3 Representations and Warranties of Roche. Roche represents and warrants to Alnylam that, as of the Effective Date:

(a) No Dispute With UBC. Roche is not engaged in a dispute with UBC.

(b) Organization and Good Standing. Roche Basel is a corporation duly organized, validly existing and in good standing under the Laws of Switzerland; Roche Nutley is a corporation duly organized, validly existing and in good standing under the Laws of the State of New Jersey.

(c) Authority. Roche and its Affiliates have the right and authority to grant the licenses to Alnylam set forth in Sections 3.2(a), 3.2(b) and 3.2(c) of this Agreement as contemplated under this Agreement.

(d) Protecting IP Rights. Roche and its Affiliates have taken reasonable measures to protect the Roche Technology, consistent with prudent commercial practices in the pharmaceutical industry.

Section 12.4 No Warranties. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS ARTICLE X, NEITHER PARTY MAKES ANY REPRESENTATION OR EXTENDS ANY WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, TO THE OTHER PARTY, INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

-48-

ARTICLE XIII

INDEMNIFICATION; INSURANCE

Section 13.1 Indemnification by Roche. Roche shall defend, indemnify and hold harmless Alnylam, its Affiliates, and their respective directors, officers, employees and agents (the “Alnylam Indemnitees”), at Roche’s cost and expense, from and against any liabilities, losses, costs, damages, fees or expenses (including reasonable attorneys’ fees) (collectively, “Losses”) arising out of any Third Party claim based on or resulting from: (a) any breach by Roche of any of its representations, warranties, covenants or obligations pursuant to this Agreement; (b) the negligence or willful misconduct of Roche or its Related Parties, or any of their respective directors, officers, employees and agents, in the performance of obligations or exercise of rights under this Agreement; (c) the Development, Manufacture, Commercialization, or use of the Licensed Product(s) by Roche as the Commercializing Party hereunder, or by any of its Related Parties, including any Product Liability Claim relating to such Licensed Product(s) (except as provided in Section 13.3); (c) any Advertising Claims; or (d) the pricing and commercial terms of Licensed Product(s) in the U.S., or any policy governing the handling of returns, recalls, order processing, invoicing and collection, distribution, and inventory and receivables for, Licensed Product(s) in the U.S., if Roche is responsible hereunder for booking sales of such Licensed Product(s) in the U.S. Roche shall have no obligation to indemnify the Alnylam Indemnitees to the extent that the Losses arise out of or result from, directly or indirectly, any breach of, or inaccuracy in, any representation or warranty made by Alnylam in this Agreement, or any breach or violation of any covenant or obligation of Alnylam or its Related Parties in or pursuant to this Agreement, or the negligence or willful misconduct by or of any of the Alnylam Indemnitees.

Section 13.2 Indemnification by Alnylam. Alnylam shall defend, indemnify and hold harmless Roche, its Affiliates and their respective directors, officers, employees and agents (the “Roche Indemnitees”), at Alnylam’s cost and expense, from and against any Losses arising out of any Third Party claim based on or resulting from: (a) any breach by Alnylam of any of its representations, warranties, covenants or obligations pursuant to this Agreement; (b) the negligence or willful misconduct of Alnylam or its Related Parties, or any of their respective directors, officers, employees and agents, in the performance of obligations or exercise of rights under this Agreement; (c) the Development, Manufacture, Commercialization, or use of the Licensed Product(s) by Alnylam as the Commercializing Party hereunder, or by any of its Related Parties, including any Product Liability Claim relating to such Licensed Product(s) (except as provided in Section 13.3) and excluding Advertising Claims (except if and to the extent that Alnylam is the Party responsible hereunder for booking sales of such Licensed Product(s) in the U.S.); or (d) the pricing and commercial terms of Licensed Product(s) in the U.S., or any policy governing the handling of returns, recalls, order processing, invoicing and collection, distribution, and inventory and receivables for, Licensed Product(s) in the U.S., if Alnylam is responsible hereunder for booking sales of such Licensed Product(s) in the U.S. Alnylam shall have no obligation to indemnify the Roche Indemnitees to the extent that the Losses arise out of or result from, directly or indirectly, any breach of, or inaccuracy in, any representation or warranty made by Roche in this Agreement, or any breach or violation of any covenant or obligation of Roche or its Related Parties in or pursuant to this Agreement, or the negligence or willful misconduct by or of any of the Roche Indemnitees.

-49-

Section 13.3 Product Liability Claims. If neither Party has exercised its Opt-Out Right, any Losses arising out of Product Liability Claims shall be treated as Commercialization Costs, to the extent such Losses were incurred with respect to the Development, Manufacture or Commercialization of the Licensed Product(s) in the United States, except to the extent such Losses arise out of any Third Party claim based on (a) a Party’s breach of any of its representations, warranties, covenants or obligations pursuant to this Agreement, or (b) the negligence or willful misconduct of a Party or its Related Parties, or any of their respective directors, officers, employees and agents, in the performance of obligations (including Manufacture and supply obligations) or exercise of rights under this Agreement.

Section 13.4 Claims for Indemnification with respect to Third Parties.

(a) With regard to any Third Party claim for which indemnification may be sought under this Article XI against a person entitled to indemnification under this Article XI (an “Indemnified Party”), the Indemnified Party shall give prompt written notification to the person from whom indemnification is sought (the “Indemnifying Party”) of the commencement of any action, suit or proceeding relating to such Third Party claim or, if earlier, upon the assertion of any such claim by a Third Party (it being understood and agreed, however, that the failure by an Indemnified Party to give notice of a Third Party claim as provided in this Section 13.4(a) shall not relieve the Indemnifying Party of its indemnification obligation under this Agreement except and only to the extent that such Indemnifying Party is actually prejudiced as a result of such failure to give notice).

(b) Within [**] days after delivery of such notification, the Indemnifying Party may, upon written notice thereof to the Indemnified Party, assume control of the defense of such action, suit, proceeding or claim with counsel reasonably satisfactory to the Indemnified Party. If the Indemnifying Party does not assume control of such defense, the Indemnified Party shall control such defense.

(c) The Party not controlling such defense may participate therein at its own expense; provided that if the Indemnifying Party assumes control of such defense and the Indemnified Party reasonably concludes, based on advice from counsel, that the Indemnifying Party and the Indemnified Party have conflicting interests with respect to such action, suit, proceeding or claim, the Indemnifying Party shall be responsible for the reasonable fees and expenses of counsel to the Indemnified Party solely in connection therewith; provided further, however, that in no event shall the Indemnifying Party be responsible for the fees and expenses of more than one counsel in any one jurisdiction for all Indemnified Parties.

(d) The Party controlling such defense shall keep the other Party advised of the status of such action, suit, proceeding or claim and the defense thereof and shall consider recommendations made by the other Party with respect thereto.

(e) The Indemnified Party shall not agree to any settlement of such action, suit, proceeding or claim without the prior written consent of the Indemnifying Party, which shall not be unreasonably withheld. The Indemnifying Party shall not, without the prior written consent of the Indemnified Party, agree to any settlement of such claim or consent to any judgment in respect thereof that does not include a complete and unconditional release of the

-50-

Indemnified Party from all liability with respect thereto or that imposes any liability or obligation on the Indemnified Party.

Section 13.5 Insurance. Each Party shall maintain appropriate product liability insurance (or self-insurance) with respect to its Discovery, Development, Manufacture and Commercialization activities hereunder in such amount as such Party customarily maintains with respect to its other products for similar patient populations and commercial markets. Each Party shall maintain such insurance for so long as it continues to conduct such activities hereunder, and for so long as such Party customarily maintains insurance with respect to sales of its other products for similar patient populations and commercial markets.

ARTICLE XIV

TERM AND TERMINATION

Section 14.1 Term. Unless terminated earlier, this Agreement shall remain in force for the period commencing on the Effective Date and shall expire, on a Licensed Product-by-Licensed Product and country-by-country basis, upon the later of: (a) expiration of the applicable Royalty Term for such Licensed Product in such country, or (b) with respect to the United States, if neither Party has exercised its Opt-Out Right, until no Licensed Products have been Commercialized for a continuous period of six (6) months (the “Term”). Upon expiration of the Term, the licenses granted to the Commercializing Party(-ies) under Article III shall convert to perpetual, non-exclusive, fully paid-up, non-royalty-bearing licenses. Expiration or termination of this Agreement shall have no impact on the LCA.

Section 14.2 Termination for Cause.

(a) Roche may terminate this Agreement upon sixty (60) calendar days’ prior written notice to Alnylam upon the material breach by Alnylam of any of its representations, warranties or obligations under this Agreement (except for any Diligence Breach by Alnylam); provided that such termination shall become effective only if (i) Alnylam fails to remedy or cure the breach within such sixty (60) day period, or (ii) if such breach cannot be remedied or cured through the application of Diligent Efforts within such sixty (60) day period, and Alnylam has (within such time period) submitted a plan for cure as promptly as is reasonably practicable (but in no event beyond an additional sixty (60) day period) through the application of Diligent Efforts with a remedy or cure period reasonably acceptable to Roche, then after the earlier of the remedy or cure date accepted by Roche or the date Alnylam ceases to use Diligent Efforts to remedy or cure such breach.

(b) Alnylam may terminate this Agreement upon sixty (60) calendar days’ prior written notice to Roche upon the material breach by Roche of any of its representations, warranties or obligations under this Agreement (except for any Diligence Breach by Roche); provided that such termination shall become effective only if (i) Roche fails to remedy or cure the breach within such sixty (60) day period, or (ii) if such breach cannot be remedied or cured through the application of Diligent Efforts within such sixty (60) day period, and Roche has (within such time period) submitted a plan for cure as promptly as is reasonably practicable (but in no event beyond an additional sixty (60) day period) through the application of Diligent

-51-

Efforts with a remedy or cure period reasonably acceptable to Alnylam, then after the earlier of the remedy or cure date accepted by Alnylam or the date Roche ceases to use Diligent Efforts to remedy or cure such breach.

(c) If one Party in good faith believes the other Party has committed a Diligence Breach, then the non breaching Party may terminate this Agreement upon ninety (90) calendar days’ prior written notice to the breaching Party, specifying the Diligence Breach and, if applicable, the Major Territory(ies) as to which the Diligence Breach allegedly occurred. Such termination shall become effective only if the allegedly breaching Party fails to remedy or cure such Diligence Breach within such ninety (90) day period (“Diligence Breach Cure Period”); provided, that, the allegedly breaching Party shall have the option, in its sole discretion, of electing to terminate this Agreement without cause as set forth in Section 14.4 during the Diligence Breach Cure Period in lieu of undertaking efforts to remedy or cure such Diligence Breach. If the allegedly breaching Party fails to cure such Diligence Breach within the Diligence Breach Cure Period (either through actual cure or through electing to terminate at will pursuant to Section 14.4), but provides written notice to the non-breaching Party during the Diligence Breach Cure Period that such Party disputes in good faith the existence of such Diligence Breach, then either Party may submit such dispute to the Executive Officers of Alnylam and Roche for resolution. If, despite the Executive Officers’ efforts to resolve such dispute, the Executive Officers cannot reach an agreement regarding such dispute within [**] days after submission to them for resolution, then such dispute may be submitted to a court of competent jurisdiction for resolution, in which event this Agreement shall terminate only upon the rendering of a final decision by such court upholding the basis for termination (or once the breaching Party is no longer disputing such basis in good faith, if earlier).

Section 14.3 Termination for Patent Challenge.

(a) If Roche or any of its Related Parties initiates, maintains or supports any action to (i) oppose the grant of a patent, or (ii) challenge the validity, patentability, enforceability or scope of an issued patent, in each case under the Alnylam Patent Rights or Alnylam Collaboration Patent Rights, then Alnylam shall have the right, upon thirty (30) days’ prior written notice to Roche, to terminate this Agreement; provided, however, that if Roche or any of its Related Parties, as relevant, cease such opposition or challenge within such thirty (30) day period, then Alnylam shall not have the right to terminate this Agreement.

(b) If Alnylam or any of its Related Parties initiates, maintains or supports any action to (i) oppose the grant of a patent, or (ii) challenge the validity, patentability, enforceability or scope of an issued patent, in each case under the Roche Patent Rights or Roche Collaboration Patent Rights, then Roche shall have the right, upon thirty (30) days’ prior written notice to Alnylam, to terminate this Agreement; provided, however, that if Alnylam or any of its Related Parties, as relevant, cease such opposition or challenge within such thirty (30) day period, then Roche shall not have the right to terminate this Agreement.

Section 14.4 Termination At Will.

(a) If neither Party has exercised its Opt-Out Right, Roche shall have the right to terminate, without cause, the licenses granted to Roche under this Agreement and all related

-52-

terms and conditions, solely with respect to any Major Territory(ies) outside of the United States, by providing ninety (90) calendar days’ prior written notice to Alnylam.

(b) The Continuing Party shall have the right to terminate, without cause, the licenses granted to such Continuing Party under this Agreement and all related terms and conditions, with respect to any Major Territory(ies) by providing ninety (90) calendar days’ prior written notice to the other Party.

(c) In the event of an alleged Diligence Breach under Section 14.2(c), the breaching Party shall have the right to terminate, without cause, the licenses granted to such breaching Party under this Agreement and all related terms and conditions, solely with respect to the Major Territory(ies) as to which the Diligence Breach allegedly occurred by providing ninety (90) days’ prior written notice to the non-breaching Party during the Diligence Breach Cure Period.

(d) The Party receiving the termination notice under Section 14.4(a), 14.4(b) or 14.4(c) above shall have the right to notify the terminating Party thereunder during such ninety (90) day period if such Party is interested in pursuing the Development and Commercialization of Licensed Product(s) in any of the Major Territory(ies) being terminated.

(i) If such Party notifies the terminating Party that such Party is interested in pursuing the Development and Commercialization of Licensed Product(s) in such terminated Major Territory(ies) during such 90-day period, the Parties shall negotiate in good faith the terms of (A) a transition agreement to cover the reasonable wind-down and transition of the Licensed Product(s) to such Party in such terminated Major Territory(ies), which wind-down and transition activities shall be performed for a period not to exceed [**], with the pursuing Party bearing reasonable costs incurred by the terminating Party (at the terminating Party’s FBMC plus the applicable percentage set forth in Article VI) in performing such wind-down and transition activities; and (B) the development, regulatory and sales events, the achievement of which shall trigger payment of event payment amounts, the event payment amounts themselves, and royalty rates payable by the pursuing Party with respect to Licensed Product(s) in such terminated Major Territory(ies); it being understood that the Parties intend that all other terms and conditions of this Agreement that otherwise apply to Licensed Product(s) shall remain in effect, subject to any minor adjustments, if necessary, to reflect the Major Territory(ies) being terminated (e.g., exclusive license grant as if the terminating Party had opted-out, general payment terms, royalty deductions). If, despite such good faith negotiations, the Parties are unable to finalize the events/event payment amounts and royalty rates payable with respect to Licensed Product(s) in the terminated Major Territory(ies) within an additional ninety (90) calendar days, then the Parties shall submit such dispute for resolution by Baseball Arbitration pursuant to the terms of Exhibit G.

(ii) For purposes of clarity, if the Party receiving the termination notice under Section 14.4(a), 14.4(b) or 14.4(c) does not notify the terminating Party during such ninety (90) day period that such Party is interested in pursuing the Development and Commercialization of Licensed Product(s) in any of the Major Territory(ies) being terminated, the termination of this Agreement shall become effective at the end of such ninety (90) day period.

-53-

Section 14.5 Effects of Termination.

(a) Termination by Alnylam for Roche Material Breach (Other Than a Diligence Breach) or Roche Patent Challenge if Neither Party has Opted-Out. Without limiting any other legal or equitable remedies that Alnylam may have, if Alnylam terminates this Agreement as a result of Roche’s uncured material breach pursuant to Section 14.2(a), or as a result of Roche (or its Related Parties) taking any of the prohibited actions pursuant to Section 14.3(a), and the Parties, at the time of such termination, were in a Profit and cost-sharing arrangement pursuant to Section 4.8 and 9.2, then:

(i) Roche’s exclusivity obligations under Section 3.7 shall remain in effect for a period of [**] after the effective date of termination;

(ii) if such termination occurs after the Research Term, Roche shall (A) continue to pay for any Clinical Study(ies) conducted, or committed to be conducted, by Alnylam at the time of such termination notice, through completion or earlier termination of such Clinical Study(ies), and (B) for a period of six (6) months following the date of notice of termination (if neither Party had exercised its Opt-Out Right prior to such date), continue to pay [**] percent ([**]%) of all other Development Costs actually incurred by Alnylam in connection with the Development of Licensed Products and in Field for the United States during such six (6) month period, in each case provided that such costs are shown on and consistent with the Development Plan in place as of the date of notice of termination;

(iii) the licenses granted to Roche in Section 3.1 shall terminate and have no further force or effect, and Roche shall be deemed to have exercised its Opt-Out Right (with the consequences set forth in this Section 14.5(a));

(iv) if requested by Alnylam, Roche shall as promptly as practicable transfer to Alnylam or Alnylam’s designee (A) possession and ownership of all governmental or regulatory correspondence, conversation logs, filings and approvals (including all Regulatory Approvals and pricing and reimbursement approvals) relating to the Development, Manufacture or Commercialization of the Licensed Product(s) and all Roche trademarks then being used in connection with the Licensed Product(s) (other than Roche’s corporate trademarks); (B) copies of all data, reports, records and materials, Commercialization Plans, marketing plans, promotional materials, and other sales and marketing related information in Roche’s possession or Control to the extent that such data, reports, records, materials or other information relate to the Development, Manufacture or Commercialization of the Licensed Product(s), including all non-clinical and clinical data relating to the Licensed Product(s), and customer lists and customer contact information and all Safety Data and other adverse event data in Roche’s possession or Control; provided that (I) Roche shall not be required by this provision to provide any Confidential Information to Alnylam and (II) Roche shall use Diligent Efforts to obtain for Alnylam the right to access all such data, reports, records, materials, and other sales and marketing related information; and (C) all records and materials in Roche’s possession or Control containing Confidential Information of Alnylam;

(v) if requested by Alnylam, appoint Alnylam as Roche’s or Roche’s Related Parties’ agent for all Licensed Product-related matters involving Regulatory Authorities

-54-

in the Territory until all Regulatory Approvals and other regulatory filings have been transferred to Alnylam or its designee;

(vi) if the effective date of termination (or opt-out, solely for purposes of Section 4.9(b)(iii)) occurs after the First Commercial Sale of a Licensed Product in any country in the Territory and Roche was the Commercializing Party immediately prior to such termination (or opt-out, solely for purposes of Section 4.9(b)(iii)), then, if requested by Alnylam, Roche shall appoint Alnylam as its exclusive distributor of Licensed Product in the Territory and grant Alnylam the right to appoint sub-distributors, until such time as all Regulatory Approvals in the Territory have been transferred to Alnylam or its designee;

(vii) if Roche or its Related Parties are Manufacturing API Bulk Drug Substance, Delivery Compound, Formulated Bulk or Finished Product, at Alnylam’s option, supply the API Bulk Drug Substance, Delivery Compound, Formulated Bulk or Finished Product, as applicable, to Alnylam in the Territory on terms no less favorable than those on which Roche supplied the API Bulk Drug Substance, Delivery Compound, Formulated Bulk or Finished Product, as applicable, prior to such termination to its most favored distributor in the Territory, until such time as all Regulatory Approvals in the Territory have been transferred to Alnylam or its designee, Alnylam has obtained all necessary manufacturing approvals and Alnylam has procured or developed its own source of API Bulk Drug Substance, Delivery Compound, Formulated Bulk or Finished Product supply, as applicable, provided, that such period of time shall not exceed [**] (unless otherwise agreed by Roche);

(viii) if Alnylam so requests, Roche shall transfer to Alnylam any Third Party agreements solely relating to the Development, Manufacture or Commercialization of the Licensed Product(s) to which Roche is a party, subject to any required consents of such Third Party, which Roche shall use Diligent Efforts to obtain promptly;

(ix) subject to then-existing Third Party obligations, Roche hereby grants to Alnylam an exclusive right and license, with the right to grant sublicenses subject to Section 3.2(d)(i) and Section 3.3, under such Roche Technology as has been incorporated into, or has been used in or (as documented in the Joint Research Plan, the Development Plan or the Commercialization Plan, or any approved JSC or JCT minutes, as applicable) has been intended for use in, the Development, Manufacture or Commercialization of the Licensed Product(s) under this Agreement as of the effective date of such termination, solely to Develop, Manufacture and Commercialize the Licensed Product(s) in the Field in the Territory; provided, that, (A) Alnylam shall not be bound by the diligence obligations set forth in Article VIII, and (B) such license shall be subject to Alnylam’s compliance with its obligation to pay to Roche (1) (if Alnylam had been the Commercializing Party immediately prior to such termination) royalties at the royalty rates and event payment amounts within the same Column as would have been payable to Roche had Alnylam remained the Commercializing Party, or (2) (if Roche had been the Commercializing Party immediately prior to such termination) royalties at the royalty rates and event payment amounts within the Column that would have applied had Roche exercised its Opt-Out Right; provided, however, that Alnylam may withhold [**] percent ([**]%) of each royalty payment due hereunder until the actual amount of damages owed by Roche to Alnylam with respect to the breach of this Agreement resulting in such termination is determined,

-55-

whereupon such withheld amount shall be credited against such damages and any amount remaining shall be paid to Roche within [**] days after such determination; and

(x) Roche shall execute all documents and take all such further actions, including, where applicable, the prompt assignment of Regulatory Approvals and Third Party agreements, as may be reasonably requested by Alnylam in order to give effect to the foregoing clauses (i) through (ix) as soon as practicable and in order to enable Alnylam to continue to Develop, Manufacture and Commercialize the Licensed Product(s) in the Territory in the same manner as was being conducted by the Commercializing Party prior to any such termination.

(b) Termination by Roche for Alnylam Material Breach (Other Than a Diligence Breach) or Alnylam Patent Challenge if Neither Party has Opted-Out. Without limiting any other legal or equitable remedies that Roche may have, if Roche terminates this Agreement as a result of Alnylam’s material uncured breach pursuant to Section 14.2(a), or as a result of Alnylam (or its Related Parties) taking any of the prohibited actions pursuant to Section 14.3(b), and the Parties, at the time of such termination, were in a Profit and cost-sharing arrangement pursuant to Section 4.8 and 7.2, then:

(i) Alnylam’s exclusivity obligations under Section 3.7 shall remain in effect for a period of [**] after the effective date of termination;

(ii) if such termination occurs after the Research Term, Alnylam shall (A) continue to pay for any Clinical Study(ies) conducted, or committed to be conducted, by Roche at the time of such termination notice, through completion or earlier termination of such Clinical Study(ies), and (B) for a period of six (6) months following the date of notice of termination (if neither Party had exercised its Opt-Out Right prior to such date), continue to pay [**] percent ([**]%) of all other Development Costs actually incurred by Roche in connection with the Development of Licensed Products in the Field in the United States during such six (6) month period, in each case provided that such costs are shown on and consistent with the Development Plan in place as of the date of notice of termination;

(iii) the licenses granted to Alnylam in Section 3.2 shall terminate and have no further force or effect, and Alnylam shall be deemed to have exercised its Opt-Out Right (with the consequences set forth in this Section 14.5(b));

(iv) if requested by Roche, Alnylam shall as promptly as practicable transfer to Roche or Roche’s designee (A) possession and ownership of all governmental or regulatory correspondence, conversation logs, filings and approvals (including all Regulatory Approvals and pricing and reimbursement approvals) relating to the Development, Manufacture or Commercialization of the Licensed Product(s) and all Alnylam trademarks then being used in connection with the Licensed Product(s) (other than Alnylam’s corporate trademarks); (B) copies of all data, reports, records and materials, Commercialization Plans, marketing plans, promotional materials, and other sales and marketing related information in Alnylam’s possession or Control to the extent that such data, reports, records, materials or other information relate to the Development, Manufacture or Commercialization of the Licensed Product(s), including all non-clinical and clinical data relating to the Licensed Product(s), and customer lists

-56-

and customer contact information and all Safety Data and other adverse event data in Alnylam’s possession or Control; provided that (I) Alnylam shall not be required by this provision to provide any Confidential Information to Roche and (II) Alnylam shall use Diligent Efforts to obtain for Roche the right to access all such data, reports, records, materials, and other sales and marketing related information; and (C) all records and materials in Alnylam’s possession or Control containing Confidential Information of Roche;

(v) if requested by Roche, appoint Roche as Alnylam’s or Alnylam’s Related Parties’ agent for all Licensed Product-related matters involving Regulatory Authorities in the Territory until all Regulatory Approvals and other regulatory filings have been transferred to Roche or its designee;

(vi) if the effective date of termination (or opt-out, solely for purposes of Section 4.9(b)(iv)) is after First Commercial Sale in any country in the Territory and Alnylam was the Commercializing Party immediately prior to such termination (or opt-out, solely for purposes of Section 4.9(b)(iv)), then, if requested by Roche, Alnylam shall appoint Roche as its exclusive distributor of Licensed Product in the Territory and grant Roche the right to appoint sub-distributors, until such time as all Regulatory Approvals in the Territory have been transferred to Roche or its designee;

(vii) if Alnylam or its Related Parties are Manufacturing API Bulk Drug Substance, Delivery Compound, Formulated Bulk or Finished Product, at Roche’s option, supply the API Bulk Drug Substance, Delivery Compound, Formulated Bulk or Finished Product, as applicable, to Roche in the Territory on terms no less favorable than those on which Alnylam supplied the API Bulk Drug Substance, Delivery Compound, Formulated Bulk or Finished Product, as applicable, prior to such termination to its most favored distributor in the Territory, until such time as all Regulatory Approvals in the Territory have been transferred to Roche or its designee, Roche has obtained all necessary manufacturing approvals and Roche has procured or developed its own source of API Bulk Drug Substance, Delivery Compound, Formulated Bulk or Finished Product supply, as applicable, provided, that such period of time shall not exceed [**] (unless otherwise agreed by Alnylam);

(viii) if Roche so requests, Alnylam shall transfer to Roche any Third Party agreements relating to the Development, Manufacture or Commercialization of the Licensed Product(s) to which Alnylam is a party, subject to any required consents of such Third Party, which Alnylam shall use Diligent Efforts to obtain promptly;

(ix) subject to Alnylam Third Party Obligations, Alnylam hereby grants to Roche an exclusive right and license, with the right to grant sublicenses subject to Section 3.1(d)(i) and Section 3.3, under such Alnylam Technology as has been incorporated into, or has been used in or (as documented in the Joint Research Plan, the Development Plan or the Commercialization Plan, or any approved JSC or JCT minutes, as applicable) has been intended for use in, the Development, Manufacture or Commercialization of the Licensed Product(s) under this Agreement as of the effective date of such termination, solely to Develop, Manufacture and Commercialize the Licensed Product(s) in the Field in the Territory; provided, that, (A) Roche shall not be bound by the diligence obligations set forth in Article VIII, and (B) such license shall be subject to Roche’s compliance with its obligation to pay to Alnylam (1) (if

-57-

Roche had been the Commercializing Party immediately prior to such termination) royalties at the royalty rates and event payment amounts within the same Column as would have been payable to Alnylam had Roche remained the Commercializing Party, or (2) (if Alnylam had been the Commercializing Party immediately prior to such termination) royalties at the royalty rates and event payment amounts within the Column that would have applied had Alnylam exercised its Opt-Out Right; provided, however, that Roche may withhold [**] percent ([**]%) of each event and royalty payment due hereunder until the actual amount of damages owed by Alnylam to Roche with respect to the breach of this Agreement resulting in such termination is determined, whereupon such withheld amount shall be credited against such damages and any amount remaining shall be paid to Alnylam within [**] days after such determination; and

(x) Alnylam shall execute all documents and take all such further actions, including, where applicable, the prompt assignment of Regulatory Approvals and Third Party agreements, as may be reasonably requested by Roche in order to give effect to the foregoing clauses (i) through (ix) as soon as practicable and in order to enable Roche to continue to Develop, Manufacture and Commercialize the Licensed Product(s) in the Territory in the same manner as was being conducted by the Commercializing Party prior to any such termination.

(c) Termination for Material Breach (Other Than a Diligence Breach) or Patent Challenge if a Party has Opted-Out. Without limiting any other legal or equitable remedies that such Party may have, if a Party terminates this Agreement as a result of the other Party’s material uncured breach pursuant to Section 14.2(a) or Section 14.2(b), as applicable, or as a result of the other Party (or such other Party’s Related Parties) taking any of the prohibited actions pursuant to Section 14.3(a) or 14.3(b), as applicable, and either Party had exercised its Opt-Out Right at the time of such termination notice, then:

(i) if the Party that had exercised its Opt-Out Right is the Party being terminated above, then all rights and obligations of the Parties in effect immediately prior to such termination shall remain in effect immediately following such termination; provided, however, that, the Continuing Party shall not be bound by any diligence obligations hereunder; and

(ii) if the Continuing Party is the Party being terminated above, then Section 14.4 shall apply as if the Continuing Party had elected to terminate this Agreement at will.

(d) Termination for Diligence Breach. Without limiting any other legal or equitable remedies that such Party may have with respect to a Diligence Breach, if a court of competent jurisdiction renders a final decision upholding the basis of termination by the non-breaching Party under Section 14.2(c) with respect to such Diligence Breach (or unless and until the breaching Party is no longer disputing such basis, if earlier), then, unless otherwise agreed by the Parties, at the non-breaching Party’s request, the termination shall have the same effect as if the breaching Party terminated at will in accordance with Section 14.4.

(e) Subsequent Termination of Licenses by the Continuing Party following a Termination Under Section 14.2 or Section 14.3. For purposes of clarity, if, following a termination of this Agreement under Section 14.2 or 14.3, the Continuing Party (if any) decides to terminate the licenses granted to such Party under Section 14.5(a)(ix) or Section 14.5(b)(ix),

-58-

as the case may be, Section 14.4 shall apply as if the Continuing Party had elected to terminate this Agreement at will.

Section 14.6 Effect of Expiration or Termination; Survival.

(a) Upon expiration or termination of this Agreement, each Party will within [**] days return, or have returned by its Related Parties, to the other Party all tangible Confidential Information of the other Party, except that each Party may retain (i) one copy which may be retained in a secure location solely for evidentiary purposes in the event of a dispute and (ii) any of the other Party’s Confidential Information to the extent necessary to exercise any rights of such Party which survive termination.

(b) Except as set forth in Section 14.5 above or this Section 14.6, upon expiration or termination of this Agreement, each Party’s rights, obligations and licenses under this Agreement shall terminate, either in its entirety or with respect to particular Major Territory(ies), as the case may be; provided, however, that expiration or termination of this Agreement shall not relieve the Parties of any obligation, including payment obligations, accruing prior to such expiration or termination.

(c) The provisions of Sections 3.7 (solely as set forth in Section 14.5), 4.3(f), 9.1-9.3 (solely as set forth in Section 14.5), 9.4-9.7, 10.1-10.2, 10.7-10.8 (solely to the extent that a Party’s rights to the Licensed Product(s) survive termination hereunder), 12.4, 14.1 (last sentence only), 14.5, 14.6, Articles XI, XIII and XV (except Section 15.15), and (if applicable) Section 14.4(d)(i) and Paragraph 4 of Exhibit G shall survive any expiration or termination of this Agreement in accordance with their terms.

ARTICLE XV

MISCELLANEOUS

Section 15.1 Choice of Law. This Agreement shall be governed by and interpreted under the laws in effect in the State of Delaware, excluding its conflicts of laws principles.

Section 15.2 Notices. Any notice or report required or permitted to be given or made under this Agreement by one of the Parties to the other shall be in writing and shall be deemed to have been delivered upon personal delivery or (a) in the case of notices provided between Parties in the continental United States, four (4) days after deposit in the mail or the next Business Day following deposit with a reputable overnight courier and (b) in the case of notices provided by telecopy (which notice shall be followed immediately by an additional notice pursuant to clause (a) above if the notice is of a default hereunder), upon completion of transmissions to the addressee’s telecopier, as follows (or at such other addresses or facsimile numbers as may have been furnished in writing by one of the Parties to the other as provided in this Section 15.2):

-59-

If to Alnylam:

Alnylam Pharmaceuticals, Inc.
300 Third Street, 3rd Floor
Cambridge, Massachusetts 02142
Attention: Vice President — Legal
Fax: (617) 551-8101

With a copy (which shall not constitute notice) to:

WilmerHale LLP
60 State Street
Boston, MA 02109
Attention: Steven D. Singer, Esq.
Fax: (617) 526-5000

If to Roche:

F. Hoffmann-La Roche Ltd
Grenzacherstrasse 124
4070 Basel
Switzerland
Attention: Legal Department
Fax: 41 61 688 1396

And: Hoffmann-La Roche Inc.

