10-K

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, 2008
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	77-0602661
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	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 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
(do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange 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, 2008, was $1,082,053,308.

As of January 31, 2009, the registrant had 41,424,759 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 2009 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, 2008, are incorporated by reference into Part III of this Form 10-K.

ALNYLAM PHARMACEUTICALS, INC.
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2008

TABLE OF CONTENTS

PART I
ITEM 1.	BUSINESS	2
ITEM 1A.	RISK FACTORS	36
ITEM 1B.	UNRESOLVED STAFF COMMENTS	57
ITEM 2.	PROPERTIES	57
ITEM 3.	LEGAL PROCEEDINGS	57
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	57
PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	58
ITEM 6.	SELECTED CONSOLIDATED FINANCIAL DATA	60
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	61
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	86
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	87
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	123
ITEM 9A.	CONTROLS AND PROCEDURES	123
ITEM 9B.	OTHER INFORMATION	123
PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	123
ITEM 11.	EXECUTIVE COMPENSATION	123
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	124
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	124
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	124
PART IV
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	124
SIGNATURES		125
Ex-10.23 Research Collaboration and License Agreement
Ex-10.26 License and Collaboration Agreement
Ex-21.1 Subsidiaries of the Registrant
Ex-23.1 Consent of PricewaterhouseCoopers LLP
Ex-23.2 Consent of Ernst & Young LLP
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 LLC Financial Statements

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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 section and elsewhere 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. 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 April 2008, we initiated a second Phase II human clinical trial, which is currently ongoing, to assess the safety and tolerability of aerosolized ALN-RSV01 versus placebo in adult lung transplant patients naturally infected with RSV. We recently formed collaborations with Cubist Pharmaceuticals, Inc., or Cubist, and Kyowa Hakko Kirin Co., Ltd., or Kyowa Hakko, for the development and commercialization of products for RSV. We will jointly develop and commercialize products for RSV in partnership with Cubist in North America, Cubist has responsibility for developing and commercializing these products in the rest of the world outside of Asia, and Kyowa Hakko has the responsibility for developing and commercializing these products in Asia.

In December 2008, we submitted an investigational new drug application, or IND, to the United States Food and Drug Administration, or FDA, for ALN-VSP, our first systemically delivered RNAi therapeutic candidate. We are developing ALN-VSP for the treatment of liver cancers, including hepatocellular carcinoma and other solid tumors with liver involvement. We received clearance from the FDA in January 2009 to proceed with a Phase I study. We expect to initiate this study during the first half of 2009. The Phase I study will be a 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.

We are also working on a number of programs in pre-clinical development, including ALN-PCS, ALN-TTR and ALN-HTT, focused on the treatment of hypercholesterolemia, transthyretin, or TTR, amyloidosis, and Huntington’s disease, respectively. We have additional discovery programs for RNAi therapeutics for the treatment of a broad range of diseases.

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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-RSV01 to the lungs, which we refer to as Direct RNAi. We are also working to extend our capabilities to advance the development of RNAi therapeutics that are administered by intravenous, subcutaneous or intramuscular approaches, which we refer to as Systemic RNAi. 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, including with respect to Direct RNAi and Systemic RNAi.

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 any 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, Inc., or 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 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 interest. For example, in 2007, we and Isis established Regulus Therapeutics LLC, or Regulus Therapeutics, 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 to be formed.

Below is a list of some of our key developments in 2008 and early 2009.

2008 and Early 2009 Key Developments

Product Pipeline and Scientific Developments

•  We achieved human proof of concept with an RNAi therapeutic, ALN-RSV01, in our GEMINI study, which we believe is a first for RNAi technology and for the industry.

•  We expanded the development of ALN-RSV01 with the initiation of a Phase II clinical trial to assess the safety and tolerability of aerosolized ALN-RSV01 versus placebo in adult lung transplant patients naturally infected with RSV.

•  After filing an IND in December 2008, we received clearance from the FDA to initiate clinical studies with ALN-VSP, an RNAi therapeutic candidate that we are developing for the treatment of liver cancers. We expect to initiate the Phase I trial in the first half of 2009.

•  We initiated new development programs in 2008 including ALN-HTT, an RNAi therapeutic candidate targeting the huntingtin gene for the treatment of Huntington’s disease, and ALN-TTR, an RNAi therapeutic candidate targeting the TTR gene for the treatment of TTR amyloidosis. These two programs, along with ALN-PCS for the treatment of hypercholesterolemia, represent potential IND candidates.

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•  We entered into new agreements with Tekmira Pharmaceuticals Corporation, or Tekmira, related to its business combination with Protiva Biotherapeutics Inc., or Protiva, augmenting our platform for the systemic delivery of RNAi therapeutics.

•  During 2008, our scientists demonstrated continued scientific leadership in RNAi research with the publication of 14 papers in some of the world’s top journals, including Nature, Nature Medicine, Nature Biotechnology and PNAS, as well as the presentation of peer-reviewed research at key scientific meetings.

Business Execution

•  We formed a strategic worldwide collaboration with Takeda, providing Takeda with non-exclusive access to and enablement with our RNAi therapeutics platform technology and intellectual property in two therapeutic fields.

•  We formed strategic collaborations with Kyowa Hakko in Asia and Cubist in the rest of the world outside of Asia for the development and commercialization of our ALN-RSV program.

•  In 2008, Novartis elected to extend its RNAi therapeutics collaboration for at least one additional year, through October 2009, resulting in continued research and development funding to us.

•  Regulus Therapeutics, of which we own 49%, and GlaxoSmithKline formed a strategic alliance to discover, develop and market novel microRNA-based therapeutics to treat inflammatory diseases.

Intellectual Property

•  Fundamental patents from our exclusively held Tuschl II patent series were granted by the European Patent Office, or EPO, and the Japanese Patent Office, extending the geographic scope of the patents and adding to the previous issuances of the Tuschl II patent series in the United States.

•  We strengthened our intellectual property estate through the acquisition of the patent assets of Nucleonics, Inc., covering broad structural features of RNAi therapeutics.

•  Our partner Isis obtained additional issued claims for the Crooke patent, which is licensed exclusively to us in the field of RNAi therapeutics.

•  With respect to our Kreutzer-Limmer patent series, the EPO granted EU 1550719 in Europe in January 2009; the EPO ruled in favor of the opposing parties in an opposition proceeding relating to EP 1214945, which initial ruling we intend to appeal; and the EPO rendered a final ruling overturning EP 1144623.

•  In February 2009, we received the first patent grant for the Kay & McCaffrey patent.

•  The Glover patent, which is exclusively licensed to us from Cancer Research Technology Limited, was overturned by the EPO. We intend to appeal this initial ruling.

Organizational Developments

•  In 2008, in addition to other promotions and appointments, we hired Jack Schmidt, M.D., as our Chief Scientific Officer.

•  We elected Edward Scolnick, M.D., to our Board of Directors.

•  Regulus Therapeutics elected Stelios Papadopoulos, Ph.D., to its Board of Directors and made several key appointments to its management team.

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

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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, 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 drug 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, many of these key proteins (greater than 80%) 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 distinguishes RNAi from other approaches.

•  Simplified discovery of drug candidates.  In contrast to the often arduous and slow drug discovery process for proteins and small molecules, the identification of siRNA drug 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 PNAS.

Our Product Platform

Our product platform provides a capability for a systematic approach to identifying RNAi drug 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

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active. In some tissues, including the lung and central nervous system, the direct application of formulated siRNAs, which we refer to as the Direct RNAi approach, 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 lipid nanoparticles. 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 many recent publications. 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 has been recently demonstrated by the advancement our first systemically delivered RNAi therapeutic candidate ALN-VSP, for the treatment of liver cancers, to the clinic. We received clearance from the FDA in January 2009 to proceed with a Phase I study and expect to initiate this study during the first half of 2009. In addition we have published pre-clinical results from development programs for other systemically delivered RNAi therapeutic candidates, including ALN-PCS and ALN-TTR. 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, 2009:

Our most advanced program is focused on RSV, a virus that infects the respiratory tract. In January 2008, we completed our GEMINI study, a Phase II human clinical trial of ALN-RSV01, an RNAi therapeutic candidate for the treatment of RSV infection, designed to evaluate the safety, tolerability and anti-viral activity of ALN-RSV01 in adult subjects experimentally infected with RSV. In April 2008, we initiated a second Phase II human clinical trial, which is currently ongoing, to assess the safety and tolerability of aerosolized ALN-RSV01 versus placebo in adult lung transplant patients naturally infected with RSV. We recently formed collaborations with Cubist and Kyowa Hakko for the development and commercialization of products for RSV. We will jointly develop and commercialize products for RSV in partnership with Cubist in North America, Cubist has responsibility for developing and commercializing these products in the rest of the world outside of Asia, and Kyowa Hakko has the responsibility for developing and commercializing these products in Asia.

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 hepatocellular carcinoma and other solid tumors with liver involvement. We received clearance from the FDA in January 2009 to proceed with a Phase I study. We

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expect to initiate this study during the first half of 2009. The Phase I study will be a 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.

Our ALN-PCS program is focused on the treatment of hypercholesterolemia with an RNAi therapeutic candidate that targets a gene called proprotein convertase subtilisin/kexin type 9, or PCSK9. Other development programs include ALN-TTR, an RNAi therapeutic candidate targeting the TTR gene for the treatment of TTR amyloidosis, which we advanced to a development program during 2008, and ALN-HTT, an RNAi therapeutic candidate for the treatment of Huntington’s disease, which we are developing jointly with Medtronic.

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 $96.9 million in 2008, $120.7 million in 2007 and $49.3 million in 2006. 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 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. 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. As a result, there is a significant need for novel therapeutics to treat patients infected with RSV.

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^®, 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 1:1 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 95% increase in infection-free patients (p<0.01), as compared to placebo.

In April 2008, we initiated a second Phase II human clinical trial, which is currently ongoing in multiple sites across both hemispheres. This is a double-blind, randomized Phase II clinical trial to assess the safety and antiviral activity of aerosolized ALN-RSV01 versus placebo in adult lung transplant patients naturally infected with RSV.

Prior to the GEMINI study, 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 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

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at medical conferences. We also have an active program to identify second-generation RNAi-based RSV inhibitors, and have identified several potent and specific candidates in pre-clinical studies. We recently formed collaborations with Cubist and Kyowa Hakko for the development and commercialization of products for RSV. We will jointly develop and commercialize products for RSV in partnership with Cubist in North America, Cubist has responsibility for developing and commercializing these products in the rest of the world outside of Asia, and Kyowa Hakko has the responsibility for developing and commercializing these products in Asia.

Liver Cancer

Market Opportunity.  An estimated 600,000 patients worldwide are diagnosed with primary liver cancer each year. Hepatocellular carcinoma, or 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 3% 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 hepatocellular carcinoma and other solid tumors with liver involvement. We received clearance from the FDA in January 2009 to proceed with a Phase I study. We expect to initiate this study during the first half of 2009. ALN-VSP contains two siRNAs formulated in a lipid nanoparticle developed by 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, required for tumor growth. 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 a potent target as an anti-tumor mechanism. 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, tumor reduction and extension of survival. 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.

The Phase I study will be a 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.

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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 5% 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.  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, a recent study has 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.

In July 2006, in collaboration with The University of Texas Southwestern Medical Center, or UTSW, we began our ALN-PCS program focused on the development of an RNAi therapeutic candidate directed at PCSK9. 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 approximately 50%.

TTR Amyloidosis

Market Opportunity.  TTR amyloidosis 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 peripheral nerves, which is referred to as familial amylodotic polyneuropathy, or FAP, and the heart, referred to as familial amyloidotic cardiomyopathy, FAC. The condition is associated with neuropathy, or severe pain and loss of autonomic nervous function, and/or heart failure. Typical onset for TTR amyloidosis is between the third and fifth decades of life and the disease may be fatal within five to 15 years of onset. In its severest form, TTR-mediated FAP and FAC present a tremendous unmet medical need with significant morbidity and mortality. As an orphan, or rare, disease, TTR-mediated FAP is estimated to affect approximately 5,000 to 10,000 people worldwide. There are also other forms of TTR amyloidosis that are more common and also associated with significant morbidity.

Current Treatments.  There are no existing disease-modifying treatments to address TTR amyloidosis. Currently, liver transplantation is the only available treatment for TTR-mediated FAP. However, only a subset of FAP patients qualify for this costly and invasive procedure and, even following liver transplantation, the disease

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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.

Alnylam Program.  ALN-TTR is an RNAi therapeutic candidate targeting the TTR gene for the treatment of TTR amyloidosis. 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. Our scientists recently presented data from our ALN-TTR program which demonstrated that highly potent RNAi therapeutic candidates targeting TTR significantly reduced the levels of target mRNA in the liver and TTR protein in circulation. Using our proprietary lipid nanoparticle formulation, studies were performed in a transgenic mouse model where human TTR, or hTTR, with a certain mutation known as V30M is over-expressed. Studies were also performed in non-human primates using the lipid nanoparticle formulation from Tekmira. Specifically, data from these studies showed that administration of ALN-TTR resulted in dose-dependent silencing of TTR in vitro with the absence of any measurable immune stimulatory effects; reduced TTR plasma levels and liver TTR mRNA by greater than 70% in the V30M-hTTR transgenic mouse model; and reduced liver TTR mRNA levels by approximately 80% in non-human primates.

Our findings demonstrate the potential therapeutic benefit of an RNAi therapeutic targeting TTR for the treatment of TTR amyloidosis, including FAP. 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. ALN-TTR 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 that enables rapid proof-of-concept and a clear opportunity for a large therapeutic impact for patients.

Huntington’s Disease

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 progress 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 that will protect these cells by suppressing huntingtin mRNA and the disease causing protein. Alnylam scientists and collaborators have published and presented in vivo data demonstrating efficacy for an siRNA targeting the huntingtin gene in a mouse model of the disease. The program, ALN-HTT, 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 cancer, hypercholesterolemia, TTR amyloidosis and Huntington’s disease, 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; progressive multifocal leukoencephalopathy, or PML, which is a disease of the central nervous system caused by viral infection in immune compromised patients; and Parkinson’s disease, a progressive brain disease which is characterized by uncontrollable tremor, and in some cases, may result in dementia. We are also pursuing many other undisclosed internal programs.

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

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 will also collaborate 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-RSV and ALN-HTT, respectively. In addition, we have entered into a product alliance with Kyowa Hakko for the development and commercialization of ALN-RSV in territories not covered by the Cubist agreement, which includes 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 interest. For example, we formed Regulus Therapeutics, 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 be formed.

To generate revenues from our intellectual property rights, we also grant licenses to biotechnology companies under our InterfeRx program for the development and commercialization of RNAi therapeutics for specified targets in which we have no direct strategic interest. We also license key aspects of our intellectual property to companies active in the research products and services market, which includes the manufacture and sale of reagents. 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, 2009, we had granted such licenses, on an exclusive or nonexclusive basis, to approximately 20 companies.

Since delivery of RNAi therapeutics remains a major objective of our research activities, we also look to enter into 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 and MIT, among others, to focus on various delivery strategies. We have also entered into license agreements with Isis, Max Planck Innovation, as well as a number of other entities, to obtain rights to important intellectual property in the field of RNAi.

Finally, we seek funding for the development of our proprietary RNAi therapeutics pipeline from foundations and government sources. 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 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.

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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 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 successfully developed by Roche, its affiliates or sublicensees under the collaboration agreement, if any, 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. The discovery collaboration between Roche and us will be governed by a joint steering committee for a period of five years that is comprised of an equal number of representatives from each party. In exchange for our contributions to the collaboration, Roche will be required to make additional milestone and royalty payments to us.

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. After the first anniversary of the effective date, 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 5% 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 will sell or transfer any of our equity securities during the period prior to August 9, 2009 and 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 2.5% 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

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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, 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.

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 required to be paid within 12 to 24 months of execution of the agreement and $10.0 million of which is required to be paid within 24 to 36 months of 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, comprising all other fields of human disease, as identified and agreed upon by the parties. In addition, for each RNAi therapeutic product successfully developed by Takeda, its affiliates and sublicensees, if any, 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 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-RSV01 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.

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, after the first anniversary of the effective date

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of the Takeda agreement, 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, 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 March 2004, we entered into a collaboration and license agreement with Isis, a leading developer of antisense oligonucleotide drugs that target RNA. The Isis agreement significantly enhanced our intellectual property position with respect to RNA-based therapeutic products and our ability to develop siRNAs for RNAi therapeutic products, and provided us with the opportunity to defer investment in manufacturing technology. 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 and commercialization of siRNA 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 any siRNA products designed to work through an RNAi mechanism, except in the context of a collaboration in which Isis plays an active role. The licenses that we have granted to Isis are non-exclusive licenses to our current and future patents and patent applications relating to RNA-targeting mechanisms and to chemistry for research use. We have also granted Isis the non-exclusive right to develop and commercialize siRNA products against a limited number of targets. In addition, we have granted Isis non-exclusive rights to our patents and patent applications for research, development and commercialization of antisense RNA products.

Under the terms of the Isis agreement, we paid Isis an upfront license fee of $5.0 million. We 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 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 the Isis intellectual property.

In conjunction with the agreement, Isis made a $10.0 million equity investment in us. In addition, Isis has 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.

The Isis agreement also gives us an option to use Isis’ manufacturing services for RNA-based therapeutic products. In addition, under the Isis agreement, we have the exclusive right to grant sub-licenses for Isis technology to third parties with whom we are not collaborating. We may include these sub-licenses in our non-exclusive platform licenses and our InterfeRx licenses. If a license includes rights to Isis’ intellectual property, we will share revenues from that license equally with Isis.

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 calculated at this time.

Novartis.  We have formed two alliances with Novartis. We refer to the first of these, which was initiated in September 2005, as the broad Novartis alliance, and to the second, which was initiated in February 2006, as the Novartis flu alliance.

In connection with the broad Novartis alliance, we entered into a series of transactions with Novartis beginning in September 2005. 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 2008, Novartis elected to extend the initial term of

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the agreement for an additional year, through October 2009. Novartis retains the right to extend the term for a second additional year, which right must be exercised no later than July 2009.

Under the terms of the collaboration and license agreement, the parties will work together on 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 will provide us with research funding and development and 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 successfully 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 milestone or 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, as defined in the collaboration and license agreement. The research term expires in October 2009 and may be extended until October 2010 at Novartis’ election. 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. In addition, under this license grant, Novartis may be required to make milestone and royalty payments to us in connection with the successful 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. At December 31, 2008, Novartis owned 13.2% of our outstanding common stock.

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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, as defined in the collaboration and license agreement, 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 February 2006, we entered into the Novartis flu alliance. Under the terms of the Novartis flu alliance, we and Novartis have joint responsibility for the development of RNAi therapeutics for pandemic flu. This program was stopped 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 2009.

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 will be responsible for supplying the siRNA component and Medtronic will be 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 any 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

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

Under the terms of the Kyowa Hakko agreement, in June 2008, Kyowa Hakko paid us an upfront cash payment of $15.0 million. In addition, Kyowa Hakko 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 ALN-RSV01 by Kyowa Hakko, 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.

Our collaboration with Kyowa Hakko is governed by a joint steering committee that is comprised of an equal number of representatives from each party. Under the agreement, Kyowa Hakko is establishing a development plan for ALN-RSV01 relating to the development activities to be undertaken in the licensed territory, with the initial focus on Japan. Kyowa Hakko is responsible, at its expense, for all development activities under the development plan that are reasonably necessary for the regulatory approval and commercialization of ALN-RSV01 in Japan and the rest of the licensed territory. We will be responsible for supply of the product to Kyowa Hakko under a supply agreement unless Kyowa Hakko 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 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 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 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 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, including ALN-RSV01, which is currently in Phase II clinical development for the treatment of RSV infection in adult lung transplant patients, as well as several other second-generation RNAi-based RSV inhibitors, which currently are in pre-clinical studies.

Under the terms of the Cubist agreement, we and Cubist will share responsibility for developing licensed products in North America and will each bear one-half of the related development costs. Our collaboration with Cubist for the development of licensed products in North America will be governed by a joint steering committee comprised of an equal number of representatives from each party. Cubist will have the sole right to commercialize

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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, Cubist will have 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. Allowed claims covering ALN-RSV01 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 Therapeutics.  In September 2007, we and Isis established Regulus Therapeutics, a company focused on the discovery, development and commercialization of microRNA-based therapeutics. Regulus Therapeutics combines our and Isis’ technologies, know-how and intellectual property relating to microRNA-based therapeutics. In addition, we believe that Regulus Therapeutics has assembled a strong leadership team, as well as leading authorities in the field of microRNA research to lead this new venture. In December 2007, Kleanthis G. Xanthopoulos, Ph.D. was appointed as President and Chief Executive Officer of Regulus Therapeutics.

Regulus Therapeutics 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

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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 Therapeutics’ most advanced program, which is in pre-clinical research, is a microRNA-based therapeutic candidate that targets miR-122, an endogenous host gene required for viral infection by the hepatitis C virus, or HCV. HCV infection is a significant disease worldwide, for which emerging therapies target viral genes and, therefore, are prone to viral resistance. Regulus Therapeutics is also pursuing a program that targets miR-21. Pre-clinical studies by Regulus Therapeutics and collaborators have shown that miR-21 is implicated in several therapeutic areas, including heart failure and fibrosis. In addition to these programs, Regulus Therapeutics 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 Therapeutics 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 Therapeutics 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 Therapeutics common stock under certain specified circumstances. Regulus Therapeutics 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.

Regulus Therapeutics, which was initially established as a limited liability company, converted to a C corporation as of January 2, 2009 and changed its name to Regulus Therapeutics Inc. We and Isis continue to own 49% and 51%, respectively, of Regulus Therapeutics and Regulus Therapeutics continues to operate as an independent company with a separate board of directors, scientific advisory board and management team. In September 2007, we, Isis and Regulus Therapeutics 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 Therapeutics specified patents and contracts covering microRNA-specific technology. In addition, each of us granted to Regulus Therapeutics 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 Therapeutics 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 Therapeutics granted to us and Isis an exclusive license to technology developed or acquired by Regulus Therapeutics 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 Therapeutics. In addition, we made an initial cash contribution to Regulus Therapeutics of $10.0 million, resulting in us and Isis making initial capital contributions to Regulus Therapeutics of approximately equal aggregate value.

After a sufficient portfolio of data is obtained with respect to each microRNA drug candidate developed by Regulus Therapeutics, Regulus Therapeutics 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 Therapeutics would be obligated to pay us and Isis a royalty on net sales of any such resulting products. If Regulus Therapeutics 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 Therapeutics products. Development and commercialization of such products by either party would be subject to the payment to Regulus Therapeutics of a specified upfront fee,

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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 Therapeutics. Under the terms of the services agreement, we and Isis agreed to provide to Regulus Therapeutics 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 Therapeutics for these services.

Other RNAi Areas of Opportunity

We continue to seek opportunities to form new ventures in areas outside our core strategic interest. For example, 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 opportunities in the areas of stem cell research, genomics, bioprocessing and biologics, vaccines, and other non-coding RNAs. Given the broad applications for RNAi technology, we believe additional opportunities exist for new ventures to be formed.

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 relating to fewer than 15 gene targets in total, under both exclusive and non-exclusive licenses.

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

We are working 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

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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.

For example, in May of 2007, we entered into an agreement with MIT, Center for Cancer Research 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 lipid-based nanoparticle 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 the new agreements with Tekmira and Protiva, 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 cationic liposomal delivery technology.

As noted above, we are developing ALN-VSP, a systemically delivered RNAi therapeutic candidate, for the treatment of liver cancers, including hepatocellular carcinoma and other solid tumors with liver involvement. ALN-VSP comprises two siRNAs formulated using Tekmira’s stable nucleic acid-lipid particles, or SNALP, technology. We also have rights to use SNALP technology in the advancement of our other systemically delivered RNAi therapeutic programs, including ALN-PCS for the treatment of hypercholesterolemia and ALN-TTR for the treatment of TTR amyloidosis.

We have other RNAi therapeutic delivery collaborations and intend to continue to collaborate with government, academic and corporate third parties to evaluate different delivery technologies, including with respect to Direct RNAi and Systemic RNAi.

Government Funding

NIH.  In September 2006, NIAID 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. The Ebola virus can cause a severe, often fatal infection, and poses a potential biological safety risk and bioterrorism threat. Of the $23.0 million in funding, the government initially committed to pay us up to $14.2 million over the first two years of the contract. In June 2008, as a result of the progress of the program, the government awarded us an additional $7.5 million, to be paid through September 2009 for the third year of the contract, together with any remaining funds carried over from the funding allocated for the first two years of the contract.

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 have determined to end this program and accordingly, the remaining funds will not be 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.

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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 any 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, double-stranded RNAs 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 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 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
Alnylam	Small double- stranded RNAs as therapeutic products	1/30/1999	R. Kreutzer, S. Limmer	EP 1214945 (revoked/to be appealed) & EP 1550719, 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/to be appealed), 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	AU 2001249622 (Australia) Additional applications pending in the U.S. and several foreign jurisdictions	03/30/2020	Non-exclusive rights for therapeutic purposes***

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Patent		First
Licensor/Owner	Subject Matter	Priority Date	Inventors	Status	Expiration Date*	Alnylam Rights
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) 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, the University of Massachusetts, 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 entering 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 license 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 double-stranded RNAs, or dsRNAs, as therapeutics. This patent was recently 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 EPO ruled in favor of the opposing parties in an opposition proceeding related to the second Kreutzer-Limmer patent. We intend to appeal 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

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consecutive nucleotide pairs in length. We have also received grants for patents in the Kreutzer-Limmer series in several other countries, as reflected in the table above. The outcome of the EP 1144623 appeal and 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 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). 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 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 March 2009. 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 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.

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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. 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 the University of British Columbia 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 will continue to make patent filings that claim all aspects of our development candidates, including dose, method of administration and manufacture.

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,

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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 any challenges that have arisen or may arise in this area.

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, Roche, Takeda, Opko Corporation, MDRNA, Inc., Calando, Quark, Silence Therapeutics plc, RXi Pharmaceuticals Corporation, Tekmira, Intradigm, Inc. and Dicerna Pharmaceuticals, Inc. Many of these companies have licensed our intellectual property.

Companies working on gene therapy approaches to RNAi therapeutics include Benitec, Cequent, 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 drug candidates in clinical trials. In addition, a number of other companies have

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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. However, 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 $14.3 million in 2007. 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, Inc. 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 greater than $1.2 billion in 2008. 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. MedImmune has also recently initiated a Phase I/IIa clinical trial of a live, attenuated intranasal vaccine in development to help prevent severe RSV infections. In addition, Novartis has a small molecule drug, RSV604, licensed from Arrow Therapeutics Ltd, which is 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 $677.8 million in 2008.

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 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 these competing drugs had sales of greater than $1.0 billion during 2007, 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. Currently in Phase III development, mipomersen has been shown in Phase II trials to reduce cholesterol and other atherogenic lipids more than 40% beyond reductions achieved with current standard lipid-lowering drugs. A weekly injectable therapeutic, mipomersen is being

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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 TTR Amyloidosis

Currently, liver transplantation is the only available treatment option for TTR-mediated 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 TTR amyloidosis.

There are a few drugs in clinical development for the treatment of TTR amyloidosis. FoldRx Pharmaceuticals, Inc. is currently conducting a Phase II/III trial of Fx-1006A for FAP and a Phase II trial of Fx-1006A for FAC. Fx-1006A 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 a Phase I study in healthy volunteers, Fx-1006A was found to be safe and well-tolerated, and demonstrated TTR stabilization in the plasma of participants. 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 TTR-mediated FAP. Diflunisal is a commercially available non-steroidal anti-inflammatory agent that has been found to stabilize TTR in vitro.

Competing Drugs for Huntington’s Disease

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 Huntington’s disease 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 drug is currently being investigated as a treatment for HD and 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.

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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 such as the GEMINI study, 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 application 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 the 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, 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 application. 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 cancer, hypercholesterolemia, TTR amyloidosis, HD or the various indications targeted in our preclinical 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

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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.

Under FDA regulations in effect prior to August 11, 2008, if the NDA did not warrant approval the FDA would instead issue either an approvable letter or a not-approvable letter. Approvable letters generally contained a statement of specific conditions that must be met in order to secure final approval of the NDA. If and when those conditions were met to the FDA’s satisfaction, the FDA would typically issue an approval letter. If the FDA’s evaluation of the NDA or inspection of the manufacturing facilities was not favorable, the FDA may refuse to approve the NDA or, prior to August 11, 2008, could issue a not-approvable letter. Not-approvable letters outlined the deficiencies in the submission and often required additional testing or information in order for the FDA to reconsider the application. Even with submission of this additional information, the FDA ultimately could decide that the application does not satisfy the regulatory criteria for approval.

Under new regulations, effective August 11, 2008, the FDA has discontinued use of approvable and not-approvable letters when taking action on marketing applications. Instead, the FDA now issues a “complete response” letter to notify a sponsor that the review period for an application is complete and that the application is not ready for approval. A 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. The new regulations also clarify the anticipated additional review time for the FDA to respond to resubmissions, which for significant resubmissions may be six months or longer.

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

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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.

Some of our drug 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 drug 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

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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. For example, the Food and Drug Administration Amendments Act of 2007, or FDAAA, granted significant new powers to the FDA, many of which are aimed at improving the safety of drug products before and after approval. In particular, the FDAAA authorizes the FDA to, among other things, require post-approval studies and clinical trials, mandate changes to drug labeling to reflect new safety information, and require risk evaluation and mitigation strategies, or REMS, for certain drugs, including certain currently approved drugs. In addition, it significantly expands the federal government’s clinical trial registry and results databank and creates new restrictions on the advertising and promotion of drug products. Under the FDAAA, companies that violate these and other provisions of the law are subject to substantial civil monetary penalties.

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

Approval of a drug or biologic product by comparable regulatory authorities will be necessary in all or most foreign countries prior to the commencement of marketing of the product in those countries, whether or not FDA approval has been obtained. The approval procedure varies among countries and can involve requirements for additional testing. The time required may differ from that required for FDA approval. Although there are some procedures for unified filings in the European Union, 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 European Union 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 will 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.

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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 material for use in IND-enabling toxicology studies in animals at our own facility, but we do not anticipate manufacturing the substantial portion of material for human clinical use ourselves. We have contracted with several third-party contract manufacturing organizations for the supply of certain amounts of material 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. We plan to rely on third parties to manufacture commercial quantities of any product that we successfully develop. Under our agreement with Isis, at our request, we may negotiate a manufacturing services agreement with Isis for double-stranded RNA products designated to work through an RNAi mechanism.

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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
Fritz Eckstein, Ph.D.	Professor/Max Planck Institute
Edward E. Harlow, Ph.D.	Chair/Harvard Medical School
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
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
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 at the ETH Zurich
Thomas H. Tuschl, Ph.D.	Associate Professor/Rockefeller University
Phillip D. Zamore, Ph.D.	Gretchen Stone Cook Professor/University of Massachusetts Medical School

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

Employees

As of January 31, 2009, we had 170 employees, 137 of whom were engaged in research and development. None of our employees is 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 Note 2 to our Consolidated Financial Statements, entitled “Segment Information,” for financial information about geographic areas. The Notes to our consolidated financial statements are contained herein in Item 8.

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.

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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.		46	Chief Executive Officer and Director
Barry E. Greene		45	President and Chief Operating Officer
John (Jack) A. Schmidt, Jr., M.D.		58	Senior Vice President and Chief Scientific Officer
Patricia L. Allen		47	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.

John (Jack) A. Schmidt, Jr., M.D. has served as our Senior Vice President and Chief Scientific Officer since he joined us in September 2008. From August 2004 to September 2008, Dr. Schmidt served as Vice President and Associate Director, Discovery Research and a U.S. member of the Sanofi-aventis Global Discovery Leadership Team where he was also responsible for initiatives in biotherapeutics, external innovation, and discovery initiatives in China. From 2000 to 2004, he served as Vice President and Head of the Respiratory and Rheumatoid Arthritis Disease Group at Aventis.

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.

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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. 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 acceptance for the development of our product candidates and 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 drug 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

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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. If we do not successfully develop and commercialize drugs based upon our technological approach, 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 be profitable.

We have experienced significant operating losses since our inception. As of December 31, 2008, we had an accumulated deficit of $252.2 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 companies or funding from contracts with the government, 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.

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 drug 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;

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•  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, protect our intellectual property and obtain and maintain licenses to third-party intellectual property;

•  the cost of preparing, filing, prosecuting, maintaining and enforcing patent claims;

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

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, which resulted in a 0.5% increase in Novartis’ ownership position. At December 31, 2008, Novartis’ ownership position was 13.2%. While the exercise of these rights by Novartis provided us with $5.4 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. 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. 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 balance and our investments in marketable debt securities are subject to risks which may cause losses and affect the liquidity of these investments.

At December 31, 2008, we had $512.7 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, 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, which may be affected by 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,

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our interest income would suffer. For example, due to recent market conditions, interest rates have fallen, and accordingly, despite a higher average cash balance in 2008, our interest income decreased to $14.4 million in 2008 from $15.4 million in 2007. These market risks associated with our investment portfolio may have a negative 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 drug candidates and will commercialize and market any products derived from this collaboration. For RNAi therapeutic products successfully 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, as well as royalties on the annual net sales, if any. The Novartis agreement has an initial term of three years, with the option for two additional one-year extensions at the election of Novartis. In July 2008, Novartis elected to extend the initial term for an additional year, through October 2009. Novartis retains the right to extend the term for a second additional year, which right must be exercised no later than July 2009. Novartis may elect to terminate this collaboration in the event of a material uncured breach by us. We expect that a substantial amount of funding will come from this collaboration. If this collaboration is unsuccessful, or if it is terminated, our business could be adversely affected.

This 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, as defined in the collaboration and license agreement. The research term expires in October 2009 and may be extended until October 2010 at Novartis’ election. 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. 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 all other fields of human disease, as identified and agreed upon by the parties, upon payment to us by Roche of an additional

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$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 successfully developed by Roche, its affiliates, or sublicensees under the collaboration agreement, if any, 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 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 successfully developed by Takeda, its affiliates and sublicensees, if any, 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. 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 drug 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 drug 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 Huntington’s disease, 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 by infusion device. 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 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 will jointly develop and commercialize products for RSV in partnership with Cubist in North America. We will rely entirely on Cubist for the development and commercialization of products for RSV in the rest of the world outside of Asia, where we will rely on Kyowa Hakko for development and commercialization of products for RSV. If Cubist and Kyowa Hakko are not successful in their commercialization efforts, our future revenues for RSV may be adversely affected.

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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. Even if we do succeed in securing such alliances, we may not be able to maintain them if, for example, development or approval of a drug 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 drug 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 drug 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, as well as collaborations with 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 drug candidate, we may not have sufficient funds to develop that or any other drug candidate internally, or to bring any drug candidates to market. If we do not have sufficient funds to develop and bring our drug candidates to market, we will not be able to generate sales revenues from these drug 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 drug 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 for the development and commercialization of ALN-RSV01 for the treatment of RSV infection in Japan and other major markets in Asia may be terminated by Kyowa Hakko 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 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 drug 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.

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We depend on government contracts to partially fund our research and development efforts and may enter into additional government contracts in the future. If current or future government funding, if any, is reduced or delayed, our drug development efforts for such funded programs may be negatively affected.

In September 2006, NIAID 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. Of the $23.0 million in funding, the government initially committed to pay us up to $14.2 million over the first two years of the contract. In June 2008, as a result of the progress of the program, the government awarded us an additional $7.5 million, to be paid through September 2009 for the third year of the contract, together with any remaining funds carried over from the funding allocated for the first two years of the contract. We cannot be certain that the government will appropriate the funds necessary for this contract in future budgets. In addition, the government can terminate the agreement in specified circumstances. If we do not receive the $23.0 million we expect to receive under this contract, we may not be able to develop therapeutics to treat Ebola.

For example, in August 2007, DTRA awarded us a contract to advance the development of a broad spectrum RNAi anti-viral therapeutic for hemorrhagic fever virus infection. When granted, this federal contract provided for potential funding of up to $38.6 million through February 2011. Of this amount, the government initially committed to pay us up to $10.9 million through February 2009, which term includes a six-month extension granted by DTRA in July 2008. However, following a program review in early 2009, we and DTRA have determined to end this program and accordingly, the remaining funds will not be accessed.

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

In September 2007, we and Isis formed Regulus Therapeutics, of which we own 49%, to discover, develop and commercialize microRNA-based therapeutics. Regulus Therapeutics intends to address 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 Therapeutics. If Regulus Therapeutics 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 Therapeutics’ assets, including Regulus Therapeutics’ 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 Therapeutics to us, Isis or a third party. We may not have sufficient funds to buy out Isis’ interest in Regulus Therapeutics 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 Therapeutics. If Regulus Therapeutics 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 Therapeutics, Regulus Therapeutics will distribute and assign its rights, interests and assets to us and Isis in accordance with our percentage interests, except for Regulus Therapeutics’ 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 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-good manufacturing practice material for use in in vitro and in vivo experiments. Our products utilize specialized formulations, such as liposomes, 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

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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 products 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

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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 recent 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, 2008, we had approximately 164 employees in our facility in Cambridge, Massachusetts. Our rapid and substantial growth may place a strain on our administrative and operational infrastructure. If drug 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.

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Risks Related to Our Industry

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

Any drug 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 drug candidates are lengthy and expensive and the historical failure rate for drug 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. We commenced a second Phase II trial in April 2008 to assess the safety and tolerability of ALN-RSV01 in adult lung transplant patients naturally infected with RSV and we intend to continue the clinical development of ALN-RSV01. In addition, in December 2008, we submitted an IND to the FDA for ALN-VSP, our first systemically delivered RNAi therapeutic. We are developing ALN-VSP for the treatment of certain liver cancers. We received clearance from the FDA in January 2009 to proceed with a Phase I study. 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 drug candidate may not predict the results that will be obtained in subsequent human clinical trials. For example, ALN-VSP and our other systemically delivered therapeutic candidates 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 institutional review board, or IRB, may suspend clinical trials of a drug 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 drug 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 drug candidate for any or all indications of use.

Clinical trials of a new drug candidate require the enrollment of a sufficient number of patients, including patients who are suffering from the disease the drug 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 can result in increased costs and longer development times.

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 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 drug 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 drug candidate that is affected, or development of any of our other drug candidates. We may also lose, or be unable to enter into, collaborative arrangements for the affected drug candidate and for other drug candidates we are developing.

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

•  delays in filing initial drug applications;

•  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;

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•  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 drug candidates similar to ours;

•  inadequate supply or quality of drug 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; or

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

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

The FDA approval process may be delayed for any drugs we develop that require the use of specialized drug delivery devices.

Some drug 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 Parkinson’s disease, HD 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 collaboration partners 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 similar physiological sites, 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 drug 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 drug candidates.

Our drug candidates are subject to extensive governmental regulations relating to, among other things, research, testing, development, manufacturing, safety, efficacy, recordkeeping, labeling, 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 drug candidates we may develop will obtain the appropriate 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 complexity of the drug candidate. 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

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administrative action, or from changes in FDA policy during the period of product development, clinical trials and FDA regulatory review. For example, the Food and Drug Administration Amendments Act of 2007, or FDAAA, may make it more difficult and costly for us to obtain regulatory approval of our product candidates and to produce, market and distribute products after approval. The FDAAA granted a variety of new powers to the FDA, many of which are aimed at improving the safety of drug products before and after approval. In particular, it authorizes the FDA to, among other things, require post-approval studies and clinical trials, mandate changes to drug labeling to reflect new safety information, and require risk evaluation and mitigation strategies, or REMS, for certain drugs, including certain currently approved drugs. In addition, it significantly expanded the federal government’s clinical trial registry and results databank and creates new restrictions on the advertising and promotion of drug products. Under the FDAAA, companies that violate the new law are subject to substantial civil monetary penalties.

Because the drugs we are intending to develop may represent a new class of drug, the FDA has 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 a new drug 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 drug candidate. Furthermore, any regulatory approval to market a product may be subject to limitations on the indicated uses for which we may market the product. These limitations 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 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 assure 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 drug candidates.

Before obtaining regulatory approval for the sale of our drug 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 drug 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 drug 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;

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

•  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;

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

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

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

•  effects of our drug 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 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 vigilance required as a condition of approval. The manufacturer and manufacturing facilities we use to make any of our drug candidates will also be subject to periodic review and inspection by the FDA. The discovery of any new or previously unknown problems with the product, manufacturer or facility 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 fail to comply with applicable continuing regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approval, product recalls and seizures, operating restrictions 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, efficacy and ease of administration of our product candidates;

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

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•  the success of our physician education programs;

•  the availability of 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 a 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 expect 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.

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

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:

•  warning letters;

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

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

•  restrictions on importation or exportation of our products;

•  suspension of review or refusal to approve pending 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

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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 standard 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 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 will continue to affect the business and financial condition of pharmaceutical and biopharmaceutical companies. A number of legislative and regulatory proposals to change the healthcare system in the United States and other major healthcare markets have been proposed in recent years. These proposals have included prescription drug benefit legislation that was enacted and took effect in January 2006 and healthcare reform legislation recently enacted by certain states. Further federal and state legislative and regulatory developments are possible 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 drug candidates that we may successfully develop.

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Another development that may affect the pricing of drugs is Congressional action regarding drug reimportation into the United States. Recent proposed legislation has been introduced in Congress that, if enacted, would permit more widespread re-importation of drugs from foreign countries into the United States. This could include reh-importation from foreign countries where the drugs are sold at lower prices than in the United States. Such legislation, or similar regulatory changes, could lead to a decrease in the price we receive for any approved products, which, in turn, could impair our ability to generate revenue. Alternatively, in response to legislation such as this, we might elect not to seek approval for or market our products in foreign jurisdictions in order to minimize the risk of re-importation, which could also reduce the revenue we generate from our product sales.

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, 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 indications for which they may be used, or suspension or withdrawal of approvals. 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 drug 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

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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. Adding to the uncertainty of our current intellectual property portfolio and our ability to secure and enforce future patent rights are the outcome of a legal dispute surrounding the implementation of certain continuation and claims rules promulgated by the USPTO, which were scheduled to take effect November 1, 2007, but which are now enjoined and on appeal, and the outcome of Congressional efforts to reform the Patent Act of 1952. 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 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, Isis, MIT, the Whitehead Institute for Biomedical Research, Max Planck Innovation, 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

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substantially identical products for sale, which could adversely affect our competitive business position and harm our business prospects.

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

RNA interference 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 drug 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.

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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;

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•  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 cancer, hypercholesterolemia, TTR amyloidosis 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 drug 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 drug candidates. 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 drug 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 several 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 Therapeutics Inc. 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.

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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 product candidates, antisense drugs target messenger RNAs, or mRNAs, in order to suppress the activity of specific genes. Isis is currently marketing an antisense drug and has several antisense drug 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, 2008, Novartis holds 13.2% 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.

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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, 2009, we lease approximately 84,000 square feet of office and laboratory space in Cambridge, Massachusetts. The two leases for this property expire in September 2011. We believe that the total space available to us under our current leases 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

We are currently not a party to any material 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, 2008.

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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, 2007:	High		Low
First Quarter	$	22.94	$16.66
Second Quarter	$	20.68	$15.06
Third Quarter	$	34.85	$14.87
Fourth Quarter	$	37.35	$26.84

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

Holders of record

As of January 31, 2009, there were approximately 97 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

Information relating to our equity compensation plans will be included in our proxy statement in connection with our 2009 Annual Meeting of Stockholders, under the caption “Equity Compensation Plan Information.” That portion of our proxy statement is incorporated herein by reference.

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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 cumulative total stockholder return (assuming reinvestment of dividends, if any) from investing $100 on May 28, 2004, the date on which our common stock was first publicly traded, to the close of the last trading day of 2008, in each of (i) our common stock, (ii) the NASDAQ Stock Market (U.S.) Index and (iii) the NASDAQ Pharmaceutical Index.

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

	5/28/2004		12/31/2004		12/30/2005		12/29/2006		12/31/2007		12/31/2008
Alnylam Pharmaceuticals, Inc.	$	100.00	$	124.29	$	222.30	$	356.07	$	483.86	$	411.48
Nasdaq Stock Market (U.S.) Index	$	100.00	$	109.70	$	112.03	$	123.08	$	133.48	$	64.38
Nasdaq Pharmaceutical Index	$	100.00	$	103.32	$	113.77	$	111.36	$	117.11	$	108.98

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ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data for each of the five years in the period ended December 31, 2008 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,
	2008			2007			2006			2005			2004
Statement of Operations Data:
Net revenues	$	96,163		$	50,897		$	26,930		$	5,716		$	4,278
Operating expenses(1)		123,998			144,074			66,431			49,188			36,542
Loss from operations		(27,835	)		(93,177	)		(39,501	)		(43,472	)		(32,264	)
Net loss		(26,249	)		(85,466	)		(34,608	)		(42,914	)		(32,654	)
Net loss attributable to common stockholders	$	(26,249	)	$	(85,466	)	$	(34,608	)	$	(42,914	)	$	(35,367	)
Net loss per common share — basic and diluted	$	(0.64	)	$	(2.21	)	$	(1.09	)	$	(1.96	)	$	(2.98	)
Weighted average common shares outstanding — basic and diluted		41,077			38,657			31,890			21,949			11,886
(1) Non-cash stock-based compensation included in operating expenses	$	16,382		$	14,472		$	8,304		$	4,597		$	4,106

	December 31,
	2008		2007		2006		2005		2004
Balance Sheet Data:
Cash, cash equivalents and marketable securities	$	512,709	$	455,602	$	217,260	$	80,002	$	46,046
Working capital		342,797		314,427		199,859		63,930		41,606
Total assets		554,676		493,791		240,006		98,348		66,107
Notes payable		—		6,758		9,136		7,395		7,201
Total stockholders’ equity		202,125		199,168		201,174		61,779		46,142

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

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. 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 April 2008, we initiated a second Phase II human clinical trial, which is currently ongoing, to assess the safety and tolerability of aerosolized ALN-RSV01 versus placebo in adult lung transplant patients naturally infected with RSV. We recently formed collaborations with Cubist Pharmaceuticals, Inc., or Cubist, and Kyowa Hakko Kirin Co., Ltd., or Kyowa Hakko, for the development and commercialization of products for RSV. We will jointly develop and commercialize products for RSV in partnership with Cubist in North America, Cubist has responsibility for developing and commercializing these products in the rest of the world outside of Asia, and Kyowa Hakko has the responsibility for developing and commercializing these products in Asia.

In December 2008, we submitted an investigational new drug application, or IND, to the United States Food and Drug Administration, or FDA, for ALN-VSP, our first systemically delivered RNAi therapeutic candidate. We are developing ALN-VSP for the treatment of liver cancers, including hepatocellular carcinoma and other solid tumors with liver involvement. We received clearance from the FDA in January 2009 to proceed with a Phase I study. We expect to initiate this study during the first half of 2009. The Phase I study will be a 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.

We are also working on a number of programs in pre-clinical development, including:

•  ALN-PCS, an RNAi therapeutic candidate targeting a gene called proprotein convertase subtilisin/kexin type 9, or PCSK9, for the treatment of hypercholesterolemia;

•  ALN-TTR, an RNAi therapeutic candidate targeting the transthyretin, or TTR, gene, for the treatment of TTR amyloidosis; and

•  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-RSV01 to the lungs, which we refer to as Direct RNAi. We are also working to extend our capabilities to advance the development of RNAi therapeutics that are administered by intravenous, subcutaneous or intramuscular approaches, which we refer to as Systemic RNAi. 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, including with respect to Direct RNAi and Systemic RNAi.

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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 any 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 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 interest. For example, in 2007, we and Isis established Regulus Therapeutics LLC, or Regulus Therapeutics, 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 to be formed.

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, 2008, we had an accumulated deficit of $252.2 million. Through December 31, 2008, 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, 2008, 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 January 2009, we received clearance from the FDA to proceed with a Phase I study of ALN-VSP for the treatment of liver cancers and

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potentially other solid tumors. Our other development programs are focused on the treatment of hypercholesterolemia, TTR amyloidosis and Huntington’s disease. We also 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, progressive multifocal leukoencephalopathy, or PML, Parkinson’s disease and many other undisclosed programs, as well as several other diseases that are the subject of our strategic alliances. In addition, 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;

•  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 Item 1A above 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 will also collaborate 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-RSV and ALN-HTT, respectively. In addition, we have entered into a product alliance with Kyowa Hakko for the development and commercialization of ALN-RSV in territories not

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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 interest. For example, we formed Regulus Therapeutics, 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 be formed.

To generate revenues from our intellectual property rights, we also grant licenses to biotechnology companies under our InterfeRx program for the development and commercialization of RNAi therapeutics for specified targets in which we have no direct strategic interest. We also license key aspects of our intellectual property to companies active in the research products and services market, which includes the manufacture and sale of reagents. 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, 2009, we had granted such licenses, on both an exclusive and nonexclusive basis, to approximately 20 companies.

Since delivery of RNAi therapeutics remains a major objective of our research activities, we also look to form collaboration and licensing agreements with other companies and academic institutions to gain access to delivery technologies. For example, we have formed agreements with Tekmira Pharmaceuticals Corporation, or Tekmira, and Massachusetts Institute of Technology, or MIT, among others, to focus on various delivery strategies. We have also entered into license agreements with Isis, Max Planck Innovation, Tekmira and MIT, as well as a number of other entities, to obtain rights to important intellectual property in the field of RNAi.

Finally, we seek funding for the development of our proprietary RNAi therapeutics pipeline from foundations and government sources. 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.

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 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 successfully developed by Roche, its affiliates or sublicensees under the collaboration agreement, if any, 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

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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. The discovery collaboration between Roche and us will be governed by a joint steering committee for a period of five years that is comprised of an equal number of representatives from each party. In exchange for our contributions to the collaboration, Roche will be required to make additional milestone and royalty payments to us.

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.

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, 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.

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 required to be paid within 12 to 24 months of execution of the agreement and $10.0 million of which is required to be paid within 24 to 36 months of 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, comprising all other fields of human disease, as identified and agreed upon by the parties. In addition, for each RNAi therapeutic product successfully developed by Takeda, its affiliates and sublicensees, if any, 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 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

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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-RSV01 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, 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 March 2004, we entered into a collaboration and license agreement with Isis, a leading developer of antisense oligonucleotide drugs that target RNA. The Isis agreement significantly enhanced our intellectual property position with respect to RNA-based therapeutic products and our ability to develop siRNAs for RNAi therapeutic products, and provided us with the opportunity to defer investment in manufacturing technology. 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 and commercialization of siRNA 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 any siRNA products designed to work through an RNAi mechanism, except in the context of a collaboration in which Isis plays an active role. The licenses that we have granted to Isis are non-exclusive licenses to our current and future patents and patent applications relating to RNA-targeting mechanisms and to chemistry for research use. We have also granted Isis the non-exclusive right to develop and commercialize siRNA products against a limited number of targets. In addition, we have granted Isis non-exclusive rights to our patents and patent applications for research, development and commercialization of antisense RNA products.

Under the terms of the Isis agreement, we paid Isis an upfront license fee of $5.0 million. We 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 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 the Isis intellectual property.

In conjunction with the agreement, Isis made a $10.0 million equity investment in us. In addition, Isis has 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.

The Isis agreement also gives us an option to use Isis’ manufacturing services for RNA-based therapeutic products. In addition, under the Isis agreement, we have the exclusive right to grant sub-licenses for Isis technology to third parties with whom we are not collaborating. We may include these sub-licenses in our non-exclusive platform licenses and our InterfeRx licenses. If a license includes rights to Isis’ intellectual property, we will share revenues from that license equally with Isis.

Novartis.  We have formed two alliances with Novartis. We refer to the first of these, which was initiated in September 2005, as the broad Novartis alliance, and to the second, which was initiated in February 2006, as the Novartis flu alliance.

In connection with the broad Novartis alliance, we entered into a series of transactions with Novartis beginning in September 2005. 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

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additional one-year extensions at the election of Novartis. In July 2008, Novartis elected to extend the initial term for an additional year, through October 2009. Novartis retains the right to extend the term for a second additional year, which right must be exercised no later than July 2009.

Under the terms of the collaboration and license agreement, the parties will work together on 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 will provide us with research funding and development and 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 successfully 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 milestone or 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, as defined in the collaboration and license agreement. The research term expires in October 2009 and may be extended until October 2010 at Novartis’ election. 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. In addition, under this license grant, Novartis may be required to make milestone and royalty payments to us in connection with the successful 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.

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. At December 31, 2008, Novartis owned 13.2% of our outstanding common stock.

In February 2006, we entered into the Novartis flu alliance. Under the terms of the Novartis flu alliance, we and Novartis have joint responsibility for the development of RNAi therapeutics for pandemic flu. This program was stopped 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

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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 2009.

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 will be responsible for supplying the siRNA component and Medtronic will be 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 any 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.

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

Under the terms of the Kyowa Hakko agreement, in June 2008, Kyowa Hakko paid us an upfront cash payment of $15.0 million. In addition, Kyowa Hakko 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 ALN-RSV01 by Kyowa Hakko, 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.

Our collaboration with Kyowa Hakko is governed by a joint steering committee that is comprised of an equal number of representatives from each party. Under the agreement, Kyowa Hakko is establishing a development plan for ALN-RSV01 relating to the development activities to be undertaken in the licensed territory, with the initial focus on Japan. Kyowa Hakko is responsible, at its expense, for all development activities under the development plan that are reasonably necessary for the regulatory approval and commercialization of ALN-RSV01 in Japan and the rest of the licensed territory. We will be responsible for supply of the product to Kyowa Hakko under a supply

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agreement unless Kyowa Hakko 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.

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, including ALN-RSV01, which is currently in Phase II clinical development for the treatment of RSV infection in adult lung transplant patients, as well as several other second-generation RNAi-based RSV inhibitors, which currently are in pre-clinical studies.

Under the terms of the Cubist agreement, we and Cubist will share responsibility for developing licensed products in North America and will each bear one-half of the related development costs. Our collaboration with Cubist for the development of licensed products in North America will be 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, Cubist will have 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.

Delivery Initiatives

We are working 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.

For example, in May of 2007, we entered into an agreement with the MIT, Center for Cancer Research 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 lipid-based nanoparticle formulations for the delivery of RNAi therapeutics. In May 2008, Tekmira acquired Protiva Biotherapeutics Inc., or 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 the new agreements with Tekmira and Protiva, 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 cationic liposomal delivery technology.

As noted above, we are developing ALN-VSP, a systemically delivered RNAi therapeutic candidate, for the treatment of liver cancers, including hepatocellular carcinoma and other solid tumors with liver involvement. ALN-VSP comprises two siRNAs formulated using Tekmira’s stable nucleic acid-lipid particles, or SNALP, technology. We also have rights to use SNALP technology in the advancement of our other systemically delivered RNAi

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therapeutic programs, including ALN-PCS for the treatment of hypercholesterolemia and ALN-TTR for the treatment of TTR amyloidosis.

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. In connection with these transactions, we and Tekmira cancelled our $5.0 million capital equipment loan to Tekmira, which was never drawn down by Tekmira.

We have other RNAi therapeutic delivery collaborations and intend to continue to collaborate with government, academic and corporate third parties to evaluate different delivery technologies, including with respect to Direct RNAi and Systemic RNAi.

Government Funding

NIH.  In September 2006, NIAID 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. The Ebola virus can cause a severe, often fatal infection, and poses a potential biological safety risk and bioterrorism threat. Of the $23.0 million in funding, the government initially committed to pay us up to $14.2 million over the first two years of the contract. In June 2008, as a result of the progress of the program, the government awarded us an additional $7.5 million, to be paid through September 2009 for the third year of the contract, together with any remaining funds carried over from the funding allocated for the first two years of the contract.

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 have determined to end this program and accordingly, the remaining funds of up to $27.7 million will not be accessed.

microRNAi-based Therapeutics

Regulus Therapeutics.  In September 2007, we and Isis established Regulus Therapeutics, a company focused on the discovery, development and commercialization of microRNA-based therapeutics. Regulus Therapeutics 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 Therapeutics, which had initially been established as a limited liability company, converted to a C corporation as of January 2, 2009 and changed its name to Regulus Therapeutics Inc.. We and Isis continue to own 49% and 51%, respectively, of Regulus Therapeutics. Regulus Therapeutics continues to operate as an independent company with a separate board of directors, scientific advisory board and management team.

Regulus Therapeutics’ most advanced program, which is in pre-clinical research, is a microRNA-based therapeutic candidate that targets miR-122, an endogenous host gene required for viral infection by the hepatitis C virus, or HCV. HCV infection is a significant disease worldwide, for which emerging therapies target viral genes and, therefore, are prone to viral resistance. Regulus Therapeutics is also pursuing a program that targets miR-21. Pre-clinical studies by Regulus Therapeutics and collaborators have shown that miR-21 is implicated in several therapeutic areas, including heart failure and fibrosis. In addition to these programs, Regulus Therapeutics is also actively exploring additional areas for development of microRNA-based therapeutics, including cancer, other viral diseases, metabolic disorders and inflammatory diseases.

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In April 2008, Regulus Therapeutics 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 Therapeutics 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 Therapeutics common stock under certain specified circumstances. Regulus Therapeutics 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.

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. 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 and royalties on product sales. We follow the provisions of the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104, “Revenue Recognition,” Emerging Issues Task Force, or EITF, Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables,” or EITF 00-21, EITF Issue No. 99-19, “Reporting Revenue Gross as a Principal Versus Net as an Agent,” and EITF Issue No. 01-9, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products),” or EITF 01-9.

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 in accordance with EITF 00-21. 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.

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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 up-front 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.

For revenue generating arrangements where we, as a vendor, provide consideration to a licensor or collaborator, as a customer, we apply the provisions of EITF 01-9. EITF 01-9 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.

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 twelve months are classified as long-term deferred revenue. As of December 31, 2008, we had short-term and long-term deferred revenue of $79.9 million and $250.1 million, respectively, related to our collaborations.

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 twelve months. Amounts that we expect will not be recognized prior to the next twelve 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 twelve-month period.

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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.

Novartis.  In consideration for rights granted to Novartis under the collaboration and license agreement, Novartis made an up-front 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 will provide us with research funding. In addition, for RNAi therapeutic products successfully 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. We initially recorded as deferred revenue the non-refundable $10.0 million up-front payment and $6.4 million premium that represents 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 Novartis agreement, or ten years. We only include milestone payments that we believe are probable of being received. 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 agreement includes the three-year term of the agreement, two one-year extensions at the election of Novartis and limited support as part of a technology transfer until the fifth anniversary of the termination of the agreement. In July 2008, Novartis elected to extend the initial term of the agreement for an additional year, through October 2009. 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 recorded $278.2 million as deferred revenue in connection with the Roche alliance. This amount represents the aggregate proceeds received from Roche of $331.0 million, net of the amount allocated for financial statement purposes to the common stock issuance of $51.3 million and the net book value of Alnylam Europe of $1.5 million. In exchange for our contributions under the collaboration agreement, for each RNAi therapeutic product successfully developed by Roche, its affiliates or sublicensees under the collaboration agreement, if any, 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 have agreed with Roche to collaborate on the discovery of RNAi therapeutic products directed to one or more disease targets, referred to as the Discovery Collaboration, subject to our existing contractual obligations to third parties. The collaboration between Roche and us will be governed by a joint steering committee for a period of five years that is comprised of an equal number of representatives from each party. Our performance obligations under the license and collaboration agreement, including participation in the steering committee and research conducted as part of the Discovery Collaboration, are expected to cease five years from the effective date of the license and collaboration agreement.

The proceeds allocated to the common stock issuance of $51.3 million were based on the fair value on the date the shares were issued. We have concluded that the license issued to Roche, the Alnylam Europe assets and employees, the steering committee services and the services we will be required to perform under the Discovery

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Collaboration should be treated as a single unit of accounting. Accordingly, the remaining consideration received has been recorded as deferred revenue and will be amortized into revenue over the five-year period during which we are required to provide services under the license and collaboration agreement. We are recognizing revenue on a straight-line basis over five years because we are unable to reasonably estimate the total level of effort required under the license and collaboration agreement. When, and if, we are able to make a reasonable estimate of our remaining efforts under the collaboration, we will modify the method of recognition and utilize the proportional performance method. 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 required to be paid within 12 to 24 months of execution of the agreement and $10.0 million of which is required to be paid within 24 to 36 months of 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, comprising all other fields of human disease, as identified and agreed upon by the parties. In addition, for each RNAi therapeutic product successfully developed by Takeda, its affiliates and sublicensees, if any, 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-RSV01 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.

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 EITF 00-21, 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 initially 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. 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. We will continue to reassess whether we can reasonably estimate the level of effort required to fulfill our obligations under the Takeda agreement. When, and if, we can make a reasonable estimate of our remaining efforts under the collaboration, we would modify our method of recognition and utilize a proportional performance method.

Kyowa Hakko.  Under the terms of the Kyowa Hakko agreement, in June 2008, Kyowa Hakko paid us an upfront cash payment of $15.0 million. In addition, Kyowa Hakko is required to make payments to us upon achievement of specified development and sales milestones totaling up to $78.0 million, and royalty payments

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based on annual net sales, if any, of ALN-RSV01 by Kyowa Hakko, its affiliates and sublicenses in the licensed territory.

Our collaboration with Kyowa Hakko is governed by a joint steering committee that is comprised of an equal number of representatives from each party. Kyowa Hakko is responsible, at its expense, for all development activities under the development plan that are reasonably necessary for the regulatory approval and commercialization of ALN-RSV01 in Japan and the rest of the licensed territory. We will be responsible for supply of the product to Kyowa Hakko under a supply agreement unless Kyowa Hakko 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 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 EITF 00-21, 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 agreement, as we are unable to estimate the timeline of our deliverables related to the fixed-price option granted to Kyowa Hakko for any additional compounds. We are deferring all revenue under the Kyowa Hakko 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 agreement.

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

Accounting for Income Taxes

Effective January 1, 2007, we adopted the provisions of Financial Accounting Standards Board, or FASB, Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement 109,” or FIN 48, which 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. FIN 48 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 FIN 48, 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, 2008 and 2007, we recorded a provision for income taxes of $0.7 million and $5.2 million, respectively. We provide income tax expense for federal alternative minimum tax, state and foreign taxes. We generated U.S. taxable income during 2008 due to the recognition of certain proceeds received from the Roche alliance. Our 2008 U.S. taxable income will be offset by net operating loss carry forwards and other deferred tax attributes. However, we anticipate being subject to federal alternative minimum tax and state income taxes.

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At December 31, 2008, 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, 2008, we had utilized all federal and Massachusetts state net operating loss carryforwards and all federal and a significant portion of Massachusetts state research and development credits and all foreign tax credits. At December 31, 2008, we had $0.5 million of state research and development credits remaining and $8.6 million of California net operating losses. 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 2008.

Accounting for Stock-Based Compensation

Effective January 1, 2006, we adopted the fair value recognition provisions of FASB Statement of Financial Accounting Standards, or SFAS, No. 123R, “Share-Based Payment, an amendment of FASB Statements Nos. 123 and 95,” or SFAS 123R, using the modified prospective transition method. All stock-based awards granted to non-employees are accounted for at their fair value in accordance with SFAS No. 123, “Accounting for Stock Based Compensation” and EITF Issue No. 96-18, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services,” under which 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, 2008, we used a weighted-average expected stock-price volatility assumption of 66%. 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 6.1 years for the year ended December 31, 2008. 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, 2008, the estimated fair value of unvested employee awards was $50.0 million, net of estimated forfeitures. This amount will be recognized over the weighted average remaining vesting period of approximately 1.6 years for these awards. Stock-based employee compensation expense was $16.4 million for the year ended December 31, 2008. 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. SFAS 123R 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 86% of our options will actually vest, and therefore have applied an annual forfeiture rate of 3.7% to all unvested options as of December 31, 2008. 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 Therapeutics using the equity method of accounting. We have concluded that Regulus Therapeutics qualifies as a variable interest entity under FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities — an interpretation of Accounting Research Bulletin No. 51,” or FIN 46R. The limited liability company agreement contains transfer restrictions on each of Isis’ and our interests and, as a result, we and Isis are considered related parties under paragraph 16(d)(1) of FIN 46R. Because we and Isis are related parties and collectively own 100% of Regulus Therapeutics, the determination of which entity would be considered the primary beneficiary is based on which entity is most closely associated with Regulus Therapeutics.

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Following the guidance in paragraph 17 of FIN 46R, we have concluded that Isis is the primary beneficiary and, accordingly, we have not consolidated Regulus Therapeutics and account for our investment under the equity method of accounting.

Results of Operations

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

	Year Ended December 31,
	2008			2007			2006
Net revenues	$	96,163		$	50,897		$	26,930
Operating expenses		123,998			144,074			66,431
Loss from operations		(27,835	)		(93,177	)		(39,501	)
Net loss	$	(26,249	)	$	(85,466	)	$	(34,608	)

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 is 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. Following a program review in early 2009, we and DTRA have determined to end this program after February 2009 and accordingly, no additional funds will be accessed.

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

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

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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. We expect to expend limited resources on this program during 2009.

Total deferred revenue of $330.0 million at December 31, 2008 consists of payments received from collaborators, primarily Roche, Takeda and Kyowa Hakko, 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 and Novartis, as well as other strategic alliances, collaborations, government contracts and licensing activities.

Operating Expenses

The following tables summarize 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	)%

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)
	2008		Category			2007		Category			$			%
Research and development
External services	$	23,732		24	%	$	18,417		15	%	$	5,315			29	%
Compensation and related		17,299		18	%		13,201		11	%		4,098			31	%
Clinical trial and manufacturing		13,342		14	%		20,662		17	%		(7,320	)		(35	)%
License fees		12,554		13	%		42,207		35	%		(29,653	)		(70	)%
Facilities-related		10,181		11	%		8,511		7	%		1,670			20	%
Non-cash stock-based compensation		9,575		10	%		9,363		8	%		212			2	%
Lab supplies and materials		7,838		8	%		6,154		5	%		1,684			27	%
Other		2,362		2	%		2,171		2	%		191			9	%
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 new Tekmira license agreement and $3.2 million associated with various intellectual property assets.