340 Kingsland Street
Nutley, New Jersey 07110
USA
Attention: Corporate Secretary
Fax: (973) 235-3500

With a copy (which shall not constitute notice) to:

F. Hoffmann-La Roche Ltd
Grenzacherstrasse 124
4070 Basel
Switzerland
Attention: Pharma Partnering
Fax: 41 61 688 7990

Section 15.3 Severability. If, under applicable Law any provision hereof is invalid or unenforceable, or otherwise directly or indirectly affects the validity of any other material provision(s) of this Agreement (“Severed Clause”), then, it is mutually agreed that this Agreement shall endure except for the Severed Clause. The Parties shall consult and use their best efforts to agree upon a valid and enforceable provision which shall be a reasonable substitute for such Severed Clause in light of the intent of this Agreement.

-60-

Section 15.4 Interpretation. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” The word “or” shall be construed to have the same meaning and effect as “and/or.” Unless the context requires otherwise, (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or therein), (b) any reference to any Laws herein shall be construed as referring to such Laws as from time to time enacted, repealed or amended, (c) any reference herein to any Person shall be construed to include the Person’s successors and assigns, (d) the words “herein”, “hereof’ and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, and (e) all references herein to Articles, Sections, Exhibits or Schedules shall be construed to refer to Articles, Sections, Exhibits and Schedules of this Agreement. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

Section 15.5 Integration. This Agreement is being entered into in accordance with Article IV of the LCA and supplements the LCA, and the execution of this Agreement fulfills the Parties’ obligations under Article IV of the LCA. From and after the Effective Date of this Agreement, this Agreement constitutes the entire agreement between the Parties with respect to the within subject matter and supersedes all previous agreements, whether written or oral, including Article IV of the LCA which shall have no further force or effect. The Parties acknowledge that the LCA shall not be superseded by this Agreement except as expressly stated in this Agreement. This Agreement may be amended only in writing signed by properly authorized representatives of each of the Parties.

Section 15.6 Independent Contractors; No Agency. Neither Party shall have any responsibility for the hiring, firing or compensation of the other Party’s employees or for any employee benefits. No employee or representative of a Party shall have any authority to bind or obligate the other Party to this Agreement for any sum or in any manner whatsoever, or to create or impose any contractual or other liability on the other Party without said Party’s written approval. For all purposes, and notwithstanding any other provision of this Agreement to the contrary, each Party’s legal relationship under this Agreement to the other Party shall be that of independent contractor. The Parties agree and acknowledge that neither owes any fiduciary duties to the other.

Section 15.7 Assignment; Successors. Neither Alnylam nor Roche may assign this Agreement in whole or in part without the prior written consent of the other Party and such attempted assignment shall be deemed null and void; provided, however, that either Party may assign this Agreement without the prior written consent of the other Party (a) to an Affiliate of such Party, provided that the assigning Party shall remain primarily liable hereunder for the performance of all obligations by the assignee, or (b) subject to Section 15.15 to a Third Party in connection with a merger, sale or transfer of all or substantially all of the assigning Party’s business (in the case of Roche, its pharmaceutical business related to RNAi technology and in the case of an assignment from Alnylam to [**], treated as a [**] under Section 2.7 of the LCA)

-61-

to which this Agreement relates, provided that such assignee shall agree in writing to be bound by the terms and conditions of this Agreement. This Agreement shall be binding upon, and shall inure to the benefit of, all permitted successors and assigns.

Section 15.8 Execution in Counterparts; Facsimile Signatures. This Agreement may be executed in counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original, and all of which counterparts, taken together, shall constitute one and the same instrument even if both Parties have not executed the same counterpart. Signatures provided by facsimile transmission shall be deemed to be original signatures.

Section 15.9 Waivers. No failure on the part of Roche or Alnylam to exercise and no delay in exercising any right, power, remedy or privilege under this Agreement, or provided by statute or at law or in equity or otherwise, shall impair, prejudice or constitute a waiver of any such right, power, remedy or privilege or be construed as a waiver of any breach of this Agreement or as an acquiescence therein, nor shall any single or partial exercise of any such right, power, remedy or privilege preclude any other or further exercise thereof or the exercise of any other right, power, remedy or privilege.

Section 15.10 No Consequential or Punitive Damages. NEITHER PARTY HERETO WILL BE LIABLE FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, EXEMPLARY OR MULTIPLE DAMAGES ARISING OUT OF THIS AGREEMENT OR THE EXERCISE OF ITS RIGHTS HEREUNDER, OR FOR LOST PROFITS ARISING FROM OR RELATING TO ANY BREACH OF, OR OTHERWISE UNDER, THIS AGREEMENT, REGARDLESS OF ANY NOTICE OF SUCH DAMAGES. NOTHING IN THIS SECTION 15.10 IS INTENDED TO LIMIT OR RESTRICT (A) THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF EITHER PARTY WITH RESPECT TO THIRD PARTY CLAIMS UNDER ARTICLE XI, OR (B) REMEDIES AVAILABLE TO EITHER PARTY WITH RESPECT TO A BREACH OF ARTICLE IX (CONFIDENTIALITY) OR SECTION 3.7 (EXCLUSIVITY).

Section 15.11 Actions of Affiliates. Each Party shall be liable for any failure by its Affiliates to comply with the restrictions, limitations and obligations set forth in this Agreement. Each Party may perform its obligations hereunder personally or through one or more Affiliates, although each Party shall nonetheless be solely responsible for the performance of its Affiliates. Neither Party shall permit any of its Affiliates to commit any act (including any act of omission) that such Party is prohibited hereunder from committing directly. To the extent that the rights granted to a Party hereunder may be and are exercised by an Affiliate of such Party, such Affiliate shall be bound by the corresponding obligations of such Party.

Section 15.12 Expenses. Except as otherwise expressly set forth in this Agreement, each Party shall be solely responsible for the expenses it incurs in connection with its performance of the activities contemplated by this Agreement.

Section 15.13 No Third Party Beneficiaries. Except as expressly set forth in this Agreement, no Person other than the Parties and their respective Affiliates and permitted assignees hereunder shall be deemed an intended third party beneficiary hereunder or have any right to enforce any obligation of this Agreement. Notwithstanding the foregoing, the Parties

-62-

agree that UBC shall be deemed a third party beneficiary of, and shall have the right to enforce directly against Roche, its Affiliates or Licensee Partners, certain terms of this Agreement as set forth in the UBC Sublicense Agreement.

Section 15.14 Bankruptcy. All licenses (and to the extent applicable rights) granted under or pursuant to this Agreement by a Party to the other Party are, and shall otherwise be deemed to be, for purposes of Section 365(n) of Title 11, US Code (the “Bankruptcy Code”) licenses of rights to “intellectual property” as defined under Section 101(60) of the Bankruptcy Code. Unless a Party elects to terminate this Agreement, the Parties agree that such Party shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code, subject to the continued performance of its obligations under this Agreement.

Section 15.15 Change of Control.

(a) If a Party undergoes a Change of Control (the “Acquired Party”), such Acquired Party shall provide the other Party with prompt written notice describing such Change of Control in reasonable detail (but in no event later than [**] following the earlier of the public announcement or the consummation of such Change of Control). Notwithstanding anything in this Agreement to the contrary, the other Party may, by written notice to the Acquired Party within [**] days following the consummation of such Change of Control, elect to do any or all of the following:

(i) If the Parties were in a Profit and cost-sharing arrangement under Sections 4.8 and 9.2 immediately prior to the consummation of such Change of Control, the non-Acquired Party may elect to have the Acquired Party transition to such Party all of the Development, Manufacturing and Commercialization operational responsibilities of the Acquired Party within [**] following such notice pursuant to a transition plan to be mutually agreed by the Parties; provided, however, that following the transition of such responsibilities to the non-Acquired Party, (i) each Party’s Opt-Out Right shall remain in effect, and (ii) the Profit and cost-sharing arrangement under Sections 4.8 and 9.2 shall remain in effect (unless and until either Party exercises its Opt-Out Right), provided, that, for as long as the Parties remain in a Profit and cost-sharing arrangement under this Agreement, the non-Acquired Party shall not incur Development Costs or Commercialization Costs exceeding the then-approved budget under the Development Plan or Commercialization Plan, respectively, for the remainder of the term of such Development Plan or Commercialization Plan, and that budgets for any period beyond such term be reasonable and appropriate; and

(ii) The non-Acquired Party may elect to terminate the Acquired Party’s voting, participation and decision-making rights on any or all of the committees or subcommittees in existence at such time, provided, that the Acquired Party shall continue to have the right to receive and have access to information from the other Party, and the other Party shall continue to provide such information and access to the Acquired Party, including pursuant to Sections 2.1(d) (last paragraph), 3.1(e), 4.10(a), 9.1(c), 9.3(l), 9.5, 9.6 and 14.5, to the extent necessary for the Acquired Party (i) to comply with its obligations to any of its Third Party licensors, (ii) to determine whether or not to exercise its Opt-Out Right or, if the other Party exercises its Opt-Out Right, to determine whether or not to continue the unilateral Development

-63-

and Commercialization of Licensed Product(s), as applicable, and (iii) to determine and verify amounts payable by the other Party (and its Related Parties) to the Acquired Party.

(b) Notwithstanding anything in Section 3.7 to the contrary, if a Third Party becomes an Affiliate of the Acquired Party as a result of the Change of Control and such Third Party conducts, or plans to conduct, any activities with respect to a Competitive Product(s) which would otherwise become subject to the exclusivity provisions pursuant to Section 3.7 following such Change of Control, the Acquired Party shall, in its sole discretion and within [**] days following the consummation of such Change of Control, provide written notice to the other Party of its decision to either:

(i) discontinue such prohibited activities, with any necessary wind-down to occur within a reasonable period of time thereafter; or

(ii) exercise any Opt-Out Right with respect to the applicable Licensed Product(s), in which event the lower development and sales event payment and royalty payment obligations associated with an opt-out at the Opt-Out Point immediately preceding the actual Opt-Out Point shall apply to the Continuing Party from the effective date of the opt-out.

[Remainder of This Page Intentionally Left Blank]

-64-

IN WITNESS WHEREOF, Alnylam and Roche have caused this Collaboration Agreement to be duly executed by their authorized representatives, as of the Effective Date.


F. HOFFMANN-LA ROCHE LTD
By:	/s/ Nigel Sheail
	Name:	Nigel Sheail
	Title:	Head of Corporate Business Development


By:	/s/ Stefan Arnold
	Name:	Stefan Arnold
	Title:	Head Corporate Law Pharma

HOFFMANN-LA ROCHE INC.
By:	/s/ Ivor Macleod
	Name:	Ivor Macleod
	Title:	Vice President & CFO

ALNYLAM PHARMACEUTICALS, INC.
By:	/s/ John Maraganore
	Name:	John Maraganore
	Title:	Chief Executive Officer

-65-

EXHIBIT A

Definitions

		As used in this Agreement, the following terms shall have the meanings set forth below:

1.		“Accounting Period” has the meaning set forth in Section 9.3(k).

2.		“Advertising Claim” means, with respect to a Licensed Product(s), any Third Party claim, suit, action, proceeding, liability or obligation involving any actual or alleged death or bodily injury arising out of or resulting from the use of such Licensed Product(s) based upon (i) any label or other written, printed or graphic mater upon (a) any container or wrapper utilized with such Licensed Product(s) in the U.S. or (b) any written material accompanying any container or wrapper utilized with such Licensed Product(s) in the U.S. including package inserts, and (ii) any communication or program associated with the promotion of such Licensed Product(s) in the U.S., including such communications and programs that (a) specifically identify or describe such Licensed Product(s) or (b) otherwise support such Licensed Product(s) or raise awareness of the Field.

3.		“Affiliate” means any Person who directly or indirectly controls or is controlled by or is under common control with another Person. For purposes of this definition, “control” or “controlled” shall mean ownership, directly or through one or more Affiliates, of fifty percent (50%) or more of the shares of stock entitled to vote for the election of directors, in the case of a corporation, or fifty percent (50%) or more of the equity interest in the case of any other type of legal entity, status as a general partner in any partnership, or any other arrangement whereby a Party controls or has the right to control the Board of Directors or equivalent governing body of a corporation or other entity, or the ability to direct the management or policies of a corporation or other entity. The Parties acknowledge that in the case of certain entities organized under the laws of certain countries outside of the United States, the maximum percentage ownership permitted by law for a foreign investor may be less than fifty percent (50%), and that in such case such lower percentage shall be substituted in the preceding sentence, provided that such foreign investor has the power to direct the management and policies of such entity. For purposes of this Agreement, [], shall not be deemed an “Affiliate” of Roche; provided, however, that if Roche were to assume day-to-day control of [], then Roche shall have the right, at its sole option, to designate [] to be an Affiliate upon written notice to Alnylam. For purposes of Sections 11.1, 11.2, 15.7, 15.11 (the second sentence only), and 15.13, Alnylam’s Affiliates shall not include [], any Affiliates of [] (other than Alnylam and Persons “controlled” by Alnylam on the Effective Date) or any Person that becomes an Affiliate of Alnylam as a result of a [].

4.		“Agreement” shall have the meaning set forth in the Preamble, and shall include, for the avoidance of doubt, all Exhibits attached hereto.

5.		“Alliance Manager” shall have the meaning set forth in Section 2.3.

6.		“Alnylam” shall have the meaning set forth in the Preamble.

A – Page 1

7.		“Alnylam Collaboration IP” means Alnylam Collaboration Know-How and Alnylam Collaboration Patent Rights.

8.		“Alnylam Collaboration Know-How” means any Know-How Controlled by Alnylam, patentable or otherwise, first identified, discovered or developed solely by employees of Alnylam or its Affiliates or other persons not employed by Roche or any of its Affiliates acting on behalf of Alnylam or any of its Affiliates in the conduct of the Collaboration. Alnylam Collaboration Know-How excludes Alnylam’s interest in Joint Collaboration Know-How.

9.		“Alnylam Collaboration Patent Rights” means any Patent Rights that claim or cover Alnylam Collaboration Know-How and are Controlled by Alnylam. Alnylam Collaboration Patent Rights excludes Alnylam’s interest in Joint Collaboration Patent Rights.

10.		“Alnylam Indemnitees” shall have the meaning set forth in Section 13.1.

11.		“Alnylam Know-How” means Know-How Controlled by Alnylam as of the Effective Date or as to which Alnylam obtains Control during the Term that is necessary or reasonably useful for Roche and its Affiliates to perform their obligations or exploit their rights under this Agreement with respect to the Licensed Product(s), including their rights to Discover, Develop, Manufacture, or Commercialize Licensed Product (other than Alnylam’s rights in Joint Collaboration Know-How and Alnylam Collaboration Know-How); but excluding (a) Alnylam Platform Know-How and (b) Know-How to the extent specifically related to Blocked Targets.

12.		“Alnylam Patent Rights” means those Patent Rights that are Controlled by Alnylam as of the Effective Date or as to which Alnylam obtains Control during the Term that are necessary or reasonably useful for Roche and its Affiliates to perform their obligations or exploit their rights under this Agreement with respect to the Licensed Product(s), including their rights to Discover, Develop, Manufacture, or Commercialize the Licensed Product(s) (other than Alnylam’s rights in Joint Collaboration Patent Rights and Alnylam Collaboration Patent Rights); but excluding (a) Alnylam Platform Patent Rights and (b) Patent Rights to the extent specifically related to Blocked Targets.

13.		“Alnylam Platform Know-How” means the Licensed Know-How (as defined in the LCA).

14.		“Alnylam Platform Patent Rights” means the Licensed Patent Rights (as defined in the LCA).

15.		“Alnylam Pre-Existing Alliance Agreements” means the Pre-Existing Alliance Agreements (as defined in the LCA) and the agreements set forth on Exhibit B-1.

16.		“Alnylam Pre-Existing Alliance Parties” means the Third Party counterparties to Alnylam Pre-Existing Alliance Agreements and their respective successors in interest.

A – Page 2

17.

“Alnylam Technology” means, collectively, Alnylam Know-How, Alnylam Patent Rights, Alnylam Collaboration IP and Alnylam’s interest in Joint Collaboration IP, and any Third Party Technology that is included in the definition of Alnylam Technology after the Effective Date in accordance with Section 10.6.

18.		“Alnylam Third Party Obligations” means Alnylam’s obligations to, and the rights of, Alnylam Pre-Existing Alliance Parties and Listed Alnylam Counterparties with respect to the Alnylam Technology under Alnylam Pre-Existing Alliance Agreements and Listed Alnylam Third Party Agreements or Manufacturing Agreements, as applicable.

19.		“Annual Net Sales” means, with respect to a Licensed Product, the Net Sales of such Licensed Product during a Calendar Year.

20.		“API Bulk Drug Substance” means siRNA in bulk form manufactured for use as an active pharmaceutical ingredient.

21.		“Asia” means Brunei, Cambodia, China (including Hong Kong and Macao, but excluding Taiwan), Indonesia, Japan, Laos, Malaysia, Myanmar, North Korea, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.

22.		“Bankruptcy Code” shall have the meaning set forth in Section 15.14.

23.		“Baseball Arbitration” shall have the meaning set forth in Exhibit G.

24.		“Blocked Target” means any Target that is subject to a contractual obligation of an Alnylam Pre-Existing Alliance Agreement that would be breached by the inclusion of such Target as a Program Target under this Agreement.

25.		“Business Day” means a day on which banking institutions in Boston, Massachusetts are open for business.

26.		“Calendar Quarter” means the respective periods of three (3) consecutive calendar months ending on March 31, June 30, September 30 and December 31; provided that the first Calendar Quarter of the Term shall begin on the Effective Date and end on September 30, 2009, and the last Calendar Quarter of the Term shall end on the last day of the Term.

27.		“Calendar Year” means each successive period of twelve (12) months commencing on January 1 and ending on December 31; provided that the first Calendar Year of the Term shall begin on the Effective Date and end on December 31, 2009 and the last Calendar Year of the Term shall end on the last day of the Term.

28.		“Candidate Selection Stage” means the earlier of (a) the Parties’ selection of a development candidate pursuant to Section 4.4, or (b) the completion of all activities pursuant to the Joint Research Plan.

29.		“[**]Agreement” shall have the meaning set forth in Section 3.1(f).

A – Page 3

30.		“cGMP” means current Good Manufacturing Practices and equivalent Laws outside the United States.

31.		“Change of Control” means, with respect to a Party (the “Acquired Party”), the occurrence of the closing of (a) a merger, reorganization or consolidation involving the Acquired Party in which its shareholders immediately prior to such transaction would hold less than fifty percent (50%) of the securities or other ownership or voting interests representing the equity of the surviving entity immediately after such merger, reorganization or consolidation, or (b) a sale to a Third Party of all or substantially all of the Acquired Party’s assets or business relating to this Agreement.

32.		“Clinical Regulatory Filings” means data, filings or materials relating to Licensed Product submitted to the applicable Regulatory Authorities, including (a) data derived from Clinical Studies, (b) data derived from non-clinical studies, and (c) data, filings or materials relating to or contained in the CMC or a DMF.

33.		“Clinical Study” means a Phase I Study, Phase II Study, or Phase III Study, as applicable, but excluding any Post-Approval Studies.

34.		“CMC” means the chemistry, manufacturing and controls section of an IND or NDA in the United States, or the equivalent section of regulatory filings made outside the United States.

35.		“Collaboration” means the collaboration of the Parties in the activities governed by this Agreement, including such activities relating to the Discovery, Development, Manufacture and Commercialization of the Licensed Product(s).

36.		“Combination Product” means a Licensed Product combined with any other clinically active therapeutic or prophylactic ingredient, mechanism or device.

37.		“Commercialization” or “Commercialize” means any and all activities directed to marketing, promoting, detailing, distributing, importing, having imported, exporting, having exported, selling or offering to sell, or seeking to obtain reimbursement for, a product, whether before or after Regulatory Approval for such product has been obtained.

38.		“Commercialization Costs” shall have the meaning ascribed in Exhibit E.

39.		“Commercialization Plan” shall have the meaning set forth in Section 5.3(a).

40.		“Commercializing Party(ies)” means (a) Roche and Alnylam in the United States and Roche in the ROW Territory, if neither Party exercises its Opt-Out Right (unless otherwise mutually agreed by the Parties), or (b) the Continuing Party, if either Party exercises its Opt-Out Right or both Parties exercise their respective Opt-Out Rights, as the case may be.

41.		“Competitive Infringement” shall have the meaning set forth in Section 10.4(a).

42.		“Competitive Product” means any [**].

A – Page 4

43.		“Confidential Information” means the terms of this Agreement and all Know-How or other information, including proprietary information and materials (whether or not patentable) regarding a Party’s technology, products, business information or objectives, that is treated as confidential by the disclosing Party in the regular course of business or is otherwise designated as confidential by the disclosing Party. For the avoidance of doubt, the identity of any Program Targets shall be deemed the Confidential Information of both Parties.

44.		“Continuing Party” means the Party that decides (or is decided by mutual agreement of the Parties, as the case may be) to unilaterally pursue the Development, Manufacture and Commercialization of Licensed Product(s) following (a) the other Party’s exercise of its Opt-Out Right or (b) the termination of this Agreement by the other Party pursuant to Section 14.2 or 14.3 (other than for a Diligence Breach).

45.		“Control” or “Controlled” means, with respect to any intellectual property right or other intangible property, the possession by a Party (whether by ownership or license) (other than a license granted pursuant to this Agreement), or “control” (as defined in the definition of “Affiliate” above) over an Affiliate having possession (by ownership or license), of the ability to grant access to, or a license or sublicense of, such rights or property as contemplated under this Agreement, subject to the provisions of Section 10.6.

46.		“Cover”, “Covered” or “Covering” means, with respect to a Patent Right, that, in the absence of a license granted to a Person under a Valid Claim included in such Patent Right, the practice by such Person of an invention claimed in such Patent Right would infringe such Valid Claim (or, in the case of a Patent Right that is a patent application, would infringe a Valid Claim in such patent application if it were to issue as a patent).

47.		“CPI” means the Consumer Price Index — Urban Wage Earners and Clerical Workers, U.S. City Average, All Items, 1982-84 = 100, published by the United States Department of Labor, Bureau of Labor Statistics (or its successor equivalent index) in the United States.

48.		“Debarred Party” shall have the meaning set forth in Section 7.5(a).

49.		“Delivery Compound” means the chemical compound or compounds contained in either Alnylam’s proprietary lipid nanoparticle system (LNP) or Roche’s proprietary dynamic polyconjugate (DPC) system.

50.		“Designated Target” shall have the meaning set forth in the LCA.

51.		“[**]” shall have the meaning set forth in the LCA.

52.		“Develop” or “Development” means any and all preclinical and clinical drug development activities, including test method development and stability testing, toxicology, animal efficacy studies, formulation, quality assurance/quality control development, statistical analysis, clinical studies, clinical trials and testing, regulatory affairs, product approval and registration, chemical development and Manufacturing

A – Page 5

		development, packaging development and Manufacturing and development documentation efforts in support of development activities anywhere in the world.
53.		“Development Costs” shall have the meaning ascribed in Exhibit E.

54.		“Development Plan” shall have the meaning set forth in Section 4.5(a).

55.		“Diligence Breach” means a breach of a Party’s diligence obligations under Section 8.1 or Section 8.2, as applicable.

56.		“Diligence Breach Cure Period” shall have the meaning set forth in Section 14.2(c).

57.		“Diligent Efforts” means, with respect to each Party’s obligations relating to the Licensed Product(s), the carrying out of such obligations in a diligent and sustained manner using efforts substantially similar to the efforts a biopharmaceutical company of comparable size and resources would typically devote to a product of similar market potential, profit potential, similar stage in development or commercialization, or strategic value resulting from its own research efforts, based on conditions then prevailing, and taking into account other relevant factors, including technical, medical, clinical efficacy, safety, manufacturing, and delivery considerations, product labeling or anticipated labeling, the patent and other proprietary position of the product, the regulatory environment and competitive market conditions.

58.		“Discover” or “Discovery” means any and all research or discovery activities, including all activities pursuant to the Joint Research Plan, conducted anywhere in the world.

59.		“DMF” means a Drug Master File filed with the FDA, or an equivalent filing with any other Regulatory Authority.

60.		“Effective Date” shall have the meaning set forth in the Preamble.

61.		“EMEA” means the European Medicines Agency or any successor agency thereto.

62.		“European Union” or “EU” means the countries of the European Union, as it is constituted as of the Effective Date and as it may be expanded from time to time.

63.		“Executive Officers” means the Chief Executive Officer of Alnylam (or a senior executive officer of Alnylam designated by Alnylam’s Chief Executive Officer) and the Global Head of Pharma Roche (or a senior executive officer of Roche designated by Roche’s Global Head of Pharma).

64.		“FBMC” shall have the meaning ascribed in Exhibit E.

65.		“FDA” means the United States Food and Drug Administration or any successor agency thereto.

66.		“Field” means the treatment or prophylaxis of diseases in humans.

A – Page 6

67.		“Finished Product” means the finished product formulation of Licensed Product, containing API Bulk Drug Substance, filled into unit packages for final labeling and packaging, and as finally labeled and packaged in a form ready for administration.

68.		“First Commercial Sale” means the first sale of a Licensed Product to a Third Party in a country following Regulatory Approval of such Licensed Product in that country or, if no such Regulatory Approval or similar marketing approval is required, the date upon which such Licensed Product is first commercially launched in such country.

69.		“First-in-Man Stage” means the earlier of (a) the issuance of a study report upon completion of GLP Toxicology Studies sufficient to file an IND in the United States or any Major Market Country, or (b) the first dosing of the first human patient in a Clinical Study.

70.		“First Phase II Completion” means the issuance of a study report upon completion of the first Phase II Study for a Licensed Product under the Development Plan.

71.		“Formulated Bulk” means the API Bulk Drug Substance which has been combined or conjugated with Delivery Compound, as the case may be, before being filled into unit packages.

72.		“FTE” means the number of full-time-equivalent person-years of Development (each consisting of a total of [**] hours, unless otherwise mutually agreed by the Parties), Manufacturing or Commercialization work by each Party’s personnel on or directly related to the applicable activity conducted hereunder.

73.		“GAAP” means the Parties’ respective generally accepted accounting principles, for Alnylam, the United States generally accepted accounting principles applied on a consistent basis, or any successor accounting principles generally accepted for public companies in the United States (such as IFRS), and for Roche, the IFRS, or any successor accounting principles. Unless otherwise defined or stated, financial terms shall be calculated by the accrual method under GAAP.

74.		“GLP Toxicology Study” means a toxicology study that is conducted in compliance with GLP and is required to meet the requirements for filing an IND.

75.		“Good Clinical Practice” means the current good clinical practice applicable to the clinical Development of Licensed Product under applicable Law, to the extent such standards are not less stringent than the U.S. current good clinical practice, including the ICH guidelines.

76.		“Good Laboratory Practice” or “GLP” means the current good laboratory practice applicable to the Development of Licensed Product under applicable Law, to the extent such standards are not less stringent than the U.S. current good laboratory practice, including 21 C.F.R. Part 58.

77.		“Governmental Authority” means any United States federal, state or local or any foreign government, or political subdivision thereof, or any multinational organization or

A – Page 7

		authority or any authority, agency or commission entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power, any court or tribunal (or any department, bureau or division thereof), or any governmental arbitrator or arbitral body.

78.		“ICH” means the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use.

79.		“IFRS” means International Financial Reporting Standards.

80.		“IND” means an application submitted to a Regulatory Authority to initiate human clinical trials, including (a) an Investigational New Drug application or any successor application or procedure filed with the FDA, (b) any non-U.S. equivalent of the foregoing, and (c) all supplements and amendments that may be filed with respect to any of the foregoing.

81.		“Indemnified Party” shall have the meaning set forth in Section 13.4(a).

82.		“Indemnifying Party” shall have the meaning set forth in Section 13.4(a).

83.		“IND-Enabling Studies” means pharmacokinetic and toxicology studies required to meet the requirements for filing an IND, including any GLP Toxicology Study.

84.		“Indication” means any disease or condition, or sign or symptom of a disease or condition.

85.		“JCT” shall have the meaning set forth in Section 2.2(a).

86.		“JFT” means the Joint Finance Team as set forth in Section 2.3.

87.		“Joint Collaboration IP” means Joint Collaboration Know-How and Joint Collaboration Patent Rights.

88.		“Joint Collaboration Know-How” means any Know-How, patentable or otherwise, first identified, discovered or developed jointly by the Parties or their Affiliates or others acting on behalf of Roche and Alnylam or their Affiliates in the conduct of the Collaboration.

89.		“Joint Collaboration Patent Rights” means any Patent Rights which claim or cover Joint Collaboration Know-How.

90.		“Joint Future Technology Committee” shall have the meaning set forth in the LCA.

91.		“Joint Research Plan” means the written workplan and timetable attached hereto as Exhibit C, as updated or amended from time to time in accordance with this Agreement. The initial Joint Research Plan is expected to commence on the Effective Date and shall expire on or before August 9, 2012.

A – Page 8

92.		“JPDT” means the Joint Project Development Team as set forth in Section 2.3.

93.		“JSC” shall have the meaning set forth in Section 2.1(a).

94.		“JSC Chairperson” shall have the meaning set forth in Section 2.1(b).

95.		“Know-How” means any information, inventions, trade secrets or technology, whether or not proprietary or patentable and whether stored or transmitted in oral, documentary, electronic or other form. Know-How shall include ideas, concepts, formulas, methods, procedures, designs, compositions, plans, documents, data, discoveries, developments, techniques, protocols, specifications, works of authorship, biological materials, and any information relating to research and development plans, experiments, results, compounds, therapeutic leads, candidates and products, clinical and preclinical data, clinical trial results, and Manufacturing information and plans (but excluding any scientific, regulatory, pre-clinical or clinical information or data regarding specific Indications and any marketing, financial, commercial, personnel and other business information and plans).

96.		“Law” means any law, statute, rule, regulation, ordinance or other pronouncement or requirement having the effect of law of any federal, national, multinational, state, provincial, county, city or other political subdivision, domestic or foreign.

97.		“LCA” shall have the meaning set forth in the Recitals.

98.		“Lead Regulatory Party” shall have the meaning set forth in Section 7.1(a).

99.		“Licensed Product” means an RNAi Product directed to a Program Target (or, subject to Section 4.3, to both Program Targets), in the form and formulation Developed (or to be Developed, as applicable) under the Program during the Research Term. All references to Licensed Product in this Agreement shall be deemed to include Combination Product, to the extent applicable.

100.		“Licensee Partner” means, with respect to a Party, any Third Party to which a sublicense is granted by such Party in accordance with the terms of this Agreement, including without limitation a Third Party distributor whose obligations to such Party or such Party’s Affiliates include responsibility for sales, marketing or distribution efforts in a country on behalf of such Party or such Party’s Affiliates, excluding wholesale distributors who purchase Licensed Products from such Party or such Party’s Affiliates in an arm’s length transaction and who have no other obligation to such Party or such Party’s Affiliates.

101.		“Listed Alnylam Counterparties” means the Third Party counterparties to Listed Alnylam Third Party Agreements or to Manufacturing Agreements, as applicable, and their respective successors in interest.

102.		“Listed Alnylam Third Party Agreement” means (a) the Listed Third Party Agreements (as defined in the LCA), (b) any agreement listed on Exhibit B-2, or (c) any other agreement between Alnylam and a Third Party executed during the Term, pursuant to

A – Page 9

		which Alnylam has rights and obligations with respect to, or which otherwise Cover, a Licensed Product and where (i) the intellectual property that is the subject of such agreement is included within Alnylam Technology, and (ii) such Alnylam Technology is necessary or reasonably useful to Discover, Develop, Commercialize or Manufacture the Licensed Product(s).

103.		“Listed Third Party Payment” shall have the meaning set forth in Section 9.3(g).

104.		“Losses” shall have the meaning set forth in Section 13.1.

105.		“Major EU Country(ies)” means Germany, France, the United Kingdom, Italy and Spain.

106.		“Major Market Country” means any of the United States, Germany, France, United Kingdom, Italy, Spain, and Japan.

107.		“Major Territory” means any of (a) the United States, (b) the EU, (c) Asia, and (d) all other territories not included within the foregoing clauses (a), (b) and (c).

108.		“Manufacture” or “Manufacturing” means any and all activities and operations involved in or relating to the manufacturing, quality control testing (including in-process, release and stability testing), releasing or packaging, for pre-clinical, clinical or commercial purposes.

109.		“Manufacturing Agreement” means any agreement listed on Exhibit B-3.

110.		“Manufacturing Technology” shall have the meaning set forth in Section 6.4(b).

111.		“NDA” means an application submitted to a Regulatory Authority for marketing approval of a product, including (a) a New Drug Application, Product License Application or Biologics License Application filed with FDA or any successor applications or procedures, (b) any non-U.S. equivalent of the foregoing, and (c) all supplements and amendments that may be filed with respect to the foregoing.

112.		“Necessary Third Party Patents” shall be as defined in the definition of “Required Third Party Payments” below.

113.		“Net Sales” means the amount calculated by subtracting from the amount of Adjusted Gross Sales (as defined below) the following:

		(a) With respect to Net Sales in the United States, a lump sum deduction of [] percent ([]%) of Adjusted Gross Sales in lieu of those sales-related deductions which are not accounted for by the Commercializing Party, its Affiliates and Licensee Partners on a product-by-product basis (e.g. outward freights, postage charges, transportation insurance, packaging materials for dispatch of goods, custom duties, bad debt expense, discounts granted later than at the time of invoicing);

		(b) With respect to Net Sales in the Major Market Countries (other than the U.S.) and Canada, a lump sum deduction of [] percent ([]%) of Adjusted Gross Sales in lieu of

A – Page 10

		those sales-related deductions which are not accounted for by the Commercializing Party, its Affiliates and Licensee Partners on a product-by-product basis (e.g. outward freights, postage charges, transportation insurance, packaging materials for dispatch of goods, custom duties, bad debt expense, discounts granted later than at the time of invoicing); and

		(c) With respect to Net Sales in all territories other than those set forth in subsections (a) and (b) above, a lump sum deduction of [] percent ([]%) of Adjusted Gross Sales in lieu of those sales-related deductions which are not accounted for by the Commercializing Party, its Affiliates and Licensee Partners on a product-by-product basis (e.g. outward freights, postage charges, transportation insurance, packaging materials for dispatch of goods, custom duties, bad debt expense, discounts granted later than at the time of invoicing).

		For purposes of this definition of “Net Sales”, “Adjusted Gross Sales” shall mean the amount of gross sales of the Licensed Product invoiced by the Commercializing Party, its Affiliates and its Licensee Partners to Third Parties less deductions of returns and return reserves (including allowances actually given for spoiled, damaged, out-dated, rejected, returned Licensed Product sold, withdrawals and recalls), rebates and rebate reserves (to the extent consistently applied by the Commercializing Party to its products), price reductions, rebates to managed care organizations or social and welfare systems, charge backs or reserves for chargebacks, cash sales incentives (but only to the extent it is a sales related deduction which is accounted for within the Commercializing Party on a product-by-product basis), cash discounts, government mandated rebates and similar types of rebates (e.g., Pharmaceutical Price Regulation Scheme, Medicaid, each as consistently applied by Commercializing Party to its products), volume (quantity) discounts, taxes (value added or sales taxes, government mandated exceptional taxes and other taxes directly linked to the gross sales amount).

		In the case where a Licensed Product is a Combination Product, the Parties shall meet approximately [**] prior to commercial launch of such Combination Product to negotiate in good faith and agree to an appropriate adjustment to Net Sales to reflect the relative significance of the RNAi Compound and the other pharmaceutically active agent(s) contained in the Combination Product. If the Parties are unable to agree upon such adjustment to Net Sales, royalties with respect to a Combination Product in a country shall be equal to the rates set forth in Section 9.3(a), 9.3(b) or 9.3(c), as applicable, multiplied by a fraction whose numerator is the Commercializing Party’s published sales price in such country for an equivalent dosage of RNAi Compound contained in a given Combination Product, and whose denominator is the Commercializing Party’s published sale prices in such country for an equivalent dosage of all active pharmaceutical ingredients contained therein. If the numerator or denominator cannot be determined in the manner set forth above within ninety (90) days following the meeting between the Parties described in the first sentence of this paragraph, then such matter shall be determined by binding arbitration conducted by one (1) arbitrator in accordance with the rules of Judicial Arbitration and Mediation Services, Inc. (JAMS). The arbitration shall be held in the State of Delaware and shall not last for a period longer than six (6) months.

A – Page 11

		In such arbitration, the arbitrator shall be an independent expert in worldwide marketing in the pharmaceutical industry mutually acceptable to the Parties or, if the Parties are unable to agree upon such arbitrator, shall be selected by the President of the JAMS office located in the State of Delaware.

114.		“Novartis” means Novartis Institutes for BioMedical Research, Inc.

115.		“[**]” shall have the meaning set forth in the LCA.

116.		“Opt-Out Point” shall have the meaning set forth in Section 4.9(a).

117.		“Opt-Out Product” shall have the meaning set forth in Section 4.9(a).

118.		“Opt-Out Right” means a Party’s right to opt out of the Program pursuant to Section 4.9(a).

119.		“Parties” means Alnylam and Roche; “Party” means either Alnylam or Roche.

120.		“Patent Expenses” shall have the meaning set forth in Section 10.3(g).

121.		“Patent Rights” means all patents (including all reissues, extensions, substitutions, confirmations, re-registrations, re-examinations, invalidations, supplementary protection certificates and patents of addition) and patent applications (including all provisional applications, continuations, continuations-in-part and divisionals), and foreign equivalents of any of the foregoing.

122.		“Person” means any natural person, corporation, firm, business trust, joint venture, association, organization, company, partnership or other business entity, or any government, or any agency or political subdivisions thereof.

123.		“Pharmacovigilance Agreement” shall have the meaning set forth in Section 7.2(b).

124.		“Phase I Completion” means the issuance of a study report upon completion of all Phase I Studies for a Licensed Product under the Development Plan.

125.		“Phase I Study” means a human clinical trial in any country that would satisfy the requirements of 21 C.F.R. § 312.21(a), as amended from time to time.

126.		“Phase II Completion” means the issuance of a study report upon completion of all Phase II Studies for a Licensed Product under the Development Plan.

127.		“Phase II Study” means a human clinical trial in any country, for which the primary endpoints include a determination of dose ranges or a preliminary determination of efficacy in patients being studied as described in 21 C.F.R. § 312.21(b), as amended from time to time.

128.		“Phase III Completion” means the issuance of a study report upon completion of all Phase III Studies for a Licensed Product under the Development Plan.

A – Page 12

129.		“Phase III Study” means a human clinical trial in any country that is prospectively designed to demonstrate statistically whether a product is safe and effective for use in humans in a manner sufficient to obtain regulatory approval to market such product in patients having the disease or condition being studied as described in 21 C.F.R. § 312.21(c), as amended from time to time.

130.		“Post-Approval Study” means a clinical study of Licensed Product that is initiated in a country in the Territory after receipt of Regulatory Approval for such Licensed Product in such country.

131.		“Product Liability Claim” means, with respect to a product, any Third Party claim, suit, action, proceeding, liability or obligation involving any actual or alleged death or bodily injury arising out of or resulting from the use of such product, other than an Advertising Claim or any claim, suit, action, proceeding, liability or obligation resulting from the price and commercial terms of Licensed Product in the U.S., or any policy governing the handling of returns, recalls, order processing, invoicing and collection, distribution, and inventory and receivables for, Licensed Product(s) in the U.S.

132.		“Product Liability Costs” means costs associated with Product Liability Claims resulting from the Development, Manufacture, Commercialization, or use of the Licensed Product(s) under this Agreement in the United States and product liability insurance premiums for policies covering the Development, Manufacture, Commercialization, or use of the Licensed Product(s) in the United States (other than Losses entitled to indemnification under Section 13.1 or Section 13.2).

133.		“Product Specific Know-How” means Know-How that is specific to a Licensed Product (and not broadly applicable to RNAi Products) or to particular sequences of a Licensed Product, including composition information and any preclinical and clinical test data related to any of the foregoing.

134.		“Product Specific Patent Rights” means claim(s) contained in Patent Rights that Cover any Product Specific Know-How.

135.		“Profit” means Net Sales of the Licensed Product(s) in the United States by the Commercializing Party and its Related Parties, minus (a) FBMC in the United States (as defined in Exhibit E).

136.		“Program” means the Collaboration activities performed or to be performed by the Parties with respect to the Licensed Product(s) under this Agreement.

137.		“Program Target” means (a) [] and (b) one (1) additional Target directed to the [] as may be mutually agreed by the Parties) as may be selected by mutual agreement of the Parties in accordance with Section 4.3. For purposes of clarity, [**].

138.		“Publishing Party” shall have the meaning set forth in Section 11.4.

A – Page 13

139.		“Regulatory Approval” means, with respect to a product in a country, the approval of the applicable Regulatory Authority necessary for the marketing and sale of such product in such country.

140.		“Regulatory Authority” means any federal, national, multinational, state, provincial or local regulatory agency, department, bureau or other governmental entity with authority over the marketing, pricing or sale of a pharmaceutical product in a country, including the FDA.

141.		“Related Party” means (a) with respect to Roche, any of Roche’s Affiliates or Licensee Partners, and, (b) with respect to Alnylam, any of Alnylam’s Affiliates or Licensee Partners.

142.		“Required Third Party Payments” means royalty payments to a Third Party made by the Commercializing Party under Third Party agreements (other than Listed Alnylam Third Party Agreements and Alnylam Pre-Existing Alliance Agreements, if Alnylam is a Commercializing Party) to license Patent Rights Covering such Third Party’s technology if, in the absence of such license, the licensed use by the Commercializing Party of the Patent Rights licensed by such Commercializing Party from the other Party under Section 3.1 (if the Commercializing Party is Roche) or Section 3.2 (if the Commercializing Party is Alnylam) would infringe such Third Party Patent Rights (such Third Party Patent Rights, “Necessary Third Party Patents”); provided, however, that Required Third Party Payments shall not include any royalties or other amounts payable to obtain access to (a) a specific Target or Targets so that such Target or Targets can be the subject of research and development efforts, or (b) Third Party delivery technologies (other than Delivery Patent Rights (as defined in the LCA)) which may be necessary or useful for delivery of double-stranded oligonucleotide molecules, or manufacturing techniques for such delivery technologies.

143.		“Research Term” means the period commencing on the Effective Date and ending on August 9, 2012 (as may be extended by mutual agreement of the Parties).

144.		“RNAi Compound” means any compound that, in vitro or otherwise, functions through the mechanism of RNA interference and consists of or encodes double-stranded oligonucleotides, and which double-stranded oligonucleotides optionally may be chemically modified to contain modified nucleotide bases or non-RNA nucleotides, and optionally may be administered in conjunction with a delivery vehicle or vector.

145.		“RNAi Product” means any product that contains one or more RNAi Compounds as an active ingredient.

146.		“Roche” shall have the meaning set forth in the Preamble.

147.		“Roche Basel” shall have the meaning set forth in the Preamble.

148.		“Roche Nutley” shall have the meaning set forth in the Preamble.

A – Page 14

149.		“Roche Collaboration IP” means Roche Collaboration Know-How and Roche Collaboration Patent Rights.

150.		“Roche Collaboration Know-How” means any Know-How Controlled by Roche, patentable or otherwise, first identified, discovered or developed solely by employees of Roche or its Affiliates or other persons not employed by Alnylam or any of its Affiliates acting on behalf of Roche or any of its Affiliates, in the conduct of the Collaboration. Roche Collaboration Know-How excludes Roche’s interest in Joint Collaboration Know-How.

151.		“Roche Collaboration Patent Rights” means any Patent Rights which claim or cover Roche Collaboration Know-How and are Controlled by Roche. Roche Collaboration Patent Rights exclude Roche’s interest in Joint Collaboration Patent Rights.

152.		“Roche Indemnitees” shall have the meaning set forth in Section 13.2.

153.		“Roche Know-How” means Know-How Controlled by Roche as of the Effective Date or as to which Roche obtains Control during the Term that is necessary or reasonably useful for Alnylam and its Affiliates to perform their obligations or exploit their rights under this Agreement with respect to the Licensed Product(s), including their rights to Discover, Develop, Manufacture, or Commercialize Licensed Product (other than Roche’s rights in Joint Collaboration Know-How and Roche Collaboration Know-How).

154.		“Roche Patent Rights” means those Patent Rights that are Controlled by Roche as of the Effective Date or as to which Roche obtains Control during the Term that are necessary or reasonably useful for Alnylam and its Affiliates to perform their obligations or exploit their rights under this Agreement with respect to the Licensed Product(s), including their rights to Discover, Develop, Manufacture, or Commercialize the Licensed Product(s) (other than Roche’s rights in Joint Collaboration Patent Rights and Roche Collaboration Patent Rights).

155.		“Roche Technology” means, collectively, Roche Know-How and Roche Patent Rights, Roche Collaboration IP and Roche’s interest in Joint Collaboration IP, and any Third Party Technology that is included in the definition of Roche Technology after the Effective Date in accordance with Section 10.6.

156.		“ROW Territory” means the entire Territory other than the United States.

157.		“Royalty Term” means, separately with respect to each Licensed Product in each country, the period commencing on the First Commercial Sale of such Licensed Product in such country (provided that either (x) such Licensed Product is Covered by a Valid Claim of the Alnylam Platform Patent Rights, Alnylam Patent Rights, Roche Patent Rights, Alnylam Collaboration Patent Rights, Roche Collaboration Patent Rights or Joint Collaboration Patent Rights in such country at the time of such First Commercial Sale in such country, or (y) the Manufacture of such Licensed Product is Covered by a Valid Claim of the Alnylam Platform Patent Rights, Alnylam Patent Rights, Roche Patent Rights, Alnylam Collaboration Patent Rights, Roche Collaboration Patent Rights or Joint Collaboration Patent Rights in the country or countries in which such Licensed Product is

A – Page 15

		Manufactured) and concluding on the expiration of the later of (a) the last to expire Alnylam Platform Patent Right, Alnylam Patent Right, Roche Patent Right, Alnylam Collaboration Patent Right, Roche Collaboration Patent Right or Joint Collaboration Patent Right containing a Valid Claim Covering the Development, Commercialization or Manufacture of such Licensed Product in that country, (b) the last to expire Alnylam Platform Patent Right, Alnylam Patent Right, Roche Patent Right, Alnylam Collaboration Patent Right, Roche Collaboration Patent Right or Joint Collaboration Patent Right containing a Valid Claim Covering the Manufacture of such Licensed Product in the country or countries in which such Licensed Product was Manufactured, or (c) ten (10) years from the date of First Commercial Sale of such Licensed Product in such country.

158.		“[]” means [].

159.		“Sales Representative” means an individual, who engages in or manages sales calls and other promotional efforts with respect to Licensed Product and who is employed by a Party or an Affiliate of a Party.

160.		“Severed Clause” shall have the meaning set forth in Section 15.3.

161.		“Supply Agreement” shall have the meaning set forth in Section 6.3.

162.		“Supply Agreement Term Sheet” shall have the meaning set forth in Section 6.2(c).

163.		“Target” means (a) a polypeptide or entity comprising a combination of at least one polypeptide and other macromolecules, that is a site or potential site of therapeutic intervention by a therapeutic agent; or a nucleic acid which is required for expression of such polypeptide; (b) variants of a polypeptide (including any splice variant thereof), cellular entity or nucleic acid described in clause (a); or (c) a defined non-peptide entity, including a microorganism, virus, bacterium or single cell parasite; provided that the entire genome of a virus shall be regarded as a single Target.

164.		“Term” shall have the meaning set forth in Section 14.1.

165.		“Terminated Patent Right” shall have the meaning set forth in Section 9.3(i).

166.		“Territory” means the entire world.

167.		“Third Party” means any Person other than Alnylam or Roche and their respective Affiliates.

168.		“Third Party Contractors” means Third Party contractors such as contract research organizations, contract employees, consultants, contract manufacturers and the like.

169.		“Third Party Technology” shall have the meaning set forth in Section 10.6(a).

170.		“UBC” means the University of British Columbia.

A – Page 16

171.		“UBC Sublicense Agreement” means the Sublicense Agreement between Tekmira Pharmaceuticals Corporation (formerly INEX Pharmaceuticals Corporation) and Alnylam Pharmaceuticals, Inc., dated January 8, 2007.

172.		“United States” or “U.S.” means the United States of America and its territories and possessions.

173.		“Valid Claim” means a claim (a) of any issued, unexpired patent that has not been revoked or held unenforceable or invalid by a decision of a court or governmental agency of competent jurisdiction from which no appeal can be taken, or with respect to which an appeal is not taken within the time allowed for appeal, and that has not been disclaimed or admitted to be invalid or unenforceable through reissue, disclaimer or otherwise, or (b) of any patent application that has not been cancelled, withdrawn or abandoned, or been pending for more than [**] from the earliest priority date for such patent application.

A – Page 17

EXHIBIT B-1

Alnylam Pre-Existing Alliance Agreements

Copies of the following agreements, some in redacted form, have been, or shall be, made available to Roche as of the Effective Date:

Amended and Restated Strategic Collaboration and License Agreement between Isis Pharmaceuticals, Inc. and Alnylam Pharmaceuticals, Inc., dated April 28, 2009

Cross-License Agreement between Protiva Biotherapeutics Inc. and Alnylam Pharmaceuticals, Inc., dated August 14, 2007

Amended and Restated Cross-License Agreement between Protiva Biotherapeutics Inc. and Alnylam Pharmaceuticals, Inc., dated May 30, 2008

Amended and Restated License and Collaboration Agreement between Tekmira Pharmaceuticals Corporation and Alnylam Pharmaceuticals, Inc., dated May 30, 2008

License and Collaboration Agreement between Takeda Pharmaceutical Company Limited and Alnylam Pharmaceuticals, Inc., dated May 27, 2008, as supplemented by letter agreement dated May 27, 2008

Sponsored Research Agreement between the University of British Columbia, AlCana Technologies, Inc., and Alnylam Pharmaceuticals, Inc., dated July 27, 2009, as supplemented by the Supplemental Agreement between Tekmira Pharmaceuticals Corporation, Protiva Biotherapeutics Inc., the University of British Columbia, AlCana Technologies, Inc., and Alnylam Pharmaceuticals, Inc., dated July 27, 2009

Letter amendments dated July 11, 2008 and July 11, 2009 to the Research Collaboration and License Agreement, effective as of October 12, 2005, by and between Alnylam and Novartis, as amended by the Addendum Re: Influenza Program effective as of December 13, 2005, Amendment No. 1 to such Addendum effective as of March 14, 2006, and Amendment No. 2 to such Addendum effective as of May 5, 2006

Letter agreement dated January 31, 2008 to the Strategic Collaboration & License Agreement between Isis Pharmaceuticals, Inc., and Alnylam Pharmaceuticals, Inc., dated March 11, 2004, as supplemented or amended by letter agreements dated March 9, 2004 (as amended by letter agreement dated October 28, 2005), March 11, 2004, and June 10, 2005

B-1 – Page 1

EXHIBIT B-2

Listed Alnylam Third Party Agreements

Copies of the following agreements, some in redacted form, have been, or shall be, made available to Roche as of the Effective Date:

License Agreement between Celo GmbH and Alnylam Pharmaceuticals, Inc., dated July 27, 2009

Licensing Agreement between ETH Zurich and Alnylam Pharmaceuticals, Inc., dated April 30, 2009

Amended and Restated Strategic Collaboration and License Agreement between Isis Pharmaceuticals, Inc. and Alnylam Pharmaceuticals, Inc., dated April 28, 2009

Cross-License Agreement between Protiva Biotherapeutics Inc. and Alnylam Pharmaceuticals, Inc., dated August 14, 2007

Amended and Restated Cross-License Agreement between Protiva Biotherapeutics Inc. and Alnylam Pharmaceuticals, Inc., dated May 30, 2008

Amended and Restated License and Collaboration Agreement between Tekmira Pharmaceuticals Corporation and Alnylam Pharmaceuticals, Inc., dated May 30, 2008

Exclusive License Agreement between The Regents of the University of California and Alnylam Pharmaceuticals, Inc., dated April 3, 2009

Waiver Amendment dated August 9, 2007 to the Co-Exclusive License Agreement between Max Planck Innovation GmbH (formerly Garching Innovation GmbH) and Alnylam Pharmaceuticals, Inc., dated December 20, 2002, as amended by Amendment dated July 2, 2003, and the Requirements Amendment effective June 15, 2005

10.

Amendments dated May 7, 2008 and May 20, 2008 to the Amended and Restated Exclusive Patent License Agreement between Alnylam Pharmaceuticals, Inc., and Massachusetts Institute of Technology, dated May 9, 2007

B-2 – Page 1

11.

License Agreement between Medical College of Georgia Research Institute, Inc., and Nucleonics, Inc., dated May 18, 2001, as amended on November 19, 2001, April 18, 2003, December 16, 2003, and July 20, 2004, and assigned from Nucleonics, Inc., to Alnylam Pharmaceuticals, Inc., on December 5, 2008

12.

License Agreement between Wyeth and Nucleonics, Inc, dated June 30, 2003, as amended on August 28, 2006, and assigned from Nucleonics, Inc., to Alnylam Pharmaceuticals, Inc., on December 5, 2008

13.

License Agreement between Wyeth and Nucleonics, Inc., dated August 28, 2006, and assigned from Nucleonics, Inc., to Alnylam Pharmaceuticals, Inc., on December 5, 2008 [Wyeth as Licensor]

14.

License Agreement between Wyeth and Nucleonics, Inc., dated August 28, 2006, and assigned from Nucleonics, Inc., to Alnylam Pharmaceuticals, Inc., on December 5, 2008 [Nucleonics as Licensor]

15.

Sublicense Agreement between Wyeth and Nucleonics, Inc., dated June 30, 2003, and assigned from Nucleonics, Inc., to Alnylam Pharmaceuticals, Inc., on December 5, 2008

16.

Assignment between Wyeth and Nucleonics, Inc., dated July 13, 2007, and assigned from Nucleonics, Inc., to Alnylam Pharmaceuticals, Inc., on December 5, 2008

B-2 – Page 2

EXHIBIT B-3

Manufacturing Agreements

Copies of the following agreements, some in redacted form, have been, or shall be, made available to Roche as of the Effective Date:

[**]

B-3 – Page 1

EXHIBIT C

Joint Research Plan

Alnylam-Roche [**] Collaboration Workplan
September 9, 2009
FINAL

[**]

C – Page 1

Summary of Research Plan and Timeline:

[**]

A total of two pages were omitted pursuant to a request for confidential treatment.

C – Page 2

EXHIBIT D

Supply Agreement Term Sheet

1. Alnylam and Roche shall use their respective Diligent Efforts to enter into a Supply Agreement which will be consistent with the terms of this Supply Agreement Term Sheet. From the Candidate Selection Stage until the effective date of the Supply Agreement, the terms of the Agreement and this Supply Agreement Term Sheet shall govern the Manufacture and supply of API Bulk Drug Substance, Delivery Compound, Formulated Bulk and Finished Product (as applicable) under the Agreement, including pre-clinical and clinical supply in the quantities and on the delivery terms set forth in the Development Plan (or as otherwise mutually agreed by the Parties); provided, however, that in the event of conflict between this Supply Agreement Term Sheet and the Agreement, the terms of the Agreement shall apply.

2. The Parties shall be responsible for establishing the specifications (the “Specifications”) and approving the master batch record, including the necessary documentation, certificates of analysis and test results, for the API Bulk Drug Substance, Delivery Compound, Formulated Bulk and Finished Product (as applicable), to be supplied under the Supply Agreement.

3. Unless agreed otherwise in writing by the Parties, [**] before the commencement of each Calendar Quarter, each Party will give to the other Party (and to the JSC if the JSC remains in effect) a rolling [**] Calendar Quarter forecast (“Forecast”) of the estimated quarterly requirements of API Bulk Drug Substance, Delivery Compound, Formulated Bulk and Finished Product (as applicable) for which such other Party Controls the Manufacturing technology. Such Forecast will include quantity and unit requirements for API Bulk Drug Substance, Delivery Compound, Formulated Bulk and Finished Product (as applicable) in the United States and the ROW Territory. [**] percent ([**]%) of forecasted requirements during the first [**] Calendar Quarters of such Forecast shall be considered binding on the Parties. The purchasing Party will provide the supplying Party with binding purchase orders at least [**] in advance of the requested delivery. If the purchasing Party requests any changes to the Forecast, the supplying Party shall (i) use its commercially reasonable efforts to accommodate such requests and (ii) use its commercially reasonable efforts to minimize any costs incurred as a result of such changes.

4. In the event of an anticipated shortage of supply of API Bulk Drug Substance, Delivery Compound, Formulated Bulk or Finished Product (as applicable), which a Party is responsible for supplying to the other Party hereunder, such supplying Party shall promptly notify the other Party and, unless otherwise agreed by the Parties, available supply shall be allocated between the United States and the ROW Territory on a pro-rata basis based on good faith forecasts of requirements. In addition, the supplying Party will use commercially reasonable efforts to engage a secondary source of supply and to resolve all anticipated failure to supply issues as promptly as possible in consultation with the other Party.

5. If and to the extent that a Failure to Supply (as hereinafter defined) occurs, the purchasing Party, if the purchasing Party is also the Commercializing Party, shall have the right to assume control of the Manufacture of the Licensed Product(s) by requesting a transfer of Manufacturing pursuant to Section 6.4. For purposes of this Supply Agreement Term Sheet, a “Failure to Supply” will be deemed to have occurred only after the supplying Party and all secondary

D – Page 1

sources of supply made available to the purchasing Party have failed to deliver [**] percent ([**]%) of the aggregate requirements for API Bulk Drug Substance, Delivery Compound, Formulated Bulk and Finished Product (as applicable) for a given Calendar Quarter as described in the Forecast, in [**] out of any [**] consecutive Calendar Quarters.

6. Each Party agrees that all API Bulk Drug Substance, Delivery Compound, Formulated Bulk and Finished Product (as applicable) supplied to the other Party hereunder will, at the time of delivery to such other Party, have been Manufactured in accordance with the Specifications and the master batch record, and except for batches not intended for human use, with cGMP. The supplying Party will be solely responsible for all costs and expenses caused by failed batches, including batches which fail to meet the requirements of the previous sentence, as a result of the negligence or intentional misconduct of any employee of such supplying Party. The purchasing Party will be responsible for all costs and expenses caused by failed batches other than as a result of the negligence or intentional misconduct of any employee of the supplying Party.

7. In addition to more detailed terms regarding the matters specified above in this Supply Agreement Term Sheet, the Supply Agreement shall contain other customary supply agreement provisions, including indemnification provisions appropriate for a supply agreement. Furthermore, Alnylam and Roche will enter into a Technical and Quality Agreement with respect to the Licensed Product(s) governing, among other things, quality assurance requirements, documentation and procedures, audit and inspection rights and similar matters.

D – Page 2

EXHIBIT E

FINANCIAL APPENDIX

This Exhibit E sets forth the principles for capturing, reporting and consolidating Development Costs, Commercialization Costs, and Profit sharing. Roche shall be responsible for all other costs with respect to Licensed Product(s).

For such purpose, this Exhibit E sets forth the principles for reporting actual results and budgeted plans in the United States, the frequency of reporting, the use of a single “Functional Currency” (as defined under the heading “Foreign Exchange” below) and the methods of determining payments to the Parties, auditing of accounts and other matters.

This Exhibit E also provides agreed upon definitions of financial terms applicable to the Parties for any Licensed Product. Except for the term Licensed Product, all capitalized terms used herein without definition shall have the meanings ascribed thereto in the Agreement and, where applicable, the further definitions contained herein. The term “Product” in this Exhibit E shall mean Licensed Product. References in this Exhibit E to a “Party” or “Parties” shall be construed to mean Alnylam or Roche, as the case may be, and in every case shall be deemed to include a Party’s Affiliates or Licensee Partners under the Agreement. Capitalized terms used herein, but not otherwise defined, shall have the meanings given them in the Agreement.

Notwithstanding anything in the Agreement to the contrary, no cost, expense, amount or sum allocable or chargeable to the Parties’ activities under the Agreement shall be allocated or charged more than once. Unless otherwise specifically authorized by the Parties or the Agreement, all costs, expenses, amounts or sums to be charged or allocated by one Party to the other Party under the Agreement shall not be so chargeable or allocable unless they are both directly related to the Agreement and the activities to be performed under the Agreement and are reasonable and customary with respect to the global biopharmaceutical industry considering the respective size and activities of the two Parties as collaborators under the Agreement.

ARTICLE I

REPORTING AND CONSOLIDATION OF DEVELOPMENT COSTS AND
COMMERCIALIZATION COSTS

Section 1.1 Preparation of Budgets. Preparation of annual budgets will be initiated in each July during such period and a preliminary budget will be presented for review by the JFT before [**] during such period. The completed Development Plan budget or Commercialization Plan budget, as applicable, should be approved by the Parties by the end of each November during such period. Reporting by each Party will be performed as follows (with copies provided to the JPDT or JCT and to the other Party):

E – Page 1


Reporting Event (calendar basis)	Submission	Frequency	Deadline
Q1-Q3	Actuals	End of Calendar Quarter	[**]
Q4	Actuals	End of Calendar Quarter	[**]
Preliminary annual budget		Annually	[**]
Final annual budget		Annually	[**]
Forecasts for sales (current Calendar Year) for the United States		Quarterly, except Q4	[**]
Full profit and loss forecast for the United States (current Calendar Year)		Quarterly, except Q4	[**]

Responsibility for preparing the Development Plan budget and Commercialization Plan budget (other than the initial budget, which shall be determined by the Parties) will rest with the JPDT and JCT, respectively. Both JPDT and JCT budgets shall be reviewed and approved by the JFT and presented to the JSC for review (which shall then present to the Parties for approval).

Section 1.2 Reporting. Each Party shall report to the other Party and the JFT actual, budget and forecast results of operations related to the following, as applicable:

[**]

The JFT shall be responsible for the preparation of consolidated reporting (actuals, budgets and forecasts) for the Development Costs, Commercialization Costs and Profit based upon the Commercialization Plan Reports, Development Plan Reports and Sales Reports provided by the Parties as specified below, as well as determination of the cash settlement.

E – Page 2

Within [**] days after the end of each Calendar Quarter (or for the last Calendar Quarter of each Calendar Year, within [**] days after the end of such Calendar Quarter), each Party shall provide the other Party and the JFT with such Party’s “Commercialization Plan Report” for such Calendar Quarter. Such report shall be in writing and shall summarize the marketing and promotional activities undertaken by such Party (or its relevant local Affiliates) during such Calendar Quarter in connection with the applicable Commercialization Plan, together with a detailed project-level statement of commercialization-related expenses incurred by such Party during such Calendar Quarter that are specific to the United States and satisfy those additional criteria necessary to qualify as Commercialization Costs. Such report shall also address any necessary adjustments of Commercialization Costs for previous Calendar Quarters. Within [**] days after the end of each Calendar Quarter (or for the last Calendar Quarter of each Calendar Year, within [**] days after the end of such Calendar Quarter), Roche shall provide Alnylam and the JFT with Roche’s “Sales Report” for such Calendar Quarter. Such report shall be in writing and shall summarize the Product sales made by Roche in the United States in such Calendar Quarter and the calculation of Adjusted Gross Sales, Net Sales and Profit with respect to such sales. Such report shall also address any necessary adjustments of Adjusted Gross Sales, Net Sales and Profit for previous Calendar Quarters.

The JFT will be responsible for monitoring and agreeing upon appropriate controls to ensure reasonable and consistent calculation of Commercialization Costs, Development Costs and Profit under the Agreement, including in the Development Plan Reports, Commercialization Plan Reports and Sales Reports. More specifically, the JFT shall review the budgeted and forecasted versus actual FTEs and external expenses per quarter. In any event, the JFT shall review use of FTE resources on a quarterly basis. The Parties shall also use commercially reasonable efforts to provide access to available discounts and discount programs available from existing vendors for the benefit of the Parties under the Agreement. The Parties’ actual results compared to budget and forecast will be calculated by the JFT and set forth in the Reconciliation Statement described below.

The Parties will work together to keep actual spending within the approved budget and forecast; provided, that, the Parties shall continue to share in Development Costs and Commercialization Costs that exceed the budget by up to [**] percent ([**]%). The Parties shall discuss in good faith the adoption of additional control measures to address deviations from the approved budget and forecast on an annual basis above [**] percent ([**]%). If a Party contemplates that any expenditure will increase the annual budget associated with the Commercialization Plan by more than [**] percent ([**]%), the Parties shall review the expenditure with the JCT prior to commitment to that expenditure. The JFT will meet as appropriate to review and approve the reporting events (actuals, budgets and forecasts) and any deviations from the approved budget.

Each Party shall report Development Costs and Commercialization Costs based on its project cost system (which shall in any event track FTEs by functional area and by month) or using such other system as such Party applies with respect to its internal programs and which system has been reviewed with the JFT. In general, these project cost systems shall report actual and/or allocable time spent on specific projects, apply the FTE rates, determined in the manner specified in Section 1.6 below.