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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 Huntington’s disease, 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.

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 2009 as we continue development of our and our collaborators’ product candidates and focus on 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 all of our programs are in the early stages of 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)
	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		5,757		21	%		4,647		20	%		1,110			24	%
Facilities-related		2,401		9	%		2,486		11	%		(85	)		(3	)%
Insurance		682		3	%		654		3	%		28			4	%
Other		2,187		8	%		1,945		8	%		242			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. We expect that general and administrative expenses will remain consistent or increase slightly in 2009.

Other income (expense)

Equity in loss of joint venture was $9.3 million and $1.1 million during the years ended December 31, 2008 and 2007, respectively, and in each year related to our share of the net losses incurred by Regulus Therapeutics, which was formed in September 2007. The increase was a result of Regulus Therapeutics ramping up its operations

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throughout 2008. Separate financial information for Regulus Therapeutics 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 our 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 with Oxford Finance Corporation, or Oxford, and Lighthouse Capital Partners V, L.P., or Lighthouse, used to finance capital equipment purchases. In December 2008, we defeased the aggregate outstanding balance under the Oxford and Lighthouse credit lines and expect to have no interest expense in 2009.

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.

Discussion of Results of Operations for 2007 and 2006

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

	Year Ended
	December 31,
	2007		2006
Roche	$	17,571	$	—
Novartis		14,670		21,775
Government contract		9,800		786
Other research collaborator		7,330		2,508
InterfeRx program, research reagent license and other		1,526		1,861
Total net revenues from research collaborators	$	50,897	$	26,930

Revenues increased significantly for the year ended December 31, 2007 as compared to the year ended December 31, 2006 primarily as a result of our August 2007 alliance with Roche. Under the Roche alliance, $278.2 million is being recognized as revenue on a straight-line basis over five years. 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 $4.2 million of these services as contra revenue (a reduction of revenues) during 2007.

The decrease in Novartis revenues during the year ended December 31, 2007 compared to the year ended December 31, 2006 was due to a decrease in the number of resources allocated to the broad Novartis alliance. The decrease in Novartis revenues was also due to a decrease in the number of resources allocated to, as well as lower external expense reimbursement under, our Novartis flu alliance, as a result of the shift in focus during 2007 on additional pre-clinical research prior to advancing the pandemic flu program into development. During 2008, the pandemic flu program was stopped and currently there are no specific resource commitments for this program.

For the year ended December 31, 2007, government contract revenues increased as a result of our collaboration with NIAID, which began in the fourth quarter of 2006, and our collaboration with DTRA, which began in the third quarter of 2007.

Other research collaborator revenues consisted primarily of research funding and amortization of upfront payments or license fees from Biogen Idec and Merck. The increase in other research collaborator revenues in 2007 was primarily the result of our collaboration with Biogen Idec, which began in the fourth quarter of 2006 and the

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termination of our 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.

The decrease in InterfeRx program, research reagent license and other revenues for the year ended December 31, 2007 compared to the prior year was due to upfront payments pursuant to license agreements entered into under our InterfeRx program in the prior year.

Total deferred revenues of $263.3 million at December 31, 2007 consists of payments received from collaborators, primarily Roche, that we have yet to recognize pursuant to our revenue recognition policies.

Operating Expenses

The following tables summarize 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
	2007		Expenses			2006		Expenses			$		%
Research and development	$	120,686		84	%	$	49,260		74	%	$	71,426		145	%
General and administrative		23,388		16	%		17,171		26	%		6,217		36	%
Total operating expenses	$	144,074		100	%	$	66,431		100	%	$	77,643		117	%

Certain reclassifications have been made to prior years’ financial statements to conform to the 2007 presentation.

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
			Expense					Expense			Increase
	2007		Category			2006		Category			$		%
Research and development
License fees	$	42,207		35	%	$	4,040		8	%	$	38,167		945	%
Clinical trial and manufacturing		20,662		17	%		10,019		20	%		10,643		106	%
External services		18,417		15	%		6,001		12	%		12,416		207	%
Compensation and related		13,201		11	%		10,666		22	%		2,535		24	%
Non-cash stock-based compensation		9,363		8	%		5,006		10	%		4,357		87	%
Facilities-related		8,511		7	%		6,315		13	%		2,196		35	%
Lab supplies and materials		6,154		5	%		5,462		11	%		692		13	%
Other		2,171		2	%		1,751		4	%		420		24	%
Total research and development expenses	$	120,686		100	%	$	49,260		100	%	$	71,426		145	%

During the year ended December 31, 2007, our research and development expenses increased significantly compared to the year ended December 31, 2006 primarily as a result of an increase in license fees consisting of $27.5 million in payments to certain entities, primarily Isis, in connection with the Roche alliance and $14.7 million in charges for licenses for certain delivery technologies. The increase was also due to an increase in clinical trial and manufacturing expenses in support of our clinical program for RSV, for which we began Phase II trials in June 2007, as well as higher manufacturing expenses related to our pre-clinical development programs. The increase in external services was due to higher expenses related to our pre-clinical programs for the treatment of hypercholesterolemia, liver cancer and Ebola, as well as higher expenses associated with our delivery-related

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collaborations. The increase in compensation and related expenses and facilities-related expenses was due to additional research and development headcount over the past year to support our alliances and expanding product pipeline. The increase in non-cash stock-based compensation was due primarily to one-time charges of $2.9 million from restricted stock grants and stock option modifications in August 2007 relating to the transfer of our former German employees to Roche Kulmbach as part of our alliance with Roche.

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)
	2007		Category			2006		Category			$			%
General and administrative
Consulting and professional services	$	8,547		36	%	$	5,162		30	%	$	3,385			66	%
Non-cash stock-based compensation		5,109		22	%		3,298		19	%		1,811			55	%
Compensation and related		4,647		20	%		3,546		21	%		1,101			31	%
Facilities-related		2,486		11	%		2,736		16	%		(250	)		(9	)%
Insurance		654		3	%		652		4	%		2			0	%
Other		1,945		8	%		1,777		10	%		168			9	%
Total general and administrative expenses	$	23,388		100	%	$	17,171		100	%	$	6,217			36	%

The increase in general and administrative expenses in 2007 compared to the prior year was due primarily to professional service fees, which were the result of increased business development activities, including work related to our alliance with Roche and with Regulus Therapeutics, the company we formed with Isis to pursue microRNA-based therapeutics. The increase in compensation and related expenses was due primarily to an increase in headcount to support the overall corporate growth of the company. The increase in non-cash stock-based compensation was due primarily to one-time charges of $0.9 million from restricted stock grants and stock option modifications in August 2007 relating to the transfer of our former German employees to Roche Kulmbach as part of our alliance with Roche.

Other income (expense)

Interest income was $15.4 million in 2007 compared to $6.2 million in 2006. The increase was due to our higher average cash, cash equivalent and marketable securities balances, primarily from the $331.0 million in proceeds we received in August 2007 from our alliance with Roche.

Interest expense was $1.1 million in 2007 and $1.0 million in 2006. Interest expense in each year related to borrowings under our lines of credit used to finance capital equipment purchases.

Our provision for income taxes was $5.2 million in 2007 primarily as a result of the sale of our German operations to Roche in August 2007 for $15.0 million.

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Liquidity and Capital Resources

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

	Year Ended December 31,
	2008			2007			2006
Net loss	$	(26,249	)		$(85,466	)	$	(34,608	)
Adjustments to reconcile net loss to net cash used in operating activities		27,840			29,834			12,633
Changes in operating assets and liabilities		63,900			252,151			(2,655	)
Net cash provided by (used in) operating activities		65,491			196,519			(24,630	)
Net cash provided by (used in) investing activities		17,936			(277,425	)		(30,046	)
Net cash provided by financing activities		3,155			58,635			166,631
Effect of exchange rate on cash		53			(527	)		243
Net increase (decrease) in cash and cash equivalents		86,635			(22,798	)		112,198
Cash and cash equivalents, beginning of period		105,157			127,955			15,757
Cash and cash equivalents, end of period	$	191,792			$105,157		$	127,955

Since we commenced operations in 2002, we have generated significant losses. As of December 31, 2008, we had an accumulated deficit of $252.2 million. As of December 31, 2008, we had cash, cash equivalents and marketable securities of $512.7 million, compared to cash, cash equivalents and marketable securities of $455.6 million as of December 31, 2007. The increase in our cash, cash equivalents and marketable securities at December 31, 2008 was due primarily to our receipt of $120.0 million of upfront cash and technology transfer milestone payments under our Takeda alliance, partially offset by the funding of our operating expenses. We invest primarily in cash equivalents, U.S. government obligations, high-grade corporate notes and commercial paper. Our investment objectives are, primarily, to assure liquidity and preservation of capital and, secondarily, to obtain investment income. All of our investments in debt securities are recorded at fair value and are available-for-sale. Fair value is determined based on quoted market prices and models using observable data inputs. We have not recorded any impairment charges to our fixed income marketable securities as of December 31, 2008.

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, 2008 compared to the year ended December 31, 2007 was due primarily to the proceeds received from our August 2007 Roche alliance, partially offset by the proceeds received from our May 2008 alliance with Takeda. Offsetting the proceeds from the Takeda alliance, the main components of our use of cash in operating activities for the year ended December 31, 2008 consisted of the net loss and changes in our working capital. 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 and depreciation and amortization. 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 alliances.

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, 2008, net cash provided by investing activities resulted primarily from net sales and maturities of marketable securities of $28.8 million. Also included in our investing activities for the year ended December 31, 2008 were purchases of property and equipment of $10.8 million related to the expansion of our Cambridge facility. For the year ended December 31, 2007, net cash used in investing activities of $277.4 million resulted primarily from purchases of marketable securities of $544.4 million due primarily to

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the investments made with the proceeds from the Roche alliance, partially offset by sales and maturities of marketable securities of $283.3 million. Also included in our investing activities for the year ended December 31, 2007 was a $10.0 million cash contribution made to Regulus Therapeutics in connection with its formation, as well as purchases of property and equipment of $7.8 million related to the expansion of our Cambridge facility.

Financing activities

For the year ended December 31, 2008, net cash provided by financing activities was $3.2 million as compared to $58.6 million provided by financing activities for the year ended December 31, 2007. For the year ended December 31, 2008, net cash provided by financing activities was due primarily to proceeds of $5.4 million from our issuance of shares to Novartis in May 2008. Net cash provided by financing activities for the year ended December 31, 2007 consisted primarily of proceeds of $42.5 million from our sale of 1,975,000 shares of our common stock to Roche in connection with the establishment of the Roche alliance.

In March 2006, we entered into an agreement with 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 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 defeased 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 and Takeda 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, commence 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 drug 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;

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

•  the cost of preparing, filing, prosecuting, maintaining and enforcing patent claims;

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

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

Off-Balance Sheet Arrangements

In connection with a certain license agreement, we are required to indemnify the licensor for certain damages arising in connection with the intellectual property rights licensed under the agreement. In addition, we are a party to a number of agreements entered into in the ordinary course of business, which contain typical provisions, which 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 FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” To date, we have not encountered material costs as a result of such obligations and have not accrued any liabilities related to such obligations and have not accrued any liabilities related to such obligations in our 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, 2008, 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, 2008. 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
			2010 and		2012 and
Contractual Obligations	2009		2011		2013		After 2013		Total
Operating lease obligations(1)	$	3,296	$	5,768	$	—	$	—	$	9,064
Purchase commitments(2)		8,721		523		—		—		9,244
Technology-related commitments(3)		3,612		5,091		1,922		5,700		16,325
Total contractual cash obligations	$	15,629	$	11,382	$	1,922	$	5,700	$	34,633

(1)	Relates to our Cambridge, Massachusetts non-cancelable operating lease agreements.
(2)	Includes commitments related to non-cancelable purchase orders, clinical and pre-clinical agreements and other significant purchase commitments for good or services. Amounts have not been adjusted to reflect our January 2009 agreement with Cubist, under which Cubist will bear one-half of the development costs related to our ALN-RSV program.
(3)	Relates to our fixed payment obligations under license agreements, as well as other payments related to technology research and development. Does not include license fees due to certain of our licensors in accordance with the applicable license agreements with those parties as a result of our January 2009 agreement with Cubist.

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.

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Recent Accounting Pronouncements

Effective January 1, 2008, we implemented SFAS No. 157, “Fair Value Measurements,” or SFAS 157. SFAS 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. Our partial adoption of SFAS 157 has had no impact on our operating results or financial position. We are evaluating the impact, if any, full adoption of SFAS 157 will have on our nonfinancial assets and liabilities within the scope of SFAS 157.

In December 2007, the FASB reached a consensus on EITF Issue No. 07-1, “Accounting for Collaborative Arrangements,” or EITF 07-1. EITF 07-1 requires collaborators to present the results of activities for which they 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, based on analogy to authoritative accounting literature or a reasonable, rational and consistently applied accounting policy election. Further, EITF 07-1 clarifies that the determination of whether transactions within a collaborative arrangement are part of a vendor-customer (or analogous) relationship subject to EITF 01-9. EITF 07-1 became effective on January 1, 2009. We are evaluating the potential impact of EITF 07-1 on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” or SFAS 141R. SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R is effective for fiscal year 2009 and is not expected to have a material impact on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51,” or SFAS 160. SFAS 160 changes the accounting for and reporting of noncontrolling or minority interests (now called noncontrolling interests) in consolidated financial statements. SFAS 160 become effective on January 1, 2009. When implemented, prior periods will be recast for the changes required by SFAS 160. We do not anticipate the adoption of SFAS 160 will have a material impact on our consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” or SFAS 162. SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used (order of authority) in the preparation of financial statements that are presented in conformity with generally accepted accounting standards in the United States. The adoption of SFAS 162 did not have a material impact on our consolidated financial statements.

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 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. A 10% decrease in market interest rates at December 31, 2008 would impact the net fair value of such interest-sensitive financial instruments by $1.8 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, 2008.

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ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Management’s Annual Report on Internal Control Over Financial Reporting		88
Report of Independent Registered Public Accounting Firm		89
Consolidated Balance Sheets as of December 31, 2008 and 2007		90
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2008, 2007 and 2006		91
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2006, 2007 and 2008		92
Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006		93
Notes to Consolidated Financial Statements		94

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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, 2008. 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, 2008, 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, 2008 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report. This report appears on page 89.

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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, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 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, 2008, 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 LLC, 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 $1.6 million and $9.1 million at December 31, 2008 and 2007, respectively) and equity in the net loss (approximately $9.3 million and $1.1 million for the year ended December 31, 2008 and for the period from September 6, 2007 (inception) to December 31, 2007, respectively) of Regulus Therapeutics LLC, 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

March 2, 2009

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ALNYLAM PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)

	December 31,
	2008			2007
ASSETS
Current assets:
Cash and cash equivalents	$	191,792		$	105,157
Marketable securities		238,596			284,791
Collaboration receivables		4,188			5,031
Prepaid expenses and other current assets		4,674			2,926
Restricted cash		2,999			—
Total current assets		442,249			397,905
Marketable securities		82,321			65,654
Property and equipment, net		19,194			13,810
Deferred tax assets		5,382			—
Investment in joint venture (Regulus Therapeutics LLC)		1,583			9,129
Intangible assets, net		795			968
Restricted cash, net of current portion		3,152			6,152
Other assets		—			173
Total assets	$	554,676		$	493,791
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,588		$	3,826
Accrued expenses		9,328			11,724
Income taxes payable		6,111			3,497
Current portion of notes payable		—			3,795
Deferred rent		1,561			1,387
Deferred revenue		79,864			59,249
Total current liabilities		99,452			83,478
Deferred rent, net of current portion		2,732			3,813
Deferred revenue, net of current portion		250,121			204,067
Notes payable, net of current portion		—			2,963
Other long-term liabilities		246			302
Total liabilities		352,551			294,623
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, 2008 and 2007		—			—
Common stock, $0.01 par value, 125,000,000 shares authorized; 41,413,828 shares issued and outstanding at December 31, 2008; 40,772,967 shares issued and outstanding at December 31, 2007		414			408
Additional paid-in capital		452,767			424,453
Accumulated other comprehensive income		1,186			300
Accumulated deficit		(252,242	)		(225,993	)
Total stockholders’ equity		202,125			199,168
Total liabilities and stockholders’ equity	$	554,676		$	493,791

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

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ALNYLAM PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except per share amounts)

	Year Ended December 31,
	2008			2007			2006
Net revenues from research collaborators	$	96,163		$	50,897		$	26,930
Operating expenses:
Research and development(1)		96,883			120,686			49,260
General and administrative(1)		27,115			23,388			17,171
Total operating expenses		123,998			144,074			66,431
Loss from operations		(27,835	)		(93,177	)		(39,501	)
Other income (expense):
Equity in loss of joint venture (Regulus Therapeutics LLC)		(9,290	)		(1,075	)		—
Interest income		14,414			15,393			6,177
Interest expense		(872	)		(1,083	)		(1,029	)
Other expense		(1,947	)		(279	)		(255	)
Total other income (expense)		2,305			12,956			4,893
Loss before income taxes		(25,530	)		(80,221	)		(34,608	)
Provision for income taxes		(719	)		(5,245	)		—
Net loss	$	(26,249	)	$	(85,466	)	$	(34,608	)
Net loss per common share — basic and diluted	$	(0.64	)	$	(2.21	)	$	(1.09	)
Weighted average common shares used to compute basic and diluted net loss per common share		41,077			38,657			31,890
Comprehensive loss:
Net loss	$	(26,249	)	$	(85,466	)	$	(34,608	)
Foreign currency translation		53			(598	)		665
Unrealized gain on marketable securities		833			258			117
Comprehensive loss	$	(25,363	)	$	(85,806	)	$	(33,826	)

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

Research and development	$	9,575	$	9,363	$	5,006
General and administrative		6,807		5,109		3,298

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

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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			(Loss) Income			Deficit			Equity
Balance at December 31, 2005		26,638,255	$	267	$	170,033	$	(2,460	)	$	(142	)	$	(105,919	)	$	61,779
Exercise of common stock options and warrants		539,425		5		998		—			—			—			1,003
Issuance of common stock		56,990		1		591		—			—			—			592
Deferred compensation related to stock options and restricted stock		—		—		1,614		(467	)		—			—			1,147
Amortization of deferred compensation expense related to stock options and restricted stock		—		—		4,318		2,838			—			—			7,156
Issuance of common stock upon public offerings, net of offering costs of $6,586		9,815,961		98		163,225		—			—			—			163,323
Foreign currency translation		—		—		—		—			665			—			665
Unrealized gain on marketable securities		—		—		—		—			117			—			117
Net loss		—		—		—		—			—			(34,608	)		(34,608	)
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 compensation (Regulus Therapeutics LLC)		—		—		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 compensation (Regulus Therapeutics LLC)		—		—		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

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

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ALNYLAM PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

	Year Ended December 31,
	2008			2007			2006
Cash flows from operating activities:
Net loss	$	(26,249	)	$	(85,466	)	$	(34,608	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		5,726			4,082			4,070
Deferred income tax (benefit) provision		(5,501	)		1,889			—
Non-cash stock-based compensation		18,026			14,676			8,304
Non-cash license expense		—			7,909			130
Charge for 401(k) company stock match		382			407			129
Equity in loss of joint venture (Regulus Therapeutics LLC)		7,646			871			—
Impairment on equity investment		1,561			—			—
Changes in operating assets and liabilities:
Proceeds from landlord tenant improvements		581			2,621			1,106
Collaboration receivables		843			(1,194	)		(3,220	)
Prepaid expenses and other assets		(1,748	)		(4,348	)		(336	)
Accounts payable		(1,238	)		(264	)		2,088
Income taxes payable		2,614			3,497			—
Accrued expenses and other		(3,821	)		6,843			611
Deferred revenue		66,669			244,996			(2,904	)
Net cash provided by (used in) operating activities		65,491			196,519			(24,630	)
Cash flows from investing activities:
Purchases of property and equipment		(10,764	)		(7,788	)		(4,986	)
Disposals of property and equipment		—			2,342			—
Increase in restricted cash		—			(839	)		—
Purchases of marketable securities		(482,244	)		(544,394	)		(172,303	)
Sales and maturities of marketable securities		511,044			283,254			147,243
Investment in joint venture (Regulus Therapeutics LLC)		(100	)		(10,000	)		—
Net cash provided by (used in) investing activities		17,936			(277,425	)		(30,046	)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs		4,505			61,011			164,890
Proceeds from issuance of shares to Novartis		5,408			—			—
Proceeds from notes payable		—			957			4,000
Repayments of notes payable		(6,758	)		(3,333	)		(2,259	)
Net cash provided by financing activities		3,155			58,635			166,631
Effect of exchange rate on cash		53			(527	)		243
Net increase (decrease) in cash and cash equivalents		86,635			(22,798	)		112,198
Cash and cash equivalents, beginning of period		105,157			127,955			15,757
Cash and cash equivalents, end of period	$	191,792		$	105,157		$	127,955
Supplemental disclosure of cash flows
Cash paid for interest	$	1,499		$	890		$	726
Cash paid for income taxes	$	2,671		$	—		$	—
Supplemental disclosure of non-cash financing activities
Common stock issued in connection with license agreements	$	—		$	7,909		$	130

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

93

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 LLC (“Regulus Therapeutics”).

Reclassifications

Certain reclassifications have been made to prior years’ financial statements to conform to the 2008 presentation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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, 2008 and 2007, substantially all of the Company’s cash, cash equivalents and marketable securities were invested in money market mutual funds, commercial paper, corporate notes and government 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”), Novartis Pharma AG and one of its affiliates (collectively, “Novartis”) and Takeda Pharmaceutical Company Limited (“Takeda”). Novartis owned approximately 13.2% of the Company’s outstanding common stock as of December 31, 2008. In 2008, the Company had revenue from Roche, Takeda and Novartis, which accounted for 57%, 13% and 12%, respectively, of

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ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the Company’s total revenue. In 2007, the Company had revenue from Roche, Novartis and the National Institute of Allergy and Infectious Diseases (“NIAID”), a component of the National Institutes of Health (“NIH”), which accounted for 35%, 29% and 15%, respectively, of the Company’s total revenue. In 2006, the Company had revenue from Novartis, which accounted for 81% of the Company’s total revenue. Receivables from Novartis, NIAID and the Defense Threat Reduction Agency (“DTRA”), an agency of the United States Department of Defense, represented approximately 55%, 22% and 10%, respectively, of the Company’s collaboration receivables balance at December 31, 2008. Receivables from Novartis, NIAID and DTRA represented approximately 43%, 36% and 15%, respectively, of the Company’s collaboration receivables balance at December 31, 2007.

Fair Value Measurements

Effective January 1, 2008, the Company implemented Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”), 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. The partial adoption of SFAS 157 by the Company has had no impact on the Company’s operating results or financial position. The Company is evaluating the impact, if any, full adoption of this standard will have on its non-financial assets and liabilities within the scope of SFAS 157. 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 following table presents information about the Company’s assets that are measured at fair value on a recurring basis as of December 31, 2008, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable, such as quoted prices (adjusted), interest rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. 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	2008		(Level 1)		(Level 2)		(Level 3)
Cash equivalents	$	187,057	$	167,293	$	19,764	$	—
Marketable securities (fixed income)		320,269		—		320,269		—
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.

The Company adopted the provisions of SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”), effective January 1, 2008. SFAS 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. The Company has not elected the fair value option for any of its financial assets or liabilities in the year ended December 31, 2008.

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ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Investments in Marketable Securities

The Company invests its excess cash balances in short-term and long-term marketable debt and equity securities. The Company accounts for its investments in debt and equity securities under SFAS No. 115, “Accounting for Certain Investments in 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 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 statement of operations. The Company did not record any impairment charges related to its fixed income marketable securities during the years ended December 31, 2008, 2007 or 2006. 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 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, 2008 and 2007, in thousands:

	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

	December 31, 2007
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Commercial paper (Due within 1 year)	$	210,213	$	177	$	(1	)	$	210,389
Municipal notes (Due within 1 year)		61,605		—		—			61,605
Municipal notes (Due after 1 year through 2 years)		7,340		12		—			7,352
Corporate notes (Due within 1 year)		6,452		—		(12	)		6,440
Corporate notes (Due after 1 year through 2 years)		37,345		108		(41	)		37,412
U.S. Government obligations (Due after 1 year through 2 years)		27,193		54		—			27,247
Total	$	350,148	$	351	$	(54	)	$	350,445

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ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Revenue Recognition

The Company has entered into collaboration agreements with biotechnology and pharmaceutical companies, including Roche, Takeda, Novartis, Kyowa Hakko Kirin Co., Ltd. (“Kyowa Hakko”), Biogen Idec Inc. (“Biogen Idec”) 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 and royalties on product sales. The Company follows the provisions of the Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition in Financial Statements,” Emerging Issues Task Force (“EITF”) Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”), EITF Issue No. 99-19, “Reporting Revenue Gross as a Principal Versus Net as an Agent,” and EITF Issue No. 01-9, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)” (“EITF 01-9”).

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 in accordance with EITF 00-21. The Company recognizes up-front 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 up-front 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

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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 provisions of EITF 01-9. EITF 01-9 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 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.

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, 2008, the Company had short-term and long-term deferred revenue of $79.9 million and $250.1 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.

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 department 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, 2008, 2007 and 2006, the Company charged to research and development expense $12.6 million, $42.2 million and $4.0 million, respectively, of costs associated with license fees. License fees for 2007 were primarily the result of $27.5 million in payments to

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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.

Accounting for Stock-Based Compensation

Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123R, “Share-Based Payment, an amendment of FASB Statements Nos. 123 and 95” (“SFAS 123R”), 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 SFAS 123R. For stock options granted to non-employees, the Company recognizes compensation expense in accordance with the requirements of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) and EITF Issue No. 96-18, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” under which 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, 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 options using the method prescribed by Financial Accounting Standards Board (“FASB”) Interpretation No. 28, “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans — an interpretation of APB Opinions No. 15 and 25” (“FIN 28”).

Foreign Currency

The Company’s foreign subsidiary, Alnylam Europe (a German-based company), has designated its local currency, the Euro, as its functional currency. Financial statements of this foreign subsidiary are translated to United States dollars for consolidation purposes using current rates of exchange for assets and liabilities; equity is translated using historical exchange rates; and revenue and expense amounts are translated using the average exchange rate for the period. Net unrealized gains and losses resulting from foreign currency translation are included in other comprehensive income (loss) which is a separate component of stockholders’ equity. Net realized gains and losses from foreign currency transactions are included in the consolidated statements of operations. The Company recognized a loss of $0.4 million during 2008, a gain of $0.1 million during 2007 and a loss of $0.3 million during 2006 from foreign currency transactions.

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

The Company accounts for and discloses net loss per common share in accordance with SFAS No. 128, “Earnings per 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 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.

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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,
	2008		2007		2006
Options to purchase common stock		7,037		5,304		4,650
Unvested restricted common stock		29		57		—
Options that were exercised before vesting		—		11		40
		7,066		5,372		4,690

Segment Information

The Company operates in a single reporting segment, the discovery, development and commercialization of RNAi therapeutics. The majority of the Company’s net revenues from research collaborators was derived in the United States.

Recent Accounting Pronouncements

Effective January 1, 2008, the Company implemented SFAS 157. SFAS 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. The partial adoption of SFAS 157 by the Company has had no impact on the Company’s operating results or financial position. The Company is evaluating the impact, if any, full adoption of SFAS 157 will have on its nonfinancial assets and liabilities within the scope of SFAS 157.

In December 2007, the FASB reached a consensus on EITF Issue No. 07-1, “Accounting for Collaborative Arrangements” (“EITF 07-1”). EITF 07-1 requires collaborators to present the results of activities for which they 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, based on analogy to authoritative accounting literature or a reasonable, rational and consistently applied accounting policy election. Further, EITF 07-1 clarifies that the determination of whether transactions within a collaborative arrangement are part of a vendor-customer (or analogous) relationship subject to EITF 01-9. EITF 07-1 became effective on January 1, 2009. The Company is evaluating the potential impact of EITF 07-1 on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R is effective for fiscal year 2009 and is not expected to have a material impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 changes the accounting for and reporting of noncontrolling or minority interests (now called noncontrolling interests) in consolidated financial statements. SFAS 160 became effective on January 1, 2009. When implemented, prior periods will be recast for the changes required by SFAS 160. The Company does not anticipate the adoption of SFAS 160 will have a material impact on its consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the

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principles used (order of authority) in the preparation of financial statements that are presented in conformity with generally accepted accounting standards in the United States. The adoption of SFAS 162 did not have a material impact on the Company’s consolidated financial statements.

3.   SIGNIFICANT AGREEMENTS

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 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 successfully developed by Roche, its affiliates or sublicensees under the LCA, if any, the Company is 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.

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. The collaboration between Roche and the Company will be governed by a joint steering committee for a period of five years that is comprised of an equal number of representatives from each party. In exchange for the Company’s contributions to the collaboration, Roche will be required to make additional milestone and royalty payments to the Company.

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. After the first anniversary of the effective date, 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 up-front 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

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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 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 recorded $278.2 million as deferred revenue in connection with the Roche alliance. This amount represents the aggregate proceeds received from Roche of $331.0 million, net of the amount allocated to the common stock issuance of $51.3 million, and the net book value of Alnylam Europe of $1.5 million.

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 Alnylam will be obligated to perform under the Discovery Collaboration. The Company has concluded that, pursuant to paragraph 9 of EITF 00-21, 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. The Company will continue to reassess whether it can reasonably estimate the level of effort required to fulfill its obligations under the Roche alliance. In particular, when the Discovery Collaboration commences, the Company may be able to make such an estimate. When, and if, the Company can make a reasonable estimate of its remaining efforts under the collaboration, the Company would modify its method of recognition and utilize a proportional performance method. 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, the Company paid $27.5 million of license fees to the Company’s licensors, primarily Isis, during 2007, in accordance with the applicable license agreements with those parties. These fees were charged to research and development expense.

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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 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 required to be paid within 12 to 24 months of execution of the Takeda Collaboration Agreement and $10.0 million of which is required to be paid within 24 to 36 months of 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, comprising 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, if any, 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 have also agreed to collaborate 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-RSV01 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, after the first anniversary of the effective date of the Takeda Collaboration Agreement, 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.

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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 EITF 00-21, 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. 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. The Company will continue to reassess whether it can reasonably estimate the level of effort required to fulfill its obligations under the Takeda Collaboration Agreement. When, and if, the Company can make a reasonable estimate of its remaining efforts under the collaboration, the Company would modify its method of recognition and utilize a proportional performance method.

In connection with the Takeda Collaboration Agreement, the Company paid $5.0 million of license fees to the Company’s licensors, primarily Isis, during 2008, 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 March 2004, the Company entered into a collaboration and license agreement with Isis. 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 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 and commercialization of double-stranded RNA 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 double-stranded RNA 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.

In conjunction with the agreement, Isis made a $10.0 million equity investment in the Company. In addition, Isis has 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,

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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.

The Isis agreement also gives the Company an option to use Isis’ manufacturing services for RNA-based therapeutic products. In addition, under the Isis agreement, the Company has the exclusive right to grant sub-licenses for Isis technology to third parties with whom the Company is not collaborating. The Company may include these sub-licenses in its non-exclusive platform licenses and its InterfeRx licenses. If a license includes rights to Isis’ intellectual property, the Company will share revenues from that license equally with Isis.

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 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 calculated at this time.

In May 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. In August 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 expenses 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 2008, Novartis elected to extend the initial term for an additional year, through October 2009. Novartis retains the right to extend the term for a second additional year, which right must be exercised no later than July 2009. Novartis may terminate the Collaboration and License Agreement in the event that the Company materially breaches its obligations. The Company may terminate the agreement with respect to particular programs, products and or countries in the event of certain material breaches of obligations by Novartis, or in its entirety under certain circumstances for multiple such breaches.

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. At December 31, 2008, Novartis owned 13.2% of the Company’s outstanding common stock.

Under the terms of the Collaboration and License Agreement, the parties will 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 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 License Agreement also includes terms under which Novartis will provide the Company with research funding and

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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 successfully 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.

Novartis may exercise this Integration Option at any point during the research term, as defined in the Collaboration and License Agreement. The research term expires in October 2009 and may be extended until October 2010 at Novartis’ election. 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. In addition, under this license grant, Novartis may be required to make milestone and royalty payments to the Company in connection with the successful 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.

The Company initially deferred the non-refundable $10.0 million upfront payment and the $6.4 million premium received that represents 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, are being amortized into revenue using the proportional performance method over the estimated duration of the Novartis 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.

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.

The Company believes the estimated period of performance under the Novartis agreement includes the three-year term of the agreement, two one-year extensions at the election of Novartis and limited support as part of a technology transfer until the fifth anniversary of the termination of the agreement. In July 2008, Novartis elected to extend the initial term for an additional year, through October 2009. 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.

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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 have joint responsibility for development of RNAi therapeutics for pandemic flu. This program was stopped 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 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 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 Alliance

In June 2008, the Company entered into a License and Collaboration Agreement (the “Kyowa Hakko Agreement”) with Kyowa Hakko. Under the Kyowa Hakko Agreement, the Company granted Kyowa Hakko an exclusive license to its intellectual property in Japan and other markets in Asia (the “Licensed Territory”) for the development and commercialization of ALN-RSV01, an RNAi therapeutic for the treatment of respiratory syncytial virus (“RSV”) infection, for which the Company is currently conducting Phase II clinical trials. The Kyowa Hakko Agreement also covers additional RSV-specific RNAi therapeutic compounds that comprise the

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ALN-RSV program (“Additional Compounds”). The Company retains all development and commercialization rights worldwide excluding the Licensed Territory.

Under the terms of the Kyowa Hakko Agreement, in June 2008, Kyowa Hakko paid the Company an upfront cash payment of $15.0 million. In addition, Kyowa Hakko 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 ALN-RSV01 by Kyowa Hakko, its affiliates and sublicensees in the licensed territory.

The collaboration between Kyowa Hakko 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 is establishing a development plan for ALN-RSV01 relating to the development activities to be undertaken in the Licensed Territory, with the initial focus on Japan. Kyowa Hakko is responsible, at its expense, for all development activities under the development plan that are reasonably necessary for the regulatory approval and commercialization of ALN-RSV01 in Japan and the rest of the Licensed Territory. The Company will be responsible for supply of the product to Kyowa Hakko under a supply agreement unless Kyowa Hakko 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 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 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 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 Agreement include the license, the joint steering committee, the manufacturing services and any Additional Compounds. The Company has determined that, pursuant to EITF 00-21, 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 Agreement, as it is unable to estimate the timeline of its deliverables related to the fixed-price option granted to Kyowa Hakko for any Additional Compounds. The Company is deferring all revenue under the Kyowa Hakko 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 Agreement.

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. Of the $23.0 million in funding, the government initially committed to pay the Company up to $14.2 million over the first two years of the contract. In June 2008, as a result of the progress of the program, the government awarded the Company an additional $7.5 million, to be paid through September 2009 for the third year of the contract, together with any remaining funds carried over from the funding allocated for the first two years of the contract. The Company recognizes revenue under government cost reimbursement contracts as it performs the underlying research and development activities.

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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 have determined to end this program and accordingly, the remaining funds of up to $27.7 million will not be 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 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-based 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. In connection with these transactions, the Company and Tekmira cancelled the Company’s $5.0 million capital equipment loan to Tekmira, which was never drawn down by Tekmira.

4.   INTANGIBLE ASSETS

Intangible assets at December 31, 2008 and 2007 are as follows, in thousands:

	December 31,
	2008			2007
Core Technology	$	2,410		$	2,410
Less — accumulated amortization:		(1,615	)		(1,442	)
	$	795		$	968

During the years ended December 31, 2008, 2007 and 2006, the Company recorded $0.2 million, $0.3 million and $0.4 million, respectively, of amortization expense related to its core technology and workforce intangibles, 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.

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During 2007, the Company reduced its intangible assets by $0.6 million as a result of the realization of pre-acquisition deferred tax assets associated with net operating loss carryforwards.

5.   PROPERTY AND EQUIPMENT

Property and equipment consist of the following at December 31, 2008 and 2007, in thousands:

				December 31,
	Useful Life			2008			2007
Laboratory equipment		5 years		$	12,617		$	7,963
Computer equipment and software		3 years			2,653			2,080
Furniture and fixtures		5 years			1,532			1,271
Leasehold improvements			*		18,126			9,172
Construction in progress		—			23			3,702
					34,951			24,188
Less: accumulated depreciation					(15,757	)		(10,378	)
				$	19,194		$	13,810

* shorter of asset life or lease term

Depreciation expense was $5.4 million, $3.8 million and $3.4 million for the years ended December 31, 2008, 2007 and 2006, respectively.

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 defeased 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 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 defeased the outstanding balance of $2.2 million under the Lighthouse line of credit.

At December 31, 2008, the Company had no outstanding debt.

7.   COMMITMENTS AND CONTINGENCIES

Indemnifications

Licensor indemnification — In connection with a certain license agreement, the Company is required to indemnify the licensor for certain damages arising in connection with the intellectual property rights licensed under

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the agreement. The Company believes that the probability of receiving a claim is remote and, as such, no amounts have been accrued related to this indemnification at December 31, 2008 and 2007.

The Company is also a party to a number of agreements entered into in the ordinary course of business, which contain typical provisions, which 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 aggregate maximum potential future liability of the Company under such indemnification provisions is uncertain. Since its inception, the Company has not incurred any expenses as a result of such indemnification provisions. Accordingly, the Company has determined that the estimated aggregate fair value of its potential liabilities under such indemnification provisions is minimal and has not recorded any liability related to such indemnification provisions at December 31, 2008 and 2007.

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, 2008, the Company was committed to make the following fixed license payments under existing license agreements, in thousands:

Year Ending December 31,
2009	$	3,612
2010		2,552
2011		2,539
2012		1,507
2013		415
Thereafter		5,700
Total	$	16,325

Operating Leases

The Company leases office and laboratory space in Cambridge, Massachusetts for its corporate headquarters under non-cancelable operating lease agreements. The Company also had a lease in Kulmbach, Germany through August 2007. Total rent expense, including operating expenses, under these operating leases was $4.6 million, $4.7 million and $2.6 million, for the years ended December 31, 2008, 2007 and 2006, respectively.

In 2003, the Company entered into an operating lease to rent laboratory and office space in Cambridge, Massachusetts through September 2011. In March 2006, the Company amended its lease agreement to rent additional space in this same facility. The Company has the option to extend the lease for two successive five-year extensions.

Pursuant to the terms of the lease agreement, the Company secured a $2.3 million letter of credit as security for its leased facility. The underlying cash securing this letter of credit has been classified as long-term restricted cash in the accompanying consolidated balance sheets.

In October 2007, the Company subleased from Archemix Corp. (“Archemix”) 22,456 rentable square feet of office and laboratory space in the same location as the Company’s corporate headquarters (the “Sublease”). The initial term of the Sublease will expire in September 2011, and the Company holds an option to extend the lease for an additional 48-month period, subject to certain termination rights granted to each of the Company and Archemix.

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In addition and 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. The underlying cash securing this letter of credit has been classified as long-term restricted cash in the accompanying consolidated balance sheets.

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 balance sheets at December 31, 2008 and 2007.

In connection with the Roche alliance in August 2007, Roche purchased the assets of Alnylam Europe, which included the lease for the facility in Kulmbach, Germany.

Future minimum lease payments under these non-cancelable leases are approximately as follows, in thousands:

Year Ending December 31,
2009	$	3,296
2010		3,296
2011		2,472
Total	$	9,064

Legal Proceedings

The Company may periodically become subject to legal proceedings and claims arising in connection with on-going business activities, including being subject to claims or disputes related to patents that have been issued or are pending in the field of research the Company is focused on. The Company does not believe that there were any material claims against the Company at December 31, 2008.

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, 2008 and 2007, 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. The rights are not immediately exercisable. 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) 10 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

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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) 10 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.

Public Offerings of Common Stock

In January 2006, the Company completed a public offering of its common stock. The public offering consisted of the sale and issuance of 5,115,961 shares of the Company’s common stock. The price to the public was $13.00 per share, and proceeds to the Company from the offering, net of expenses, were approximately $62.2 million. The shares of common stock were registered pursuant to registration statements filed with the SEC in 2006 and 2005.

In December 2006, the Company completed a public offering of its common stock. The public offering consisted of the sale and issuance of 4,700,000 shares of the Company’s common stock. The price to the public was $22.00 per share, and proceeds to the Company from the offering, net of expenses, were approximately $101.1 million. The shares of common stock were registered pursuant to a registration statement filed with the SEC in November 2006.

9.   STOCK INCENTIVE PLANS

Stock Plans

As of December 31, 2008, the Company’s 2004 Stock Incentive Plan, as amended (the “2004 Plan”), provides for the granting of restricted stock awards and stock options to purchase up to 10,295,794 shares of common stock. The 2004 Plan provides for an annual increase in the number of shares available for issuance under the plan equal to the lesser of 2,631,578 shares of common stock, 5% of the Company’s outstanding shares or an amount determined by the Board of Directors. In addition, the 2004 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 (i) upon their appointment to the Board of Directors vest as to one-third of such

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shares on each of the first, second and third anniversaries of the date of grant and (ii) 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, 2008, an aggregate of 7,560,298 shares of common stock were reserved for issuance under the Company’s stock plans, including outstanding options to purchase 7,037,214 shares of common stock and 523,084 shares were available for future grant under the 2004 Plan. Each option shall expire within 10 years of issuance. Stock options granted by the Company 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

Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS 123R using the modified-prospective-transition method. Under the provisions of SFAS 123R, the Company recorded $14.3 million, $11.9 million and $6.1 million of stock-based compensation for the years ended December 31, 2008, 2007 and 2006, 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 using the method prescribed by FIN 28. 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 $2.1 million, $2.6 million and $2.2 million of non-employee stock-based compensation expense for the years ended December 31, 2008, 2007 and 2006, respectively.

The Company granted the members of the Regulus Therapeutics’ 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 Therapeutics during 2008 and 60,000 shares of common stock to the chief executive officer of Regulus Therapeutics in 2007. In addition to the total stock-based compensation expense stated above, the Company recorded $1.6 million and $0.2 million of stock-based compensation expense related to these option grants in equity in loss of joint venture in its consolidated statements of operations for the years ended December 31, 2008 and 2007, respectively, using the method prescribed by FIN 28.

In connection with the closing of the sale of Alnylam Europe 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, 2008, 2007 and 2006 was $18.0 million, $14.7 million and $8.3 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 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 and during 2006, 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 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

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September 30, 2007 and during 2006, the expected life assumption is based on the simplified method provided for under SAB No. 107 (“SAB 107”), 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 in effect at the time of grant for instruments with a similar expected life. The Company currently expects, based on an analysis of its historical forfeitures, that approximately 86% of its options will actually vest, and therefore have applied an annual forfeiture rate of 3.7% to all unvested options as of December 31, 2008. 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.

	2008			2007			2006
Risk-free interest rate		1.5-3.5	%		4.4-4.7	%		4.70	%
Expected dividend yield		—			—			—
Expected option life		5.7-6.3 years			6.0-6.1 years			6.1 years
Expected volatility		66-67	%		64-67	%		67	%

At December 31, 2008, there remained $50.0 million of unearned compensation expense related to unvested employee stock options to be recognized as expense over a weighted-average period of approximately 1.6 years.

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, 2007		5,304,021		$	17.18
Granted		2,155,056		$	24.87
Exercised		(377,228	)	$	10.04
Cancelled		(44,635	)	$	25.19
Outstanding, December 31, 2008		7,037,214		$	19.87
Exercisable at December 31, 2006		1,953,502		$	4.44
Exercisable at December 31, 2007		1,913,468		$	7.49
Exercisable at December 31, 2008		2,903,479		$	12.87

The weighted average remaining contractual life for options outstanding and exercisable at December 31, 2008 was 8.1 years and 6.8 years, respectively.

The aggregate intrinsic value of outstanding options at December 31, 2008 was $48.3 million, of which $37.2 million related to exercisable options. The intrinsic value of options exercised was $8.2 million, $24.6 million and $7.6 million for the years ended December 31, 2008, 2007 and 2006, respectively. The weighted average fair value of stock options granted as part of the 2004 Plan was $15.02, $16.58 and $12.95 per share for the years ended December 31, 2008, 2007 and 2006, respectively.

The aggregate intrinsic value of options expected to vest at December 31, 2008 was $10.6 million. The weighted average fair value of stock options expected to vest as part of the 2004 Plan was $12.10 per share as of December 31, 2008. The weighted average remaining contractual life for options expected to vest at December 31, 2008 was 9.0 years and the weighted average exercise price for these options was $24.76 per share.

115

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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, 2007		57,049		$	25.98
Granted		—		$	—
Vested		(28,531	)	$	25.98
Forfeited		—		$	—
Unvested at December 31, 2008		28,518		$	25.98

The total fair value of restricted stock awards that vested during the year ended December 31, 2008 and 2007 was $0.7 million and $1.0 million, respectively. The weighted average remaining contractual life for restricted stock awards at December 31, 2008 was 1.0 years.

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 35,065, 29,723 and 40,530 shares during 2008, 2007 and 2006, respectively, and as of December 31, 2008, 158,679 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 $9.51, $10.61 and $8.16 for the years ended December 31, 2008, 2007 and 2006, 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 one year and risk-free interest rate of 2.9%. The Company recorded $0.3 million, $0.2 million and $0.2 million of stock-based compensation for the years ended December 31, 2008, 2007 and 2006, respectively, related to the 2004 Purchase Plan.

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ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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, 2008, 2007 and 2006 are as follows, in thousands:

	2008			2007			2006
Deferred tax assets:
Net operating loss carryforwards	$	298		$	49,910		$	21,656
Research and development credits		496			3,582			3,456
Foreign tax credits		—			3,072			—
Capitalized research and development and start-up costs		9,558			12,750			13,674
Deferred revenue		74,423			2,745			7,211
Deferred compensation		7,532			3,237			1,731
Intangible assets		5,422			1,540			3,100
Other		2,686			3,674			1,706
Total deferred tax assets		100,415			80,510			52,534
Deferred tax liabilities:
Intangible assets		(246	)		(365	)		(1,004	)
Deferred tax asset valuation allowance		(95,033	)		(80,510	)		(50,863	)
Net deferred tax asset (liability)	$	5,136		$	(365	)	$	667

The provision for income taxes for the years ended December 31, 2008 and 2007 was as follows, in thousands:

	2008			2007
U.S.:
Current	$	5,978		$	—
Deferred		(5,382	)		—
Total U.S.		596			—
Foreign:
Current		242			3,356
Deferred		(119	)		1,889
Total Foreign		123			5,245
Provision for income taxes	$	719		$	5,245

117

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company’s effective income tax rate differs from the statutory federal income tax rate as follows for the years ended December 31, 2008, 2007 and 2006:

	2008			2007			2006
At U.S. federal statutory rate		35.0	%		34.0	%		34.0	%
State taxes, net of federal effect		(0.5	)		5.8			5.3
Foreign tax credit		—			3.8			—
Foreign dividends		—			(6.6	)		—
Stock compensation		(6.0	)		(2.4	)		—
Other		(0.3	)		—			—
Other permanent items		(0.3	)		1.6			(5.4	)
Deemed gain on Roche Germany transaction		—			(6.3	)		—
Research credits		—			0.4			4.2
Valuation allowance		(30.7	)		(36.7	)		(38.0	)
Effective income tax rate		(2.8	)%		(6.4	)%		0.1	%

As required by SFAS No. 109, “Accounting for Income Taxes,” management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Management 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. Management reevaluates the positive and negative evidence on a quarterly basis. The valuation allowance increased by $14.5 million, $29.6 million and $13.2 million for the years ended December 31, 2008, 2007 and 2006, respectively, due primarily to net operating loss carryforwards and deferred revenue.

During 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 the Roche alliance. 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 $9.4 million of deductions related to the exercise of stock options subsequent to the adoption of SFAS 123R. This amount represents an excess tax benefit as defined under SFAS 123R and has not been included in the gross deferred tax assets.

At December 31, 2008, the state net operating loss carryforward was $8.6 million and the state research and development tax credit carryforward was $0.5 million. These attributes are available to reduce future tax liabilities and expire at various dates through 2023. 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 and tax credit carryforwards 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 and tax credit carryforwards in accordance with Section 382 of the Internal Revenue Code in 2008.

On January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement 109” (“FIN 48”), which was issued in July 2006. The implementation of FIN 48 did not result in any adjustment to the Company’s beginning tax positions. 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, 2008, the Company had an unrecognized tax benefit of $0.2 million.

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ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The tax years 2002 through 2006 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 14,679 and 12,706 shares of common stock during the years ended December 31, 2008 and 2007, respectively, in connection with matching contributions under the 401(k) Plan.

12.   REGULUS THERAPEUTICS

In September 2007, the Company and Isis established Regulus Therapeutics, 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. The Company and Isis own 49% and 51%, respectively, of Regulus Therapeutics.

Regulus Therapeutics is operated as an independent company and governed by a managing board comprised of an equal number of directors appointed by each of the Company and Isis. In consideration for the Company’s and Isis’ initial interests in Regulus Therapeutics, each party granted Regulus Therapeutics 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 Therapeutics of $10.0 million, resulting in the Company and Isis making approximately equal aggregate initial capital contributions to Regulus Therapeutics.

In addition, the Company, Isis and Regulus Therapeutics entered into a license and collaboration agreement (the “Regulus Therapeutics Collaboration Agreement”) to pursue the discovery, development and commercialization of therapeutic products directed to microRNAs. Under the terms of the Regulus Therapeutics Collaboration Agreement, the Company and Isis each assigned to Regulus Therapeutics specified patents and contracts covering microRNA-specific technology. In addition, each of the Company and Isis granted to Regulus Therapeutics 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 Therapeutics 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 Therapeutics also granted to the Company and Isis an exclusive license to technology developed or acquired by Regulus Therapeutics for use solely within the Company’s and Isis’ respective fields (as defined in the Regulus Therapeutics 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 Therapeutics.

The Regulus Therapeutics Collaboration Agreement ends if, prior to first commercial sale of any product, all development activities cease under the collaboration. The Regulus Therapeutics Collaboration Agreement

119

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 Therapeutics, the Company or Isis commits an uncured material breach of the Regulus Therapeutics Collaboration Agreement, the Regulus Therapeutics 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 also executed a Services Agreement (the “Services Agreement”) with Isis and Regulus Therapeutics. Under the terms of the Services Agreement, the Company and Isis provide to Regulus Therapeutics, for the benefit of Regulus Therapeutics, certain research and development and general and administrative services for which they are paid by Regulus Therapeutics.

In April 2008, Regulus Therapeutics 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 Therapeutics 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 Therapeutics common stock under certain specified circumstances. Regulus Therapeutics 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 Therapeutics would also receive royalty payments on worldwide sales of products resulting from the alliance.

The Company has concluded that Regulus Therapeutics qualifies as a variable interest entity under FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities — an interpretation of Accounting Research Bulletin No. 51” (“FIN 46R”). The LLC Agreement contains transfer restrictions on each of Isis’ and the Company’s LLC interests and, as a result, Isis and the Company are considered related parties under paragraph 16(d)(1) of FIN 46R. The Company has assessed which entity would be considered the primary beneficiary under FIN 46R and has concluded that Isis is the primary beneficiary and, accordingly, the Company has not consolidated Regulus Therapeutics.

The Company accounts for its investment in Regulus Therapeutics using the equity method of accounting. The Company is recognizing the first $10.0 million of losses of Regulus Therapeutics as equity in loss of joint venture (Regulus Therapeutics LLC) in its consolidated statements of operations because the Company is responsible for funding those losses through its initial $10.0 million cash contribution. Thereafter, the Company will recognize 49% of the income and losses of Regulus Therapeutics. Under the equity method, the reimbursement of expenses to the Company is recorded as a reduction to research and development expenses. At December 31, 2008, the Company’s investment in the joint venture was $1.6 million, which is recorded as an investment in joint venture (Regulus Therapeutics LLC) in the consolidated balance sheets under the equity method. Summary results of Regulus Therapeutics’ operations for the years ended December 31, 2008 and 2007 and balance sheets as of December 31, 2008 and 2007 are presented in the table below, in thousands:

	2008			2007
Statement of Operations Data:
Net revenues	$	2,111		$	120
Operating expenses(1)		12,029			1,541
Loss from operations		(9,918	)		(1,421	)
Other income		256			138
Net loss	$	(9,662	)	$	(1,283	)
(1) Non-cash stock-based compensation included in operating expenses	$	2,017		$	412

120

ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	2008		2007
Balance Sheet Data:
Cash	$	22,411	$	10,138
Working capital		16,467		9,118
Total assets		23,678		10,446
Notes payable		5,179		—
Total stockholders’ equity		1,745		9,290

Separate financial information for Regulus Therapeutics is included in Exhibit 99.1 to this annual report on Form 10-K.

Regulus Therapeutics, which was initially 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 connection with such conversion, the Company, Isis and Regulus Therapeutics terminated the limited liability company agreement which had previously been in effect.

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,
	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

	Three Months Ended
	March 31,			June 30,			September 30,			December 31,
	2007			2007			2007			2007
	(In thousands, except per share data)
Revenues	$	7,217		$	9,133		$	16,315		$	18,232
Operating expenses		31,211			24,086			67,653			21,124
Net (loss) income		(21,645	)		(12,691	)		(52,792	)		1,662
Net (loss) income per common share — basic and diluted	$	(0.58	)	$	(0.34	)	$	(1.35	)	$	0.04
Weighted average common shares — basic		37,376			37,534			39,025			40,710
Weighted average common shares — diluted		37,376			37,534			39,025			42,763

For the three months ended December 31, 2008, the Company discovered that it had understated equity in loss of joint venture by $0.6 million related to non-cash stock-based compensation. To correct its equity in loss of joint venture, the Company recorded a charge of $0.6 million in the three months ended December 31, 2008.

14.   SUBSEQUENT EVENT

On January 9, 2009, the Company entered into a license and collaboration agreement (the “Cubist Agreement”) with Cubist Pharmaceuticals, Inc. (“Cubist”) to develop and commercialize therapeutic products

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ALNYLAM PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(“Licensed Products”) based on certain of the Company’s RNAi technology for the treatment of RSV. Licensed Products include ALN-RSV01, which is currently in Phase II clinical development for the treatment of RSV infection in adult lung transplant patients, as well as several other second-generation RNAi-based RSV inhibitors, which currently are in pre-clinical studies.

Under the terms of the Cubist Agreement, the Company and Cubist will share responsibility for developing Licensed Products in North America and will each bear one-half of the related development costs. The Company’s collaboration with Cubist for the development of Licensed Products in North America will be 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, Cubist will have an exclusive, royalty-bearing license to develop and commercialize Licensed Products.

In consideration for the rights granted to Cubist under the Cubist Agreement, 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 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, 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 a Licensed Product 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.

Unless terminated earlier in accordance with the Cubist 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 Company 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 License Product by Cubist or its affiliates or sublicensees, and (b) with respect to North America, if the Company has not converted North America into the Royalty Territory, upon the termination of the Cubist Agreement by Cubist upon specified prior written notice. The Company estimates that its fundamental RNAi patents covered under the Agreement will expire both in and outside of the United States generally between 2016 and 2025. Allowed claims covering ALN-RSV01 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.

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.

122

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, 2008. 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, 2008, 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, 2008 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

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, 2008. 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.

123

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 ACCOUNTING 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		88
Report of Independent Registered Public Accounting Firm		89
Consolidated Balance Sheets as of December 31, 2008 and 2007		90
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2008, 2007 and 2006		91
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2006, 2007 and 2008		92
Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006		93
Notes to Consolidated Financial Statements		94

(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.

124

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 March 2, 2009.

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 March 2, 2009.

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

125

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*	2004 Stock Incentive Plan, as amended (filed as Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K filed on March 7, 2008 (File No. 000-50743) for the annual period ended December 31, 2007 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*	2004 Employee Stock Purchase Plan, as amended (filed as Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K filed on March 7, 2008 (File No. 000-50743) for the annual period ended December 31, 2007 and incorporated herein by reference)
	10	.9	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	.10	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	.11	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)

126

Exhibit No.			Exhibit
	10	.12*	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	.13*	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	.14	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	.15†	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	.16†	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	.17†	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	.18†	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	.19†	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	.20	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	.21†	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	.22†	Strategic Collaboration and License Agreement effective as of March 11, 2004 between Isis Pharmaceuticals, Inc. and the Registrant (filed as Exhibit 10.24 to the Registrant’s Registration Statement on Form S-1 (File No. 333-113162) and incorporated herein by reference)
	10	.23†#	Research Collaboration and License Agreement effective as of October 12, 2005 by and between the Registrant and Novartis Institutes for BioMedical Research, Inc. (previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 12, 2005 (File No. 000-50743))
	10	.24	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	.25†	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)

127

Exhibit No.			Exhibit
	10	.26†#	License and Collaboration Agreement, entered into as of July 8, 2007, by and among F. Hoffmann-La Roche, Ltd, Hoffman-La Roche Inc., the Registrant and, for limited purposes, Alnylam Europe AG (previously filed as Exhibit 10.1 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)
	10	.27	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	.28†	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	.29†	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	.30†	License and Collaboration Agreement, entered into as of September 6, 2007, by and among the Registrant, Isis Pharmaceuticals, Inc. and Regulus Therapeutics LLC (filed as Exhibit 10.5 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†	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	.32†	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)
	21	.1#	Subsidiaries of the Registrant
	23	.1#	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm
	23	.2#	Consent of Ernst & Young LLP, Independent Auditors of Regulus Therapeutics LLC
	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 LLC 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. The Registrant is refiling Exhibits 10.23 and 10.26, which include portions previously omitted pursuant to Confidential Treatment Requests.

128

EX-10.23

                                                                   Exhibit 10.23

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.

================================================================================

                  RESEARCH COLLABORATION AND LICENSE AGREEMENT

                                 BY AND BETWEEN

                NOVARTIS INSTITUTES FOR BIOMEDICAL RESEARCH, INC.

                                       AND

                          ALNYLAM PHARMACEUTICALS, INC.

================================================================================

                  RESEARCH COLLABORATION AND LICENSE AGREEMENT

          This RESEARCH COLLABORATION AND LICENSE AGREEMENT (this "Agreement"),
effective as of October 12, 2005 (the "Effective Date"), by and between Novartis
Institutes for BioMedical Research, Inc., a corporation organized and existing
under the laws of Delaware, with its principal place of business at 250
Massachusetts Avenue, Cambridge, Massachusetts 02139 ("Novartis"), and Alnylam
Pharmaceuticals, Inc., a corporation organized and existing under the laws of
Delaware, with its principal place of business at 300 Third Street, 3rd Floor,
Cambridge, Massachusetts 02142 ("Alnylam").

                                    RECITALS:

          WHEREAS, Novartis is engaged in the business of Discovering,
Developing, Commercializing and Manufacturing products in the Field (each as
defined below);

          WHEREAS, Alnylam has developed, acquired and licensed technology
useful for the Discovery, Development, Manufacture, characterization and use of
therapeutic products that function through the mechanism of RNA interference
("RNAi"); and

          WHEREAS, Novartis and Alnylam desire to enter into a research
collaboration, upon the terms and conditions set forth in this Agreement, to
identify and optimize RNAi Compounds directed against Selected Targets (each as
defined below).

          NOW, THEREFORE, in consideration of the respective representations,
warranties, covenants and agreements contained herein, and for other valuable
consideration, the receipt and adequacy of which are hereby acknowledged,
Alnylam and Novartis agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

          For the purpose of this Agreement, the following terms, whether used
in singular or plural form, shall have the respective meanings set forth below:

          "A List" shall have the meaning set forth in Section 2.1(a).

          "Abandoned Program" shall have the meaning set forth in Section
2.3(b).

          "Accounting Standards" shall mean, with respect to Alnylam, United
States Generally Accepted Accounting Principles, and with respect to Novartis,
International Financial Reporting Standards.

          "Active Program" shall have the meaning set forth in Section 2.3(a).

          "Adoption Consideration" shall have the meaning set forth in Section
4.2(a).

          "Adoption Date" shall have the meaning set forth in Section 3.1(c).

          "Adoption Fee" shall have the meaning set forth in Section 4.2(a).

          "Adoption License" shall have the meaning set forth in Section 3.1(c).

          "Adopted Product" shall mean any product that contains one or more
RNAi Compound(s) that are Discovered, Developed, Commercialized or Manufactured
pursuant to the Adoption License.

          "Adopted Product Obligations" shall have the meaning set forth in
Section 4.2(a).

          "Advisory Group" shall have the meaning set forth in Section 2.5.

          "Affiliate" shall mean any Person who directly or indirectly controls
or is controlled by or is under common control with a Party to this Agreement.
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 cause the direction of 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 US, 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. Without expanding the definition of "control", in the case of Novartis,
"Affiliate" shall also include for purposes hereof Novartis Institute for
Functional Genomics, Inc., the Friedrich Miescher Institute for BioMedical
Research, and Novartis Institute for Tropical Diseases Pte. Ltd.

          "Agreement" shall have the meaning set forth in the Preamble, and
shall include, for the avoidance of doubt, all Exhibits and Schedules attached
hereto.

          "Alnylam" shall have the meaning set forth in the Preamble.

          "Alnylam Intellectual Property" shall mean Alnylam Know-How and
Alnylam Patent Rights.

          "Alnylam Know-How" shall mean Know-How now or in the future Controlled
by Alnylam, including Broad RNAi Know-How.


                                        2

          "Alnylam Opportunity Notice" shall have the meaning set forth in
Section 2.6(b).

          "Alnylam Opportunity Response" shall have the meaning set forth in
Section 2.6(c)(i).

          "Alnylam Opportunity Response Period" shall have the meaning set forth
in Section 2.6(c)(i).

          "Alnylam Patent Rights" shall mean Patent Rights now or in the future
Controlled by Alnylam, including the Broad RNAi Patent Rights.

          "Alnylam Program" shall have the meaning set forth in Section 2.6(b).

          "Alnylam Program Agreement" shall have the meaning set forth in
Section 2.6(c)(i)(B).

          "Alnylam Property" shall have the meaning set forth in Section 7.2(a).

          "Alnylam Sole Inventions" shall have the meaning set forth in Section
6.1(a).

          "Annual Net Sales" shall mean, with respect to a Licensed Product, the
Net Sales of such Licensed Product during a Contract Year.

          "Audit Rights Holder" shall have the meaning set forth in Section
4.9(a).

          "Audit Team" shall have the meaning set forth in Section 4.9(b).

          "Auditee" shall have the meaning set forth in Section 4.9(a).

          "B List" shall have the meaning set forth in Section 2.1(a).

          "Bankrupt Party" shall have the meaning set forth in Section 8.3.

          "Bankruptcy Code" shall have the meaning set forth in Section 8.3.

          "Base Royalty Amount" shall have the meaning set forth in Section
4.4(e)(ii)(B).

          "Blocked Target" shall mean any Target that either (a) is the subject
of a Dedicated Alnylam Program as of the date that Alnylam receives the Target
List or Supplemental Target List naming such Target, or (b) is subject to a
contractual obligation under the terms as of the Effective Date of a
Pre-Existing Alliance Agreement that would be breached by the inclusion of such
Target as a Selected Target or Supplemental Target under this Agreement.

          "Blocked Target List" shall have the meaning set forth in Section
2.1(a).


                                        3

          "Blocking RNAi Intellectual Property" shall have the meaning set forth
in Section 4.5.

          "Broad RNAi Intellectual Property" shall mean Broad RNAi Know-How and
Broad RNAi Patent Rights.

          "Broad RNAi Know-How" shall mean all Know-How now or in the future
Controlled by Alnylam, that relates to RNAi technology, products or processes,
including, (a) the general structure, architecture, or design of nucleic acid
based molecules which engage RNAi mechanisms in a cell; (b) chemical
modifications of nucleic acids (including any modification to the base, sugar or
internucleoside linkage, nucleotide mimetics, and any end modifications) which
do not abolish the RNAi activity of the nucleic acid molecules in (a); (c)
manufacturing techniques for the nucleic acid based molecules or chemical
modifications of (a) and (b); and (d) all uses or applications of nucleic acid
based molecules or chemical modifications in (a) or (b); but excluding Know-How
which relates solely to (i) a specific Target or small group of Targets; or (ii)
delivery technologies which may be broadly employed for delivery of nucleic acid
based molecules.

          "Broad RNAi Patent Rights" shall mean the Patent Rights listed on
Schedule 1(b), the Patents licensed to Alnylam under the Listed Alnylam Third
Party Agreements, and all other Patents now or in the future Controlled by
Alnylam that Cover RNAi technology, products or processes, including, Patents
that Cover (a) the general structure, architecture, or design of nucleic acid
based molecules which engage RNAi mechanisms in a cell; (b) chemical
modifications of nucleic acids (including any modification to the base, sugar or
internucleoside linkage, nucleotide mimetics, and any end modifications) which
do not abolish the RNAi activity of the nucleic acid molecules in (a); (c)
manufacturing techniques for the nucleic acid based molecules or chemical
modifications of (a) and (b); and (d) all uses or applications of nucleic acid
based molecules or chemical modifications in (a) or (b); but excluding Patents
which relates solely to (i) a specific Target or small group of Targets; or (ii)
delivery technologies which may be broadly employed for delivery of nucleic acid
based molecules.

          "Business Day" shall mean a day on which banking institutions in
Boston, Massachusetts are open for business.

          "Change of Control" shall have the meaning set forth in Section
2.4(b).