E – Page 3

Section 1.3 Reconciliation Statements. The financial representatives from each Party on the JFT shall be responsible for, within [**] calendar days following the end of a Calendar Quarter (or, for the last Calendar Quarter in a Calendar Year, within [**] days after the end of such Calendar Quarter), preparing and providing to the other Party (through the JFT) and to the JPDT and JCT, a statement (“Reconciliation Statement”), in a format agreed to by the Parties and based on the information contained in Development Plan Reports, Commercialization Plan Reports and Sales Report provided by Parties for such Calendar Quarter and any additional information obtained by the JFT from the Parties, that shows each Party’s results, the calculations of Development Costs, Commercialization Costs, cost-sharing under the Agreement and any cash settlement required for such Calendar Quarter. The JPDT and JCT shall each promptly decide whether to approve those portions of the Reconciliation Statement that are under its jurisdiction. If there is a dispute within the JPDT or JCT (or both) regarding approval of a Reconciliation Statement, the JFT shall submit such dispute to the Executive Officers of each Party for resolution. The Executive Officers shall undertake good faith efforts to resolve such dispute and approve the Reconciliation Statement (or, if applicable, an amended Reconciliation Statement) no later than [**] days after the end of the applicable Calendar Quarter (or, for the last Calendar Quarter in a Calendar Year, within [**] days after the end of such Calendar Quarter).

Section 1.4 Foreign Exchange. The “Functional Currency” for accounting for Development Costs and Commercialization Costs will be U.S. dollars.

Section 1.5 Payments Between the Parties. Based upon the Reconciliation Statement, as prepared by the JFT and approved by the JPDT and JCT or the Executive Officers of each Party, as applicable, there shall be a cash settlement between the Parties of the amounts due under the Reconciliation Statement and each Party’s share of the Profit. The Party that is owed any amount under the Reconciliation Statement will provide the other Party an invoice for such amount, and such other Party shall pay such invoice within [**] days after approval of the applicable Reconciliation Statement and receipt of the applicable invoice. In the event any payment is made after the date specified in the preceding sentence and provided that such payment is not otherwise subject to good faith dispute, the paying Party shall pay interest as set forth in Section 9.7 of the Agreement. For clarity, the Parties shall separately identify, and make a separate payment for each of, the share of Profit provided for in Section 9.2 of the Agreement and the other payment (for Development Costs and Commercialization Costs) required pursuant to the Reconciliation Statement; however, both payments will take place on the same day.

Section 1.6 FTE Rates.

(a) The Parties have agreed on the Development FTE-rate, as set forth in clause (b) below, that will be charged for the resources allocated to the Development Plan activities from the functions directly operating the activities on a fractional Development FTE-basis. The Parties contemplate that this rate captures total actual personnel and fixed costs attributable to the performance of the Development Plan under this Agreement.

(b) All Development FTE expenditures shall be included in Development Costs based on a rate of US$[**] per Development FTE. For each Calendar Year after 2010, the Development FTE rate will be adjusted by the increase or decrease in CPI as published by the

E – Page 4

U.S. Bureau of Labor Statistics for the previous Calendar Year. All people within these functions will record the percent of time each month spent on the activities under the programs. For clarity, Development FTE time recording should be made on a fractional basis. Each Party will also use its respective project cost system with the purpose of tracking and reporting costs on a project/product indication/work package level.

(c) FTE rates (i.e., Sales Force FTE Rate, G&A FTE Rate, Medical Affairs FTE Rate, Marketing FTE Rate) for purposes of determining Commercialization Costs hereunder shall be determined as set forth in Article II below.

E – Page 5

ARTICLE II

RELEVANT DEFINITIONS

Section 2.1 “Development Costs” shall mean the expenses incurred by a Party or for its account that are consistent with the Development Plan and specifically are attributable to the Development of a Product for a particular indication for approval in the U.S., commencing from the completion of activities under the Joint Research Plan onward until First Commercial Sale of the Product for such indication. Development Costs shall include amounts paid by a Party to Third Parties involved in the Development of Products, and all internal costs incurred by a Party in connection with the Development of Products. Notwithstanding anything to the contrary herein, Development Costs shall not include any expenses associated specifically for Development for a country other than the U.S.; except to the extent such expenses relate to Development activities specifically included in the Development Plan for the purpose of generating data or information to obtain expand and/or maintain Regulatory Approval in the United States.

Development Costs shall include the Fully Burdened Manufacturing Cost for clinical supplies for the Development Plan, the cost of the development plans and programs for the Development Plan, and the Required Third Party Payments payable prior to First Commercial Sale in the U.S., and the cost of Development pursued under the Development Plan through receipt of Regulatory Approval for such Product (including the cost of studies on the toxicological, pharmacokinetic, metabolic or clinical aspects of such Product conducted internally or by individual investigators or consultants necessary for the purpose of obtaining approval of such Product by a government organization in the U.S), and costs for preparing, submitting, reviewing or developing data or information for the purpose of a submission to a Regulatory Authority to obtain Regulatory Approval of the Product in a country within the Development Plan. For clarity, the cost of a human clinical trial conducted to support the filing of a Supplemental NDA, as defined in the FD&C Act and applicable regulations promulgated thereunder by the FDA, or equivalent application in any other regulatory jurisdiction within the Development Plan, or conducted to otherwise support a new Regulatory Approval of a Product in the U.S., shall be included within Development Costs, notwithstanding the fact that such trial is conducted after receipt of a Regulatory Approval for such Product. Development Costs shall not include Legal Expenses, Pre-Launch Marketing Expenses or Post-Approval Studies.

Section 2.2 “Fully Burdened Manufacturing Cost” or “FBMC” shall mean the manufacturing cost for a Product, as defined by Roche’s or Alnylam’s, as the case may be, standard cost accounting practices and policies, both in accordance with IFRS or GAAP, as applicable. In the event of any transfer of Product among Roche, Alnylam, its Affiliates or Licensee Partners, FBMC shall exclude any profit or other mark-up by any such parties.

Such FBMC shall include direct labor, materials, product testing costs (including quality control and quality assurance bulk testing and in-process testing e.g. adventitious virus and mycoplasma testing), direct Third Party contracting cost, Period Costs, cost of failed batches, and manufacturing overhead allocable to the Product (including information technology, human resources, manufacturing planning, manufacturing finance and control, energies, waste maintenance, insurance, custom & duties, shipment & logistic cost, warehousing and storage and

E –Page 6

distribution cost, to the extent that each is manufacturing and Product-specific), for manufacturing or contracting for each stage of the manufacturing process of the Product shipped. The Parties will discuss and agree annually between October and January the main drivers of FBMC for the up-coming Calendar Year. On or before October 31st of each Calendar Year, the parties will agree to an estimated FBMC to be charged for the subsequent Calendar Year, subject to annual true-up process, which will be agreed upon by the JFT.

Such FBMC shall not include any costs associated with process development, scale up costs, qualification lots and any other costs if they are included in Development Costs. If qualification lots are used for Product sale, then Alnylam’s share of those Development Costs will be credited towards FBMC in the United States. This credit shall be a variance to FBMC based upon the unit pull-through of the qualification lots into Product Net Sales. The Parties shall discuss and agree upon cost-sharing principles for pre-launch investments, including but not limited to expanded production facilities and commitments to Third Parties, in case of unforeseen delay in launch.

Section 2.3 “Period Costs” shall be comprised of:

(a) Write offs and disposal cost of expired goods (raw materials, intermediates and Products valued at FBMC) (it being understood that the collaboration shall consider the Commercialization Plan requirements when establishing the manufacturing supply);

(b) Inventory valuation differences: The valuation difference for inventory in stock resulting from any change of standard FBMC at that respective point in time. At least annually, Roche will review and compare its standard FBMC for a Product when that particular material was produced to its new standard FBMC and make a retroactive adjustment to the inventory value;

(d) Excess capacity and idle plant cost to the extent associated with the Product and provided for in the Commercialization Plan with the consent of Alnylam. Except with the consent of Alnylam, FBMC shall not include excess capacity or idle plant cost that was not provided for in the Commercialization Plan in view of the anticipated needs and associated demand forecast of the Licensed Product. Period Costs will be credited for the costs of any idle plant that was ear-marked for a different Roche product but actually used by a Product; and

(e) Normal yield losses and variances that could have reasonably been expected and/or justified in this area of technology.

Section 2.4 “Commercialization Costs” means those expenses incurred by a Party which are generally consistent with the Commercialization Plan (and associated budget) and are specifically attributable to Products in the United States, and shall consist of (i) Marketing Expenses, (ii) Medical Affairs Expenses, (iii) Out-of-Pocket Costs, (iv) Legal Expenses, (v) Third Party License Fees, (vi) General and Administrative Expenses, (vii) Post- Launch Product R&D Expenses, (viii) Sales Force Expenses, and (ix) Restructuring Expenses. Commercialization Costs shall exclude Development Costs. Notwithstanding the foregoing,

E – Page 7

Legal Expenses need not be consistent with the Commercialization Plan (and associated budget) as long as they have been approved by the JCT. Each Party shall allocate its Commercialization Costs and each of the expenses based on reasonable accounting methodologies consistently applied throughout such Party’s organization. The foregoing shall not include any Out-of-Pocket Costs or other costs which have been included in Development Costs. For clarity, it is the intent of the Parties that costs and headcount included in the foregoing will not be unfairly allocated to the Products (to the extent that any Commercialization Cost is attributable, in part, to products or activities other than the Products).

Section 2.5 “Marketing Expenses” means the costs incurred by a Party, excluding Sales Force Expenses, which are generally consistent with the Commercialization Plan (and associated budget) and are specifically attributable to the sale, promotion, and/or marketing of a Product in the United States. Marketing Expenses shall be the sum of Marketing Management, Market and Consumer Research, Pre-Launch Marketing Expenses, Advertising, Trade Promotion and Consumer Promotion (each of which is specified below). To the extent that Marketing Expenses consist of costs other than Third Party costs, it shall mean the product of (a) the number of FTEs directly involved in performing Marketing Management, Market and Consumer Research, Advertising, Trade Promotion, and Consumer Promotion and (b) the applicable Marketing FTE Rate. For purposes of calculating the number of FTEs, an allocated portion of the marketing staff directly involved in the management of and the performance of the marketing functions in the United States for such Product shall be included.

(a) “Marketing FTE Rate” shall mean, for the Calendar Year in which the First Commercial Sale in the United States occurs, a rate agreed upon by the Parties at least twelve (12) months prior to the anticipated date of Regulatory Approval in the United States, based on the fully burdened field force cost of major pharmaceutical companies in the United States.

(b) “Marketing Management” shall include product management and sales promotion management compensation and departmental expenses. This shall include costs associated with developing overall sales and marketing strategies and planning for Products. In addition, payments to Third Parties in connection with Product-specific trademark selection, filing, prosecution and enforcement shall be included in this category.

(c) “Market and Consumer Research” shall include compensation and departmental expenses for market and consumer research personnel and payments to Third Parties related to conducting and monitoring professional and consumer appraisals of existing, new or proposed Products such as market share services (e.g., IMS data), special research testing, and focus groups.

(d) “Advertising” shall include all media costs associated with Product advertising as follows: production expense/artwork including set up; design and art work for an advertisement; the cost of securing print space, air time, etc. in newspapers, magazines, trade journals, television, radio, billboards, etc.

(e) “Trade Promotion” shall include the allowances given to retailers, brokers, distributors, hospital buying groups, etc. for purchasing, promoting, and distribution of Products. This shall include purchasing, advertising, new distribution, and display allowances as well as

E – Page 8

free goods, wholesale allowances and the cost of goods for reasonable field sales samples of Products and the cost of administering these programs. To the extent multiple products are involved and some of such products are not Products, then such allowances shall be allocated on a pro rata basis based upon net sales of each respective product by such operating unit during the most recent quarter.

(f) “Consumer Promotion” shall include the expenses associated with programs to promote Products directly to the end user. This category shall include expenses associated with promoting products directly to the professional community such as professional samples, professional literature, promotional material costs, patient aids and detailing aids. To the extent multiple products are involved and some of such products are not Products, then such allowances shall be allocated on a pro rata basis based upon net sales of each respective product by such operating unit during the most recent quarter.

(g) “Pre-Launch Marketing Expenses” shall include those Marketing Management, Market and Consumer Research, Advertising, Trade Promotion, and Consumer Promotion expenses incurred between the filing of a complete NDA for a Product and the First Commercial Sale of such Product.

Section 2.6 “Medical Affairs Expense” means (a) the product of (i) the number of field-and office-based FTEs supporting the coordination of pre-market authorization preparation as well as Post-Approval Studies in the United States related to a Product as agreed upon in the approved Commercialization Plan and its budget and (ii) the applicable Medical Affairs FTE Rate; (b) the cost of performing Post-Approval Studies in the United States; and (c) External Education Expenses (including journal clubs, congresses, and conferences, etc.). For purposes of calculating the number of FTEs, an allocated portion of the medical affairs staff directly involved in the coordination of pre-market authorization preparation for a Product or Post-Approval Studies in the United States for a Product shall be included. Each medical affairs staff member shall record the percent of time allocated to the Product and to all other products, and time allocated to other products shall be excluded in calculating the number of FTEs.

(a) The applicable “Medical Affairs FTE Rate” shall be a rate agreed upon by the Parties at the time the Commercialization Plan is agreed upon by the Parties based upon the fully burdened cost of medical affairs professionals reasonably appropriate for the United States. It is anticipated that the Medical Affairs FTE Rate will equal the Marketing FTE Rate agreed upon under “Marketing Expenses” above.

(b) “External Education Expenses” shall include expenses associated with professional education with respect to Products or AD/MCI in general through any means not covered above, including articles appearing in journals, newspapers, magazines or other media; seminars, scientific exhibits, and conventions; and symposia, advisory boards and opinion leader development activities.

Section 2.7 “Out-of-Pocket Costs” shall mean costs and expenses not included in any other category under Commercialization Costs that are paid to Third Parties (or payable to Third Parties and accrued in accordance with GAAP or IFRS) by either Party and/or its Affiliates in

E – Page 9

accordance with the applicable Development Plan or Commercialization Plan, other than Third Party License Fees.

Section 2.8 “Legal Expenses” means (a) the fees and expenses of outside counsel and payments to Third Parties incurred after the Effective Date in connection with the preparation, filing, prosecution, maintenance, interference, re-examination and re-issue of Product-specific trademarks in the United States, (b) Losses associated with Product Liability Claims in the United States, as provided in Section 13.3 of the Agreement (provided, that no internal legal costs shall be included in Legal Expenses), and (c) the fees and expenses, including without limitation reasonable fees for outside counsel, for any litigation or other action undertaken by a Party by mutual consent pursuant to Section 10.5(c)(iii) or 10.5(d) of the Agreement.

Section 2.9 “Third Party License Fees” means all Required Third Party Payments payable by either Party after First Commercial Sale.

Section 2.10 “General and Administrative Expenses” shall mean the product of (a) the number of FTEs allocated towards general and administrative functions as set forth in the approved Commercialization Plan and (b) the applicable G&A FTE Rate. For purposes of calculating the number of FTEs, an allocated portion of the general and administrative staffs directly involved in the management of and the performance of the general and administrative functions in the United States for such Product shall be included.

Section 2.11 “G&A FTE Rate” shall mean, for the Calendar Year in which the First Commercial Sale in the United States occurs, a rate agreed upon by the Parties at the time the Commercialization Plan is agreed upon by the Parties, based on the fully burdened general and administrative staff cost reasonably appropriate for the United States. For purposes of clarification, the G&A FTE Rate shall not include any items previously captured in the calculation of the Marketing FTE Rate, Medical Affairs FTE Rate or Sales Force FTE Rate.

Section 2.12 “Post-Launch Product R&D Expenses” shall include certain Development Costs incurred by a Party in relation to a Product after the First Commercial Sale in the United States and required to maintain Regulatory Approval in the United States and shall exclude (a) administrative expenses and costs that are included within Fully Burdened Manufacturing Costs and (b) Post-Approval Studies that are included within Medical Affairs Expenses.

Section 2.13 “Sales Force Expenses” shall mean the product of (a) the number of FTEs detailing and co-promoting Products in the United States as set forth in the approved Commercialization Plan and (b) the applicable fully burdened Sales Force FTE Rate. For purposes of calculating the number of FTEs, an allocated portion of the field sales forces, field sales offices, and home offices staffs directly involved in the management of and the performance of the selling functions in the United States for such Product shall be included, and any portion of staff time allocated to other products shall be excluded. If any members of the field sales force are detailing a Product and one or more other products, the Parties shall agree upon the relative value (on a percentage basis), based on the placement of and emphasis on each product in such detailing, of the detailing of such Product relative to the other products, and each such member of the field sales force shall record such percentage for those details that involve

E – Page 10

such Product, and the number of FTEs shall exclude that percent of total details that involve, in whole or in part, other products.

Section 2.14 “Sales Force FTE Rate” shall mean, for the Calendar Year in which the First Commercial Sale in the United States occurs, a rate agreed upon by the Parties at the time the Commercialization Plan is agreed upon by the Parties, based on the fully burdened field force cost reasonably appropriate for the United States.

Section 2.15 “Restructuring Expenses” shall mean any expenses related to re-organization or downsizing due to changes in the market environment of a Licensed Product. Such expenses shall be related to the organization and infrastructure that is promoting and selling Licensed Products. Such expenses shall include, but not be limited to, severance payments to dismissed employees, committed orders to third parties that can not be cancelled, termination costs for post-launch clinical marketing, and clinical studies. The Parties shall use Commercially Reasonable Efforts to minimize Restructuring Expenses, including, without limitation, by assigning employees to other products or organizations to be reviewed and approved by the Parties.

E – Page 11

EXHIBIT F

Press Release

Contacts:

Alnylam Pharmaceuticals, Inc.

Cynthia Clayton (Investors)

617-551-8207

Kathryn Morris (Media)
Yates Public Relations
845-635-9828

DRAFT — Not for Release

Alnylam and Roche Advance RNAi Therapeutic Collaboration
Phase of Landmark 2007 Alliance

— Partners to Co-Develop and Co-Commercialize Certain RNAi Therapeutic Products
in U.S. Market —

— Collaboration to Include Alnylam Lipid Nanoparticle and Roche Dynamic Polyconjugate Delivery
Technologies —

CAMBRIDGE, Mass., November XX, 2009 — Alnylam Pharmaceuticals, Inc. (Nasdaq: ALNY), a leading RNAi therapeutics company, announced today that it has advanced to the RNAi therapeutic collaboration stage of its landmark alliance with Roche formed in 2007. In this phase of the collaboration, the partners will jointly collaborate on the discovery and development of specific RNAi therapeutic products and each will contribute key delivery technologies in the new disease target-focused effort. New delivery technologies include Alnylam lipid nanoparticles and Roche Madison dynamic polyconjugate delivery technologies. Alnylam and Roche will co-develop and co-commercialize RNAi therapeutic products in the U.S. market and Alnylam is eligible to receive additional milestone and royalty payments for products developed in the rest of world.

“We are excited to advance to this phase of our 2007 agreement, as our joint efforts combine many strengths of the Alnylam and Roche platforms on specific disease target programs,” said Barry Greene, President and Chief Operating Officer of Alnylam. “Our partnership with Roche remains very strong and we look forward to working together to bring our innovation to patients.”

“Since the formation of our alliance with Alnylam and the establishment of Roche Kulmbach and Roche Madison as Centers of Excellence for RNA therapeutic research, we have made significant progress in advancing this technology as a potential new class of innovative medicines,” said Louis Renzetti, Ph.D., Vice President of RNA Therapeutics Research of Roche. “We continue to view RNAi as having true potential as a whole new class of differentiated drugs to benefit patients.”

F – Page 1

In July 2007, Alnylam granted to Roche a non-exclusive license providing access to broad Alnylam intellectual property (IP) and know-how, including fundamental, chemistry and delivery IP, in the fields of oncology, respiratory disease, metabolic disease, and certain liver diseases. In addition, Alnylam and Roche agreed to collaborate on RNAi therapeutics drug discovery for a defined number of disease targets, subject to certain Alnylam third party obligations. As part of the agreement, Roche also acquired Alnylam’s Kulmbach-based research & development (R&D) organization which has now become Roche Kulmbach, a Roche Centre of Excellence for RNA therapeutics. In July 2008, Roche acquired Madison, WI-based Mirus Technologies, Inc., a pioneer in the discovery of a novel RNAi delivery technology known as dynamic polyconjugates. Mirus has become Roche Madison, an additional Roche Centre of Excellence for RNA therapeutics.

About RNA Interference (RNAi)

RNAi (RNA interference) is a revolution in biology, representing a breakthrough in understanding how genes are turned on and off in cells, and a completely new approach to drug discovery and development. Its discovery has been heralded as “a major scientific breakthrough that happens once every decade or so,” and represents one of the most promising and rapidly advancing frontiers in biology and drug discovery today which was awarded the 2006 Nobel Prize for Physiology or Medicine. RNAi is a natural process of gene silencing that occurs in organisms ranging from plants to mammals. By harnessing the natural biological process of RNAi occurring in our cells, the creation of a major new class of medicines, known as RNAi therapeutics, is on the horizon. RNAi therapeutics target the cause of diseases by potently silencing specific messenger RNAs (mRNAs), thereby preventing disease-causing proteins from being made. RNAi therapeutics have the potential to treat disease and help patients in a fundamentally new way.

About Alnylam Pharmaceuticals

Alnylam is a biopharmaceutical company developing novel therapeutics based on RNA interference, or RNAi. The company is applying its therapeutic expertise in RNAi to address significant medical needs, many of which cannot effectively be addressed with small molecules or antibodies, the current major classes of drugs. Alnylam is leading the translation of RNAi as a new class of innovative medicines with peer-reviewed research efforts published in the world’s top scientific journals including Nature, Nature Medicine, and Cell. The company is leveraging these capabilities to build a broad pipeline of RNAi therapeutics; its most advanced program is in Phase II human clinical trials for the treatment of respiratory syncytial virus (RSV) infection and is partnered with Cubist and Kyowa Hakko Kirin. In addition, the company is developing RNAi therapeutics for the treatment of a wide range of disease areas, including liver cancers, hypercholesterolemia, Huntington’s disease, and TTR amyloidosis. The company’s leadership position in fundamental patents, technology, and know-how relating to RNAi has enabled it to form major alliances with leading companies including Medtronic, Novartis, Biogen Idec, Roche, Takeda, Kyowa Hakko Kirin, and Cubist. To reflect its outlook for key scientific, clinical, and business initiatives, Alnylam established “RNAi 2010” in January 2008 which includes the company’s plan to significantly expand the scope of delivery solutions for RNAi therapeutics, have four or more programs in clinical development, and to form four or more new major business collaborations, all by the end of 2010. Alnylam and Isis are joint owners of

F – Page 2

Regulus Therapeutics Inc., a company focused on the discovery, development, and commercialization of microRNA-based therapeutics. Founded in 2002, Alnylam maintains headquarters in Cambridge, Massachusetts. For more information, please visit www.alnylam.com.

Alnylam Forward-Looking Statement

Various statements in this release concerning Alnylam’s future expectations, plans and prospects, constitute forward-looking statements for the purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including the company’s ability to successfully research, develop, and commercialize RNAi therapeutics, and the company’s ability to successfully collaborate with Roche on these products, as well as those risks more fully discussed in the “Risk Factors” section of its most recent quarterly report on Form 10-Q on file with the Securities and Exchange Commission. In addition, any forward-looking statements represent Alnylam’s views only as of today and should not be relied upon as representing its views as of any subsequent date. Alnylam does not assume any obligation to update any forward-looking statements.

F – Page 3

EXHIBIT G

Baseball Arbitration Provisions

1. General. In the event that the Parties are unable to agree upon the event payment amounts or royalty rates payable by the pursuing Party with respect to Licensed Product(s) in terminated Major Territory(ies) pursuant to Section 14.4(d)(i) (the “Financial Terms”), such Financial Terms shall be determined through binding arbitration in accordance with the provisions set forth below (“Baseball Arbitration”).

	(a)		The Baseball Arbitration shall be held in a location mutually agreeable to the Parties, or if no such location can be agreed, in New York City, according to the then-current commercial arbitration rules of the American Arbitration Association (“AAA”), except to the extent such rules are inconsistent with this Exhibit G.

	(b)		The Baseball Arbitration will be conducted by one (1) arbitrator who shall be reasonably acceptable to the Parties and who shall be appointed in accordance with AAA rules. If the Parties are unable to select an arbitrator within [**] days following the end of the negotiation period set forth in Section 14.4(d)(i), then the arbitrator shall be appointed in accordance with AAA rules. Any arbitrator chosen hereunder shall have educational training and industry experience sufficient to demonstrate a reasonable level of scientific, financial, medical and industry knowledge relevant to the particular dispute.

	(c)		The (i) attorneys’ fees of the Parties in the Baseball Arbitration, (ii) fees of the arbitrator and (iii) costs and expenses of the Baseball Arbitration shall be borne by the Parties as determined by the arbitrator.

	(d)		The proceedings and decisions of the arbitrator shall be confidential.

2. Exchange of Proposed Agreements. Within [**] days after the designation of the arbitrator pursuant to Paragraph 1(b) above, the Parties shall exchange their proposed Financial Terms, substantially in the form of Appendix 1 attached hereto, together with a brief or other written memorandum supporting the merits of their proposed Financial Terms. Upon receipt of the proposed Financial Terms from each Party, the arbitrator shall provide copies of the same to the other Party. Within [**] days after the arbitrator has delivered to each Party a copy of the Financial Terms proposed by the other Party (if any), each Party shall submit a written rebuttal of the other Party’s proposed Financial Terms and may also amend and re-submit its original proposed Financial Terms. The Parties and the arbitrator shall meet within [**] days thereafter, at which time each Party shall have one hour to argue in support of its final proposed Financial Terms. The Parties shall not call any witnesses in support of their arguments.

3. Selection of Proposed Agreement. The arbitrator shall be directed by the Parties to select, within [**] days following the final hearing set forth in Paragraph 2 above, one of the final proposed Financial Terms so submitted by the Parties as the final Transition Agreement. In making such selection and ruling, the arbitrator shall not modify the terms or conditions of either Party’s final proposed Financial Terms nor shall the arbitrator combine provisions from both

G – Page 1

proposed Financial Terms. However, the arbitrator may take into account the severity of the Diligence Breach and the behavior of the breaching Party in selecting such Financial Terms. If a Party fails to submit to the arbitrator any proposal on Financial Terms in accordance with the terms of Paragraph 2 above, the arbitrator shall select the Financial Terms proposed by the other Party.

4. Effect of Decision. The Parties shall include, as part of the transition agreement to be executed by the Parties pursuant to Section 14.4(d)(i), the final Financial Terms selected by the arbitrator within [**] days following the arbitrator’s ruling; provided that the non-prevailing Party may elect not to accept such Financial Terms. If the non-prevailing Party elects to accept such Financial Terms within such [**]-day period, the non-prevailing Party shall signify such election by executing a counterpart signature page to the Financial Terms selected by the arbitrator and providing such executed signature page to the prevailing Party within such [**]-day period. If the non-prevailing Party does not provide such an executed signature page to the prevailing Party within such [**]-day period, then thereafter this Agreement shall be terminated with respect to Licensed Product(s) in the Major Territory(ies) proposed to be terminated by the terminating Party, with neither Party having the right to Develop or Commercialize the Licensed Product(s) under a license from the other Party in any such terminated Major Territory(ies).

5. No Limitation. Nothing in this Exhibit G will preclude either Party from seeking equitable, interim or provisional relief from a court of competent jurisdiction, including a temporary restraining order, preliminary injunction or other interim equitable relief, either prior to or during any Baseball Arbitration if necessary to protect the interests of such Party or to preserve the status quo pending the Baseball Arbitration proceeding.

G – Page 2

Appendix 1

Form of Financial Terms

1. Development Event Payments with respect to terminated Major Territory(ies) (separately for each Terminated Territory):


		Payments
Development Event		(In US$ [])**
(1) Initiation of the first Phase I Study for Licensed Product for the Terminated Territory		$
(2) Initiation of the first Phase II Study for Licensed Product for the Terminated Territory		$
(3) Initiation of the first Phase III Study for Licensed Product for the first (1st) Indication for the Terminated Territory		$
(4) Initiation of the first Phase III Study for Licensed Product for a second (2nd) Indication for the Terminated Territory		$
(5) First filing of an NDA in the Terminated Territory for Licensed Product for the first (1st) Indication		$
(6) First filing of an NDA in the Terminated Territory for Licensed Product for the second (2^nd) Indication		$
(7) Regulatory Approval in the Terminated Territory for Licensed Product for the first (1st) Indication		$
(8) Regulatory Approval in the Terminated Territory for Licensed Product for the second (2^nd) Indication		$
Total Development Event Payments		$

2. Sales Event Payments with respect to terminated Major Territory(ies):


		Payments
Sales Event		(In US$ [])**
Aggregate Worldwide Annual Net Sales of all Licensed Products in the Terminated Territory(ies) equal to or greater than $[**]		$
Aggregate Worldwide Annual Net Sales of all Licensed Products in the Terminated Territory(ies) equal to or greater than $[**]		$
Total Sales Event Payments		$

G – Page 3

3. Royalties Payable with respect to terminated Major Territory(ies):


	Incremental
	Royalty Rate
	Applicable to Such
Annual Net Sales of a Licensed Product in the Terminated Territory(ies) during the applicable Calendar Year:	Annual Net Sales
Less than or equal to $[**]		%
Greater than $[], but less than or equal to $[]		%
Greater than $[], but less than or equal to $[]		%
Greater than $[], but less than or equal to $[]		%
Greater than $[], but less than or equal to $[]		%
Greater than $[], but less than or equal to $[]		%
Greater than $[**]		%

Acknowledged and agreed to by:


F. HOFFMANN-LA ROCHE LTD
By:
	Name:
	Title:


By:
	Name:
	Title:

HOFFMANN-LA ROCHE INC.
By:
	Name:
	Title:

ALNYLAM PHARMACEUTICALS, INC.
By:
	Name:
	Title:

G – Page 4

EX-10.40 5 b78674exv10w40.htm EX-10.40 FIRST AMENDMENT TO LICENSE AND COLLABORATION AGREEMENT ENTERED INTO AS OF NOVEMBER 2, 2009 exv10w40

Exhibit 10.40

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisk denote omissions.

FIRST AMENDMENT TO

LICENSE AND COLLABORATION AGREEMENT

This First Amendment to License and Collaboration Agreement (this “Amendment”) is entered into as of November 2, 2009 (the “Amendment Effective Date”), by and between Alnylam Pharmaceuticals, Inc., a corporation organized and existing under the laws of the State of Delaware and having its principal office at 300 Third Street, Cambridge, Massachusetts 02142 (“Alnylam”), and Cubist Pharmaceuticals, Inc., a corporation organized and existing under the laws of the State of Delaware and having its principal office at 65 Hayden Avenue, Lexington, Massachusetts 02421 (“Cubist”). Capitalized terms used, but not defined herein, shall have the meanings ascribed to such terms in the License and Collaboration Agreement (the “Agreement”) entered into as of the 9th day of January, 2009 (the “Agreement Effective Date”), by and between Alnylam and Cubist.

INTRODUCTION

WHEREAS, on the Agreement Effective Date, Alnylam and Cubist entered into the Agreement pursuant to which, inter alia, the Parties agreed to collaborate in the Development of RNAi Products targeting RSV, including the candidate RNAi Product known as ALN-RSV01;

WHEREAS, the JSC has designated a second candidate RNAi Product as ALN-RSV02 and the Parties have completed certain Development activities with respect to ALN-RSV01 and ALN-RSV02;

WHEREAS, the Parties now desire to focus their collaborative Development efforts on ALN-RSV02;

WHEREAS, Alnylam desires to continue the Development of ALN-RSV01 as an RNAi Product targeting RSV in adult lung transplant patients; and

WHEREAS, Cubist desires to grant Alnylam certain rights to continue the Development of ALN-RSV01 on the terms and conditions set forth in this Amendment.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the Parties hereby agree as follows:

1. (a) New Definitions. Article I of the Agreement is amended by adding the following section as Section 1.113 thereto:

“Section 1.113 Amendment Definitions. As used in this Agreement, each of the following additional terms shall have the meanings set forth below:

“Adult Transplant Field”. Adult Transplant Field means the treatment or prophylaxis of RSV infection in human transplant patients eighteen (18) years old or greater.

“ALN-RSV01 Development Costs”. ALN-RSV01 Development Costs means Development Costs [**] Development of ALN-RSV01 in the Adult Transplant Field and shall

not include any costs shared by the Parties under the Development Plan. For purposes of clarity, costs up to a limit of $[**] associated with [**], to the extent incurred under the direction of the JSC, shall be costs shared by the Parties under the Development Plan and shall not be ALN-RSV01 Development Costs for purposes hereof.

“ALN-RSV01 Failure”. ALN-RSV01 Failure means the earlier to occur of: (i) [**].

“ALN-RSV01 Phase IIb Clinical Study”. ALN-RSV01 Phase IIb Clinical Study means a Phase II Clinical Study of ALN-RSV01 conducted by Alnylam, as described in Exhibit J.

“Amendment Effective Date”. Amendment Effective Date means November 2, 2009.

“Interim Period”. Interim Period means the period beginning on the Amendment Effective Date and continuing until the earliest of (a) Cubist’s exercise of its Opt-in Right pursuant to Section 4A.2(a), (b) the end of the Opt-in Period after Cubist’s receipt of a Study Completion Package, or (c) an ALN-RSV01 Failure.”

“Opt-in Fee”. Opt-in Fee means, subject to the terms of Section 4A.2(a), the following: If Alnylam has met the Success Criteria specified under clause (a) of Part B of Exhibit K, but not the Success Criteria specified under clause (b) of Part B of Exhibit K, the Opt-in Fee will mean [**] percent ([**]%) of the ALN-RSV01 Development Costs incurred by Alnylam, payable in accordance with Section 4A.2(a), for the Development of ALN-RSV01 in the Adult Transplant Field during the Interim Period. If Alnylam has met the Success Criteria specified under clause (b) of Part B of Exhibit K, the Opt-in Fee will mean [**] percent ([**]%) of the ALN-RSV01 Development Costs incurred by Alnylam, payable in accordance with Section 4A.2(a), for the Development of ALN-RSV01 in the Adult Transplant Field during the Interim Period.

“Opt-in Right”. Opt-in Right shall have the meaning set forth in Section 4A.2(a) of this Agreement.

“Opt-in Period”. Opt-in Period shall have the meaning set forth in Section 4A.2(a) of this Agreement.

“Study Completion Package”. Study Completion Package means a data package meeting the requirements set forth in Part A of Exhibit K.

“Success Criteria” shall have the meaning set forth in Part B of Exhibit K.

“Success Statement” means a written statement by Alnylam that the Success Criteria have been met.””

(b) Definition of RSV01 Product. Section 1.101 is amended in its entirety to be and read as follows:

-2-

“Section 1.101 “RSV01 Product.” RSV01 Product means any product containing as its sole active ingredient Alnylam’s proprietary composition known as ALN-RSV01. ALN-RSV01 is described on Exhibit B.”

2. Development of ALN-RSV01 by Alnylam; Cubist Opt-In Right. The following provisions are added as new Article IVA of the Agreement, immediately prior to Article 5 of the Agreement:

“ARTICLE IVA

DEVELOPMENT OF ALN-RSV01 BY ALNYLAM; CUBIST OPT-IN RIGHT

Section 4A.1 Interim Period Activities. The Parties agree that, notwithstanding anything to the contrary in the Agreement, the following rights and obligations shall apply during the Interim Period:

(a) Cubist shall not conduct Development of ALN-RSV01.

(b) Subject to paragraph (c), the JSC shall have no authority with respect to ALN-RSV01, and Alnylam’s Development of ALN-RSV01 shall not be subject to the Development Plan or any related budget.

(c) Alnylam may conduct, and shall have sole decision-making authority with respect to, any Development activities with respect to ALN-RSV01, in Alnylam’s discretion and at Alnylam’s sole expense, without input from the JSC or Cubist; provided, however, that:

(i) Alnylam’s rights to Develop ALN-RSV01 will be limited to the Adult Transplant Field;

(ii) Alnylam shall provide to the JSC copies of draft and final protocols for any clinical study to be conducted with ALN-RSV01, including, but not limited to, the protocol for the ALN-RSV01 Phase IIb Clinical Study. Alnylam will provide drafts of such protocols at least [**] days prior to initiation of the applicable clinical trial, and shall consider in good faith the JSC’s comments, [**];

(iii) Alnylam will provide the JSC with updates at quarterly JSC meetings regarding Alnylam’s Development activities with respect to ALN-RSV01;

(iv) Alnylam shall share with the JSC all data and know-how related to the Development of ALN-RSV01 as if such activities had been conducted under the Development Plan; and

(v) Alnylam will not Develop ALN-RSV01 in such a way [**]; provided, however, that nothing contained in the concept sheet attached hereto as Exhibit J [**] Cubist’s Development or potential Commercialization of ALN-RSV02;

-3-

provided further, however, that Alnylam shall not have any obligation to conduct any Development activities with respect to ALN-RSV01 and may discontinue any and all such Development at any time in Alnylam’s sole discretion.

In the event the Parties disagree as to whether Alnylam’s Development of ALN-RSV01 [**], the matter shall be resolved in the manner set forth in Article XII of this Agreement, and the Parties shall use good faith efforts to complete such arbitration within [**] days. Alnylam shall not proceed with further clinical Development of ALN-RSV01 until such matter has been resolved.

(d) The licenses granted to Cubist under Section 3.1 shall continue to apply to ALN-RSV01 as a Licensed Product and the Adult Transplant Field as part of Field, provided, that Cubist shall not exercise any rights under the license granted to Cubist pursuant to Section 3.1 with respect to RSV01 Products, and Cubist shall not, during the Interim Period, sublicense any rights thereunder, nor shall Cubist grant any rights to, or enter any agreement with, any Third Party for the sale of any RSV01 Product.

(e) Neither Cubist nor any of its Affiliates shall, directly or indirectly, [**] or grant rights to a Third Party to do any of the foregoing, except that Cubist and the Affiliates shall be permitted to [**], and to allow Third Parties to [**] under this Agreement to the extent that, [**], subject to the resolution of any disagreement that the Parties may have regarding such opinion as set forth in the final sentence of this Section 4A.1(e), or, [**], and further provided that Cubist and its Affiliates do not, during the Interim Period, [**] or grant a Third Party the right to do so. In the event the Parties disagree as to whether Cubist’s [**] that the [**], the matter shall be resolved in the manner set forth in Article XII of this Agreement, and the Parties shall use good faith efforts to complete such arbitration within [**] days.

(f) Without limiting the scope of any other limitation under the Agreement, neither Alnylam nor any of its Affiliates shall, directly or indirectly, Develop, Manufacture or Commercialize ALN-RSV01 or any RSV01 Product for use in any indication other than in the Adult Transplant Field anywhere in the Territory or grant rights to a Third Party to do any of the foregoing.

(g) The provisions of Sections 4.4 and 4.5 shall remain in effect with respect to any Development Costs incurred with respect to ALN-RSV01 on or before the Amendment Effective Date. The provisions of [**] shall not apply to ALN-RSV01 unless and until [**], then upon such exercise by Cubist of its Opt-in Right, the Parties shall [**] and the Parties hereby waive any failure to comply with [**] prior to such time.

(h) Alnylam shall have the right to incur ALN-RSV01 Development Costs in its sole discretion (and, notwithstanding the definition of Development Costs, without any requirement that such costs be incurred in accordance with the Development Plan or any related budget); provided that, except for any reimbursement of ALN-RSV01 Development Costs that Alnylam may receive from Cubist through Cubist’s payment to Alnylam of the Opt-in Fee if Cubist exercises its Opt-in Right pursuant to Section 4A.2(a), Alnylam shall be solely responsible for such Development Costs.

-4-

(i) Cubist shall not be responsible for ALN-RSV01 Development Costs incurred by Alnylam during the Interim Period unless Cubist exercises its Opt-in Right pursuant to Section 4A.2(a), in which case Cubist shall reimburse Alnylam for a portion of the ALN-RSV01 Development Costs incurred by Alnylam during the Interim Period through Cubist’s payment to Alnylam of the applicable Opt-in Fee.

(j) Section 10.11(b) shall be modified to add a clause (iv) to read in its entirety as follows: “(iv) the Development, Manufacture, Commercialization or use of ALN-RSV01 or RSV01 Products by Alnylam or any of its Related Parties during the Interim Period.”

(k) Section 10.11(c)(ii) shall be modified to add the following after the word “Asia”: “or of ALN-RSV01 or RSV01 Products during the Interim Period.”

Section 4A.2 Opt-In Right.

(a) Following completion of the ALN-RSV01 Phase IIb Clinical Study (if Alnylam elects to conduct such study), if the results of such study meet the Success Criteria (as defined in Exhibit K), Alnylam shall promptly prepare and provide to Cubist the Study Completion Package, including the applicable Success Statement. Alnylam shall also provide Cubist with the opportunity to discuss the information contained in the Study Completion Package with Alnylam in a face-to-face meeting to occur within [**] of the written request of Cubist, which such request shall be delivered to Alnylam no later than [**] after receipt of the Study Completion Package. Cubist may elect to resume its participation in the Development of ALN-RSV01 (the “Opt-in Right”), by delivering written notice of Cubist’s exercise of such right to Alnylam and paying to Alnylam the applicable Opt-in Fee (or portion thereof) within [**] after Cubist’s receipt of the Study Completion Package (the “Opt-in Period”). Except as otherwise set forth in this paragraph, the payment of the Opt-in Fee shall be made as follows: (1) an initial payment equal to [**] of the ALN-RSV01 Development Costs incurred by Alnylam for the Development of ALN-RSV01 in the Adult Transplant Field during the Interim Period and (2) a subsequent payment, to be made in amount equal to (x) [**] of the ALN-RSV01 Development Costs incurred by Alnylam for the Development of ALN-RSV01 in the Adult Transplant Field during the Interim Period, if [**], or (y) [**] of the ALN-RSV01 Development Costs incurred by Alnylam for the Development of ALN-RSV01 in the Adult Transplant Field during the Interim Period if [**]; provided, however, if the terms set forth in clauses (x) and (y) are not met, then no subsequent payment shall be due by Cubist with respect to the Opt-in Fee. In addition, Cubist may, at its election, exercise its Opt-In Right at any time prior to the submission of a Study Completion Package by Alnylam. In the event that Cubist exercises its Opt-in Right prior to receipt of the Study Completion Package, the Opt-in Fee will be equal to [**] of the ALN-RSV01 Development Costs incurred by Alnylam for the Development of ALN-RSV01 in the Adult Transplant Field during the Interim Period; and Cubist will pay an additional Opt-in Fee of [**] of the ALN-RSV01 Development Costs incurred by Alnylam for the Development of ALN-RSV01 in the Adult Transplant Field during the Interim Period if, [**].

(b) Following completion of the ALN-RSV01 Phase IIb Clinical Study (if Alnylam elects to conduct such study), if the results of such study do not meet the Success

-5-

Criteria (as defined in either clause (a) or clause (b) of Part B of Exhibit K) and Alnylam is not able to make a Success Statement, then, subject to Section 4A.5, the Interim Period shall continue and Alnylam shall have the right, but not the obligation, to conduct additional Development of ALN-RSV01 until such time, if any, as Alnylam is able to provide to Cubist a Study Completion Package that includes a Success Statement.

Section 4A.3 Effect of Opt-In. Following Alnylam’s receipt of Cubist’s notice of exercise of its Opt-in Right pursuant to Section 4A.2(a), the Interim Period shall expire and the Agreement shall again apply in full to the Development, Manufacture and Commercialization of ALN-RSV01 and RSV01 Products; provided, however, that the Parties agree that in such circumstances, the milestone payments to be paid by Cubist with respect to the Development of ALN-RSV01 solely in the Adult Transplant Field in accordance with Sections 4.7 and 7.2 will be [**] of those set forth in Section 4.7(a)(vi) or Section 7.2, as the case may be.

Following such exercise by Cubist of its Opt-in Right, the final sentence of Section 4.7(a)(vi) shall be deleted and the following shall be inserted in its place:

“The milestone payments set forth in this Section 4.7(a)(vi) shall be paid only once, upon the first achievement of the applicable milestone event by the first Licensed Product to achieve such milestone event; provided that if any such milestone event is first achieved by an RSV01 Product solely in the Adult Transplant Field following an exercise by Cubist of its Opt-in Right such that, in accordance with Section 4A.3, Cubist pays only [**] of the amount set forth in the table above in connection with the achievement of such milestone, then an additional [**] of such milestone amount shall be paid by Cubist if such milestone event is subsequently achieved by (a) an RSV02 Product or an Additional RSV Product, or (b) an RSV01 Product outside the Adult Transplant Field. For the avoidance of doubt, following the Amendment Effective Date, Cubist shall not be required to pay more than an aggregate of [**] of the applicable amount set forth in the table above with respect to achievement(s) of the corresponding milestone amount. Notwithstanding the foregoing, the milestone payment reduction under the first paragraph of Section 4A.3 shall not apply in the event that the triggering event for such milestone is achieved by an RSV01 Product outside the Adult Transplant Field.”

Following such exercise by Cubist of its Opt-in Right, the final sentence of Section 7.2 shall be deleted and the following shall be inserted in its place:

“The milestone payments set forth in this Section 7.2 shall be paid only once, upon the first achievement of the applicable milestone event by the first Licensed Product to achieve such milestone event; provided that if any such milestone event is first achieved by an RSV01 Product solely in the Adult Transplant Field following an exercise by Cubist of its Opt-in Right such that, in accordance with Section 4A.3, Cubist pays only [**] of the amount set forth in the table above in connection with the achievement of such milestone, then an additional [**] of such milestone amount shall be paid by Cubist if such milestone event is subsequently achieved by (a) an RSV02 Product or an Additional RSV Product, or (b) an RSV01 Product outside the Adult Transplant Field. For the avoidance of doubt, following the Amendment Effective Date, Cubist shall not be required to pay more than an aggregate of [**] of the applicable amount set forth in the

-6-

table above with respect to achievement(s) of the corresponding milestone amount. Notwithstanding the foregoing, the milestone payment reduction under the first paragraph of Section 4A.3 shall not apply in the event that the triggering event for such milestone is achieved by an RSV01 Product outside the Adult Transplant Field.”

Section 4A.4 Failure to Opt-In. If Alnylam provides a complete Study Completion Package under Section 4A.2(a) and has complied with the terms of this Article IVA, and Cubist does not exercise its Opt-in Right pursuant to Section 4A.2(a) within the Opt-in Period, then Cubist’s Opt-in Right pursuant to Section 4A.2(a) and the Interim Period shall both expire and the Parties’ respective rights and obligations with respect to ALN-RSV01 and RSV01 Products shall be modified as follows, subject to Section 4A.5:

(a) RSV01 Products shall cease to be Licensed Products and, for the avoidance of doubt, Cubist’s licenses pursuant to Section 3.1 shall terminate with respect to RSV01 Products;

(b) The definition of “Field” set forth in Section 1.46 shall be amended and restated in its entirety to read as follows:

“Section 1.46 “Field”. Field means the treatment or prophylaxis of diseases in humans, but excluding [**].”

(c) Neither Cubist nor any of its Affiliates shall, directly or indirectly, [**] or grant rights to a Third Party to do any of the foregoing, except that Cubist and the Affiliates shall be permitted to [**], and to allow Third Parties to [**] under this Agreement to the extent that, [**], subject to the resolution of any disagreement that the Parties may have regarding such [**] as set forth in the final sentence of this Section 4A.4(c), or, [**], and further provided that Cubist and its Affiliates do not, following the failure of Cubist to exercise its Opt-in Right during the Opt-in Period, [**] or grant a Third Party the right to do so. In the event the Parties disagree as to whether Cubist’s [**] that the [**] of a [**], the matter shall be resolved in the manner set forth in Article XII of this Agreement, and the Parties shall use good faith efforts to complete such arbitration within [**].

(d) Neither Alnylam nor its Affiliates shall, directly or indirectly develop, manufacture, or commercialize ALN-RSV01 or any RSV01 Product in any other indication other than in the Adult Transplant Field or grant rights to a Third Party to do any of the foregoing. The limitations under the preceding sentence shall be deemed to prevent Alnylam or any of its Affiliates from publishing, presenting or discussing in any context use of ALN-RSV01 or RSV01 Products outside the Adult Transplant Field and from allowing a Third Party to do any of the foregoing; provided, however, that Alnylam and its Affiliates may publish the results of clinical trials of ALN-RSV01 in the Adult Transplant Field without limitation provided that Alnylam provide a draft of such publication to Cubist for informational purposes at least [**] prior to dissemination. Cubist and its Affiliates, on the one hand, and Alnylam and its Affiliates, on the other hand, shall [**].

(e) RSV01 Products that are made, used, offered for sale, sold or imported for the Adult Transplant Field by Alnylam or any of its Affiliates or any Third Party to which Alnylam

-7-

or any of its Affiliates grants rights shall be deemed not to be Directly Competitive Products except to the extent that Alnylam and its Affiliates and such Third Parties fail to be in compliance with paragraph (d) and, for the avoidance of doubt, the restrictions set forth in Section 10.1 shall not apply with respect to such RSV01 Products that are made, used, offered for sale, sold or imported for the Adult Transplant Field except to the extent that Alnylam and its Affiliates and such Third Parties fail to be in compliance with paragraph (d).

(f) [**] ALN-RSV01 or RSV01 Products, provided that:

(i) Alnylam shall share information and data with respect to worldwide development, manufacture and commercialization of ALN-RSV01 and RSV01 Products with Cubist and the JSC to the same extent as [**];

(ii) Alnylam shall provide to the JSC copies of draft and final protocols for any clinical study to be conducted with ALN-RSV01, and shall consider in good faith the JSC’s comments. Alnylam will provide drafts of such protocols at least [**] prior to initiation of the applicable clinical trial, and shall consider in good faith the JSC’s comments;

(iii) Alnylam will provide the JSC with updates at quarterly JSC meetings regarding Alnylam’s Development, manufacturing and Commercialization activities with respect to ALN-RSV01; and

(iv) Alnylam will not Develop ALN-RSV01 in such a way [**] Cubist’s Development or potential Commercialization of ALN-RSV02; provided, however, that nothing contained in the protocol attached hereto as Exhibit J [**] Cubist’s Development or potential Commercialization of ALN-RSV02. In the event the Parties disagree as to whether Alnylam’s Development of ALN-RSV01 [**] Cubist’s Development or potential Commercialization of ALN-RSV02, the matter shall be resolved in the manner set forth in Article XII of this Agreement, and the Parties shall use good faith efforts to complete such arbitration within [**] days. Alnylam shall not proceed with further clinical Development of ALN-RSV01 until such matter has been resolved.

(g) Cubist shall not be responsible for Development Costs incurred by Alnylam for the Development of ALN-RSV01 or RSV01 Products following the Interim Period.

(h) Cubist shall, at Alnylam’s cost, as promptly as practicable, transfer to Alnylam or Alnylam’s designee: (i) possession and ownership of [**] the Development or Manufacture of RSV01 Products and (ii) copies of [**] the Development or Manufacture of RSV01 Products, including all [**] RSV01 Products [**], in each case as requested by Alnylam and to the extent not originally obtained by Cubist from Alnylam, and provided Cubist may maintain copies of each such document transferred to Alnylam under this Section.

(i) Cubist shall, at Alnylam’s cost, execute all documents and take all such further actions as may be reasonably requested by Alnylam in order to give effect to the foregoing clauses (a) through (h) as soon as practicable.

-8-

Section 4A.5 Delays in Development and ALN-RSV01 Failure.

(a) If (x) Alnylam issues a Success Statement, (y) Cubist has not exercised its Opt-in Right and (z) Alnylam fails to either (i) [**] or (ii) [**], as indicated in such Success Statement, then Alnylam shall provide Cubist with another Study Completion Package [**], and Cubist shall have the right to exercise its Opt-in Right at such time in accordance with the terms hereof; provided, however, that Alnylam may have [**]. In the event an ALN-RSV01 Failure occurs, then, if Cubist has not previously exercised its Opt-In Right, this Article 4A shall no longer have any force or effect and the Agreement shall again apply in full to the Development, Manufacture and Commercialization of ALN-RSV01 and RSV01 Products in the Field as defined on the Effective Date.

(b) The Parties agree that in the event that there is an ALN-RSV01 Failure in accordance with Section 4A.5(a), then the milestone payments to be paid by Cubist with respect to the Development of ALN-RSV01 solely in the Adult Transplant Field in accordance with Sections 4.7 and 7.2 will be [**] of those set forth in Section 4.7(a)(vi) or Section 7.2, as the case may be.

Following such exercise by Cubist of its Opt-in Right, the final sentence of Section 4.7(a)(vi) shall be deleted and the following shall be inserted in its place:

“The milestone payments set forth in this Section 4.7(a)(vi) shall be paid only once, upon the first achievement of the applicable milestone event by the first Licensed Product to achieve such milestone event; provided that if any such milestone event is first achieved by an RSV01 Product solely in the Adult Transplant Field such that, in accordance with Section 4A.5(b), Cubist pays only [**] of the amount set forth in the table above in connection with the achievement of such milestone, then an additional [**] of such milestone amount shall be paid by Cubist if such milestone event is subsequently achieved by (a) an RSV02 Product or an Additional RSV Product, or (b) an RSV01 Product outside the Adult Transplant Field. For the avoidance of doubt, following the Amendment Effective Date, Cubist shall not be required to pay more than an aggregate of [**] of the applicable amount set forth in the table above with respect to achievement(s) of the corresponding milestone amount. Notwithstanding the foregoing, the milestone payment reduction under the first paragraph of Section 4A.3 shall not apply in the event that the triggering event for such milestone is achieved by an RSV01 Product outside the Adult Transplant Field.”

Following an ALN-RSV01 Failure, as described under Section 4.A.5(a), the final sentence of Section 7.2 shall be deleted and the following shall be inserted in its place:

-9-

achieved by (a) an RSV02 Product or an Additional RSV Product, or (b) an RSV01 Product outside the Adult Transplant Field . For the avoidance of doubt, following the Amendment Effective Date, Cubist shall not be required to pay more than an aggregate of [**] of the applicable amount set forth in the table above with respect to achievement(s) of the corresponding milestone amount. Notwithstanding the foregoing, the milestone payment reduction under the first paragraph of Section 4A.3 shall not apply in the event that the triggering event for such milestone is achieved by an RSV01 Product outside the Adult Transplant Field.”

4A.6 Cubist shall, at Alnylam’s request, grant to Alnylam a fully paid-up, non-royalty-bearing, perpetual, worldwide, exclusive right and license, with the right to grant sublicenses, under the Cubist Collaboration IP, to make, have made, use, offer for sale, sell and import RSV01 Products in the Adult Transplant Field. If Alnylam elects to receive such license, (a) Alnylam will pay to Cubist a royalty on Net Sales of such products (such definition modified accordingly for this purpose) in the amount of [**] of the royalty rate that would apply to a product for which Cubist’s termination takes effect after the First Opt-Out Milestone but prior to the Second Opt-Out Milestone in Section 11.4(d) (i.e., the first column of the table in Section 11.4(d)), and (b) the provisions of Sections 11(e) shall apply; provided, however, that the royalty payable to Cubist in respect of such license shall never be [**] as a result of the grant of such license to Alnylam and Alnylam’s exercise of the rights thereunder.

3. New Exhibits. Exhibit J and Exhibit K attached to this Amendment are hereby appended to the Agreement immediately following Exhibit I to the Agreement.

4. Miscellaneous. The Parties hereby confirm and agree that, as amended hereby, the Agreement remains in full force and effect and is a binding obligation of the Parties hereto. This Amendment may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument.

[Remainder of page intentionally left blank]

-10-

IN WITNESS WHEREOF, Alnylam and Cubist have caused this Agreement to be duly executed by their authorized representatives under seal, in duplicate on the dates written herein below.


	ALNYLAM PHARMACEUTICALS, INC.
	By:	/s/ John Maraganore
		Title: Chief Executive Officer
		Date: November 2, 2009

	CUBIST PHARMACEUTICALS, INC.
	By:	/s/ Steven C. Gilman
		Title: Chief Scientific Officer, Senior Vice President, Discovery and Non-Clinical Development
		Date: November 2, 2009

-11-

EXHIBIT J

ALN-RSV01 Phase IIb Clinical Study

ALN-RSV01-109 PROTOCOL SYNOPSIS


Protocol Title:		[**] in lung transplant patients infected with respiratory syncytial virus (RSV)

Indication:		Lung transplant patients with RSV infection

Protocol Number:		ALN-RSV01-109

Phase of Development:		Phase 2b

Design:		[**]

Study Sites:		[**]

Investigational Drug:		ALN-RSV01

Dosage, Route of Administration and Duration of Treatment of Investigational Drug:		[**]

Control Drug:		[**]

Dosage, Route of Administration and Duration of Treatment of Control Drug:		[**]

Time on Study:		[**]

Primary Objective:		[**]

Secondary Objectives:		[**]

Sample Size:		Up to 76 lung transplant patients infected with RSV.

Key Inclusion Criteria:		[**]


		ALN-RSV01 ALN-RSV01-109 Protocol Concept Sheet


Key Exclusion Criteria:		[**]

Safety Assessments:		[**]

Efficacy Assessments:		[**]

Resistance Monitoring		[**]

Committees for BOS Adjudication and Virologic Monitoring		[**]

Study Endpoints:		[**]

Statistical Methodology:		[]**


23 September 2009	Confidential
Page 13 of 15
4568791v1


		ALN-RSV01 ALN-RSV01-109 Protocol Concept Sheet

[**]

A total of four pages were omitted pursuant to request for confidential treatment.


23 September 2009	Confidential
Page 14 of 15
4568791v1


		ALN-RSV01 ALN-RSV01-109 Protocol Concept Sheet

EXHIBIT K

A. Study Completion Package

The Study Completion Package shall be comprised of the following: [**].

B. Success Criteria

The Success Criteria will be deemed to have been met if the results of the ALN-RSV01 Phase IIb Clinical Trial achieve the following:

[**].


23 September 2009	Confidential
Page 15 of 15
4568791v1

EX-21.1 6 b78674exv21w1.htm EX-21.1 SUBSIDIARIES OF THE REGISTRANT exv21w1

EXHIBIT 21.1

SUBSIDIARIES OF THE REGISTRANT


Name	Ownership Percentage	Jurisdiction of Organization
Alnylam U.S., Inc.	100 %	Delaware

Alnylam Europe AG	100 %	Germany

Alnylam Securities Corporation	100 %	Massachusetts

Regulus Therapeutics Inc.	49 %	Delaware

EX-23.1 7 b78674exv23w1.htm EX-23.1 CONSENT OF PRICEWATERHOUSECOOPERS LLP exv23w1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-138586, 333-131233, 333-129905 and 333-140076) and Registration Statements on Form S-8 (Nos. 333-127450, 333-116151 333-148114 and 333-157633) of Alnylam Pharmaceuticals, Inc. of our report dated February 26, 2010 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
February 26, 2010

EX-23.2 8 b78674exv23w2.htm EX-23.2 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS OF REGULUS THERAPEUTICS INC. exv23w2

Exhibit 23.2

Consent of Ernst & Young LLP, Independent Auditors of Regulus Therapeutics Inc.

We consent to the use of our report dated February 26, 2010, with respect to the financial statements of Regulus Therapeutics Inc. incorporated by reference into the Registration Statements (Form S-3 Nos. 333-138586, 333-131233, 333-129905, 333-140076 and Form S-8 Nos. 333-127450, 333-116151, 333-148114, 333-157633) and related Prospectus of Alnylam Pharmaceuticals, Inc. included in Alnylam Pharmaceuticals, Inc.’s Annual Report (Form 10-K) for the year ended December 31, 2009.

/s/ Ernst & Young LLP

San Diego, California
February 26, 2010

EX-31.1 9 b78674exv31w1.htm EX-31.1 SECTION 302 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER exv31w1

EXHIBIT 31.1

CERTIFICATION

I, John M. Maraganore, Ph.D., certify that:

	1)		I have reviewed this Annual Report on Form 10-K of Alnylam Pharmaceuticals, Inc.;

	2)		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

	3)		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

	4)		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: February 26, 2010		/s/ John M. Maraganore, Ph.D.
		John M. Maraganore, Ph.D.
		Chief Executive Officer

EX-31.2 10 b78674exv31w2.htm EX-31.2 SECTION 302 CERTIFICATION OF THE VICE PRESIDENT OF FINANCE AND TREASURER exv31w2

EXHIBIT 31.2

CERTIFICATION

I, Patricia L. Allen, certify that:

	1)		I have reviewed this Annual Report on Form 10-K of Alnylam Pharmaceuticals, Inc.;

	2)		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

	3)		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

	4)		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: February 26, 2010		/s/ Patricia L. Allen
		Patricia L. Allen
		Vice President of Finance and Treasurer

EX-32.1 11 b78674exv32w1.htm EX-32.1 SECTION 906 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER exv32w1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Alnylam Pharmaceuticals, Inc. (the “Company”) for the fiscal year ended December 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, John M. Maraganore, Ph.D., Chief Executive Officer of the Company, hereby certifies, pursuant to Section 1350 of Chapter 63 of Title 18, United States Code, that, to his knowledge:

	(1)		the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	(2)		the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Dated: February 26, 2010		/s/ John M. Maraganore, Ph.D.
		John M. Maraganore, Ph.D.
		Chief Executive Officer

EX-32.2 12 b78674exv32w2.htm EX-32.2 SECTION 906 CERTIFICATION OF THE VICE PRESIDENT OF FINANCE AND TREASURER exv32w2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Alnylam Pharmaceuticals, Inc. (the “Company”) for the fiscal year ended December 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Patricia L. Allen, Vice President of Finance and Treasurer of the Company, hereby certifies, pursuant to Section 1350 of Chapter 63 of Title 18, United States Code, that, to her knowledge:

	(1)		the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	(2)		the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Dated: February 26, 2010		/s/ Patricia L. Allen
		Patricia L. Allen
		Vice President of Finance and Treasurer

EX-99.1 13 b78674exv99w1.htm EX-99.1 REGULUS THERAPEUTICS INC.'S FINANCIAL STATEMENTS exv99w1

Exhibit 99.1

Financial Statements

Regulus Therapeutics Inc.
Years Ended December 31, 2009 and 2008 and the Period
from September 6, 2007 (inception) to December 31, 2007
With Report of Independent Auditors

Regulus Therapeutics Inc.

Financial Statements

Years Ended December 31, 2009 and 2008 and the Period from
September 6, 2007 (inception) to December 31, 2007

Contents


Report of Independent Auditors			1

Audited Financial Statements

Balance Sheets			2
Statements of Operations			3
Statements of Members’ Equity and Stockholders’ Equity			4
Statements of Cash Flows			5
Notes to Financial Statements			6

Report of Independent Auditors

Board of Directors
Regulus Therapeutics Inc.

We have audited the accompanying balance sheets of Regulus Therapeutics Inc. (formerly Regulus Therapeutics LLC) as of December 31, 2009 and 2008, the related statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2009 and the related statements of operations, members’ equity, and cash flows for the year ended December 31, 2008 and the period from September 6, 2007 (inception) to December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Regulus Therapeutics Inc. (formerly Regulus Therapeutics LLC) at December 31, 2009 and 2008, and the results of its operations and its cash flows for the years ended December 31, 2009 and 2008 and the period from September 6, 2007 (inception) to December 31, 2007, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

February 26, 2010

Regulus Therapeutics Inc.

Balance Sheets


	December 31,
	2009			2008

Assets
Current assets:
Cash and cash equivalents	$	16,227,883		$	22,410,522
Short-term investments		14,480,421			—
Contracts receivable		—			60,253
Deferred tax asset		138,449			—
Other current assets		160,207			126,070

Total current assets		31,006,960			22,596,845

Fixed assets, net		1,206,924			743,318
Patents, net		416,840			314,954
Licenses, net		43,542			23,125
Deferred tax asset, non-current portion		255,767			—

Total assets	$	32,930,033		$	23,678,242


Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	419,916		$	600,734
Payables to related parties		852,438			2,060,177
Accrued payroll		698,408			474,726
Income taxes payable		534,822			—
Accrued expenses		140,919			136,623
Current portion of notes payable		317,013			—
Current portion of deferred revenue		2,928,484			2,857,098

Total current liabilities		5,892,000			6,129,358

Non-current liabilities:
Convertible notes payable		5,341,747			5,179,247
Deferred revenue		8,125,000			10,625,000
Notes payable, net of current portion		631,941			—

Total liabilities		19,990,688			21,933,605

Stockholders’ equity:
Common stock, $0.001 par value; 32,000,000 and zero shares authorized at December 31, 2009 and 2008, respectively, zero shares issued and outstanding at December 31, 2009 and 2008, respectively		—			—
Series A convertible preferred stock, $0.001 par value; 25,000,000 authorized, 24,900,000 and zero shares issued and outstanding at December 31, 2009 and 2008, respectively; liquidation preference of $49,800,000 and $0 at December 31, 2009 and 2008, respectively		24,900			—
Additional paid-in capital		32,764,482			—
Members’ equity		—			12,690,491
Accumulated other comprehensive loss		(251	)		—
Accumulated deficit		(19,849,786	)		(10,945,854	)

Total stockholders’ equity		12,939,345			1,744,637

Total liabilities and stockholders’ equity	$	32,930,033		$	23,678,242

See accompanying notes.