          "Co-Fund" or "Co-Funding" shall have the meaning set forth in Section
4.6(b).

          "Co-Fund Negotiation Period" shall have the meaning set forth in
Section 4.6(c).

          "Collaboration Product" shall mean any product that contains one or
more Discovered RNAi Compound(s) as active ingredient(s).


                                        4

          "Collaboration Success Milestone" shall mean a decision by Novartis,
at its sole discretion, during the Research Term that the overall progress of
the Research Collaboration is such that Novartis wishes to significantly expand
the scope of its activities in the Field beyond those directed to Selected
Targets.

          "Commercialization" or "Commercialize" shall mean any and all
activities directed to marketing, promoting, detailing, distributing, importing,
having imported, exporting, having exported, selling or offering to sell a
product, whether before or after Regulatory Approval for such product has been
obtained.

          "Commercially Reasonable Efforts" shall mean, with respect to the
efforts to be expended by a Party with respect to any objective, reasonable,
diligent, good faith efforts to accomplish such objective as such Party would
normally use to accomplish a similar objective under similar circumstances, it
being understood and agreed that with respect to the Discovery, Development or
Commercialization of any Collaboration Product, such efforts shall be
substantially equivalent to those efforts and resources commonly used by such
Party for a product owned by it or to which it has rights, which product is at a
similar stage in its development or product life and is of similar market
potential taking into account efficacy, safety, approved labeling, the
competitiveness of alternative products in the marketplace, the patent and other
proprietary position of the product, the likelihood of regulatory approval given
the regulatory structure involved, the profitability of the product, alternative
products and other relevant factors. Commercially Reasonable Efforts shall be
determined on a market-by-market and product-by-product basis, and it is
anticipated that the level of effort will change over time, reflecting changes
in the status of the Collaboration Product and the market(s) involved.

          "Confidential Information" shall mean the terms of this Agreement
(including the list of Selected Targets and the Targets included on any Target
List) 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.

          "Contract Quarter" shall mean a calendar quarter ending on March 31st,
June 30th, September 30th and December 31st.

          "Contract Year" shall mean each calendar year ending on December 31.

          "Control" or "Controlled" shall mean, with respect to any intellectual
property right or other intangible property, the possession by a Party (whether
by ownership, license 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.

          "Controlled Contractor" shall mean either (a) a Third Party contractor
such as a contract research organization, contract employee, consultant and the
like who


                                        5

merely conducts activities on behalf of a Party, is subject to Party's
supervision and control, and will not have any rights (other than non-exclusive
research rights) in any intellectual property created in connection with such
activities, or (b) a Third Party contract manufacturer.

          "Cover", "Covered" or "Covering" shall mean, 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).

          "CRT Sublicense Agreement" shall have the meaning set forth in Section
3.1(f)(ii).

          "Dedicated Alnylam Program" shall mean a bona fide Alnylam Discovery,
Development or Commercialization program directed towards a Target (a) that is
conducted pursuant to a written research, Development or Commercialization plan,
and (b) to which Alnylam has dedicated at least [**] immediately preceding
Alnylam's receipt of the Target List or Supplemental Target List naming such
Target.

          "Dedicated Novartis Program" shall mean a bona fide Novartis
Discovery, Development or Commercialization program directed towards a Target
(a) that is conducted pursuant to a written research, Development or
Commercialization plan, and (b) to which Novartis has dedicated at least [**]
immediately preceding Novartis's receipt of the Target Inquiry naming such
Target.

          "Develop" or "Development" shall mean 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 development Manufacturing, packaging
development and Manufacturing and development documentation efforts in support
of development activities anywhere in the world.

          "Discover" or "Discovery" shall mean any and all research or discovery
activities.

          "Discovered RNAi Compound" shall mean an RNAi Compound directed to a
Selected Target that is Discovered during the course of an Active Program
(excluding Abandoned Programs that do not become Active Programs pursuant to
Sections 2.3(b) or 2.6(c)) together with all derivatives of such RNAi Compound.
For purposes of this definition, "derivative" shall mean a compound that may
contain modified nucleotides or may have been modified by chemical or molecular
genetic means but which still, at least in vitro, functions through an RNAi
mechanism against the same Target.

          "Effective Date" shall have the meaning set forth in the Preamble.


                                        6

          "Encumbered Field" shall mean:

          (a) Until [**], the treatment, prophylaxis and diagnosis of ocular
microvascular disease in humans with RNAi Products, where "ocular microvascular
disease" means age-related macular degeneration and [**], including [**],
including [**]; but specifically excluding [**], such as (by way of example
only) [**].

          (b) Until [**], or potentially sooner under certain circumstances:

               (i) The treatment of any neurodegenerative disease, but excluding
     [**], where "neurodegenerative disease" means a disease of the brain and/or
     spinal cord in humans that is characterized by the chronic and progressive
     death of neurons which leads to the loss of normal neural function,
     including Parkinson's disease, Huntington's disease, Alzheimer's disease,
     and amyotrophic lateral sclerosis, but excluding [**], using

               (ii) [**], where "direct delivery to the human nervous system"
     does not encompass [**].

          (c) After any joint decision by Alnylam and a Pre-Existing Alliance
Party to develop a human therapeutic product that includes siRNA(s) as active
pharmaceutical ingredient(s) to be delivered or approved for delivery via an
implanted infusion device directly to the human nervous system:

               (i) Until [**] years after the date of such decision, or
     potentially sooner under certain circumstances, [**]; and

               (ii) For so long as such therapeutic product is under development
     and until its commercial launch, [**]; and

               (iii) Following [**] until [**] such product delivered or
     approved for delivery via an implanted infusion device to the human nervous
     system.

          "Event of Bankruptcy" shall have the meaning set forth in Section 8.3.

          "Excess Amount" shall have the meaning set forth in Section
4.4(e)(ii)(B).

          "Exclusivity Term" shall mean the term commencing on the Effective
Date and terminating upon the Exclusivity Termination Date. The "Exclusivity
Termination Date" shall mean (a) the date of termination of the Research Term,
if this Agreement is terminated pursuant to Section 8.1(a)(ii); (b) the second
(2nd) anniversary following the expiration or termination of the Research Term,
if the Selection Term is less than five (5) years in length (except for the case
where this Agreement is terminated pursuant to Section 8.1(a)(ii)); and (c) the
third (3rd) anniversary following the expiration or termination of the Research
Term, if the Selection Term is at least five (5) years in length.


                                        7

          "Executive Officers" shall mean Novartis's Chief Executive Officer (or
the officer or employee of Novartis then serving in a substantially equivalent
capacity) or his/her designee of substantially equivalent rank, and Alnylam's
Chief Executive Officer (or the officer or employee of Alnylam then serving in a
substantially equivalent capacity).

          "FDA" shall mean the United States Food and Drug Administration or any
successor agency thereto.

          "Field" shall mean all human, veterinary or agricultural applications,
including processes and products directed to the treatment, palliation,
diagnosis or prophylaxis of any or all Indications.

          "First Animal Study" shall have the meaning set forth in Section
4.4(a).

          "First Commercial Sale" shall mean the first sale of a Licensed
Product by Novartis or an Affiliate or sublicensee of Novartis 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.

          "FTE" shall mean, in case of an Abandoned Program, Active Program,
Dedicated Alnylam Program, Dedicated Novartis Program or Target
identification/validation services, respectively, the equivalent of the work of
one (1) scientist, full time for one (1) year, for or on behalf of a Party,
which equates to a total of [**] per year of scientific work directly related to
such Abandoned Program, Active Program, Dedicated Alnylam Program, Dedicated
Novartis Program or Target identification/validation services, respectively, and
the direct scientific management thereof.

          "Gatekeeper" shall have the meaning set forth in Section 3.1(e)(iv).

          "IND" shall mean 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, or any
foreign equivalent thereof, and (b) all supplements and amendments that may be
filed with respect to the foregoing.

          "Indemnified Party" shall have the meaning set forth in Section
9.1(c)(i).

          "Indemnifying Party" shall have the meaning set forth in Section
9.1(c)(i).

          "Indication" shall mean any disease or condition, sign or symptom of a
disease or condition, or symptom associated with a disease or syndrome.

          "Infrastructure Fee" shall have the meaning set forth in Section
4.3(c).

          "Intellectual Property" shall have the meaning set forth in Section
7.2(a).


                                        8

          "Invalidity Claim" shall have the meaning set forth in Section 6.4(c).

          "IP Contracts" shall have the meaning set forth in Section 7.2(b).

          "Joint Intellectual Property" shall have the meaning set forth in
Section 6.1(b).

          "Joint Steering Committee" shall have the meaning set forth in Section
2.2(a).

          "Know-How" shall mean 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, Controlled by a
Party that is necessary or useful to (a) the activities contemplated by the
Research Collaboration, (b) the Discovery, Development, Commercialization or
Manufacture of RNAi Compounds or RNAi Products, or (c) the practice of the RNAi
mechanism or technology. 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); in each case, to the extent necessary or useful to the activities
contemplated by the Research Collaboration or to the Discovery, Development,
Commercialization or Manufacture of the RNAi Compounds or RNAi Products.

          "Law" shall mean any law, statute, rule, regulation, ordinance or
other pronouncement having the effect of law of any federal, national,
multinational, state, provincial, county, city or other political subdivision,
domestic or foreign.

          "Licensed Products" shall mean: (a) the Collaboration Products, and
(b) the Adopted Products.

          "Licensed Property" shall have the meaning set forth in Section
7.2(a).

          "Listed Alnylam Third Party Agreement" shall mean an agreement listed
on Schedule 1(l).

          "Listed Alnylam Third Party Payments" shall have the meaning set forth
in Section 4.4(e)(ii)(A).

          "Listed Counterparties" shall mean the Third Party counterparties to
Listed Alnylam Third Party Agreements and their respective successors in
interest.

          "Major Market Country" shall mean, individually and collectively, the
United Kingdom, France, Germany, Italy, Spain and Japan.


                                        9

          "Manufacture" or "Manufacturing" shall mean 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.

          "Minimum Quarterly Payment" shall have the meaning set forth in
Section 4.4(e)(iii).

          "NDA" shall mean 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, or any foreign equivalent thereof, and
(b) all supplements and amendments that may be filed with respect to the
foregoing.

          "Net Sales" shall mean, with respect to a Licensed Product, the gross
amount invoiced by or on behalf of Novartis or any Novartis Affiliate, licensee
or sublicensee for that Licensed Product sold to Third Parties (other than
licensees or sublicensees) in bona fide, arm's-length transactions, less
customary deductions, determined in accordance with Novartis's standard
accounting methods and in accordance with International Financial Reporting
Standards (IFRS) as generally and consistently applied by Novartis, to the
extent included in the gross invoiced sales price of any Licensed Product or
otherwise directly paid or incurred by Novartis, its Affiliates or distributors
with respect to the sale of such Licensed Product, including: (a) free goods;
(b) cash discounts; (c) direct to customer discounts; (d) charge-backs; (e)
Medicaid rebates; (f) deductions due for discount card programs; (g) amounts
repaid or credited by reasons of defects, rejection recalls, returns; (h)
tariffs, duties, excise, sales, value-added and other taxes (other than taxes
based on income); (i) delayed ship order credits; (j) all insurance expense
included in the invoice price; (k) amounts credited for uncollectible amounts on
previously sold products; (l) deduction of [**] for distribution and warehousing
expenses; and (m) any other reduction or specifically identifiable amounts
included in the Licensed Product's gross invoice that are creditable for reasons
substantially equivalent to those listed above. Sales between or among Novartis,
its Affiliates or their respective licensees and sublicensees shall be
disregarded for purposes of calculating Net Sales. Any of the items set forth
above that would otherwise be deducted from the invoice price in the calculation
of Net Sales but which are separately charged to Third Parties shall not be
deducted from the invoice price in the calculation of Net Sales.

          i) In the case of any sale or other disposal of a Licensed Product
between or among Novartis and its Affiliates, licensees and sublicensees, for
resale, Net Sales shall be calculated as above only on the value charged or
invoiced on the first arm's-length sale thereafter to a Third Party;

          ii) In the case of any sale which is not invoiced or is delivered
before invoice, Net Sales shall be calculated at the time of shipment or when
the Licensed Product is paid for, if paid for before shipment or invoice;


                                       10

          iii) In the case of any sale or other disposal for value, such as
barter or counter-trade, of any Licensed Product, or part thereof, other than in
an arm's-length transaction exclusively for money, Net Sales shall be calculated
as above on the value of the non-cash consideration received or the fair market
price (if higher) of the Licensed Product in the country of sale or disposal;

          iv) In the event the Licensed Product is sold in a finished dosage
form in combination with one or more other active ingredients (a "Combination
Product"), the Net Sales of the Licensed Product, for the purposes of
determining royalty payments, shall be determined by multiplying the Net Sales
(as defined above) of the Combination Product by the fraction, 'A/(A+B)' where
'A' is the weighted (by sales volume) average sale price in the relevant country
of the Licensed Product when sold separately in finished form and 'B' is the
weighted average sale price in that country of the other product(s) sold
separately in finished form. In the event that such average sale price cannot be
determined for both the Licensed Product and the other product(s) in the
Combination Product, Net Sales for purposes of determining royalty payments
shall be agreed by the Parties based on the relative value contributed by each
component, such agreement shall not be unreasonably withheld.

          "Non-Bankrupt Party" shall have the meaning set forth in Section 8.3.

          "Novartis" shall have the meaning set forth in the Preamble.

          "Novartis Intellectual Property" shall mean all Patent Rights and
Know-How now or in the future Controlled by Novartis that are necessary or
useful for the conduct of the activities contemplated by the Research
Collaboration and all Patent Rights that Cover the foregoing Know-How.

          "Novartis Overpayment" shall have the meaning set forth in Section
4.4(e)(ii)(B).

          "Novartis Sole Inventions" shall have the meaning set forth in Section
6.1(a).

          "Owned Know-How" shall have the meaning set forth in Section 7.2(a).

          "Owned Patents" shall have the meaning set forth in Section 7.2(a).

          "Owned Property" shall have the meaning set forth in Section 7.2(a).

          "Party" shall mean Alnylam or Novartis; "Parties" shall mean Alnylam
and Novartis.

          "Patent Offices" shall have the meaning set forth in Section 7.2(f).

          "Patent Rights" shall mean utility and design patents and all
substitutions, divisions, continuations, continuations-in-part, reissues,
reexaminations and extensions thereof and supplemental protection certificates
relating thereto, and all counterparts


                                       11

thereof or substantial equivalents in any country, including utility models and
industrial designs (collectively, "Patents") and any applications or provisional
applications for any of the foregoing ("Patent Applications").

          "Person" shall mean any corporation, limited or general partnership,
limited liability company, joint venture, trust, unincorporated association,
governmental body, authority, bureau or agency, any other entity or body, or an
individual.

          "Phase I Study" shall mean a study of a product in human volunteers or
patients the purpose of which is preliminary determination of safety and
tolerability of a dosing regime and for which there are no primary endpoints (as
recognized by FDA) in the protocol relating to efficacy.

          "Phase II Study" shall mean (a) a dose exploration, dose response,
duration of effect, kinetics, dynamic relationship or preliminary efficacy and
safety study of a product in the target patient population, or (b) a controlled
dose ranging clinical trial to evaluate further the efficacy and safety of a
product in the target patient population and to define the optimal dosing
regimen.

          "Phase III Study" shall mean a controlled pivotal clinical study of a
product that is prospectively designed to demonstrate statistically whether such
product is effective and safe for use in a particular Indication in a manner
sufficient to obtain Regulatory Approval to market such product.

          "Post-IND Alnylam Program" shall have the meaning set forth in Section
2.6(c)(i)(B).

          "Pre-Existing Alliance Agreements" shall mean the agreements set forth
on Schedule 1(p).

          "Pre-Existing Alliance Parties" shall have the meaning set forth in
Section 3.1(e)(i).

          "Pre-IND Alnylam Program" shall have the meaning set forth in Section
2.6(c)(i)(A).

          "Pre-Paid Adopted Product Fees" shall have the meaning set forth in
Section 4.2(a).

          "Product Liability Claim" shall have the meaning set forth in Section
9.1(a).

          "Program Data" shall have the meaning set forth in Section 6.1(d).

          "Redacted Research Collaboration and License Agreement" shall have the
meaning set forth in Section 5.1.


                                       12

          "Registration Filing" shall mean an application submitted to a
Regulatory Authority to initiate human clinical trials or for marketing approval
of a product, including an IND, NDA, a Biologics License Application, any
equivalent of the foregoing in any jurisdiction, and all supplements and
amendments that may be filed with respect to the foregoing.

          "Regulatory Approval" shall mean, 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.

          "Regulatory Authority" shall mean 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.

          "Research Collaboration" shall mean the activities of the Parties
under Research Plans to identify and optimize RNAi Compounds directed against
Selected Targets and develop improved RNAi technology to enable and enhance the
utility of such RNAi Compounds, upon and subject to the terms and conditions set
forth in this Agreement.

          "Research Institution" shall mean an academic, non-profit research
institution or hospital that conducts Discovery or Development activities on
behalf of or in collaboration with Alnylam and to which Alnylam does not grant
any Commercialization rights under Alnylam Intellectual Property with respect to
any RNAi Compounds or RNAi Products provided by Alnylam or Discovered or
Developed in the course of such Discovery or Development activities.

          "Research Plan" shall have the meaning set forth in Section 2.3(a).

          "Research Term" shall have the meaning set forth in Section
8.1(a)(iii).

          "RNAi" shall have the meaning set forth in the Recitals.

          "RNAi Compound" shall mean any compound that in vitro or otherwise
functions through the mechanism of RNAi and consists of or encodes
double-stranded RNA, and which double-stranded RNA is optionally chemically
modified to contain modified nucleotide bases or non-RNA nucleotides, and
optionally may be administered in conjunction with a delivery vehicle or vector.

          "RNAi Product" shall mean any product that contains one or more RNAi
Compounds as an active ingredient.

          "RNAi Therapeutic Rights" shall mean the right to Discover, Develop,
Commercialize or Manufacture RNAi Compounds and RNAi Products for therapeutic
uses.


                                       13

          "Royalty Term" shall mean, 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 and concluding on the later of (a) the
expiration of the last to expire Alnylam Patents containing a Valid Claim
Covering the Development, Commercialization or Manufacture of such Licensed
Product in that country, or (b) [**] after the date of First Commercial Sale of
such Licensed Product in that country.

          "Selected Target" shall have the meaning set forth in Section 2.1(a).

          "Selected Target Threshold" shall have the meaning set forth in
Section 2.1(a).

          "Selection Term" shall have the meaning set forth in Section
8.1(a)(i).

          "Severed Clause" shall have the meaning set forth in Section 9.4.

          "Significant Pharmaceutical Company" shall have the meaning set forth
in Section 2.4(b).

          "Sole Inventions" shall have the meaning set forth in Section 6.1(a).

          "sPOC" shall mean the selection by Novartis, in its sole discretion,
of a Discovered RNAi Compound for the clinical phase of Development by Novartis.
The specific criteria used to determine sPOC on a Discovered RNAi
Compound-by-Discovered RNAi Compound basis shall be set forth in the applicable
Research Plan.

          "Stacking Reduction" shall have the meaning set forth in Section
4.4(e)(iii).

          "Stock Purchase Agreement" shall mean that certain Stock Purchase
Agreement, dated as of September 6, 2005, between Alnylam and Novartis Pharma
AG, together with that certain Investor Rights Agreement, between Alnylam and
Novartis Pharma AG, dated as of September 6, 2005.

          "Successful Completion" shall mean the execution of a study approved
by the Joint Steering Committee in material compliance with all criteria set
forth by the Joint Steering Committee (but without regard to results).

          "Supplemental Target" shall have the meaning set forth in Section
2.1(b)(ii).

          "Supplemental Target List" shall have the meaning set forth in Section
2.1(b)(ii).

          "Supplemental Target Response Notice" shall have the meaning set forth
in Section 2.1(b)(ii).


                                       14

          "Supplemental Target Threshold" shall have the meaning set forth in
Section 2.1(b)(ii).

          "Target" shall mean: (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, cellular entity or nucleic acid described in clause (a); (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; or (d) a naturally occurring interfering RNA or
microRNA or precursor thereof.

          "Target Inquiry" shall have the meaning set forth on Section
3.1(e)(ii).

          "Target List" shall have the meaning set forth in Section 2.1(a).

          "Target Response Notice" shall have the meaning set forth in Section
2.1(a).

          "Third Party" shall mean any Person other than Alnylam or Novartis and
their respective Affiliates.

          "Third Party Adoption" shall have the meaning set forth in Section
4.2(b).

          "Third Party Adoption Consideration" shall have the meaning set forth
in Section 4.2(b).

          "Third Party Infringement Claim" shall have the meaning set forth in
Section 6.4(a).

          "Unblocking Amount" shall have the meaning set forth in Section
4.4(e)(iii).

          "Valid Claim" shall mean 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 [**].


                                       15

                                   ARTICLE II

                             RESEARCH COLLABORATION

          2.1 SELECTION OF TARGETS FOR INCLUSION INTO THE RESEARCH
COLLABORATION.

          (a) Initial Thirty(30) Targets. Within thirty (30) days following the
Effective Date, and from time to time thereafter, Alnylam shall provide to the
Gatekeeper a list of Targets that are Blocked Targets (a "Blocked Target List").
During the Selection Term, Novartis may from time to time deliver to the
Gatekeeper one or more lists of Targets (each such list, a "Target List") that
Novartis desires to include in the Research Collaboration. Within two (2) days
following the Gatekeeper's receipt of the Target List, the Gatekeeper shall
notify Novartis in writing (a "Target Response Notice") which, if any, of the
Targets identified on such Target List are on the Blocked Target List most
recently delivered by Alnylam to the Gatekeeper. All of the Targets on the
Target List that are not on such Blocked Target List shall be deemed "Selected
Targets" for the purposes of this Agreement, and the Gatekeeper shall notify
both Parties of the identity of such Selected Targets within the same two (2)
day time period. Selected Targets that are or have been the subject of an Active
Program shall be deemed to be on the "A List," and Selected Targets that are not
nor have not been the subject of an Active Program shall be deemed to be on the
"B List." Subject to Section 2.1(b), Novartis shall be entitled to submit
Targets for designation as Selected Targets until an aggregate of Thirty(30)
Selected Targets (the "Selected Target Threshold") have been identified pursuant
to the foregoing procedure. Novartis shall submit the first Target List, which
shall contain at least [**] Targets, within [**] after the Effective Date.
Without limiting the provisions of Sections 2.6(b) and (c), the Parties agree
that none of the genes of respiratory syncytial virus (RSV) shall be available
as a "Selected Target" under the provisions of this Section 2.1.

          (b) Additional Targets. In the event that the Selected Target
Threshold has been reached, Novartis may from time to time during the Selection
Term either:

          (i) upon written notice to Alnylam, withdraw (for any reason) a B List
Target from treatment as a Selected Target. Thereafter Novartis shall be free to
designate substitute Targets pursuant to Section 2.1(a) at any time, up to the
Selected Target Threshold (for the avoidance of doubt, such substitute Targets
shall not be considered "Supplemental Targets"); or

          (ii) deliver to the Gatekeeper one or more lists of additional
Target(s) (each such list, a "Supplemental Target List"). Within two (2) days
following the Gatekeeper's receipt of a Supplemental Target List, the Gatekeeper
shall notify Novartis in writing (a "Supplemental Target Response Notice")
which, if any, of the Targets identified on such Supplemental Target List are on
the Blocked Target List most recently delivered by Alnylam to the Gatekeeper.
All of the Targets on the Supplemental Target List that are not are on such
Blocked Target List (each such Target, a "Supplemental Target"), shall be deemed
"Selected Target(s)" for the purposes of this Agreement, and


                                       16

the Gatekeeper shall notify both Parties of the identity of such Supplemental
Targets within the same two (2) day time period. Novartis shall pay, or cause to
be paid, the payment set forth in Section 4.3(a). Novartis may designate no more
than ten(10) Supplemental Targets in the aggregate (the "Supplemental Target
Threshold").

          (c) In the event that a Blocked Target ceases to be a Blocked Target,
Alnylam shall promptly advise the Gatekeeper thereof and it shall be removed
from the Blocked Target List. In the event that (i) Novartis was unable to
select a Target as a Selected Target under Section 2.1(a) or a Supplemental
Target under Section 2.1(b) because such Target was on the Blocked Target List
as of the date such Target List or Supplemental Target List, as the case may be,
was received by the Gatekeeper, and (ii) such Target subsequently ceases to be a
Blocked Target, the Gatekeeper shall promptly notify Novartis thereof, and
Novartis shall thereafter be permitted to select such Target subject, in the
applicable case, to the Selected Target Threshold or the Supplemental Target
Threshold.

          2.2 JOINT STEERING COMMITTEE.

          (a) Constitution; Representatives. The Parties will establish a Joint
Steering Committee ("Joint Steering Committee"), comprised of three (3)
representatives designated by Alnylam and three (3) representatives designated
by Novartis, each of which representatives shall be of the seniority and
experience appropriate for participation on the Joint Steering Committee in
light of the functions, responsibilities and authority of such committee. Each
Party shall make its designation of its representatives not later than thirty
(30) days after the Effective Date. Each Party may change any one or more of its
Joint Steering Committee representatives at any time upon written notice to the
other Party. If a Party's representative is unable to attend a meeting, such
Party may designate an alternate to attend such meeting in place of the absent
representative. In addition, each Party may, subject to the other Party's
consent (not to be unreasonably withheld or delayed), invite non-voting
employees, and, with the consent of the other Party, consultants or scientific
advisors (provided they are engaged as such under obligations of confidentiality
no less protective of the Parties' Confidential Information than as set forth in
Article V) to attend the meetings of the Joint Steering Committee. The Joint
Steering Committee shall be dissolved and its activities and authority
terminated upon the expiration or termination of the Research Term.

          (b) Authority. The Joint Steering Committee shall be responsible for
overseeing, managing and auditing the Research Collaboration. Such
responsibilities shall include:

               (i) Providing general oversight of the Active Programs, including
     allocating the appropriate number of FTEs;

               (ii) Periodically reviewing the overall goals, strategy and
     progress of the Research Collaboration;

               (iii) Initiating Active Programs;


                                       17

               (iv) Reviewing proposed Research Plans and considering additions,
     updates or amendments to extant Research Plans;

               (v) Prioritizing the allocation of resources dedicated to the
     Research Collaboration;

               (vi) Determining whether and which Third Party contractors should
     be engaged in connection with any aspect of the Research Collaboration;

               (vii) Monitoring the pre-clinical Development of Discovered RNAi
     Compounds;

               (viii) Resolving any disagreement between the Parties relating to
     the matters set forth in clauses (i) through (vi) in accordance with the
     decision-making procedure set forth in Section 2.2(e); and

               (ix) Discussing any other issues submitted to it by the Parties.

          (c) Meetings. The Joint Steering Committee shall meet to discuss the
business of the Research Collaboration within thirty (30) days after the
Effective Date and, thereafter, at least quarterly until the end of the Research
Term. In addition, a Party may call a meeting of the Joint Steering Committee
upon reasonable notice to the other Party, such notice requirement being deemed
waived by a Party's attendance and participation. The location of Joint Steering
Committee meetings, when in person, shall alternate between Novartis's and
Alnylam's offices unless otherwise agreed by the Joint Steering Committee. The
Joint Steering Committee may also meet by means of a telephone or video
conference call, and may take action by vote at a meeting or telephone or video
conference call, or pursuant to a written vote.

          (d) Project Teams. The Joint Steering Committee shall have the
authority to create project teams for the Research Collaboration, each of which
will meet (via telephone or video conference or in person) no less frequently
than monthly, and which will report to the Joint Steering Committee on the
progress of the activities performed on the Research Collaboration no less
frequently than quarterly. The Joint Steering Committee shall also have the
authority to create additional subcommittees as needed. Notwithstanding the
foregoing, the Joint Steering Committee shall not have the authority to amend or
modify the terms of this Agreement.

          (e) Decision-Making. All decisions of the Joint Steering Committee
shall be made by unanimous vote of the Joint Steering Committee representatives,
with each Party's Joint Steering Committee representatives collectively having
one (1) vote, and the goal of all decision making shall be to achieve consensus.
Upon thirty (30) days prior written notice, either Party may convene a special
meeting of the Joint Steering Committee for the purpose of resolving any failure
to reach agreement on a matter within the scope of the authority and
responsibility of the Joint Steering Committee. If the matter is not resolved by
the Joint Steering Committee within thirty (30) days after referral to the Joint
Steering Committee, then: (i) if such failure to reach agreement relates to a
matter identified in Section 2.2(b)(iv), then Novartis shall have the right to


                                       18

decide the matter, and (ii) if such failure to reach agreement relates to a
matter identified in Sections 2.2(b)(i), (ii), (iii), (v), (vi) or (vii), then
such matter shall be referred to the Executive Officers for resolution. If such
matter is not resolved by the Executive Officers within fifteen (15) days after
referral to the Executive Officers, then Novartis shall have the right to decide
the matter. In exercising its decision-making authority under this Section
2.2(e), Novartis shall be consistent with the provisions of Section 2.4.

          (f) Dispute Resolution. Any dispute between the Parties with respect
to a matter not within the scope of Sections 2.2(b)(i) through (vii) (including
whether specific milestone events have occurred) shall be referred to the
Executive Officers for resolution. If such matter is not resolved by the
Executive Officers within fifteen (15) days after referral thereto, then either
Party may seek any and all remedies available under law or equity with respect
to such dispute.

          2.3 ACTIVE PROGRAMS; RESEARCH PLANS.

          (a) Initiation and Modification of an Active Program. From time to
time during the Selection Term, the Joint Steering Committee shall initiate,
subject to Section 2.4, one or more research programs (each such program, an
"Active Program") (i) to identify or optimize RNAi Compounds directed to a
Selected Target, or (ii) to develop RNAi technology to enable or enhance the
utility of Discovered RNAi Compounds in the Field. Under the supervision of the
Joint Steering Committee, Discovery activities to be undertaken with respect of
each such Active Program shall be set forth in a research plan (each such plan,
a "Research Plan") that will set forth the Parties' respective obligations with
respect to such Active Program, including, workflow, deliverables, timelines,
and budgets, it being understood that Novartis representatives on the Joint
Steering Committee shall be subject to Novartis's standard budget procedures.
Any representative of the Joint Steering Committee may, at any time or from time
to time, submit, on behalf of the Party it represents, a proposed Research Plan,
or proposed additions, updates or amendments to an extant Research Plan for its
review. Any such proposed Research Plans or proposed additions, updates or
amendments shall not become effective until approved, subject to Section 2.2(e),
in writing by the Joint Steering Committee. The Joint Steering Committee shall
review and consider any such Research Plans or additions, updates or amendments
of an extant Research Plan on an expeditious basis, and all such additions,
updates and amendments approved as set forth above shall, subject to Section
2.2(e), constitute and be deemed part of this Agreement for all purposes and
incorporated herein.

          (b) Discontinuation of an Active Program.

          From time to time during the Research Term, the Joint Steering
Committee may elect to discontinue one or more Active Programs (each such
discontinued Active Program, an "Abandoned Program") and any such
discontinuation shall constitute a termination of the applicable Research Plan
governing such Abandoned Program. Alnylam shall be free to continue any
Abandoned Program on its own in accordance with the following: (x) until such
time as Alnylam adds substantive value to such Abandoned Program, Alnylam shall
be permitted to enter into an agreement with a


                                       19

Third Party, not subject to Section 2.6(b) and (c), for the Development or
Commercialization of RNAi Compounds Discovered during the course of such
Abandoned Program, and (y) at or following such times as Alnylam adds
substantive value to such Abandoned Program, Alnylam may enter into an agreement
with a Third Party, subject to compliance with the provisions of this Section
2.6(b) and Section 2.6(c), for the Development or Commercialization of RNAi
Compounds Discovered during the course of such Abandoned Program. From time to
time during the Selection Term, the Joint Steering Committee may reinstate any
such Abandoned Program and Research Plan, whereby such Abandoned Program shall
thereafter again be an "Active Program," unless Alnylam has initiated a bona
fide research program (pursuant to a written research plan) with respect to such
Abandoned Program and has dedicated [**] the Joint Steering Committee's decision
to reinstate such Abandoned Program. For the avoidance of doubt, following the
Joint Steering Committee's election to deem an Active Program as an Abandoned
Program, Novartis's rights under the "Discovered RNAi Compound(s),"
"Collaboration Product(s)," and "Selected Target(s)" that are the subject of
such Abandoned Program shall terminate unless and until such Abandoned Program
subsequently becomes an Active Program pursuant to Sections 2.3(b) or 2.6(c).

          2.4 STAFFING; INFRASTRUCTURE.

          (a) During the Research Term, the Joint Steering Committee shall
allocate approximately [**] FTEs (the exact number of FTEs to be determined by
the Joint Steering Committee) to staff each Active Program. Novartis agrees that
(i) within [**] following the Effective Date, it shall cause the Joint Steering
Committee to initiate at least [**] Active Programs and allocate at least [**]
Alnylam-provided FTEs to Active Programs, and (ii) for each year thereafter
during the Research Term, it shall cause the Joint Steering Committee to
administer at least [**] Active Programs and allocate at least [**]
Alnylam-provided FTEs to Active Programs. Novartis or its Affiliates will fund
the FTEs provided by Alnylam at the rate set forth in Section 4.3(b). Starting
in [**], the Joint Steering Committee will, by [**] of each Contract Year, give
notice to Alnylam as to how many Alnylam-provided FTEs the Joint Steering
Committee will allocate to Active Programs for the following Contract Year, and
Novartis agrees to fund such forecasted FTEs in the aggregate (or such higher
number as is agreed upon by the Joint Steering Committee). Novartis or its
Affiliates will also pay Alnylam a quarterly Infrastructure Fee in support of
each Active Program in accordance with Section 4.3(c).

          (b) In the event of a public announcement that Alnylam has entered
into a definitive agreement to undergo a Change of Control, Novartis shall have
the right to suspend all of Alnylam's activities (together with Novartis's
obligations to fund such activities) under each Active Program until such time
as either (i) Alnylam undergoes such Change of Control, or (ii) there is a
public announcement that such Change of Control will not occur. The duration of
the Selection Term shall be tolled for the duration of such suspension. In the
event that Alnylam undergoes a Change of Control, Novartis shall have the right,
upon written notice to Alnylam within thirty (30) days after a Change of
Control, to immediately terminate Novartis's obligations under Section 2.4(a)
and Alnylam's rights under Section 3.2 (which shall not constitute a termination
of this Agreement for purposes of Article VIII). In the event that Novartis


                                       20

exercises such termination rights, Alnylam shall immediately cease working on
all Active Programs and shall promptly return all of Novartis's Know-How,
Program Data and Confidential Information. For purposes of this Section 2.4(b),
a "Change of Control" of Alnylam shall be deemed to occur if Alnylam is involved
in a merger, reorganization or consolidation 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 if there is a bona fide sale of all or substantially all of
Alnylam's assets or business relating to this Agreement to a Third Party, or if
a "Significant Pharmaceutical Company" (as defined below) effectively acquires
control of the management and policies of Alnylam. A "Significant Pharmaceutical
Company" is a pharmaceutical company, biotechnology company, or group of such
companies acting in concert, with aggregate annual sales of pharmaceutical
products greater than [**] U.S. dollars ($[**]).

          2.5 SCIENTIFIC STRATEGY AND ADVISORY GROUP.

          Promptly following the Effective Date, the Parties will establish a
scientific strategy and advisory group ("Advisory Group") to consider overall
strategy for the relevant science and clinical applications of the Research
Collaboration and the field of RNAi. The Advisory Group will include the
scientific founders and scientific leadership of Alnylam, including Dr. Philip
Sharp or his successor as the chair of Alnylam's Scientific Advisory Board,
together with at least three of the senior scientists of Novartis, including Dr.
Mark Fishman or his successor in title. The Advisory Group shall meet with such
frequency as may be established by the Advisory Group (but in no event less
often than three (3) times per year), and at such times and locations (or by
telephone or video conference call) as may be established by the Advisory Group.
The Advisory Group will annually designate an Advisory Group Chair, and the
Parties shall alternate responsibility for chairing the meetings of the Advisory
Group, beginning with Novartis. The Advisory Group shall not have any authority
over the Research Collaboration, including any Research Plan or Active Program.
No Advisory Group member may delegate his/her participation in the Advisory
Group.

          2.6 RESTRICTIONS ON ALNYLAM.

          (a) Exclusivity. Without limitation to the exclusive rights granted to
Novartis under Section 3.1, Alnylam shall not, and shall ensure that its
Affiliates do not (either alone or, directly or indirectly, in conjunction with
a Third Party) conduct any activities directed towards: (i) the Discovery
(except in connection with an Active Program) of any RNAi Compound or RNAi
Products directed to a Selected Target (other than Selected Targets that are the
subject of Abandoned Programs that do not become Active Programs pursuant to
Sections 2.3(b) or 2.6(c)) during the Selection Term, or (ii) the Discovery
(except in connection with an Active Program), Development, Commercialization or
Manufacture of (A) Discovered RNAi Compounds or Collaboration Products, or (B)
RNAi Compounds or RNAi Products directed to Selected Targets that are or were
the subject of an Active Program (other than Abandoned Programs that do not
become Active Programs pursuant to Sections 2.3(b) or 2.6(c)). For


                                       21

the avoidance of doubt, Alnylam shall not, and shall ensure that its Affiliates
do not, grant to any Third Party any rights under Alnylam Intellectual Property
to engage in any of the foregoing activities.

          (b) Permitted Activities Subject to Right of First Offer. So long as
such activities do not violate the terms of Section 2.6(a) or Novartis's
exclusive rights under Section 3.1, Alnylam shall retain the right to Discover,
Develop, Commercialize or Manufacture RNAi Compounds and RNAi Products directed
at one or more Targets (each, an "Alnylam Program"); provided, however, that (x)
during the Exclusivity Term, Alnylam or its Affiliates may enter into agreements
with Research Institutions to Discover or Develop one or more RNAi Compounds or
RNAi Products or engage Controlled Contractors; and (y) if, during the
Exclusivity Term, Alnylam or any of its Affiliates seek, directly or indirectly
in conjunction with a Third Party (other than with a Controlled Contractor or a
Research Institution or as expressly contemplated pursuant to the terms as of
the Effective Date of a Pre-Existing Alliance Agreement), to Discover, Develop,
Commercialize or Manufacture, or to license any Third Party (other than with a
Controlled Contractor or a Research Institution or as expressly contemplated
pursuant to the terms as of the Effective Date of a Pre-Existing Alliance
Agreement) the right to Discover, Develop, Commercialize or Manufacture any RNAi
Compounds or RNAi Products pursuant to an Alnylam Program, Alnylam shall first
provide written notice thereof, together with a reasonably detailed description
of such Alnylam Program (including the relevant Target(s), Indications and data
showing the performance of the RNAi Compounds involved (to the extent available,
but not the identity of the RNAi Compounds involved), to Novartis (an "Alnylam
Opportunity Notice"), and the provisions of Section 2.6(c) will apply.

          (c) Right of First Offer.

     (i) If Novartis notifies Alnylam in writing within [**] after receipt of
the Alnylam Opportunity Notice (the "Alnylam Opportunity Response Period"; such
notice, the "Alnylam Opportunity Response") that it wishes to Discover, Develop
or Commercialize the RNAi Compounds or RNAi Products under such Alnylam Program,
then:

          (A) if such Alnylam Program is directed to a product with respect to
     which the applicable Regulatory Authority in the United States or one of
     the Major Market Countries has not accepted a bona fide IND filing (a
     "Pre-IND Alnylam Program"), then such Alnylam Program and related RNAi
     Compound, product and Targets shall thereafter be included under this
     Agreement with each being treated as an "Active Program," "Discovered RNAi
     Compound," "Collaboration Product," and "Selected Targets" (provided that
     such Targets shall not be treated as Selected Targets or Supplemental
     Targets for the purposes of calculating the Selected Target Threshold or
     Supplemental Target Threshold respectively) respectively; provided,
     however, that without prejudice to the binding nature of the foregoing, the
     Parties [**] to agree upon [**], provided that in no event shall such [**]
     be less than the [**], which [**] shall include all [**] (determined in
     accordance with the [**] under this Agreement) for the [**] involved in
     such Alnylam Program, all [**] with respect to such Alnylam


                                       22

     Program, the Infrastructure Fees which would have been payable by Novartis
     pursuant to Section 4.3(c) if the Alnylam Program had been an Active
     Program, and all milestones which would have been payable by Novartis
     pursuant to Section 4.4(c) if the Alnylam Program had been an Active
     Program; or

          (B) if such Alnylam Program is directed to a product with respect to
     which the applicable Regulatory Authority in the United States or one of
     the Major Market Countries has accepted a bona fide IND filed by Alnylam (a
     "Post-IND Alnylam Program"), the Parties shall use commercially reasonable
     efforts to negotiate and execute a definitive agreement to reflect the
     rights and obligations of each Party with respect to such RNAi Compound (an
     "Alnylam Program Agreement") within [**] after the date Novartis received
     the Alnylam Opportunity Notice. The Alnylam Program Agreement shall include
     (i) non-financial terms which are substantially similar to the terms set
     forth herein applicable to "Active Programs," "Discovered RNAi Compounds"
     and "Collaboration Products," (provided that any Targets covered by such
     Alnylam Program shall not be treated as Selected Targets or Supplemental
     Targets for the purposes of calculating the Selected Target Threshold or
     Supplemental Target Threshold, respectively) and (ii) appropriate financial
     consideration after giving effect to the maturity of Alnylam's Discovery,
     Development and Commercialization activities up through and including the
     Alnylam Opportunity Notice. During the period in which the Parties are
     using commercially reasonable efforts to negotiate and execute an Alnylam
     Program Agreement, Alnylam shall give reasonable consideration to any
     Novartis input on any agreements that Alnylam desires to enter into with
     any Research Institution with respect to such Alnylam Program.

During the Alnylam Opportunity Response Period, Alnylam shall provide, at
Novartis's reasonable request, information (but not the identity of the RNAi
Compounds involved) that would be relevant in making a decision about whether or
not to participate in such Alnylam Program.

     (ii) If: (A) Novartis indicates during the Alnylam Opportunity Response
Period that it has no interest in a Pre-IND Alnylam Program; or (B) with respect
to Post-IND Alnylam Programs, Novartis and Alnylam are unable, after using
commercially reasonable efforts, to enter into an Alnylam Program Agreement
within [**] after the date Novartis received the Alnylam Opportunity Notice,
then Alnylam and its Affiliates shall for a period of [**] thereafter be free,
without any further obligation to Novartis, to enter into an agreement with a
Third Party seeking to Discover, Develop or Commercialize, or to license any
Third Party to Discover, Develop and Commercialize, any RNAi Compounds and RNAi
Products pursuant to such Alnylam Program on terms no more favorable, overall,
to such Third Party than those offered to Novartis under Section 2.6(c)(i).

     (iii) If: (A) Novartis indicates during the Alnylam Opportunity Response
Period that it has no interest in a Post-IND Alnylam Program; or (B) Novartis
fails to provide Alnylam an Alnylam Opportunity Response prior to the expiration
of the


                                       23

Alnylam Opportunity Response Period with respect to either a Pre-IND Alnylam
Program or a Post-IND Alnylam Program, then Alnylam and its Affiliates shall be
free, without any further obligation to Novartis, to enter into an agreement
with a Third Party seeking to Discover, Develop or Commercialize, or to license
any Third Party to Discover, Develop and Commercialize, any RNAi Compounds and
RNAi Products pursuant to such Alnylam Program.

          (d) Alnylam's Acquisition of Third Party Intellectual Property.
Alnylam may enter into agreements with Third Parties to acquire or license
rights from such Third Parties so long as Alnylam complies with the provisions
of Sections 2.6(b) and (c), as applicable, in connection therewith.

          2.7 TECHNOLOGY TRANSFER.

          (a) Information. On a periodic basis as agreed by the Parties, and
promptly following Novartis's reasonable request from time to time, Alnylam
shall deliver to Novartis or its designated Affiliate, for no additional
consideration, (i) all Alnylam Intellectual Property specifically relating to
the Discovered RNAi Compounds, (ii) all Alnylam Intellectual Property relating
to the Research Collaboration (including each of the Active Programs), and (iii)
all Alnylam Intellectual Property necessary or useful to the Discovery,
Development, Commercialization or Manufacture of Discovered RNAi Compounds or
Collaboration Products. Following the Adoption Date, on a periodic basis as
agreed by the Parties, and promptly following Novartis's reasonable request from
time to time, Alnylam shall deliver to Novartis, for no additional
consideration, all Broad RNAi Intellectual Property that is necessary or useful
to the exercise of Novartis's rights under the Adoption License. The information
to be delivered pursuant to the foregoing provisions of this Section 2.7 shall
include copies of all Patent Rights, Know-How documentation, copyright
registrations, and applications thereof, Program Data, and all other
documentation relating to the intellectual property embodied in the Discovered
RNAi Compounds, whether in human or machine readable form (such form to be
acceptable to Novartis), and un-redacted copies of agreements that directly or
indirectly grant or restrict rights in Alnylam Intellectual Property subject to
compliance with applicable documented confidentiality obligations and provided
that Alnylam may redact terms that do not relate to Novartis's rights or
obligations under this Agreement; provided, that, until the earlier of (x) the
expiration of the Selection Term or (y) such time as Novartis acquires the
Adoption License, Alnylam will use commercially reasonable efforts to ensure
that Novartis is granted access to un-redacted copies of agreements thereafter
entered into directly or indirectly granting or restricting rights in Alnylam
Intellectual Property (provided that Alnylam may redact terms that do not relate
to Novartis's rights or obligations under this Agreement). Additionally, with
respect to each Licensed Product that is not directed to the same Indication as
an Alnylam product that is the subject of a Dedicated Alnylam Program, Alnylam
shall deliver to Novartis or its designated Affiliate, for no additional
consideration, all scientific, regulatory, pre-clinical or clinical information
or data regarding specific Indications and all marketing, financial, commercial,
personnel and other business information and plans that are necessary or useful
to the Discovery, Development, Commercialization or Manufacture of such Licensed
Product and its related RNAi Compound(s).


                                       24

          (b) Technology. On a periodic basis as agreed by the Parties, and
promptly following Novartis's reasonable request from time to time, Alnylam
shall deliver to Novartis or its designated Affiliate, for no additional
consideration, physical embodiments of (i) the Discovered RNAi Compounds, (ii)
all Know-How now or in the future Controlled by Alnylam that is used in the
course of the Research Collaboration (including each of the Active Programs),
and (iii) all Know-How now or in the future Controlled by Alnylam that is
necessary or useful to the Discovery, Development, Commercialization or
Manufacture of Discovered RNAi Compounds or Collaboration Products. Following
the Adoption Date, on a periodic basis as agreed by the Parties, and promptly
following Novartis's request from time to time, Alnylam shall deliver to
Novartis, for no additional consideration, all Know-How Controlled by Alnylam
that is necessary or useful to the exercise of Novartis's rights under the
Adoption License.

          (c) Without limiting the generality of any other provision of this
Agreement, Alnylam shall, until the fifth (5th) anniversary of the termination
or expiration of the Research Term, make its relevant scientific and technical
personnel available to Novartis to answer any questions or provide instruction
as reasonably requested by Novartis concerning the items delivered pursuant to
Section 2.7, in connection with Novartis's Development, Commercialization and
Manufacture of the Discovered RNAi Compounds and the Licensed Products.

                                   ARTICLE III

                                 GRANT OF RIGHTS

          3.1 ALNYLAM GRANTS.

          (a) Research Term. Subject to the terms and conditions of this
Agreement (including Sections 3.1(e) and (f)), Alnylam hereby grants to Novartis
and its Affiliates a worldwide, royalty-free, non-sublicensable right and
license under Alnylam Intellectual Property to, during the Research Term, (i)
perform Novartis's obligations under the Research Collaboration, (ii) engage in
the Discovery of RNAi Compounds in the Field, and (iii) Discover RNAi Compounds
directed at the Selected Targets (other than Selected Targets that are the
subject of Abandoned Programs that do not become Active Programs pursuant to
Sections 2.3(b) or 2.6(c)). The rights granted under clauses (i) and (ii) shall
be non-exclusive, and the rights granted under clause (iii) shall be exclusive,
subject to Alnylam's right (itself or through its Affiliates) to perform its
obligations under the Research Collaboration or to pursue Abandoned Programs
that do not become Active Programs pursuant to Sections 2.3(b) or 2.6(c).


                                       25

          (b) Collaboration Products. Subject to the terms and conditions of
this Agreement (including Sections 3.1(e) and (f)), Alnylam hereby grants to
Novartis and its Affiliates an exclusive (subject to Alnylam's right (itself or
through its Affiliates) to perform its obligations under the Research
Collaboration), worldwide, royalty-bearing, sublicensable (subject to Section
3.1(d)) right and license under Alnylam Intellectual Property to (i) Discover,
Develop, Commercialize or Manufacture Collaboration Products for all
applications in the Field, and (ii) to Develop, Commercialize or Manufacture
Discovered RNAi Compounds.

          (c) Adoption. Upon Novartis's written election during the Research
Term (following such time as the Collaboration Success Milestone has been
achieved) and Novartis's or its Affiliate's tender to Alnylam of the Adoption
Consideration (the date of such tender, the "Adoption Date"), Alnylam hereby
grants, in addition to the licenses granted in Sections 3.1(a) and (b), to
Novartis and its Affiliates a non-exclusive, worldwide, perpetual, irrevocable,
royalty-bearing right and license, subject to the terms and conditions of this
Agreement (including Sections 3.1(e) and (f)), under Broad RNAi Intellectual
Property to engage in any and all activities in the Field, including all
Discovery, Development, Commercialization and Manufacturing activities directed
to the Field (the "Adoption License"). Novartis's rights under the Adoption
License are non-sublicensable; provided, however, that Novartis may engage Third
Party contractors, including contract research organizations, contract
employees, consultants, contract manufacturers and the like.

          (d) Novartis Sublicense Rights. The sublicensing of Novartis's rights
under Section 3.1(b) will be subject to the following provisions: (i) Novartis's
sublicensees shall have no right to grant further sublicenses without Alnylam's
written consent, which consent shall not be unreasonably withheld or delayed;
and (ii) Novartis shall be primarily liable for any failure by its sublicensees
to comply with, and Novartis guarantees to Alnylam the compliance by each of its
sublicensees with, all relevant restrictions, limitations and obligations in
this Agreement.

          (e) Reservation of Rights.

          (i) Novartis acknowledges and agrees that the grants by Alnylam under
Alnylam Intellectual Property set forth in Sections 3.1(a) through (c) are
subject to, and are limited to the extent of, the rights that Alnylam has
previously granted and is required to grant under Alnylam Intellectual Property
to Third Parties (the "Pre-Existing Alliance Parties") under the terms as of the
Effective Date of the Pre-Existing Alliance Agreements. As and to the extent
that such rights previously or subsequently granted to Pre-Existing Alliance
Parties under Alnylam Intellectual Property lapse, terminate or otherwise revert
to Alnylam, they shall be automatically included in the rights under Alnylam
Intellectual Property granted to Novartis under Sections 3.1(a) through (c).
Without limiting the foregoing, (x) Alnylam covenants not to amend or extend any
Pre-Existing Alliance Agreements in a manner that would further narrow or limit
the scope of Novartis's rights under Section 3.1(a) through (c), and (y) Alnylam
covenants not to grant any exclusive rights or licenses under any Broad RNAi
Intellectual Property except in connection with Alnylam Programs that are not
acquired by Novartis pursuant to


                                       26

Section 2.6(c) or as expressly contemplated pursuant to the terms as of the
Effective Date of Pre-Existing Alliance Agreements, provided, that the
provisions of this clause (y) shall terminate upon the expiration of the
Research Term if Novartis has not elected to obtain the Adoption License. Until
such time as Novartis is no longer precluded as a result of rights granted under
the terms as of the Effective Date of one or more Pre-Existing Alliance
Agreements from engaging in Target identification or Target validation, Alnylam
shall, at its cost and expense, allocate up to [**] in furtherance of the
Research Collaboration.

          (ii) Novartis further acknowledges that a Pre-Existing Alliance Party
may from time to time request rights under Alnylam Intellectual Property with
respect to a particular Target that Alnylam is required, pursuant to the terms
as of the Effective Date of a Pre-Existing Alliance Agreement, to grant such
rights to such Pre-Existing Alliance Party with respect to such Target unless,
among other conditions, such Target is already the subject of an active program
of Discovery, Development or Commercialization of RNAi Compounds directed to
such Target by Novartis. In order for Alnylam to fulfill its obligations under
the Pre-Existing Alliance Agreements, following the Adoption Date, Novartis
shall, within twenty (20) days following Novartis's receipt of a written inquiry
from Alnylam (through the Gatekeeper mechanism described in Section 3.1(e)(iv))
with respect to a specified Target (a "Target Inquiry"), notify Alnylam (through
the Gatekeeper mechanism described in Section 3.1(e)(iv)) in writing whether or
not such Target is the subject of a Dedicated Novartis Program. If Novartis so
notifies Alnylam that such Target is the subject of a Dedicated Novartis
Program, Alnylam shall not grant to such Pre-Existing Alliance Party the
requested rights under the Broad RNAi Intellectual Property with respect to such
Target. If Novartis so notifies Alnylam that such Target is not the subject of a
Dedicated Novartis Program, then Alnylam may grant to such Pre-Existing Alliance
Party the relevant rights under Broad RNAi Intellectual Property with respect to
such Target, and Novartis's rights under Sections 3.1(a) or (c) shall be subject
to such Pre-Existing Alliance Party's rights with respect to such Target.
Notwithstanding the foregoing, in no event will Alnylam directly or indirectly
notify or communicate to any Third Party the contents or the existence of
Novartis's response hereunder without Novartis's prior written consent, which
may be withheld at Novartis's sole discretion.

          (iii) From time to time during the Research Term, and after the
Adoption Date, following an affirmative decision by Novartis to initiate a
program directed to the Discovery, Development or Commercialization of RNAi
Compounds directed to a particular Target, Novartis may inquire of the
Gatekeeper in writing whether or not such Target is on the Blocked Target List
by virtue of being subject to a then-current exclusive or co-exclusive grant
under a Pre-Existing Alliance Agreement or subject of an option, right of first
refusal or similar right under a Pre-Existing License Agreement in the
Encumbered Field. The Gatekeeper shall, within two (2) days following the
Gatekeeper's receipt of such written request from Novartis, notify Novartis in
writing whether or not such Target is or may be excluded; provided, however,
that in no event will the Gatekeeper directly or indirectly notify or
communicate to Alnylam the contents or the existence of Novartis's inquiry
hereunder without Novartis's prior written consent, which may be withheld at
Novartis's sole discretion. In the event that such


                                       27

Target is not on such Blocked Target List, Novartis shall be free to Discover,
Develop, Commercialize or Manufacture RNAi Compounds and Licensed Products
directed to such Targets. Notwithstanding the foregoing, a Pre-Existing Alliance
Party may subsequently request exclusive or co-exclusive rights from Alnylam
with respect to a particular Target as described in Section 3.1(e)(ii) and the
provisions of Section 3.1(e)(ii) shall control.

          (iv) Gatekeeper. The inquiries and responses made by one Party to the
other in connection with Sections 2.1 and 3.1(e)(ii) through (iii) shall be made
in writing to the attention of an independent attorney registered to practice
before the United States Patent and Trademark Office mutually agreeable to both
Parties (the "Gatekeeper") who will be bound by confidentiality obligations to
both Parties. The Gatekeeper's responsibility shall be to ensure that each Party
complies on an ongoing basis with the terms and conditions of Sections 2.1 and
3.1(e)(ii) through (iii). Each Party agrees to provide the Gatekeeper with full
and complete copies of all records and information (including un-redacted copies
of the relevant Third Party agreements) that are necessary for the Gatekeeper to
render its determination. In the event that the Gatekeeper determines that, in
connection with an inquiry or response made by either Party in connection with
Sections 2.1 or 3.1(e)(ii) through (iii), such Party may not have complied with
the provisions of one or more of those Sections, the Gatekeeper shall issue a
written report to both Parties stating with specificity such actual or suspected
non-compliance, and each Party hereby consents to the disclosure to the other
Party of any confidential information included in such report (provided that
such information shall be treated by the Parties' as Confidential Information
pursuant to Article V). The Parties shall share equally the fees, costs and
expenses of the Gatekeeper's appointment.

          (f) Contractual Obligations under Listed Alnylam Third Party
Agreements.

          (i) For the avoidance of doubt, the grants by Alnylam under Alnylam
Intellectual Property set forth in Sections 3.1(a) through (c) include, subject
to Section 3.1(f)(ii), the sublicense of all Alnylam Intellectual Property that
is not owned by Alnylam, and the license and sublicense of Alnylam Intellectual
Property acquired or licensed after the Effective Date. Novartis's rights and
licenses under such Alnylam Intellectual Property are limited to the rights
granted to Alnylam under Third Party agreements granting Alnylam rights
thereunder and Novartis shall comply, and cause its Affiliates and sublicensees
to comply, with those restrictions and other terms applicable to sublicensees
under such agreements. In the event that Alnylam or its Affiliates acquires or
licenses any rights under additional Alnylam Intellectual Property such
additional Alnylam Intellectual Property shall be automatically included in the
scope of the rights under Alnylam Intellectual Property granted to Novartis
pursuant to Sections 3.1(a) through (c); provided, however, that in the event
that such rights thereunder subject Alnylam's or its Affiliates' sublicensees to
restrictions and other terms, Alnylam shall deliver a copy of such agreement
(provided that Alnylam may redact terms that do not relate to Novartis's rights
or obligations under this Agreement). Novartis shall comply, and cause its
Affiliates and sublicensees to comply, with those restrictions and other terms
applicable to sublicensees under such agreements. In the course of acquiring or


                                       28

licensing additional Broad RNAi Intellectual Property or any other Alnylam
Intellectual Property Covering a Collaboration Product, Alnylam shall use its
best efforts to ensure that such rights include the right to sublicense to
Novartis such Broad RNAi Intellectual Property or any other Alnylam Intellectual
Property Covering a Collaboration Product. Notwithstanding the foregoing, it
shall not be deemed a breach of this Section 3.1(f)(i) for Novartis to fail to
comply with a provision of any such Third Party agreement that Novartis has not
received from Alnylam.

          (ii) Notwithstanding Sections 3.1(a) through (c), the grants by
Alnylam under Alnylam Intellectual Property set forth in Sections 3.1(a) through
(c), shall not include licenses to Patent Rights licensed to Alnylam or its
Affiliates under the License Agreement between Cancer Research Technologies
Limited and Alnylam U.S., Inc. (formerly Alnylam Pharmaceuticals, Inc.) dated
July 18, 2003. The Parties shall simultaneously with the execution of this
Agreement enter into the agreement substantially in the form set forth in
Schedule 3.1(f)(ii) (the "CRT Sublicense Agreement").

          (g) Alnylam shall not assign, license or otherwise grant any rights or
dispose of (collectively, a "disposition") with respect to any Broad RNAi
Intellectual Property or other Alnylam Intellectual Property Covering a
Collaboration Product without making such disposition expressly subject to
Novartis's rights under this Agreement.

          3.2 NOVARTIS GRANT.

          Novartis hereby grants to Alnylam and its Affiliates a worldwide,
royalty-free, non-exclusive, non-sublicensable right and license under Novartis
Intellectual Property to perform Alnylam's obligations under an Active Program
during the Research Term.

          3.3 AFFILIATES.

          For the avoidance of doubt, in granting the rights under Sections 3.1
and 3.2, Alnylam and Novartis are granting, on behalf of their current and
future Affiliates (other than a Third Party that becomes an Affiliate of Alnylam
as a result of a Change of Control), such Affiliates' respective rights under
the Alnylam Intellectual Property and Novartis Intellectual Property, as the
case may be, that are owned or licensed by such Affiliates. For the purposes of
this Section 3.3, Novartis's "Affiliates" shall not include Novartis Institute
for Functional Genomics, Inc., the Friedrich Miescher Institute for BioMedical
Research or Novartis Institute for Tropical Diseases Pte. Ltd.

          3.4 NOVARTIS FREEDOM TO OPERATE; COMMITMENTS.

          Alnylam acknowledges that Novartis is in the business of Discovering,
Developing, Commercializing and Manufacturing processes and products in the
Field and nothing in this Agreement or any duties which may be imposed under
applicable Law shall be construed as restricting such business or imposing on
Novartis a duty to Discover, Develop, Commercialize or Manufacture the
Discovered RNAi Compounds or


                                       29

any Licensed Products to the exclusion of, or in preference to, any other
process or product, or in any way other than in accordance with its normal
commercial practices, or to disclose information to Alnylam not specifically
required hereunder; provided, however, that Novartis shall, itself or through
its Affiliates, use Commercially Reasonable Efforts to Develop and Commercialize
Collaboration Products.

                                   ARTICLE IV

                              FINANCIAL PROVISIONS

          4.1 EQUITY INVESTMENT; UP-FRONT CONSIDERATION.

          (a) Equity Investment. In addition to the monetary payments described
in this Article IV, the Parties have entered into the Stock Purchase Agreement
and, in connection with the Closing (as defined in the Stock Purchase
Agreement), Alnylam shall simultaneously with the execution of this Agreement
issue shares of Alnylam capital stock to Novartis Pharma AG or its designee upon
payment therefor.

          (b) Up-Front Consideration. In consideration of the rights granted to
Novartis under this Agreement as of the Effective Date, Novartis shall pay, or
cause to be paid, to Alnylam ten million dollars ($10,000,000) within ten (10)
Business Days following the Effective Date, of which [**] dollars ($[**]) shall
represent retrospective reimbursement of Alnylam's expenses to date incurred in
the development of in vivo RNAi technology, and [**] dollars ($[**]) shall
represent an upfront license fee. The foregoing payments shall be deemed to
include the following amounts: (i) $[**] for a sublicense of the rights licensed
by Alnylam under the Agreement between the [**] and Alnylam Pharmaceuticals,
Inc. dated September 17, 2003; and (ii) the payments made in respect of Section
3.1 of the [**] Sublicense Agreement.

          4.2 ADOPTION.

          (a) In the event that Novartis elects, pursuant to the terms of
Section 3.1(c), to exercise its right to acquire the Adoption License, Novartis
shall, or shall cause one of its Affiliates to, (i) pay to Alnylam a one-time
technology adoption fee of [**] dollars ($[**]) (the "Adoption Fee"), and (ii)
advance to Alnylam, in one disbursement, the amount of [**] dollars ($[**])
(such amount, the "Pre-Paid Adopted Product Fees," and together with the
Adoption Fee, the "Adoption Consideration"). The Pre-Paid Adopted Product Fees
shall be credited against the unpaid balance of any and all of Novartis's future
payment obligations with respect to Adopted Products under Section 4.4 (such
future payment obligations, "Adopted Product Obligations") by applying the
then-current uncredited balance to [**] percent ([**]%) of the Adopted Product
Obligation owed with respect to each Contract Quarter following the Adoption
Date, and then reducing the uncredited balance of the Pre-Paid Adopted Product
Fees by the amount so applied, until the entire amount of the uncredited balance
has been so credited. The foregoing payments shall be deemed to include the
following amounts: (i) $[**] for a sublicense of the rights licensed by Alnylam
under the Agreement between the [**] and


                                       30

Alnylam Pharmaceuticals, Inc. dated September 17, 2003; and (ii) the payments
made in respect of Section 3.2 of the [**] Sublicense Agreement.

          (b) Notwithstanding the provisions of Section 4.2(a), in the event
that, during the period of time beginning on the Effective Date and continuing
until [**] after the Adoption Date, (x) Alnylam or one of its Affiliates
directly or indirectly grants (by license, option, covenant not to sue, waiver,
settlement or otherwise) to a Third Party rights that are substantially similar
to those which may be or have been granted to Novartis under Section 3.1(c) (a
"Third Party Adoption"), and (y) the aggregate consideration payable by such
Third Party or obtained by Alnylam or its Affiliates in respect of such rights
(whether by payment, loan, exercise price, forgiveness of debt, success
milestones due before such rights may be granted, or otherwise, or any
combination of the foregoing, or the fair market value thereof, the "Third Party
Adoption Consideration") is less than the Adoption Consideration plus the
Collaboration Success Milestone or more favorable to such Third Party than the
Adoption Consideration plus the Collaboration Success Milestone, then (A)
Alnylam shall notify Novartis in writing of such Third Party Adoption
Consideration, and (B) the Adoption Consideration plus the Collaboration Success
Milestone shall, from time to time, be reduced to the lowest Third Party
Adoption Consideration then in effect. In the event that the Third Party
Adoption occurs following Novartis's acquisition of the Adoption License,
Novartis shall be entitled to deduct the amount of any excess of the Adoption
Consideration plus the Collaboration Success Milestone over the Third Party
Adoption Consideration against payment(s) due under Section 4.4. Compliance with
the terms of this Section 4.2(b) shall be verified by Alnylam's principal
external auditors (or, if such auditors cannot perform such verification, a
mutually agreed upon independent Third Party valuation services firm) who shall,
on an annual basis within ninety (90) days following the end of each Contract
Year, provide Novartis with written confirmation that shall either confirm that
the above requirements have been observed in full or, in the case of
non-compliance, provide full details of the lowest Third Party Adoption
Consideration.

          4.3 RESEARCH COLLABORATION PAYMENTS.

          (a) Supplemental Selected Target Fee. Upon Novartis's election
pursuant to the terms of Section 2.1(b)(ii) to treat a Supplemental Target as a
Selected Target, Novartis shall pay, or cause to be paid, a one-time payment of
[**] dollars ($[**])-per-Supplemental Target within [**] following the receipt
by Novartis of an invoice therefor in accordance with Section 4.7.

          (b) FTE Funding. During the first [**] of the Selection Term, Novartis
or its Affiliates will fund the FTEs provided by Alnylam pursuant to Section 2.4
at an annual rate per FTE of [**] dollars ($[**]), pro-rated to the duration
that such FTEs perform work in an Active Program. After the [**] of the
Selection Term, the Parties shall enter into good faith negotiations to adjust
the annual FTE rate applicable to FTEs provided by Alnylam, it being understood
that the Research Collaboration shall continue during such negotiations.
Novartis shall pay, or cause to be paid, such reimbursement quarterly, in
arrears, in accordance with Section 4.7.


                                       31

          (c) Infrastructure Fee. During the Research Term, Novartis shall pay,
or cause to be paid, to Alnylam an infrastructure fee (the "Infrastructure Fee")
of [**] dollars ($[**]) per Contract Quarter for each Active Program meeting
both of the following criteria: (i) such Active Program was active for at least
[**] during such Contract Quarter, and (ii) Alnylam provided at least [**]
within such Contract Quarter for such Active Program. Novartis shall pay, or
cause to be paid, the Infrastructure Fee quarterly, in arrears, in accordance
with Section 4.7.

          4.4 MILESTONE AND ROYALTY PAYMENTS.

          (a) Research Milestone Payments. In connection with the research and
preclinical Development of Discovered RNAi Compounds directed against Selected
Targets, Novartis shall pay, or cause to be paid, to Alnylam the following
one-time payments with respect to each Selected Target upon the achievement of
the milestone events set forth below:



Milestone Event:                                                 Payment Amount:
- ----------------                                                 ---------------
                                                              
Successful Completion of a first study of a Discovered RNAi           $[**]
Compound in animals to evaluate pharmacokinetics/
biodistribution or mechanism of action (e.g., evidence of
knock-down) ("First Animal Study"):

Determination by Novartis to nominate a Discovered RNAi               $[**]
Compound for sPOC:


Each of the milestone payments under this Section 4.4(a) shall be payable only
once in relation to each Selected Target. By way of example, in the event that
Novartis elects not to proceed with the Development or Commercialization of an
RNAi Compound directed to a Selected Target for which one or both of the
foregoing milestone payments have been paid, Novartis shall not be required to
make any milestone payments previously paid under this Section 4.4(a) with
respect to any back-up RNAi Compound(s) directed at such Selected Target.

          (b) Program Milestone Payments. In connection with the research and
preclinical Development of Discovered RNAi Compounds, Novartis shall pay, or
cause to be paid, to Alnylam the following one-time payments upon the
achievement of the milestone events set forth below:



Milestone Event:                                                 Payment Amount:
- ----------------                                                 ---------------
                                                              
Successful Completion of First Animal Studies for Discovered          $[**]
RNAi Compounds directed at a cumulative total of [**] Selected
Targets:

Successful Completion of First Animal Studies for                     $[**]



                                       32

                                                                   
Discovered RNAi Compounds directed at a cumulative total of
[**] Selected Targets:

Successful Completion of First Animal Studies for Discovered          $[**]
RNAi Compounds directed at a cumulative total of [**] Selected
Targets:



          (c) Collaboration Success Milestone. In connection with the
achievement of the Collaboration Success Milestone, Novartis shall pay, or cause
to be paid, to Alnylam the amount of [**] dollars ($[**]).

          (d) Clinical Milestone Payments. In connection with the clinical
Development of each Licensed Product against a Target, Novartis shall pay, or
cause to be paid, to Alnylam the following payments upon the achievement of the
milestone events set forth below:



                                            Payment for    Payment for
                                           Collaboration     Adopted
Milestone Event:                             Products:      Products:
- ----------------                           -------------   -----------
                                                     
The earlier of: (i) initiation of Phase        $[**]        See below
I Studies (first human, first visit) in
the United States, or (ii) initiation of
Phase I Studies in the first Major
Market Country:

The earlier of: (i) initiation of Phase        $[**]        See below
II Studies (first patient, first visit)
in the United States, or (ii) initiation
of Phase II Studies in the first Major
Market Country:

The earlier of: (i) initiation of Phase        $[**]        See below
III Studies (first patient, first visit)
in the United States, or (ii) initiation
of Phase III Studies in the first Major
Market Country:

The earlier of: (i) acceptance of the          $[**]        See below
dossier for the first submission of a
bona fide NDA by the FDA, or (ii)
acceptance of the dossier for the first
submission of a bona fide NDA by the
applicable Regulatory Authorities in at
least [**] of the Major Market
Countries:

The earlier of: (i) Regulatory Approval        $[**]        See below
in the United States, or (ii) Regulatory
Approval in at least [**] of the Major
Market Countries:



                                       33

The payments required to be made under this Section 4.4(d) for Adopted Products
shall be as follows:

     (1) in the event that the Selection Term continues for [**], or in the
     event that this Agreement is terminated by Novartis pursuant to Sections
     8.2 or 8.3, or in the event that Alnylam undergoes a Change of Control
     during the Selection Term, then the amounts payable in respect of Adopted
     Products under this Section 4.4(d) shall be [**] percent ([**]%) of the
     amounts payable in respect of Collaboration Products;

     (2) in the event that the Selection Term continues for [**], then the
     amounts payable in respect of Adopted Products under this Section 4.4(d)
     shall be [**] percent ([**]%) of the amounts payable in respect of
     Collaboration Products; and

     (3) in the event that the Selection Term continues for [**], then the
     amounts payable in respect of Adopted Products under this Section 4.4(d)
     shall be [**] percent ([**]%) of the amounts payable in respect of
     Collaboration Products.

Each of the milestone payments under this Section 4.4(d) shall be payable only
once in relation to each Target for the first Indication only. By way of
example, in the event that Novartis elects not to proceed with the Development
or Commercialization of a Licensed Product directed to a Target for which one or
more of the foregoing milestone payments have been paid, Novartis shall not be
required to make any milestone payments previously paid under this Section
4.4(d) with respect to any back-up Licensed Product(s) directed at such Target.
In addition, in the event that, with respect to the clinical Development of a
Licensed Product, Novartis satisfies a clinical milestone under this Section
4.4(d), Novartis shall pay to Alnylam all earlier milestone payments under this
Section 4.4(d) that have not otherwise been paid with respect to such Target
(regardless of whether such earlier milestones have been satisfied).

          (e) Product Royalties.

          (i) Base Rate. During each relevant Royalty Term, Novartis shall pay,
or cause to be paid, to Alnylam the following royalties on Annual Net Sales of
each Licensed Product:


                                       34



Incremental Annual Net Sales of a Licensed       Royalty Rate    Royalty Rate
Product (on a Licensed Product-by-Licensed      Applicable to   Applicable to
Product basis) during the applicable Contract   Collaboration      Adopted
Year:                                             Products:       Products:
- ---------------------------------------------   -------------   -------------
                                                          
Less than or equal to $[**]:                        [**]%         See below

Greater than $[**], but less than or equal to       [**]%         See below
$[**]:

Greater than $[**]:                                 [**]%         See below


The royalty rate applicable to Adopted Products under the chart set forth above
shall be as follows:

     (1) in the event that the Selection Term continues for [**], or in the
     event that this Agreement is terminated by Novartis pursuant to Sections
     8.2 or 8.3, or in the event that Alnylam undergoes a Change of Control
     during the Selection Term, then the royalty rate in respect of Adopted
     Products under this Section 4.4(e)(i) shall be [**] percent ([**]%) of the
     royalty rate applicable to Collaboration Products;

     (2) in the event that the Selection Term continues for [**], then the
     royalty rate in respect of Adopted Products under this Section 4.4(e)(i)
     shall be [**] percent ([**]%) of the royalty rate applicable to
     Collaboration Products; and

     (3) in the event that the Selection Term continues for [**], then the
     royalty rate in respect of Adopted Products under this Section 4.4(e)(i)
     shall be [**] percent ([**]%) of the royalty rate applicable to
     Collaboration Products.

Notwithstanding the foregoing:

     (A) if a compulsory license is granted to a Third Party with respect to a
     Licensed Product in any country, Novartis shall pay to Alnylam the
     foregoing percentages on amounts it receives from compulsory licensees in
     such country;

     (B) (x) upon the abandonment or withdrawal of a claim of a published Patent
     Application of Alnylam Patent Rights in a country, or

          (y) if the validity of a Valid Claim of an issued Alnylam Patent Right
     in a country is the subject of administrative or legal action and is later
     revoked or held unenforceable or invalid by a decision of a court or
     governmental agency of competent jurisdiction or is disclaimed or admitted
     to be invalid or unenforceable through reissue, disclaimer or otherwise,

     that, in the case of clauses (x) or (y), was the sole basis for the payment
     of royalties by Novartis pursuant to this Section 4.4(e)(i), Novartis shall
     be entitled


                                       35

     to credit such paid amounts against any future royalties or payments to be
     made to Alnylam pursuant to this Section 4.4(e)(i) with respect to such
     country. If such claim is the last claim of any Alnylam Patent Rights in
     such country upon which a payment under this Section 4.4(e)(i) would be
     owed, Novartis shall be entitled to a refund of any payments made in
     respect thereof (for the avoidance of doubt, this clause (B) shall not
     apply with respect to sales of a Licensed Product in a country made during
     the first [**] after the date of First Commercial Sale of such Licensed
     Product in such country); and

     (C) with respect to each Contract Quarter during any part of the Royalty
     Term remaining after the expiration of the last to expire Alnylam Patent
     Rights containing a Valid Claim Covering the Development, Commercialization
     or Manufacture of the relevant Licensed Product in the United States or
     Japan, the foregoing royalties shall, solely with respect to such
     country's(ies') proportionate share of the worldwide Annual Net Sales of
     such Licensed Product in each tier, be reduced to [**] percent ([**]%) of
     the rate otherwise applicable pursuant to the foregoing.

     For the avoidance of doubt, Novartis's obligation to pay royalties under
     this Section 4.4(e)(i) 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 Patent Rights. The amounts
     payable under this Section 4.4(e)(i) shall also be adjusted in accordance
     with Sections 4.4(e)(ii) and (iii).

          (ii) (A) Payments in Respect of Alnylam In-Licenses. In addition to
any royalty set forth in Section 4.4(e)(i), during the Royalty Term, Novartis
shall, subject to Section 4.4(e)(ii)(B), reimburse Alnylam for the clinical
milestones and royalty payments payable (each such payment, a "Listed Alnylam
Third Party Payment," collectively, the "Listed Alnylam Third Party Payments")
to Third Parties pursuant to Listed Alnylam Third Party Agreements in respect of
Licensed Products. Without limiting the provisions of Section 6.5, the Parties
shall cooperate to coordinate such reimbursements by Novartis in a manner that
ensures all amounts payable pursuant to Listed Alnylam Third Party Agreements
are paid in a timely manner and otherwise in compliance with such Listed Alnylam
Third Party Agreements. For the avoidance of doubt, Novartis shall reimburse
Alnylam for clinical milestones and royalty payments payable to Garching
Innovation GmbH under either (x) Co-Exclusive License Agreement between Garching
Innovation GmbH and Alnylam, dated December 20, 2002, or (y) Co-Exclusive
License Agreement between Garching Innovation GmbH and Ribopharma AG, dated July
30, 2003, but not both of such agreements.

          (B) Net Sales Adjustment. In the event that, in a Contract Quarter,
the sum (on a Licensed Product-by-Licensed Product basis) of (x) the Listed
Alnylam Third Party Payments paid or payable by Novartis in such Contract
Quarter, plus (y) the amount that, absent this Section 4.4(e)(ii)(B), would be
payable to Alnylam under Section 4.4(e)(i) (the "Base Royalty Amount") exceeds
(such excess amount, the "Excess Amount"):


                                       36



Collaboration         Adopted
Products:             Products:   Annual Net Sales of such Licensed Product:
- -------------         ---------   ------------------------------------------
                            
[**]% of Annual Net   See below   On Annual Net Sales less than or equal to
Sales                             $[**]

[**]% of Annual Net   See below   On Annual Net Sales greater than $[**], but
Sales                             less than or equal to $[**]

[**]% of Annual Net   See below   On Annual Net Sales greater than $[**]
Sales


Novartis shall be permitted to deduct the Excess Amount from the Base Royalty
Amount. In the event that the Excess Amount for a Contract Quarter exceeds the
Base Royalty Amount (such excess amount, the "Novartis Overpayment"), then
Novartis shall be entitled to deduct such Novartis Overpayment from any
subsequent payment(s) due under this Section 4.4(e). The Net Sales adjustment
thresholds applicable to Adopted Products under the chart set forth above shall
be as follows:

     (1) in the event that the Selection Term continues for [**], or in the
     event that this Agreement is terminated by Novartis pursuant to Sections
     8.2 or 8.3, or in the event that Alnylam undergoes a Change of Control
     during the Selection Term, then the Net Sales adjustment thresholds in
     respect of Adopted Products under this Section 4.4(e)(ii)(B) shall be [**]
     percent ([**]%) of the Net Sales adjustment threshold applicable to
     Collaboration Products;

     (2) in the event that the Selection Term continues for [**], then the Net
     Sales adjustment threshold in respect of Adopted Products under this
     Section 4.4(e)(ii)(B)shall be [**] percent ([**]%) of the Net Sales
     adjustment threshold applicable to Collaboration Products; and

     (3) in the event that the Selection Term continues for [**], then the Net
     Sales adjustment threshold in respect of Adopted Products under this
     Section 4.4(e)(ii)(B) shall be [**] percent ([**]%) of the Net Sales
     adjustment threshold applicable to Collaboration Products.

          (iii) Royalty Stacking. All amounts payable by Novartis to Alnylam
under Section 4.4(e)(i), as adjusted by Section 4.4(e)(ii)(B), will be reduced
(such reduction, a "Stacking Reduction") by [**] percent ([**]%) of all amounts
payable (such amounts, "Unblocking Amounts") by Novartis or its Affiliates under
Third Party agreements (other than the Listed Alnylam Third Party Agreements or
payments made in respect of Blocking RNAi Intellectual Property) that grant
intellectual property rights that


                                       37

Novartis or an Affiliate determine, in their sole, reasonable discretion, are
necessary or advisable for Discovery, Development, Commercialization or
Manufacture of one or more Licensed Product(s); provided, however, to the extent
that the Stacking Reductions for a Contract Quarter would cause the amount
payable to Alnylam in such Contract Quarter to be less than [**] percent ([**]%)
of the amount otherwise payable pursuant to Section 4.4(e)(i), as adjusted by
Section 4.4(e)(ii)(B) (the "Minimum Quarterly Payment") then: Novartis shall be
entitled to (A) deduct the Stacking Reductions until the Minimum Quarterly
Payment is reached, and (B) thereafter deduct the remaining balance of Stacking
Reductions against any subsequent payment(s) due under this Section 4.4(e). If
any Unblocking Amount is applicable to more than one Licensed Product, the
Unblocking Amount will be allocated to each such Licensed Product by reasonably
pro-rating the Unblocking Amount among the Licensed Products to which it is
applicable. In entering into the agreements with Third Parties described above,
Novartis shall use commercially reasonable efforts to (a) minimize the
Unblocking Amount, and (b) have the foregoing Third Parties agree to customary
royalty stacking provisions pursuant to which payments hereunder can be offset
against payments to such Third Parties.

          (iv) Notwithstanding the adjustments under Sections 4.4(e)(i) through
(iii) and Section 4.5 on royalties payable to Alnylam, with respect to each
Licensed Product in each Contract Quarter, (A) Alnylam's royalties payable
pursuant to Section 4.4(e)(i) [**] of such Licensed Product's Net Sales in such
Contract Quarter, and (B) Novartis shall reimburse Alnylam for the Listed
Alnylam Third Party Payments payable in respect of such Licensed Product in such
Contract Quarter. Any amounts that, absent this Section 4.4(e)(iv), would
otherwise be deductible under Sections 4.4(e)(i) through (iii) or Section 4.5
against Alnylam royalties will be credited against subsequent payments due under
this Section 4.4(e), subject to the foregoing.

          (v) Duration of Royalty Payments. The royalties payable under this
Section 4.4 shall be paid on a country-by-country basis on each Licensed Product
until the expiration of the applicable Royalty Term.

          (f) Sales Milestones.

          With respect to each Collaboration Product, Novartis shall pay, or
cause to be paid, to Alnylam the following one-time payments upon the
achievement of the milestone events set forth below:



Milestone Event:                                         Payment Amounts:
- ----------------                                         ----------------
                                                      
Aggregate worldwide Annual Net Sales of the applicable         $[**]
Collaboration Product reach $[**]:

Aggregate worldwide Annual Net Sales of the applicable         $[**]
Collaboration Product reach $[**]:

Aggregate worldwide Annual Net Sales of the applicable         $[**]
Collaboration Product reach $[**]:



                                       38

Each of the milestone payments under this Section 4.4(f) shall be payable only
once in relation to each Collaboration Product.

          4.5  PAYMENTS IN RESPECT OF BLOCKING RNAI INTELLECTUAL PROPERTY.

          Except for Listed Alnylam Third Party Payments paid or payable
pursuant to Listed Alnylam Third Party Agreements, Alnylam shall [**] by
Novartis or its Affiliates, for Novartis and its Affiliates to acquire or
license rights under Third Party intellectual property or proprietary rights
("Blocking RNAi Intellectual Property") that would be infringed by the exercise
of Novartis' rights under Broad RNAi Intellectual Property granted pursuant to
Sections 3.1(a) through (c) to the extent that such intellectual property or
proprietary rights relate to RNAi Compounds and RNAi Products generally, as
distinct from intellectual property or proprietary rights solely covering a
particular RNAi Compound or RNAi Product.

          4.6  CO-FUNDING.

          (a) With respect to each Licensed Product, Novartis shall, during the
Exclusivity Term, provide timely notice to Alnylam before the initiation of the
first Phase I Study with respect to such Licensed Product.

          (b) Alnylam will thereafter have a period of no more than [**] to
provide written notice to Novartis of Alnylam's interest in co-funding, and
sharing in the net profits and losses of, Novartis's Development and
Commercialization of such Licensed Product ("Co-Fund" or "Co-Funding"). Such
Co-Funding shall be in lieu of receiving the payments described in Section 4.4
with respect to such Licensed Product, and shall include a premium for
Novartis's risks to date.

          (c) If Novartis has an interest in having Alnylam Co-Fund such
Licensed Product, the Parties shall enter into good faith negotiations for a
period of [**] after receipt of Alnylam's notice of interest (the "Co-Fund
Negotiation Period") to determine whether or not, and if so, the terms and
conditions (including financial terms and observer rights) pursuant to which,
Alnylam may Co-Fund such Licensed Product. If the Parties are for any reason
unable to enter into a written Co-Funding agreement during the Co-Fund
Negotiation Period with respect to such Licensed Product, Novartis shall be free
to continue Developing and Commercializing such Licensed Product without any
further obligation under this Section 4.6 to Alnylam; provided, however, the
Parties shall during the course of this Agreement agree to enter into [**]
Co-Funding agreements with respect to [**] Collaboration Products.

          (d) Alnylam's Co-Funding of a Collaboration Product, if agreed to by
the Parties pursuant to Section 4.6(c), shall provide that Alnylam: (i) shall be
required to


                                       39

fund at least [**] percent ([**]%) of Novartis's past and future development and
commercialization costs and expenses of such Collaboration Product, and (ii)
shall share in at least [**] percent ([**]%) of the net profits and losses of
the development and commercialization of such Collaboration Product.

          (e) For avoidance of doubt, Alnylam's Co-Funding of a Licensed Product
shall not give Alnylam any additional decision-making rights and Novartis will
be solely responsible for all decisions regarding the Development and
Commercialization of such Co-Funded Licensed Product.

          4.7  REPORTING; INVOICING AND PAYMENT.

          (a) FTEs and Infrastructure Fee. Alnylam shall, within [**] following
the end of each Contract Quarter, deliver to Novartis a report stating the FTEs
that worked on each Active Program and the Active Programs that it actively
worked on with respect to such Contract Quarter.

          (b) Milestones. Novartis shall notify Alnylam of the occurrence of one
of the milestone events identified in Sections 4.4(a), (b), (c) or (d) within
[**] following such occurrence. Thereafter, Alnylam may submit an invoice in
respect of the applicable milestone payment.

          (c) Royalty Reports; Payments. Following the First Commercial Sale of
a Licensed Product, Novartis shall, within [**] following the end of each
Contract Quarter, deliver to Alnylam a report stating the Net Sales in units and
in value of the Licensed Product made by Novartis, its Affiliates and their
respective licensees and sublicensees, on a country-by-country basis (consistent
with Novartis's internal geographical organization thereof), together with the
calculation of the royalties due to Alnylam. In the event that Alnylam agrees
with Novartis's royalty calculation, Alnylam may submit an invoice to Novartis
for such amounts. In the event that Alnylam does not agree with Novartis's
royalty calculation, Alnylam may submit an invoice to Novartis for any
undisputed amounts, which upon notice to Novartis of a dispute with respect to
such royalty calculation, shall be without prejudice to Alnylam's rights and
remedies with respect to any disputed amounts.

          (d) Invoices. All amounts payable by Novartis under this Agreement
shall be made only upon receipt by Novartis of an invoice substantially in the
form set forth in Schedule 4.7 (as may be updated by Novartis from time to time)
covering such payment. Except in the event of a bona fide dispute with respect
to such invoiced amounts, all payments made by Novartis pursuant to this
Agreement will be made within [**] following receipt by Novartis of the
applicable invoice.

          4.8  FINANCIAL RECORDS.

          Each Party and its Affiliates shall keep for three (3) years all
financial records relating to the transactions and activities contemplated by
this Agreement in sufficient detail to verify compliance with the terms of this
Agreement. The Parties shall


                                       40

maintain all records in accordance with their respective Accounting Standards.
Each Party shall promptly notify the other in the event that it changes the
accounting principles pursuant to which its records shall be maintained, it
being understood that only internationally recognized accounting principles may
be used.

          4.9  AUDIT RIGHT.

          (a) For the purposes of the audits rights described herein, a Party
subject to an audit in any given Contract Year will be referred to as the
"Auditee" and the other Party who has certain and respective rights to audit the
books and records of the Auditee will be referred to as the "Audit Rights
Holder."

          (b) Each Party may, upon request and at its expense (except as
provided for herein), cause an internationally-recognized independent accounting
firm selected by it (except one to whom the Auditee has a reasonable objection)
(the "Audit Team"), to audit during ordinary business hours the books and
records of the other Party's compliance with its obligations under this
Agreement, including the correctness of any payment made or required to be made
to or by such Party, as applicable, and any report underlying such payment (or
lack thereof), pursuant to the terms of this Agreement. Prior to commencing such
audit, the Audit Team shall enter into an appropriate confidentiality agreement
with the Auditee.

          (c) In respect of each audit of the Auditee's books and records: (i)
the Auditee may be audited only once per Contract Year; (ii) no records for any
given Contract Year for an Auditee may be audited more than once; and (iii) the
Audit Rights Holder shall only be entitled to audit books and records of an
Auditee from the three (3) Contract Years prior to the Contract Year in which
the audit request is made; provided, however, that the Audit Rights Holder shall
be entitled to audit all contracts to which such books and records relate
regardless of the date such contracts were entered into.

          (d) In order to initiate an audit for a particular Contract Year, the
Audit Rights Holder must provide written notice to the Auditee. The Audit Rights
Holder exercising its audit rights shall provide the Auditee with written notice
of one or more proposed dates of the audit which are at least forty-five (45)
days after the date of the Auditee's receipt of such written notice. The Auditee
will reasonably accommodate the scheduling of such audit. The Auditee shall
provide such Audit Team with full and complete access to the applicable books
and records and otherwise reasonably cooperate with such audit.

          (e) The audit report and basis for any determination by an Audit Team
shall be made available for review and comment by the Auditee, and the Auditee
shall have the right, at its expense, to request a further determination by such
Audit Team as to matters which the Auditee disputes (to be completed no more
than thirty (30) days after the first determination is provided to such Auditee
and to be limited to the disputed matters). If the Parties disagree as to such
further determination and such disagreement relates to financial matters, the
Audit Rights Holder and the Auditee shall mutually select an
internationally-recognized independent accounting firm that shall make a final


                                       41

determination as to the remaining matters in dispute that shall be binding upon
the Parties. With respect to disagreements that relate to non-financial matters,
the Parties reserve all rights and remedies available at law and equity. Such
accountants shall not disclose to the Audit Rights Holder any information
relating to the business of the Auditee except that which should properly have
been contained in any report required hereunder or otherwise required to be
disclosed to such Party to the extent necessary to verify the payments required
to be made or other obligations pursuant to the terms of this Agreement.

          (f) If the audit shows any under-reporting or underpayment, or
overcharging by any Party, that under-reporting, underpayment or overcharging
shall be reported to the Joint Steering Committee (or both Parties if the Joint
Steering Committee is no longer operating) and the underpaying or overcharging
Party shall remit such underpayment or reimburse such overcompensation (together
with interest at the interest rate of three percent (3%) with respect to any
underpayment or overcharge) to the underpaid or overcharged Party within fifteen
(15) days of receiving the audit report. Further, if the audit for an annual
period shows an under-reporting or underpayment or an overcharge by any Party
for that period in excess of ten percent (10%) of the amounts properly
determined, the underpaying or overcharging Party, as the case may be, shall
reimburse the applicable underpaid or overcharged Audit Rights Holder conducting
the audit, for its respective audit fees and reasonable out-of-pocket expenses
in connection with said audit, which reimbursement shall be made within thirty
(30) days of receiving appropriate invoices and other support for such
audit-related costs.

          4.10 CURRENCY EXCHANGE.

          All amounts in this Agreement are expressed in U.S. Dollars. With
respect to sales of Licensed Products invoiced in U.S. Dollars, the sales and
royalties payable shall be expressed in U.S. Dollars. With respect to sales of
Licensed Products invoiced in a currency other than U.S. Dollars, the sales and
royalties payable shall be expressed in their U.S. Dollar equivalent calculated
using Novartis's then-current standard exchange rate methodology applied in its
external reporting in accordance with International Financial Reporting
Standards as generally and consistently applied by Novartis (which is ultimately
based on official rates such as Reuters and the European Central Bank) for the
conversion of foreign currency sales into United States Dollars. All payments
shall be made in U.S. Dollars.

          4.11 TAX MATTERS.

          The Parties shall use all reasonable and legal efforts to reduce or
optimize tax withholding, to the extent permitted by applicable law, on payments
made pursuant to this Agreement. Each Party agrees to cooperate in good faith to
provide the other Party with such documents and certifications as are reasonably
necessary to enable such other Party to minimize any withholding tax obligations
or liabilities. Notwithstanding such efforts, if Novartis concludes that tax
withholdings under the Laws of any country are required with respect to payments
to Alnylam, Novartis shall withhold the required amount and pay it to the
appropriate governmental authority. The Parties will reasonably


                                       42

cooperate in providing one another with documentation of the payment of any
withholding taxes paid pursuant to this Section 4.11 and in completing and
filing documents required under the provisions of any applicable tax Laws or
under any other applicable Law in connection with the making of any required tax
payment or withholding payment, or in connection with any claim to a refund of
or credit for any such payment.

          4.12 LATE PAYMENTS.

          Unless otherwise mutually agreed by the Parties, all undisputed
amounts due under this Agreement that are overdue by at least ten (10) Business
Days shall earn interest from such date due until paid at a rate equal to the
three (3) month LIBOR rate for United States Dollars, as reported by The Wall
Street Journal, plus one percent (1%) per annum.

                                    ARTICLE V

                            CONFIDENTIAL INFORMATION

          5.1  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 (except to the extent reasonably necessary for Regulatory
Approval of a product or for the filing, prosecution and maintenance of Patent
Rights), and shall not otherwise be disclosed by the receiving Party to any
other person, firm, or agency, governmental or private, without the prior
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 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, is lawfully disclosed to the receiving Party by sources
     other than the disclosing Party rightfully in possession of the
     Confidential Information; or

               (c) either before or after the date of the disclosure to the
     receiving Party, becomes published or generally known to the public
     (including information known to the public through the sale of products in
     the ordinary course of business), without the receiving Party or its
     sublicensees violating this Article V; or

               (d) is independently developed by or for the receiving Party
     without reference to or reliance upon the Confidential Information.


                                       43

Notwithstanding anything set forth herein to the contrary, this Article V 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 5.1, 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 (whether in connection
with its ongoing disclosure obligations, in connection with a corporate activity
or otherwise), 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, 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 or regulation 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, regulation or legal process to be disclosed (whether in
connection with its ongoing disclosure obligations, in connection with a
corporate activity or otherwise). In the event that either Party determines that
it must publicly file this Agreement with the United States Securities and
Exchange Commission such Party shall (i) initially file a redacted copy of this
Agreement (the "Redacted Research Collaboration and License Agreement") in the
form of Exhibit D to the Stock Purchase Agreement, (ii) request, and use
commercially reasonable efforts to obtain, confidential treatment of all terms
redacted from such Redacted Research Collaboration and License Agreement;
provided that the redaction of such terms is permitted by the applicable rules
and regulations of the United States Securities and Exchange Commission, (iii)
permit the other Party to review and approve such initial request for
confidential treatment and any subsequent correspondence with respect thereto at
least two (2) Business Days prior to its submission to the United States
Securities and Exchange Commission, and (iv) promptly deliver to the other Party
any written correspondence received by it or its representatives from the United
States Securities and Exchange Commission with respect to such confidential
treatment request and promptly advise the other Party of any other material
communications between it or its representatives with the United States
Securities and Exchange Commission with respect to such confidential treatment
request. 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 to the Listed Counterparties; provided, that Alnylam shall
redact such portions as Novartis reasonably requests.

          5.2  EMPLOYEE AND ADVISOR OBLIGATIONS.

          Each Party agrees that it shall provide Confidential Information
received from the other Party only to its and its Affiliates' employees,
consultants, advisors, contractors and permitted sublicensees who have a need to
know such information in order for the receiving Party to exercise its rights or
perform its obligations under this


                                       44

Agreement and have an obligation to treat such information and materials as
confidential under terms no less restrictive than those set forth herein.

          5.3  PUBLICATIONS.

          The Parties acknowledge that scientific lead time is a key element of
the value of the Research Collaboration and further agree that scientific
publications must be strictly monitored to prevent any adverse effect of the
premature publication of results of the Research Collaboration. The Parties
shall establish a procedure for publication review and approval with respect to
publications regarding the Research Collaboration and each Party shall first
submit to the other Party an early draft of all such publications, whether they
are to be presented orally or in written form, at least [**] prior to submission
for publication. Each Party shall review each such proposed publication in order
to avoid the unauthorized disclosure of a Party's Confidential Information and
to preserve the patentability of inventions arising from the collaboration. If,
as soon as reasonably possible but no longer than [**] following receipt of an
advance copy of a Party's proposed publication, the other Party informs such
Party that its proposed publication contains Confidential Information of the
other Party, then such Party shall delete such Confidential Information from its
proposed publication. If, as soon as reasonably possible but no longer than [**]
following receipt of an advance copy of a Party's proposed publication, the
other Party informs such Party that its proposed publication could be expected
to have a material adverse effect on any Patent Rights or Know-How of such other
Party, then such Party shall delay such proposed publication for a period of
reasonable length to permit the timely preparation and first filing of Patent
Application(s) on the information involved. For the avoidance of doubt, the
provisions of this Section 5.3 are not intended to govern or limit submissions
reasonably necessary for Regulatory Approvals, press releases, submissions in
connection with the filing, prosecution and maintenance of Patent Rights, and
the like.

          5.4  PUBLICITY.

          Neither Party shall issue any press release or public announcement
relating to this Agreement, the Research Collaboration or any Licensed Products
without the prior written approval of the other Party, which approval shall not
be unreasonably withheld, except that a Party may issue such 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; 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 the Licensed Product(s) or this
Agreement as is required by such 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 disclosed.


                                       45

                                   ARTICLE VI

                   INTELLECTUAL PROPERTY OWNERSHIP, PROTECTION

                               AND RELATED MATTERS

          6.1  OWNERSHIP OF INVENTIONS.

          (a) Sole Inventions. Each Party shall exclusively own all inventions
made solely by such Party, its employees, agents and consultants in the course
of the Research Collaboration ("Sole Inventions"). Sole Inventions made solely
by Novartis, its employees, agents and consultants are referred to herein as
"Novartis Sole Inventions". Sole Inventions made solely by Alnylam, its
employees, agents and consultants are referred to herein as "Alnylam Sole
Inventions."

          (b) Joint Intellectual Property. Alnylam hereby assigns all of its
rights under any and all inventions or Know-How made or acquired from time to
time jointly by employees, agents and consultants of Novartis, on the one hand,
and employees, agents and consultants of Alnylam, on the other hand
(collectively "Joint Intellectual Property") in connection with the Research
Collaboration, and such Joint Intellectual Property shall be Novartis Sole
Inventions. At Novartis's request from time to time, Alnylam shall, and shall
cause its Affiliates, employees, agents and consultants to, execute documents
and instruments and perform such acts as may be reasonably necessary in order to
effect the foregoing assignment. Following the Research Term, or during the
Research Term in the event that the Joint Steering Committee elects to
discontinue one or more Active Programs pursuant to Section 2.3(b), in the event
that Alnylam desires to acquire or license rights in any of the Novartis Sole
Inventions that, absent this Section 6.1(b), would have been Joint Intellectual
Property, Novartis may, on a case-by-case, product-by-product basis grant rights
under such Novartis Sole Inventions pursuant to terms and conditions agreed to
by the Parties. Novartis hereby grants to Alnylam a worldwide, non-exclusive,
royalty-free right and license (sublicenseable solely to Controlled Contractors)
under the Novartis Sole Inventions that, absent this Section 6.1(b), would have
been Joint Intellectual Property that is Broad RNAi Intellectual Property, to
engage in any and all research activities directed to the Field.

          (c) Inventorship. For purposes of determining whether an invention is
a Novartis Sole Invention, an Alnylam Sole Invention or Joint Intellectual
Property, inventorship shall be resolved in accordance with United States patent
laws.

          (d) Data Ownership; Right of Reference; Regulatory Matters. All
preclinical and clinical data generated with respect to the Collaboration
Products in the course of the Research Collaboration shall be owned by the Party
generating such data ("Program Data"); provided, that (i) Alnylam shall provide,
and Novartis shall have access to, a reference with respect to, and the right to
use, all Program Data generated by Alnylam in the course of the Research
Collaboration, and (ii) Alnylam shall not attempt to use its Program Data in any
Registration Filing for any product that includes a Discovered RNAi Compound.
Alnylam shall provide to Novartis, to the extent Alnylam


                                       46

is aware of Novartis Registration Filing(s) or other Novartis products, (A)
notice of Alnylam Patent Rights relevant to a Novartis Registration Filing,
prior to the time such Registration Filing is filed, and (B) prompt notice of
the issuance of any Alnylam Patent Right which may be relevant to a Novartis
product, giving the date of issue and Patent number for each such Patent and
Novartis will decide if such Patent is to be listed pursuant to any Novartis
Registration Filing for such product. Similarly, Alnylam shall provide Novartis
prompt notice of any Alnylam Patent Right term extensions in any country.

          6.2  PROSECUTION AND MAINTENANCE OF PATENT RIGHTS.

          (a) Prosecution and Maintenance.

          (i) Alnylam shall have the exclusive right and option, but not the
obligation, at its cost, to file and prosecute any Patent Rights covering
Alnylam Patent Rights; provided that in the event that Alnylam declines the
option to file, prosecute or maintain any such Patent Rights that pertain to a
Discovered RNAi Compound and/or a Licensed Product, it shall give Novartis
reasonable notice of at least [**] to this effect, sufficiently in advance to
permit Novartis to undertake such filing, prosecution and maintenance without a
loss of rights, and thereafter Novartis may, upon written notice to Alnylam,
file and prosecute such Patent Applications and maintain such Patents in
Alnylam's name, all at Novartis's expense (subject to the immediately following
sentence), and all such Alnylam Sole Inventions shall remain owned exclusively
by Alnylam, subject to the provisions of Section 3.1. If Novartis incurs filing,
prosecution and/or maintenance expenses with respect to Sole Inventions owned by
Alnylam and pertaining to a Discovered RNAi Compound or Licensed Product in
accordance with the immediately preceding sentence, Novartis shall be entitled
to deduct its reasonable expenses from the royalties that Novartis pays to
Alnylam with respect to products in which such Discovered RNAi Compound(s) are
active ingredient(s) or such Licensed Product, as the case may be, pursuant to
Section 4.4(e).

          (ii) Novartis shall have the exclusive right and option, but not the
obligation, at its cost, to file, prosecute or maintain any Patent Rights
covering Novartis Sole Inventions.

          (b) Cooperation. Each Party agrees to cooperate with the other with
respect to the preparation, filing, prosecution and maintenance of Patents and
Patent Applications pursuant to Section 6.2(a), including, the execution of all
such documents and instruments and the performance of such acts (and causing its
relevant employees to execute such documents and instruments and to perform such
acts) as may be reasonably necessary in order to permit the other Party to
continue any preparation, filing, prosecution or maintenance of Patent Rights,
whether or not such Party is participating in or funding the filing, prosecution
or maintenance of such Patent Rights.


                                       47

          6.3 THIRD PARTY INFRINGEMENT.

          (a) Notice. Alnylam shall promptly report in writing to Novartis any
(x) known or suspected infringement of Alnylam Patent Rights or (y) known or
suspected unauthorized use or misappropriation of Alnylam Know-How, of which
Alnylam becomes aware, and shall provide Novartis with all available evidence
supporting such infringement, suspected infringement, unauthorized use or
misappropriation or suspected unauthorized use or misappropriation.

          (b) Infringement Action.

               (i) Subject to Section 6.3(b)(ii), Alnylam shall have the right
     to initiate a suit or take other appropriate action that it believes is
     reasonably required to protect the Alnylam Intellectual Property, including
     a defense to a claim of invalidity or unenforceability. Thereafter, Alnylam
     shall keep Novartis promptly informed, and shall from time to time consult
     with Novartis regarding the status of any such suit or action and shall
     provide Novartis with copies of all material documents (e.g., complaints,
     answers, counterclaims, material motions, orders of the court, memoranda of
     law and legal briefs, interrogatory responses, depositions, material
     pre-trial filings, expert reports, affidavits filed in court, transcripts
     of hearings and trial testimony, trial exhibits and notices of appeal)
     filed in, or otherwise relating to, such suit or action.

               (ii) Novartis shall have the sole and exclusive right to initiate
     a suit under Alnylam Intellectual Property or take other appropriate action
     that it believes is reasonably required to protect Novartis Sole
     Inventions, a Discovered RNAi Compound or a Licensed Product. Novartis
     shall give Alnylam advance notice of its intent to file any such suit or
     take any such action and the reasons therefor, and shall provide Alnylam
     with an opportunity to make suggestions and comments regarding such suit or
     action. Thereafter, Novartis shall keep Alnylam promptly informed, and
     shall from time to time consult with Alnylam regarding the status of any
     such suit or action and shall provide Alnylam with copies of all material
     documents (e.g., complaints, answers, counterclaims, material motions,
     orders of the court, memoranda of law and legal briefs, interrogatory
     responses, depositions, material pre-trial filings, expert reports,
     affidavits filed in court, transcripts of hearings and trial testimony,
     trial exhibits and notices of appeal) filed in, or otherwise relating to,
     such suit or action.

          (c) Conduct of Action; Costs. The Party initiating suit shall have the
sole and exclusive right to select counsel for any suit initiated by it under
this Section 6.3. If required under applicable Law in order for such Party to
initiate or maintain such suit, the other Party shall join as a party to the
suit. If requested by the Party initiating suit, the other Party shall provide
reasonable assistance to the Party initiating suit in connection therewith at no
charge to such Party except for reimbursement of reasonable out-of-pocket
expenses incurred in rendering such assistance. The Party initiating suit shall
assume and pay all of its own out-of-pocket costs incurred in connection with
any litigation or proceedings described in this Section 6.3, including the fees
and expenses of


                                       48

the counsel selected by it. The other Party shall have the right to participate
and be represented in any such suit by its own counsel at its own expense.

          (d) Recoveries. Any recovery obtained as a result of any proceeding
described in this Section 6.3 or from any counterclaim or similar claim asserted
in a proceeding described in Section 6.4, by settlement or otherwise, shall be
applied in the following order of priority:

               (i) first, the Party initiating the suit or action shall be
     reimbursed for all costs in connection with such proceeding paid by such
     Party;

               (ii) second, the other Party shall be reimbursed for all costs in
     connection with such proceeding paid by the other Party; and

               (iii) third, any remainder shall be paid [**] percent ([**]%) to
     the Party initiating the suit or action, and the balance to the other
     Party.

          6.4 CLAIMED INFRINGEMENT; CLAIMED INVALIDITY.

          (a) Notice. In the event that a Third Party at any time asserts a
claim, or brings an action, suit or proceeding against a Party, or any of its
Affiliates or sublicensees, claiming infringement of such Third Party's Patent
Rights or unauthorized use or misappropriation of such Third Party's Know-How,
based upon an assertion or claim arising out of any of the activities taken in
respect of the Research Collaboration or in respect of the Discovery,
Development, Commercialization or Manufacture of Discovered RNAi Compounds or
Licensed Products (such a claim, action, suit or proceeding, a "Third Party
Infringement Claim"), such Party shall promptly notify the other Party in
writing of the claim or the commencement of such action, suit or proceeding,
enclosing a copy of the claim and all papers served.

          (b) Defense of Third Party Infringement Claims. Subject to the
Parties' respective rights and obligations under Section 9.1, the following
provisions shall apply to the conduct of the defense of Third Party Infringement
Claims:

               (i) Within thirty (30) days after delivery of the notification
     required to be delivered under Section 6.4(a), the Party against whom the
     claim is brought shall, upon written notice thereof to the other Party,
     select counsel reasonably satisfactory to the other Party and shall assume
     control of the defense of such action, suit, proceeding or claim; provided,
     however, that if a claim is brought against both Parties, Novartis shall
     assume control. 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.

               (ii) The Party not controlling such defense may participate
     therein at its own expense.


                                       49

               (iii) The Party controlling the defense shall not agree to any
     settlement of such action, suit, proceeding or claim without the prior
     written consent of the other Party, which shall not be unreasonably
     withheld or delayed. Where failure to settle any action, suit, proceeding
     or claim is unreasonably interfering with the Development or
     Commercialization of Licensed Products, Parties shall refer the matter to
     the independent evaluation of a mediator. The Party controlling the defense
     shall not agree to any settlement of such action, suit, proceeding or claim
     or consent to any judgment in respect thereof that does not include a
     complete and unconditional release of the other Party from all liability
     with respect thereto, or that imposes any liability or obligation on the
     other Party, without the prior written consent of the other Party.

          (c) Patent Invalidity Claim. If a Third Party at any time asserts a
claim that any Alnylam Patent Right Covering a Discovered RNAi Compound or a
Licensed Product is invalid or otherwise unenforceable (an "Invalidity Claim"),
whether as a defense in an infringement action brought by Alnylam or Novartis
pursuant to Section 6.3, in a declaratory judgment action or in a Third Party
Infringement Claim brought against Alnylam or Novartis, the Parties shall
cooperate with each other in preparing and formulating a response to such
Invalidity Claim. Neither Party shall settle or compromise any Invalidity Claim
involving Patent Rights Controlled by the other Party without the consent of the
other Party. If Novartis or its Affiliates incurs expenses to respond to
Invalidity Claims involving Alnylam Patent Rights, Novartis shall, without
limitation to any other rights or remedies available at Law or under this
Agreement, be entitled to deduct such expenses against the amounts otherwise
payable by Novartis pursuant to Section 4.4(e) with respect to the relevant
Licensed Product.

          6.5 MAINTAIN LICENSES IN FORCE.

          Alnylam shall, and shall cause its Affiliates to, comply with all
material terms and conditions of, and shall not, and shall cause its Affiliates
not to, without Novartis's prior written consent, accelerate, terminate, cancel,
amend or modify, or waive any claims or rights under the Listed Alnylam Third
Party Agreements, or take any action, or fail to take any action, that gives a
Listed Counterparty the right to accelerate, terminate, cancel, amend or modify
any rights under the Listed Alnylam Third Party Agreements; provided, however,
that Alnylam may take any action with respect to Listed Alnylam Third Party
Agreements that does not affect any of Novartis's rights or obligations. Alnylam
shall promptly notify Novartis if any Third Party party to any Listed Alnylam
Third Party Agreement or any Third Party with which Alnylam has entered into a
license agreement after the Effective Date that is material to the Research
Collaboration, any Discovered RNAi Compound or any Licensed Product, alleges any
breach, default, or event that with the passage of time or giving of notice
could become a default, by Alnylam of any such license agreement. Novartis shall
be entitled, but not obligated, to cure any alleged breach or default by Alnylam
of a payment obligation or other obligation, if possible, under any such license
agreement and set-off the cost of such cure against amounts otherwise owed to
Alnylam hereunder. The Parties shall use commercially reasonable efforts
following the Effective Date to effect agreements or amendments to the Listed
Alnylam Third Party Agreements that will allow Novartis or its


                                       50

Affiliates to directly pay any amounts due under such Listed Alnylam Third Party
Agreements in the event that Alnylam defaults under any of its payment
obligations and continue to permit Novartis to benefit from any rights granted
under such Listed Alnylam Third Party Agreements and licensed to Novartis under
this Agreement in the event of Alnylam's breach thereof.

          6.6 PATENT MARKING.

          Novartis shall comply with the patent marking statutes in each country
in which a Licensed Product is made, offered for sale, sold or imported by
Novartis, its Affiliates, licensees and/or sublicensees.

          6.7 TRADEMARKS.

          (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) Novartis shall not acquire any rights under this Agreement in any
trademark, service mark or Internet domain name including the word "alnylam" or
any other trademarks or trade dress of Alnylam or its Affiliates, and Alnylam
shall not acquire any rights under this Agreement in any trademark, service mark
or Internet domain name including the word "novartis" or any other trademarks or
trade dress of Novartis or its Affiliates.

          6.8 OPPOSITION.

          Novartis shall, and shall cause its Affiliates to, promptly after the
Effective Date withdraw its opposition proceeding against Kreutzer-Limmer
EP1144623.

          6.9 COORDINATION WITH LISTED ALNYLAM THIRD PARTY AGREEMENTS.

          To the extent that any of the provisions of a Listed Alnylam Third
Party Agreement that have been delivered to Novartis prior to the Effective Date
entitles a Listed Counterparty to participate in the prosecution, maintenance,
enforcement or defense of one or more Alnylam Patent Rights that Novartis,
pursuant to Sections 6.2, 6.3 or 6.4, is also entitled to participate in,
Novartis shall coordinate its activities with the Listed Counterparty in a
manner consistent with the restrictions set forth in such Listed Alnylam Third
Party Agreement, and Alnylam shall provide reasonable cooperation to facilitate
such coordination.

                                   ARTICLE VII

                         REPRESENTATIONS AND WARRANTIES

          7.1 MUTUAL REPRESENTATIONS AND WARRANTIES.


                                       51

          (a) Representations of Authority. Each Party represents and warrants
to the other Party that 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 each represents and warrants to the other
Party that, notwithstanding anything to the contrary in this Agreement, the
execution and delivery of this Agreement, the performance of its obligations in
the conduct of the Research Collaboration and the licenses and sublicenses to be
granted pursuant to this Agreement (a) do not and will not conflict with or
violate any requirement of applicable Laws effective as of the Effective Date,
and (b) do 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) Enforceability. Each Party represents and warrants to the other
Party that this Agreement is a legal and valid obligation binding upon it and is
enforceable in accordance with its terms.

          (e) Employee Obligations. Each Party represents and warrants that all
of its employees, officers, consultants and advisors who are or will be involved
in the Research Collaboration have executed or will 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 such Party's Confidential Information. Each Party
represents and warrants that, to its knowledge, none of its employees who are or
will be involved in the Research Collaboration are, as a result of the nature of
such Research Collaboration, in violation of any covenant in any contract with a
Third Party relating to non-disclosure of proprietary information,
non-competition or non-solicitation.

          7.2 REPRESENTATIONS AND WARRANTIES OF ALNYLAM.

          Alnylam represents and warrants to Novartis:

          (a) "Intellectual Property" shall mean, collectively all U.S. and
non-U.S. registered, unregistered and pending Patent Rights and Know-How. "Owned
Know-How" shall mean, collectively, all Know-How in which Alnylam or any of its
Affiliates has an ownership interest. "Owned Patents" shall mean all Patent
Rights in which Alnylam or any of its Affiliates has an ownership interest.
"Owned Property" shall mean, collectively, (x) all Owned Patents, and (y) Owned
Know-How. "Alnylam Property" shall mean, collectively, Intellectual Property
Controlled by Alnylam pursuant to an IP Contract (collectively, the "Licensed
Property") and the Owned Property.


                                       52

          (b) Schedule 7.2(b) sets forth a complete and accurate list of (i) all
Owned Patents, indicating the owner thereof, and all applications, registrations
and grants with respect thereto, and (ii) all agreements pursuant to which
Alnylam licensed, granted any rights to, or made any covenant not to sue with
respect to any Alnylam Intellectual Property (collectively, the "IP Contracts"),
specifically indicating, as applicable, each amendment thereto. Alnylam has
disclosed to Novartis true and complete copies of all IP Contracts and all
amendments thereto, except for the portions thereof which are subject to
confidentiality obligations to the other party(ies) to such IP Contracts that do
not relate to Novartis's rights or obligations under this Agreement. The
restrictions set forth the copies of the IP Contracts delivered to Novartis and
the rights that Alnylam has previously granted and is required to grant to
Pre-Existing Alliance Parties under the terms as of the Effective Date of the
Pre-Existing Alliance Agreements described in Section 3.1(e)(i) are the only
restrictions to which Novartis's rights under Section 3.1(a) through (c) are
subject.

          (c) Alnylam has granted no exclusive or co-exclusive rights under
Broad RNAi Intellectual Property except as follows:

          (i) Alnylam has granted exclusive RNAi Therapeutic Rights to
     Pre-Existing Alliance Parties to an aggregate of [**] Targets without
     limitation as to therapeutic area and [**] Targets with rights initially
     limited to a defined therapeutic area, but with the licensee having a
     right of first negotiation for therapeutic rights outside such defined
     therapeutic area;

          (ii) Alnylam has granted options to Pre-Existing Alliance Parties to
     acquire exclusive RNAi Therapeutic Rights directed to an aggregate of [**]
     Targets, and options to acquire co-exclusive RNAi Therapeutic Rights for an
     aggregate of [**] Targets, provided that:

               (A) As of the Effective Date, the subject Targets have been
          selected by Pre-Existing Alliance Parties for [**] of the options
          enumerated above, and the availability of any Target to Pre-Existing
          Alliance Parties for the other options is subject either to Alnylam's
          discretion (in the case of [**] options) or to the existence of any
          active programs, contractual obligations to third parties or ongoing
          negotiations of Alnylam (in the case of [**] options);

               (B) In the case of a Pre-Existing Alliance Party holding options
          to acquire exclusive RNAi Therapeutic Rights for [**] Targets, such
          options are subject to the acceptance by Alnylam of proprietary
          Targets proposed by such Pre-Existing Alliance Party, one such
          proprietary Target having been accepted by Alnylam to date, and to the
          subsequent exercise by such Pre-Existing Alliance Party of an opt-in
          right upon [**] conducted under good laboratory practice;

               (C) In the case of a Pre-Existing Alliance Party holding options
          to acquire exclusive RNAi Therapeutic Rights for [**] Targets and
          co-exclusive RNAi Therapeutic Rights for [**] Targets:


                                       53

                    (1) Alnylam may decline any request to grant any such option
               for a Target with respect to which: Alnylam has an active program
               in progress or due to start within [**]; is the subject of a
               contractual obligation to a third party that would preclude the
               grant of RNAi Therapeutic Rights for such Target to the
               Pre-Existing Alliance Party; or is the subject of a good faith
               negotiation with a third party to enter into such a contractual
               obligation within [**]; further provided that if Alnylam declines
               such a request and has not [**] with respect to the subject
               Target within [**] if Alnylam is working on such Target alone, or
               within [**] if such Target is subject to a contractual obligation
               with a third party that precludes Alnylam from granting such
               request and Alnylam is contractually able to revoke such third
               party's rights, then Alnylam will be obligated at such later time
               to grant such request. [**];

                    (2) On January 1 of each year until January 1, 2009, with
               respect to [**] for which co-exclusive RNAi Therapeutic Rights
               have been granted, such co-exclusive RNAi Therapeutic Rights
               shall [**] RNAi Therapeutic Rights;

                    (3) Such Pre-Existing Alliance Party has the right to
               purchase an option to [**] each year beginning on January 1,
               2007; and

                    (4) On each occasion that such Pre-Existing Alliance Party
               [**], it has the right to receive an [**], the RNAi Therapeutic
               Rights available [**] RNAi Therapeutic Rights. As of the
               Effective Date, such Pre-Existing Alliance Party [**].

               (D) In the case of a Pre-Existing Alliance Party holding options
          for exclusive RNAi Therapeutic Rights for [**] Targets, Alnylam [**]
          of such an option with respect to any Target.

               (E) In the case of a Pre-Existing Alliance Party holding options
          for exclusive RNAi Therapeutic Rights for[**]Targets, Alnylam will
          review in good faith any request to grant any such option for a
          Target, subject to the following: (i) any commitments to third parties
          that Alnylam may have with respect to such target(s) and (ii) ongoing
          activities or activities under consideration by Alnylam relating to
          its business or scientific interests.

          (iii) With respect to RNAi Compounds [**], Alnylam has granted a
     Pre-Existing Alliance Party options for [**] of Targets.

          (iv) With respect to the Encumbered Fields, Alnylam (A) has agreed
     with certain Pre-Existing Alliance Parties not to Discover, Develop,
     Commercialize or Manufacture RNAi Compounds and RNAi Products with third
     parties, excepting research institutions and/or contract service
     organizations, and (B) has granted such Pre-Existing Alliance Parties
     rights of first negotiation to collaborate with Alnylam in such Encumbered
     Fields, and to receive exclusive RNAi Therapeutic Rights with respect to
     such Encumbered Fields, [**] for which such RNAi Therapeutic Rights may be
     granted; provided, however, that such limitations with respect to
     Encumbered Fields will expire as set forth in the definition thereof.


                                       54

          (d) Except as set forth in Schedule 7.2(b), Alnylam or a subsidiary is
the sole and exclusive owner of all of the Owned Property, and, with respect to
the Owned Patents, is listed in the records of the appropriate U.S. or non-U.S.
governmental authority as the sole and exclusive owner of record for each
registration, grant and application listed in Schedule 7.2(b). Alnylam and its
predecessors-in-interest to all Owned Property that is Broad RNAi Intellectual
Property have obtained from all individuals who participated in the development
or inventorship of such Broad RNAi Intellectual Property (as employees of
Alnylam or any predecessor, as consultants, as employees of consultants or
otherwise), effective assignments of any and all rights of such individuals in
such Broad RNAi Intellectual Property. To Alnylam's knowledge, Alnylam and its
predecessors-in-interest to all other Owned Property have obtained from all
individuals who participated in the development or inventorship of such Owned
Property (as employees of Alnylam or any predecessor, as consultants, as
employees of consultants or otherwise), effective assignments of any and all
rights of such individuals in such Owned Property. No officer or employee of
Alnylam or any Affiliate thereof is subject to any agreement with any Third
Party that requires such officer or employee to assign to a Third Party any
interest in inventions or other Intellectual Property conceived during such
officer's or employee's appointment or employment with Alnylam or its Affiliate.

          (e) No act has been done or omitted to be done by Alnylam or any
Affiliate thereof, or, to the knowledge of Alnylam, by any direct or indirect
licensee or collaborator of Alnylam or any Affiliate thereof, or any Person with
which Alnylam or any subsidiary is a co-owner of any Owned Property, which has
had or is reasonably likely to have the effect of canceling, forfeiting,
abandoning or dedicating to the public, or entitling any U.S. or non-U.S.
governmental authority or any other Person to cancel, forfeit, modify or
consider abandoned, any Owned Property, or give any Person any rights with
respect thereto (other than pursuant to an IP Contract listed in Schedule
7.2(b)). Except as set forth in Schedule 7.2(e), neither Alnylam nor any
Affiliate has any knowledge of any facts or claims which cause or would cause
any Owned Property to be invalid or unenforceable, and neither Alnylam nor any
Affiliate thereof has received any written notice that any Person may bring such
a claim. Alnylam or one of its subsidiaries owns, free and clear of any lien or
encumbrance (except for encumbrances expressly set forth in an IP Contract
listed in Schedule 7.2(b)), or otherwise has the valid right to use through an
IP Contract listed in Schedule 7.2(b), all Alnylam Property. No proceedings or
claims in which Alnylam or any Affiliate alleges that any Person is infringing
upon, or otherwise violating, any Owned Property, or, to Alnylam's knowledge,
any Licensed Property, are pending, and none have been served by, instituted or
asserted by Alnylam or any such Affiliate, nor are any proceedings threatened
alleging any such violation or infringement. Neither Alnylam nor any subsidiary
has divulged, furnished to or made accessible to any Person, any material
Know-How that is Confidential Information included in Alnylam Property without
prior thereto having obtained an enforceable agreement of confidentiality from
such Person. All key personnel employed by Alnylam and any subsidiary have
executed an enforceable agreement of confidentiality. Alnylam and its Affiliates
have taken and will continue to take reasonable measures to maintain the
confidentiality of the Alnylam Know-How that is Confidential Information in a
manner consistent with prudent


                                       55

commercial practice in the biopharmaceuticals industry. Neither Alnylam nor its
Affiliates have materially breached the terms of any IP Contract, or otherwise
taken any action, or failed to take any action, that would give a Third Party
the right to accelerate, terminate, cancel, amend or modify any IP Contract
(which breach, action or inaction has not been cured or waived in writing), and
neither Alnylam nor its Affiliates have received any notice alleging such
breach, action or inaction (which breach, action or inaction has not been cured
or waived in writing). To Alnylam's knowledge, no Third Party has breached the
terms of any IP Contract, and neither Alnylam nor its Affiliates have issued any
notice alleging such breach. The exercise by Novartis of the rights and licenses
thereunder, do not require the consent of any Third Party, including the Third
Party parties to the Listed Alnylam Third Party Agreements.

          (f) With respect to each of the Owned Patents: (i) all necessary
registration, maintenance and renewal fees have been paid and all necessary
documents and certificates have been filed with the relevant Governmental
Entities for the purpose of maintaining such Patents; (ii) to Alnylam's
reasonable belief, such Patents disclose patentable subject matter under 35
U.S.C. Section 101 and its counterparts under non-U.S. law, and there are no
inventorship challenges or interferences declared or, to Alnylam's knowledge,
provoked with respect to such Patents; (iii) Alnylam and each Affiliate have
complied with the required duty of candor and good faith in dealing with the
U.S. Patent and Trademark Office and similar Governmental Entities
(collectively, "Patent Offices"), including the duty to disclose to the Patent
Offices all information required to be disclosed under all applicable laws and
regulations; and (iv) other than through an IP Contract listed in Schedule
7.2(b), no third party, including any academic organization or governmental
authority, possesses rights to such Patents.

          (g) As of the date that Alnylam delivers a Blocked Target List to the
Gatekeeper, each of the Targets included on the Blocked Target List are (i) the
subject of a material commitment made by Alnylam to an Alnylam Program directed
to such Target or (ii) subject, pursuant to a written agreement entered into by
Alnylam, to rights that Alnylam granted to a Third Party, in each of case (i)
and (ii) prior to the delivery to Alnylam of such Target List or Supplemental
Target List, as the case may be, in which such Target was identified.

          (h) Except as set forth on Schedule 7.2(h), Alnylam is not aware of
[**] broad RNAi technology that are not included in any license grants by
Alnylam to Novartis under Article III.

          (i) Schedule 7.2(i) identifies all Listed Alnylam Third Party Payment
obligations existing as of the Effective Date.

          (j) Schedule 7.2(j) identifies all agreements pursuant to which
Alnylam is precluded from including one or more Target(s) in the Research
Collaboration.


                                       56

          7.3 EFFECTIVE DATE OF REPRESENTATIONS.

          The representations and warranties set forth in Sections 7.1 and 7.2
are, except as expressly provided above, being made by the Parties solely as of
the Effective Date. Without limiting the foregoing or any covenant or other
provision of this Agreement, in the event that during the Research Term, there
occurs any circumstances that would render any of the representations and
warranties made in Sections 7.2(c) through 7.2(g) untrue with respect to any
Alnylam Intellectual Property that Covers a Discovered RNAi Compound or any
Broad RNAi Intellectual Property if such representations and warranties were
given subsequent to the Effective Date, then Alnylam shall notify Novartis in a
reasonably detailed writing within thirty (30) days after becoming aware of such
circumstances. In connection with Novartis's bona fide consideration of
acquiring the Adoption License, Alnylam shall afford Novartis and its attorneys
and authorized representatives reasonable access to all relevant Patent Rights
files, contracts, correspondence, records and Patent personnel of Alnylam and
its Affiliates in order to permit Novartis to conduct due diligence with respect
to the Broad RNAi Intellectual Property.

          7.4 NO WARRANTIES.

          EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN SECTIONS 7.1 OR 7.2, OR IN
THE STOCK PURCHASE AGREEMENT, 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.

                                  ARTICLE VIII

                              TERM AND TERMINATION

          8.1 TERM.

          (a) Term of Research Collaboration.

          (i) The Selection Term will commence on the Effective Date and shall
continue until the third (3rd) anniversary of the Effective Date (the "Selection
Term"), which Selection Term may be extended for up to two (2) additional one-
(1-) year periods, at Novartis's election upon the provision of written notice
to Alnylam not later than ninety (90) calendar days prior to the end of the then
current Selection Term. Notwithstanding the foregoing, the Selection Term may be
terminated earlier pursuant to Sections 8.2 or 8.3.

          (ii) If, at any time following the second (2nd) anniversary of the
Effective Date but prior to the Adoption Date, Novartis determines in its sole
discretion that the conduct of the Research Collaboration as a whole is failing,
and is likely to continue to fail, to produce successful results with respect to
the Selected Targets, then Novartis may terminate this Agreement upon at least
ninety (90) calendar days written


                                       57

notice to Alnylam. Upon the effective date of a termination under this Section
8.1(a)(ii), this Agreement shall terminate in its entirety subject to Section
8.4(f).

          (iii) The Research Collaboration will commence on the Effective Date
and shall continue until the completion of Alnylam's scheduled participation in
the Active Programs initiated during the Selection Term in accordance with their
respective Research Plans (the "Research Term"); provided, however, that in no
event shall the Research Term extend for more than three (3) months after the
end of the Selection Term.

          (iv) Upon the expiration or termination of the Research Term (except
pursuant to Section 8.1(a)(ii)), (A) Alnylam's participation in all Active
Programs will cease, (B) the Joint Steering Committee shall dissolve, and (C)
all of Novartis's rights under this Agreement with respect to Selected Targets
on the B List (as of the date of such expiration or termination) shall
terminate; provided, however, that

               (x) Novartis shall be entitled within thirty (30) days following
     such expiration or termination to select one or more of the Selected
     Targets then on the B List, with respect to which Novartis and its
     Affiliates will have the exclusive right to (1) Discover RNAi Compounds
     directed at such Selected Targets, (2) Develop, Commercialize or
     Manufacture such RNAi Compounds, and (3) Discover, Develop, Commercialize
     or Manufacture Licensed Products containing such RNAi Compounds (provided,
     further that for all other purposes under this Agreement, such RNAi
     Compounds and such Licensed Products shall be treated as Adopted Products);
     and

               (y) Alnylam shall be entitled within thirty (30) days following
     Novartis's selection, to select an equal number of Targets with respect to
     which Alnylam and its Affiliates will have the exclusive right to (1)
     Discover RNAi Compounds directed at such Targets, (2) Develop,
     Commercialize or Manufacture such RNAi Compounds, and (3) Discover,
     Develop, Commercialize or Manufacture products containing such RNAi
     Compounds.

All other rights and obligations under this Agreement shall continue or
terminate in accordance with the terms of this Agreement.

          (b) Term of Agreement. This Agreement shall be effective as of the
Effective Date and shall continue, subject to Sections 2.4(b), 8.1(a)(ii), 8.2
and 8.3, in accordance with its terms until with respect to a Licensed Product
in a particular country, the expiration of such Licensed Product's Royalty Term
in such country. Without prejudice to any other rights or remedies available at
law or in equity, neither Party shall have the right to terminate any right or
obligation under this Agreement except pursuant to Sections 2.4(b), 8.1(a)(ii),
8.2 or 8.3.

          8.2 TERMINATION FOR CAUSE.

          (a) During or following the Research Term, Novartis may terminate this
Agreement upon ninety (90) calendar days' prior written notice to Alnylam upon
the material breach by Alnylam of any of its representations, warranties or
obligations under


                                       58

this Agreement; provided that such termination shall become effective only if
Alnylam fails to remedy or cure the breach within ninety (90) calendar days of
receiving such notice.

          (b) During the Research Term, Alnylam may terminate this Agreement on
a Active Program-by-Active Program basis if Novartis fails to make three (3) or
more undisputed payments when due to Alnylam under this Agreement with respect
to such Active Program (including milestone payments in respect of a Selected
Target that are the subject of such Active Program) if, with respect to each
such payment failure, Novartis fails to remedy or cure such payment failure
within ninety (90) calendar days of receiving notice of such payment failure.

          (c) In the event that, prior to the Adoption Date, Alnylam has
terminated this Agreement pursuant to Section 8.2(b) with respect to at least
five (5) Active Programs, Alnylam shall have the right to terminate this
Agreement in its entirety.