Regulus Therapeutics Inc.

Statements of Operations


							Period from
							September 6,
							2007
							(inception) to
	Year Ended December 31,						December 31,
	2009			2008			2007

Revenues:
Research and development revenue under collaborative arrangements	$	3,000,000		$	1,875,000		$	—
Grant revenue		13,247			236,290			119,562

Total revenues		3,013,247			2,111,290			119,562

Expenses:
Research and development		9,034,338			9,158,945			1,314,945
General and administrative		2,755,213			2,870,157			226,041

Total operating expenses		11,789,551			12,029,102			1,540,986


Loss from operations		(8,776,304	)		(9,917,812	)		(1,421,424	)

Other income (expense):
Interest income		184,894			434,924			137,705
Interest expense		(171,916	)		(179,247	)		—

Total other income		12,978			255,677			137,705


Loss before income tax		(8,763,326	)		(9,662,135	)		(1,283,719	)

Income tax expense		(140,606	)		—			—


Net loss	$	(8,903,932	)	$	(9,662,135	)	$	(1,283,719	)

See accompanying notes.

Regulus Therapeutics Inc.

Statements of Members’ Equity and Stockholders’ Equity


								Accumulated
	Series A Convertible				Additional			Other
	Preferred Stock				Paid-in			Comprehensive			Members’			Accumulated
	Shares		Amount		Capital			Income			Equity			Deficit			Total

Capital investment in limited liability company at September 6, 2007 (inception) by Alnylam Pharmaceuticals, Inc.		—	$	—	$	—		$	—		$	10,000,000		$	—		$	10,000,000
Patents exclusively licensed to Regulus from Isis Pharmaceuticals, Inc. at September 6, 2007 (inception)		—		—		—			—			161,629			—			161,629
Non-cash compensation expense related to stock options issued by Isis Pharmaceuticals, Inc.		—		—		—			—			91,975			—			91,975
Non-cash compensation expense related to stock options issued by Alnylam Pharmaceuticals, Inc.		—		—		—			—			320,303			—			320,303
Net loss and comprehensive loss		—		—		—			—			—			(1,283,719	)		(1,283,719	)

Balance at December 31, 2007		—		—		—			—			10,573,907			(1,283,719	)		9,290,188
Capital contribution by Alnylam Pharmaceuticals, Inc.		—		—		—			—			100,000			—			100,000
Non-cash compensation expense related to stock options issued by Isis Pharmaceuticals, Inc.		—		—		—			—			490,442			—			490,442
Non-cash compensation expense related to stock options issued by Alnylam Pharmaceuticals, Inc.		—		—		—			—			1,526,142			—			1,526,142
Net loss and comprehensive loss		—		—		—			—			—			(9,662,135	)		(9,662,135	)

Balance at December 31, 2008		—		—		—			—			12,690,491			(10,945,854	)		1,744,637
Conversion from an LLC to C-corporation		14,900,000		14,900		12,675,591			—			(12,690,491	)		—			—
Issuance of Series A convertible preferred stock at $2 per share		10,000,000		10,000		19,990,000			—			—			—			20,000,000
Non-cash compensation expense related to stock options issued by
Regulus Therapeutics Inc.		—		—		626,870			—			—			—			626,870
Non-cash compensation benefit related to stock options issued by Alnylam Pharmaceuticals, Inc.		—		—		(527,979	)		—			—			—			(527,979	)
Changes in unrealized losses		—		—		—			(251	)		—			—			(251	)
Net loss		—		—		—			—			—			(8,903,932	)		(8,903,932	)

Comprehensive loss																		(8,904,183	)

Balance at December 31, 2009		24,900,000	$	24,900	$	32,764,482		$	(251	)	$	—		$	(19,849,786	)	$	12,939,345

See accompanying notes.

Regulus Therapeutics Inc.

Statements of Cash Flows


							Period from
							September 6,
							2007
							(inception) to
	Year Ended December 31,						December 31,
	2009			2008			2007

Operating activities
Net loss	$	(8,903,932	)	$	(9,662,135	)	$	(1,283,719	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization expense		218,348			15,905			—
Amortization of (discount) premium on investments, net		66,923			—			—
(Gain) loss on investments		(13,187	)		—			—
Compensation related to stock options		98,891			2,016,584			412,278
Deferred income taxes		(394,216	)		—			—
Change in operating assets and liabilities:
Contracts receivable		60,253			65,602			(125,855	)
Other current assets		(34,137	)		(115,422	)		(10,648	)
Accounts payables		(180,818	)		600,734			—
Payables to related parties		(1,207,739	)		893,741			1,139,191
Accrued payroll		223,682			474,726			—
Accrued expenses		4,296			281,596			6,294
Accrued interest		162,500			—			—
Deferred revenue		(2,428,614	)		13,482,098			—
Income tax payable		534,822			—			—

Net cash (used in) provided by operating activities		(11,792,928	)		8,053,429			137,541

Investing activities
Purchases of fixed assets		(676,502	)		(755,534	)		—
Purchases of investments		(20,509,438	)		—			—
Proceeds from the sale of short-term investments		5,975,030			—			—
Trademark expenditures		—			—			—
Acquisition of patents		(102,755	)		(99,914	)		—
Acquisition of licenses		(25,000	)		(25,000	)		—

Net cash used in investing activities		(15,338,665	)		(880,448	)		—

Financing activities
Proceeds from issuance of Series A convertible preferred stock		20,000,000			—			—
Capital contribution		—			100,000			10,000,000
Principal payments on long-term obligations		(51,046	)		—			—
Proceeds from issuance of long-term obligations		1,000,000			—			—
Proceeds from issuance of convertible notes payable		—			5,000,000			—

Net cash provided by financing activities		20,948,954			5,100,000			10,000,000


Net (decrease) increase in cash and cash equivalents		(6,182,639	)		12,272,981			10,137,541
Cash and cash equivalents at beginning of period		22,410,522			10,137,541			—

Cash and cash equivalents at end of period	$	16,227,883		$	22,410,522		$	10,137,541


Supplemental disclosure of cash flow information
Interest paid	$	9,872		$	—		$	—


Supplemental disclosures of non-cash investing and financing activities
Patents exclusively licensed to Regulus from Isis Pharmaceuticals, Inc.	$	—		$	—		$	161,629

Amounts accrued in payables to related parties for patent expenditures	$	—		$	16,614		$	(10,631	)

Amounts accrued in accrued expenses for patent expenditures	$	17,264		$	27,000		$	—

See accompanying notes.

Regulus Therapeutics Inc.

Notes to Financial Statements

December 31, 2009

1. Organization and Basis of Presentation

Regulus Therapeutics Inc. (the Company) was organized and began operations as a Delaware Limited Liability Company on September 6, 2007 (inception). On January 2, 2009, the Company reorganized as Regulus Therapeutics Inc., a Delaware C-corporation.

The Company is a jointly owned biopharmaceutical company created to discover, develop and commercialize microRNA-based therapeutics that Isis Pharmaceuticals, Inc. (Isis), a pioneer in oligonucleotide drug technologies and a leader in the field of antisense therapeutics, and Alnylam Pharmaceuticals, Inc. (Alnylam), a leader in the field of RNAi therapeutics, formed. The Company intends to address therapeutic opportunities that arise from abnormal expression or mutations in microRNAs. Since microRNAs regulate the expression of broad networks of genes and biological pathways, microRNA-based therapeutics define a new strategy to target multiple points on disease pathways.

At inception, Isis and Alnylam granted the Company exclusive licenses to their intellectual property for microRNA therapeutic applications, as well as certain early fundamental patents in the microRNA field including the “Tuschl III” patent. Alnylam made an initial investment of $10,000,000 in cash to balance venture ownership; thereafter, Isis and Alnylam share funding of Regulus.

During 2008, the Company commenced its planned principal operations and as a result exited the development stage.

2. Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions regarding certain types of assets, liabilities, revenues and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents and short-term investments. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits.

Regulus Therapeutics Inc.

Notes to Financial Statements (continued)

2. Significant Accounting Policies (continued)

Management believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. Additionally, the Company established guidelines regarding approved investments and maturities of investments, which are designed to maintain safety and liquidity.

Cash, Cash Equivalents and Short-term Investments

Cash consists of deposits at the Company’s bank and there are no restrictions on withdrawal or use of the funds. The Company considers all liquid investments with maturities of 90 days or less when purchased to be cash equivalents. As a result, short-term investments have initial maturities of greater than 90 days from date of purchase. The Company classifies its short-term investments as “available-for-sale” and carries them at fair market value based upon prices for identical or similar items on the last day of the year. The Company records unrealized gains and losses as a separate component of stockholders’ equity and includes net realized gains and losses in interest income. The Company uses the specific identification method to determine the cost of securities sold. When the Company determines that a decline in the fair value below its cost basis is other-than-temporary, it recognizes an impairment loss in the year in which the other-than-temporary decline occurred. The Company determined that there were no other-than-temporary declines in value of short-term investments in 2009 and 2008 and the period from September 6, 2007 (inception) to December 31, 2007.

Fixed Assets

Fixed assets included on the Company’s balance sheets at December 31, 2009 and 2008, consists of laboratory equipment at a cost of $1,433,016 and $756,514, less accumulated depreciation of $226,092 and $13,196, respectively. The Company depreciates lab equipment on a straight-line method over an estimated five-year useful life. Depreciation expense was $212,896, $13,196 and $0 for the years ended December 31, 2009 and 2008 and the period from September 6, 2007 (inception) to December 31, 2007, respectively.

Patents

At inception, the Company recorded patents it received from Isis and Alnylam on a carryover basis, which represented the contributor’s carrying amount on their financial statements. Isis contributed patents with a carryover basis of $161,629.

Regulus Therapeutics Inc.

Notes to Financial Statements (continued)

2. Significant Accounting Policies (continued)

The Company capitalizes additional costs which consist principally of outside legal costs and filing fees related to obtaining patents. The Company reviews its capitalized patent costs periodically to determine that they include costs for patent applications that have future value. The Company evaluates costs related to patents that it is not actively pursuing and writes off any of these costs. The Company amortizes patent costs over their estimated useful lives of ten years, beginning with the date the patents are issued. Accumulated amortization related to patents was $1,703 and $834 at December 31, 2009 and 2008, respectively. The weighted-average remaining life of issued patents was eight years at December 31, 2009. Amortization expense was $869, $834 and $0 for the years ended December 31, 2009 and 2008 and the period from September 6, 2007 (inception) to December 31, 2007, respectively. Estimated amortization expense is $878 for each of the years ending December 31, 2010, 2011, 2012, 2013, and 2014.

Licenses

The Company obtains licenses from third parties and capitalizes the costs related to exclusive licenses. The Company amortizes licenses over an estimated useful life of ten years. Accumulated amortization related to licenses was $6,458 and $1,875 at December 31, 2009 and 2008, respectively. Amortization expense was $4,583, $1,875 and $0 for the years ended December 31, 2009 and 2008 and the period from September 6, 2007 (inception) to December 31, 2007, respectively. Estimated amortization expense is $5,278 for each of the years ending December 31, 2010, 2011, 2012, 2013 and 2014.

Long-Lived Assets

The Company assesses the value of its long-lived assets, which include fixed assets, patents and licenses acquired from third parties, for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The Company has not recorded any write-downs of its long-lived assets to their estimated net realizable values.

Revenue Recognition

The Company recognizes revenue when it satisfies all of its contractual obligations and reasonably believes it can collect the outstanding receivable. In 2008, the Company entered into a collaboration agreement with GlaxoSmithKline (GSK). As part of the GSK collaboration, the Company received a $15,000,000 non-refundable upfront payment. The Company recognizes

Regulus Therapeutics Inc.

Notes to Financial Statements (continued)

2. Significant Accounting Policies (continued)

revenue related to non-refundable upfront payments ratably over its period of performance relating to the term of the contractual arrangements. The period of performance for the GSK collaboration, based on the research and development plan included in the agreement, is estimated at six years ending in March 2014.

The GSK collaboration also includes contractual milestones. When the Company achieves these milestones, it is entitled to payment, as defined by the underlying agreements. The Company generally recognizes revenue related to milestone payments upon completion of the milestone’s substantive performance requirement, as long as the Company is reasonably assured of collecting the receivable and it has no future performance obligations related to achievement of the milestone. In May 2009, the Company earned its first milestone payment under the GSK collaboration, and recognized $500,000 in revenue associated with the milestone payment.

The Company received a Small Business Innovation Research grant from the National Institute of Allergy and Infectious Diseases, a part of the National Institutes of Health, which was funding further research for the miR-122 program. Prior to the end of the grant in January 2009, the Company recognized revenue as it performed the research and development activities called for in the grant.

Research and Development

The Company expenses research and development costs as incurred. In certain circumstances, the Company makes nonrefundable advance payments to purchase goods and services for future use in research and development activities pursuant to executory contractual arrangements. In those instances, the Company defers and recognizes an expense in the period that it receives the goods or services.

Stock-Based Compensation

The Company accounts for stock-based compensation expense related to stock options granted to employees and members of the Company’s Board of Directors by estimating the fair value of each stock option on the date of grant using the Black-Scholes model. The Company recognizes stock-based compensation expense using the accelerated multiple-option approach. Under the accelerated multiple-option approach (also known as the graded-vesting method), an entity recognizes compensation expense over the requisite service period for each separately vesting tranche of the award as though the award were in substance multiple awards, resulting in front-loading the expense over the vesting period.

Regulus Therapeutics Inc.

Notes to Financial Statements (continued)

2. Significant Accounting Policies (continued)

Stock options granted to non-employees, which primarily consist of members of the Company’s Scientific Advisory Board, are accounted for using the fair value approach. Stock options granted to non-employees are subject to periodic revaluation over their vesting terms.

Comprehensive Loss

Comprehensive loss is defined as the change in equity during a period from transactions and other events and/or circumstances from non-owner sources. The Company’s only component of other comprehensive loss is unrealized gains (losses) on available-for-sale securities.

Income Taxes

The Company follows the accounting guidance on accounting for uncertainty in income taxes. The guidance prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.

Beginning in 2009, the Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and the tax reporting basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized.

For the year ended December 31, 2008 and the period from September 6, 2007 (inception) to December 31, 2007, the statements of operations contains no provision for income taxes since the income or loss of the Company flows through to Isis and Alnylam, who are responsible for including their shares of the taxable results of operations in their respective tax returns.

Risks and Uncertainties

The Company is subject to various risks common to companies within the pharmaceutical and biotechnology industries. These include, but are not limited to, development by competitors of new technological innovations; dependence on key personnel and outside relationships; risks

Regulus Therapeutics Inc.

Notes to Financial Statements (continued)

2. Significant Accounting Policies (continued)

inherent in the research and development of pharmaceutical and biotechnology products; protection of proprietary technology; estimation by the Company of the size and characteristics of the market for the Company’s products; acceptance of the Company’s products by the country’s regulatory agencies in which the Company may choose to sell its products, as well as acceptance by customers; health care cost containment initiatives; and product liability and compliance with government regulations and agencies, including the U.S. Food and Drug Administration (FDA).

3. Investments

The Company invests its excess cash in commercial paper and debt instruments of financial institutions, corporations, U.S. government sponsored entities, and the U.S. Treasury. As of December 31, 2009, the Company had $14,480,421 in short-term investments of which 79% had one year or less to maturity and 21% had more than one year but less than three years to maturity.

The following table summarizes the Company’s short-term investments:


	Amortized		Unrealized					Estimated
	Cost		Gains		Losses			Fair Value

December 31, 2009
Corporate debt securities	$	3,498,213	$	8,303	$	(1,536	)	$	3,504,980
Debt securities issued by U.S. government agencies		6,062,405		6,452		(1,172	)		6,067,685
Debt securities issued by U.S. Treasury		1,902,869		1,628		(877	)		1,903,620

Total securities with a maturity of one year or less		11,463,487		16,383		(3,585	)		11,476,285
Corporate debt securities		1,503,921		—		(9,012	)		1,494,909
Debt securities issued by U.S. government agencies		508,346		—		(3,197	)		505,149
Debt securities issued by U.S. Treasury		1,004,918		—		(840	)		1,004,078

Total securities with a maturity of more than one year		3,017,185		—		(13,049	)		3,004,136

Total short-term investments	$	14,480,672	$	16,383	$	(16,634	)	$	14,480,421

Regulus Therapeutics Inc.

Notes to Financial Statements (continued)

3. Investments (continued)

Investments the Company considers to be temporarily impaired at December 31, 2009, are as follows:


			Less than 12 months of
			temporary impairment
	Number of		Estimated		Unrealized
	Investments		Fair Value		Losses

Corporate debt securities		4	$	2,012,083	$	(10,548	)
Debt securities issued by U.S. government agencies		2		1,538,587		(4,369	)
Debt securities issued by U.S. Treasury		2		2,001,452		(1,717	)

Total temporarily impaired securities		8	$	5,552,122	$	(16,634	)

Fair Value Measurements

The Company uses a three-tier fair value hierarchy to prioritize the inputs used in its fair value measurements. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets, which includes money market funds and treasury securities classified as available-for-sale securities; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable, which includes fixed income securities and commercial paper classified as available-for-sale securities; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Regulus Therapeutics Inc.

Notes to Financial Statements (continued)

3. Investments (continued)

Below is a table of the Company’s assets that it measures at fair value on a recurring basis. For the following major security types, the Company breaks down the inputs used to measure fair value at December 31, 2009:


	Total		Level 1		Level 2		Level 3

Cash equivalents	$	2,483,360	$	2,483,360	$	—	$	—
Corporate debt securities		4,999,889		—		4,999,889		—
Debt securities issued by U.S. government agencies		6,572,834		—		6,572,834		—
Debt securities issued by U.S. Treasury		2,907,698		2,907,698		—		—

Total	$	16,963,781	$	5,391,058	$	11,572,723	$	—

4. Long-term Obligations

Convertible Note Payable

As part of the strategic alliance with GlaxoSmithKline (GSK) in 2008, the Company sold $5,000,000 of convertible notes to GSK. The principal amount of the GSK note plus interest will convert into the Company’s common stock in the future if it achieves a minimum level of financing with institutional investors. The rate of interest is a floating rate based on the prime rate as published by The Wall Street Journal at the beginning of each calendar quarter; at December 31, 2009, the interest rate was 3.25%. In addition, Isis and Alnylam are guarantors of the note, and if the note does not convert or is not repaid in cash after three years, Isis, Alnylam and the Company may elect to repay the note plus interest with shares of each company’s common stock.

Equipment Financing Arrangement

In September 2009, the Company entered into a $1,000,000 loan agreement to finance its equipment purchases. Upon completing the transaction, the Company drew down the entire $1,000,000 available under the loan agreement. The Company is using the equipment purchased under the loan agreement as collateral. The term of the agreement is three years with principal and interest payable monthly. The interest rate under this arrangement is a fixed rate of 5.9%. The carrying amount at December 31, 2009, was $948,954.

Regulus Therapeutics Inc.

Notes to Financial Statements (continued)

4. Long-term Obligations (continued)

Annual debt and other obligation maturities at December 31, 2009, are as follows:


2010	$	317,013
2011		336,231
2012		5,637,457
Thereafter		—

Total	$	6,290,701

5. Stock Options

2009 Equity Incentive Plan

In February 2009, the Company’s Board of Directors adopted and approved the 2009 Equity Incentive Plan (the 2009 Plan), which provides for the issuance of non-qualified and incentive stock options for the purchase of up to 5,100,000 shares of common stock to Regulus’ employees, members of Regulus’ Board of Directors and members of Regulus’ Scientific Advisory Board. Options expire ten years from the date of grant and vest over a four-year period, with 25% exercisable at the end of one year from the date of the grant and the balance vesting ratably thereafter. At December 31, 2009, a total of 4,847,000 options were outstanding, 2,850,000 shares were exercisable, and 253,000 shares were available for future grant under the 2009 Plan.

In December 2009, the Company’s Board of Directors increased the total number of shares reserved for issuance under the 2009 Plan from 5,100,000 shares to 5,900,000 shares effective January 1, 2010.

Stock-Based Compensation Expense

While the Company was an LLC, Isis granted its stock options to: Isis employees seconded to Regulus; members of Regulus’ Board of Directors; and members of Regulus’ Scientific Advisory Board for their services to the Company. During this time, Alnylam also granted Alnylam stock options to: three officers of Regulus; members of Regulus’ Board of Directors; and members of Regulus’ Scientific Advisory Board for their services to the Company. The Company recognized stock compensation expense related to stock options granted by Isis and Alnylam, on its behalf, with a corresponding increase to stockholders’ equity in 2009 and members’ equity in 2008 and 2007.

Regulus Therapeutics Inc.

Notes to Financial Statements (continued)

5. Stock Options (continued)

As part of the Company’s conversion from a LLC to a C-corporation, both Isis and Alnylam modified the stock options that each company had previously granted to Regulus’ employees, members of Regulus’ Board of Directors and Scientific Advisory Board to stop vesting in these stock awards before the awards were fully vested. In conjunction with these modifications, in February 2009, Regulus issued options to purchase its own common stock to Regulus’ employees, members of Regulus’ Board of Directors and members of Regulus’ Scientific Advisory Board. As a result of the modifications made to the Isis stock options, the fair value of the Regulus stock options issued in February 2009 was equal to the unamortized expense of the Isis options. Regulus is amortizing the fair value of those options into expense over the four-year vesting period. For the modifications made to the Alnylam options, Regulus recorded a benefit to reverse the stock compensation that the Company had previously recognized for the unvested portion of the forfeited options.

A summary of the Regulus stock options issued during 2009 is as follows:


			Weighted-		Average
			Average		Remaining		Aggregate
	Number of		Exercise		Contractual		Intrinsic
	Options		Price		Term		Value
					(In Years)
Outstanding at December 31, 2008		—	$	—
Granted		4,866,000	$	0.19
Exercised		—	$	—
Cancelled/forfeited/expired		19,000	$	0.19

Outstanding at December 31, 2009		4,847,000	$	0.19		9.08	$	—


Exercisable at December 31, 2009		2,850,000	$	0.19		9.00	$	—

Regulus Therapeutics Inc.

Notes to Financial Statements (continued)

5. Stock Options (continued)

For the year ended December 31, 2009, the Company used the following weighted-average assumptions in its Black-Scholes calculations, excluding the options that were issued as part of the modification mentioned above:


	Year Ended
	December 31,
	2009
Employee Stock Options:
Risk-free interest rate		2.9	%
Dividend yield		0.0	%
Volatility		80.0	%
Expected Life	6.1 years


	Year Ended
	December 31,
	2009
Board of Director Stock Options:
Risk-free interest rate		2.6	%
Dividend yield		0.0	%
Volatility		80.4	%
Expected Life	6.1 years

Risk-Free Interest Rate. The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of the stock option grants.

Dividend Yield. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts. The Company has not paid dividends in the past and does not expect to in the future.

Volatility. The volatility rate used to value stock option grants is based on volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the pharmaceutical and biotechnology industry in a similar stage of development.

Expected Life. The expected life of employee stock options represents the average of the life of the options and the average vesting period, and is a derived output of the simplified method.

Regulus Therapeutics Inc.

Notes to Financial Statements (continued)

5. Stock Options (continued)

Forfeitures. As stock-based compensation expense recognized in the statement of operations is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. The estimate of forfeitures is based on forfeiture rates of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the pharmaceutical and biotechnology industry in a similar stage of development.

During the year ended December 31, 2009, the Company granted 315,000 options to members of the Scientific Advisory Board to purchase shares of common stock. In connection with the Scientific Advisory Board options, the Company recognized expense of $20,156 during the year ended December 31, 2009.

The Company records stock compensation expense incurred by Isis and Alnylam on its behalf and Regulus stock options with a corresponding increase to stockholders’ equity in 2009 and members’ equity in 2008 and before. The following table summarizes stock compensation expense:


	Year Ended December 31,
	2009			2008		2007⁽¹⁾

Stock compensation associated with:
Isis stock options	$	—		$	490,442	$	91,975
Alnylam stock options		(527,979	)		1,526,142		320,303
Regulus stock options		626,870			—		—

Non-cash stock compensation included in operating expenses	$	98,891		$	2,016,584	$	412,278


(1)		The Period from September 6, 2007 (inception) to December 31, 2007

Regulus Therapeutics Inc.

Notes to Financial Statements (continued)

5. Stock Options (continued)

The following table summarizes the allocation of stock compensation expense:


	Year Ended December 31,
	2009			2008		2007⁽¹⁾

Research and development	$	(166,012	)	$	1,059,506	$	237,238
General and administrative		264,903			957,078		175,040

Non-cash stock compensation included in operating expenses	$	98,891		$	2,016,584	$	412,278


(1)		The Period from September 6, 2007 (inception) to December 31, 2007

As of December 31, 2009, total unrecognized compensation cost related to non-vested stock-based compensation plans was $804,216. The Company will adjust total unrecognized compensation cost for future changes in estimated forfeitures. The Company expects to recognize this cost over a weighted-average period of 2.92 years.

6. Stockholders’ Equity

Series A Convertible Preferred Stock

The Company’s Amended and Restated Certificate of Incorporation authorizes the Company to issue 25,000,000 shares of Series A convertible preferred stock. In January 2009, the Company issued a total of 14,900,000 shares of Series A convertible preferred stock to Isis and Alnylam as part of its legal reorganization from an LLC to a C-corporation. At the time of conversion, the number of shares issued to, and subsequent ownership by, Isis and Alnylam reflected their respective ownership percentages in the LLC.

In March 2009, the Company issued 10,000,000 shares of Series A convertible preferred stock at $2.00 per share for total proceeds of $20,000,000. Isis and Alnylam were the sole and equal investors in this financing.

The holders of the Series A convertible preferred stock have the right to convert their Series A convertible preferred stock, at any time, into shares of common stock. The initial conversion rate is one-to-one into common stock. Any accrued but unpaid dividends convert into shares of

Regulus Therapeutics Inc.

Notes to Financial Statements (continued)

6. Stockholders’ Equity (continued)

common stock at the then applicable conversion price. The Series A convertible preferred stock, including any accrued but unpaid dividends, will automatically convert into common stock, at the then applicable conversion price, upon the earlier of: (1) holders of at least 66²/₃% majority of the outstanding Series A convertible preferred stock consent to such a conversion, or (2) upon the closing of an underwritten public offering of common stock if the per share public offering price is not less than two times the original purchase price (as adjusted for stock splits, dividends, recapitalizations and the like) and a total offering of not less than $50,000,000 (before deduction of underwriters commissions and expenses).

The preferred stockholders have voting rights equal to the number of common shares they would own upon conversion, which is currently on a one-for-one basis into common stock. In addition, preferred stockholders participate on an as converted basis in any dividends declared or paid to common stockholders.

In the event of any liquidation, dissolution or winding up of the Company, the holders of the Series A Convertible Preferred stock have a per share liquidation preference equal to their original purchase price plus any declared but unpaid dividends.

Common Stock

The Company is authorized to issue up to 32,000,000 shares of common stock. As of December 31, 2009 and 2008, there were no shares of Regulus common stock outstanding.

7. Related-Party Transactions

The Company entered into several agreements with related parties in the ordinary course of business to license intellectual property and to procure administrative and research and development support services.

(a) License and Collaboration Agreement

On September 6, 2007, the Company entered into a License and Collaboration agreement with Isis and Alnylam. Under the License and Collaboration agreement, both Isis and Alnylam granted the Company the exclusive right to use technology, know-how, patents and other intellectual property rights related to the design, development, and manufacture of microRNA therapeutic applications. The licenses granted to the Company are royalty bearing

Regulus Therapeutics Inc.

Notes to Financial Statements (continued)

7. Related-Party Transactions (continued)

and sub licensable. Alnylam and Isis retain rights to develop and commercialize on pre-negotiated terms microRNA therapeutic products that the Company decides not to develop either itself or with a partner. In January 2009, the parties amended the License and Collaboration agreement to reflect the Company’s conversion into a C-corporation.

(b) Limited Liability Company Agreement of Regulus Therapeutics LLC

On September 6, 2007, the Company entered into a Limited Liability Company Agreement (the LLC Agreement) with Isis and Alnylam. The LLC Agreement established the Company’s main business focus as the discovery, development, manufacture and commercialization of microRNA therapeutics.

The LLC Agreement also established the Company’s Managing Board of Directors, which consists of up to seven directors. Alnylam and Isis each have the right to designate up to three directors. At least two of the seven directors need to be independent directors and the seventh director is the Company’s President. The independent directors received cash compensation and Isis and Alnylam stock options for service on the Managing Board of Directors.

Additionally, the LLC Agreement established the Company’s Scientific Advisory Board. The Scientific Advisory Board advises the Company as to research goals and plans, and to review and interpret research data. As compensation for serving on the Scientific Advisory Board, members receive cash and annual grants of Isis and Alnylam stock. In January 2009, the LLC Agreement expired in connection with the Company’s conversion to a C-corporation. Beginning in January 2009, members of the Scientific Advisory Board receive cash and annual stock option grants to purchase shares of the Company’s stock.

On September 6, 2007, the Company entered into a Services Agreement with Isis and Alnylam. Under the Services Agreement, Isis and Alnylam will provide the Company certain research and development services and/or other services, including, without limitation, general and administrative support services, business development services, and intellectual property prosecution and enforcement services, as specifically contemplated by the Operating Plan. As compensation for the services provided during 2007 and 2008, the Company paid Isis and Alnylam an annual rate of $350,000 for each full-time equivalent (the

Regulus Therapeutics Inc.

Notes to Financial Statements (continued)

7. Related-Party Transactions (continued)

FTE rate) plus out-of-pocket expenses. The Company did not reimburse Isis or Alnylam for internal general and administrative costs supporting the employees performing the services, as the FTE rate already included these costs.

As part of the Company’s conversion to a C-corporation, in January 2009 the Company, Isis and Alnylam amended and restated the Services Agreement. If requested by the Company, Alnylam will provide services to the Company at the annual FTE rate. In addition, Isis will continue to provide specific research and development services and/or other services, including, without limitation, general and administrative support services, occupancy costs, and intellectual property prosecution and enforcement services, in accordance with an operating plan agreed upon by the Company, Isis and Alnylam. Isis will charge the Company its prorated share of Isis’ costs to provide such services.

The following table summarizes the amounts included in the Company’s balance sheets, which resulted from the Services Agreement among Isis, Alnylam and the Company:


	December 31,
	2009		2008

Payable to Isis	$	823,422	$	1,953,914
Payable to Alnylam		29,016		106,263

	$	852,438	$	2,060,177

The following table summarizes the amounts included in the Company’s operating expenses, which resulted from the Company’s activities with Isis:


	Year Ended December 31,
	2009		2008		2007⁽¹⁾

Services performed by Isis	$	2,260,791	$	5,260,736	$	665,770
Out-of-pocket expenses paid by Isis		698,749		830,630		341,178
Non-cash stock compensation for Isis stock options		—		490,442		91,975

	$	2,959,540	$	6,581,808	$	1,098,923


(1)		The Period from September 6, 2007 (inception) to December 31, 2007

Regulus Therapeutics Inc.

Notes to Financial Statements (continued)

7. Related-Party Transactions (continued)

The following table summarizes the amounts included in the Company’s operating expenses, which resulted from the Company’s activities with Alnylam:


	Year Ended December 31,
	2009			2008		2007⁽¹⁾

Services performed by Alnylam	$	43,794		$	396,958	$	113,596
Out-of-pocket expenses paid by Alnylam		135,347			81,222		8,000
Non-cash stock compensation for Alnylam stock options		(527,979	)		1,526,142		320,303

	$	(348,838	)	$	2,004,322	$	441,899


(1)		The Period from September 6, 2007 (inception) to December 31, 2007

(d) Investor Rights Agreement; Certificate of Incorporation

As part of the conversion to a C-corporation, in January 2009 the Company, Isis and Alnylam amended the Corporate Services Agreement and entered into an Investor Rights Agreement. The amended Corporate Services Agreement specifies services that Isis and Alnylam will provide to the Company.

The terms of the Investor Rights Agreement and Certificate of Incorporation provide Isis and Alnylam specific rights and privileges, including the right to: separately approve transactions that materially affect the Company; each appoint up to two members of the board of directors; preferential distribution in the event of a sale or liquidation of the Company; and approve the Company’s operating plan.