          (d) Following the Research Term, Alnylam may terminate this Agreement
on a country-by-country, Licensed Product-by-Licensed Product basis upon ninety
(90) calendar days' prior written notice to Novartis upon the material breach by
Novartis with respect to such country and Licensed Product of any of its
representations, warranties or obligations under this Agreement; provided that
such termination shall become effective only if Novartis fails to remedy or cure
the breach within ninety (90) calendar days of receiving such notice.

          8.3 TERMINATION FOR BANKRUPTCY.

          If at any time during the term of this Agreement, an Event of
Bankruptcy (as defined below) relating to either Party (the "Bankrupt Party")
occurs, the other Party (the "Non-Bankrupt Party") shall have, in addition to
all other legal and equitable rights and remedies available hereunder, the
option to terminate this Agreement upon thirty (30) calendar days written notice
to the Bankrupt Party. It is agreed and understood that if the Non-Bankrupt
Party does not elect to terminate this Agreement upon the occurrence of an Event
of Bankruptcy, then, except as may otherwise be agreed with the trustee or
receiver appointed to manage the affairs of the Bankrupt Party, the Non-Bankrupt
Party shall continue to make all payments required of it under this Agreement as
if the Event of Bankruptcy had not occurred, the Bankrupt Party shall not have
the right to terminate any license granted herein, and in the event that Alnylam
is the Bankrupt Party, the operation of the Joint Steering Committee shall
immediately cease. The term "Event of Bankruptcy" shall mean, with respect to a
Party: (a) filing by such Party in any court or agency pursuant to any statute
or regulation of any state or country, a petition in bankruptcy or insolvency or
for reorganization or for an arrangement or for the appointment of a receiver or
trustee of the Bankrupt Party or of its assets; (b) a Person proposing a written
agreement of composition or extension of a Bankrupt Party's debts; (c) such
Party being served with an involuntary petition against the Bankrupt Party,
filed in any insolvency proceeding, and such petition shall not be dismissed
within sixty (60) calendar days after the filing thereof; (d) such Party
proposing or being a party to any dissolution or liquidation of such Party; or
(e) such Party making a general assignment


                                       59

for the benefit of creditors. If this Agreement is terminated by Novartis
pursuant to this Section 8.3 due to the rejection of this Agreement by or on
behalf of Alnylam or one or more of its Affiliates under Section 365 of Title
11, United States Code (the "Bankruptcy Code"), all licenses and rights to
licenses granted under or pursuant to this Agreement by Alnylam or its
Affiliates to Novartis are, and shall otherwise be deemed to be, for purposes of
Section 365(n) of the Bankruptcy Code, licenses of rights to "intellectual
property" as defined under Section 101(35A) of the Bankruptcy Code. The Parties
agree that Novartis, as a licensee of such rights under this Agreement, shall
retain and may fully exercise all of its rights and elections under the
Bankruptcy Code, and that upon commencement of a bankruptcy proceeding by or
against Alnylam or one or more of its Affiliates under the Bankruptcy Code,
Novartis shall be entitled to a complete duplicate of or complete access to (as
Novartis deems appropriate) any such intellectual property and all embodiments
of such intellectual property. Such intellectual property and all embodiments
thereof shall be promptly delivered to Novartis (i) upon any such commencement
of a bankruptcy proceeding upon written request therefor by Novartis, unless
Alnylam elects to continue to perform all of its obligations under this
Agreement, or (ii) if not delivered under (i) above, upon the rejection of this
Agreement by or on behalf of Alnylam upon written request therefor by Novartis.
The foregoing provisions of this Section 8.3 are without prejudice to any rights
Novartis may have arising under the Bankruptcy Code or other applicable Law.

          8.4 EFFECT OF EXPIRATION OR TERMINATION.

          (a) If Novartis terminates this Agreement pursuant to Section 8.2(a),
then (x) Novartis obligations under Sections 2.4 and 3.4 and Alnylam's rights
under Section 3.2 shall terminate, (y) Alnylam's obligations under Sections 2.6
and 2.7 and Article VI shall continue, and (z) Novartis's rights under Article
III shall continue subject only to the obligation to pay to Alnylam the amounts
due under Sections 4.4 as they become due; provided, however, in the event that
such termination was due to: (i) the purported grant to a Third Party of license
rights granted exclusively to Novartis under this Agreement that adversely
affects Novartis; (ii) the disclosure by Alnylam of material Confidential
Information of Novartis in violation of Article V of this Agreement; (iii)
Alnylam ceasing to perform its funded obligations during the Research Term; or
(iv) the material breach by Alnylam of any of the representations or warranties
set out in Article VII for which Novartis has not been indemnified in full,
Novartis shall only be obligated to pay to Alnylam [**] percent ([**]%) of the
amounts otherwise due under Sections 4.4 as they become due, and [**] Alnylam
with respect thereto.

          (b) If Alnylam terminates this Agreement pursuant to Section 8.2(b)
with respect to an Active Program, then (i) all of Novartis's licenses under
Sections 2.6 and 3.1(a) and (b) and Alnylam's rights under Section 3.2 with
respect to the Selected Target, Discovered RNAi Compound and Collaboration
Product that are the subject of such Active Program shall terminate, (ii) each
Party shall promptly return to the other Party all Confidential Information of
the other Party pertaining exclusively to such Active Program, (iii) Alnylam may
undertake the Discovery, Development, Manufacture and Commercialization of the
Selected Target, Discovered RNAi Compound and


                                       60

Collaboration Product that are the subject of such Active Program, and (iv) all
other terms of this Agreement shall remain in effect.

          (c) If Alnylam terminates this Agreement in its entirety pursuant to
Section 8.2(c), then (i) this Agreement, subject to Section 8.4(f), including
all licenses granted under Article III, shall terminate, and (ii) each Party
shall promptly return to the other Party all Confidential Information of the
other Party.

          (d) If Alnylam terminates this Agreement pursuant to Section 8.2(d),
then all provisions of this Agreement, including the licenses granted under
Article III, with respect to the relevant terminated Licensed Product(s) in the
relevant country(ies) granted by Alnylam to Novartis hereunder shall terminate.

          (e) Upon the expiration of the Royalty Term applicable to any Licensed
Product in a country, Novartis's and its Affiliates' licenses under Sections
3.1(b) or (c) with respect to such Licensed Product in such country shall
convert to perpetual, irrevocable, non-exclusive, transferable, paid-up,
royalty-free license with the right to sublicense in such country, to Discover,
Develop, Commercialize or Manufacture such Licensed Product in such country.

          (f) Survival. The expiration or termination of any right or obligation
under this Agreement for any reason will not affect obligations, including the
payment of any royalties and milestones, that have accrued as of the date of
such expiration or termination, as the case may be, and the provisions set forth
in Sections 4.8 and 4.9 and Articles V, VII, VIII and IX shall survive such
expiration or termination.

                                   ARTICLE IX

                                  MISCELLANEOUS

          9.1 INDEMNIFICATION.

          (a) By Alnylam. Alnylam shall defend, indemnify and hold harmless
Novartis, its Affiliates and their respective directors, officers, employees and
agents, at Alnylam's cost and expense, from and against any liabilities, losses,
costs, damages, fees or expenses (including reasonable fees and expenses of
legal counsel) arising out of any Third Party claim based on (i) any breach by
Alnylam of any of its representations, warranties or obligations pursuant to
this Agreement, or any claim the allegations of which, if true, would constitute
a breach of the representations or warranties set forth in this Agreement, or
(ii) the negligence or willful misconduct of Alnylam or its Affiliates or
sublicensees, or any of their respective directors, officers, employees and
agents, in the performance of obligations or exercise of rights under this
Agreement, or (iii) any Product Liability Claim relating to a product that is
Discovered, Developed, Manufactured or Commercialized by Alnylam (excluding, for
the avoidance of doubt, Licensed Products), except to the extent that such
claims arise out of any negligence or willful misconduct of Novartis or its
Affiliates or sublicensees, or any of their respective directors, officers,
employees and agents. "Product Liability Claim" shall mean, with respect to a
product, any Third Party claim, suit, action, proceeding, liability or
obligation


                                       61

involving any actual or alleged death or bodily injury arising out of or
resulting from the use of such product.

          (b) By Novartis. Novartis shall defend, indemnify and hold harmless
Alnylam, its Affiliates and their respective directors, officers, employees and
agents at Novartis's cost and expense, from and against any liabilities, losses,
costs, damages, fees or expenses (including reasonable fees and expenses of
legal counsel) arising out of any Third Party claim based on (i) any breach by
Novartis of any of its representations, warranties or obligations pursuant to
this Agreement, or any claim the allegations of which, if true, would constitute
a breach of the representations or warranties set forth in this Agreement, or
(ii) the negligence or willful misconduct of Novartis or its Affiliates or
sublicensees, or any of their respective directors, officers, employees and
agents, in the performance of obligations or exercise of rights under this
Agreement, or (iii) any Product Liability Claim relating to a Licensed Product,
except to the extent that such claims arise out of any negligence or willful
misconduct of Alnylam or its Affiliates or sublicensees, or any of their
respective directors, officers, employees and agents.

          (c) Claims for Indemnification with respect to Third Parties.

               (i) With regard to any Third Party claim for which
     indemnification may be sought under this Section 9.1 against a person
     entitled to indemnification under this Section 9.1 (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 9.1(c) 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).

               (ii) Within thirty (30) 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.

               (iii) 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


                                       62

     and expenses of more than one counsel in any one jurisdiction for all
     Indemnified Parties.

               (iv) 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.

               (v) 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 Indemnified Party from all liability with
     respect thereto or that imposes any liability or obligation on the
     Indemnified Party.

          9.2 CHOICE OF LAW.

          This Agreement shall be governed by and interpreted under the laws of
in effect in the Commonwealth of Massachusetts, excluding its conflicts of laws
principles.

          9.3 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 9.3):

          If to Alnylam:

          Alnylam Pharmaceuticals, Inc.
          300 Third Street, 3rd Floor
          Cambridge, Massachusetts 02142
          Attention: Senior Vice President of Business Development
          Fax: (617) 551-8101


                                       63

          With a copy (which shall not constitute notice) to:

          Wilmer Cutler Pickering Hale and Dorr LLP
          60 State Street
          Boston, MA 02109
          Attention: Steven D. Singer, Esq.
          Fax: (617) 526-5000

          If to Novartis:

          Novartis Institutes for BioMedical Research, Inc.
          250 Massachusetts Avenue
          Cambridge, Massachusetts 02139
          Attention: General Counsel
          Fax: (617) 871-3354

          With a copy (which shall not constitute notice) to:

          Dewey Ballantine LLP
          1301 Avenue of the Americas
          New York, New York 10019
          Attention: Morton A. Pierce, Esq.
                     Stanton J. Lovenworth, Esq.
          Fax: (212) 259-6333

          9.4 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.

          9.5 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


                                       64

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.

          9.6 INTEGRATION.

          This Agreement, the CRT Sublicense Agreement and the Stock Purchase
Agreement constitute the entire agreement between the Parties with respect to
the within subject matter and supersedes all previous agreements, whether
written or oral. This Agreement may be amended only in writing signed by
properly authorized representatives of each of the Parties.

          9.7 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.

          9.8 ASSIGNMENT; SUCCESSORS.

          Neither Alnylam nor Novartis may assign this Agreement in whole or in
part without the consent of the other Party and such attempted assignment shall
be deemed null and void; provided, however, that either Party may assign this
Agreement (i) to an Affiliate on the condition that the assigning Party shall
remain primarily liable hereunder for the prompt and punctual payment and
performance of all obligations of the assignee, or (ii) to a Third Party in
connection with a sale or transfer of all or substantially all of the assigning
Party's business to which this Agreement relates. This Agreement shall be
binding upon, and shall inure to the benefit of, all permitted successors and
assigns.

          9.9 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.


                                       65

          9.10 WAIVERS.

          No failure on the part of Novartis 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.

          9.11 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 9.11 IS
INTENDED TO LIMIT OR RESTRICT (i) THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF
EITHER PARTY WITH RESPECT TO THIRD PARTY CLAIMS UNDER SECTIONS 9.1 OR (ii)
REMEDIES AVAILABLE TO EITHER PARTY WITH RESPECT TO A BREACH OF ARTICLE V.

          9.12 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.

          9.13 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.

                  [Remainder of Page Intentionally Left Blank]


                                       66

          IN WITNESS WHEREOF, Alnylam and Novartis have caused this Agreement to
be duly executed by their authorized representatives, as of the date first
written above.

                                        ALNYLAM PHARMACEUTICALS, INC.


                                        By: /s/ John M. Maraganore
                                            ------------------------------------
                                        Name: John M. Maraganore
                                              ----------------------------------
                                        Title: President and CEO
                                               ---------------------------------


                                        NOVARTIS INSTITUTES FOR BIOMEDICAL
                                        RESEARCH, INC.


                                        By: /s/ Mark C. Fishman
                                            ------------------------------------
                                        Name: Mark C. Fishman
                                              ----------------------------------
                                        Title: President & CEO
                                               ---------------------------------

                                  SCHEDULE 1(B)

                            BROAD RNAI PATENT RIGHTS

[**]

                                  SCHEDULE 1(L)

                      LISTED ALNYLAM THIRD PARTY AGREEMENTS

Co-Exclusive License Agreement between Garching Innovation GmbH and Alnylam
Pharmaceuticals, Inc. dated December 20, 2002.

Co-Exclusive License Agreement between Garching Innovation GmbH and Ribopharma
AG dated July 30, 2003.

Licence Agreement between Cancer Research Technology Ltd. and Alnylam
Pharmaceuticals, Inc. dated July 18, 2003.

Agreement between the Board of Trustees of the Leland Stanford Junior University
and Alnylam Pharmaceuticals, Inc. dated September 17, 2003.

Strategic Collaboration & License Agreement between Isis Pharmaceuticals, Inc.,
and Alnylam Pharmaceuticals, Inc., dated March 11, 2004.

Research Collaboration and License Agreement between Merck & Co., Inc., Alnylam
Pharmaceuticals, Inc. and Alnylam Holding Co., dated September 08, 2003.

Collaboration and License Agreement between Merck & Co., Inc. and Alnylam
Pharmaceuticals, Inc., dated June 29, 2004.

Collaboration Agreement by and between Alnylam Pharmaceuticals, Inc. and
Medtronic, Inc., dated February 08, 2005.

License and Option Agreement between GeneCare Research Institute Co., Ltd. and
Alnylam Pharmaceuticals, Inc., dated January 06, 2005.

License and Option Agreement between Nastech Pharmaceutical Company, Inc., and
Alnylam Pharmaceuticals, Inc., dated July 20, 2005.

License Agreement between Benitec Australia, Ltd. and Alnylam Pharmaceuticals,
Inc., dated April 08, 2005.

License Agreement between Garching Innovation GmbH and Isis Pharmaceuticals,
Inc. and Alnylam Pharmaceuticals, Inc., dated October 18, 2004.

Award Letter from Cystic Fibrosis Foundation Therapeutics (CFFT) to Alnylam
Pharmaceuticals, Inc., dated March 15, 2005.

Sponsored Research Agreement between Mayo Foundation for Medical Education and
Research and Alnylam Pharmaceuticals, Inc., dated October 01, 2003.

Award Letter from Michael J. Fox Foundation (MJFF) to Alnylam Pharmaceuticals,
Inc., dated July 07, 2005

License Agreement between South Alabama Medical Sciences Foundation (SAMSF) and
Alnylam Pharmaceuticals, Inc., dated November 18, 2004.

[**]

                                  SCHEDULE 1(P)

                        PRE-EXISTING ALLIANCE AGREEMENTS

Research Collaboration and License Agreement between Merck & Co., Inc., Alnylam
Pharmaceuticals, Inc. and Alnylam Holding Co., dated September 8, 2003.

Strategic Collaboration & License Agreement between Isis Pharmaceuticals, Inc.,
and Alnylam Pharmaceuticals, Inc., dated March 11, 2004.

Collaboration and License Agreement between Merck & Co., Inc. and Alnylam
Pharmaceuticals, Inc., dated June 29, 2004.

License and Option Agreement between GeneCare Research Institute Co., Ltd. and
Alnylam Pharmaceuticals, Inc., dated January 6, 2005.

Collaboration Agreement by and between Alnylam Pharmaceuticals, Inc. and
Medtronic, Inc., dated February 08, 2005.

License Agreement between Benitec Australia, Ltd. and Alnylam Pharmaceuticals,
Inc., dated April 8, 2005.

License and Option Agreement between Nastech Pharmaceutical Company, Inc., and
Alnylam Pharmaceuticals, Inc., dated July 20, 2005.

                               SCHEDULE 3.1(F)(II)

                 CANCER RESEARCH TECHNOLOGY SUBLICENSE AGREEMENT

                                LICENSE AGREEMENT

This LICENSE AGREEMENT (this "License Agreement"), effective as of October 12,
2005 (the "Effective Date"), is by and between Novartis Institutes for
BioMedical Research, Inc., a corporation organized and existing under the laws
of Delaware, with its principal place of business at 250 Massachusetts Avenue,
Cambridge, Massachusetts 02139 ("Novartis"), and Alnylam Pharmaceuticals, Inc.,
a corporation organized and existing under the laws of Delaware, with its
principal place of business at 300 Third Street, 3rd Floor, Cambridge,
Massachusetts 02142 ("Alnylam"). Novartis and Alnylam are each sometimes
referred to herein individually as a "Party" and collectively as "Parties."

                                    RECITALS

          WHEREAS, Novartis and Alnylam have entered into the RESEARCH
COLLABORATION AND LICENSE AGREEMENT (the "Collaboration Agreement") as of the
Effective Date;

          WHEREAS, Alnylam U.S., Inc. (then known as Alnylam Pharmaceuticals,
Inc.) is a party to that certain License Agreement (the "CRT Agreement"), dated
July 18, 2003, with Cancer Research Technology Limited ("CRT").

          WHEREAS, Alnylam wishes to sublicense to Novartis, and Novartis wishes
to sublicense from Alnylam, the CRT Patent Rights (as defined in the CRT
Agreement) pursuant to the terms of this License Agreement.

          NOW, THEREFORE, in consideration of the respective covenants and
agreements contained herein, and for other valuable consideration, the receipt
and adequacy of which are hereby acknowledged, Alnylam and Novartis agree as
follows:

                                    ARTICLE 1

                                   DEFINITIONS

          All capitalized terms used herein that are not otherwise defined
herein shall have the meaning given to such terms in the Collaboration
Agreement.

          "Blocking IP" shall mean any and all Patent Rights (other than those
licensed under this Licence Agreement or Patent Rights Controlled by Alnylam)
which, if claims covering subject matter of such Patent Rights issue, would
render the use, development, manufacture, sale, or other disposal of a Licensed
Product which is a CRT

Licensed Product unlawful in the absence of a license to such Patent Rights from
a Third Party, it being understood that Blocking IP shall include (i) any
intellectual property rights licensed from a Third Party other than CRT by
Novartis pursuant to Section 4.4(e)(iii) of the Collaboration Agreement, and
(ii) any Blocking RNAi Intellectual Property licensed from a Third Party other
than CRT by Novartis pursuant to Section 4.5 of the Collaboration Agreement, if,
with respect to clauses (i) and (ii), such intellectual property rights would
apply to a Licensed Product which is a CRT Licensed Product.

          "CRT Agreement" shall have the meaning given to such term in the
Recitals.

          "CRT Field" shall mean the development of RNAi Products for the
treatment of human disease (including by means of gene therapy).

          "CRT Licensed Product" shall mean a product or products which, or the
process of production of which, or the use of which falls within the scope of a
Valid Claim (as defined in the CRT Agreement) of the CRT Patent Rights.

          "CRT Patent Rights" shall have the meaning given to such term in the
CRT Agreement, which include the rights identified on Schedule A hereto.

                                    ARTICLE 2

                                  LICENSE GRANT

          2.1  RESEARCH TERM

          Subject to the terms and conditions of the Collaboration Agreement and
of Section 2.5 of this License Agreement, Alnylam hereby grants to Novartis and
its Affiliates a worldwide, royalty-free, non-sublicensable right and sublicense
under CRT Patent Rights to, during the Research Term, (i) perform Novartis's
obligations under the Research Collaboration, (ii) engage in any and all
Discovery activities directed to the CRT Field, and (iii) Discover RNAi
Compounds directed at the Selected Targets (other than Selected Targets that are
the subject of Abandoned Programs that do not become Active Programs pursuant to
Sections 2.3(b) or 2.6(c) of the Collaboration Agreement). The rights granted
under clauses (i) and (ii) shall be non-exclusive, and the rights granted under
clause (iii) shall be exclusive, subject to Alnylam's right (itself or through
its Affiliates) to perform its obligations under the Research Collaboration or
to pursue Abandoned Programs that do not become Active Programs pursuant to
Sections 2.3(b) or 2.6(c) of the Collaboration Agreement).

          2.2  COLLABORATION PRODUCTS

          Subject to the terms and conditions of the Collaboration Agreement and
of Section 2.5 of this License Agreement, Alnylam hereby grants to Novartis and
its Affiliates an exclusive (subject to Alnylam's right (itself or through its
Affiliates) to perform its obligations under the Research Collaboration),
worldwide, royalty-bearing, sublicensable (subject to Section 3.1(d) of the
Collaboration Agreement) right and


                                       73


sublicense under CRT Patent Rights to (i) Discover, Develop, Commercialize or
Manufacture Collaboration Products for all applications in the CRT Field, and
(ii) to Develop, Commercialize or Manufacture Discovered RNAi Compounds.

          2.3  TECHNOLOGY ADOPTION OPTION

          Upon Novartis's written election during the Research Term (following
such time as the Collaboration Success Milestone has been achieved) and
Novartis's or its Affiliate's tender to Alnylam of the Adoption Consideration
(the date of such tender, the "Adoption Date"), Alnylam hereby grants, in
addition to the licenses granted in Sections 2.1 and 2.2, to Novartis and its
Affiliates a non-exclusive, worldwide, perpetual, irrevocable, royalty-bearing
right and license, subject to the terms and conditions of the Collaboration
Agreement and of Section 2.5 of this License Agreement, under CRT Patent Rights
to engage in any and all activities in the CRT Field, including all Discovery,
Development, Commercialization and Manufacturing activities directed to the CRT
Field (the "Adoption License"). Novartis's rights under the Adoption License are
non-sublicensable; provided, however, that Novartis may engage Third Party
contractors, including contract research organizations, contract employees,
consultants, contract manufacturers and the like.

          2.4  NOVARTIS SUBLICENSE RIGHTS

          The sublicensing of Novartis's rights under Section 2.2 will be
subject to the following provisions: (i) Novartis's sublicensees shall have no
right to grant further sublicenses without Alnylam's written consent, which
consent shall not be unreasonably withheld or delayed; and (ii) Novartis shall
be primarily liable for any failure by its sublicensees to comply with, and
Novartis guarantees to Alnylam the compliance by each of its sublicensees with,
all relevant restrictions, limitations and obligations in this License
Agreement.

          2.5  RESERVATION OF RIGHTS

          (i) For the sake of clarity, save to the extent necessary for the
Development and/or Commercialization of Licensed Products which are CRT Licensed
Products in the CRT Field, neither Novartis nor any Affiliate is granted the
right to make use of the CRT Patent Rights to research, develop, use, keep,
make, have made, sell and otherwise dispose or offer to dispose of products:

               a) for any diagnostic application;

               b) as research tools or reagents;

               c) for target validation; or

               d) small molecule drug discovery

including the provision of services in relation thereto to Affiliates or Third
Parties (as defined in the CRT Agreement).

          (ii) Novartis acknowledges and agrees that, pursuant to Clause 2.3 of
the CRT Agreement, CRT and Cancer Research UK shall have the right to use, and
CRT


                                       74

shall have the right to consent to the use by academic research institutions
(including for the sake of clarity those in receipt of Cancer Research UK
funding) of, the CRT Patent Rights in the Field for internal, or in
collaboration with another academic research institution, non-commercial,
non-commercially sponsored research. For the sake of clarity, Cancer Research
UK-funded Researchers (as defined in the CRT Agreement) shall be permitted under
the CRT Patent Rights to conduct clinical trials of potential dsRNA therapeutic
agents as part of their Cancer Research UK-funded academic research.

          (iii) Novartis acknowledges and agrees that the grants by Alnylam
under CRT Patent Rights set forth in Sections 2.1 through 2.4 will be subject to
the same rights, and limited to the same extent, as rights Alnylam has
previously granted under Alnylam Patent Rights to Pre-Existing Alliance Parties,
and shall be subject to the terms and conditions of Sections 3.1(e) through (g),
6.5 and 6.9 of the Collaboration Agreement as though CRT Patent Rights were
included in Alnylam Patent Rights and the CRT Agreement was a Listed Alnylam
Third Party Agreement.

                                    ARTICLE 3

                              FINANCIAL PROVISIONS

          3.1  UPFRONT CONSIDERATION

          In consideration of the rights granted to Novartis under this License
Agreement as of the Effective Date, Novartis shall pay, or cause to be paid, to
Alnylam [**] dollars ($[**]) within ten (10) Business Days following the
Effective Date.

          3.2  TECHNOLOGY ADOPTION

          In the event that Novartis elects, pursuant to the terms of Section
2.3, to exercise its right to acquire the Adoption License, Novartis shall, or
shall cause one of its Affiliates to, pay to Alnylam a one-time technology
adoption fee of [**] dollars ($[**]) in relation to the grant of the CRT Patent
Rights under Section 2.3.

          3.3  ROYALTIES

          Novartis shall pay, or cause to be paid, to Alnylam royalties of [**]
per cent ([**]%) of Net Sales (as defined in the CRT Agreement) of Royalty
Licensed Products (as defined in the CRT Agreement) in the CRT Field.

          3.4  ROYALTY STACKING

          Provided always that the royalty payable under Section 3.3 of this
License Agreement to Alnylam shall not in any event be reduced below [**]
percent ([**]%), if at any time prior to or during the period for the payment of
royalties under this License Agreement in relation to any particular territory,
Novartis (or its Affiliate as the case may


                                       75

be) or a Sub-licensee (as defined in the CRT Agreement) elects in its reasonable
opinion to take a license from a Third Party to any Blocking IP (as defined in
the CRT Agreement) to develop, make, sell or otherwise dispose of Licensed
Products, the royalties set forth in Section 3.3 applicable to such Licensed
Product (as defined in the CRT Agreement) shall be reduced by [**]% of the
amount paid to such Third Party to access said Blocking IP.

          3.5  RECONCILIATION WITH ROYALTY OBLIGATIONS UNDER AGREEMENT

          Any amounts paid by Novartis to Alnylam pursuant to Section 3.3 of
this License Agreement, as adjusted in accordance with Section 3.4, shall be
considered a Listed Alnylam Third Party Payment for the purposes of Section 4.4
of the Collaboration Agreement.

                                   ARTICLE IV

                          COMPLIANCE WITH CRT AGREEMENT

          Pursuant to the requirements of Clause 2.4 of the CRT Agreement:

          4.1  TERMINATION

          The term and termination of this License Agreement shall be governed
by Article VIII of the Collaboration Agreement as though CRT Patent Rights were
included in Alnylam Patent Rights, provided that:

          (a) This License Agreement shall terminate automatically on the expiry
or termination for whatever reason of the CRT Agreement.

          (b) In the event of termination of the CRT Agreement pursuant to
Clause 10 of the CRT Agreement, CRT has agreed that it will enter into a direct
licensing arrangement with Novartis on terms substantially similar to those
contained herein save that any license granted by CRT to Novartis shall be
consistent with the terms of this License Agreement in relation to field,
territory, exclusivity, rights to sub-license and payment provisions. However,
in the event of termination of the CRT Agreement by Alnylam pursuant to Clause
10.2 of such CRT Agreement, the provisions of the foregoing sentence shall apply
save that the granting of such license by CRT shall be subject to CRT's consent.
Novartis acknowledges and agrees that (i) CRT shall have no obligation to enter
into a direct licensing arrangement with Novartis where Novartis is in default
of its obligations under this License Agreement; (ii) CRT shall not be expected
to take any responsibility for any disputes between Alnylam (or its Affiliate as
the case may be) and Novartis relating to the terms of this License Agreement,
and (iii) notwithstanding the foregoing provisions of this Section 4.1(b), CRT
shall not be obliged to enter into a direct license with Novartis in
circumstances in which Novartis reserves any right to maintain a claim against
CRT where such claim was previously maintained against Alnylam (or its Affiliate
as the case may be).


                                       76

          4.2  BOOKS AND RECORDS

          Novartis shall undertake to CRT directly to allow CRT the same access
to Novartis's books and records as CRT has to Alnylam's books and records under
the CRT Agreement; and

          4.3  ASSIGNMENT

          (a) Subject to Section 4.3(b), neither Party shall without the prior
written consent of the other Party, which shall not be unreasonably withheld,
assign the benefit and/or burden of this License Agreement nor sub-contract any
of its obligations hereunder unless otherwise permitted by the terms hereof.

          (b) Either Party shall be entitled to assign the benefit and/or burden
of this License Agreement to any Affiliate or to its successor in connection
with any merger, consolidation or sale or other disposal of all or substantially
all of its assets and/or business to which this License Agreement relates.

          4.4  SUB-LICENSES

          Any sub-license granted by Novartis under this License Agreement shall
be subject to the terms of this Article IV and Section 2.5 of this License
Agreement.

                                    ARTICLE V

                           OTHER TERMS AND CONDITIONS

          Except as explicitly set forth to the contrary in Articles I through
IV, the grant of the CRT Patent Rights under Sections 2.1 through 2.4 shall be
governed by the terms and conditions of the Collaboration Agreement as though
such CRT Patent Rights were included in Alnylam Patent Rights. Alnylam has
disclosed to Novartis a true and complete copy of the CRT Agreement Contracts
and all amendments thereto.

                  [Remainder of Page Intentionally Left Blank]


                                       77

          IN WITNESS WHEREOF, Alnylam and Novartis have caused this License
Agreement to be duly executed by their authorized representatives, as of the
date first written above.

                                        ALNYLAM PHARMACEUTICALS, INC.


                                        By: /s/ John M. Maraganore
                                            ------------------------------------
                                        Name: John M. Maraganore
                                              ----------------------------------
                                        Title: President and CEO
                                               ---------------------------------


                                        NOVARTIS INSTITUTES FOR BIOMEDICAL
                                        RESEARCH, INC.


                                        By: /s/ Mark C. Fishman
                                            ------------------------------------
                                        Name: Mark C. Fishman
                                              ----------------------------------
                                        Title: President & CEO
                                               ---------------------------------


                                       78

                                   SCHEDULE A

                                CRT PATENT RIGHTS

                                      [**]

                                  SCHEDULE 4.7

                                 FORM OF INVOICE

                              [Alnylam Letterhead]

[Date]

Novartis Institutes for BioMedical Research, Inc.
Attn: Finance Dept. - AP 1702
250 Massachusetts Avenue
Cambridge, MA 02139
USA

Re:  Purchase Order Number [Enter PO Number]
     Collaboration Agreement: [Title of Research Project]

Amount and Currency:                  [_________________]
Amount of VAT (if applicable):        [_________________]   N/A in US
Total Amount (including VAT):         [_________________]   N/A in US

VAT number (if applicable)            [_________________]   N/A in US

This is an invoice requesting payment in connection with the above-captioned
purchase order between Nantucket, Inc. and Novartis Institutes for BioMedical
Research, Inc.

Project Contact Person in Novartis:   [_________________]

SPECIFICATION:                        [describe in reasonable detail the
                                      services and dates, or the event, for
                                      which payment is due (e.g. 1.Q.2000, 2nd
                                      funding year)]

Sincerely yours,

ALNYLAM PHARMACEUTICALS, INC.

                               SCHEDULE 7.2(B)(I)

                                  OWNED PATENTS

                                      [**]

                               SCHEDULE 7.2(B)(II)

                                  IP CONTRACTS

The following is a list of all agreements, as of the Effective Date, pursuant to
which Alnylam licensed, granted any rights to, or made any covenant not to sue
with respect to Alnylam Intellectual Property, excluding any material transfer
agreement or research collaboration agreement in which any rights granted by
Alnylam extend solely to the use of specific materials for a defined study and
no rights are granted to Alnylam's underlying intellectual property.

Non-Exclusive License Agreement between Ambion, Inc., and Alnylam
Pharmaceuticals, Inc., dated June 08, 2005.

[**]

License Agreement between Benitec Australia, Ltd. and Alnylam Pharmaceuticals,
Inc., dated April 08, 2005.

Licence Agreement between Cancer Research Technology Ltd. and Alnylam
Pharmaceuticals, Inc., dated July 18, 2003.

     -    Amendment to Schedule 2 of Licence Agreement between Cancer Research
          Technology Ltd. (CRT) and Alnylam Pharmaceuticals, Inc., dated August
          29, 2003.

License Agreement between Carnegie Institute of Washington and Ribopharma AG,
dated March 01, 2002.

     -    Amendment to License Agreement between Carnegie Institute of
          Washington and Ribopharma AG, dated November 28, 2003.

Non-Exclusive License Agreement between Cell Signaling Technology, Inc. and
Ribopharma AG, dated December 01, 2003.

Non-Exclusive License Agreement between Cenix Bioscience GmbH and Ribopharma AG,
dated January 09, 2004.

     -    Amendment to Non-Exclusive License Agreement between Cenix Bioscience
          GmbH and Ribopharma AG, dated February 02, 2004.

License Agreement between Cold Spring Harbor Laboratory and Alnylam
Pharmaceuticals, Inc., dated December 20, 2003.

Award Letter from Cystic Fibrosis Foundation Therapeutics (CFFT) to Alnylam
Pharmaceuticals, Inc., dated March 15, 2005.

Non-Exclusive License Agreement between Eurogentec SA and Alnylam Europe AG,
dated June 27, 2005.

Co-Exclusive License Agreement between Garching Innovation GmbH and Alnylam
Pharmaceuticals, Inc., dated December 20, 2002.

     -    Co-Exclusive License Agreement between Garching Innovation GmbH and
          Alnylam Pharmaceuticals, Inc., Amendment, dated March 24, 2003.

     -    Co-Exclusive License Agreement between Alnylam Pharmaceuticals, Inc.
          and Garching Innovation GmbH dated December 20, 2002, Amendment with
          respect to certain deadlines, dated May 7, 2003.

     -    Amendment of the License Agreement dated December 20, 2002 between
          Garching Innovation GmbH and Alnylam Pharmaceuticals, Inc., dated July
          2, 2003.

     -    Co-Exclusive License Agreement between Garching Innovation GmbH and
          Alnylam Pharmaceuticals, Inc., dated December 20, 2002, Amendment of
          Appendix B with respect to certain patent claims, dated July 21, 2003.

     -    Amendment of the License Agreement dated December 20, 2002 between
          Garching Innovation and Alnylam Pharmaceuticals, Inc., dated January
          8, 2004.

Co-Exclusive License Agreement between Garching Innovation GmbH and Ribopharma
AG dated July 30, 2003.

     -    Agreement (the "Requirement Amendment") between Garching Innovation
          GmbH, Alnylam Pharmaceuticals, Inc., Alnylam US, Inc. and Alnylam
          Europe AG, effective June 14, 2005.

License Agreement between Garching Innovation GmbH and Isis Pharmaceuticals,
Inc. and Alnylam Pharmaceuticals, Inc., dated October 18, 2004.

License and Option Agreement between GeneCare Research Institute Co., Ltd. and
Alnylam Pharmaceuticals, Inc., dated January 06, 2005.

     -    Side-Letter Agreement between GeneCare Research Institute Co., Ltd.
          and Alnylam Pharmaceuticals, Inc., dated January 06, 2005.

License Agreement between Hybridon, Inc., and Alnylam U.S., Inc., dated August
02, 2004.

Non-Exclusive License Agreement between Invitrogen Corporation and Ribopharma
AG, dated January 07, 2004.

Strategic Collaboration & License Agreement between Isis Pharmaceuticals, Inc.,
and Alnylam Pharmaceuticals, Inc., dated March 11, 2004.

     -    Letter Agreement between Isis Pharmaceuticals, Inc., and Alnylam
          Pharmaceuticals, dated March 09, 2004.

     -    Letter Agreement between Isis Pharmaceuticals, Inc., and Alnylam
          Pharmaceuticals, dated March 11, 2004.

     -    Amendment to the Strategic Collaboration & License Agreement dated
          March 11, 2004 between Isis Pharmaceuticals, Inc., and Alnylam
          Pharmaceuticals, Inc., dated June 14, 2005.

[**]

Sponsored Research Agreement between Mayo Foundation for Medical Education and
Research and Alnylam Pharmaceuticals, Inc., dated October 01, 2003.

     -    Amendment to Sponsored Research Agreement between Mayo Foundation for
          Medical Education and Research and Alnylam Pharmaceuticals, Inc. dated
          March 29, 2004.

     -    Amendment to Sponsored Research Agreement between Mayo Foundation for
          Medical Education and Research and Alnylam Pharmaceuticals, Inc.,
          dated March 01, 2005.

     -    Amendment to Sponsored Research Agreement between Mayo Foundation for
          Medical Education and Research and Alnylam Pharmaceuticals, Inc.,
          dated August 30, 2005.

Collaboration Agreement by and between Alnylam Pharmaceuticals, Inc. and
Medtronic, Inc., dated February 08, 2005.

Research Collaboration and License Agreement between Merck & Co., Inc., Alnylam
Pharmaceuticals, Inc. and Alnylam Holding Co., dated September 08, 2003.

     -    Amendment to Research Collaboration and License Agreement between
          Merck & Co., Inc., Alnylam Pharmaceuticals, Inc. and Alnylam Holding
          Co., dated September 30, 2004.

Collaboration and License Agreement between Merck & Co., Inc., and Alnylam
Pharmaceuticals, Inc., dated June 29, 2004.

     -    Amendment No. 1 to Collaboration and License Agreement between Merck &
          Co., Inc and Alnylam Pharmaceuticals, Inc., dated August 02, 2004.

License Agreement between Merck KgaA and Ribopharma AG, dated January 04, 2002.

Award Letter from Michael J. Fox Foundation (MJFF) to Alnylam Pharmaceuticals,
Inc., dated July 07, 2005.

Non-Exclusive License Agreement between MWG Biotech AG and Alnylam
Pharmaceuticals, Inc., dated July 05, 2005.

License and Option Agreement between Nastech Pharmaceutical Company, Inc., and
Alnylam Pharmaceuticals, Inc., dated July 20, 2005.

[**]

Non-Exclusive License Agreement between RNAx GmbH and Ribopharma AG, dated
January 26, 2004.

[**]

Non-Exclusive License Agreement between Sigma-Aldrich Company and Alnylam
Pharmaceuticals, Inc., dated July 06, 2005.

License Agreement between South Alabama Medical Sciences Foundation (SAMSF) and
Alnylam Pharmaceuticals, Inc., dated November 18, 2004.

Agreement between the Board of Trustees of the Leland Stanford Junior University
and Alnylam Pharmaceuticals, Inc., dated September 17, 2003.

[**]

                                 SCHEDULE 7.2(E)

                                      [**]

                                 SCHEDULE 7.2(H)

                           [**] BROAD RNAI TECHNOLOGY

This schedule lists [**] broad RNAi technology but are not included in any
license grants by Alnylam to Novartis under Article III [**].

[**]

                                 SCHEDULE 7.2(I)

                 LISTED ALNYLAM THIRD PARTY PAYMENT OBLIGATIONS

The following excerpts from the cited agreements set forth Alnylam's payment
obligations with respect to Third Parties.

1.   OBLIGATIONS UNDER CO-EXCLUSIVE LICENSE AGREEMENT BETWEEN GARCHING
     INNOVATION GMBH AND ALNYLAM PHARMACEUTICALS, INC., DATED DECEMBER 20, 2002,
     AND UNDER CO-EXCLUSIVE LICENSE AGREEMENT BETWEEN GARCHING INNOVATION GMBH
     AND RIBOPHARMA AG, DATED JULY 30, 2003

ARTICLE 5 - SHARES, ROYALTIES AND PAYMENT TERMS

5.2 Running Royalties

COMPANY shall pay to GI the following running royalties on NET SALES of
therapeutic and prophylactic LICENSED PRODUCTS by COMPANY and its SUBLICENSEES:

(a)  [**]% ([**] percent) of the first US$[**] ([**] US Dollars) of annual
     accumulated NET SALES of all LICENSED PRODUCTS;

(b)  [**]% ([**] percent) of annual accumulated NET SALES of all LICENSED
     PRODUCTS between US$[**] ([**] US Dollars) and US$[**] ([**] US Dollars);

(c)  [**]% ([**] percent) of annual accumulated NET SALES of all LICENSED
     PRODUCTS between US$[**] ([**] US Dollars) and US[**] ([**] US Dollars);

(d)  [**]% ([**] percent) of annual accumulated NET SALES of all LICENSED
     PRODUCTS between US$[**] ([**] US Dollars) and US$[**] ([**] US Dollars);

(e)  [**]% ([**] percent) of annual accumulated NET SALES of all LICENSED
     PRODUCTS between US$[**] ([**] US Dollars) and US$[**] ([**]US Dollars);
     and

(f)  [**]% ([**] percent) of annual accumulated NET SALES of all LICENSED
     PRODUCTS above US$[**] ([**] US Dollars).

In the event that COMPANY or a SUBLICENSEE develops diagnostic LICENSED
PRODUCTS, COMPANY shall initiate negotiations with GI at least [**] months prior
to the intended first commercial sale of each diagnostic LICENSED PRODUCT.
COMPANY and GI shall negotiate in good faith [**] terms for such diagnostic
LICENSED PRODUCT.

If the sale of any LICENSED PRODUCT is covered by more than one of the PATENT
RIGHTS, multiple royalties shall not be due.

Non-cash consideration shall not be accepted by COMPANY or any SUBLICENSEE for
LICENSED PRODUCTS without the prior written consent of GI.

5.3 Royalty Stacking

(a) Third Party Licenses

In the event COMPANY or a SUBLICENSEE takes, for objective commercial and/or
legal reasons, a license from any third party under any patent applications or
patents that dominate the PATENT RIGHTS or is dominated by the PATENT RIGHTS in
order to develop, make, use, sell or import any LICENSED PRODUCT (explicitly
excluding, without limitation, any third party patents and patent applications
for formulation, stabilization and delivery), then COMPANY is allowed to deduct
[**]% ([**] percent) of any additional running royalties to be paid to such
third party up to [**]% ([**] percent) of the running royalties stated in
Section 5.2, from the date COMPANY has to pay running royalties to such third
party. However, the running royalties stated in Section 5.2 shall not be reduced
to less than a minimum of [**]% ([**] percent) of NET SALES in any case.

For avoidance of doubt, if COMPANY or a SUBLICENSEE takes a license to a third
party target, COMPANY is in no event allowed to deduct any license fees for such
target from running royalties due to GI under this Agreement.

(b) PATENT RIGHTS Coverage

In the event that (i) COMPANY or its SUBLICENSEES sell a LICENSED PRODUCT in a
country where no PATENT RIGHTS are issued and no patent applications that are
part of the PATENT RIGHTS are pending that have not been pending for less than
[**] after filing national patent applications in the country in question, and
(ii) such LICENSED PRODUCT is manufactured in a country where PATENT RIGHTS are
issued or patent applications that are part of the PATENT RIGHTS are pending
that have not been pending for more than [**] after filing national patent
applications in the country in question, the royalties stated in Section 5.2
will be reduced by [**]% ([**]percent) for such LICENSED PRODUCT, until the
expiration or abandonment of all issued patents and filed patent applications
within the PATENT RIGHTS in the country in which the LICENSED PRODUCT is
manufactured.

2.   LICENCE AGREEMENT BETWEEN CANCER RESEARCH TECHNOLOGY LTD. AND ALNYLAM
     PHARMACEUTICALS, INC., DATED JULY 18, 2003

Payment obligations under this agreement are set forth in, and governed by, the
CRT Sublicense Agreement.

3.   AGREEMENT BETWEEN THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR
     UNIVERSITY AND ALNYLAM PHARMACEUTICALS, INC., DATED SEPTEMBER 17, 2003

6    ROYALTIES

6.2  MINIMUM ROYALTY. Beginning one year from the Effective Date, and each
     anniversary thereafter, Alnylam will pay to Stanford a yearly royalty of
     $[**]. Yearly royalty payments are nonrefundable, but they are creditable
     against earned royalties to the extent provided in Section 6.4.

6.3  EARNED ROYALTY. In addition, Alnylam will pay Stanford earned royalties on
     Net Sales as follows:

     (A)  [**]% of Net Sales for a Licensed Product subject to the following;.

     (B)  Such royalty payments shall be reduced up to [**]% (from [**]% of Net
          Sales down to [**]% of Net Sales) by the amount of royalty paid to
          access additional intellectual property necessary in order to sell
          Licensed Products ("Additional Earned Royalties").

     (C)  Such royalty payments shall be reduced as follows:

          (1)  [**]% if Additional Earned Royalties are [**]% or less.

          (2)  [**]% if Additional Earned Royalties are greater than [**]% but
               less than [**]%.

          (3)  [**]% if Additional Earned Royalties are equal to or greater than
               3% but less than [**]%.

          (4)  [**]% if Additional Earned Royalties are equal to or greater than
               [**]% but less than [**]%.

          (5)  [**]% if Additional Earned Royalties are equal to or higher than
               [**]%.

     (D)  Only one royalty is due on each Licensed Product sold by Alnylam or
          its sublicensees regardless of whether its manufacture, use,
          importation or sale are or shall be covered by more than one patent or
          patent application included in Licensed Patents under this Agreement,
          and no further royalties will be due for use of such Licensed Product
          by Alnylam or its sublicensee's customers.

6.4  CREDITABLE PAYMENTS. Creditable payments under this Agreement will be an
     offset to Alnylam against each earned royalty payment which Alnylam would
     be required to pay under Section 6.3 until the entire credit is exhausted.

6.5  MILESTONE PAYMENTS.

     (A)  For the first Licensed Product, Alnylam will make the following
          payments for the filing of an IND, intitiation of Phase II trial,
          initiation of Phase III

          trial, and approval of New Drug Application or equivalent in the U.S.
          ("Milestone Payments"):

          (1)  $[**] for filing of the first IND.

          (2)  $[**] for initiation of the first Phase II trial.

          (3)  $[**] for initiation of the first Phase III trial.

          (4)  $[**] for approval of the first New Drug Application or
               equivalent regulatory approval in the U.S..

     (B)  For the second Licensed Product, Alnylam will make the following
          Milestone Payments:

          (1)  $[**] for filing of the first IND.

          (2)  $[**] for initiation of the first Phase II trial.

          (3)  $[**] for initiation of the first Phase III trial.

          (4)  $[**] for approval of the first New Drug Application or
               equivalent regulatory approval in the U.S..

     (C)  For the third and every subsequent Licensed Product, Alnylam will make
          the following Milestone Payments:

     (1)  $[**] for filing of the first IND.

     (2)  $[**] for initiation of the first Phase II trial.

     (3)  $[**] for initiation of the first Phase III trial.

     (4)  $[**] for approval of the first New Drug Application or equivalent
          regulatory approval in the U.S..

     (D)  Notwithstanding the above, at the time that Stanford receives a
          Milestone Payment from Alnylam on behalf of a sublicensee under 13.6,
          the corresponding Milestone Payment under this Section 6.5 will not be
          due.

6.6  OBLIGATION TO PAY ROYALTIES. If this Agreement is not terminated in
     accordance with other provisions, Alnylam will be obligated to pay
     royalties on all Licensed Product that is either sold or produced under the
     license granted in Article 3, whether or not the Licensed Product is
     produced before the Effective Date of this Agreement or sold after the
     Licensed Patent has expired.

4.   STRATEGIC COLLABORATION & LICENSE AGREEMENT BETWEEN ISIS PHARMACEUTICALS,
     INC., AND ALNYLAM PHARMACEUTICALS, INC., DATED MARCH 11, 2004

                                    ARTICLE 7

                   LICENSE FEES AND ROYALTIES PAYABLE TO ISIS

     7.2 Royalties. Subject to the terms and conditions of, and during the term
of, this Agreement, Alnylam will pay to Isis royalties on sales of Alnylam
Products by Alnylam, its Affiliates or sublicensees (except Naked Sublicensees)
equal to [**]% of Net Sales. Alnylam may reduce the royalty due under this
section by [**]% of any additional royalties that Alnylam owes to Third Parties
on such Alnylam Product that arise from Alnylam acquiring access to new
technologies after the Effective Date; provided, however that (a) the royalty
due under this section can never be less than a floor of [**]% and (b)
additional royalties arising as the result of the addition, pursuant to Section
11.8, of Isis Future Chemistry Patents or Isis Future Motif and Mechanism
Patents to the Isis Patent Rights licensed to Alnylam cannot be used to reduce
the royalty.

     7.3 Development Milestones.

          (a) Alnylam, its Affiliates or sublicensees (except Naked
Sublicensees) will pay to Isis the following milestone payments for each Alnylam
Product within [**] after the first achievement of each of the following events:



MILESTONE EVENT                 MILESTONE PAYMENT
- ---------------                 -----------------
                             
Initiation of Phase I Trial          US$[**]

Initiation of Phase III Trial        US$[**]

Filing NDA                           US$[**]

Marketing Approval                   US$[**]


Each milestone payment under this Section 7.3(a) will only be due on the [**]
Alnylam Product that modulates a particular Gene Target to trigger such
milestone payment, whether such milestone is achieved by Alnylam or an Affiliate
or sublicensee of Alnylam.

          (b) Alnylam, its Affiliates or sublicensees will pay to Isis a
milestone payment of US$[**] for the [**] MicroRNA Product that is an Alnylam
Product that modulates a particular Gene Target within [**] after such MicroRNA
Product reaches the initiation of [**], and not for any other MicroRNA Product
that is an Alnylam Product that modulates the particular Gene Target.

5.   LICENSE AGREEMENT BETWEEN BENITEC AUSTRALIA, LTD. AND ALNYLAM
     PHARMACEUTICALS, INC., DATED APRIL 8, 2005

III. FINANCIAL AND THIRD PARTY OBLIGATIONS

3.1  OPTION FEES, MILESTONE PAYMENTS AND ROYALTIES.

     Should either PARTY exercise the option granted it under sections 2.1 or
     2.3 above, the exercising PARTY ("EXERCISING PARTY") shall pay the granting
     PARTY ("GRANTING PARTY") the fees, milestone payments and royalties listed
     in Exhibit C or as may otherwise be agreed upon. Should either PARTY
     exercise the option granted it under sections 2.2 or 2.4 above, the
     exercising PARTY ("EXERCISING PARTY") shall pay the granting PARTY
     ("GRANTING PARTY") the fees, milestone payments and royalties listed in
     Exhibit D, or if BENITEC is the EXERCISING PARTY and has elected to include
     ISIS LICENSED PATENTS in its license from ALNYLAM, in Exhibit D.1, or as
     may otherwise be agreed upon in the definitive license agreement.

3.2  THIRD PARTY OBLIGATIONS.

     LICENSED PATENTS that are licensed to a PARTY by a third party and subject
     to obligations under a written agreement with such third party are noted as
     such in Exhibits A and B, respectively. Obligations under such agreements
     may include financial obligations to the third party or others. The PARTIES
     acknowledge that prior to the exercise of any option granted under this
     Agreement each PARTY will provide the other PARTY redacted copies of third
     party license agreements for the LICENSED PATENTS noted on Exhibits A and B
     under which an option is exercised under this Agreement. To the extent
     applicable, the PARTIES agree to be bound by the terms and obligations of
     the third party license agreements under which each may be granted a
     sublicense under this Agreement. This includes, but is not limited to,
     financial obligations for products covered by VALID CLAIMS and reporting
     obligations. A summary of third party financial obligations for ALNYLAM
     LICENSED PATENTS is provided in Exhibit F. There are no third party
     financial obligations for which ALNYLAM is responsible in relation to the
     BENITEC LICENSED PATENTS in Exhibit B.

                                    EXHIBIT C

             FINANCIAL TERMS FOR LICENSES GRANTED UNDER THE OPTIONS
                         GIVEN IN SECTIONS 2.1 AND 2.3

                             
Option:                         Non-Exclusive option to obtain an exclusive
                                license to research, develop and commercialize
                                therapeutic products directed against a
                                specified target as provided in Sections 2.1 and
                                2.3. Option to be exercised on or before
                                initiation of IND-enabling toxicology studies
                                for the first candidate RNAi therapeutic
                                directed to the named target.

Option exercise fee:            $[**]

Annual renewal fee:             $[**] per year after option is exercised and in
                                each year thereafter until first licensed
                                product is marketed.

Milestone payments
(per product):                  IND:                            $[**]
                                Start Phase II:                 $[**]
                                Start Phase III:                $[**]
                                First regulatory submission:    $[**]
                                First regulatory approval:      $[**]
                                Second regulatory submission:   $[**]
                                Second regulatory approval:     $[**]

Royalties (on any/all
products that are marketed)*:   [**]% of Net Sales



*    Note: Licensee would be responsible on a pass-through basis for any
     payments that become due in relation to intellectual property held by a
     third party and licensed by such third party to ALNYLAM, if the license to
     which these financial terms apply is granted under Section 2.1, or to
     BENITEC, if the license to which these financial terms apply is granted
     under Section 2.3.

                                    EXHIBIT D

             FINANCIAL TERMS FOR LICENSES GRANTED UNDER THE OPTIONS
         GIVEN IN SECTIONS 2.2 AND 2.4, EXCEPT IN THE CASE THAT BENITEC
            HAS ELECTED TO INCLUDE A LICENSE TO ISIS LICENSED PATENTS
                             PURSUANT TO SECTION 2.2

                             
Option:                         Option to obtain an exclusive license to
                                research, develop and commercialize therapeutic
                                products directed against a specified target as
                                provided in Sections 2.2 and 2.4. Option to be
                                exercised on or before initiation of
                                IND-enabling toxicology studies for the first
                                candidate RNAi therapeutic directed to the named
                                target.

Option exercise fee:            $[**]

Annual renewal fee:             $[**] per year after option is exercised and in
                                each year thereafter until first licensed
                                product is marketed.

Milestone payments
(per product):                  IND:                            $[**]
                                Start Phase II:                 $[**]
                                Start Phase III:                $[**]
                                First regulatory submission:    $[**]
                                First regulatory approval:      $[**]
                                Second regulatory submission:   $[**]
                                Second regulatory approval:     $[**]

Royalties (on any/all
products that are marketed)*:   [**]% of Net Sales up to $[**]
                                [**]% of Net Sales between $[**] and $[**]
                                [**]% of Net Sales above $[**]



*    Note: Licensee would be responsible on a pass-through basis for any
     payments that become due in relation to intellectual property held by a
     third party and licensed by such third party to ALNYLAM, if the license to
     which these financial terms apply is granted under Section 2.2, or to
     BENITEC, if the license to which these financial terms apply is granted
     under Section 2.4.

6.   LICENSE AGREEMENT BETWEEN GARCHING INNOVATION GMBH AND ISIS
     PHARMACEUTICALS, INC. AND ALNYLAM PHARMACEUTICALS, INC., DATED OCTOBER 18,
     2004

ARTICLE 5 - FINANCIAL PROVISIONS

5.1  Initial Payment

.....

5.2 Milestone Payments

ALNYLAM and ISIS shall each pay to GI the following milestone payments for each
of their respective Licensed Products (including Licensed Products of their
Affiliates and Sublicensees) within thirty (30) days after the achievement of
the following milestone events:



Milestone Event                                Milestone Payment
- ---------------                                -----------------
                                            
First Initiation of Phase I Clinical Study          US$[**]
First Initiation of Phase II Clinical Study         US$[**]
First Initiation of Phase III Clinical Study        US$[**]
Regulatory Approval in USA, Japan or Europe         US$[**]


Each of the above milestone payment is due from the Party that is engaged in the
development and commercialization of such Licensed Product.

Initiation of the respective phase of the clinical study shall be deemed to be
achieved after the dosing of the first patient (or, in the event of a Phase I
Clinical Study, of the first healthy person) in such clinical study.

For each Licensed Product, milestone payments will only be due the first time
such Licensed Product achieves such milestone. A Licensed Product will be
considered the same Licensed Product as long as it has not been modified in such
a way (unless as the result of stabilizing, formulation or delivery technology)
that would require the filing of a different IND for such Licensed Product.

5.3 Running Royalties

(a) Licensed Products Covered by Valid Claims

ALNYLAM and ISIS shall each pay to GI for each of their respective Licensed
Products (including Licensed Products of their Affiliates and Sublicensees)
covered by Valid Claims the following running royalties on the incremental
portion of annual Net Sales:

                                                  
Less than or equal to $[**] US Dollars                  [**]%
Between $[**] US Dollars and $[**] US Dollars   [**]%
Between $[**] US Dollars and $[**] US Dollars   [**]%
Greater than $[**] US Dollars                           [**]%



Annual Net Sales shall be calculated based on the cumulative annual Net Sales of
the

respective Licensed Product in countries where one or more Valid Claims cover
such Licensed Product. For purposes of clarity, examples of royalty calculations
are attached hereto as Appendix B.

(b) Licensed Products Covered by Pending Claims

ALNYLAM and ISIS shall each pay to GI for each of their respective Licensed
Products (including Licensed Products of their Affiliates and Sublicensees)
covered by Pending Claims the following running royalties on annual Net Sales:

                                                  
Less than or equal to $[**] US Dollars                  [**]%
Between $[**] US Dollars and $[**] US Dollars   [**]%
Between $[**] US Dollars and $[**] US Dollars   [**]%
Greater than $[**] US Dollars                           [**]%



Annual Net Sales shall be calculated based on the cumulative annual Net Sales of
the respective Licensed Product in countries where one or more Pending Claims
cover such Licensed Product.

5.4 Reduction of Running Royalties

(a) Third Party Licenses

In the event ALNYLAM or ISIS, or any of their Affiliates or Sublicensees,
licenses any patents or patent applications Controlled by a Third Party in order
to make, use, or sell a Licensed Product (explicitly excluding, without
limitation, any Third Party patents and patent applications covering any
formulation, stabilization, or delivery technology, or any target for a Licensed
Product) the running royalties set forth in Sec. 5.3 will be reduced, on a
country-by-country and product-by-product basis, from the date running royalties
have to be actually paid to such Third Party, by [**]% of any running royalty
owed to a Third Party for the manufacture, use or sale of a Licensed Product,
provided however that the running royalties due to GI will not be reduced to
less than [**]%. GI has a right to challenge in writing (and in accordance with
Section 10.3) whether such Third Party license is required for objective
commercial and/or legal reasons and therefore should result in a reduction in
the royalties.

(b) Minimum Royalty Floor

The running royalties stated in Section 5.3 shall in no event be reduced by the
application of this Section 5.4 to less than a minimum royalty rate of (i) [**]%
([**] percent) for Licensed Products covered by Valid Claims, and (ii) [**]%
([**] percent) for Licensed Products covered by Pending Claims.

(c) Cumulative Royalties Due to GI

In no event shall the total cumulative running royalty burden of ALNYLAM or Isis
for a Licensed Product arising out of this Agreement and any Existing GI
Licenses, calculated on a product-by-product and country-by-country basis,
exceed [**]% ([**] percent) for such a Licensed Product.

7.   AWARD LETTER FROM CYSTIC FIBROSIS FOUNDATION THERAPEUTICS (CFFT) TO ALNYLAM
     PHARMACEUTICALS, INC., DATED MARCH 15, 2005

     -    The Award will be paid as follows:

          a.   $[**] within five (5) days of the Effective Date;

          b.   $[**] within thirty (30) days of the accomplishment of each of
               Milestones 1 and 2 and $[**] within thirty (30) days of the
               accomplishment of Milestone 3.

     -    The milestone events (the "Milestones") are as follows:

               Milestone 1: Establish siRNA stability in sputum samples derived
     from CF patients;

               Milestone 2: Screen siRNA molecules that target up to 20
     different genes for their ability to restore CFTR activity in vitro;

               Milestone 3: Selection of lead siRNA sequences for future
     evaluation in vivo.

     ....

     -    After the completion of the activities described in the work plan for
          the Project, CFFT and Alnylam agree to negotiate in good faith for
          CFFT to support further phases of the research. If such negotiations
          are successful, the royalty payments specified below will be revised
          and may be replaced by a market royalty related to the sales of a
          Product commensurate with the timing and amount of CFFT's investment.
          However, subject to such negotiations, nothing in this Agreement is

          intended to prevent Alnylam from continuing the research and
          development of a Product after completion of the Project without
          CFFT's assistance.

Alnylam hereby agrees to the following terms and conditions:

     -    Alnylam shall make the following royalty payments to CFFT:

          a.   [**] times the amount of the Award actually paid hereunder on the
               first anniversary of the date the Product is approved for sale in
               the United States by the U.S. Food and Drug Administration;

          b.   [**] times the amount of the Award actually paid hereunder on the
               following anniversary date;

          c.   [**] times the amount of the Award actually paid hereunder on the
               third anniversary of the date; and

          d.   The amount of the Award actually paid hereunder also on the third
               anniversary of the date specified in a. above if aggregate sales
               of the Product during such three years exceed $[**].

     -    In the event the Interruption License is activated, in lieu of any
          payment to CFFT as hereinabove specified, CFFT shall pay Alnylam [**]
          percent ([**]%) of all compensation and consideration CFFT receives
          from any third party (net of any other third party royalty or payment
          obligations required to be paid in connection with licenses or other
          similar obligations incurred by either party in development

          and commercialization of a Product), whether in form of signing fee,
          license fee, milestone payment, royalty or otherwise with respect to a
          Product, but not to less than [**] percent ([**]%); provided that,
          such [**] percent ([**]%) shall be reduced by [**] percent ([**]%) for
          each additional $[**] CFFT invests in the research and development of
          a Product. If CFFT invests in increments less than $[**], the [**]
          percent ([**]%) reduction shall be appropriately prorated for purposes
          of calculating the above reduction. For purposes of the above
          calculation, the amount of the Award made by CFFT hereunder shall be
          disregarded.

8.   SPONSORED RESEARCH AGREEMENT BETWEEN MAYO FOUNDATION FOR MEDICAL EDUCATION
     AND RESEARCH AND ALNYLAM PHARMACEUTICALS, INC. DATED OCTOBER 01, 2003

                                    EXHIBIT B

I. An exclusive, worldwide, sub licensable license under desired Background IP,
Joint Discoveries set forth in Section 3.4(b) above and Other Discoveries to
make, have made, use, have used, market, sell, import and offer products or
methods in all fields until the expiration of all patents covering such
Background IP, Joint Discoveries and Other Discoveries ("Licensed Patents"). In
return for such license, SPONSOR will make the following payments to MAYO:

II. For the indications stated below, the following clinical milestones will be
paid for product covered by an issued, unexpired claim of Licensed Patents
("Licensed Product").



MILESTONE                    PD [**]   PD [**]   EACH ADDITIONAL [**]
- ---------                    -------   -------   --------------------
                                        
Filing of first IND           $[**]      [**]            $[**]

Phase III initiation          $[**]     $[**]            $[**]


                                                
NDA Filing, or equivalent,    $[**]     $[**]            $[**]
in the US or EU

Market approval in the US     $[**]     $[**]            $[**]
or EU



In addition, upon first issuance of a valid claim of the Licensed Patents that
covers an Alnylam Licensed Product -- $[**]

III. For a Licensed Product that is marketed by SPONSOR or its Sub licensees, a
royalty of:

     [**]% of Net Sales < or = $[**]
     [**]% of Net Sales > $[**]

     Such royalty payments shall be reduced up to [**]% by amounts paid to
     access additional intellectual property believed to be necessary in order
     to sell Licensed Products.

IV. An annual license maintenance fee of $[**] per year (creditable to
milestones and royalties).

V. SPONSOR will be responsible for and will incur the cost for future patent
filings and prosecution. SPONSOR will inform MAYO of all substantive activities.
In the event that SPONSOR exercises its Option for an exclusive license, SPONSOR
shall reimburse MAYO for the past costs of filing and prosecution for Licensed
Patents.

9.   LICENSE AGREEMENT BETWEEN SOUTH ALABAMA MEDICAL SCIENCES FOUNDATION (SAMSF)
     AND ALNYLAM PHARMACEUTICALS, INC., DATED NOVEMBER 18, 2004

                                    ARTICLE 4

                                  CONSIDERATION

     In consideration of the license rights granted by SAMSF to ALNYLAM under
this Agreement, ALNYLAM agrees to pay SAMSF the following:

     4.2. ALNYLAM will make the following payments, upon achievement of
particular milestones listed below:

                                    
  (i)   Issuance of first Claim under     $[**]
        Patent Rights

 (ii)   Issuance of first Broad Generic   $[**]
        Claim under Patent Rights

(iii)   For the first candidate drug      $[**]
        Compound covered by Patent
        Rights, approval of a New Drug
        Application ("NDA") by the U.S.
        Food and Drug Administration



     Any milestone described above will be deemed to be met by ALNYLAM if met by
an Affiliate or a Sublicensee of ALNYLAM. ALNYLAM shall notify SAMSF in writing
within thirty (30) Days upon the achievement of each milestone, such notice to
be accompanied by payment of the appropriate milestone payment. Mile fees shall
be non-creditable.

     4.3. On a country-by country basis, running royalties of:

          (a)  [**] percent ([**]%) of Net Sales of a Licensed Produce if such
               Licensed Product is covered by one or more issued claims under
               Patent Rights in the Country where such Licenses Products are
               sold, payable until the expiration of the last to expire Patent
               rights in such country; and

          (b)  Sales of Licensed Products by ALNYLAM to its Affiliates or to
               Sublicensees, or among them, shall not be deemed a sale subject
               to royalty. Only one (1) royalty is to be paid on any Licensed
               Product.

     4.4. Annual payments to maintain the exclusivity of the license, payable on
each anniversary date of the License Agreement, beginning with the third
anniversary date. Said payments will be fully creditable against any milestone
fees and/or earned running royalties due in the same calendar year, and will be
payable according to the following schedule:

                         
     (a) 2007-1020          $[**]

     (b) 2011-termination   $[**]



     4.5. In the case of granting a Naked Sublicense, ALNYLAM will pay SAMSF
[**]% ([**] percent) of Sublicense Consideration received. For the avoidance of
doubt, if ALNYLAM grants a sublicense hereunder in connection with a Research
and Development Collaboration, it will not pay any portion of Sublicense
Consideration to SAMSF.

10.  [**]

3.2 Milestones. Upon the occurrence of the milestones set forth below, Alnylam
shall make the milestone payments set forth below to Licensor within thirty (30)
days of the occurrence of each such event:



Milestone Event                                                          Payment
- ---------------                                                          -------
                                                                      
Initiation by Alnylam of an IND enabling toxicology study involving an    E[**]
siRNA specific for MLL-AF4 covered by Licensed Patent Rights

Filing of an IND for an siRNA specific for MLL-AF4 covered by Licensed    E[**]
Patent Rights

Enrollment of patients in a Phase II Clinical Trial of an siRNA           E[**]
specific for MLL-AF4 covered by Licensed Patent Rights

Enrollment of patients in a Phase III Clinical Trial of an siRNA          E[**]
specific for MLL-AF4 covered by Licensed Patent Rights

Approval in a first country for an siRNA specific for MLL-AF4 covered     E[**]
by Licensed Patent Rights


Anything to the contrary notwithstanding, each of the foregoing payments shall
be payable only once and soley with respect to the first Licensed Product to
reach each such milestone.

3.3 Royalties.

     (a) Alnylam shall pay to Licensor earned royalties at the rate of [**]
percent ([**]%) on annual Net Sales by Alnylam and its Affiliates and
sublicensees of Licensed Product up to and including $[**] and [**] percent
([**]%) on annual Net Sales by Alnylam and its Affiliates and sublicenses of
Licensed Products greater than $[**].

     (b) Royalties on Licensed Products whose manufacture, use or sale is
covered by a Valid Claim under the Licensed Patent Rights shall be payable on a
country-by-country basis for any country in which the Licensed Products are
manufactured, used or sold in which there is a Valid Claim under the Licensed
Patent Rights. The obligation to pay royalties shall be imposed only once with
respect to the same unit of Licensed Product.

     (c) In the event that a Licensed Product is sold in any country in the form
of a combination product containing one or more therapeutically active
ingredients in addition to such Licensed Product, Net Sales of such combination
product will be adjusted by [**] [**]), where A is the average invoice price of
the Licensed Product in such country, if sold separately in such country, and B
is the average invoice price of any other therapeutically active ingredients in
the combination, if sold separately in such country. If, in a specific county,
the other therapeutically active ingredients in the combination product are not
sold separately in such country, Net Sales shall be calculated by [**], where A
is the average invoice price of the Licensed Product in such and C is the
invoice price of the combination product in such country. If, in a specific
country, the Licensed Product is not sold separately in such country, Net Sales
shall be calculated by [**], Where B is the average invoice price of the other
therapeutically active ingredients in the combination product in such country
and C is the invoice price of the combination product in such country. The
invoice price for the Licensed Product and for each other therapeutically,
active ingredient shall be for a quantity comparable to that used in the
combination product and of the same class, purity and potency. If, in a specific
country,

both the Licensed Product and the other therapeutically active ingredients in
the combination product are not sold separately in such country, a market price
for the Licensed Product and the other therapeutically active ingredients in the
combination products shall be negotiated in good faith by the Parties.

     (d) If Alnylam or any of its Affiliates determines, in good faith, that it
must, in order to operate under or exploit any of the licensees granted under
Section 2.1 of the Agreement in any country, make payments (including, without
limitation, licensed fees, milestones or royalties) to one or more third parties
to obtain a license or similar right in the absence of which the Licensed Patent
Rights could not legally be used in connection with the manufacture, use or sale
of Licensed Products in such country, Alnylam shall be entitled to deduct from
the royalties thereafter payable to Licensor under this Agreement an amount
equal to such third party payments; provided however, that I no event shall the
royalties due Licensor under this Agreement be reduced by more than [**] percent
([**]%) of the royalties that would otherwise be due in accordance with Section
3.3 (a) of this Agreement, as applicable.

11.  RESEARCH COLLABORATION AND LICENSE AGREEMENT BETWEEN MERCK & CO., INC,
     ALNYLAM PHARMACEUTICALS, INC. AND ALNYLAM HOLDING CO., DATED SEPTEMBER 08,
     2003

     Under certain circumstances set forth in the above-named agreement, rights
with respect to certain products may become available to Alnylam that would then
become available to Novartis pursuant to Section 3.1(e). Novartis agrees and
acknowledges (i) that until such time as such rights become available to
Alnylam, Alnylam is not at liberty under the confidentiality provisions of the
above-named agreement to disclose any payments that would be due to Merck & Co.
in relation to such products, and (ii) that at such time, this Schedule 7.2(i)
will be amended to include the amounts of such payments, and such payments will
then be treated as though they had been listed on this Schedule 7.2(i) as of the
Effective Date.

12.  COLLABORATION AND LICENSE AGREEMENT BETWEEN MERCK & CO., INC AND ALNYLAM
     PHARMACEUTICALS, INC., DATED JUNE 29, 2004

     Under certain circumstances set forth in the above-named agreement, rights
with respect to certain products may become available to Alnylam that would then
become available to Novartis pursuant to Section 3.1(e). Novartis agrees and
acknowledges (i) that until such time as such rights become available to
Alnylam, Alnylam is not at liberty under the confidentiality provisions of the
above-named agreement to disclose any payments that would be due to Merck & Co.
in relation to such products, and (ii) that at such time, this Schedule 7.2(i)
will be amended to include the amounts of such payments, and such payments will
then be treated as though they had been listed on this Schedule 7.2(i) as of the
Effective Date.

13.  COLLABORATION AGREEMENT BY AND BETWEEN ALNYLAM PHARMACEUTICALS, INC. AND
     MEDTRONIC, INC., DATED FEBRUARY 08, 2005

     Under certain circumstances set forth in the above-named agreement, rights
with respect to certain products may become available to Alnylam that would then
become available to Novartis pursuant to Section 3.1(e). Novartis agrees and
acknowledges (i) that until such time as such rights become available to
Alnylam, Alnylam is not at liberty under the confidentiality provisions of the
above-named agreement to disclose any payments that would be due to Merck & Co.
in relation to such products, and (ii) that at such time, this Schedule 7.2(i)
will be amended to include the amounts of such payments, and such payments will
then be treated as though they had been listed on this Schedule 7.2(i) as of the
Effective Date.

                                 SCHEDULE 7.2(J)

  AGREEMENTS PURSUANT TO WHICH ALNYLAM IS PRECLUDED FROM INCLUDING ONE OR MORE
                     TARGET(S) IN THE RESEARCH COLLABORATION

Research Collaboration and License Agreement between Merck & Co., Inc, Alnylam
Pharmaceuticals, Inc. and Alnylam Holding Co., dated September 8, 2003.

Strategic Collaboration & License Agreement between Isis Pharmaceuticals, Inc.,
and Alnylam Pharmaceuticals, Inc., dated March 11, 2004.

Collaboration and License Agreement between Merck & Co., Inc and Alnylam
Pharmaceuticals, Inc., dated June 29, 2004.

License and Option Agreement between GeneCare Research Institute Co., Ltd and
Alnylam Pharmaceuticals, Inc., dated January 6, 2005.

Collaboration Agreement by and between Alnylam Pharmaceuticals, Inc. and
Medtronic, Inc., dated February 08, 2005.

License Agreement between Benitec Australia, Ltd. and Alnylam Pharmaceuticals,
Inc., dated April 8, 2005.

License and Option Agreement between Nastech Pharmaceutical Company, Inc., and
Alnylam Pharmaceuticals, Inc., dated July 20, 2005.

EX-10.26

Exhibit 10.26

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

LICENSE AND COLLABORATION AGREEMENT

     This LICENSE AND COLLABORATION AGREEMENT (this “Agreement”), is entered into as of July 8, 2007 (the “Execution 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, “Licensee”), 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”), and, solely for the purposes set forth in Section 9.15 of this Agreement, Alnylam Europe AG, a German stock corporation, with a registered office in Kulmbach, Germany (“Alnylam Europe AG”).

INTRODUCTION

     1. Licensee is engaged in the business of Discovering, Developing, Commercializing and Manufacturing therapeutic products (each as defined below).

     2. Alnylam has developed, acquired and licensed technology useful for the Discovery, Development, Manufacture, characterization and use of therapeutic products that function through the mechanism of RNA interference (“RNAi”).

     3. Alnylam desires to grant licenses to such technology to Licensee, and the Parties desire to collaborate on certain research and development activities, in each case upon the terms and conditions set forth in this Agreement.

     NOW, THEREFORE, in consideration of the respective representations, warranties, covenants and agreements contained herein, and for other valuable consideration, the receipt and adequacy of which are hereby acknowledged, Alnylam and Licensee agree as follows:

ARTICLE I

DEFINITIONS

     1.1 Definitions. For the purpose of this Agreement, the following terms, whether used in singular or plural form, shall have the respective meanings set forth below:

     “Accounting Period” shall have the meaning set forth in Section 5.8.

     “Additional Field” shall mean the treatment or prophylaxis of all Indications in any Supplemental Therapeutic Area, where such treatment or prophylaxis comprises an RNAi Compound complementary to, and functional in mediating the RNAi of, a Target known or believed to be primarily implicated in such Supplemental Therapeutic Area.

     “Affiliate” shall mean 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, [**], each shall not be deemed an “Affiliate” of Licensee; provided, however, that if Licensee were to assume day-to-day control of either [**], then Licensee shall have the right, at its sole option, to designate [**], as applicable, to be an Affiliate. For purposes of Sections 6.1, 6.2, 9.8, 9.12 (the second sentence only), and 9.14, Alnylam’s Affiliates shall not include [**], any Affiliates of [**] (other than Alnylam and Persons “controlled” by Alnylam on the Execution Date) or any Person that becomes an Affiliate of Alnylam as a result of a [**].

     “Agreement” shall have the meaning set forth in the Preamble, and shall include, for the avoidance of doubt, all Exhibits and Schedules attached hereto.

     “Alnylam Change of Control” shall be deemed to occur upon the closing of (a) a merger, reorganization or consolidation involving Alnylam 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 Alnylam’s assets or business relating to this Agreement.

     “Alnylam Third Party Obligations” shall mean (a) Alnylam’s obligations to, and the rights of, Pre-Existing Alliance Parties and Listed Counterparties with respect to the Licensed Intellectual Property under Pre-Existing Alliance Agreements and Listed Alnylam Third Party Agreements, respectively, and (b) Alnylam Europe AG’s obligations to, and the rights of, Max Planck with respect to certain Architecture and Chemistry Patent Rights under the Max Planck European License Agreement; including without limitation Listed Alnylam Third Party Payment obligations.

     “Annual Net Sales” shall mean, with respect to a Licensed Product, the Net Sales of such Licensed Product during a calendar year.

     “Architecture and Chemistry Intellectual Property” shall mean Architecture and Chemistry Know-How and Architecture and Chemistry Patent Rights.

     “Architecture and Chemistry Know-How” shall mean Know-How Controlled by Alnylam as of the Effective Date that relates to (a) the general structure, architecture, or design of double-stranded oligonucleotide molecules which engage RNAi mechanisms in a cell; (b) chemical modifications of double-stranded oligonucleotides (including any modification to the base, sugar or internucleoside linkage, nucleotide mimetics, and any end

2

modifications) which do not abolish the RNAi activity of the double-stranded oligonucleotides in (a); (c) manufacturing techniques for the double-stranded oligonucleotide molecules or chemical modifications of (a) and (b); or (d) all uses or applications of double-stranded oligonucleotide molecules or chemical modifications in (a) or (b); but excluding (i) Know-How to the extent specifically related to Blocked Targets, and (ii) Delivery Know-How.

     “Architecture and Chemistry Patent Rights” shall mean the Patent Rights listed on Schedule C Controlled by Alnylam or, solely in the case of Patent Rights licensed under the Max Planck European License Agreement, by Alnylam Europe AG, each as of the Effective Date, together with any future Patent Rights that claim priority to or common priority with any of the aforementioned Patent Rights, that Cover (a) the general structure, architecture, or design of double-stranded oligonucleotide molecules which engage RNAi mechanisms in a cell; (b) chemical modifications of double-stranded oligonucleotides (including any modification to the base, sugar or internucleoside linkage, nucleotide mimetics, and any end modifications) which do not abolish the RNAi activity of the double-stranded oligonucleotides in (a); (c) manufacturing techniques for the double-stranded oligonucleotide molecules or chemical modifications of (a) and (b); or (d) all uses or applications of double-stranded oligonucleotide molecules or chemical modifications in (a) or (b); but excluding (i) Patent Rights which specifically relate to Blocked Targets, and (ii) Delivery Patent Rights. Notwithstanding anything in this Agreement to the contrary, should it be reasonably determined after the Effective Date that (x) any omitted Patent Rights which Alnylam Controlled as of the Effective Date disclose any Valid Claims that Cover any of clause (a) through (d) above, but excluding any Patent Rights which specifically relate to Blocked Targets and Patent Rights licensed under the [**] Agreement (except as set forth in Section 2.3(b)(ii)), or (y) in the course of prosecution of any Valid Claims under any of the Patent Rights listed on Schedule C, any such Valid Claim either no longer Covers any of clause (a) through (d) above or specifically relates to Blocked Targets, Schedule C shall be amended to reflect the inclusion or deletion, as the case may be, of such Patent Right, to the extent that it does not conflict with the terms of any Listed Alnylam Third Party Agreement or Pre-Existing Alliance Agreement to do so. For the avoidance of doubt, any Patent Rights which are subsequently included on Schedule C pursuant to clause (x) above shall be deemed “Architecture and Chemistry Patent Rights” for all purposes hereunder.

     “Blocked Target” shall mean any Target that is subject to a contractual obligation of a Pre-Existing Alliance Agreement that would be breached by the inclusion of such Target as a Designated Target under this Agreement.

     “Blocked Target List” shall mean a list of Blocked Targets maintained by the Gatekeeper, as such list may be updated from time to time.

     “Business Day” shall mean a day on which banking institutions in Boston, Massachusetts are open for business.

     “[**] Agreement” shall have the meaning set forth in Section 2.3(b)(ii).

     “Collaboration Target” shall have the meaning set forth in Section 4.1.

3

     “Combination Product” shall mean a Licensed Product combined with any other clinically active therapeutic or prophylactic ingredient, mechanism or device.

     “Commercialization” or “Commercialize” shall mean 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.

     “Common Stock Purchase Agreement” shall mean the Common Stock Purchase Agreement entered into by Licensee and Alnylam on the Execution Date.

     “Confidential Information” shall mean 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 Designated Targets, Submitted Targets and Blocked Targets shall be deemed the Confidential Information of both Parties.

     “Control” or “Controlled” shall mean, 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.

     “Cover”, “Covered” or “Covering” shall mean, 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).

     “Delivery Intellectual Property” shall mean Delivery Know-How and Delivery Patent Rights.

     “Delivery Know-How” shall mean Know-How Controlled by Alnylam as of the Effective Date that relates to (a) delivery technologies which may be necessary or useful for delivery of double-stranded oligonucleotide molecules; or (b) manufacturing techniques for the delivery technologies of (a); but excluding Know-How to the extent specifically related to Blocked Targets.

     “Delivery Patent Rights” shall mean Patent Rights listed on Schedule C Controlled by Alnylam as of the Effective Date (or, solely with respect to the Patent Rights covered by any option under Section 2.3(b)(ii) below, as of the effective date of Licensee’s exercise of such option), together with any future Patent Rights that claim priority to or common priority with any of the aforementioned Patent Rights, that Cover (a) delivery technologies necessary or useful for delivery of double-stranded oligonucleotide molecules; or (b) manufacturing techniques for the delivery technologies of (a); but excluding Patent

4

Rights which relate specifically to Blocked Targets. Notwithstanding anything in this Agreement to the contrary, should it be reasonably determined after the Effective Date that (x) any omitted Patent Rights which Alnylam Controlled as of the Effective Date disclose any Valid Claims that Cover any of clause (a) through (b) above, but excluding any Patent Rights which specifically relate to Blocked Targets and Patent Rights licensed under the [**] Agreement (except as set forth in Section 2.3(b)(ii)), or (y) in the course of prosecution of any Valid Claims under any of the Patent Rights listed on Schedule C, any such Valid Claim either no longer Covers any of clause (a) through (b) above or specifically relates to Blocked Targets, Schedule C shall be amended to reflect the inclusion or deletion, as the case may be, of such Patent Right, to the extent that it does not conflict with the terms of any Listed Alnylam Third Party Agreement or Pre-Existing Alliance Agreement to do so. For the avoidance of doubt, any Patent Rights which are subsequently included on Schedule C pursuant to clause (x) above shall be deemed “Delivery Patent Rights” for all purposes hereunder.

     “Designated Target” shall mean (a) at any time during the Novartis Exclusivity Term, any Target which is (i) selected by Licensee pursuant to Section 2.4(a) of this Agreement which is not a Blocked Target, (ii) submitted to Novartis pursuant to Licensee’s exercise of the Designated Target Option pursuant to Section 2.6 of this Agreement, and (iii) rejected or waived by Novartis, as evidenced by Alnylam’s written notice to Licensee pursuant to Section 2.6 of this Agreement; and (b) at any time following the end of the Novartis Exclusivity Term, any Target selected by Licensee pursuant to Section 2.4(a) of this Agreement which is not a Blocked Target. For the avoidance of doubt, (x) if Licensee selects any Target prior to the end of the Novartis Exclusivity Term for submission to Novartis, but such Target is not submitted to Novartis until after the end of the Novartis Exclusivity Term, or (y) if Licensee selects any Target prior to the end of the Novartis Exclusivity Term for submission to Novartis and such Target is submitted to Novartis prior to the end of the Novartis Exclusivity Term, but the time period during which Novartis is obligated to reply does not end until after the end of the Novartis Exclusivity Term, then such Target shall not be deemed a “Designated Target” hereunder until such Target has been rejected or waived by Novartis pursuant to the terms of the Novartis Agreement.

     “Designated Target Option” shall have the meaning set forth in Section 2.6.

     “[**]” shall have the meaning set forth in Section 5.5.

     “Develop” or “Development” shall mean 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 development, packaging development and Manufacturing and development documentation efforts in support of development activities anywhere in the world.

     “Discover” or “Discovery” shall mean any and all research or discovery activities.

5

     “Discovery Collaboration” shall mean collaboration between the Parties regarding the Discovery and/or Development of potential RNAi Compounds directed to a Designated Target [**], pursuant to the terms of Article IV.

     “Discovery Collaboration Opportunity” shall have the meaning set forth in Section 4.1.

     “Effective Date” shall mean the latest of (a) HSR Clearance Date, (b) if no filing is to be made pursuant to the HSR Act, the Execution Date, and (c) the Closing Date as defined in the Share Purchase Agreement (such date being referred to as the “Scheduled Date”), it being understood that the Closing Date of the Share Purchase Agreement and the Effective Date of this Agreement shall occur simultaneously; provided, however, that if between the Execution Date and the Scheduled Date there occurs an event or series of events that result in a material adverse impact upon the Licensed Patent Rights, taken as a whole, (including, for example, the termination of any of the Listed Alnylam Third Party Agreements, or Alnylam’s receipt of written notice of termination from a party to a Listed Alnylam Third Party Agreement (i) that has not been cured prior to the Scheduled Date, or (ii) cannot be cured within the applicable cure period under the Listed Alnylam Third Party Agreement), then Licensee shall have the unilateral right to cause this Agreement not to become effective resulting in no Effective Date; provided, further, that, notwithstanding anything in the parenthetical above to the contrary, if between the Execution Date and the Scheduled Date, Alnylam receives a written notice of termination from a party to a Listed Alnylam Third Party Agreement that results in a material adverse impact upon the Licensed Patent Rights, taken as a whole, and such notice of termination can be cured within the applicable cure period under such Listed Alnylam Third Party Agreement, but such cure period ends after the Scheduled Date, then Licensee shall have the unilateral right (x) to delay the effectiveness of this Agreement until Alnylam has effected the cure, at which time the Effective Date shall be deemed to have occurred, or (y) if the applicable cure period has lapsed without a cure having been effected, to cause this Agreement not to become effective following the end of such cure period, resulting in no Effective Date.

     “Execution Date” shall have the meaning set forth in the preamble to this Agreement.

     “FDA” shall mean the United States Food and Drug Administration or any successor agency thereto.

     “Field” shall mean the Primary Field and, subject to the exercise by Licensee of a Field Option with respect to any Additional Field(s) pursuant to Section 2.5, any such Additional Field(s).

     “Field Definition Panel” shall have the meaning set forth in Section 2.5(a)(iv).

     “Field Extension Opportunity” shall have the meaning set forth in Section 2.5(b)(i).

     “Field Option” shall have the meaning set forth in Section 2.5(b)(ii).

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     “Field Option Fee” shall have the meaning set forth in Section 5.6.

     “First Commercial Sale” shall mean the first sale of a Licensed Product by or on behalf of Licensee or any of its Affiliates or Licensee Partners 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.

     “Future Technology Patent Rights” shall mean Patent Rights Controlled by a Party after the Effective Date that Cover (a) delivery technologies which may be necessary or useful for delivery of double-stranded oligonucleotide molecules; or (b) manufacturing techniques for the delivery technologies of (a); but excluding (i) Patent Rights which specifically relate to Blocked Targets, and (ii) Licensed Patent Rights.

     “Gatekeeper” shall have the meaning set forth in Section 2.4(b).

     “GLP Toxicology Study” shall mean a toxicology study that is conducted in compliance with GLP and is required to meet the requirements for filing an IND.

     “HSR Act” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (15 U.S.C. Sec. 18a), and the rules and regulations promulgated thereunder.

     “HSR Clearance Date” shall mean the earlier of (a) the second Business Day after the date on which the United States Federal Trade Commission shall notify Licensee and Alnylam of early termination of the applicable waiting period under the HSR Act, or (b) the second Business Day after the date on which the applicable waiting period under the HSR Act expires.

     “IND” shall mean 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, or any foreign equivalent thereof, and (b) all supplements and amendments that may be filed with respect to the foregoing.

     “IND-Enabling Studies” shall mean pharmacokinetic and toxicology studies required to meet the requirements for filing an IND, including without limitation any GLP Toxicology Study.

     “Indication” shall mean any disease or condition, or sign or symptom of a disease or condition.

     “Initial Discovery Collaboration Opportunity Period” shall have the meaning set forth in Section 4.1.

     “Joint Future Technology Committee” shall have the meaning set forth in Section 3.2.

     “Know-How” shall mean any information, inventions, trade secrets or technology, whether or not proprietary or patentable and whether stored or transmitted in oral,

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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).

     “Kulmbach Facility” shall have the meaning set forth in Section 3.1(a).

     “Law” shall mean any law, statute, rule, regulation, ordinance or other pronouncement having the effect of law of any federal, national, multinational, state, provincial, county, city or other political subdivision, domestic or foreign.

     “Licensed Collaboration Product” shall mean any Licensed Product directed to a Designated Target for which the Parties have entered into a Discovery Collaboration pursuant to Article IV.

     “Licensed Intellectual Property” shall mean the Licensed Know-How and Licensed Patent Rights.

     “Licensed Know-How” shall mean (a) the Architecture and Chemistry Know-How, and (b) the Delivery Know-How.

     “Licensed Patent Rights” shall mean (a) the Architecture and Chemistry Patent Rights, and (b) the Delivery Patent Rights.

     “Licensed Product” shall mean any RNAi Product (a) whose manufacture, use or sale would, but for the licenses granted pursuant to this Agreement, infringe one or more Valid Claims of the Licensed Patent Rights, or (b) which embodies Licensed Know-How. All references to Licensed Product in this Agreement shall be deemed to include Combination Product, to the extent applicable.

     “Licensee Partner” shall mean any Third Party to which a sublicense is granted by Licensee in accordance with Section 2.1(b), including without limitation Third Party distributor whose obligations to Licensee or its Affiliates include responsibility for sales, marketing and/or distribution efforts in a country on behalf of Licensee or its Affiliates, excluding wholesale distributors who purchase Licensed Products from Licensee or its Affiliates in an arm’s length transaction and who have no other obligation to Licensee or its Affiliates.

     “Listed Alnylam Third Party Agreement” shall mean an agreement listed on Schedule D-1.

     “Listed Alnylam Third Party Payment” shall have the meaning set forth in Section 5.4(d).

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     “Listed Counterparties” shall mean the Third Party counterparties to Listed Alnylam Third Party Agreements and their respective successors in interest.

     “Major Market Countries” shall have the meaning set forth in Section 2.1(b).

     “Manufacture” or “Manufacturing” shall mean 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.

     “Max Planck” shall mean Max Planck Innovation GmbH (formerly Garching Innovation GmbH).

     “Max Planck European License Agreement” shall mean Co-Exclusive License Agreement between Max Planck and Alnylam Europe AG (formerly Ribopharma AG), dated July 30, 2003, as amended by the Requirement Amendment effective June 15, 2005.

     “NDA” shall mean 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, or any foreign equivalent thereof, and (b) all supplements and amendments that may be filed with respect to the foregoing.

     “Net Sales” shall mean 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 Licensee, 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 those sales-related deductions which are not accounted for by Licensee, 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 Licensee, 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).

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     For purposes of this definition of “Net Sales”, “Adjusted Gross Sales” shall mean the amount of gross sales of the Licensed Product invoiced by Licensee, 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 Licensee 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 Licensee 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 Licensee 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 5.4(a), multiplied by a fraction whose numerator is Licensee’s published sales price in such country for an equivalent dosage of RNAi Compound contained in a given Combination Product, and whose denominator is Licensee’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. 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.

     “Novartis” shall mean Novartis Institutes for BioMedical Research, Inc.

     “Novartis Agreement” shall mean 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, and as the same may be amended from time to time after the Execution Date in accordance with Section 2.7(c).

     “Novartis Exclusivity Term” shall mean the “Exclusivity Term” as defined in the Novartis Agreement.

     “[**]” shall have the meaning set forth in Section 2.7(b).

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     “[**]” shall have the meaning set forth in Section 2.7(b)(ii).

     “Option Term” shall mean the period commencing on the Effective Date and ending on the fifth (5th) anniversary thereof.

     “Other Transaction Documents” shall mean (a) the Common Stock Purchase Agreement, and (b) the Share Purchase Agreement.

     “Party” shall mean Alnylam or Licensee, as the case may be; “Parties” shall mean both Alnylam and Licensee.

     “Patent Rights” shall mean 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.

     “Person” shall mean any corporation, limited or general partnership, limited liability company, joint venture, trust, unincorporated association, governmental body, authority, bureau or agency, any other entity or body, or an individual.

     “Phase I Study” shall mean 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, and the foreign equivalent thereof.

     “Phase II Study” shall mean a human clinical trial, for which the primary endpoints include a determination of dose ranges and/or a preliminary determination of efficacy in patients being studied as described in 21 C.F.R. § 312.21(b), or similar clinical study in a country other than the United States.

     “Phase III Study” shall mean a human clinical trial 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), or a similar clinical study in a country other than the United States.

     “Pre-Existing Alliance Agreements” shall mean the agreements set forth on Schedule E.

     “Pre-Existing Alliance Parties” shall mean the Third Party counterparties to Pre-Existing Alliance Agreements and their respective successors in interest.

     “Primary Field” shall mean the treatment or prophylaxis of all Indications in the Primary Therapeutic Areas, where such treatment or prophylaxis comprises an RNAi Compound complementary to, and functional in mediating the RNAi of, a Target known or believed to be primarily implicated in one or more Primary Therapeutic Areas.

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     “Primary Therapeutic Area” shall mean each of the disease area fields set forth on Schedule A to this Agreement.

     “Product Liability Claim” shall mean, 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.

     “Regulatory Approval” shall mean, 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.

     “Regulatory Authority” shall mean 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.

     “Required Third Party Payments” shall mean royalty payments to a Third Party made by Licensee under Third Party agreements (other than Listed Alnylam Third Party Agreements or Pre-Existing Alliance Agreements) to license Patent Rights Covering such Third Party’s technology if, in the absence of such license, the licensed use by Licensee of the Licensed Patent Rights licensed by Alnylam under Section 2.1(a) would infringe such Patent Rights; 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) which may be necessary or useful for delivery of double-stranded oligonucleotide molecules, or manufacturing techniques for such delivery technologies.

     “RNAi Compound” shall mean any compound that, in vitro or otherwise, functions through the mechanism of RNAi and consists of or encodes double-stranded oligonucleotides, and which double-stranded oligonucelotides 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.

     “RNAi Product” shall mean any product that contains one or more RNAi Compounds as an active ingredient.

     “Royalty Term” shall mean, 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 a Licensed Patent Right 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 a Licensed Patent Right in the country or countries in which such Licensed Product is Manufactured) and concluding on the expiration of the later of (a) the last to expire Licensed Patent Right containing a Valid Claim Covering the Development, Commercialization or Manufacture of such Licensed Product in that country, (b) the last to expire Licensed Patent Right containing a Valid Claim Covering the Manufacture of such Licensed Product in the

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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. For the avoidance of doubt, if (x) a Licensed Product is not Covered by a Valid Claim of a Licensed Patent Right in a country at the time of such First Commercial Sale in such country, and (y) the Manufacture of such Licensed Product is not Covered by a Valid Claim of a Licensed Patent Right in the country or countries in which such Licensed Product is Manufactured at the time of First Commercial Sale, but at any time following First Commercial Sale, the Licensed Product, or the Manufacture thereof, is Covered by a Valid Claim of any patent under the Licensed Patent Rights that issues following the time of such First Commercial Sale, then the Royalty Term shall commence with respect to such Licensed Product at the time of such issuance.

     “Share Purchase Agreement” shall mean the Share Purchase Agreement entered into by and among Licensee, Licensee’s Affiliate, Alnylam and Alnylam Europe AG on the Execution Date.

     “Submitted Target” shall have the meaning set forth in Section 2.6.

     “Supplemental Therapeutic Area” shall mean each of the disease area fields set forth on Schedule B to this Agreement.

     “Target” shall mean (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.

     “Technology Transfer Period” shall have the meaning set forth in Section 3.1(a).

     “Technology Transfer Plan” shall have the meaning set forth in Section 3.1(a).

     “Terminated Patent Rights” shall have the meaning set forth in Section 5.4(f).

     “Third Party” shall mean any Person other than Alnylam or Licensee and their respective Affiliates.

     “Third Party Infringement Claim” shall have the meaning set forth in Section 2.8(a)(i).

     “UBC” shall mean the University of British Columbia.

     “UBC Sublicense Agreement” shall mean the Sublicense Agreement between Tekmira Pharmaceuticals Corporation (formerly INEX Pharmaceuticals Corporation) and Alnylam Pharmaceuticals, Inc., dated January 8, 2007.

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     “Valid Claim” shall mean 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.

ARTICLE II

GRANT OF RIGHTS;

INTELLECTUAL PROPERTY MATTERS

     2.1 License Grants.

     (a) License Grants to Licensee.

          (i) Alnylam hereby grants to Licensee and its Affiliates a non-exclusive, worldwide, perpetual, irrevocable, royalty-bearing right and license, subject to the terms and conditions of this Agreement and to Alnylam Third Party Obligations, under the Licensed Intellectual Property to engage in any and all Discovery, Development, Commercialization and Manufacturing activities in the Field (and, to the extent expressly permitted in Section 2.5(a), any Additional Field), including to make, have made, use, offer for sale, sell and import Licensed Products in the Field (and, to the extent expressly permitted in Section 2.5(a), any Additional Field).

          (ii) Alnylam Europe AG hereby grants to Licensee and its Affiliates a non-exclusive, worldwide, perpetual, irrevocable, royalty-bearing right and license, subject to the terms and conditions of this Agreement and to Alnylam Third Party Obligations, under Alnylam Europe AG’s rights to the Architecture and Chemistry Patent Rights licensed to Alnylam Europe AG pursuant to the terms of the Max Planck European License Agreement, to engage in any and all Discovery, Development, Commercialization and Manufacturing activities in the Field (and, to the extent expressly permitted in Section 2.5(a), any Additional Field), including to make, have made, use, offer for sale, sell and import Licensed Products in the Field (and, to the extent expressly permitted in Section 2.5(a), any Additional Field).

     (b) Sublicense Rights. Subject to Alnylam Third Party Obligations, Licensee shall have the right to grant sublicenses within the scope of the licenses granted to it in Section 2.1(a), on a Licensed Product-by-Licensed Product basis, to a Third Party in the Field (and, to the extent expressly permitted in Section 2.5(a), any Additional Field) solely for purposes of Developing and/or Commercializing a Licensed Product which has achieved the appropriate stage of Development (as determined by Licensee using its reasonable business judgment in the management of such Licensed Product within its portfolio of products, but in no event [**] other than to Third Party contractors, including contract research organizations, contract employees, consultants, contract manufacturers and the like in connection with the licensed activities); provided, however, that in no event shall Licensee grant any sublicense of

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any right granted to Licensee under Section 2.1(a) for the Development and/or Commercialization of any Third Party product unless such product is licensed by Licensee from such Third Party and Licensee and such Third Party are collaborating on the Development and/or Commercialization of such Third Party product. Each such sublicense agreement shall be consistent with the terms and conditions of this Agreement. Licensee shall remain liable to Alnylam and Alnylam Europe AG for each of its sublicensees’ failure to comply with all applicable restrictions, limitations and obligations under the sublicense agreement and this Agreement. No sublicense granted by Licensee hereunder may be assigned, transferred or further sublicensed to any Third Party without the prior written consent of Alnylam or Alnylam Europe AG, as the case may be. Licensee shall provide a redacted copy of such sublicense agreement to Alnylam (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), (x) if such sublicense impacts upon one or more of the following countries: USA, Germany, France, United Kingdom, Italy, Spain, and Japan (“Major Market Countries”), and (y) upon request by Alnylam, in any country other than those listed under clause (x) above.

     2.2 No Other Rights. Only the licenses granted to Licensee under Section 2.1(a) hereof shall be of legal force and effect and are limited to the scope expressly granted. Accordingly, except for the rights expressly granted under Section 2.1(a) hereof, no license, right, title or interest of any nature whatsoever is granted hereunder by implication, estoppel, reliance or otherwise, by Alnylam or Alnylam Europe AG to Licensee, and any of Alnylam’s or Alnylam Europe AG’s rights to Licensed Intellectual Property not specifically licensed to Licensee under Section 2.1(a) hereof shall be retained by Alnylam or Alnylam Europe AG, as the case may be. For purposes of clarity, nothing contained in this Agreement shall prevent or restrict Alnylam or Alnylam Europe AG from (a) granting to any Third Party any non-exclusive licenses under Alnylam’s or Alnylam Europe AG’s rights, as the case may be, in any Licensed Intellectual Property, or (b) subject to the provisions of Section 2.5(b)(i), granting to any Third Party any exclusive licenses under Alnylam’s or Alnylam Europe AG’s rights in any Licensed Intellectual Property outside of the then-current Field.

     2.3 Certain License Limitations.

     (a) Pre-Existing Alliance Agreements.

          (i) The grants by Alnylam and Alnylam Europe AG under Licensed Intellectual Property set forth in Section 2.1(a) are subject to, and are limited to the extent of, the rights that Alnylam has previously granted and is required to grant under Licensed Intellectual Property to Pre-Existing Alliance Parties under the terms of the Pre-Existing Alliance Agreements. As and to the extent that such rights previously granted to Pre-Existing Alliance Parties under Licensed Intellectual Property (whether such rights are previously or subsequently exercised) lapse, terminate or otherwise revert to Alnylam, they shall be automatically included in the non-exclusive rights under Licensed Intellectual Property granted to Licensee in the Field under Section 2.1(a).

          (ii) Licensee acknowledges that a Pre-Existing Alliance Party may from time to time request rights under Licensed Intellectual Property with respect to a

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particular Target that Alnylam is required, pursuant to the terms of a Pre-Existing Alliance Agreement, to grant such rights to such Pre-Existing Alliance Party with respect to such Target.

     (b) Contractual Obligations under Listed Alnylam Third Party Agreements.

          (i) For the avoidance of doubt, the grants by Alnylam under Licensed Intellectual Property set forth in Section 2.1(a) include, subject to Section 2.3(b)(ii), the sublicense of Licensed Intellectual Property that is not owned by Alnylam or Alnylam Europe AG. Licensee’s rights and licenses under such Licensed Intellectual Property are limited to the rights granted by Listed Counterparties to Alnylam under the Listed Alnylam Third Party Agreements and by Max Planck to Alnylam Europe AG under the Max Planck European License Agreement, and Licensee shall comply, and cause its Affiliates and Licensee Partners to comply, with those restrictions and other terms applicable to sublicensees under such agreements, certain of which restrictions and terms are summarized on Schedule D-2. Without limiting the generality of the foregoing, Licensee acknowledges that certain obligations are imposed on sublicensees of certain of the sublicensed Licensed Intellectual Property, and agrees to comply (to the extent access to obligations and requirements have been made available to Licensee in unredacted form), and to require its Affiliates and Licensee Partners to comply, with such obligations and requirements. Notwithstanding the above, at the request of Licensee, 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 Third Party Agreements with the accounting and royalty reporting provisions set forth in this Agreement.

          (ii) Notwithstanding anything to the contrary herein, the licenses to Licensed Patent Rights hereunder initially shall not include licenses to Patent Rights licensed by Alnylam or its Affiliates under the Non-Exclusive License Agreement between [**] and Alnylam, dated [**] (the “[**] Agreement”), which Patent Rights Licensee shall have the option, exercisable upon written notice to Alnylam hereunder, to license, on a Licensed Collaboration Product-by-Licensed Collaboration Product basis, upon commencement of a Discovery Collaboration hereunder. Upon such election, (x) the license granted to Licensee under Alnylam’s rights to Delivery Patent Rights pursuant to Section 2.1(a) shall include such Patent Rights with respect to the designated Licensed Collaboration Product(s), (y) Schedule C shall be amended to include such Patent Rights, and (z) the [**] Agreement shall be deemed a Listed Alnylam Third Party Agreement and Schedule D-1 and Schedule D-2 shall be amended accordingly.

     2.4 Blocked Targets; Gatekeeper.

     (a) Blocked Targets.

          (i) From time to time during the term of this Agreement but no more frequently than [**] (except as set forth in clause (ii) of this Section 2.4(a)), following an affirmative decision by Licensee to initiate a program directed to the Discovery, Development or Commercialization of RNAi Compounds directed to a particular Target,

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Licensee may inquire of the Gatekeeper in writing whether or not such Target is on the Blocked Target List by virtue of being subject to a then-current exclusive or co-exclusive grant, option, right of first refusal or similar right under a Pre-Existing Alliance Agreement. The Gatekeeper shall, within [**] days following the Gatekeeper’s receipt of such complete written request from Licensee, notify Licensee in writing whether or not such Target is on the Blocked Target List; provided, however, that in no event will the Gatekeeper directly or indirectly notify or communicate to any other Alnylam employee or consultant or any Alnylam Affiliate or Third Party the contents or the existence of Licensee’s inquiry hereunder without Licensee’s prior written consent, which may be withheld at Licensee’s sole discretion.

          (ii) If Alnylam becomes aware of the removal of any Target from the Blocked Target List, Alnylam shall notify Licensee of such removal (but not the identity of the Target which was removed) and Licensee shall have the right to inquire of the Gatekeeper pursuant to, and in compliance with, clause (i) above whether or not a Target is on the Blocked Target List; provided, however, that the [**] limit set forth in clause (i) above on the frequency of inquiries which may be made of the Gatekeeper shall not apply with respect to an inquiry made under this Section 2.4(a)(ii), nor shall an inquiry made under this Section 2.4(a)(ii) be counted towards such [**] limit.

          (iii) Notwithstanding the foregoing, the Parties acknowledge that a Pre-Existing Alliance Party may subsequently request exclusive or co-exclusive rights from Alnylam with respect to a particular Target as described in Section 2.3(a)(ii) and the provisions of Section 2.3(a)(ii) shall control.

     (b) Gatekeeper. Subject to the provisions of Section 2.7(b), the inquiries and responses made by one Party to the other in connection with Section 2.4(a) shall be made in writing to the attention of a designated employee of Alnylam mutually agreeable to both Parties (the “Gatekeeper”) who will be bound by confidentiality obligations to both Parties. Each Party agrees to provide the Gatekeeper with full and complete copies of all records and information (including un-redacted copies of the relevant Third Party agreements) that are necessary for the Gatekeeper to render his or her determination.

     2.5 Additional Fields; Field Option.

     (a) Additional Fields.

          (i) Licensee shall initially conduct Discovery, Development, Commercialization and Manufacturing activities directed to Targets only with respect to Indications in the Field. After Licensee’s completion of a Phase II Study with respect to any Licensed Product directed to a specific Target in the Field, Licensee may engage in Discovery, Development, and/or Manufacturing activities directed to such Target for any Indication (each, an “Additional Indication”) in any Additional Field (if such Additional Field has not been the subject of Licensee’s exercise of a Field Option) without having to pay a Field Option Fee; provided, however, that (A) Licensee shall notify Alnylam of its extension of Discovery, Development and/or Manufacturing activities directed to such Target for such Additional Indication in such Additional Field, and (B) Licensee shall pay Alnylam the

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following amounts (which shall be in addition to any event payments which may be owed under Section 5.3 below and except as provided in clause (ii) below) upon achievement of the following events by Licensee, its Affiliates or Licensee Partners with respect to each such Additional Indication:

	Payment for
	Licensed Products
Development Event:	(in [**]):
Initiation of Phase III for each Additional Indication	$	[**]
Filing of an NDA for each Additional Indication	$	[**]
Regulatory Approval for each Additional Indication	$	[**]

          (ii) Notwithstanding the foregoing provisions of clause (i) above, Licensee shall pay Alnylam the following amounts (which shall be in addition to any event payments which may be owed under Section 5.3 below and in lieu of any amounts which may otherwise be owed under clause (i) above) upon achievement of the following events by Licensee, its Affiliates or Licensee Partners solely with respect to a Licensed Product with respect to which Licensee extends its activities for the first time to an Additional Indication in a given Additional Field:

	Payment for
	Licensed Products
Development Event:	(in [**]):
Initiation of Phase III for a Licensed Product for the first Additional Indication in a given Additional Field	$	[**]
Filing of an NDA for a Licensed Product for the first Additional Indication in a given Additional Field	$	[**]
Regulatory Approval for a Licensed Product for the first Additional Indication in a given Additional Field	$	[**]

          (iii) The amounts paid under subsections (i) and (ii) of this Section 2.5(a) for Additional Indications within a given Additional Field shall be fully creditable against Field Option Fees which may be paid by Licensee pursuant to Section 5.6 for such Additional Field. In no event shall the total event payments made under this provision exceed $50 million for a given Additional Field.

          (iv) For the avoidance of doubt, in no event shall Licensee conduct Discovery, Development, Commercialization and Manufacturing activities directed to any Target in any Additional Field other than as permitted in this Section 2.5. In the event that the

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Parties are unable to agree on whether or not Licensee’s activities fall within or outside the Primary Field or any Additional Field in a manner prohibited by this Agreement, the Parties shall submit such dispute to a panel (the “Field Definition Panel”) consisting of three (3) independent experts in clinical development, with each Party having the right to select a single expert and the two (2) selected experts selecting the third expert by mutual agreement. Such third expert shall serve as the chairperson of the Field Definition Panel. The selection of the experts for the Field Definition Panel shall occur within thirty (30) days following the Parties’ decision to submit such dispute to such a panel, and the Parties shall consult with such Field Definition Panel for a period not to exceed thirty (30) days from the selection of such experts. The Field Definition Panel shall render a decision with respect to such dispute, based on a majority vote, with each expert having one (1) vote, within ten (10) days following the end of such consultation period, which decision shall be binding on the Parties. In the event that the Field Definition Panel determines that Licensee’s Discovery, Development, Commercialization or Manufacturing activities are being conducted in any Additional Field in a manner which is prohibited hereunder, Licensee shall, within ten (10) Business Days after such determination by the Field Definition Panel, cease such proscribed activity.

     (b) Field Option.

          (i) During the Option Term, if Alnylam intends to grant to any Third Party (other than Listed Counterparties or Pre-Existing Alliance Parties, subject to the terms of the applicable Listed Alnylam Third Party Agreements or Pre-Existing Alliance Agreements, as the case may be) an exclusive license to any Additional Field(s) which is not included in the then-current Field, Alnylam shall notify Licensee thereof (“Field Extension Opportunity”). Licensee shall have the right to extend the licenses granted under Section 2.1(a) to include the Additional Field(s) covered by such Field Extension Opportunity by notifying Alnylam in writing of such intent within sixty (60) days after Alnylam’s notice and paying the Field Option Fee for each such Additional Field pursuant to Section 5.6. For the avoidance of doubt, Alnylam and Alnylam Europe AG shall have the right to grant to any Third Party any exclusive licenses under Alnylam’s or Alnylam Europe AG’s rights, as the case may be, in any Licensed Intellectual Property in any Additional Field to which Licensee has not extended its licenses granted under Section 2.1(a) pursuant to Licensee’s exercise of the Field Option under this Section 2.5(b).

          (ii) From time to time during the Option Term, Licensee shall have the right, upon written notice to Alnylam, to request the extension of the license granted under Section 2.1(a) to include one or more Additional Field(s) (“Field Option”) in which Licensee has a good faith intention to seek to Discover, Develop, Commercialize and Manufacture RNAi Compounds or RNAi Products, which right shall be subject to any agreement which Alnylam may have entered into with a Third Party with respect to such Additional Field(s) following Licensee’s rejection of, or failure to pay the Field Option Fee for, any Field Extension Opportunity pursuant to clause (i) above. Upon Licensee’s payment of the Field Option Fee for each such Additional Field pursuant to Section 5.6, the licenses granted to Licensee under Section 2.1(a) shall include such Additional Field(s).

     2.6 Designated Target Option. From time to time during the Novartis Exclusivity Term, Licensee shall have the right, upon written notice to Alnylam, to select any

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Target in the Field which is not a Blocked Target for submission by Alnylam to Novartis pursuant to the terms of the Novartis Agreement (a “Submitted Target”). Alnylam shall promptly provide notice to Novartis of the Submitted Target(s) in accordance with the provisions of the Novartis Agreement, and Licensee shall cooperate with Alnylam in providing any information reasonably requested by Novartis (but not the identity of Licensee or any of Licensee’s RNAi Compounds) in order for Novartis to determine whether or not to pursue Discovery, Development and/or Commercialization activities directed to such Submitted Target. If Novartis notifies Alnylam that it wishes (as such term is used in the Novartis Agreement) to pursue Discovery, Development and/or Commercialization activities directed to such Submitted Target, then Alnylam shall so notify Licensee promptly upon Alnylam’s receipt of such notification, and such Target shall be deemed a Blocked Target for purposes of this Agreement. If Alnylam receives notice from Novartis that Novartis has no interest in pursuing Discovery, Development and/or Commercialization activities directed to such Submitted Target, or if Novartis otherwise waives its right to such Submitted Target under the terms of the Novartis Agreement, then Alnylam shall notify Licensee promptly upon Alnylam’s receipt of such notification or waiver. In such event, such rejected or waived Submitted Target shall be deemed a “Designated Target” for all purposes under this Agreement, Licensee shall be deemed to have exercised its option with respect to such Submitted Target (each, a “Designated Target Option”), and Licensee shall be free, upon [**] pursuant to Section 5.5, to Discover, Develop, Commercialize or Manufacture RNAi Compounds and RNAi Products directed to such Designated Target in accordance with the terms hereof without further risk of such Target becoming a Blocked Target.

     2.7 Special Provisions Relating to Novartis.

     (a) Compliance with Novartis Agreement. It is the intent of the Parties that this Agreement be construed in a manner which is consistent with and in compliance with the terms of the Novartis Agreement in all respects.

     (b) Alnylam Change of Control. In the event that, at any time during the [**], an Alnylam Change of Control occurs in which [**] (other than [**] or any controlled [**]) is the acquiring entity (a “[**]”), it shall be a condition precedent to such [**] that:

          (i) Section 2.4(b) of this Agreement shall be amended to provide that the “Gatekeeper” shall not be a designated employee of Alnylam but instead (A) shall be a Third Party who shall have no material relationship (other than as Gatekeeper) with Alnylam, [**], (B) shall be mutually agreeable to both Parties and (C) shall be bound by confidentiality obligations to both Parties, and to the extent that the consent of [**] shall be required for such amendment, such consent shall have been obtained; and

          (ii) [**], to the extent required, shall have agreed [**] that the[**] contained therein (i.e., [**] thereof) shall terminate upon such [**] and that [**] as a result of any obligations under the [**] or as a result of any other actions [**] in connection with [**] hereunder after the date of the agreement providing for such [**] or, if there is no [**], after the date of such [**].

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Alnylam agrees that the [**] shall include the consent of [**], as applicable, required by clause (i) above and the agreement of [**], as applicable, to the amendment required by clause (ii) above. If, notwithstanding the foregoing, the [**] shall occur without the amendment and consent contemplated by clause (i) above or without the agreement and amendment contemplated by clause (ii) above, then (A) [**] and (B) Alnylam shall pay to Licensee an amount equal to [**]. Each Party agrees that if the [**] shall occur without the amendment and consent contemplated by clause (i) above or without the agreement and amendment contemplated by clause (ii) above, the damages that Licensee and its Affiliates would suffer would be irreparable and difficult to calculate with certainty but in such event the amounts payable by Alnylam pursuant to the immediately preceding sentence shall constitute fair and reasonable amounts and not penalties.

     (c) No Adverse Amendments. Alnylam agrees not to enter into any amendment or modification to the [**] which would have an adverse impact on Licensee’s rights under this Agreement, without the prior written consent of Licensee. Without limiting the foregoing, the Parties acknowledge and agree that the following amendments/modifications would have an adverse impact on Licensee’s rights under this Agreement: [**]; (iv) any amendment that would require Alnylam to provide to [**] any Confidential Information of Licensee; and (v) any provision that is inconsistent with the obligations of Alnylam to Licensee hereunder.

     (d) Specific Performance. The Parties hereto agree that irreparable damage would occur if any provision of this Section 2.7 were not performed in accordance with the terms hereof and that Licensee shall be entitled to an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof in any federal court located in the State of Delaware or any Delaware state court, in addition to any other remedy to which they are entitled at law or in equity.

     2.8 Certain Intellectual Property Matters

     (a) Claimed Infringement.

          (i) In the event that a Third Party at any time asserts a claim, or brings an action, suit or proceeding against a Party or any of its Affiliates or, with respect to Licensee, Licensee Partners, claiming infringement of such Third Party’s Patent Rights or unauthorized use or misappropriation of such Third Party’s Know-How, based upon an assertion or claim arising out of any of the activities taken in respect of the Discovery, Development, Commercialization or Manufacture of Licensed Products, where such claim, action, suit or proceeding and/or the defense thereof involves, or is likely to involve, the validity, scope and/or enforceability of the Licensed Intellectual Property (“Third Party Infringement Claim”), such Party shall promptly notify the other Party in writing of the claim or the commencement of such action, suit or proceeding, enclosing a copy of the claim and all papers served.

          (ii) Within thirty (30) days after delivery of the notification required to be delivered under clause (i) above, as between Alnylam and Licensee and subject to Alnylam Third Party Obligations, Alnylam shall, upon written notice thereof to Licensee,

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assume control of the defense of those aspects of any such Third Party Infringement Claim which involve the validity, scope and/or enforceability of Licensed Intellectual Property (either alone or in combination with any other Patent Rights or Know-How), and Licensee shall, upon written notice thereof to Alnylam, assume control of the defense of any other Third Party Infringement Claim or aspect thereof, as the case may be. Licensee and Alnylam, subject to Alnylam Third Party Obligations, 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.

          (iii) The Party controlling the action, suit, proceeding, claim or defense under Section 2.8(a) shall not agree to any settlement of such action, suit, proceeding, claim or defense without the prior written consent of the other Party, which shall not be unreasonably withheld, conditioned or delayed; provided, that Alnylam may settle or compromise any action, suit, proceeding, claim or defense relating to Licensed Intellectual Property without the prior written consent of Licensee.

     (b) Trademarks. Each Party and its Affiliates shall retain all right, title and interest in and to its and their respective corporate names and logos. Licensee shall not acquire any rights under this Agreement in any trademark, service mark or Internet domain name including the word “Alnylam” or any other trademarks or trade dress of Alnylam or its Affiliates, and Alnylam shall not acquire any rights under this Agreement in any trademark, service mark or Internet domain name including the word “Roche” or any other trademarks or trade dress of Licensee or its Affiliates.

     (c) Enforcement of Licensed Intellectual Property. Alnylam shall take reasonable measures to protect and, to the extent Alnylam has such a right, to enforce the Licensed Intellectual Property in the Field, consistent with prudent commercial practices in the biotechnology industry.

     (d) Notice of Changes. Within sixty (60) days after each anniversary of the Effective Date, Alnylam shall provide to Licensee an updated Schedule C that reflects any changes to the list of Licensed Patent Rights set forth on Schedule C which have occurred during the prior year.

     2.9 Obligation to Maintain Listed Alnylam Third Party Agreements. Alnylam shall use commercially reasonable efforts to maintain the Listed Alnylam Third Party Agreements in full force and effect as they relate to the Licensed Patent Rights. If a Listed Alnylam Third Party Agreement provides Alnylam with the opportunity to assume prosecution of any Licensed Patent Right or risk that such right will be abandoned, then Alnylam shall take reasonable measures to prosecute such Licensed Patent Right in the Field, consistent with prudent commercial practices in the biotechnology industry.

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ARTICLE III

TECHNOLOGY TRANSFER;

JOINT FUTURE TECHNOLOGY COMMITTEE

     3.1 Technology Transfer.

     (a) Initial Technology Transfer.

          (i) Within a period of [**] months following the Effective Date (“Technology Transfer Period”), Alnylam shall complete the activities assigned to Alnylam as set forth on the technology transfer plan attached hereto as Schedule F (as it may be amended from time to time by mutual agreement of the Parties, the “Technology Transfer Plan”), at no additional cost to Licensee (subject to subsection 3.1(d) below), to effect the transfer to Licensee (or its designated Affiliate(s)) of Licensed Intellectual Property that is reasonably necessary for the exercise of Licensee’s rights under the licenses granted pursuant to Section 2.1(a) and for the operation of the facility in Kulmbach, Germany which is being transferred to Licensee pursuant to the terms of the Share Purchase Agreement (“Kulmbach Facility”). Alnylam shall make available to Licensee such number of technical personnel as may be set forth in the Technology Transfer Plan to answer any questions or provide instruction as reasonably requested by Licensee concerning the items delivered pursuant to this Section 3.1(a), in connection with Licensee’s Discovery, Development, Commercialization and Manufacture of Licensed Products hereunder and the operation of the Kulmbach Facility.

          (ii) During the Technology Transfer Period, Licensee shall conduct, and shall cause Licensee’s applicable Affiliate(s) to conduct, the activities assigned to Licensee (and/or its Affiliates) as set forth on the Technology Transfer Plan, at no additional cost to Alnylam, to effect the transfer to Alnylam (or its designated Affiliate(s)) of Know-How which is reasonably necessary to enable Alnylam (or its Affiliate(s)) to transfer the performance of the activities conducted at the Kulmbach Facility prior to the Effective Date to an alternate facility in Cambridge, MA, U.S.A, designated by Alnylam.

     (b) Technology Transfer to Alnylam After Technology Transfer Period. Without limiting Licensee’s obligations under Section 3.1(a), following the end of the Technology Transfer Period, Licensee shall conduct, and shall cause Licensee’s applicable Affiliates to conduct, the activities assigned to Licensee and/or its Affiliates as set forth in the Technology Transfer Plan, at no additional cost to Alnylam, to effect the transfer to Alnylam (or its designated Affiliate(s)) of Know-How associated with, or arising from, the Discovery, Development, Commercialization and/or Manufacturing activities performed by Licensee (and/or its Affiliate(s)) and its or its Affiliates’ employees and subcontractors at the Kulmbach Facility on behalf of Alnylam and/or its Affiliates before and/or during the Transition Period (as defined in the Share Purchase Agreement). Licensee shall make available to Alnylam such number of technical personnel as may be set forth in the Technology Transfer Plan to answer any questions or provide instruction as reasonably requested by Alnylam concerning the items delivered pursuant to this Section 3.1(b).

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     (c) Management of Transition Activities. Each Party shall designate personnel to the Joint Transition Team (as defined in the Share Purchase Agreement) who shall be responsible for coordinating the technology transfer activities under the Technology Transfer Plan. Each Party shall cooperate with the other Party in such other Party’s conduct of technology transfer activities under the Technology Transfer Plan.

     (d) Additional Services. If Licensee desires that Alnylam continue to provide technology transfer services with respect to Licensed Intellectual Property (i) beyond the scope of the Technology Transfer Plan, or (ii) following the end of the Technology Transfer Period, Alnylam shall, at its discretion and upon mutual agreement of the Parties on the terms of such services (including, as necessary, an amended Technology Transfer Plan), continue to provide such services on terms to be agreed upon by the Parties.

     3.2 Joint Future Technology Committee. Within thirty (30) days after the Effective Date, the Parties shall establish a “Joint Future Technology Committee”, comprised of at least one (1) representative from each of Licensee and Alnylam, to exchange information and facilitate discussions concerning any Future Technology Patent Rights which may arise during the Option Term. Unless otherwise agreed by the Parties, the Joint Future Technology Committee shall remain in effect during the Option Term and shall meet on a bi-annual basis, in a manner and at a location mutually agreed by the Parties (including via telephone). During the Option Term, either Party may notify the other Party of its interest in obtaining a license under such other Party’s rights to any Future Technology Patent Rights. Upon such notification and subject to any rights of Third Parties to such Future Technology Patent Rights, the Parties shall negotiate in good faith for a period not to exceed one hundred twenty (120) days the terms of any license to such Future Technology Patent Rights, provided that neither Party shall be obligated to grant any licenses to the other Party. For the avoidance of doubt, the Joint Future Technology Committee shall have no decision-making authority with respect to the acquisition or grant of any licenses under any Future Technology Patent Rights.

ARTICLE IV

DISCOVERY COLLABORATION

     4.1 Discovery Collaboration. Within [**] months following the Effective Date during the Option Term (“Initial Discovery Collaboration Opportunity Period”), Licensee shall propose to Alnylam at least [**] Targets which are not Blocked Targets with respect to which Licensee has an interest in entering into a Discovery Collaboration with Alnylam (“Discovery Collaboration Opportunity”), and shall provide to Alnylam any available information concerning such Targets which Licensee reasonably believes may be material to Alnylam in its evaluation of such Discovery Collaboration Opportunity and the rationale for pursuing an RNAi Compound directed to such Target. If Alnylam has an interest in pursuing any such Discovery Collaboration Opportunity with Licensee with respect to one or more of the proposed Targets (each, a “Collaboration Target”), then Alnylam shall so respond within thirty (30) days of Licensee’s notice. If any such Collaboration Target is not already a Designated Target at the time of Licensee’s proposal of the Discovery Collaboration Opportunity directed to such Collaboration Target, then Licensee shall submit such

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Collaboration Target(s) to Novartis during the Novartis Exclusivity Term in accordance with Section 2.6 hereof. In the event that Novartis rejects or waives such Collaboration Target and such Collaboration Target becomes a Designated Target hereunder, [**], and the Parties shall negotiate in good faith, for a period not to exceed six (6) months, the terms of a Discovery Collaboration Opportunity directed to such Designated Target in accordance with Section 4.2. If the Parties are unable to negotiate the terms of a Discovery Collaboration Opportunity within such six (6) month period, the Parties shall refer the matter(s) under negotiation to the Chief Executive Officer of Alnylam and the Global Head of Pharma Research of Licensee, for discussion and resolution within a thirty (30) day period. Licensee shall have no obligation to pursue more than [**]; provided, that, the Parties shall enter into at least [**] directed to at least [**] within the Option Term.

     4.2 Minimum Terms. The terms of any Discovery Collaboration negotiated between the Parties pursuant to Section 4.1 shall include, at a minimum, the following: (a) each Party shall be responsible for the costs of its own employees who perform work under the Discovery Collaboration, (b) Licensee shall pay to Alnylam event payments and royalties with respect to Licensed Collaboration Product(s) which shall be in addition to those which would have been payable by Licensee with respect to such Licensed Collaboration Product(s) had Licensee independently Discovered, Developed, Commercialized and/or Manufactured such Licensed Collaboration Product(s) as Licensed Product(s) outside of any Discovery Collaboration, which shall be commensurate with Alnylam’s contributions to the Discovery Collaboration (taking into account, at a minimum, the Patent Rights referred to in subsection (c) below which shall be licensed to Licensee in connection with such Discovery Collaboration in addition to the Licensed Patent Rights); (c) the grant of licenses under each Party’s rights to Patent Rights and Know-How developed by such Party, its Affiliates and/sublicensees, either individually or jointly with each other, during and in the performance of the Discovery Collaboration; (d) the rights and obligations of each Party with respect to prosecution, maintenance and enforcement of the intellectual property rights set forth in the immediately preceding clause (c); and (e) termination rights. Upon finalization of the terms of any Discovery Collaboration pursuant to this Section 4.2, the Parties shall (x) develop a research plan in accordance with which each Party shall perform activities specified under such Discovery Collaboration, and (y) establish a joint steering committee made up of an equal number of representatives from each Party to oversee, review and coordinate the activities of the Parties under such Discovery Collaboration. Notwithstanding the foregoing, if there is an Alnylam Change of Control, then Licensee shall have the right not to (i) begin, or continue, to propose Discovery Collaboration Opportunities pursuant to Section 4.1, (ii) begin, or continue to engage in, any negotiations with Alnylam with respect to any such Discovery Collaboration Opportunity, or (iii) continue with any ongoing Discovery Collaboration.

ARTICLE V

FINANCIAL PROVISIONS

     5.1 Equity Investment. As of the Execution Date, the Parties have entered into the Common Stock Purchase Agreement pursuant to which Licensee has agreed to purchase shares of Alnylam’s Common Stock (as defined in the Common Stock Purchase

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Agreement) for a total consideration of Forty-Two Million Four Hundred Sixty-Two Thousand Five Hundred dollars ($42,462,500).

     5.2 License Grant Consideration. In consideration of the rights granted to Licensee under this Agreement as of the Effective Date, Licensee shall pay, or cause to be paid, to Alnylam Two Hundred Seventy-Three Million Five Hundred Five Thousand Five Hundred dollars ($273,505,500) within ten (10) Business Days following the Effective Date.

     5.3 Event Payments.

     (a) Development Events. In connection with the Discovery and Development of Licensed Products that are Covered by a Valid Claim of Licensed Patent Rights, or the Manufacture of which Licensed Products is Covered by a Valid Claim of a Licensed Patent Right, and directed against a given Target hereunder, Licensee shall pay, or cause to be paid, to Alnylam the following payments upon the achievement of the events set forth below:

	Payment for
	Licensed Products
Development Event:	(in [**]):
Initiation of GLP Toxicology Studies	$	[**]
Initiation of the first Phase I Study	$	[**]
Initiation of the first Phase II Study	$	[**]
Initiation of the first Phase III Study for the first Indication	$	[**]
Initiation of first Phase III Study for a second Indication	$	[**]
First filing of an NDA in the U.S. for the first Indication	$	[**]
First filing of an NDA in the EU for the first Indication	$	[**]
First filing of an NDA in Japan for the first Indication	$	[**]
First filing of an NDA in the U.S. or EU for a second Indication	$	[**]
Regulatory Approval in the U.S. for the first Indication	$	[**]
Regulatory Approval in the EU for the first Indication	$	[**]
Regulatory Approval in Japan for the first Indication	$	[**]
Regulatory Approval in the U.S. or EU for a second Indication	$	[**]

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     (b) Sales Events. With respect to each Target, Licensee shall pay, or cause to be paid, to Alnylam the following payments based on Net Sales of Licensed Products that are Covered by a Valid Claim of Licensed Patent Rights, or the Manufacture of which Licensed Products is Covered by a Valid Claim of a Licensed Patent Right, upon the achievement of the events set forth below:

	Payment for
	Licensed Products
Sales Event:	(in [**]):
Aggregate worldwide Annual Net Sales of all Licensed Product(s) directed to such Target reach or exceed $[**] (≥$[**])	$[**]
Aggregate worldwide Annual Net Sales of all Licensed Product(s) directed to such Target reach or exceed $[**] (≥$[**])	$[**]

     (c) Achievement of Events. Licensee shall notify Alnylam within thirty (30) days following achievement or occurrence of an event under Section 2.5(a) and this Section 5.3, and Alnylam shall deliver to Licensee an invoice for such event. Each event payment under Section 2.5(a) and this Section 5.3 shall be deemed earned as of the achievement or occurrence of the related event and shall be paid by Licensee within sixty (60) days following such achievement or occurrence.

     (d) Event Payments Payable Only Once. Each event payment under this Section 5.3 shall be payable only once in relation to each Target. By way of example, in the event that Licensee elects not to proceed with the Development or Commercialization of a Licensed Product directed to a Target for which one or more of the foregoing event payments have been paid, Licensee shall not be required to make any event payments previously paid under this Section 5.3 with respect to any back-up Licensed Product(s) directed at such Target. In addition, if, with respect to the Development of a Licensed Product, Licensee satisfies an event under this Section 5.3, Licensee shall pay to Alnylam all earlier event payments under this Section 5.3 that have not otherwise been paid with respect to such Target (regardless of whether such earlier events have been satisfied).