8. Collaborative Arrangement

In April 2008, the Company entered into a strategic alliance with GSK to discover, develop and market novel microRNA-targeted therapeutics to treat inflammatory diseases such as rheumatoid arthritis and inflammatory bowel disease. The alliance utilizes the Company’s expertise and intellectual property position in the discovery and development of microRNA-targeted therapeutics and provides GSK with an option to license drug candidates directed at four different microRNA targets with relevance in inflammatory disease. The Company will be responsible for the discovery and development of the microRNA antagonists through completion of clinical proof of concept, unless GSK chooses to exercise its option earlier. After exercise of

Regulus Therapeutics Inc.

Notes to Financial Statements (continued)

8. Collaborative Arrangement (continued)

the option, GSK will have an exclusive license to develop the relevant microRNA target on a worldwide basis. The Company will have the right to further develop and commercialize any microRNA therapeutics, which GSK chooses not to develop or commercialize.

The Company received $20,000,000 in upfront payments from GSK, including a $15,000,000 option fee and a $5,000,000 convertible note. The Company is amortizing the $15,000,000 option fee into revenue over the Company’s six year period of performance.

9. Income Taxes

Until January 1, 2009, the Company was a limited liability company, which resulted in profit or loss in its operations being passed through to Isis and Alnylam in accordance to provisions set forth in the Limited Liability Company Agreement dated September 6, 2007. Due to the conversion to a C-corporation in 2009, the Company no longer shifted its tax burden or benefit to Isis and Alnylam. As a result, the 2009 tax year is the first year the Company is responsible for its tax liability or benefit. Although the Company had a book loss in 2009, for tax purposes, the Company had to include a significant portion of the GSK upfront payment in its taxable revenue resulting in taxable income.

Significant components of the Company’s deferred tax assets are shown below. The Company uses a valuation allowance to offset the deferred tax assets as realization of such assets has not met the more-likely-than-not threshold.


	Year Ended
	December 31,
	2009
Deferred tax assets:
Research and development tax credits	$	283,935
Deferred revenue		4,403,089
Other		80,916

Total deferred tax assets		4,767,940
Deferred tax liability		(271,148	)
Valuation allowance		(4,102,576	)

Net deferred tax asset	$	394,216

Regulus Therapeutics Inc.

Notes to Financial Statements (continued)

9. Income Taxes (continued)

The provision for income taxes reported a total tax expense of $140,606. Significant components of the income tax provision are as follows:


	Year Ended
	December 31,
	2009
Current:
Federal	$	438,018
State		96,802

		534,820

Deferred:
Federal		(394,214	)
State		—

		(394,214	)

Income tax expense	$	140,606

A reconciliation of the federal statutory tax rate of 34% to the Company’s effective income tax rate follows:


	Year Ended
	December 31,
	2009
Statutory tax rate		34.0	%
State taxes, net of federal benefit		5.8	%
Tax credits		7.5	%
Change in valuation allowance		(46.9	%)
Other		(2.0	%)

Effective tax rate		(1.6	%)

The Company had federal and California research and development tax credit carryforwards of approximately $80,000 and $310,000, respectively, as of December 31, 2009. The federal research and development tax credit carryforwards will begin to expire in 2029 unless previously utilized. The California research and development tax credit carryforwards are available indefinitely.

Regulus Therapeutics Inc.

Notes to Financial Statements (continued)

9. Income Taxes (continued)

The future utilization of the Company’s research and development credit carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that may have occurred previously or may occur in the future. The Tax Reform Act of 1986 (the Act) limits a company’s ability to utilize certain tax credit carryforwards in the event of a cumulative change in ownerships in excess of 50% as defined in the Act.

It is the Company’s practice to recognize interest and/or penalties related to income tax matters in income tax expense. The Company recognized no interest or penalties upon adoption or as of December 31, 2009. The Company does not expect any significant increases or decreases to its unrecognized tax benefits within the next 12 months. The Company is subject to taxation in the United States and California. The Company’s tax years for 2007 and forward are subject to examination by the tax authorities in those jurisdictions.

10. Subsequent Events

The Company evaluated subsequent events occurring through February 26, 2010, the date the financial statements were made available to stockholders, for potential recognition or disclosure in its financial statements.

In February 2010, the Company announced completion of a new worldwide strategic alliance with GSK to develop and commercialize microRNA therapeutics targeting miR-122 for the treatment of hepatitis C virus (HCV) infection. The HCV alliance includes upfront and milestone cash payments, in addition to royalties, and expands the ongoing GSK-Regulus Immuno-Inflammatory Disease alliance formed in 2008.