     5.4 Royalties.

     (a) Royalty Rate. Subject to subsections (b)-(g) of this Section 5.4, during each relevant Royalty Term, Licensee shall pay, or cause to be paid, to Alnylam the following royalties on Annual Net Sales of each Licensed Product:

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	Royalty Rate
Annual Net Sales of a Licensed Product (on a	Applicable to Such
Target-by-Target basis) during the applicable	Annual Net Sales
calendar year:	of Such Licensed Product:
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 Sections 5.4(b)-(g), then the royalty payable by Licensee to Alnylam would be as follows:

$[**] million at [**]%	=  $[**] million
$[**] million at [**]%	=  $[**] million
$[**] million at [**]%	=  $[**] million
$[**] million at [**]%	=  $[**] million
$[**] million at [**]%	=  $[**] million
$[**] million at [**]%	=  $[**] million
$[**] million at [**]%	=  $[**] million
Total Royalty Due	=  $[**] million

For the avoidance of doubt, Licensee’s obligation to pay royalties under this Section 5.4 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 Licensed Patent Rights.

     (b) Expiration of Patent Coverage. If no Valid Claim of Licensed 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 Licensed 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 rate set forth in Section 5.4(a) above for any

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remaining portion of the Royalty Term which applies to such Licensed Product in such country.

     (c) Royalty Stacking. Licensee shall be entitled to deduct, from the royalty payments payable by Licensee under Section 5.4(a) for a reporting period, [**] percent ([**]%) of Required Third Party Payments paid by Licensee with respect to Licensed Products during the applicable reporting period; provided that in no event shall a deduction under this subsection (c) reduce any royalty payment payable by Licensee under Section 5.4(a) by more than [**] percent ([**]%).

     (d) Payments in Respect of Alnylam In-Licenses. In addition to any royalty set forth in Section 5.4(a) during the Royalty Term, Licensee shall reimburse Alnylam for [**] percent ([**]%) of all royalty payments payable (each such payment, a “Listed Alnylam Third Party Payment,” collectively, the “Listed Alnylam 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 Licensee hereunder in respect of such Listed Alnylam 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 Licensee in a manner that ensures all amounts payable by Licensee hereunder pursuant to Listed Alnylam Third Party Agreements are paid in a timely manner and otherwise in compliance with such Listed Alnylam Third Party Agreements. Licensee 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 Alnylam 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 VI hereof. Audit results and findings shall be shared by Licensee and Alnylam. If the audit reveals an overpayment by Licensee under this Section 5.4(d), the amount of such overpayment shall be credited towards any future reimbursement amounts payable by Licensee under this Section 5.4(d), subject to Section 5.4(e). If the audit reveals an underpayment by Licensee, Licensee shall make up such underpayment within thirty (30) days. The failure of Licensee to request verification of any Listed Alnylam Third Party Payments hereunder within the [**] calendar year period set forth above shall be deemed acceptance of the calculation of such Listed Alnylam Third Party Payments.

     (e) Deductions. Notwithstanding anything in this Agreement to the contrary, in no event shall total deductions under Sections 5.4(b) and 5.4(c) reduce any quarterly royalty payment by Licensee in respect of Net Sales of a given Licensed Product to less than [**]. Alnylam 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 5.4(b) and 5.4(c) which cannot be used against any quarterly royalty payment due to the foregoing limitation may be carried forward and used against future quarterly royalty payments, subject to the limitation set forth above.

     (f) Loss of Listed Alnylam Third Party Agreements. If Alnylam ceases to be a licensee of Licensed Patent Rights (as such, “Terminated Patent Rights”) under any

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Listed Alnylam Third Party Agreement (other than as a result of any action or omission by Licensee) and Licensee directly licenses such Terminated Patent Rights from that Third Party, then Licensee may deduct the full amount of any [**] 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 Licensee entering into any such license of such Terminated Patent Rights from such Third Party, Licensee 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 Licensee shall consider in good faith such rationale. If Licensee does not agree with Alnylam’s rationale, then, at Licensee’s request, Alnylam shall use commercially reasonable efforts to reinstate the license for such Terminated Patent Rights within a sixty (60) 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 Licensee 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 5.4(f) reduce any quarterly royalty payment by Licensee in respect of Net Sales of a given Licensed Product to less than [**].

     (g) Duration of Royalty Payments; First Commercial Sale. The royalties payable under Section 5.4(a) 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. Licensee shall notify Alnylam of the occurrence of First Commercial Sale of each Licensed Product within fifteen (15) days of its occurrence.

     5.5 [**]. If Licensee exercises the [**] with respect to a Target pursuant to Section 2.6, and such Target is deemed a [**] hereunder, then Licensee shall pay Alnylam a fee (the [**]) of (a) [**] Dollars ($[**]) for each of the first [**] Targets to be [**] pursuant to Licensee’s exercise of the [**] in any calendar year, (b) following the [**] of the [**] Target as a [**] hereunder in any calendar year, [**] Dollars ($[**]) for each of the next [**] Targets [**] pursuant to Licensee’s exercise of the [**] hereunder; (c) following the [**] of the [**] Target as a [**] hereunder in any calendar year, [**] Dollars ($[**]) for each of the next [**] Targets [**] pursuant to Licensee’s exercise of the [**] hereunder; and (d) following the [**] of the [**] Target as a [**] hereunder in any calendar year, [**] Dollars ($[**]) for each Target [**] pursuant to Licensee’s exercise of the [**] hereunder. Licensee shall pay such [**] within thirty (30) days following receipt of Alnylam’s invoice with respect to the [**] hereunder.

     5.6 Field Option Fee. If Licensee exercises the Field Option with respect to any Additional Field pursuant to Section 2.5, Licensee shall pay Alnylam a fee (the “Field Option Fee”) of Fifty Million Dollars ($50,000,000) for each such Additional Field. Licensee shall pay such Field Option Fee within thirty (30) days following receipt of Alnylam’s invoice therefor.

     5.7 Most Favored Licensee. During the Option Term, in the event that Alnylam grants to a Third Party (other than Listed Counterparties or Pre-Existing Alliance

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Parties) rights including a non-exclusive, worldwide license under the Licensed Intellectual Property to Discover, Develop, Manufacture and Commercialize Licensed Products, at a royalty rate (taking into account any obligations to make payments to Third Parties) that is more favorable to such Third Party than the royalty rate (taking into account any obligations to make payments to Third Parties) set forth in Section 5.4 of this Agreement with respect to such license grant, then the royalty rate (taking into account any obligations to make payments to Third Parties) under this Agreement shall be reduced or adjusted to such more favorable Third Party royalty rate on a prospective basis from the effective date of Alnylam’s agreement with such Third Party with respect to such rights. Notwithstanding the foregoing, if (a) the Third Party has paid cash or other consideration, or there are other elements of the overall transaction with such Third Party, that justifies a royalty rate below the rate set forth in Section 5.4 of this Agreement, or (b) the license has been granted as part of a joint venture or similar collaborative agreement, then such royalty rate reduction shall not apply. For the avoidance of doubt, such more favorable royalty rate shall have no retroactive effect and shall not apply to any royalties which have been paid by Licensee or which have otherwise accrued under this Agreement prior to the date of such reduction or adjustment.

     5.8 Payment of Royalty. Licensee 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 sixty (60) days after the end of each Accounting Period in which such Net Sales occur. Royalties on Net Sales shall be paid by Licensee in U.S. Dollars.

     5.9 Currency Computation. Whenever calculating royalties requires conversion from any currency, Licensee shall make such conversion as follows: When calculating the Adjusted Gross Sales for countries other than the United States of America, Licensee shall convert the amount of such sales in currencies other than Swiss Francs into Swiss Francs using for internal foreign currency translation Licensee’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, Licensee shall convert into US Dollars (or other currency), using the daily rate (Reuters) at the last working day for the applicable period.

     5.10 Reporting. With each payment Licensee shall provide in writing for the relevant Accounting Period the following information split by U.S., each of the Major Market Countries, and rest of world (a) Adjusted Gross Sales; (b) Net Sales; (c) the total royalties payable for the applicable period; and (d) any other information necessary for Alnylam to comply with its reporting and payment obligations to Third Parties under Alnylam Third Party Obligations, subject to Alnylam’s obligations under Section 2.3(b)(i).

     5.11 Withholding Taxes. Any tax required to be withheld by Licensee under the laws of any country for the account of Alnylam shall be promptly paid by Licensee for and on behalf of Alnylam to the appropriate governmental authority, and Licensee shall furnish Alnylam with proof of payment of such tax. Any such tax actually paid on Alnylam’s behalf shall be deducted from royalty payments due to Alnylam hereunder. Licensee shall assist Alnylam in minimizing the withholding taxes applicable to any payment made by Licensee and in claiming tax refunds at Alnylam’s request.

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     5.12 Financial Records. Licensee 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. Such books of accounts shall be kept at their principal place of business.

     5.13 Audits by Alnylam. At the expense of Alnylam, Alnylam has the right to engage an independent public accountant reasonably acceptable to Licensee to perform, on behalf of Alnylam, an audit of such books and records of Licensee 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 thirty (30) 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 Licensee’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 Licensee subject to the obligations of this Agreement and need neither be retained more than [**] year 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 [**] year after the date of termination of this Agreement. Audit results and findings shall be shared by Licensee and Alnylam. If the audit reveals an overpayment, Alnylam shall reimburse Licensee for the amount of the overpayment within thirty (30) days. If the audit reveals an underpayment, Licensee shall make up such underpayment within thirty (30) days with interest as set forth in Section 5.14 below. In addition, if the underpayment is equal to or greater than five percent (5%) of the amount that was otherwise due, Licensee 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.

     5.14 Late Payments. Licensee shall pay interest to Alnylam on the aggregate amount of any payments 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.

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ARTICLE VI

CONFIDENTIAL INFORMATION

     6.1 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 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 VI 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 6.1, 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

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to the extent Alnylam is contractually obligated to do so pursuant to Alnylam Third Party Obligations and to potential and existing investors, lenders and acquirors; provided, that Alnylam shall redact such portions as Licensee reasonably requests.

     6.2 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 confidential under terms no less restrictive than those set forth herein.

     6.3 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 Schedule G hereto. Thereafter, neither Party shall issue any press release or public announcement relating to this Agreement or any Discovery Collaboration 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. Alnylam shall not issue any press release or public announcement relating to Licensed Products without the prior written approval of Licensee. 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.

ARTICLE VII

REPRESENTATIONS AND WARRANTIES

     7.1 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.

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     (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.

     7.2 Representations and Warranties of Alnylam. Alnylam represents and warrants to Licensee 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.

     (b) Non-Infringement. To Alnylam’s knowledge, (i) no Third Party is currently infringing or misappropriating any Licensed Intellectual Property, it being understood that there may be Third Parties that are conducting research or clinical development under the “safe harbor” exemption from patent infringement under 35 USC 271(e)(1) or similar exemptions in other jurisdictions, and (ii) the practice of the Licensed Intellectual Property as contemplated under this Agreement does not violate the intellectual property rights of any Third Party.

     (c) Validity. All Licensed Intellectual Property that is owned by Alnylam, and, to the best of Alnylam’s knowledge, all Licensed Intellectual Property that is licensed by Alnylam pursuant to Listed Alnylam Third Party Agreements, is in full force and effect and all necessary registration, maintenance, and renewal fees for such Licensed Intellectual Property have been paid on time. Except for those oppositions or challenges which are publicly disclosed in Alnylam’s filings with the U.S. Securities and Exchange Commission, no Third Party has initiated a suit or other proceedings to challenge the validity of the Licensed Patent Rights. Alnylam has no reason to believe that the Licensed Patent Rights are other than valid and enforceable.

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     (d) Litigation. Alnylam and its Affiliates are not aware of any pending or threatened claim or litigation (nor has Alnylam received notice of a potential claim or litigation) (i) which alleges that any issued patents of a Third Party would be infringed by the Development and Commercialization of any Licensed Product hereunder or (ii) that questions the validity of this Agreement or the right of Alnylam to enter into this Agreement, or to consummate the transactions contemplated hereby. To Alnylam’s knowledge, there are no legal actions or investigations pending or threatened involving the employment by or with Alnylam of any of Alnylam’s current or former officers, their use in connection with Alnylam’s business or any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers or alleging a violation of Law. Alnylam is not a party to any order, writ, injunction, judgment or decree of any court. There is no action, suit, proceeding or investigation by Alnylam currently pending or that Alnylam intends to initiate.

     (e) Authority. Alnylam and its Affiliates have the right and authority to grant the licenses to Licensee set forth in Section 2.1(a) of this Agreement as contemplated under this Agreement.

     (f) Certain Exclusive Rights. Alnylam has granted exclusive licenses under Licensed Intellectual Property to Third Parties, or options to acquire exclusive licenses under Licensed Intellectual Property, for an aggregate of no more than [**] Targets.

     (g) Listed Alnylam Third Party Agreements. Schedule D-1 identifies all Listed Alnylam Third Party Agreements existing as of the Effective Date, and Schedule D-2 summarizes certain relevant Alnylam Third Party Obligations under such Listed Alnylam Third Party Agreements, including without limitation Listed Alnylam Third Party Payment obligations. All Listed Alnylam Third Party Agreements are in full force and effect, and no dispute presently exists between Alnylam and such Listed Counterparties and Pre-Existing Alliance Parties that would place in jeopardy any of the licenses granted by Alnylam under this Agreement.

     (h) Pre-Existing Alliance Agreements. Schedule E identifies all Pre-Existing Alliance Agreements existing as of the Effective Date.

     (i) Isis. Alnylam, through its Affiliate or a Third Party collaborator, has commenced an IND-Enabling Study for [**] product candidate as set forth in Section 5.2(b) of the Listed Alnylam Third Party Agreement with Isis Pharmaceuticals, Inc. Alnylam presently has the exclusive right under the “Isis Patents” (as defined on Schedule C) and the right to grant sublicenses under the Listed Alnylam Third Party Agreement with Isis Pharmaceuticals, Inc.

     (j) Protecting IP Rights. Alnylam and its Affiliates have taken reasonable measures to protect the Licensed Intellectual Property, consistent with prudent commercial practices in the biotechnology industry.

     (k) Completeness. Schedule C provides a complete listing of the Licensed Patent Rights as of the Effective Date. Alnylam does not Control as of the Effective Date any

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Patent Rights other than the Licensed Patent Rights that Cover (a) the general structure, architecture, or design of double-stranded oligonucleotide molecules which engage RNAi mechanisms in a cell; (b) chemical modifications of double-stranded oligonucleotides (including any modification to the base, sugar or internucleoside linkage, nucleotide mimetics, and any end modifications) which do not abolish the RNAi activity of the double-stranded oligonucleotides in (a); (c) manufacturing techniques for the double-stranded oligonucleotide molecules or chemical modifications of (a) and (b); or (d) all uses or applications of double-stranded oligonucleotide molecules or chemical modifications in (a) or (b); (e) delivery technologies necessary or useful for delivery of double-stranded oligonucleotide molecules; or (f) manufacturing techniques for the delivery technologies in clause (e); but excluding Patent Rights which specifically relate to Blocked Targets.

     (l) Forthrightness. Alnylam has not intentionally withheld or omitted any information from Licensee which Alnylam believes would be material in Licensee’s decision to enter into this Agreement.

     7.3 Representations and Warranties of Licensee. Licensee represents and warrants to Alnylam that, as of the Effective Date, Licensee is not engaged in a dispute with UBC.

     7.4 No Warranties. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN SECTIONS 7.1, 7.2 or 7.3, OR IN THE COMMON STOCK PURCHASE AGREEMENT, OR IN THE SHARE PURCHASE AGREEMENT, 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.

ARTICLE VIII

TERM AND TERMINATION

     8.1 Term. This Agreement shall be effective as of the Effective Date and shall continue, subject to Sections 8.2, 8.3 and 8.4, in accordance with its terms until, with respect to a Licensed Product in a particular country, the expiration of such Licensed Product’s Royalty Term in such country. Without prejudice to any other rights or remedies available at law or in equity, neither Party shall have the right to terminate any right or obligation under this Agreement except pursuant to Section 8.2, 8.3 or 8.4. Notwithstanding the foregoing, in the event that the Effective Date does not occur on or before December 15, 2007, this Agreement shall terminate automatically on December 15, 2007 and be of no further force or effect, unless otherwise agreed upon by the Parties.

     8.2 Termination for Cause.

     (a) Licensee 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; provided that such

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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 commercially reasonable 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 commercially reasonable efforts with a remedy or cure period reasonably acceptable to Licensee, then after the earlier of the remedy or cure date accepted by Licensee or the date Alnylam ceases to use commercially reasonable efforts to remedy or cure such breach.

     (b) Alnylam may terminate this Agreement upon sixty (60) calendar days’ prior written notice to Licensee upon the material breach by Licensee of any of its representations, warranties or obligations under this Agreement; provided that such termination shall become effective only if (i) Licensee 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 commercially reasonable efforts within such sixty (60) day period, and Licensee 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 commercially reasonable 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 Licensee ceases to use commercially reasonable efforts to remedy or cure such breach.

     8.3 Termination for Patent Challenge. If Licensee or any of its Affiliates or Licensee Partners initiates, maintains or supports any action to (a) oppose the grant of a patent, or (b) challenge the validity, patentability, enforceability and/or scope of an issued patent, in each case under the Licensed Patent Rights, then Alnylam shall have the right, upon thirty (30) days’ prior written notice to Licensee, to terminate this Agreement; provided, however, that if Licensee or any of its Affiliates or Licensee Partners, as relevant, cease such opposition or challenge within such thirty (30) day period, then Alnylam shall not have the right to terminate this Agreement.

     8.4 Termination At Will. Licensee shall have the right to terminate this Agreement on a Licensed Product-by-Licensed Product, Licensed Patent Right-by-Licensed Patent Right, and country-by-country basis after the first (1^st) anniversary of the Effective Date for any reason upon one hundred and eighty (180) days prior written notice to Alnylam; provided, however, that if royalties were payable for any of the prior four (4) Accounting Periods or are currently payable hereunder with respect to such Licensed Product in such country, Licensee shall continue to comply with the terms of this Agreement with respect to such Licensed Product in such country as if the Agreement had not terminated hereunder, as such terms relate to the payment of royalties and event payments with respect to such Licensed Product in such country, and the related accounting provisions of this Agreement.

     8.5 Effect of Expiration or Termination. Unless otherwise expressly set forth herein, all rights and obligations of the Parties hereunder shall terminate as of the effective date of such expiration or termination.

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     (a) Termination by Licensee For Alnylam Breach. If Licensee terminates this Agreement pursuant to Section 8.2(a), then the licenses granted to Licensee under Section 2.1(a) shall continue subject only to the restrictions set forth in Sections 2.1, 2.2, 2.3, 2.4, 2.5, 2.6 and 2.7, and Licensee’s obligation to pay to Alnylam the royalties and event payment amounts due under Sections 2.5(a), 5.3 and 5.4 and under any applicable terms of the Discovery Collaboration as they become due; provided, however, that Licensee may withhold [**] percent ([**]%) of each event and royalty payment due hereunder until the actual amount of damages owed by Alnylam to Licensee 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 thirty (30) days after such determination.

     (b) Termination by Alnylam For Licensee Breach or Patent Challenge; Termination by Licensee For Convenience. If (i) Alnylam terminates this Agreement pursuant to Section 8.2(b) or 8.3, or (ii) Licensee terminates this Agreement, in its entirety or with respect to certain Licensed Products or Licensed Patent Rights, pursuant to Section 8.4, then all provisions of this Agreement, including the licenses granted under Section 2.1(a) by Alnylam to Licensee hereunder, shall terminate with respect to the Agreement in its entirety or, solely with respect to a termination of a Licensed Product or Licensed Patent Right by Licensee under the immediately preceding clause (ii), with respect to such terminated Licensed Product or Licensed Patent Right.

     (c) Paid-Up License. Upon the expiration of the Royalty Term applicable to any Licensed Product in a country, subject to Alnylam Third Party Obligations, Licensee’s and its Affiliates’ licenses under Section 2.1(a) with respect to such Licensed Product in such country shall become a fully paid-up, royalty-free license, with the right to sublicense, to Discover, Develop, Commercialize or Manufacture such Licensed Product in such country.

     (d) Survival. The expiration or termination of any right or obligation under this Agreement for any reason will not affect obligations, including the payment of any royalties and event payments, that have accrued as of the date of such expiration or termination, as the case may be, and the provisions set forth in Sections 2.5(a), 5.3-5.6 and 5.8-5.14 (with respect to each of the foregoing Sections, solely to the extent that any amounts are due but unpaid thereunder), Section 8.4, this Section 8.5, and Articles VI and IX hereof, shall survive such expiration or termination.

ARTICLE IX

MISCELLANEOUS

9.1 Indemnification.

     (a) By Alnylam. Alnylam shall defend, indemnify and hold harmless Licensee, its Affiliates and their respective directors, officers, employees and agents, at Alnylam’s cost and expense, from and against any liabilities, losses, costs, damages, fees or expenses (including reasonable fees and expenses of legal counsel) arising out of any Third Party claim based on (i) any breach by Alnylam of any of its representations, warranties or

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obligations pursuant to this Agreement, or (ii) the negligence or willful misconduct of Alnylam or its Affiliates or sublicensees, or any of their respective directors, officers, employees and agents, in the performance of obligations or exercise of rights under this Agreement; except to the extent that such claims arise out of any negligence or willful misconduct of Licensee or its Affiliates, Licensee Partners or sublicensees, or any of their respective directors, officers, employees and agents.

     (b) By Licensee. Licensee shall defend, indemnify and hold harmless Alnylam, its Affiliates and their respective directors, officers, employees and agents at Licensee’s cost and expense, from and against any liabilities, losses, costs, damages, fees or expenses (including reasonable fees and expenses of legal counsel) arising out of any Third Party claim based on (i) any breach by Licensee of any of its representations, warranties or obligations pursuant to this Agreement, or (ii) the negligence or willful misconduct of Licensee or its Affiliates, Licensee Partners or sublicensees, or any of their respective directors, officers, employees and agents, in the performance of obligations or exercise of rights under this Agreement, or (iii) any Product Liability Claim relating to a Licensed Product; except to the extent that such claims arise out of any negligence or willful misconduct of Alnylam or its Affiliates or sublicensees, or any of their respective directors, officers, employees and agents.

     (c) Claims for Indemnification with respect to Third Parties.

          (i) With regard to any Third Party claim for which indemnification may be sought under this Section 9.1 against a person entitled to indemnification under this Section 9.1 (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 9.1(c) 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).

          (ii) Within thirty (30) 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.

          (iii) 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

40

responsible for the fees and expenses of more than one counsel in any one jurisdiction for all Indemnified Parties.

          (iv) 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.

          (v) 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 Indemnified Party from all liability with respect thereto or that imposes any liability or obligation on the Indemnified Party.

     9.2 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.

     9.3 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 9.3):

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 Licensee:

F. Hoffmann-La Roche Ltd

41

	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

     9.4 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.

     9.5 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.

42

     9.6 Integration. 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; provided, that the Parties acknowledge the contemporaneous execution and delivery of the Other Transaction Documents, which shall not be superseded by this Agreement. This Agreement may be amended only in writing signed by properly authorized representatives of each of the Parties.

     9.7 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.

     9.8 Assignment; Successors. Neither Alnylam nor Licensee 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) 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 Licensee, its pharmaceutical business related to RNAi technology and in the case of an assignment from Alnylam to [**] 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.

     9.9 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.

     9.10 Waivers. No failure on the part of Licensee 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.

     9.11 No Consequential or Punitive Damages. NEITHER PARTY HERETO WILL BE LIABLE FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL,

43

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 9.11 IS INTENDED TO LIMIT OR RESTRICT (A) THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF EITHER PARTY WITH RESPECT TO THIRD PARTY CLAIMS UNDER SECTION 9.1 OR (B) REMEDIES AVAILABLE TO EITHER PARTY WITH RESPECT TO A BREACH OF ARTICLE VI.

     9.12 Actions of Affiliates. Except as set forth in Section 9.15 below, 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.

     9.13 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.

     9.14 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 agree that UBC shall be deemed a third party beneficiary of, and shall have the right to enforce directly against Licensee, its Affiliates and/or Licensee Partners, certain terms of this Agreement as set forth in the UBC Sublicense Agreement.

     9.15 Alnylam Europe AG. Solely for the limited purposes of Sections 2.1, 2.2 and 2.3 hereof, Alnylam Europe AG shall be a party to this Agreement. Alnylam Europe AG shall have no other right or obligation other than as set forth under the aforementioned provisions of this Agreement.

     9.16 Bankruptcy. All licenses (and to the extent applicable rights) granted under or pursuant to this Agreement by Alnylam and its Affiliates to Licensee 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 Licensee elects to terminate this Agreement, the Parties agree that Licensee 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.

[Remainder of This Page Intentionally Left Blank]

44

     IN WITNESS WHEREOF, Alnylam, Alnylam Europe AG and Licensee have caused this License and Collaboration Agreement to be duly executed by their authorized representatives, as of the date first written above.

F. HOFFMANN-LA ROCHE LTD
By:	/s/ Nigel Sheeil
	Name:	Nigel Sheeil
	Title:	Vice President
Global Head Licensing HOFFMANN-LA ROCHE INC.
By:	/s/ Warwick S. Bedwell
	Name:	Warwick S. Bedwell
	Title:	Vice President
Global Head of Business Development ALNYLAM PHARMACEUTICALS, INC.
By:	/s/ John Maraganore
	Name:	John Maraganore
	Title:	President & CEO
Solely for purposes of Sections 2.1, 2.2 and 2.3 hereof: ALNYLAM EUROPE AG
By:	/s/ Kreutzer Bossko
	Name:	Kreutzer Bossko
	Title:

45

Schedule A

Primary Therapeutic Areas

Cancer: Targets principally involved in [**], excluding Targets involved in [**], including, without limitation, [**], but excluding Targets of [**].

Hepatic: Targets principally involved in diseases of the liver, including, without limitation, [**], but excluding Targets of [**].

Metabolic Disease: Targets principally involved in diseases of metabolism, including, without limitation, [**], but excluding Targets of [**].

Pulmonary Disease: Targets principally involved in diseases of the pulmonary system, including, without limitation, [**], but excluding Targets of [**].

Page 1 of 1, Schedule A

Schedule B

Supplemental Therapeutic Areas

Autoimmune Disease: Targets principally involved in [**]. Such disorders include, without limitation[**], but excluding Targets of [**].

Bacterial Infection: Targets principally involved in bacterial infection [**], including, without limitation, Targets [**].

Cardiovascular: Targets principally involved in diseases of the heart or of the vascular system, including, without limitation, [**], but excluding Targets of [**].

Oral: Targets principally involved in diseases of the oral cavity, including, without limitation, [**], but excluding Targets of [**].

Dermatology: Targets principally involved in diseases of the skin, including, without limitation, [**], but excluding Targets of [**].

Endocrine: Targets principally involved in diseases of the endocrine system, including, without limitation, [**], but excluding [**] and excluding Targets of [**].

Ex Vivo Therapy: Genes that are targeted as part of ex vivo therapy, including, without limitation, [**] including, without limitation, [**].

Gastrointestinal: Targets principally involved in diseases of the gastrointestinal system, including, without limitation, [**], but excluding Targets of [**].

Genitourinary: Targets principally involved in diseases of the genitourinary system, including, without limitation, [**], but excluding Targets of [**].

Hematology: Targets principally involved in [**], including, without limitation, [**], but excluding Targets of [**].

Inflammatory Disease: Targets principally involved in [**]. Such disorders include, without limitation, those [**], including [**], but excluding Targets of [**].

Musculoskeletal Disease: Targets principally involved in diseases of the muscles, ligaments or bone, including, without limitation, [**], but excluding targets of [**].

Neurological Disease: Targets principally involved in [**], including, without limitation, [**], but excluding those [**].

Ophthalmic Disease: Targets principally involved in diseases of the eye, including, without limitation, [**], but excluding Targets of [**].

Parasitic Disease: Targets principally involved in parasitic [**], including, without limitation, Targets [**].

Page 1 of 3, Schedule B

Renal Disease: Targets principally involved in diseases of the kidney, including, without limitation, [**], but excluding Targets of [**].

Transplantation Medicine: Targets principally involved in [**], but excluding Targets of [**].

Viral Disease: Targets principally involved in viral [**], including, without limitation, Targets [**].

Page 2 of 3, Schedule B

Schedule C

Licensed Patent Rights

[**]

Schedule C(1)

[**]

Alnylam Pharmaceutical, Inc.
Core Patents

CaseNumber InvTitle Country CaseType AppNumber FilDate PubNumber PubDate PatNumber IssDate ApplicationStatus

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions.

[**]

A total of 5 pages have been omitted pursuant to a request for confidential treatment.

PATENT RIGHTS CONTROLLED BY TEKMIRA (INEX) THROUGH AN OWNERSHIP INTEREST

Inex File Number Title Serial/ Patent Numbers Inventors Owner

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions.

[**]

A total of 9 pages have been omitted pursuant to a request for confidential treatment.

PATENT RIGHTS CONTROLLED BY TEKMIRA (INEX) UNDER A LICENSE FROM A THIRD PARTY

Inex File Number Title Serial/ Patent Numbers Inventors Owner

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions.

[**]

A total of 16 pages have been omitted pursuant to a request for confidential treatment.

M.I.T. Patent Rights

M.I.T. Case No. [**]

I. United States Patents and Applications

[**]

II. International (non-U.S.) Patents and Applications

[**]

M.I.T. Case No. [**]

I. United States Patents and Applications

[**]

CANCER RESEARCH/STANFORD
PATENT RIGHTS

CaseNumber InvTitle Country CaseType AppNumber FilDate ApplicationStatus PubNumber PubDate PatNumber IssDate

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions.

[**]

A total of 2 pages have been omitted pursuant to a request for confidential treatment.

Schedule C(2)

PATENTS AND PATENT APPLICATIONS LICENSED FROM ISIS PHARMACEUTICALS INC.

Schedule C(2)(a): Isis Chemistry Patents

Isis Current Chemistry Patents

Isis
Docket	Country		Patent	Grant			3rd
Number	Name	Status	Number	Date	Title	3rd Party	Party

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions.

[**]

A total of 51 pages have been omitted pursuant to a request for confidential treatment.

Isis Current Chemistry Patents (June 2007 Updates)

Isis Docket
Number	Country	Status	Serial Number	Filing Date	Title

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions.

[**]

Isis Current Chemistry Patents (as at June 27, 2007)

Isis Docket
Number	Country	Status	Serial Number	Filing Date	Title

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions.

[**]

A total of 3 pages have been omitted pursuant to a request for confidential treatment.

Schedule C(2)(b): Isis Motif and Mechanism Patents

Isis Current Motif and Mechanism Patents (June 2007 Updates)

			Patent	Grant		3rd	3rd
Isis Docket Number	Country	Status	Number	Date	Title	Party	Party

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions.

[**]

A total of 10 pages have been omitted pursuant to a request for confidential treatment.

Isis Current Mechanism and Motif Patents (June 2007 Updates)

Isis Docket				Filing
Number	Country	Status	Serial Number	Date	Title

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions.

[**]

Isis Future Motif and Mechanism Patents (as at June 2007)

Isis Docket				Filing
Number	Country	Status	Serial Number	Date	Title

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions.

[**]

A total of 3 pages have been omitted pursuant to a request for confidential treatment.

Schedule D-1

Listed Alnylam Third Party Agreements

Copies of the following agreements, some in redacted form, have been, or shall be, made available to Licensee as of the Effective Date:

1.	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
2.	Co-Exclusive License Agreement between Max Planck Innovation GmbH (formerly Garching Innovation GmbH) and Alnylam Europe AG (formerly Ribopharma AG), dated July 30, 2003, as amended by the Requirements Amendment effective June 15, 2005
3.	Licence Agreement between Cancer Research Technology Ltd. and Alnylam Pharmaceuticals, Inc., dated July 18, 2003
4.	Agreement between the Board of Trustees of the Leland Stanford Junior University and Alnylam Pharmaceuticals, Inc., dated September 17, 2003
5.	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
6.	Amended and Restated Exclusive Patent License Agreement between Alnylam Pharmaceuticals, Inc. and Massachusetts Institute of Technology, dated May 9, 2007
7.	License and Collaboration Agreement between Tekmira Pharmaceuticals Corporation (formerly INEX Pharmaceuticals Corporation) and Alnylam Pharmaceuticals, Inc., dated January 8, 2007
8.	The Sublicense Agreement between Tekmira Pharmaceuticals Corporation (formerly INEX Pharmaceuticals Corporation) and Alnylam Pharmaceuticals, Inc., dated January 8, 2007

Page 1 of 1, Schedule D-1

Schedule D-2

Certain Alnylam Third Party Obligations

     This Schedule D-2 highlights certain obligations of, or restrictions on, Alnylam and/or its sublicensees of Licensed Intellectual Property under Listed Alnylam Third Party Agreements, including without limitation Listed Third Party Payment obligations, which are applicable to Licensee under this Agreement, in each case subject to the terms and conditions of such Listed Alnylam Third Party Agreements. The summaries set forth in this Schedule D-2 are not intended to be comprehensive or inclusive of all obligations or restrictions which may be applicable to sublicensees of Licensed Intellectual Property under such Listed Alnylam Third Party Agreements.

     Unless otherwise expressly stated, capitalized terms not otherwise defined in this Schedule D-2 shall have the meanings ascribed to them in the applicable Listed Alnylam Third Party Agreement, and references to sections, articles, schedules or exhibits made in this Schedule D-2 shall be to sections, articles, schedules or exhibits, as the case may be, in or to such applicable Listed Alnylam Third Party Agreement.

Page 1 of 37, Schedule D-2

MAX PLANCK (US)

1. Co-Exclusive License Agreement between Max Planck Innovation (formerly Garching Innovation GmbH) (“Max Planck”) and Alnylam Pharmaceuticals, Inc. (“Alnylam”), dated December 20, 2002, as amended by Amendment dated July 2, 2003 and the Requirement Amendment (“Requirement Amendment”) effective June 15, 2005 (as amended, “Max Planck US License Agreement”)

Limitations on License Grant (Section 2.1)

• Alnylam’s co-exclusive license is limited to a license to develop, make, have made, use, sell and import Licensed Products in the Field.

• Owners retain the right to practice under the Patent Rights for research, teaching, education, non-commercial collaboration and publication purposes. The German and the U.S. federal government retain a royalty-free, non-exclusive, non-transferable license to practice any government-funded invention claimed in any Patent Rights for government purposes.

Certain Sublicense Terms (Sections 2.4 and 11.8)

• Immediately after the signature of each sublicense granted under the Max Planck US License Agreement, Alnylam is required to provide Max Planck with a copy of the signed sublicense agreement.

• Sublicensees are required to perform their sublicense agreement in accordance with the Max Planck US License Agreement. If Max Planck determines that Alnylam or any of its Sublicencees has failed to fulfill any of its obligations under Section 4 (including without limitation diligence and reporting obligations), then Max Planck may treat such failure as a material breach in accordance with Section 11.7.

• In the event that any license granted to Alnylam under the Max Planck US License Agreement is terminated, any sublicense under such license granted prior to termination of said license shall remain in full force and effect, provided that (i) the Sublicensee is not then in breach of its sublicense agreement; and (ii) the Sublicensee agrees to be bound to Max Planck as licensor under the terms and conditions of the sublicense agreement, provided that Max Planck shall have no other obligation than to leave the sublicense granted by Alnylam in place.

Diligence and Reporting (Sections 4.1 and 4.2; Sections 1 and 3 of Requirement Amendment)

• Sublicensees are required to use commercially reasonable efforts to develop and to introduce into the commercial market Licensed Products at the earliest practical date.

Page 2 of 37, Schedule D-2

• Sublicensees are required to furnish information to Alnylam for inclusion in its reports to Max Planck, which reports are due within 30 days after the end of each calendar quarter with Alnylam’s standard R&D report, on the progress of its efforts during the immediately preceding calendar quarter to develop and commercialize Licensed Products for each indication and sub-indication within the Field. The report shall also contain a discussion of intended R&D efforts for the calendar quarter in which the report is submitted.

• Under the Requirement Amendment, Alnylam is required to comply with certain operational and reporting obligations relating to Alnylam Europe AG.

Royalty Payment Obligation (Sections 5.2 and 5.3)

• The following running royalties are payable to Max Planck on Net Sales of therapeutic and prophylactic Licensed Products by Alnylam and its Sublicensees:

(i)	[**]% ([**] percent) of the first US$[**] US Dollars) of annual accumulated Net Sales of all Licensed Products;
(ii)	[**]% ([**] percent) of annual accumulated Net Sales of all Licensed Products between US$[**] US Dollars) and US$[**] US Dollars);
(iii)	[**]% ([**] percent) of annual accumulated Net Sales of all Licensed Products between US$[**] US Dollars) and US$[**] US Dollars);
(iv)	[**]% ([**] percent) of annual accumulated Net Sales of all Licensed Products between US$[**] US Dollars) and US$[**] US Dollars);
(v)	[**]% ([**] percent) of annual accumulated Net Sales of all Licensed Products between US$[**] US Dollars) and US$[**] US Dollars); and
(vi)	[**]% ([**] percent) of annual accumulated Net Sales of all Licensed Products above US$[**] US Dollars).

• If the sale of any Licensed Product is covered by more than one of the Patent Rights, multiple royalties shall not be due.

• Non-cash consideration shall not be accepted by any Sublicensee for Licensed Products without the prior written consent of Max Planck.

• In the event any Sublicensee takes, for objective commercial and/or legal reasons, a license from any third party under any patent applications or patents that dominate the Patent Rights or is dominated by the Patent Rights in order to develop, make, use, sell or import any Licensed Product (explicitly excluding, without limitation, any third party patents and patent applications for formulation, stabilization and delivery), then up to [**]% of any additional running royalties to be paid to such third party may be deducted, up to [**]% ([**] percent) of the running royalties stated in Section 5.2, from the date such running royalties must

Page 3 of 37, Schedule D-2

be paid to such third party. However, the running royalties stated in Section 5.2 shall not be reduced to less than a minimum of [**]% ([**] percent) of Net Sales in any case. For avoidance of doubt, if a Sublicensee takes a license to a third party target, in no event is a deduction allowed on any license fees for such target from running royalties due to Max Planck under the Max Planck US License Agreement.

• If (i) Sublicensees sell a Licensed Product in a country where no Patent Rights are issued and no patent applications that are part of the Patent Rights are pending that have not been pending for less than [**] years after filing national patent applications in the country in question, and (ii) such Licensed Product is manufactured in a country where Patent Rights are issued or patent applications that are part of the Patent Rights are pending that have not been pending for more than [**] years after filing national patent applications in the country in question, the royalties stated in Section 5.2 will be reduced by [**]% ([**] percent) for such Licensed Product, until the expiration or abandonment of all issued patents and filed patent applications within the Patent Rights in the country in which the Licensed Product is manufactured.

Royalty Payment and Reports (Sections 5.4 and 5.5)

• Within 30 days after the end of each calendar half year, Alnylam is required to deliver a detailed report to Max Planck for the immediately preceding calendar half year showing at least (i) the number of Licensed Products sold by Alnylam and its Sublicensees in each country, (ii) the gross price charged by Alnylam and its Sublicensees for each Licensed Products in each country, (iii) the calculation of Net Sales, and (iv) the resulting running royalties due to Max Planck according to those figures. If no running royalties are due to Max Planck, the report shall so state.

• Running royalties shall be payable for each calendar half year, and shall be due to Max Planck within 60 days after the end of each calendar half year.

Bookkeeping and Auditing (Sections 5.6 and 5.7)

• Sublicensees are obliged to keep complete and accurate books on any reports and payments due to Max Planck under the Max Planck US License Agreement, which books shall contain sufficient information to permit Max Planck to confirm the accuracy of any reports and payments made to Max Planck. Upon Max Planck’s request, Alnylam, or agents appointed by Max Planck for Alnylam, shall check the books of its Sublicensees for Max Planck, once a year. This right of auditing by Max Planck shall expire five years after each report or payment has been made. Alnylam shall have the right to check the books of its Sublicensees according to Section 5.6. All payments made by Sublicensees under the Max Planck US License Agreement are nonrefundable and noncreditable against each other.

Page 4 of 37, Schedule D-2

Compliance with Laws (Section 10.1)

• Alnylam is required to use commercially reasonable efforts to comply with all local, state, federal, and international laws and regulations relating to the development, manufacture, use and sale of Licensed Products.

Non-Use of Owners Names (Section 10.2)

• Sublicensees are prohibited from using the name of “Massachusetts Institute of Technology”, “University of Massachusetts”, “Whitehead Institute”, “Max Planck Institute”, “Max Planck Society”, “Garching Innovation” or any variation, adaptation, or abbreviation thereof, or of any of its trustees, officers, faculty, students, employees, or agents, or any trademark owned by any of the Owners, in any promotional material or other public announcement or disclosure without the prior written consent of the Owners or in the case of an individual, the consent of that individual.

Termination for Patent Challenge (Section 11.5)

• To the extent legally enforceable, if any Sublicensee attacks, or has attacked or supports an attack through a third party, the validity of any of the Patent Rights, Alnylam shall have the right to terminate the sublicense agreement immediately; upon request of Max Planck, Alnylam shall have the obligation to terminate such sublicense agreement.

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MAX PLANCK (EUROPEAN)

2. Co-Exclusive License Agreement between Max Planck and Alnylam Europe AG (formerly Ribopharma AG), dated July 30, 2003, as amended by the Requirement Amendment effective June 15, 2005 (as amended, “Max Planck European License Agreement”)

Limitations on License Grant (Sections 2.1 and 11.9)

• Alnylam Europe AG’s co-exclusive license is limited to a license to develop, make, have made, use, sell and import Licensed Products in the Field.

• The Approving Owners retain the right to practice under the Patent Rights for research, teaching, education, non-commercial collaboration and publication purposes. The German and the U.S. federal government retain a royalty-free, non-exclusive, non-transferable license to practice any government-funded invention claimed in any Patent Rights for government purposes.

• In countries where it is legally impossible to grant license to jointly owned patent rights without the approval of all joint owners, Max-Planck-Gesellschaft zur Foerderung der Wissenschaften e.V. (“Max Planck Gesellschaft”) has agreed to partially assign its ownership position in the Joint Patent Rights in such countries to Alnylam Europe AG, restricted to develop, make, have made, use, sell and import Licensed Products in the Field, whereby Alnylam Europe AG is allowed to further assign such ownership position, restricted to develop, make, have made, use, sell and import Licensed Products in the Field in such countries to Third Parties and Sublicensees only with the prior written approval of Max Planck (formerly Garching Innovation GmbH), which shall not unreasonably be withheld. In any event, the ownership position assigned to Alnylam Europe AG and, as the case may be, sub-assigned by Alnylam Europe AG to its assignees, shall entitle neither Alnylam Europe AG nor its assignees to any actions, claims or anything which exceed the rights granted to them under the Patent Rights by the Max Planck European License Agreement.

• If Max Planck Gesellschaft has partially assigned its ownership position in the Joint Patent Rights in certain countries to Alnylam Europe AG according to Section 2.1, Alnylam Europe AG is obligated to cost-free re-assign such ownership position in such countries to Max Planck Gesellschaft on or before the effective date of termination of the Max Planck European License Agreement. In the event that Alnylam Europe AG has further assigned its ownership position in certain countries in accordance with Section 2.1, such further assignment shall remain in full force and effect, provided that (a) the sub-assignee is not then in breach of its sub-assignment agreement; and (b) the sub-assignee agrees to be bound to Max Planck as assignor under the terms and conditions of the sub-assignment agreement, provided that Max Planck shall have no other obligation than to leave the sub-assignment granted by Alnylam Europe AG in place.

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Royalty Payment Obligation (Section 5.2 and 5.3)

• The same royalty rates and substantially similar deductions apply with respect to Net Sales of Licensed Products as those set forth under the Max Planck US License Agreement. Alnylam or Alnylam Europe AG shall only pay royalties on sales of such Licensed Products to a Third Party.

• Notwithstanding the foregoing, in no event shall royalties be due under both the Max Planck European License Agreement and the Max Planck US License Agreement on the Net Sale of a particular Licensed Product.

Other Obligations and Restrictions

• Other obligations and restrictions under the Max Planck European License Agreement are substantially similar to those set forth in the summary above with respect to the Max Planck US License Agreement.

• Section 12.7 states that in the event of any discrepancies between the Max Planck European License Agreement and Max Planck US License Agreement due to the fact that the Max Planck US License Agreement does not reflect, among other things, that UMASS’ ownership position in the Joint Patent Rights is excluded from the Joint Patent Rights with respect to the Max Planck US License Agreement and the Max Planck European License Agreement, the Max Planck European License Agreement shall prevail.

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CANCER RESEARCH TECHNOLOGY

3. Licence Agreement between Cancer Research Technology Ltd. (“CRT”) and Alnylam, dated July 18, 2003 (“CRT Agreement”)

Limitations on License Grants (Sections 2.1 and 2.3)

• Alnylam’s license is limited to the Field under the CRT Patent Rights to research, develop, have developed, use, keep, make, have made, import, have imported, sell, have sold and otherwise dispose of Licensed Products. Except as necessary for the development and/or sale of Licensed Products in the Field, Alnylam does not have rights to make use of the CRT Patent Rights for any diagnostic application, as research tools or reagents, for target validation, or for small molecule drug discovery.

• CRT and Cancer Research UK shall have the right to use, and CRT shall have the right to consent to the use by academic research institutions (including for the sake of clarity those in receipt of Cancer Research UK funding) of, the CRT Patent Rights in the Field for internal, or in collaboration with another academic research institution, non-commercial, non-commercially sponsored research. For the sake of clarity, Cancer Research UK-funded Researchers shall be permitted under the CRT Patent Rights to conduct clinical trials of potential dsRNA therapeutic agents as part of their Cancer Research UK-funded academic research.

Certain Sublicense Terms (Section 2.4)

• Any Sub-license entered into by Alnylam must be limited to the Field and contain restrictions in equivalent terms to those set out in Clause 2.1.

• Any Sub-license shall terminate automatically on the expiry or termination for whatever reason of the CRT Agreement. If the CRT Agreement is terminated pursuant to Clause 10, CRT has agreed to enter into a direct licensing arrangement with any Sub-licensee on terms substantially similar to those contained in the CRT Agreement save that any license granted by CRT to any Sub-licensee shall be consistent with the terms of the Sub-license granted by Alnylam (or its Affiliate) in relation to field, territory, exclusivity, rights to sub-license and payment provisions. However, if the CRT Agreement is terminated by Alnylam pursuant to Clause 10.2, the foregoing shall apply save that the granting of such license by CRT shall be subject to CRT’s consent. Nothing in Clause 2.4 shall confer upon CRT any obligation to enter into a direct licensing arrangement with the Sub-licensee where the Sub-licensee is in default of its obligations under the Sub-license. CRT shall not be expected to take any responsibility for any disputes between Alnylam (or its Affiliate) and its Sub-licensees relating to the terms of the Sub-license(s) and notwithstanding the foregoing, CRT shall not be obliged to enter into a direct license with a Sub-licensee in circumstances in which the Sub-licensee reserves any right to maintain a claim against CRT where such claim was previously maintained against

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Alnylam (or its Affiliate).

Sublicensees are required to undertake to CRT directly to allow the same access to the books and records as CRT has to Alnylam’s books and records under the CRT Agreement.

• Sublicensees are restricted with respect to rights to assign in equivalent terms to those set out in Clause 15 and any further sublicensing must be subject to the terms of Clause 2.4.

Royalty Payment Obligation (Sections 3.2.1 and 3.3)

• Royalties of [**]% of Net Sales of Royalty Licensed Products in the Field are payable to CRT.

• If at any time prior to or during the period for the payment of royalties under the CRT Agreement in relation to any particular territory, a Sub-licensee elects in its reasonable opinion to take a license from a Third Party to any Blocking IP to develop, make, sell, or otherwise dispose of Licensed Products, the royalties set forth in Clause 3.2.1 shall be reduced by [**]% of the amount paid to such Third Party to access said Blocking IP. In no event shall the royalty payable to CRT be reduced below [**]%.

Royalty Reports and Payment (Sections 4.2.1 and 5.1)

• Royalty payments are required to be made to CRT within 30 days of the end of the Quarter in which sales of the relevant Licensed Products took place.

• Following the earlier of first commercial sale of a Licensed Product in the Field by Alnylam or its Affiliate or the grant of a Sub-license, Alnylam is required to prepare an annual statement showing all monies due to CRT under the CRT Agreement for the previous calendar year, on a country by country basis. The statement shall include the number of units of each Royalty Licensed Product sold in each country in which sales occurred, and shall be submitted to CRT within 60 Business Days of March 31st of each year. If CRT gives notice pursuant to the CRT Agreement that it does not accept the statement, Alnylam shall make available to an independent accountant all books and records required for the purpose of certifying such statement.

Books and Records (Section 5.2)

• Sub-licensees are required to keep true and accurate records and books of account containing all data necessary for calculating amounts payable to CRT. Such records and books of account shall be kept for 5 years following the end of the calendar year to which they relate, and shall, upon reasonable notice having been given by CRT, be open at all reasonable times on Business Days for inspection by an independent firm of accountants.

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Diligence and Reporting (Article 6)

• Alnylam shall use reasonable efforts to develop, make, market, sell, and otherwise dispose of Licensed Products in all therapeutic areas within the Field and market each Licensed Product in the Field throughout the United States, Europe and Japan.

• If CRT believes that Alnylam has failed to meet the diligence requirements set forth in Clause 6, but Alnylam fails to reestablish diligence within [**] of receipt of notice from CRT, CRT’s remedy is limited to, at CRT’s discretion, termination of Alnylam’s license under the CRT Patent Rights in the particular territory or therapeutic area or, with respect to Clause 6.2, indication within the cancer therapeutic area for which Alnylam has failed to meet the diligence requirements. For the sake of clarity, should Alnylam’s license be terminated in respect of a therapeutic area or territory pursuant to Clause 6.3, CRT shall be free to offer such therapeutic area or territory to a potential licensee.

• Within 30 days of the end of each Year, Alnylam shall provide CRT with a written report of the steps taken by Alnylam, its Affiliates and Sub-licensees to comply with the performance obligations of Clause 6.1 and Clause 6.2. Alnylam’s annual statement shall also include a detailed description of therapeutic areas and territories under development and an overview of Alnylam’s development plans for the forthcoming year (itself or through Affiliates or Sub-licensees).

• If Alnylam intends to undertake a Phase I Clinical Trial of any Licensed Product in the UK, Alnylam shall, at its option, notify CRT with the particulars of the proposed investigation, and allow Cancer Research UK the opportunity of conducting or procuring the conduct of the investigation on behalf of Alnylam or participate in such an investigation, subject to the agreement of terms acceptable to Alnylam, CRT and Cancer Research UK.

Claimed Infringement (Sections 7.4 and 7.5)

• Alnylam shall, at its option and at its own cost, defend and enforce or shall procure the defence or enforcement of the rights under the CRT Patent Rights. If Alnylam opts not to defend or enforce the relevant CRT Patent Rights, Alnylam shall grant to CRT (if CRT so requests) any and all rights that would be necessary for CRT to undertake the enforcement or defence. If Alnylam is unable to grant such rights, then it shall, at CRT’s request, grant to CRT the right to conduct such an action in its name. Alnylam shall provide, at CRT’s request and CRT’s reasonable expense, such reasonable assistance as CRT may reasonably request in any such proceedings.

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Limitation of Liability (Section 8.6)

• It is agreed that CRT shall not be liable to Alnylam’s Sub-licensees in contract, tort, negligence, breach of statutory duty or otherwise for any loss, damage, cost or expense of an indirect or consequential nature (including any economic loss or other loss of turnover, profits, business or goodwill) arising out of or in connection with the CRT Agreement or the subject matter thereof.

Termination for Patent Challenge (Section 10.5)

• CRT may terminate the CRT Agreement upon 30 days’ written notice to Alnylam if Alnylam or its Affiliate commences legal proceedings, with the exception of interference proceedings declared by the USPTO or any other patent office, contesting the validity of the CRT Patent Rights; or commences itself, or provides any material assistance to a Third Party in relation to, legal proceedings contesting the ownership of the CRT Patent Rights. Any actions taken concerning determination of priority of invention under US patent law between a CRT Patent Right and claims in a patent or patent application which is owned by or licensed by Alnylam or its Affiliate shall not be considered a contest of validity or ownership under Clause 10.5.

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STANFORD

4. Agreement between the Board of Trustees of the Leland Stanford Junior University (“Stanford”) and Alnylam, dated September 17, 2003 (“Stanford Agreement”)

Limitations on License Grant (Articles 3 and 4)

• Alnylam’s license is limited to a license in the Licensed Field of Use to make, have made, use, have used, sell, have sold, import, and have imported Licensed Product in the Licensed Territory.

• Stanford may practice the Invention and use the Technology for its own bona fide research, including sponsored research and collaborations. Stanford has the right to publish any information included in Technology and Licensed Patents.

• The Stanford Agreement is subject to all of the terms and conditions of Title 25 USC 200-204, including an obligation that Licensed Product sold or produced in the U.S. be “manufactured substantially in the U.S.” Alnylam shall take all reasonable action necessary on its part as licensee to enable Stanford to satisfy its obligations to the U.S. Government under Title 35.

Diligence and Reporting (Article 5)

• Alnylam is required to use all commercially reasonable efforts and diligence to develop, manufacture, and sell or lease Licensed Product and to diligently develop markets for the Licensed Product. In particular, Alnylam is required to meet the milestones shown in Appendix A to the Stanford Agreement, which shall satisfy Alnylam’s diligence obligations. If Alnylam in good faith fails to meet a milestone set forth on Appendix A, and Alnylam fails to reestablish diligence within [**], Stanford may terminate the Stanford Agreement.

• Stanford may terminate the Stanford Agreement if Alnylam or a sublicensee has not sold Licensed Product for any [**] period after Alnylam’s or a sublicensee’s first commercial sale of Licensed Product.

• On or before September 30 of each year until Alnylam markets a Licensed Product, Alnylam is required to make a written annual report covering the preceding year ending June 30, regarding progress toward commercialization of Licensed Product. The report must include, as a minimum, information (e.g., summary of work completed, key scientific discoveries, summary of work in progress, current schedule of anticipated events or milestones and market plans for introduction of Licensed Product) sufficient to enable Stanford to satisfy reporting requirements of the U.S. Government, and for Stanford to ascertain progress by Alnylam toward meeting the diligence requirements of Article 5.

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Royalty Payment Obligation (Article 6)

• On each anniversary of the Effective Date, a minimum yearly royalty of $[**]must be paid to Stanford, which payments are non-refundable but creditable against earned royalties to the extent provided in Section 6.4.

• Earned royalties of [**]% of Net Sales for Licensed Product are payable to Stanford, subject to the following:

(i)	Royalty Payments are reduced up to [**]% (from [**]% of Net Sales down to [**]% of Net Sales) by the amount of royalty paid to access additional intellectual property necessary in order to sell Licensed Products (“Additional Earned Royalties”).
(ii)	Such royalty payments shall be reduced as follows:

(1)	[**]% if Additional Earned Royalties are [**]% or less.
(2)	[**]% if Additional Earned Royalties are greater than [**]% but less than [**]%.
(3)	[**]% if Additional Earned Royalties are equal to or greater than [**]% but less than [**]%.
(4)	[**]% if Additional Earned Royalties are equal to or greater than [**]% but less than [**]%.
(5)	[**]% if Additional Earned Royalties are equal to or higher than [**]%.

(iii) Only one royalty is due on each Licensed Product, regardless of whether its manufacture, use, importation, or sale is covered by more than one patent or patent application included in Licensed Patents, and no further royalties will be due for use of such Licensed Product by Alnylam or its sublicensee’s customers.

• Creditable payments under the Stanford Agreement will be an offset against each earned royalty payment which is required to be paid under Section 6.3 until the entire credit is exhausted.

• If the Stanford Agreement is not terminated in accordance with other provisions, royalties must continue to be paid on all Licensed Products that are either sold or produced under the license granted in Article 3, whether or not such Licensed Products are produced before the Effective Date or sold after the Licensed Patents have expired.

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Certain Sublicense Terms (Sections 13.3-13.5)

• Any sublicense granted by Alnylam under the Stanford Agreement must be subject and subordinate to the terms and conditions of the Stanford Agreement.

• Sublicensees may not further sublicense, except that Sublicensees may further sublicense rights under Licensed Patents only as needed or implied in the course of distribution or performance of service as required for the sale to an end user of Licensed Products.

• Any sublicense will expressly include the provisions of Articles 7, 8 and 9 for the benefit of Stanford.

• If a sublicensee desires that its sublicense survive the termination of the Stanford Agreement, Stanford has agreed that the sublicense will revert to Stanford subject to the transfer of all obligations, including the payment of royalties specified in the sublicense, to Stanford or its designee, if the Stanford Agreement is terminated.

• Alnylam will provide Stanford in confidence a copy of all relevant portions of any sublicenses granted pursuant to Article 13.

Royalty Reports, Payments, and Accounting (Article 7)

• Beginning with the first sale of a Licensed Product, Alnylam is required to make written reports (even if there are no sales) and earned royalty payments within 30 days after the end of each calendar quarter. The report must be in the form of Appendix B to the Stanford Agreement and state the number, description, and aggregate Net Sales of Licensed Product during the completed calendar quarter, and calculation of earned royalty payment due. With each report, royalty payments due for the completed calendar quarter must be paid.

• A written report is due within 90 days after the license expires under Section 3.2. Alnylam is required to continue to make reports after the license has expired, until all Licensed Product produced have been sold or destroyed. Royalty payments must also continue to be made, concurrent with the submittal of each post-termination report.

• Records must be kept and maintained for 3 years showing the manufacture, sale, use, and other disposition of products sold or otherwise disposed of under the license, including general-ledger records of cash receipts and expenses, as well as other information sufficient to determine royalties due, including production records, customers, and serial numbers, and related information in sufficient detail to enable Alnylam to determine the royalties payable under the Stanford Agreement.

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• An independent certified public accountant selected by Stanford and acceptable to Alnylam is permitted to examine such books and records from time to time (but no more than once a year) to the extent necessary to verify the royalty and termination reports as detailed in the Stanford Agreement.

Negation of Warranties (Article 8)

• Stanford has represented and warranted to Alnylam that, to the best of Stanford’s OTL knowledge, Stanford is the sole owner of Stanford Licensed Patents and has the right to enter into the Stanford Agreement and to grant the rights and licenses set forth therein.

• Notwithstanding the foregoing, nothing in the Stanford Agreement or any sublicense agreement shall be construed as:

(i) Stanford’s warranty or representation as to the validity or scope of any Licensed Patent;

(ii) A warranty or representation that anything made, used, sold, or otherwise disposed of under any license granted under the Stanford Agreement or any sublicense agreement is or will be free from infringement of patents, copyrights, and other rights of third parties;

(iii) An obligation to bring suit against third parties for infringement, except as described in Article 12 of the Stanford Agreement;

(iv) Granting by implication, estoppel, or otherwise any licenses or rights under patents or other rights of Stanford or other persons other than Licensed Patents, regardless of whether the patents or other rights are dominant or subordinate to any Licensed Patents; or

(v) An obligation to furnish any technology or technological information.

Except as expressly set forth in the Stanford Agreement, it is acknowledged and agreed that Stanford makes no representations and extends no warranties of any kind, either express or implied. There are no express or implied warranties of merchantability or fitness for a particular purpose, or that Licensed Products will not infringe any patent, copyright, trademark, or other rights, or any other express or implied warranties.

• Nothing in the Stanford Agreement or any sublicense agreement grants any sublicensee any express or implied license or right under or to U.S. Patent 4,656,134 entitled “Amplification of Eucaryotic Genes” or any patent application corresponding thereto.

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Indemnification and Insurance (Article 9)

• Alnylam is required to indemnify, hold harmless, and defend Stanford and Stanford Hospitals and Clinics, and their respective trustees, officers, employees, students, and agents against all claims for death, illness, personal injury, property damage, and improper business practices arising out of the manufacture, use, sale, or other disposition of Invention, Licensed Patents, Licensed Products, by Alnylam or any sublicensee, or their customers except to the extent such claims are due to the gross negligence or willful misconduct of Stanford. Upon notification to Alnylam in writing of any such claim, Alnylam shall manage and control, at its own expense, the defense of such claim and its settlement. Alnylam agrees not to settle any such claim against Stanford without Stanford’s written consent where such settlement would include any admission of liability on the part of Stanford, where the settlement would impose any restriction on the conduct by Stanford of any of its activities, or where the settlement would not include an unconditional release of Stanford from all liability for claims that are the subject matter of such claim.

• Subject to Section 9.1, neither Stanford nor Alnylam shall be liable to each other for any loss profit, expectation, punitive or other indirect, special, consequential, or other damages whatsoever, in connection with any claim arising out of or related to the Stanford Agreement whether grounded in tort (including negligence), strict liability, contract, or otherwise.

• Alnylam shall at all times comply, through insurance or self-insurance, with all statutory workers’ compensation and employers’ liability requirements covering all employees with respect to activities performed under the Stanford Agreement.

• Alnylam shall maintain, during the term of the Stanford Agreement, Comprehensive General Liability Insurance, including Product Liability Insurance prior to commercialization, with a reputable and financially secure insurance carrier to cover the activities of Alnylam and its sublicensees. Upon initiation of human clinical trials of any Licensed Product, such insurance will provide minimum limits of liability of Five Million Dollars and will include Stanford and Stanford Hospitals and Clinics, and their respective trustees, directors, officers, employees, students, and agents as additional insureds. Insurance will be written to cover claims incurred, discovered, manifested, or made during or after the expiration of the Stanford Agreement and must be placed with carriers with ratings of at least A- as rated by A.M. Best. Alnylam will furnish a Certificate of Insurance evidencing primary coverage and additional insured requirements and requiring thirty (30) days prior written notice of cancellation or material change to Stanford. Alnylam will advise Stanford, in writing, that it maintains excess liability coverage (following form) over primary insurance for at least the minimum limits set forth above. All insurance of Alnylam will be primary coverage; insurance of Stanford and Stanford Hospitals and Clinics will be excess and noncontributory.

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Marking (Article 10)

• Before the issuance of Licensed Patents, Licensed Products made, sold, or otherwise disposed of under the license grant must be marked with the words “Patent Pending,” and following the issuance of one or more patents, with the numbers of the Licensed Patents.

Use of Stanford Names and Marks (Article 11)

• Stanford’s prior written consent is required for the use of its name or the names of faculty, students, employees or, or any trademark, service mark, trade name, or symbol of Stanford or Stanford Hospitals and Clinics, or any that is associated with any of them. Any use of Stanford’s name will be limited to statements of fact and will not imply endorsement of Alnylam’s products or services.

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ISIS

5. Strategic Collaboration & License Agreement between Isis Pharmaceuticals, Inc. (“Isis”), and Alnylam, 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 (as amended, “Isis Agreement”)

Limitations on License Grant (Section 5.1)

• Alnylam’s licenses are limited to a license to research, develop, make, have made, use, import, offer to sell and sell Double Stranded RNA and Double Stranded RNA Products.

• The license excludes any right to practice the Isis Excluded Technology.

• Isis retains its rights in the Isis Patent Rights and in the Joint Patents (x) exclusively for the Isis Exclusive Targets and (y) exclusively for the Isis Encumbered Targets.

• Licenses to Isis Patent Rights that are joint patents with Third Parties (i.e., invented by one or more Isis inventors and one or more non-Isis inventors) are licensed subject to the retained rights of any non-Isis inventors and their assignees and licensees. Any such retained rights of non-Isis inventors and their assignees and licensees existing as of the Effective Date are set forth in Exhibit 5.3(c) attached to the Addendum Transmittal to the Isis Agreement.

• Licenses to Isis Patent Rights that are subject to contractual obligations between Isis and Third Parties in effect as of the Effective Date are licensed subject to the restrictions and other terms described in Exhibit 5.3(d) attached to the Addendum Transmittal to the Isis Agreement.

• The license to Licensed Know-How under the Isis Agreement is subject to the non-disclosure obligations set forth in Article 12 of the Isis Agreement.

Certain Sublicense Terms (Sections 5.2, 5.3 and 14.4)

• Alnylam cannot sublicense its right to grant Naked Sublicenses under the Isis Agreement except that Alnylam may permit its sublicensees to grant further sublicenses in connection with an Alnylam Product.

• The rights of any sublicensee under any permitted sublicense granted in accordance with Section 5.2 will survive the termination of the Isis Agreement.

Royalty Payment Obligations (Section 7.2)

• Royalties are payable to Isis on sales of Alnylam Products, equal to [**]% of Net Sales.

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• The royalty may be reduced by [**]% of any additional royalties that Alnylam owes to Third Parties on such Alnylam Product that arise from Alnylam acquiring access to new technologies after the Effective Date (as defined in the Isis Agreement); provided, however that (a) the royalty due under this section can never be less than a floor of [**]% and (b) additional royalties arising as the result of the addition, pursuant to Section 11.8, of Isis Future Chemistry Patents or Isis Future Motif and Mechanism Patents to the Isis Patent Rights licensed to Alnylam cannot be used to reduce the royalty.