GRAPHIC 14 b78674b7867401.gif GRAPHIC begin 644 b78674b7867401.gif M1TE&.#EA3P(``??^`'U]?4!`0,#`P("`@````,O+RXV-C;"PL,K*RO#P\.#@ MX'AX>'1T=-#0T)^?GYRWMWEY>:VMK6=G9W!P'APL+"\C(R+Z^OG9V=E!04`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`KR\O(*"@N3DY`,#`T)"0B@H*-34U-K:VB$A(>?GY^GIZ82$ MA%145%965AP<'&QL;$%!0<3$Q!L;&P0$!`H*"@$!`=G9V1(2$E-34]O;VR0D M)"(B(D1$1`<'!QT='2'M+2TG=W=PT-#2HJ*FAH M:#0T-&IJ:@X.#BLK*QH:&C4U-0\/#Q45%08&!H.#@^'AX4='1U%142,C(RTM M+186%DA(2&MK:____P```"'Y!`$``/X`+`````!/`@`!``C_`/T)'$BPH,&# M"!,J7,BPH<.'$"-*G+A0@0**&#,V5"!`H\>/!`52*">>3,FRI((*1Q.,_S2M?00)$JHCXI890+("WQ)-UZQ!(,%Z MC?/*5`!!+Y)YT\"`O@F(HG^<*1`AX^A"%]#`PJD``DUV#AB`C(*9"*( M`N&V(GPB`>G/<`(,D"($%&5.$"D1`Y8(@11CAFA3FB9"%!&%X(@$5#%@!"0.0D.(* M)"!*E6<1D-!`:+X5Z@\$A*ZP@C^F14``"@1<-.B,"!58XV\D3%KII21X1T*3 M*]0P`@&TV?\&`:..0DA"!"O<>:NF$01PZXFMODH;`8G^VI^-H#Y$W@"-UK9K MIPE$,`*G%^%80VN4#F!I07@N5"!$-1X@&FO;?24`"MGY=D`--7AX;KO_Z89W`"&`:P0@*K^B,MQ[1QG"0!58'\X`HH,%2:FP*91O*?298ZJ\"79MP: M:QP_6-NEV,5\90`1_-FRN`V,D//`$!Y-IY^O\,/)L`A:ZH#+)"<-:T0W$!XOYF=F,)_7>.C\J%` M`@07S5H3I'T^>.?TDTM>^>-4GKLIIFX23P1<18*-=>Q27&OE>&%/@]_+ M'@`5Q$`7SL1X)+Q1=FQS@+-!J%=3"QL`_V4BL<\-R#PCD$\"1`@TXQN0Z`K%*A+X:E$KJ&"04":006TG`@F8%W?`XQ6A=68%CS$C MT:1$@**=:(#F`8^L:)458N$*4,,+?VSHH$&-P&);0TT- M2B5'-`I1(H!Q"`X!U$@WV:8C2&.70"0CO2%&)),,*2*=!K2\+"4@*ZWB6E9, M9#G[+0Q_5-23%9/#H),D``)*&HB1AC20XCRJ22UB4)K&EIQZ'7-&43L1AVQB M(F).S$@F>DV/M!=,X5UDFV'2R'&R&3\Q->`BF4/FD<*4+%K&9)/8NQ$0F[.K MUBC`4A%`D!"-U_\257;DB-CAE/]\19M!<6=\M0S>%'.)&2OVQ#?_4@H+&5H2 M%!5$.00AFU+.F=$4A:1>%`WIPYABFEHU!)4OF2A)%)D6E([%I2*-:4X MR?2F.,WI4FBJTY[Z]*>&X:E3-#J6:**%J&)!*E"72AB]C>5;:<&86J"*%JHR M]:I-Q:I6M\K5LPBU*58UBU33$M:G@K2K:'6+4Y.ZUK`8]2Q*!4M^^O6O@`VL8`=+V+]:JK"(3:QB%\O8QCKVL9"-K&0G2]G`(C2M M6ODJ9C?+VT>4$OYT(VN=*=+W>I:][K8 MS:YVM\O=[F;7",4-;TL$T`X#F/>\Z$VO>M?+WO:Z][WNU0(FX$O?^MKWONK% MA!;PR]_^^M<`\OTO?CL@$]&*%Z@",,$#%LS@!COXP1".L(0G3.$*6_C"&,ZP MAC?,X0Y[^,,;#L.!1WR7673@Q"A.L8I7S.(6N_C%,(ZQC&=,XQK;^,8XSK&. M=WSC*I#XQQD1``\^0.0B&_G(2$ZRDI?,Y"8S&0*D<+*4ITSE*B.9%!"PLI:W MS.4/0+G+5CZ!3.8*Y)L*0!,E2+.:U\SF-KOY_\UPCK.M-=.$`)_#"!F3M!0LL6]FS[L(),&"!'^0AV=26M06\D(=L M$R$/L9;U$&)]@"YL@M;0GK6R?Z"!$VS@![-NA:OG[1!8(^#>^,ZWOO?-[W[[ M^]\`_S<&.!#P@AO\X`C?-P0!R)L00-U0``1*FZ!56B` M`Q._M[QCTFIZRU0`7RB`TI?.]*8[_>E0C[K4IRYU#B2=ZEC/NM:WWO0O<(#K M8*>Z%C10@$`4X`M;4#K:9Y`'M-?A"S/HPA96,8,"`+T+,Y!XV[>0=+X7P.]* M[X+2S:X!+>A`"P70PA;\W@6THSWP2T_!F-MJ=)$B/>R8S[SF-\_YSGM^\X'H M0A=6,8O'GSWM6LC#%F:QA2,(?@M@*,`1"F"*-A1`]`4`0]HA486_7[T`>2C` M+$(_>BW$7O=\KT+C^9YVX$>^\M"GW`Y40/WJ6__ZV,^^]K?/_>Y[__O@#[__ M^,=/_O)[?P>.H'X(++"#58A^!Q.@_B/B+W\5Y(+]C^C",ZC_#/H[P@)`0'T3 M,'W4YPBYT`4A4(!7X`B<4`X3,`86X`B/`'\A``M7P`-74'U\D%-H$`J?<`<@ MB`(@"((40`&A<`<4@`(IB`(LB`(GN((LN((@>((J>`>A<(**8'0"<`H8T(,^ M^(-`&(1".(1$6(1&6(2,8`)'N(1,V(1.&(0FP`A/.(546(48D(1':`"A0(6L ML'`].`<%9EIKT0JP4X9F>(9H:(:"H(/-<`!N^(9P&(=R.(=T6(=V>(=XF(=Z MN(=\V(=^^(>`&(A[6`=_2(AO.`TYQ0=IN(B,B(9K_TAO`H`.#C")E%B)EGB) MF)B)FKB)G-B)GOB)H!B*HCB*I%B*IGB*H_@!B5B&U=`?K4@`P0`[U]"(9_B( M\R8`+2!@NKB+Z^4+IL"+P,B+IN`+P5B,_N6+QMA>!!83!C86BM@9YE`'5:`! MI4``V0`!K,`-#J`,!``.IU`)P#`!L1@(/Q`(!'`-AE`%(>`#!``/&0`,',`# MG:$.=9$@;P%,M*$`SF%1`Y$X"/$JE%<09Z40`H`$"W"0")F0"KF0#-F0#OF0 M$!F1$CF1%%F1%GF1&)F1&KF1%VD).64&G6$#HZ``FC`%H4``%K`,H8`+F2`$ M!.`-V"`)HD`,%D``G)``]/_!#;%0"QR@`010"D!P"7:P#IWQB'YP!FI`"'I0 M!FK@!X1`"'&@!WIPE'00!X50!F=0!F2@!GJ@!EBI!EDYE7Y0!GIP!DJI!W2@ M!V^0E6KP!EYY!H5`!VHPEVV9E&B)EFP)$1[C,1]3&S7`+%M3'P,Q`#E"/GJS M.1(1`6)(D)NP`8[YF)`9F9(YF919F99YF9B9F9JYF9S9F9[YF:`9FJ+IF3KP MD9T!#:!0">X``(Z`DFB0!BY`"2Y``'G0"J(@`,@`#C;I!A)01[%P`@/P#ISA M!*U@"=]0E`+A!ZZ0"6[0")TP"'1P":Y`!XV0"569"6C0"71`"&YP"840"[$P MG9W_L`B$@`>7<`F=$`=DN0B9@`=XX`;MR9YTD`"7,`C,T`D)0`C/N0CL>0GM M>0EXX`=Z:1,U4`$-D#/PL0)L)#(>$B1ZHR4.$0`V,9`TT0P<<*$8FJ$:NJ$< MVJ$>^J$@^J&`,`0A6J(F>J(HNJ%#``@IVJ(N^J(<,*(PFJ)/,'ER`9*<$0C; MD`$$\`JQF)*A$`2#(`T$P`IFD`Q38`6P0`#2L`A-0`#50`-FX`H]8`V2,`>14`M\@`$.D`484`=8\`,"D`R(@`K84`5U(`K+ M<`0',`4(X`">4`3+<`8)D`6H,`U1``$S8`:B@`J]@``=_Q`)=>`),[`-1>`) MR``*J!`);(`,1X``93"@&20F!400%9`S`F!'AJD`D4$[*+)%_:*JH^0JF2,G M50$_)S(P;"0`VQ,]PA.06E%T`%ME``*3`*%8`,]?H#'%`!7Z`"D=`#3Y`%IZ`*!@`,7O`!A:"7C6,I MOL$IWO,G%X$"NEH;->$@6N(\K/\:`.#!.)BR`DF21+(JL]&B)*)4*&X3`0T* M6M&7M$IAK`1@",RP"RDPF^D@"H.@"[_@!`2P!*!@#[2`#.3*"920""A)"0J` M!H!0#)S!!X`0BULJ$&X0"8>P`ZK0`;K@"K]P"(!@``/'"ZA@!B%`"K60"V`@ M"3N`!5YP`&#``0)@"WL@"V`P`YW@!D6@`[9P"+5`#&9@!)I@!1\`!A`@"Q4P M!B=0!SKP!"6@"9:0`76P`Q]`!WH9**9Z).[C(2A0,.C!+>&#):T!H7&2''!T M,65B$Q(*`2WS/6F41=&#M$E!K%8Q5E5%H6'!O&#!M,60`VG``FC;CC=P`^1* M`.[@`]K_4`-+^I-,0`*<\0)_<`_RT!D^<`SH*A"9,`:G0+%8<`ZQ,`@_``:, MT`I[P`.5D`Q_>P1/`+`9(`N68`E@@`%A<`JV8`DZP`9H,`A[4`%>0`IML`UF MX`":<`*(H`I>0+$A8`7_FF89\`.C,`J`@`BN^Q`26AL+^B$`4JH04)C!"Z'" ML[N["SC:\24PXZ`.JAWDDSD^`\0CM19D9A5O)5:\VKQ+/+VT^,2-^(ANT`8P MT`&>P`,_0`R+P`6D(`EX\`MR(`>H4`&,\`O8X`4\\`#C$`+-D`%[RJ+`4`%R M8`;:#2`+"!`'S'`"LM`'E8`` MS$`+,Q`",]`+XU`)B&`&'&"G:%`$1\`'KJ`"(7`"<\`&B``*'\`!"F`%LI`% MM%`$'0`*,W``*9`,M7`",B`)DC`.C]P0+>P/?UG*N`*\,5,J!B&AFHS#H^1% MTG(D?/,@S%(['6%0AH(I0YR\*)`$-/]=TS9]TSB=TSJ]TSS=TS[]TT"]TTV\ MRQ32RYQ!!+XP`:20!P:@#6/`!`XP`9A`"L\0`$VP"0'0#\:0")"0"NR`!":` M"TY`!4IPS=F"$8E&$.`"/N`$7N`&?N`(GN`*ON`,WN`(_@M$'5,X"L44 MKH;)Z=[U709NB93MG95,B=[V[=YO0`8D3N)^<.(=CI596>(D+N+NS>(P3@;P M70A9.1@"D`0AD.,ZON,\WN,^_N-`'N1"/N1$7N1`;@81+E*Z7>$4_HAB$.-/ M#N5B$.537N56?N58GN5:?N4P;N,Z4`1@'N9B/N9D7N9F?N9HGN9H+@>^H.9N MGN9K,-O.4=N+^5)UCA9+SN1/?`PZ:`M/\.>`'NB"/NB$+NB\4`E__ZX(@*X( M#I#H@%X)(,@+B3X)DC`)B_X$DR#I3\`+=R`)@.X`B*`(=T#IA.X`C-[HA8X( MFOX$B(#J@MX+21Y2V*#GM$X`]`B)*.=P#VX%U,YO%5<'.8=OAXMO&&#(UKYOE!#K M%+4&-E#K3*X$.ICKNOYOR14(]R;L$6=QPKYQJRP!N>X%$[=SOHX!+G=OU8X` M=3`$UTYM"*`!0\!P!:\!)\3#Q2_<%J_^P"J90`#,@`8%@>X*W\Y!7`!(P M"TK'>)"0!X>G`S??!A+P!2;'=TE'!$JO!3/P"CJ@`XMG>&U@>DS7\6,&K&;% M%M)+\@WU>R?_!:\`"8$`"2P/>4>0!UW0!EU@"FC7!L&G=,KW=X:`>()W!!+@ M\T`?]$DG>(&W>*J7=&C'?*:P?']_>H!_>DZG]6#_^)LE`!F0!91?^99_^9B? M^97O"!!`^8\P!H_@F#OP")0/!010^1DP`5G@"!E0#IC`"3"0!2%``"&0!4#` M"8\``53@;!M`^;J?!8]0^UD``YRP`500`J$_?Q.0`?B7`53`"<@?R!-`_)C@ M_)U_^;1P$\Y[%E__[Q3=#_F*(0!@P`7D7_[F?_[HG_[EKP/E_P,_X'$Z\/[K M7_Y[\`-P`5>8/_D#Q!>N`ST\H/+#QT)!W)1PD7AP#T"">[Y\6//'AT6 M'4;D0O&@P(8+%^[R5]+D290I5:XT*4`!2Y@Q9Z$>9/G3Z!! MA0XE6M3H4:0T!0P+T=3I4ZA1I4ZE6M7J5#"1KFY]&@F,5#-)Q8XE6];L6;1I MU:YEVS:E`!,/Y,ZE6]?N7;QY]>[EV]=OWCEN!0\F7-CP8<2)$PL0P&$!CB8L9][<^7/HT:5/IU[=^G7I'(YOY][=^W?O M`B*E(%_>_'GTZ=6O9]^>/:H%[N6WCP5:-'B3I?&?U+_?_W_7<`)P0`(+'#`` M!!-4<$$&&W3P00@CE'!""BNT\$(,,XQPA14T]/!#$$,4<4022S3Q1!135-'" M$0QT<2T!!/3/I_]<^H_&&65\<4<>BXH1P`1>NC&!_X($4L@>DU1RIQ^7=/)) M**.4..5=UYZZ[6W7F-PN7=??OOU-UY>>_;Y9Z"#%GIHHF,#SF6D"0W@ MI!%:_`F%""`0``42B#3_2X`T`-!Z:ZZ[]OIKL,,6>VRQ39B$;+335GMMKRF[+*SC%GSPM2?)FG#$$_073(!@A``("(/*`%4BH08$$4,#=M`90&($`?ZZ/ MNJ7#%??^>_##]WX&-WH``(L9M,:"D,_1C]P,KZ"_#31*7WU_Q%H_ M:0#91:`D$1!`S4HR@-H1`'@F"8".2I(`T2B`!+:+`/0"``$)-B`!%8@>\`+0 M_P`!$$`T#5A!D&86./&E4(4K9*'6IA""RKGO?#.80@]D"(`:VL\`9C`?#@'0 M@_QMS73\(Z)@_&<2`/HC`C(38`U0`$#I^0-[**D!S$Y2`01A+XFV0Z#32D(" M`-YN`$=,@/,XR+T6IK%K6[B`&MT(@`MLP6NA`^(,U3>#'U+,SO M:T-,9#'1(H`5E%(!22PC"5X"@16\!`655,D*4/`2`?\0L`8'\$<(N%K!"B#0!!HPL`L08)2>PC!F1\_2``7!+C4# M\.(`(D``%!`IDR9)P`A(0`#B^:,!$:C!\?P!N]>9AGD$.&?T2`!&F3H-I`38 M7CLOT`*D)E6I2V5J4YWZ5*A&%:IP,(94K7I5K&:5J2Q@JB(4D50P#`$,8QW" M5UO@5:4J8@A(%2M2Z]'46A020(CT:+H$P(H+Y%6O>^5K7_WZ5\`&5K"#)6QA M#7M8Q"96L7[U1%T=^R8!Y(/_!9.E;&4M>UG,9E:SF^5L9SW[6="&5K2C)2UF MO?!8U*9)`.*(06M=^UK8QE:VLZ5M;6UK6VO<5K>[Y6UO8YM;WP8WMCTXF`,3 M9MS4.@N9*V)N1IT7OO.E[Z#D6U_\YK=-]RT.7;D3RD.NUSO^U:^=^%M@ M!"EGF)'`$OASG+6Q9SF:5,9C.G MN^:S8=9%,$`'VE^.<(2@#7WH>(%@ MSN")\W8:W6] MJGXOI*,D`'W@0-:SIG6M;7UK7.=:U[OF=:]]_6M@!WL2KB8V@010CALD6]G+ M9G:SG?UL:$=;VM.F=K6M?6UL`Z#8V_:/`)H@`G"'6]SC)G>YS7UN=*<;W/_!#7YPA"=,,MH6^(=P>%KJ0XXF9PN3]J+0N#S#@@I_!QD#?EXY7;P0NUUA2O&2'B*S?. MQ"L>/C:FT`!3F(,+M_9Q\TV!:S?4.0`N#@`S[``-O=Q!".:0OJX9H=X#OG=_ MF\[R`;G\Y5-/F^>&[D,7[@!^/;_CS;4FNOF%;H8V1#K75`YUM!.J>U1G^]CR M!T.L^_#B-<3"#NQHML)9SCQA2"64W!#W'5N M/S1T#G(\_SHMLV`_G[>O[(!_^G!6;9S/#WY,:S<\XXX% M,>R\[#W_^2X57_.[FWW1=B:OZ/?_300:!%_XPR=^\8U_?.0G7_G+9W[SG?]\ MZ'_!]],GC,-.=GWLARP5F,A^][U/,1[L_KMW[LZC-:P`\M<$@D?1($W6OZAX MY$#^\Z=__>U_?_SG7__[US\.(,%_``Q``1S`^F.`SA..T"..!)053(H0TTB0 M&IBS$:@!*EJZ_VFD$1"_F5BDDV@@GO#`E&@``.-`EL`IE9`T4TM!%5Q!%FQ! M%Q2U5*`^+[D)9)JQ4JJ`9+(1`H@1WOD;Y($9"$@>F4BB#%0)3XH)$KPI$E@I MF@#!X!E!)E0)$WR+8K`!*[Q"+,Q"+=Q"+NQ"+_Q",`Q#,1Q#,BQ#;Y#!-''" M;LHD2U+#_P"(HI)X0]J"6:+5R#,FT.,>3P)X#$*![%,8&4H!`#$3_P1T$Z9!%2J(&,J<.V<<#"L8L MDJ*6R"26'`$`4J!OND[*8?\<``",9J1('4(!(%0$F&)$I(XDFZA``4 M8"DE$A),.@DT@YJA!,$IB@!3C,,"NLL!0J>EJ:#724R]=!H%,,4A\Z0&X)V/ M%$G+%`RQ+(DI*D@?Q(D#(`!N\I^"E)IDNL<:$`"IG,6IJ1VI_*(#T"`PFII& MZL4#>$77T4<9*:,#V"+`+`G>T9TZ!#/_`:@!"O0?VK1-<5J!VCQ%481+`7`!)KA.[,Q.[=Q.[NQ.[_Q.\`Q/\1Q/[[Q,I,&@DU``*SK"/C$) M]+0=?TR-J;F@!\*B2;HIZ"'.W5Q,;E*`XQD`JZF9:8*9R40)YVR2]_0D?;P/ M]&RIW8G/UW&B_C@`"5W,;3)+.WS#$X*%".A0#_U0$`U1$1U1$BU1$RU1:MB' M$UU1$UT+KV2-!41`K#3/FF`>(Q*$(,A1'=U1'NU1'_U1(`U2(0U2=GB$(3U2 M(5T+#>0.\RN.)J71F.C%%QT*`5B"Q;I2+,U2+=TK*.W2F:B`*:52Y<`.,BU3 M,Y6.5("#,RU3_R7M/2M)/R_%$R(P`3JM4SN]4SS-4SW=4S[M4SX5`5/P4T'M M4Q8`ETB!$_% M@DY-O=O#'#1`@T'ZFDA=53^;5$KU&IQSO#[XA+C+O==+GS;0I6`-Y`H0.B*>-!0&0!8%(Z`!`R%@0N-@U&-EZ6EB8U9EODS>:K5F; MO5F:C5F=/8IU:0*?_5F@#5JA'5JB+5JC/5JC]0960%JF/=I"O9%#5<"HW5EY M508IN%JLS5JMW5JN[5JO_5JP_=ICL("P+5NP;=,L<5.J/0P!^`8G>%NXC5NY MG5NZK5N[O5N\S5N]W5N[75N_=;,.@:[F.L;F0MLW5=N_I9*IE5$`05C%2-36 M@-S$18IQG%S^"3+,S5S-W5P:DS'._5S0#5W1'5W2+5W3C4Q,3%W575W633(K M:]U)K$38G41)FETUDUW;33/R%I.`'>A/5=Q#!8 M?%/>PU!8XZ52XHU>ZO42Y*U>[%VPZ871[5T-YS4,R5V-\,U>=>E>U7C2X5A2 M1X/3XT!?\G4S\WU?^360ZTT,]^U$Q&4T]IU?H!``0(@"``Y@`1Y@`BY@`SY@ M!$Y@!(Z$85!@!T[@IRT3J.5?G2D%#[A@#,Y@#=Y@#NY@#_Y@$`YA$1YA#Z9@ MOQ6`;E`"%5YA%FYA%WYA&(YA&9YA&JYA&XYA$UY;`8`$(>AA'_YA(`YB(1YB M(BYB(RYB7)""(UYB(P;637QB_"HGM$`_F8C?F'@_'_$!)-AB+NYB+_YB,`YC M,1YC,BYC,SYC,$Q#9<"*O?,P%"*0J&X M0Y;0PZ1(PIB8PK>X`2A(9$5>9$9N9$=^9$B.9$F>9$JN9$A6X^_8'0$P19P8 M@=)L'0U:(G$2C21:I]K!P7):@06*IE!,"D!>"4%>B3 M95[N95_^96`.9F$.Y@UH@F$^9F%V8C_YWL*`WCD!00"2H+_I)E6ZP'5*C=-L M)[WIQU9F"3YDJ6^.&:L1$`!"I[\)9TL2$S(!Y$9\H/M0@!-RG4=42`%I9Y.@ M0U?U5K8Q@!ZR._79&G\&`,FY'/51/0,(:$SV#DWFY`HP3)0@@2(\H!H@`?^8 MFJ%:"5)#`Q(G?"2'12(`EZD>%5*4=_*(1.DB,KAUZU&MJBL?7N<5J5FM/ MRF9WW$V]J0`*%*?B3$RKX9O;&:#:64AFXD9QS.>G!AO$TYHV"(,@PE0S(!VK MGIQ@F@/5`[H>`FO0,%3:9A8U-*"54`">'H#/E)'_94JEU_&D;AZ`NZR:F00@ MG40>NN3`+>)(UT$@GASK#KE'JQS*Y$$0,.--&9F@UIEK!.D=[=;,;X*FM/SL MT%Z;TW,A`]`CQ]NAN)N!6-HZKA&Z.>@APQVOM+5M'2FCF;F/<8[*AJ1'?Q1P MQ:S&L1QP`SI*C(8=A^8D?X3+H8QFN,QHGF1+CXP9RMRB`F?L!?='56J=M\3+ M\.9)">?P=@+M\PX;`W`#2ZTY3,V\7?+4GXL?K\&"7PIK[E!#)9RQ5QPCXF&> MHI9'`??I;IIL`Q=OC!RE;N(IU*R:,AJC)Z++>T2!J8E,1HJDTS0I!Q]-9!(` MZ:P``9)LJE3.D[1#R:1H_^8AR*4)@-/$HK\L2BYZRR"QQQ._`CN_-1J&FW>+V,@`H1/>(5?>(9O>(=_>(B/ M>/^)GWB*?W@<1Y1E(6;KWEE]@]G7HV?;_DEST6B+WJC/WJD3WJE7WJF M;WJG?_JE%_IMK5^IK_KJ$WC$"/K38%ZG@V*K+]^O#_OMH'JQ+_NKP?K#&-_3 M8&;"4/O1<'L<)WO#N-^O]/3Q,_L-1'N\WWN>U?O"H'O64-_VW5\G)?SB,%W$ M3WS%'S'/7?P;BQW'OS$JC_P:@WS*IS'+O_P70UW>[7S/_WPD>UW0'WW2+WW3 M/WW4=S*V[S"YYWO7%XK6)PRM'PVN)X[95XS;#^O8?WW_WF\8O^]]X%>*WQ^, M]O2/VD_?U1>,W$_HW0]^YY?EX7]^Z3^)YG>+><:/Y'<+N$^,[6?^Z-?^:885 MNR\_PQ?[ZI]^Z=^9HEE_HMF`:&!_W.!T_1U_UQ>`">A5_,]__=]__@>('@(' M$BQH\"#"A`0W,%#H\.%`?Q(G4JQH\2)&BA`R.`L`,:3$QP(*D`13_6LFWK]BW$XIH--N:>N;MW4\$9L(RH6BB#&XF# MQC#W5X2YG8Q:?&CQY\/'&)-CKL/4+-$Q2/`FPY;T?M%[@@!?E0I05>4]_/CR MY].O;_\^_OSO1=%X[^F4?^WX!^![_57Q'PV?*+C@)P96`1R$$4HX(4R@(#*< M#B,@(I$;?4@4PG4^K)'(==4-8H<=%'=<=L@:*<:P1QXDI^D/C M(#0ZIT5U+-:(DGG@!3#1D2,,$`$!N`5`P@JXC=!``RB@0$`$9#50`P'J0>!9 M!$?3-;0 MU0!\XC:1`'+(L"BCC3KZ**212CHII94NNL$JPL@@QP:+RO$*#YMVNF@7GF[P M@Q<6>+&JJC\P2B&LL`G"6-9"2\*"2A`F3^<^7-`!!15`)H`DDED7K_^"!!``ROH2Q8*9_K# M<`)DG>M/#1N=!4$-$@T@L<)>(#`RR26;?#+**:N\,LLK:U#_Q\A=:#`$`EYL M,;+-76!@,\E=X'PS`C[';/)MLY[TF]$E(9WT2FO<R6F!+]AA%#$)D8^+*.?%C1M8MP,(2+=S`D1(I MZ0]Y_I`@V0&@C4N1`"2@P-O<$RD0\,()D%!#!5W5&Y9Z_E000`",+3D"236@ M$-:>B'Y1`.JIJ[XZZZV[_CKLL@`9;S!!(`5]L@;KN=4B@>^I="!_([@5T M$?SJ3"N_//,T%=+'+8@@LL;4M^AP86(D9IVUUC[\81UUX&=WW1A@VQ$LLV.\ MB&V(*JY4I-P'T_T=2>*UV_?>H_F-_U7@@X=F>.,<-X`H4<0\HE.8F"I0@]&0 MX`!X$X`"!I"OA"DL30>HP0`>&">%,<(*'OP@"$,HPA&2L(0F/"$*K0")0$#B M%8Q@A"$\"$,KF,(0AC`%)-H`"1G&4(4?W"$(FR?$(1(1)&[`@D0*,8(C#J8J M<2!?M)ZP+$.,00[#(ANTKI,(]-EA$,0BT1^F,P8-$.LZ9/0>C."&)))$X"P# M(-?=)L85NN4-@1-#@0`JX*\!C*`K\=(7OPXWD0:<18$%Q!L$^-25R)VI`23P MAY42D(!!U>`L[O('!+1".0BL0"LHV&"B+"7*49*RE)O:PQXXL:@=<$(.7=C" M%C@E`R[`8O]4,BB5J$C%*%R^RBJ,*R)%5`+,B@ASF!U!@(?6H`-_($('R-D1 MD)XPK4,,`DAR.&.Q@E4L9?U!`R2RHA;6X(\G1$L#:[!B$=:@`2`!*0Z'(%$B MQ'F2OOF-+!!04Z'\,:5Z_HL`'9N2G202T`1LCH]8.=I3.[(& M+/1!![>PVC!`$56D&`P%E0&F`)IQ@+&2M:QF/2M:TZK6M;*UK6[_?:M:MRK7 MN4YH#1G8$%UIDH`(9'!)!BNB`-#A@,$2MK"&/2QB$ZO8Q3)VL6#806,CRUBE M;E5?E75J7C/;%`'L:0!_!>PZ="#:T9*VM*8]+6I3J]K5JE8$(&`M;%>KEU\: MLYA,M:UFXQCTN[WOTN>,,KWNY*M[SF/2]Z0R*`2*2@O>Y]+WSC*]_YTK>^ M]JTO&(YPW_W:MVA171I3`9S>`><6;P0^,((3K&#T&GC!#GXPA"-,Q`8_%0)+ M->:AGBK@86Y8PAZ6%84_+.(1D[C$2`FQ_XE3K.(5L[@B*!XF!+=*VV'BEL:/ M:3&.G?)B8"K@LQR^+)!S+.2E['C(1CXRDG5;9"+V>*L7'J9EHQKEJ'*NRE:^ M,I:SK.4M<[G+7OXRF,,LYC&3NA%,[K1CGXTI",MZ4E3NM*6OO1* MLN"!37.ZTY[^-*_C:XP_\M[F]?I'-.O?9F5B(`O@[0SB@9@;LE4K&6<&8`"]3MVS8F]>`M\8E3O.(2M\BZ49!A M=&.DUS;I6P(\SEN'>FLB*T@X75T1AI6SO.4N?SG+76$1>U-$V^E&"<=/3'(* M3@;E#Q>B+@`@]*$3O>A&'[I%1IWJF268GP6-,CYLJ72E+ MG(S[4C7#=["+G4QD'WSA]7GXN6.R]HW'/2;5%.^?MR3H1[_^]8E)@*Y@E&Y+ MZG$`("`YK<`[8?.^6+FB3H"-2!!QX.I\N?R6KWV=A0#SMSH!)$:>SN]5`14X MN219S"/YE<($S&1\5;]\RYH`3@1TA6CTF,9!$F@(W)'$7T8)(`/VF.(4H.#T MF,\Q!1ZT3,O@@45XG+H4(&9Q$@0R!L=X3`4H``%XT@"T(."X"[[X'P`6D`)NA`7^$?U)_V!&#=S$=,P%^L/%?-\/H(`!.D;@D$<$1H!6:,;F=,[\4%`=Z0W)B8?__(OA M$$['>$=8=)181`#>T%,;>LYZM-'C,%Q%!$XER5O`/%)H5."-!2+@H-UCD,L* M#`!F.04>S$[LD&!%H$M%-,Q$C``$"$!8"$`B9A1CB`[I'$G$=*`J2I`C5D"& M=1(?F5P#!(YXI.+HP&(=Y4T%7D$='T8G\2%!7P)'\V!&BS.%CU&'A]`L>\MP>^N$#15W? M>&/"!([FC(Z[(0PB5O_&7@EC([XA/`IB,&K&EWBB582@"*X,)U+$Z-0<*/K- M*);B*88#!A(-W?1N@A5I"=ZG'C)%G22V94F5RB/7[%`^H);@R0`!Q` MW+UA4K[D4E;.7@V;4G0"!L2E7,XE7=:E7':"YY&`L86=P)W)NJ5@)^D)"V[= M)TG$"F"4"D(2NT"0'VK.:*1)#@:,,LI/8G[22+I>1A604SX&5+K1R9DE2Z;_ M923^H^9(4N?19$LD0PNL)FNVIFN^)FLB)`(J`-1-"03PQFU*!`1LWW=PE$>! ME#[%2=\$5$55Q#YEE/%)#&><76_J)MMA266\'I7\YI'DYD2@@/XT1D58I^:, MGN!ADN@D4G`*%'5B$F\<)]1=2>3IQ26P@7N^)WS&IWR^YR6(!)?X$TE\WIOX MW)+HY3N6U$I.Q)+8GQ]1Y.O5@%;86^?4@#V=IW!Z#(`2)W%*IW:&89R,'6LN`@[=:F7?JF7RI.L#"EP7&FND8"6'JE3\$V:L01MKH=>1*E+ E'`#!22E('6?S]`(/["F?]JF?_BF?]H*0PBEP*,"=IJE3!`0`.S\_ ` end GRAPHIC 15 b78674b7867402.gif GRAPHIC begin 644 b78674b7867402.gif M1TE&.#EA50(V`=4@`,#`P+^_OS\_/_#P\*"@H']_?^#@X&!@8-#0T+"PL!`0 M$"`@(#`P,)"0D._O[U!04-_?WW!P<,_/SZ^OKY^?GX^/CR\O+V]O;T]/3U]? M7Q\?'P\/#T!`0("`@````/_______P`````````````````````````````` M```````````````````````````````````````````````````````````` M`````````````````````````````````"'Y!`$``"``+`````!5`C8!``;_ M0)!P2"P:C\BD$PNF\_HM'K-;KO?\+A\ M3J_;[_B\?E\_#!$=@4(##0D)?(B)BHN,C8Z/1@0>0Q&!AR`/`R`=`)">GZ"A MHJ.D!I)"@)JH'$(`#Z2PL;*SM+5;#2"3(`T>'A%"#1U#"K;%QL?(R8T$FKI" M"0J_@D+.(`0+CY.7FY^CIZNOL[>[O\/'R\_3U[PNL<0B7 MU2``Q--R$0$0J(.'`P43*ES(L*'#AQ`C2IQ(L:+%BQ@S:MS(L:/'CR!#BAQ) MDB,V.=>P>>"`@,BD!+]`#&"`Q$,G93ASZMS)IT,^_SK]!KP:D"^!L",V>2I= MRK0I&9]V='%(,("9$`+,#J@RDM2IUZ]@PRJ!B@OW[^`]^P-U3>PX<.(U0P&53BQX\>0LRS^U#BRY35LG[$:R:^O>7>LVH]R\@PL' MY7L1\.'(DRN*?\Y!V\I`VK9?3__*^:>Z.ESB,(#HLZ/AU2?@@%[<)P8!!NC"@'<@'&"('R`8 M0!-2XA%HX85/&`B&6@)UN/])04-4HQ8``'C0`(DHIJCBBBRVZ.*+,,8HXXPT MUFCCC3CFJ...//;HXX]`!BGDD$3J>(!V;QREBS,)A4B$0;U$*>645%9IY958 M9JGEEEQVZ>678(8IYIADEFGFF6BFJ>::;+:))I)M-%")01VD-T0'#00S#%L8 MZH;``MSU*8:&7HQ8(@!"H?4``@B\`D*C?`KJ&@(*>*!`H)(6""<$A@&@(0VH0H@A2H>MO.*57I7J M!8N%KU&5:BQB#Q`;@;++,H%L'K#_``$-1LFN$*8<4.D"#L)WKA'DSE'MO4L!D.VZ1&3[KA&`<-`+!QU@RF^^ MR[( MG)X\,D\EX&HLSKH?C M@$PS:]X!:OXUX+#`9#;:D/-&_[H3L5+*X)R7A,I) MI*[#,D`'"BC0.2VFV+T`WL/=SD2X+#W:P58(Y.,*\,&',GSQTY/<`>&&[^:\ M$U0#TTM,>@I1;'RB9W_']@ITKQ/&&G-<^>A;L_'/@D-`(PV`U2!((`Y2D@(: M$`(3*`".Q*!2D5C@1#,B-UZT;((6O""#SD)'682DU8`!(!$2(G!&&"/$IKP MA"A,H0K7L3,%K/"%]-A9+_`!PQK:4!OXL$,"D/22F,P$>^Y+A`$:&#][78L` MRL.;$1TS/BE:UQ+M4K"#A0\R34R"`1Y@`%,(82I5 M40563+?%S%WQ"UFDV&'H9[:.U?_.+V%,@EG"919,<:A6[7NC&>*8F;I1T&5- MN"-/\B@&-PH2"X0T3\EC:$;%D*DSAA M9!@2,%/V8E=,42486-G*)DA-.63;&)5PJ11=?H&7O4S" M+ZTCB2HY:BG&]`(RDUF$96+'EE)BW2(U&1M.4O,)UB0/-DD(2VAR$S?>_.82 M=F@R`IF2`9I`P+_D)Y=S_B:=ZCR"XQZ`3]X<`)YI(5XT%-D;>QJGG_F\"NR, M18BXH3(6T>S"--_(.8*N"FSM/$;B`&!1B2*4FA6=6CR(\I0)`!6",+5B MNH=FP:=>@U^=@EB5N+U4#N0"P,":J0!95?$(C5K>G8R"%D`8!9`);8)46^JZ M:ZQ$FY_(ZDT&(,PJ?K4(&),)H*SQKGSDHST42JL2UDK-5Y*4.$<=K*.@U-7^ MQ3**0R`C"**'"1(YJGI`%.P@!$K/;\ZTLX[(UTUE.##=-8$`4&02B*B1V;02 M5K/;"^HC\D44=UW%E`\%``,4T`G5!J0:(KS:#8=+W.*F,$HD-*YRE\M<%D:I MN>?((1?4LI44=50(#_"#;T$X!`$:!"$8#*]XQUL24RZ`O.A-_Z]Z1V*U\ZXW M(AHDPUF<<#T.,.@`)(+025OKOMI%4K.^_"1;I9-8)IC%"`W@K1,(<`C`^M4] M_`T>I2`$KT\"6`K8XMZ`X\`P4^ZJMJLQP+I(--:L2>^L$=9ZX9$;5=Y]OP%G(L(&%2R:E0!N>_8C6'?%4Q00NX21G+P.7ZZ)1*5`YS M%8;(O>L^9C=6"A;$+O2/ M-Q9D\^`9*5EB=.L8UV)*15K261CII_\UM>5,LUG3]6DQJ*.`WZER?`:@'`+,5;@=L6@O;.J\UMATP M6FE6P;IT_#SUPZ(M;<$9#-=<2)P\*_5L:I0;.=SNMAX^Z^H,75L);HW2N6M- MFP335-V+&&KQ8FR?=QMAJ%Z6M[:C!;=[X[L1R.XGP_PU)04P(P$G0]3%AO#' M%/X6[1`Z:_OL;B%,)YQ4!BVV/CR]S.:I0`R M3S9#0NC`4*`X""JJ7$`L;[DHV"T%D`VU<-XQZ``8%#%KM(Q!&8/7A#8MJ`0@ M6NBQ@+&=YXS[O>4Y0Q;T%<1D<2PU!;5FTE/%,(_T0[:^_DIL8[_O&0C[SD)T_YREO^ M\IA74]>5`(V3@78`DT@?"-;GDG-[)IQ8)YF`DW"[^:X3+7-;P*,N>_C2$PCU MJ<=)A@W^I,V#U[G1SS9#H(!"VCW%&J&R>$5A%T/ M>!9W5H?6^8PQH\O_"I`[,1,*2G\*!IFWZ1.3Q?6'WQ%2EN'5SB^%PB]Y/*I^ MOUC>/*4K?X$`ZG<=^:=_8H%-4L)S5*`L8^=LT3&`!"@6Y3&`4J:0<',(';XY(O"9,R%XE(T``P M5P4W20>FY`=!V).@(5=+<%=JZ!38Q`$:II2UD56!*!-.Z5)-H9'11Y6Z864M MY2!S:!M6DI5>61K_^;(RE&@*4IF2]T@W4-)_-7F6=Z@%"(`E9NE1/(%$EJ(S M4N)_=,D:#$-C$G@&1:D&X\8SEQ"!@!F8IP$RKX1<0WD%ASE(#7!D-A=%,CB7 MCFD836,6G#D%E3D&?!D-A],?G8F$38@QEA":-OF699"8#W"5J2D^OI>!NI*7 M6BD+*8.9KEF;F=%A5I*(3PD+I1D!60B7E%@K_2.6K7!96T.>Y),TLYF?>M-U>F8$B+0$SB!ED\A=_U3' M!^;)`.B)H/.QBEAR,D'!`*_P6R&TC>%XCJERCB9ZHBB:HBJZHNE(@QO:!/T0 M(9,`HMTEC."EC,WB+* MH18B6F/!H?\6$RA7GV9PGU!J*KZF!,WFB3M$%:/W+*@CGMVG#P9:G5N:H+!P MDT[ZFVNJ'!'%!2"II7$:+'.Z9;5(G7<:+7FJ!5SVIGUJ+7\*A5E*<\@YJ"\# MAT[S;'QZD0T!G?=2J#VE:>:Y`.#2DU;"J))"J93)9*69;%ZYJ8(4>*30-[(I MJ55(JD&D4A2$GWD@-)>:J?@X`"H2#`6!FU3"J?\74B)2(GM\X4VA"JO7$0'> M@`B&0B(*<23:D"4TM(U5HD79HY%,:JA2D*K!8C54<@9FD2++N@U9,J(/H!!_ MAR(.2BQ>A(D"TJW[6!`/D`V"-B5JB@C5,:OJJ@?5UX:W.":U4 M\JP9BR)V-@""1ISH5(T&JJI\P`M3HK1ED2(GFZO:H+*ZL@TMRPG6504N0K$* M8:S>$*];,J+:D*-5>Y+_6B*VXZH0&ILB5H5Q0*1[R*1U%.PW+A5'[NP6P"P42M\4XLEC9NV!:&1O7`B M-<*U$I&XE;LEQ9-Y*]L-=ZL0U,LBNYN\7L8?3X``?FD\]\,$LXLBR^NN*;LE MC8L-WXLG*\)'5!(K*"*P'0"YE:L-":&[C%"H3"*0_I%3`.*K5)(P#<0S3GL$ M_\G*OW-+MU;2N=F@$"K2;G$Y)3(3P2BK#:K[7-KPO>4JGUK@(I5KPCMA%(%D M2"M1N&20K"1BO9";#9OK)0!<$"E24T#ACO?U(%+7715,N!;5OMXUP19[)=M` MPEDK!O(TG$(*PEBRQ`D!NLA+!L8Z)2V:&/0#L=7:!.S*M%*"7TU!P,#8)-FH MP%K#`(@5TZS)]<"*2@:GO#RXG$ND3!C= MG,T&EKX=T\N`8R0WK,]00*#[/&?N_,(PVQ1F$0SOZF4N-*XEF\[Y?-#"8[K<'!?*6K$W MA@_C>B*8@LZ]0-!/8-`6G06Z;#_FO)(;K1)1@@\(`8#7)=(F_9HG70O+#,.S M8*M&8:SR1T*5`'$UZ5U&5A`+K2\D?=-94,])G4A:U0$"+25OB[4K[:E:V-1* M;9?]O-+3V:X/7:+(N(!G8-7_1(G56;T%.7W4>"A`[WIC$6V_R:P%9!V=9YT3 M3#V3#)%.+=VO,-T!,JT'6,( MBD3:I;T&F5VU'^UZRC#77GL4B5J(YE;;7D',AES&DCUG%+-?_I"(M"W<:$#< MO6#,QD#6!L$`ET``/C2RE>C<_9+8YJ0'&\LN-!J,`]2Z07K>Z)W>ZKU>TDM+ MZ]T10WH'EZEX'F(-(KJB^)W?^KW?_-W?\+#%>#`))SL$VCV/W/U(H@T"-*'< M23JA_P<>1-3M'02`%K]]1\W]X/J9!WFRRM$\VY2-X:Z1X`7]X2`NF,>-!A=> MXLMYJB2NXFAYXH;9XB[NRS#NEC.>/2)>TC)^XR3)XCSN.CGN!"G^XR_>ICM. MY&!4XV.)Y",3Y#!ZY$RNBDK^@U$^,T[.!$->Y9=QY0X*Y5INA5-N@U_^,6%> M!=R'I6,N*$'N.Z.2Y6E^B(I`BK5'BV^^,&4^!:(WB\%=YXNJ".-MWRHAMOX] MZ(1>Z(9^Z,T%X'GPY]XUC.\=$OCPZ!\1Z9+>$91>Z1MQZ9B>$?&=!S#Q?&A^ M#'SH%:/N%*7>%*>>2W?^8@3IX*@NWLZ MX>LY`>SYR`B`Z^I,(>S*@.S)H.RQ#NNZ<[0D(H-:P,.U?8>U>@>T5&==\ MWNW>_NW@'N[BC@@!2W'&RCH1,`"-LB@A%"CE`ROPP9*-PQW^PNZE!(H3"0S[ M&$*=<"(\ESK.W@8I$T+913VX@$3YO@\0%S`R0V-`B#\I%)KL0!F!#?=E69/`H"0>'B*#-Y"'R'X13RJX"\DEI,YUPF>HY0H_X==;_ZY*CWC_:.&*;'Y;T6Z7XTH)AN"(5)\["L!T29]S M1!_,V!T(W\('`!#W.S^"_O+SP(HQ_6!?O^,IGZ[@U"X&@(_Q)P+V M/]3ZTG/V>/@3[P)Z[E@5@R#@1X'=J9\`<@Z*BZ`ZE[!#SP<]W%%MH'\3+!$N M(+L'09;YOIT`X;(^U?#Z>Z)S0I"=>N`,M>\,\,0@>-)=V@$3OS^R73DH=^77 M8M^'1%!IEE\LX5\5WLD']F=?V?\DWA%RD]42J`4$"`Z(R$$T/)X(D=ET/J%1 MZ30*_T3#PYGM=(A6(@/4`!,5H(6Y,:"^X7'J]PDX$`D-YK')`3"W0-*( M.O28R.02%>'\GCH(QIH2$IH\FO*$F(P,%!KR%D%#G2RQM+B(!I:8Q)@.CLX$ M04A!&D7AZ)RN0!#+/$Z+_H@\99GH]%AMD^5J`>]`$)P'#CR.=1L?#)!K$Q14 ME;^GD)D((,O*\2`3$,6@07!E$10,RGC![9W>6^=!L,,4&/;1"F:.&"%8";S= M4PCLR95VPGQ5:H)-VQ\$'A:X6;AQUKARPT`88*!@H#@R[RPQH"1P8Y-\(`@@ M((*P2;R5+,>XF?6%P#QQ+<$Q(Z0QPDV8'@94'$"FXJI!0,']'/\`BX%&$%.9 M1'A`X`"8HNY@>4"V0";4;R\1E%O:9*DW9E4+@LU:UNPWH3#+?MVCX.:LM4TC MB(1;5UG'JU2M@CC`"QE-E,\8=.!6-Q^`FZZ<1(!5*]`NH@@YWSD02:IJ'B.95@-8&SEZ4#RL>0TP2`#>5$_=-TL)! M";5\Z(EF)K->\ZI*0!6#<]`5&;;]"]4L9)A[PP9AAS(L!"M99\E,MU8#0Y*+ M6/T)?MG`!&7_(Z^(_*X:XH&R.'!C`-(&$)`_.,1I8R;[F)`0A)O,>.:4!6<" M(R,"'Y3CG0$,2>I`)Q(XKK[[5DJ0"`3_<@N1D8'>"P,`!R.@:Y83:5%PB`S= M.4[&-SJR,$4AK_IE+%2N2`"6I1+;"($'3HPG"0\.8._""`:H,8P%.IB'@WVD M&8"<)O8;L@HPYR'@2@\(>(00/?Y[<8D7<2122[9Y)-13EGEE5ENV>6788Y9YIEIKMGFFW'.6>>= M>>[9YY^!#EKHH8DNVNBCD4Y:Z:69;MKIIZ&.6NJIJ:[:ZJNQSEKKK;GNVNNO MP0Y;[+')+MOLL]%.6^VUV6[;[;?ACEONN>FNV^Z[\_<\\]!#UWTT4DOW?33 M44]=]=59;]WUUV&/7?;9:8_].9$[L""`W7GOW???@0]>^.&)+][XX_^13U[Y MY9EOWOGGH8]>^NFIK][ZZ[%O/H/;0^Y`@`_`#U_\\%+&812UN$895[-X5U><``4B`BS64`/#(6$8D4D``'M!`!B"@Q@QZ M48!@1)\#+."!#:31?10(GP0JD#X(4"".['/_``4J$(`*0&"0A5S@!!QP/@=, M(`#G@T`%%MF_-F[.CN8+0`$*^2XPCK`\7P&<^<^`\F^3FCMG^2Q@@?!E8'W[5)\&P)?(#T2S?/8L MGP=^^8$`>(">XHNG^2A:@4@Z]`,,#1]$/R!1\$%@`N*SZ/D^>K^-;@ZEDL2H M,#.*OIBF;Y\9N`!`__GY@0FT]'PO!1])R0?4]Y738TX4'QZ5R4WT%0`#@03? M1R,IU0_LTP'!W.4''%#,EPJ@`/.4`"TAP$<'Q/&K807F.P-`RVV6+P.CE&LA MTPH^H':U?$IUP%K_2-'W%?1-!R7?!2SPRX#F%7QQ7:D$]LE8L-)S`Z/<)@;^ M^,Z\&E5\`M@`+"-8X[_)"]ZS)?>Q*?=M, M84:7NQJUHT/72LNN[G6TZF-JQUQX`0&LE[T:X-P&V,M>K09Q`C6-9P4T0/^! MJE+``Q!P``;$B$M08K8"%G@E!EYI5>^"3P,3(&L`-'!(:RXRL18H@(&IFF`' M,%2AMLSG+"]`@8T&40!X3*0&XEJ`_UISPD%4L8I-&DL85]4"9U4Q@MGGX/AZ M]KT[%D`K8RF!X`;Q`]=$Y`=4B5D10Z"R1@XD*AV`XO`5P`.MI$"-':#B"O@1 ME!6X@$4S,,LI"R"0EYSGAC]@@0UC`,'W!26(45GC\`&8N7J-997)=^3&?@^_ M^@TD;2<03S@'(+AU15\R4\=-66Z@GR7=L(W1#.AX9N#12-[F3O=YY0)DP,$" MA@"`,\#F`A<@`!9(I$(IG0$R=OD"$V`I'%$\X@S_J)JL1<9EC0>\X/#-$P(6 M+@!$`2E&4$+2`A#(0(TI;;[SA8`SYTEG5V-`D0H-]_?0K=_[/YWFH`Z`S05I>:V"K^)PB;:ECQ\?=-,5;?EP,P MZZFWFP)ACB.[^;MS72_^[8UO)KXKV6Z+7E)W,V_L:^_=^'B/\_%>OX#%D[IU M%]/;?H2]DMYC";X,U+K(92UR?B'+W,?'OO'B$_+N('_4:0-3`VH>GS,;O/*) MQERI'I#S)X%IQYB2]+6RS?:>D[_S"@24H\T'_?LZOKG/IL^9>-RK?IWY>4!2 M'ZS@G_[4:3YET;,RGDIU^YG-/]#O5K+]6Z=]8Q/?]DKFV_(`[:1^IPKOT`OU MGNE*_"Y]',"JVBF2,N^E-,"JYBD`5*D!>8[]+*`JXL MXW80`E#*H0*@D'[*HBX``H<.N\CL`">.T=[.`].-^J`.X)A0?$:PI(@JI8#) M"%\+^:!OW+SLJJR0!">@`FP0H38'R/Y)MIQKJ[*,!1_0ZDH,H`H/_>KL!4EM M`KU.\_;/GN+P#B=J^R9JG^K/Q800N_A0__QP^P`*QT@PM.YN@M*PR#S@`+DO MF"S,`=Q)!(5J!&4)?`RL`MHL`#SQ%+/0$\/'P-*,[`"JQE@1%3\1GT3P%14I MS;C.CQH,L3[-U0R,T*SITU[1Y[ZLI3!KR,#G`E1)&9'_[,N"BY"L*7YHT`-L M4(SDZGNF[<*D+NM\,,JH:A@U@.MT1YCH#`-ZD)&^)\L<8`,,SA3Q3<%2"ZRN MR,!HT<*8D1.#B-(LS)H`SI$>3J-\CP)6[:S*D9$4*YAD402%\-)*+1>SK*04 MK'TV[$HV@`VE2>?.+[@P(,R,<2$E@*,TLJXJ,M"P<`N941E),=`D\)=8L24G M("2%K!TO@-Z<*0-DR0,`*>N840#J"I%*415%L:5<\@(8BLVN[`S?;:TB3-D$ MD-DJ4:/K$&Y\L/*/ M-&J61,HO/S/RC#,%D4NV?%,M";,K>8>1L+(Z=V GRAPHIC 16 b78674b7867400.gif GRAPHIC begin 644 b78674b7867400.gif M1TE&.#EAB``F`.9_`/7Y^E=MA?GZ]96TQ0IOS\_$UB>M39J_K\_+O!QZJXQ/K\^6-WBQ,R3O?Z^KG*U4N;Q.3N\6B!F>/J[?7X M]M'8W/KZ^BU$6[2^Q[+9YG2(G)##V?#U]L7-T_KZ\?[^_?CX[$^4NZBRO'>O MR_S\]]O@XZ3'V!A9D"0Y4O3V]J>NN-ODZ2E&:(FAM^'AXNGL[OS^_?KZ]_S\ M]LKE[.[T]3M8<]OK\<#&S/+W]_[__OG[^]/BZ3A1:?K[]?/X^/W^_OO[^>3Q M]!$W8#A,8>WP\5JAQ;>[OYBDK_CZ]_?X^/CX\^GQ]/OZ]>+FZ?#Q\>SR]!M" M:.CO\MSH[?W]^INQOD&7PM;?YO'U\UQ]F*F_SBQ3>?3U\R!+>.[V][S0WOS] M_9"BK^KT]?GY^'Z2HO'S]/?Y^?W]^RU/;I^HLGF!C"4_7O[^^_O[\_O[^_S\ M]/KY^O#X^#I^J4!D@^_W\?W]^2`_6&Z"D_7S[?[^_O_______R'Y!`$``'\` M+`````"(`"8```?_@']^@X2%AGU]?F2#?42$B(:1DI.4E9:7F)F6?X*8)`M8 M-@MR9`<;&V2I!XF:K:ZOL+"A)'YD<(5#\'JSZ(?3X^?O'T)/:([HU$ M[_#\K*WTZ+V3QTV3-V4":!#HF@S1X8]G`H8`%*%H=!%QR``V=D1J1P_[#( M90L'WD:H>4(280N3!*R`?JJ^Y7K):R4R.=!$X!&BR00*1V(D@+``94JK`?-H M;KO/;CRY>=8<(`/G1LJ4L##VJ=B@`9FCA"EQZM-2D9\^JX;A=O*B#8TF(TK\ M>!`9Q@$L>T./#AE/\X(&`#;X>+T@'ML%9R8`.&#:GE^7(TGD(0*@APO8L27- M1L3R]CLY&\`X6)+AQXTX3RQ\0)?#1A$R6*2P1BEK-.*#@&<0\,`91*3B'5M8 MT-!&`G*DHV!Q0YI%I$"$:[F,H<<; M#&SP0PU%L&4/&0HH.<$"=[X&I91S;+!'$#U@F:5Z6_8AAQ0ST$";"ZOT6(0` M#1P@AQQ6Z'!$%SO<`.K)3QQUA$BV)="+GET!N:BRSP$-K&/*<5,0(`(-E&*T1;1C4''` M%#0(YO)# M''$((83$9\1]0*L"K-/O`AJ<,``%E(:$`044C)%#$1,H<$`4-DPP@1PS/R:! M'C)L1T8-M30PQA;_ZA@E#0@@((89#+Q!P!"@6#0'%K].$(>:/>0>P@0A9)"! MQ".D````:A!QD@]YI-EQE4&XK>,0/>1@10[#"[5&`]K=*$`&7-2'TP9G-.$" M__7$DR'"`S(@'@DG(!U`!10Y0"`$&6,DH$;E/<@11Q%&W'%$!#28``1$6#``32XH/\&%V!#'8B@A@X$(0(% M.`$3=!`#%?1+#0E@5P`0\`$9B`4!.,B"#B+0R`"T``U0<`(-I`"&+&(A)8VP M@1!*``4E>``/\R+#`G1RJB1$`4\W`P(*Q,B.6C5`!$%@@`"?,`("=+()<;C: M#QI0M3@`X`,2T$$!7%`>*V1!`C(XPPTL$``D7($=;"$#`UI`@,^%'K!"5'_2,$-HM`#)#J!/`]H`0-"X(0F-(`&'-A##XK0 M`!H2@0YG^$16;8"!".P!"@MHPA8X@``+3.`&(Q```/Q7!A>4H`0$(T`,/I!2 M)J7,*GL9(!>LX($*:`$%=5A`"H"PDRQT(4M MP,"U,`""#"3@A1ZH3:H2&,`:XG"`#W!`#`FK4!1<$"0KD)$&>U":S"8@@Q9@ MH(O("L(0`@0G`=!A`Q.X0@0N`(4;-"$!+2C`#X30(CH<``TM2("H-A"%)V!` M!P&`ZCXHM9)N-@$&`ZB`92O@@0E@P0!5"``5U`*Q(J@!!TI8`0`F@H4&J,$% M[@J#_PYT$`0*?\$G78#!!BKW@U\1X5J^%<,/2@"`'PA@"("\P@1LT&$]&,`% M)%`!$CXP!"\"(%E#&-"V:"""`AB@"VS@KDVW\(8"`$``^V)K&?2@`?#Y:0,6 M2!U4:4.I5%CY;T.@@`DL>UD<["`&,2```,B@L!38P`@H4`(0A!`P+`C@"3`( MP!UD4(8R%(#.96#`!4Y*AR@T`0*_(L$(R!#B`^1A`AO`#R`QT(`GQ($+']`! M`29P3P)D(`HWN+%TS1PYWR(Q`FSH@A7\$\L"E(1@1?A!TC0P$50(``JI.U0> M:M,L0W"(#$/P@`FTP&LE7""\`&B"$)X0"@N`P`0>Z(%'2O\Q[`(]!!S,(F@"VP(0`)T($;U."O$6BZ!WG(``4D M$(`Q0"$#.^A"%XP@@"(0F0DM^@$6\J!J/20`%!B)0P]BK1E:$\(P1V*'$4"@ M!,O:H0I=4``7A.#=(0#AV"C8`0`$Q`X(T"``;+#"6DB`FP\?```1"`(!;(#D M;/]@V_)H\`T@$&Y&"R%O0S``)'6@@0-TS9TT)(,*`A``#61@;Q;H`G>CX.\W M,`$.N%@#P0M@\*&D0N&Q7D.#*66(D'%H`5/8`0CL$`865$`)(/``#CP`@@J8 M8)M&;PT9B$#I(D_@`"R_66K7F0#_!-PA!SLOU)(@MVUAP<$U;=4!!@!`AU(T MP`(7.$(!;+"&!6":;4&HPP\Z(($.#`$,-\UW%S#PA!3\^TA-,/H$"O"&!*PC M;BD0@Y3)T(`FD+T0O.>0G0!@!AU\@==&T7DSXP,MB``.``5< M`"T:N`)C``1F\`-9A2A$(`18X`0\P``J<#GW@"XB00(_0`5EP`1/,$UH0``; M<#4=P`#R\@-P4`,@\P`%,`4CXP0Y<(06D`&-4`,G,1QED`%KT`064``1@`!= MT`L4P$A2H`8TP``BP"%=0P8;0``,0`.E4`0^$@)MT`9=`X)G:!BXL88]H!@] M``8E,`)"D`LU@`5S,`($LP`VVF! MUI`/%P$'7)0!8P!L/-`!#H`!!/`#*I#_!FGP`BZ0!HB)`0G``V"P!#,P>C"@ M!B+``PX@!13@`"J@`5+0`R)`!0[P`J0I!5/@`#P@`DZ@`B*P`3`0,PG@`!I` M!H8Q,W[2!O21`77$+*_P5AAP`1RPF1W``V50.!C0`1@``R=``!;P``^0`!K0 M!KV1`$E0`"*0`R>`$R'P`!H0`J+9`R0-C_0!T4@G*Y@"AT07HC6`4L@!2K0!@3P`E;0`1W0!A9P M`B<``P2@`@20`+=Y`B]``^<$*NR.JNT6JNV>JNXFJNZNJN\VJN^^@>!```[ ` end -----END PRIVACY-ENHANCED MESSAGE-----