Payment Terms (Section 9.1)

• Royalties payable under the Isis Agreement are payable on a quarterly basis within 45 days after the end of each calendar quarter. Alnylam is required to provide Isis with a report setting forth (i) gross sales of Alnylam Products by Alnylam, its Affiliates and sublicensees, (ii) all deductions from such gross sales taken in calculating Net Sales, (iii) Net Sales of Alnylam Products by Alnylam, its Affiliates and sublicensees, (iv) royalties payable based on such Net Sales and (v) all other information relevant to the calculation of such royalties, on a product-by-product and country-by-country basis, for each calendar quarter within [**] after the end of such calendar quarter.

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MIT

6. Amended and Restated Exclusive Patent License Agreement between Massachusetts Institute of Technology (“MIT”) and Alnylam, dated May 9, 2007 (“MIT Agreement”)

Limitations on License Grant (Sections 2.1 and 2.5)

• Alnylam’s license is limited to a license to develop, make, have made, use and import Library Products and Licensed Processes to develop, make, have made, use, sell, offer to sell, lease, and import Licensed Products in the Field in the Territory and to develop and perform Licensed Processes in the Field in the Territory.

• Alnylam may permit third parties (i) to use Library Products and Licensed Processes for the purpose of research with academic or nonprofit institutions and contract research, including for the conduct of clinical trials of a Licensed Product, and (ii) to sell Licensed Products under an agency, consignment or equivalent arrangement, wherein such rights are not sublicense rights.

• Alnylam does not have the right to sell or offer for sale the Library Products separately from a sale or offer for sale of a Licensed Product.

• MIT retains the right to practice under the Patent Rights for research, teaching, and educational purposes.

• The U.S. federal government retains a royalty-free, non-exclusive, non-transferable license to practice any government-funded invention claimed in any Patent Rights as set forth in 35 USC 201-211, and the regulations promulgated thereunder, as amended, or any successor statutes or regulations.

• The Patent Rights shall not be asserted against non-for-profit research institutions that practice the Patent Rights for research funded by (i) the institutions themselves, (ii) not-for profit foundations, or (iii) any federal, state or municipal government. If Alnylam wants to assert the Patent Rights against not-for-profit research institutions it may only do so if the infringement activity of the not-for-profit research institution was performed in the fulfillment of research sponsored by a for-profit entity and the assertion of infringement must be limited to those specific activities.

Certain Sublicense Terms (Section 2.3)

• Alnylam may grant sublicenses under commercially reasonable terms and conditions during the Exclusive Period.

• The sublicense must incorporate terms and conditions sufficient to enable Alnylam and its Affiliates to comply with the MIT Agreement. Such sublicenses

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	shall also include provisions to provide that if Sublicensee brings a Patent Challenge against MIT (except as required under a court order or subpoena), Alnylam may terminate the sublicense.
•	Alnylam shall promptly furnish MIT with a fully signed photocopy of any sublicense agreement, which copy may be redacted except with respect to terms directly relevant to Alnylam’s obligations under the MIT Agreement.
•	Upon termination of the MIT Agreement, any Sublicensee not then in default shall have the right to seek a license from MIT, and MIT agrees to negotiate such licenses in good faith under reasonable terms and conditions.

U.S. Manufacturing Requirement (Section 2.4)

• Library Products, whether or not part of Licensed Products, used or sold in the U.S. shall be manufactured substantially in the U.S.

Diligence and Reporting (Sections 3.1 and 3.2)

• Sublicensees are required to use diligent efforts to develop Library Products and Licensed Products and to introduce Licensed Products into the commercial market; thereafter Sublicensees are required to make Licensed Products reasonably available to the public. Specifically, the following obligations must be fulfilled:

(i) Written reports are due within [**] days after the end of each calendar year on the progress of efforts during the immediately preceding calendar year to develop and commercialize Licensed Products. Such reports shall include the number of [**], a description of [**], and the [**] that have been tested. The report shall also contain a discussion of intended efforts and sales projections for the year in which the report is submitted.

(ii) Within [**] after the Effective Date, [**] shall be evaluated for use in [**] of RNAi Products.

(iii) Prior to [**], at least [**] shall be advanced to [**] studies in support of [**] for [**] studies.

(iv) Filing of [**] for Licensed Product [**] by [**].

(v) Commencement of [**] for a Licensed Product within [**] for such Licensed Product.

(vi) First Commercial Sale of a Licensed Product within [**] for each such Licensed Product.

• If any Sublicensee is determined to have failed to fulfill any obligation under Sections 3.1(a) and 3.1(c) — (g), MIT may treat such failure as a material breach in

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accordance with Section 12.3(b), subject to any mutually-agreed upon changes to such diligence requirements pursuant to Section 3.2.

Royalty Payment Obligations (Section 4.1)

• Royalties of [**]% of Net Sales of Licensed Products and Licensed Processes are due within [**] days of the end of each calendar quarter.

• If Alnylam or an Affiliate is legally required to pay royalties to one or more third parties in order to obtain a license or similar right necessary to practice the Patent Rights, Alnylam shall be entitled to a credit up to [**] percent ([**]%) of the amounts payable to such third parties against the royalties due to MIT for the same Reporting Period; provided, however, that (i) in no event will royalties due to MIT under Section 4.1(c), when aggregated with any other offsets and credits allowed under the MIT Agreement, be less than [**]% of Net Sales in any Reporting Period, and (ii) royalties due to third parties with respect to [**] patents (see Appendix B to MIT Agreement) shall not qualify for purposes of the offset against royalties under Section 4.1(d).

• Multiple royalties are not due if the manufacture, use, lease, or sale of any Licensed Product or the performance of any Licensed Process is covered by more than one of the Patent Rights.

Royalty Payment and Reports (Sections 5.1 and 5.2)

• Royalties are payable for each Reporting Period and are due to MIT within [**] days of the end of each Reporting Period.

• Prior to the First Commercial Sale of a Licensed Product or first commercial performance of a Licensed Process, Alnylam is required to deliver annual reports within [**] days of the end of each calendar year, containing information concerning the immediately preceding year, as further described in Section 5.2.

• The date of First Commercial Sale of a Licensed Product or commercial performance of a Licensed Process must be reported to MIT within [**] days of its occurrence.

• After First Commercial Sale of a Licensed Product or commercial performance of a Licensed Process, reports are required to be delivered to MIT within [**] days of the end of each Reporting Period containing information concerning the immediately preceding Reporting Period, as further described in Section 5.2.

• Section 5.2 states that reports must include, among other things, information concerning the number of Licensed Products sold, leased, or distributed, the number of [**], a description of Licensed Processes performed in each country as may be pertinent to a royalty accounting, gross price charged in each country, calculation of Net Sales in each country (including a listing of applicable

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deductions), total royalty payable on Net Sales, the exchange rate used for conversion, [**] categorized by rights relating to [**], and the [**]. If no amounts are due to MIT for any Reporting Period, the report shall so state.

Recordkeeping and Audit Rights (Section 5.4)

• Sublicensees are required to maintain complete and accurate records reasonably relating to (i) the rights and obligations under the MIT Agreement, and (ii) any amounts payable to MIT in relation to the MIT Agreement, which records shall contain sufficient information to permit MIT to confirm the accuracy of any reports and payments delivered to MIT and compliance in other respects with the MIT Agreement. Such records shall be retained for at least [**] years following the end of the calendar year to which they pertain, during which time a certified public accountant selected by MIT may inspect such records upon advance notice and during normal business hours solely for the purpose of verifying any reports and payments or compliance in other respects with the MIT Agreement.

Claimed Infringement (Section 7.3)

• If a Patent Challenge is brought against Alnylam by a third party, MIT, at its option, shall have the right within 20 days after commencement of such action to take over the sole defense of the action. If MIT does not exercise this right, Alnylam may take over the sole defense of such action, subject to Sections 7.4 and 7.5.

Compliance with Laws (Sections 11.1 and 11.2)

• Alnylam is required to use reasonable commercial efforts to comply with all commercially material laws and regulations relating to development, manufacture, use, and sale of Library Products, Licensed Products, and Licensed Processes.

• Sublicensees are required to comply with all United States laws and regulations controlling the export of certain commodities and technical data.

Non-Use of MIT Name (Section 11.3)

• Sublicensees are prohibited from using the name of “Massachusetts Institute of Technology”, “Lincoln Laboratory” or any variation, adaption or abbreviation thereof, or of any of MIT’s trustees, officers, faculty, students, employees or agents, or any trademark owned by MIT, or any terms of the MIT Agreement in any promotional material or other public announcement or disclosure without MIT’s prior written consent, which may be withheld in MIT’s sole discretion.

Marking of Library and Licensed Products (Section 11.4)

• To the extent commercially feasible and consistent with prevailing business practices, Sublicensees are required to mark all Library Products (whether or not sold as part of Licensed Products) that are manufactured or sold under the MIT

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Agreement with the number of each issued patent under the Patent Rights that applies to such Library Product.

Termination for Patent Challenge (Section 12.5)

• If a Sublicensee brings a Patent Challenge (except as required under a court order or subpoena), MIT may send a written demand to Alnylam to terminate the sublicense. If Alnylam fails to so terminate such sublicense within 30 days of MIT’s demand, MIT may immediately terminate the MIT Agreement and/or the license granted thereunder.

Effect of Early Termination (Section 12.6)

• Upon any early termination of the MIT Agreement, Sublicensees may complete and sell any work-in-progress and inventory of Licensed Products that exist as of the date of termination, provided that such Sublicensees shall continue to pay applicable royalties, and shall complete and sell all work-in-progress and inventory of Licensed Products within six months of the date of termination.

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TEKMIRA

7. License and Collaboration Agreement between Tekmira Pharmaceuticals Corporation (formerly INEX Pharmaceuticals Corporation) (“Tekmira”) and Alnylam, dated January 8, 2007 (“Tekmira Agreement”)

Limitations on License Grant (Sections 6.1 and 6.4)

• Alnylam’s licenses are limited to a license to Develop, Manufacture and Commercialize Alnylam Royalty Products in the Alnylam Field and in and for the Territory.

• Section 6.4 states that all licenses and other rights granted to Alnylam with respect to INEX Technology under Article 6 are subject to (i) the rights granted to Tekmira, and to Tekmira’s ability to grant rights to Alnylam under the INEX In-Licenses, and (ii) the provisions of the UBC Sublicense Documents governing or relating to the rights sublicensed to Alnylam.

Certain Sublicense Terms (Sections 6.2 and 14.4(b))

• Alnylam may grant sublicenses to Third Parties to Develop, Manufacture and Commercialize Alnylam Royalty Products; provided, that (i) with respect to any sublicense of Alnylam’s rights under Section 6.1.1(a) in respect of any Alnylam Royalty Product for which Tekmira has not initiated Manufacturing of batches of finished dosage form for GLP toxicology studies, Alnylam is required to use Commercially Reasonable Efforts to facilitate a business discussion between Tekmira and Alnylam’s Sublicensee (other than Tekmira or its Affiliates) with respect to the provision of manufacturing services by Tekmira to such Sublicensee; and (ii) with respect to any sublicense of Alnylam’s rights under Section 6.1.1(a) in respect of any Alnylam Royalty Product for which Tekmira has initiated Manufacturing of batches of finished dosage form for GLP toxicology studies, Alnylam’s Sublicensee (other than Tekmira or its Affiliates) shall be required to obtain its requirements of the bulk finished dosage form of such Alnylam Royalty Product from Tekmira on the terms set forth in Article 5, however, Tekmira agrees to negotiate in good faith with Alnylam and/or Alnylam’s Sublicensee either an alternate or modified supply arrangement or the release of such Sublicensee from such exclusive supply obligation in return for reasonable compensation to Tekmira.

• Each license and/or sublicense granted by Alnylam pursuant to Section 6.2.2 must be subject and subordinate to the terms and conditions of the Tekmira Agreement and must contain terms and conditions consistent with those in the Tekmira Agreement, including, without limitation, the requirements of Section 6.4. Commercializing Sublicensees are required to: (i) submit applicable sales or other reports consistent with those required under the Tekmira Agreement; (ii) comply with an audit requirement similar to the requirement set forth in Section 7.6; and (iii) comply with the confidentiality and non-use provisions of Article 8 with

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respect to both Parties’ Confidential Information. If Alnylam becomes aware of a material breach of any sublicense by a Third Party Sublicensee, Alnylam is required to promptly notify Tekmira of the particulars of same and take all Commercially Reasonable Efforts to enforce the terms of such sublicense.

•

Any sublicense granted by Alnylam shall survive termination of the licenses or other rights granted to Alnylam under the Tekmira agreement in accordance with Article 6, and be assumed by Tekmira as long as (i) the Sublicensee is not then in breach of its license and/or sublicense agreement, (ii) the Sublicensee agrees in writing to be bound to Tekmira as a licensor under the terms and conditions of the license and/or sublicense agreement, and (iii) the Sublicensee agrees in writing that in no event shall Tekmira assume any obligations or liabilities, or be under any obligation or requirement of performance, under any such license and/or sublicense extending beyond Tekmira’s obligations and liabilities under the Tekmira Agreement.

Diligence and Annual Reports (Section 6.7)

• Alnylam is required to use Commercially Reasonable Efforts to Develop and Commercialize an Alnylam Royalty Product in the Territory.

• Alnylam is required to deliver to Tekmira an annual report, due no later than December 31 of each Contract Year during the Agreement Term, which summarizes the major activities undertaken by Alnylam during the preceding twelve (12) months to Develop and Commercialize its Royalty Products in the Territory in the applicable field. The report will include an outline of the status of any such Royalty Products in clinical trials and the existence of any sublicenses with respect to such Royalty Products which have not been previously disclosed.

Compliance with Laws (Section 6.8)

• Alnylam is required to conduct its obligations under the Tekmira Agreement in accordance with all applicable laws, rules and regulations, including without limitation current governmental regulations concerning good laboratory practices, good clinical practices and cGMP, as applicable.

Royalty Payment Obligations (Sections 7.3 and 7.4; Section 6.1.3)

• Royalties are payable to Tekmira on Net Sales of Alnylam Royalty Products in the Territory as follows:

Aggregate Calendar Year Net Sales of the	Royalty
Alnylam Royalty Product in the Territory	(as a percentage of Net Sales)
on the first $[**] — $[**]	[**]%
On the subsequent $[**] — $[**]	[**]%
Greater than $[**]	[**]%

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• Notwithstanding the foregoing, in the event that an Alnylam Royalty Product is comprised of a formulation Covered by or employing any Third Party Liposome Patent Rights then subject to the terms and conditions of the Tekmira Agreement, royalties on Net Sales of Alnylam Royalty Products in the Territory shall be calculated as follows:

Aggregate Calendar Year Net Sales of the	Royalty
Alnylam Royalty Product in the Territory	(as a percentage of Net Sales)
on the first $[**] — $[**]	[**]%
On the subsequent $[**] — $[**]	[**]%
Greater than $[**]	[**]%

• Royalties on Alnylam Royalty Products at the rates set forth above are payable on a country-by-country and product-by-product basis commencing on the date of First Commercial Sale of such Alnylam Royalty Product in a country and continuing until the later of the expiration of the last Valid Claim Covering the Manufacture or Commercialization of such Alnylam Royalty Product in the country of sale, subject to the following conditions:

(i)	only one royalty shall be due with respect to the same unit of Alnylam Royalty Product;
(ii)	no royalties shall be due upon the sale or other transfer among a Party and its Related Parties, but in such cases the royalty shall be due and calculated upon such Party’s or its Related Party’s Net Sales to the first independent Third Party;
(iii)	no royalties shall accrue on the sale or other disposition of the Alnylam Royalty Product by a Party or its Related Parties for use in a clinical study sponsored by such Party or under an IND prior to Regulatory Approval of such Alnylam Royalty Product in the applicable jurisdiction; and
(iv)	no royalties shall accrue on the disposition of an Alnylam Royalty Product in reasonable quantities by a Party or its Related Parties as samples (promotion or otherwise) or as donations (for example, to non-profit institutions for a non-commercial purpose).

• If the Development, Manufacture or Commercialization of an Alnylam Royalty Product in accordance with the Tekmira Agreement infringes Necessary Third Party IP, the applicable royalties in each country in the Territory payable to Tekmira will be reduced by [**] percent ([**]%) of the amount paid by Alnylam of any royalties under all licenses of such Necessary Third Party IP that are reasonably allocable to the Development, Manufacture and Commercialization of the Alnylam Royalty Product in or for such country in the Alnylam Field; provided, however, that, on a country-by-country basis, in no event shall the royalties payable to Tekmira with respect to Net Sales in a country for any Calendar Quarter be reduced below the greater of: (i) [**] percent ([**]%) of the

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royalties otherwise payable to Tekmira for such Calendar Quarter as calculated pursuant to Section 7.3, and (ii) the amount of any royalties payable under the In-licenses of Alnylam that are reasonably allocable to the Commercialization or Manufacture of the Alnylam Royalty Product in or for such country in the Field (where the royalties are calculated by adding one percentage point to the applicable royalty rate(s) in the applicable In-License(s)).

•

In the event that Alnylam is required to make any payments to UBC in respect of the INEX Technology or INEX Collaboration IP licensed to Alnylam pursuant to the UBC Sublicense Agreement, then Alnylam shall be entitled to offset any amounts payable by Alnylam to Tekmira under the Tekmira Agreement by the amount of Alnylam’s payments to UBC until such amounts have been credited in full.

Royalty Reports; Payment (Section 7.3.4)

• During the Agreement Term, commencing upon the First Commercial Sale of an Alnylam Royalty Product, Alnylam is required to provide to Tekmira a quarterly written report showing the quantity of Alnylam Royalty Products sold in each country (as measured in saleable units of product), the gross sales of such Alnylam Royalty Product in each country, total deductions for such Alnylam Royalty Product for each country included in the calculation of Net Sales, the Net Sales in each country of such Alnylam Royalty Product subject to royalty payments sold by Alnylam and its Related Parties during the reporting period and the royalties payable with respect to such Alnylam Royalty Product under the Tekmira Agreement. Quarterly reports are due no later than the twenty-fifth (25th) day following the close of each Calendar Quarter. Royalties shown to have accrued by each royalty report are due and payable on the date such royalty report is due.

• Complete and accurate records must be kept in sufficient detail to enable the royalties and other payments payable under the Tekmira Agreement to be determined.

Audit Rights (Section 7.6)

• Upon the written request of Tekmira and not more than once in each Calendar Year, a Sublicensee must permit an independent certified public accounting firm of nationally recognized standing selected by Tekmira and reasonably acceptable to such Sublicensee to have access during normal business hours to such of the records of Sublicensee as may be reasonably necessary to verify the accuracy of the royalty and other financial reports required to be delivered under the Tekmira Agreement for any Calendar Year ending not more than [**] months prior to the date of such request, for the sole purpose of verifying the basis and accuracy of payments made under Article 7.

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Claimed Infringement (Section 10.4)

• Alnylam may, if it so desires, defend any Infringement Claim brought against either Alnylam or Tekmira or its Affiliates or Sublicensees arising out of the Development, Manufacture or Commercialization of any Alnylam Royalty Product in the Alnylam Field in the Territory. Alnylam must keep Tekmira informed, and from time to time consult with Tekmira regarding the status of any such claims and provide Tekmira with copies of all documents filed in, and all written communications relating to, any suit brought in connection with such claims. Tekmira also has the right to participate and to be presented in any such claim or related suit. If Alnylam fails to exercise its right to assume such defense within thirty (30) days following written notice of such Infringement Claim, Tekmira has the sole and exclusive right to control the defense of such Infringement Claim.

Patent Certification (Section 10.8)

• To the extent required or permitted by law, Alnylam is required to use Commercially Reasonable Efforts to maintain with the applicable Regulatory Authorities during the Agreement Term correct and complete listings of applicable Patent Rights for Alnylam Royalty Products being commercialized, including all so called “Orange Book” listings required under the Hatch-Waxman Act.

Termination for Patent Challenge (Section 11.5)

• If any Sublicensee asserts in any court or other governmental agency of competent jurisdiction that an INEX Patent Right or a Patent Right Controlled by Tekmira by virtue of the INEX-UBC License Agreement and sublicensed to Alnylam pursuant to the UBC Sublicense (in either case, an “INEX Patent”) is invalid, unenforceable, or that no issued Valid Claim embodied in such INEX Patent excludes a Third Party from making, having made, using, selling, offering for sale, importing or having imported an Alnylam Royalty Product in such jurisdiction, then Tekmira shall be entitled, upon written notice to Alnylam, to terminate all licenses granted to Alnylam for such Alnylam Royalty Product(s) covered by such INEX Patent that is under challenge in the applicable jurisdiction; provided however, that Tekmira shall not terminate such license if within thirty (30) days of Alnylam’s receipt of Tekmira’s notification under the Tekmira Agreement:

(i)	it is confirmed by written notice to Tekmira that Sublicensee no longer intends to challenge the validity or enforceability of such INEX Patent; or
(ii)	documentation is provided to Tekmira to confirm Sublicensee’s withdrawal of its filing, submission, or other process commenced in any

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court or other governmental agency of competent jurisdiction to challenge the validity or enforceability of any such INEX Patent.

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TEKMIRA/UBC

8. The Sublicense Agreement between Tekmira and Alnylam, dated January 8, 2007 (“UBC Sublicense Agreement”)

Limitations on License Grant (Sections 3.1 and 16.1)

• Alnylam’s sublicense is limited to a license to research, develop, manufacture, have made, distribute, import, use, sell and have sold Products in and for the Alnylam Field.

• University retains the right to use the Technology without charge in any manner whatsoever for non-commercial research, scholarly publication, educational or other non-commercial use.

• The UBC Sublicense Agreement and the license granted thereunder terminates on the expiration of a term of 20 years from the Date of Commencement or the expiration of the last Patent, whichever event shall last occur, unless earlier terminated as a result of the termination of Alnylam’s rights to INEX Technology (as that term is defined in the Tekmira Agreement) under the Tekmira Agreement. Upon expiry of the UBC Sublicense Agreement, the licenses become perpetual, fully-paid up, worldwide licenses to use and sublicense the Technology and to manufacture, have made, distribute, import, use and sell Products in the Alnylam Field, without further payment of Royalties to Tekmira.

Certain Sublicense Terms (Section 4.2)

• Alnylam may grant sublicenses to third parties with respect to the Technology upon written notice to Tekmira and the University, provided that the Sublicensee agree (i) to perform the terms of the UBC Sublicense Agreement as if such Sublicensee were Alnylam under the UBC Sublicense Agreement; (ii) to represent that Sublicensee is not, as of the effective date of the relevant sublicense agreement, engaged in a dispute with the University; and (iii) to be subject to a written sublicense agreement that contains terms consistent with “the terms of this Agreement” described in Section 4.2(c) and that provides that the University is a third party beneficiary of, and has the right to enforce directly against the sublicensee, the terms in such sublicense agreement that are consistent with the terms listed in Section 4.2(c)(ii).

• Section 4.2(c)(ii) states that the “terms of this Agreement” means (i) the terms set forth in the UBC Sublicense Agreement; (ii) terms in such sublicense agreement consistent with Sections 1.3, 1.7, 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.8 and 2.13 of the Consent Agreement among Alnylam, Tekmira and the University of even date with the UBC Sublicense Agreement (“Consent Agreement”); and (iii) other customary and reasonable terms, including but not limited to terms relating to breach and termination, that are consistent with Alnylam’s obligations to Tekmira under the UBC Sublicense Agreement and the Tekmira Agreement.

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The terms of the Consent Agreement referenced in clause (ii) above are set forth below:

1.3	Alnylam Consent to Certain Disclosures to the University. Alnylam consents to Tekmira disclosing to the University: (i) Alnylam’s report to Tekmira made pursuant to Article 10.8 of the UBC Sublicense Agreement; and (ii) copies of Alnylam’s sublicenses provided to Tekmira pursuant to Article 4.3 of the UBC Sublicense Agreement; solely for the purposes of calculation of royalties under the UBC License, determining compliance with Section 10.8 of the License Agreement between Tekmira and University dated July 1, 1998, as amended by an Amendment Agreement dated July 11, 2006, and a Second Amendment Agreement dated January 8, 2007 (as amended, the “UBC License”) and determining compliance with Article 5 of the UBC Sublicense Agreement, and the University shall use reasonable efforts to ensure that all information provided to the University or its representatives pursuant to this Section 1.3 remains confidential and is treated as such by the University.
1.7	Rights of the University. In consideration of the University providing its consent in the Consent Agreement, Tekmira and Alnylam agree that the University shall be entitled to rely upon any rights provided to the University pursuant to the terms of the UBC Sublicense Agreement, notwithstanding that the University is not a party to the UBC Sublicense Agreement.
2.1	Limited Warranties. Alnylam and its Affiliates expressly acknowledge and agree that:

(a) Except as expressly set out in Section 2.1(c) of the Consent Agreement, the University makes no representations, conditions, or warranties, either express or implied, with respect to the Technology, Improvements, Patents or any Products. Without limiting the generality of the foregoing, the University specifically disclaims any implied warranty, condition, or representation that the Technology, Improvements, Patents or Products: (i) shall correspond with a particular description; (ii) are of merchantable quality; (iii) are fit for a particular purpose; or (iv) are durable for a reasonable period of time.

(b) Except as expressly set out in Section 2.1(c) of the Consent Agreement, nothing in the UBC License, the Consent Agreement, or the UBC Sublicense Agreement shall be construed as: (i) a warranty or representation by the University as to title to the Technology, the Patents or any improvement or that anything made, used, sold or otherwise disposed of under the license granted in the Consent Agreement is or will be free from infringement of patents, copyrights, trademarks, industrial design or other intellectual property rights, (ii) an obligation by the University to bring or prosecute or defend actions or suits against third

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parties for infringement of patents, copyrights, trademarks, industrial designs or other intellectual property or contractual rights, or (iii) the conferring by the University of the right to use in advertising or publicity the name of the University or UBC Trademarks.

(c) The University agrees that the warranty set forth in Section 7.4 of the UBC License will inure to the benefit of Alnylam and its sublicensees. For avoidance of doubt, such warranty is exactly as stated in the UBC License and its inclusion in the Consent Agreement will not change its terms in any way including, but not limited to, changing the date of such warranty from June 30, 2001.

2.2

Disclaimer of Product Liability. Alnylam and its Affiliates expressly acknowledge and agree that the University shall not be liable for any damages, or any other loss, whether direct, indirect consequential, incidental, or special which Alnylam or its Affiliates, or any further sublicense under any sublicense agreements between Alnylam and such further sublicensee, suffer, arising from any defect, error, fault, or failure to perform with respect to the Technology, Patents, Improvements or any Products, even if the University has been advised of the possibility of such defect, error, fault, or failure. Alnylam and its Affiliates acknowledge that they have been advised by the University to undertake their own due diligence with respect to the Technology, Patents, Improvements and Products.

2.3

Indemnification of the University. Alnylam and its Affiliates indemnify, hold harmless and defend the University, its Board of Governors, officers, employees, faculty, students, invitees and agents (the “UBC Indemnitees”) against any and all claims (including all legal fees and disbursements incurred in association therewith) arising out of the exercise of any rights under the Consent Agreement, the UBC License or the UBC Sublicense Agreement, including, without limiting the generality of the foregoing, against any damages or losses, consequential or otherwise, arising from or out of the use of the Technology, Patents, Improvements or Product(s) sublicensed under the UBC Sublicense Agreement by Alnylam or its Related Parties, or their respective customers or end-users howsoever the same may arise. For greater clarity, it is confirmed that, without limiting the generality of the foregoing, the indemnification by Alnylam and its Affiliates of the UBC Indemnitees set out in the Consent Agreement shall include an obligation to indemnify the UBC Indemnitees against any and all subrogated claims which may be brought against the UBC Indemnitees by any person(s) or entities (including without limitation Alnylam, its Related Parties, their respective customers or end-users, or their respective insurers) which may not have waived their rights of subrogation against the UBC Indemnitees, and shall also include, without limiting any of the foregoing, an obligation to indemnify the UBC Indemnitees against any and all claims relating to any injury or death to any person or damage to

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	any property caused by any Product, whether claimed by reason of breach of warranty, negligence, product defect or otherwise, and regardless of the form in which any such claim is made.
2.4	Monetary Cap Respecting UBC License. The University’s liability, whether under the express or implied terms of the Consent Agreement, the UBC License or the UBC Sublicense Agreement, in tort (including negligence), or at common law, for any loss or damage suffered by Alnylam or its Related Parties, whether direct, indirect, special, or any other similar or like damage, to the extent that such losses or damage may arise or does arise from any breaches of the UBC License, the Consent Agreement or the UBC Sublicense Agreement by UBC Indemnitees, shall be limited to the sum of $[**].
2.5	Disclaimer of Consequential Losses by the University. In no event shall the University be liable for consequential or incidental damages arising from any breach or breaches of the UBC License, the UBC Sublicense Agreement or the Consent Agreement.
2.6	Litigation. Provided that Tekmira has obtained the University’s consent required by Article 7 of the UBC License, Tekmira’s right to prosecute litigation in Article 7 of the UBC License may be exercised by Alnylam pursuant to Sections 7.5 and 7.6 of the UBC Sublicense Agreement.
2.7	UBC Trademarks. Alnylam shall not use any of the University’s trademarks or make reference to the University or its name in any advertising or publicity whatsoever, without the prior written consent of the University, except as required by law. Nothing in the Consent Agreement shall prevent Alnylam from making or issuing factual statements to the public regarding its business or use of the Patent. If Alnylam is required by law to act in contravention of this provision, Alnylam shall provide the University with sufficient advance notice in writing to permit the University to bring an application or other proceeding to contest the requirement.
2.8	Confidentiality of Terms. Alnylam requires of the University, and the University agrees insofar as it may be permitted to do so at law, that the Consent Agreement, the UBC Sublicense Agreement and each part of each of them, is confidential and shall not be disclosed to third parties, as Alnylam claims that such disclosure would or could reveal commercial, scientific or technical information and would significantly harm Alnylam’s competitive position and/or interfere with Alnylam’s negotiations with prospective sublicensees. Notwithstanding anything contained in this Section 2.8, the parties to the Consent Agreement acknowledge and agree that the University may identify the title of the Consent Agreement and/or the UBC Sublicense Agreement, the parties to the Consent Agreement and/or the UBC Sublicense Agreement, the inventors of the Technology,

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	the term of the Consent Agreement and/or the UBC Sublicense Agreement, and the consideration actually paid to the University pursuant to the Consent Agreement and/or the UBC Sublicense Agreement.
2.13	Alnylam Warranties. Alnylam warrants and represents to the University that:

(a) Alnylam is a corporation duly organized, existing, and in good standing under the laws of Delaware and has the power, authority, and capacity to enter into the Consent Agreement and to carry out the transactions contemplated by the Consent Agreement, all of which have been duly and validly authorized by all requisite corporate proceedings;

(b) the execution, delivery and performance by Alnylam of the Consent Agreement and the UBC Sublicense Agreement do not contravene or constitute a default under any provision of applicable law or its articles or by-laws (or equivalent documents) or of any judgment, injunction, order, decree or other instrument binding upon Alnylam; and

(c) the Consent Agreement constitutes a valid and binding agreement of Alnylam, enforceable against Alnylam in accordance with its terms.

• Alnylam is required to furnish Tekmira with a copy of each sublicense granted within 30 days after execution. Any such copy may contain reasonable redactions as Alnylam may make, provided that such redactions do not include provisions necessary to demonstrate compliance with the requirements of the UBC Sublicense Agreement. If University requests of Tekmira that a less redacted version of any sublicense be provided to University, Alnylam agrees to discuss in good faith with Tekmira and the University the University’s concerns.

• Sublicensee is required to observe and perform similar terms and conditions to those in the UBC Sublicense Agreement and those terms set forth in Section 4.2(c), including, without limitation, a restriction on the grant of further sublicenses without notice to Tekmira and the University.

• Any sublicense granted by Alnylam under the UBC Sublicense Agreement shall survive termination of the licenses or other rights granted to Alnylam under the UBC Sublicense Agreement, and be assumed by Tekmira, as long as (i) the sublicensee is not then in breach of its sublicense agreement, (ii) the sublicensee agrees in writing to be bound to Tekmira as a sublicensor and to the University under the terms and conditions of the UBC Sublicense Agreement, and (iii) the sublicensee agrees in writing that in no event shall Tekmira assume any obligations or liabilities, or be under any obligation or requirement of performance, under any such sublicense extending beyond Tekmira’s obligations and liabilities under the UBC Sublicense Agreement.

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Royalty Obligations (Section 5.0)

• The consideration for the rights granted to Alnylam to the Technology under the UBC Sublicense Agreement, and the consideration for the rights granted by Tekmira to Alnylam to other technologies under the Tekmira Agreement, is the payment by Alnylam of milestones and royalties in accordance with the terms of Article 7 of the Tekmira Agreement.

Claimed Infringement (Section 7.7)

• If any complaint alleging infringement or violation of any patent or other proprietary rights is made against Alnylam (or a sublicensee of Alnylam) with respect to the manufacture, use or sale of Product, the following procedure shall be adopted:

(i)	Alnylam shall promptly notify Tekmira upon receipt of any such complaint and shall keep Tekmira fully informed of the actions and positions taken by the complainant and taken or proposed to be taken by Tekmira (on behalf of itself or a sublicensee);
(ii)	all costs and expenses incurred by Alnylam (or any sublicensee of Alnylam) in investigating, resisting, litigating and settling such a complaint, including the payment of any award or damages and/or costs to any third party, shall be paid by Alnylam (or any sublicensee of Alnylam, as the case may be); and
(iii)	if as a result of such suit it is decided that a Product infringes any valid claim on a patent owned by another, Tekmira shall consider fair distribution of Royalty Income.

Use of Trademarks (Section 10.1)

• No use of or reference to the UBC Trade-marks or the University or its name is allowed in any advertising or publicity whatsoever, without the prior written consent of the University, except as required by law.

Diligence and Reporting (Section 10.2)

• Alnylam is required to use its reasonable commercial efforts to promote, market and sell the Products and utilize the Technology and to meet or cause to be met the market demand for the Products and the utilization of the Technology.

• Alnylam is required to deliver to Tekmira an annual report, due on December 31 of each year during the term of the UBC Sublicense Agreement, which summarizes the major activities Alnylam has undertaken in the course of the preceding 12 months to develop and commercialize and/or market the Technology. The report must include an outline of the status of any Products in clinical trials and the existence of any sublicenses of the Technology.

Page 36 of 37, Schedule D-2

Compliance with Laws (Section 18.0)

• Alnylam is required to comply with all laws, regulations and ordinances, whether Federal, Provincial, Municipal or otherwise with respect to the Technology and/or the UBC Sublicense Agreement.

Page 37 of 37, Schedule D-2

Schedule E

Pre-Existing Alliance Agreements

Copies of the following agreements, some in redacted form, have been, or shall be, made available to Licensee as of the Effective Date:

1.	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
2.	License and Collaboration Agreement between Tekmira Pharmaceuticals Corporation (formerly INEX Pharmaceuticals Corporation) and Alnylam Pharmaceuticals, Inc., dated January 8, 2007
3.	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
4.	Amended and Restated Research Collaboration and License Agreement between Merck & Co., Inc, Alnylam Pharmaceuticals, Inc. and Alnylam Holding Co., dated July 3, 2006
5.	Amended and Restated Collaboration Agreement by and between Alnylam Pharmaceuticals, Inc. and Medtronic, Inc., dated July 27, 2007
6.	Collaboration and License Agreement by and between Alnylam Pharmaceuticals, Inc. and Biogen Idec MA Inc., dated September 20, 2006

Page 1 of 1, Schedule E

Schedule F

Technology Transfer Plan

The Technology Transfer Plan outlined below between Licensee and Alnylam is designed to ensure that all capabilities and know-how related to the discovery and development of RNAi Therapeutics are efficiently and rapidly exchanged between both sites. The list of information and technologies to be transferred is divided into RNAi Pharmaceutics [**] and RNAi Platform [**]. This will ensure that both Licensee and Alnylam will have acquired the knowledge and skills required in the development of RNAi Therapeutics from both a theoretical and practical standpoint.

The Technology Transfer Plan, as well as the Transition Services Plan (see Schedule A of Share Purchase Agreement) will be overseen and managed by the Joint Transitional Team (JTT), as outlined in the Share Purchase Agreement.

It is envisioned that the Technology transfer will take place in three stages:

1)	Plan roll-out (from Execution Date to Effective Date). This stage would involve establishing contact with technology transfer counterparts in Licensee, Kulmbach Facility and Alnylam and begin writing SOPs. A preliminary list of Licensee, Kulmbach Facility and Alnylam contacts is shown in Table 1; this will be finalized during the plan roll-out period.
2)	Technology Transfer Period (as defined in Section 3.1). This stage would involve finalization and transfer of SOPs between Licensee and Alnylam. This would involve frequent email and videoconference interactions. Face to face meetings will be utilized as required to ensure efficient transfer of technologies and capabilities. Ideally all technology transfer would be completed by this end of this phase.
3)	Additional technology transfer phase (up to [**] after end of Technology Transfer Period). Any additional technology transfer will be performed as required.

Page 1 of 9, Schedule F

Table 1: Initial Proposed list of Contacts
Involved in Licensee/ Kulmbach Facility/Alnylam Technology Transfer

	Licensee		Kulmbach
Technology	Contact		Facility Contact		Alnylam Contact
Alnylam to Licensee/Kulmbach Facility (RNAi Therapeutics)
1. Drug Substance Information		[**]		[**]		[**]
2.1. Drug Product Information: Overall		[**]		[**]		[**]
2.2 Drug Product Information: Safety/tox		[**]		[**]		[**]
3. Drug Substance Manufacturing		[**]		[**]		[**]
Alnylam to Licensee/ Kulmbach Facility (RNAi Platform)
4. Mid Scale Synthesis		[**]		[**]		[**]
5. Large Scale Synthesis		[**]		[**]		[**]
6. Conjugation Chemistry		[**]		[**]		[**]
7. Liposomal Formulations		[**]		[**]		[**]
8. Pulmonary Formulations		[**]		[**]		[**]
9. Analytic Methods		[**]		[**]		[**]
10. 5’RACE Assay		[**]		[**]		[**]
11. In vivo Models		[**]		[**]		[**]
Licensee/ Kulmbach Facility to Alnylam (RNAi Platform)
12. Bioinformatics and Database Systems		[**]		[**]		[**]
13. Small-scale Synthesis		[**]		[**]		[**]
14. Conjugation Chemistry		[**]		[**]		[**]
15. Peptide Formulations		[**]		[**]		[**]
16. Bioanalytics and Analytics		[**]		[**]		[**]
17. IFN and TNF Assays		[**]		[**]		[**]
18. In vitro Models		[**]		[**]		[**]
19. In vivo Models		[**]		[**]		[**]

Page 2 of 9, Schedule F

RNAi Therapeutics Transfer from Alnylam to Licensee

1. Drug Substance Information: Alnylam shall provide to Licensee the following test information for typical siRNA drug substance used in [**] studies and those used in [**] studies. Alnylam shall also provide to Licensee analogous information for typical reference standards.

	Typical Method
General Test	(alternate if available)
Appearance, solubility, pH of solution, molecular weight		[**]
Identity (individual strands and duplex)		[**]
Purity		[**]
Assay (%w/v)		[**]
Moisture content (if powder)		[**]
Organic volatiles		[**]
Heavy metals (if any)
Sterility/bioburden		[**]
Bacterial endotoxins		[**]
Stability indicating test method		[**]
Other tests as relevant for the molecule depending on the chemical modifications involved

2. Drug Product Information (2.1 Overall, and 2.2 Safety/Tox): Alnylam shall provide to Licensee the following information about siRNA drug products that have been subjected to more detailed characterization [**]. The information that will be provided for the drug product is:

a.	Formulation composition
b.	Formulation manufacturing procedure with in-process control specifications. Terminal sterilization procedure (if applicable) or in-process controls that are typically relevant of the dosage form [**]
c.	If new/novel formulation excipient(s) ([**]) involved then Alnylam shall provide to Licensee the following additional information about that excipient(s):

i.	Analytical profile
ii.	Physico-chemical characterization
iii.	Synthesis procedure
iv.	Analytical release specification
v.	Storage condition

Page 3 of 9, Schedule F

vi.	Safety/toxicity data supporting its human use on a chronic basis and any associated genotoxicity and immunostimulation.
vii.	Justification for the use of the desired excipient

d.	Experience with different batch sizes and batch record information if available
e.	Equipment train (and specific parts if applicable)
f.	In addition to the above information, subject to availability, Alnylam will supply the following test information for drug product batches, their release specifications, and their stability (ICH protocol)

	Typical Method
General Test	(alternate if available)
Appearance
Assay for siRNA (%w/v)		[**]
Moisture content (if powder)
Particle size of the dosage form (if applicable)		[**]
Osmolarity (if applicable)
Sterility/bioburden		[**]
Bacterial endotoxins		[**]
Stability indicating test method		[**]
Other test methods and experience with other dosage forms [**]
For dispersed systems [**], Alnylam shall provide to Licensee additional information about [**] for the stability batches and their physico-chemical stability.
Alnylam shall provide to Licensee information on the impact of [**] on the product’s in vivo performance, [**]
Alnylam shall provide to Licensee other applicable dosage form experience that would enable Licensee to transition/integrate the technology within Licensee and/or to third party contract manufacturer.

3. Drug Substance Manufacturing:

a. Synthesis/manufacturing technology

i.	Overview on technology landscape: existing technologies, IP, CMO’s
ii.	Technology used at Alnylam for small and large scale production
iii.	License terms for any IP covering synthesis and manufacturing technology
iv.	Preferred partners

Page 4 of 9, Schedule F

v. Knowledge of commercial suppliers and capacity of main players

b. Raw materials incl. solid support, HPLC columns

i.	Specifications
ii.	Suppliers
iii.	Costs
iv.	Solid supports: screened/tested? Advantages/disadvantages, regeneration/recycling?
v.	HPLC columns: technologies available, handling, containment, life times, costs, suppliers
vi.	Any animal-derived raw materials?

c. Process

i.	Description of chemistry involved
ii.	Detailed process flow and step description
iii.	Equipment/capacities/equipment suppliers
iv.	Overall and step yields, processing time
v.	Reproducibility
vi.	Critical steps, intermediates
vii.	Scale-up issues
viii.	Process validation
ix.	Safety, health and environmental issues

d. Analytics

i.	Description of analytical methods for API characterization [**], single strand and duplex
ii.	Specifications and release methods
iii.	IPC methods
iv.	API stability, storage conditions, issues
v.	Impurity profiles: what is acceptable, characterization of product-related compounds
vi.	Endotoxin, adventitious agents control
vii.	Comparability strategy
viii.	History of difficulties with analytical methodologies

e. Costs

i. Experience to date with typical manufacturing costs per development phase, at pre-commercial scale

f. API CMC development

i.	Typical development times, costs
ii.	Typical API supply requirements per phase
iii.	Supply outsourcing: typical lead times, technical transfer issues

RNAi Platform Transfer from Alnylam to Licensee

4. Mid-scale Synthesis

a.	Sourcing of raw materials and reagents
b.	SOP for synthesis and purification

Page 5 of 9, Schedule F

c.	SOP for analytic characterization
d.	List of equipment required

5. Large-scale synthesis

a.	Sourcing of raw materials and reagents
b.	SOP for synthesis and purification
c.	SOP for analytic characterization
d.	List of equipment required

6. Conjugation chemistry

a. Overview of [**] conjugates synthesized

i.	Sourcing of raw materials and reagents
ii.	Detailed synthesis schemes
iii.	Analytic characterization
iv.	Summary of Issues/Difficulties
v.	Summary of in vitro and in vivo results to date with [**] conjugates

b. Overview of [**] conjugates synthesized

i.	Sourcing of raw materials and reagents
ii.	Detailed synthesis schemes
iii.	Analytic characterization
iv.	Summary of Issues/Difficulties
v.	Summary of in vitro and in vivo results to date with [**] conjugates

c. Overview of [**] conjugates synthesized

i.	Sourcing of raw materials and reagents
ii.	Detailed synthesis schemes
iii.	Analytic characterization
iv.	Summary of Issues/Difficulties
v.	Summary of in vitro and in vivo results to date with [**] conjugates

7. Liposomal formulations

a. Overview of [**] formulations tested

i.	Sourcing of raw materials and reagents
ii.	Detailed synthesis schemes
iii.	Analytic characterization
iv.	Summary of Issues/Difficulties

b.	Summary of in vitro and in vivo results to date with [**]
c.	SOP for synthesis of [**]
d.	SOP for preparing [**] formulations
e.	SOP for analytic characterization methods for [**] formulations
f.	List of formulation and analytic equipment required

8. [**] formulations

a.	List of equipment required
b.	SOP for preparing [**] formulations
c.	Analytic characterization methods

9. Analytic methods

Page 6 of 9, Schedule F

a. Summary of analytic methods tried and results

10. 5’ RACE assay for evaluation of RNAi-mediated silencing

a.	Primer design
b.	Sourcing of reagents and kits
c.	Experimental SOP

11. In vivo models for evaluation of RNAi delivery and activity

a. Animal models for delivery of siRNA to liver [**]

i.	Typical experimental design
ii.	Experimental SOP for in vivo [**] studies in rodent and non-human primate (where performed)
iii.	Experimental SOP for in vitro [**] activity assays in rodent and non-human primate (where performed).

Page 7 of 9, Schedule F

RNAi Platform Transfer From Kulmbach Facility to Alnylam

12. Bioinformatics and database systems

a. Transfer of bioinformatic search capability at Alnylam

i.	Detailed information around the IT programs and sequence databases required to perform bioinformatic searches
ii.	Detailed SOP for carrying out and analyzing bioinformatic searches

b. [**] siRNA chemical compound information storage database at Alnylam

13. Small–scale synthesis

a.	Overview of equipment requirements and small-scale process procedures
b.	Detailed SOP for synthesis, annealing, and QC

14. Conjugation chemistry

a. Overview of [**] conjugates synthesized

i.	Sourcing of raw materials and reagents
ii.	Detailed synthesis schemes
iii.	Analytic characterization
iv.	Summary of Issues/Difficulties
v.	Summary of in vitro and in vivo results to date

b. Experimental design and SOP for in vitro and in vivo screening

i.	[**] conjugates
ii.	[**] conjugates

15. [**] formulations

a.	Overview of [**] investigated
b.	Synthesis and/or sourcing of [**]
c.	Formulation studies (including physico-chemical characterization and SOP)
d.	Summary of in vitro and in vivo results to date
e.	Experimental design and SOP for in vitro and in vivo screening

16. Bioanalytics and analytics

a.	Summary of analytic methods tried and results
b.	Summary of bioanalytic methods tried and results

17. IFN/[**] Assays

a.	SOP for [**] interferon [**] induction assay
b.	Knowledge of specific siRNA sequence motifs that are known immunostimulators
c.	Summary on the role of chemical modifications in abrogating immunostimulation

18. In vitro models for evaluation of RNAi delivery and activity

a. In vitro [**] screening model

i.	[**] design
ii.	[**] construction

Page 8 of 9, Schedule F

iii.	Design of typical siRNA screen
iv.	Experimental SOP

b. In vitro cell line-based screen of [**] target

i.	Cell transfection optimization procedure
ii.	mRNA assay readout [**] – design and optimization
iii.	Design of typical siRNA screen
iv.	Experimental SOP

19. In vivo models for evaluation of RNAi delivery and activity

a. [**] model to analyse silencing in multiple tissues

i.	Typical experimental design
ii.	Experimental SOP

b. [**] lung model [**]

i.	Typical experimental design
ii.	Experimental SOP

Page 9 of 9, Schedule F

Schedule G

Press Release

Media release

Basel, 9 July 2007

Roche and Alnylam form major alliance on RNAi therapeutics

– Roche accesses Nobel Prize winning technology for drug discovery and development

– Alnylam’s site in Germany to become Roche’s Center of Excellence for RNAi therapeutics

– Alnylam to receive 331 million US dollars in upfront payments and equity investment

Roche and the US-based biopharmaceutical company Alnylam Pharmaceuticals, Inc. (Nasdaq: ALNY) announced today that they have entered into a major alliance in which Roche obtains a non-exclusive license to Alnylam’s technology platform for developing RNAi (RNA interference) therapeutics. The alliance will initially cover four therapeutic areas: oncology, respiratory diseases, metabolic diseases, and certain liver diseases. Alnylam and Roche also will collaborate on RNAi drug discovery for one or more disease targets in these therapeutic areas. In addition, Roche will acquire Alnylam’s European research site located in Kulmbach, Germany (Bavaria), subject to regulatory approval. This site will become Roche’s Center of Excellence for RNAi therapeutics discovery.

RNAi is a potential foundation for a whole new class of human therapeutic products. RNAi is a natural mechanism that the body uses to inhibit expression of certain genes.

Page 1 of 4, Schedule G

Harnessing the activity of RNAi creates a direct opportunity to develop specific and potent drugs against diseases that are difficult to treat.

“Alnylam has made significant advances in RNAi therapeutics, one of the most promising approaches to tomorrow’s healthcare technology. Working together with Alnylam provides us with new capabilities to target complex diseases within our focus areas,” said Lee E. Babiss, Head of Roche Global Pharma Research. “Our mission is to find novel solutions for patients who suffer from difficult to treat diseases and we will be fully committed to this goal, together with our new colleagues located at the acquired site in Kulmbach.”

“We are pleased to form this new alliance with Roche, which is widely recognised for its commitment to innovation in biotechnology. We look forward to working together to advance our transformative technology into a whole new class of drugs,” said John Maraganore, Ph.D., President and Chief Executive Officer of Alnylam. “Such significant support from Roche will also strengthen Alnylam’s efforts to build a leading innovation-based biopharmaceutical company. Indeed, together with our demonstrated commitment to scientific excellence, advancement of our pipeline and unparalleled intellectual property estate, we believe that this new alliance greatly extends our leadership position in the discovery and development of RNAi therapeutics.”

Alnylam-Roche Collaboration

Alnylam has granted to Roche a non-exclusive license providing Roche access to broad Alnylam intellectual property (IP) and know-how, including fundamental, chemistry and delivery IP. Indications will initially include oncology, respiratory disease, metabolic disease and certain liver diseases. Alnylam maintains the right to non-exclusively license its IP to additional partners in potential future agreements. In addition, Alnylam and Roche will collaborate on one or more disease targets to be identified in the future in exchange for milestone and royalty payments.

The transaction includes Roche’s acquisition of Alnylam’s European research site in Kulmbach, Germany (Bavaria), with about 40 employees. The team in Kulmbach will remain dedicated to RNAi therapeutics discovery as a new Center of Excellence for RNAi therapeutics within Roche’s global research organisation.

The alliance could be valued at over 1 billion US dollars in consideration of upfront payments, potential product milestone payments for multiple products and field expansion payments, excluding potential royalties on future sales of commercial products. Under the terms of the agreement, Roche will pay Alnylam 331 million US dollars in upfront cash payments and equity investment, including 1.975 million shares of Alnylam common stock the Roche Venture Fund agreed to purchase at 21.50 US dollars per share, representing just less than five percent of Alnylam’s outstanding common stock. Roche will also pay Alnylam milestones on products as they advance in development and commercialisation as well as royalties on future sales of commercial products. Further, Roche may pay Alnylam field expansion payments to increase the number of therapeutic areas.

Page 2 of 4, Schedule G

The close of the agreements, including Roche’s purchase of Alnylam shares and purchase of Alnylam’s site in Germany, is subject to certain regulatory approvals and is expected to occur within approximately 30 days.

About 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 Nobel Prize in October 2006. 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. In addition, the company is developing RNAi therapeutics for the treatment of influenza, hypercholesterolemia, and liver cancers, amongst other diseases. 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 Merck, Medtronic, Novartis, Biogen Idec, and Roche. The company, founded in 2002, maintains global headquarters in Cambridge, Massachusetts. For more information, visit www.alnylam.com.

About the Roche Venture Fund

The Roche Venture Fund makes investments in early stage biotech and diagnostics companies to support innovative technologies and medicines. Based in Basel, Switzerland, the Roche Venture Fund manages a portfolio of over 25 companies in 10 countries.

About Roche

Headquartered in Basel, Switzerland, Roche is one of the world’s leading research-focused healthcare groups in the fields of pharmaceuticals and diagnostics. As one of the

Page 3 of 4, Schedule G

world’s biggest biotech companies and an innovator of products and services for the early detection, prevention, diagnosis and treatment of diseases, the Group contributes on a broad range of fronts to improving people’s health and quality of life. Roche is one of the world leaders in in-vitro diagnostics and drugs for cancer and transplantation, a market leader in virology and active in other major therapeutic areas such as autoimmune diseases, inflammation, metabolism and central nervous system. In 2006 sales by the Pharmaceuticals Division totalled 33.3 billion Swiss francs, and the Diagnostics Division posted sales of 8.7 billion Swiss francs. Roche employs roughly 75,000 people worldwide and has R&D agreements and strategic alliances with numerous partners, including majority ownership interests in Genentech and Chugai. Additional information about the Roche Group is available on the Internet at www.roche.com.

Roche Group Media Office

Phone: +41 61 688 8888 / e-mail: basel.mediaoffice@roche.com

– Daniel Piller (Head of Roche Group Media Office)

– Katja Prowald (Head of Science Communications)

– Martina Rupp

– Baschi Dürr

– Claudia Schmitt

Page 4 of 4, Schedule G

EX-21.1

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

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 and 333-148114) of Alnylam Pharmaceuticals, Inc. of our report dated March 2, 2009 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, MA
March 2, 2009

EX-23.2

Exhibit 23.2

Consent of Ernst & Young LLP, Independent Auditors of Regulus Therapeutics LLC

We consent to the use of our report dated February 23, 2009, with respect to the financial statements of Regulus Therapeutics LLC 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) and related Prospectus of Alnylam Pharmaceuticals, Inc. included in Alnylam Pharmaceuticals, Inc.’s Annual Report (Form 10-K) for the year ended December 31, 2008.

/s/ Ernst & Young LLP  

San Diego, California
February 23, 2009

EX-31.1

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

5) 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: March 2, 2009	/s/ John M. Maraganore, Ph.D.
	John M. Maraganore, Ph.D.
	Chief Executive Officer

EX-31.2

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

5) 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: March 2, 2009	/s/ Patricia L. Allen
	Patricia L. Allen
	Vice President of Finance and Treasurer

EX-32.1

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, 2008 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: March 2, 2009	/s/ John M. Maraganore, Ph.D.
	John M. Maraganore, Ph.D.
	Chief Executive Officer

EX-32.2

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, 2008 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: March 2, 2009	/s/ Patricia L. Allen
	Patricia L. Allen
	Vice President of Finance and Treasurer

EX-99.1

Exhibit 99.1

Financial Statements

Regulus Therapeutics LLC
Year Ended December 31, 2008 and the Period from
September 6, 2007 (inception) to December 31, 2007
With Report of Independent Auditors

Regulus Therapeutics LLC

Financial Statements

Year Ended December 31, 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	4
Statements of Cash Flows	5
Notes to Financial Statements	6

Report of Independent Auditors

Board of Directors
Regulus Therapeutics LLC

We have audited the accompanying balance sheets of Regulus Therapeutics LLC as of December 31, 2008 and 2007, and the related statements of operations, members’ equity, and cash flows for the year ended December 31, 2008 and for 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 LLC at December 31, 2008 and 2007, and the results of its operations and its cash flows for the year ended December 31, 2008 and for the period from September 6, 2007 (inception) to December 31, 2007, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP  

San Diego, California
February 23, 2009

1

Regulus Therapeutics LLC

Balance Sheets

	December 31,
	2008			2007
Assets
Current assets:
Cash	$	22,410,522		$	10,137,541
Contracts receivable		60,253			125,855
Prepaid expenses		126,070			10,648
Total current assets		22,596,845			10,274,044
Fixed assets, net		743,318			—
Patents, net		314,954			172,260
Licenses, net		23,125			—
Total assets	$	23,678,242		$	10,446,304
Liabilities and members’ equity
Current liabilities:
Accounts payable	$	600,734		$	—
Payables to members		2,060,177			1,149,822
Accrued payroll		474,726			—
Accrued expenses		136,623			6,294
Current portion of deferred revenue		2,857,098			—
Total current liabilities		6,129,358			1,156,116
Non-current liabilities:
Deferred revenue		10,625,000			—
Convertible note payable		5,179,247			—
Total liabilities		21,933,605			1,156,116
Members’ equity:
Members’ equity		12,690,491			10,573,907
Accumulated deficit		(10,945,854	)		(1,283,719	)
Total members’ equity		1,744,637			9,290,188
Total liabilities and members’ equity	$	23,678,242		$	10,446,304

See accompanying notes.

2

Regulus Therapeutics LLC

Statements of Operations

				Period from
				September 6, 2007
	Year Ended December			(inception) to
	31, 2008			December 31, 2007
Revenues:
Research and development revenue under collaborative arrangements	$	1,875,000		$	—
Grant revenue		236,290			119,562
Total revenues		2,111,290			119,562
Expenses:
Research and development		9,158,945			1,314,945
General and administrative		2,870,157			226,041
Total operating expenses		12,029,102			1,540,986
Loss from operations		(9,917,812	)		(1,421,424	)
Other income (expense):
Interest income		434,924			137,705
Interest expense		(179,247	)		—
Total other income		255,677			137,705
Net loss	$	(9,662,135	)	$	(1,283,719	)

See accompanying notes.

3

Regulus Therapeutics LLC

Statements of Members’ Equity

	Members’		Accumulated
	Equity		Deficit			Total
Cash investment in limited liability company at September 6, 2007 (inception)	$	10,000,000	$	—		$	10,000,000
Patents exclusively licensed to Regulus from Isis Pharmaceuticals, Inc. at September 6, 2007 (inception)		161,629		—			161,629
Noncash compensation expense related to stock options issued by Isis Pharmaceuticals, Inc.		91,975		—			91,975
Noncash 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
Noncash compensation expense related to stock options issued by Isis Pharmaceuticals, Inc.		490,442		—			490,442
Noncash 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

See accompanying notes.

4

Regulus Therapeutics LLC

Statements of Cash Flows

				Period from
				September 6, 2007
	Year Ended			(inception) to
	December 31, 2008			December 31, 2007
Operating activities
Net loss	$	(9,662,135	)	$	(1,283,719	)
Adjustment to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization expense		15,905			—
Compensation related to stock options		2,016,584			412,278
Change in operating assets and liabilities:
Contracts receivable		65,602			(125,855	)
Prepaid expenses		(115,422	)		(10,648	)
Accounts payables		600,734			—
Payables to members		893,741			1,139,191
Accrued payroll		474,726			—
Accrued expenses		281,596			6,294
Deferred revenue		13,482,098			—
Net cash provided by operating activities		8,053,429			137,541
Investing activities
Purchase of fixed assets		(755,534	)		—
Patent expenditures		(99,914	)		—
Acquisition of licenses		(25,000	)		—
Net cash used in investing activities		(880,448	)		—
Financing activities
Capital contribution		100,000			10,000,000
Proceeds from issuance of note payable		5,000,000			—
Net cash provided by financing activities		5,100,000			10,000,000
Net increase in cash and cash equivalents		12,272,981			10,137,541
Cash at beginning of period		10,137,541			—
Cash at end of period	$	22,410,522		$	10,137,541
Supplemental disclosures of noncash investing and financing activities
Patents exclusively licensed to Regulus from Isis Pharmaceuticals, Inc.	$	—		$	161,629
Amounts accrued in payables to members for patent expenditures	$	(16,614	)	$	(10,631	)
Amounts accrued in accrued expenses for patent expenditures	$	(27,000	)	$	—

See accompanying notes.

5

Regulus Therapeutics LLC

Notes to Financial Statements

December 31, 2008

1. Organization and Basis of Presentation

Regulus Therapeutics LLC (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 million 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

Revenue Recognition

The Company follows the provisions as set forth by Staff Accounting Bulletin (“SAB”) 101, Revenue Recognition in Financial Statements, SAB 104, Revenue Recognition, and Financial Accounting Standards Board Emerging Issues Task Force (“EITF”) 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. The Company recognizes revenue when it satisfies all of its contractual obligations and reasonably believes it can collect the outstanding receivable.

6

Regulus Therapeutics LLC

Notes to Financial Statements (continued)

2. Significant Accounting Policies (continued)

As more fully described in Note 4—Collaborative Arrangement, in 2008 the Company entered into a collaboration agreement with GlaxoSmithKline (“GSK”). As part of the GSK collaboration, the Company received a $15 million non-refundable upfront payment. The Company recognizes revenue related to non-refundable upfront payments ratably over its period of performance relating to the term of the contractual arrangements.

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. To date, the Company has not achieved any milestones under the GSK collaboration. Therefore, it has not recognized any revenue associated with milestone payments.

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 is funding further research for the miR-122 program. The Company recognizes revenue as it performs 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, in accordance with Financial Accounting Standards Board Emerging Issues Task Force (“EITF”) No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities, the Company defers and recognizes an expense in the period that it receives the goods or services.

Comprehensive Loss

To date, there are no items of other comprehensive loss other than net loss.

7

Regulus Therapeutics LLC

Notes to Financial Statements (continued)

2. Significant Accounting Policies (continued)

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash in bank accounts that, at times, may exceed federally insured limits. The Company has not experienced any losses on such accounts.

Cash

Cash consists of deposits at the Company’s bank and there are no restrictions on withdrawal or use of the funds.

Fixed Assets

Fixed assets included on the Company’s balance sheet at December 31, 2008, consists of laboratory equipment at a cost of $756,514, less accumulated depreciation of $13,196. The Company depreciates lab equipment on a straight-line method over an estimated five year useful life. Depreciation expense was $13,196 for the year ended December 31, 2008.

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 $1,875 at December 31, 2008. Amortization expense was $1,875 for the year ended December 31, 2008. Estimated amortization expense is $2,500 for each of the years ending December 31, 2009, 2010, 2011, 2012, and 2013.

Patents

The Company recorded the patents it received from Isis and Alnylam under the provisions set forth in SAB 48, Valuation of Assets Acquired from Promoters and Shareholders, which requires that the patents contributed are recorded on the Company’s financial statements on a carryover basis from the contributor’s financial statements. Isis contributed patents that had a carryover basis of $161,629.

8

Regulus Therapeutics LLC

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, if appropriate. 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 $834 at December 31, 2008. The weighted-average remaining life of issued patents was 8.7 years at December 31, 2008. Amortization expense was $834 for the year ended December 31, 2008. Estimated amortization expense is $834 for each of the years ending December 31, 2009, 2010, 2011, 2012, and 2013.

Long-Lived Assets

The Company assesses the value of its long-lived assets, which include fixed assets, patents and licenses acquired from third parties, under the provisions set forth by Statement of Financial Accounting Standards (“SFAS”) 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The Company evaluates its long-lived assets for impairment whenever events or 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.

Income Taxes

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.

Stock-Based Compensation

The Company values stock compensation cost for Isis stock options granted to the Company’s Board of Directors in accordance with SFAS 123R, Share-Based Payment. The Company recognizes stock 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-

9

Regulus Therapeutics LLC

Notes to Financial Statements (continued)

2. Significant Accounting Policies (continued)

loading the expense over the vesting period. The Company uses the Black-Scholes model to estimate the fair value of the Isis stock options granted on behalf of the Company to members of the Company’s Board of Directors in 2008 and 2007.

The Company records stock compensation expense for Isis and Alnylam stock options granted to the Company’s Scientific Advisory Board and stock compensation expense for Alnylam stock options granted to the Company’s Board of Directors in accordance with EITF 96-18, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, and it recognizes the expense over the service period. The Company uses the Black-Scholes model to estimate the fair value of the Isis and Alnylam stock options granted on behalf of the Company to members of the Company’s Scientific Advisory Board.

The Company records stock compensation expense incurred by Isis and Alnylam on its behalf and a corresponding increase to members’ equity. The following table summarizes stock compensation incurred by Isis and Alnylam on the Company’s behalf:

			Period from
			September 6,
			2007
	Year Ended		(inception) to
	December 31,		December 31,
	2008		2007
Stock compensation associated with Isis stock options	$	490,442	$	91,975
Stock compensation associated with Alnylam stock options		1,526,142		320,303
Stock compensation incurred by Isis and Alnylam on the Company’s behalf	$	2,016,584	$	412,278

10

Regulus Therapeutics LLC

Notes to Financial Statements (continued)

2. Significant Accounting Policies (continued)

The following table summarizes the allocation of stock compensation expense:

			Period from
			September 6,
			2007
	Year Ended		(inception) to
	December 31,		December 31,
	2008		2007
Research and development	$	1,059,506	$	237,238
General and administrative		957,078		175,040
Noncash stock compensation included in operating expenses	$	2,016,584	$	412,278

During the year ended December 31, 2008 and the period from September 6, 2007 (inception) to December 31, 2007, the Company did not issue stock options to purchase its equity.

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.

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 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”). None of these risks resulted in an adjustment to the financial statements as of December 31, 2008 and 2007.

11

Regulus Therapeutics LLC

Notes to Financial Statements (continued)

3. 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 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 (see Note 6—Subsequent Events).
(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

12

Regulus Therapeutics LLC

Notes to Financial Statements (continued)

3.	Related Party Transactions (continued)
	Agreement expired in connection with the Company’s conversion to a C Corporation (see Note 6—Subsequent Events). Beginning in January 2009, members of the Scientific Advisory Board will receive annual grants of the Company’s stock.
(c)	Services Agreement
	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 “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 includes these costs.
	As part of the Company’s conversion to a C Corporation (see Note 6—Subsequent Events), the Company, Isis and Alnylam amended and restated the Services Agreement. If requested by the Company, Alnylam will still 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, business development services, 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,
	2008		2007
Payable to Isis	$	1,953,914	$	1,028,226
Payable to Alnylam		106,263		121,596
	$	2,060,177	$	1,149,822

13

Regulus Therapeutics LLC

Notes to Financial Statements (continued)

3.	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 Isis:

			Period from
			September 6,
			2007
	Year Ended		(inception) to
	December 31,		December 31,
	2008		2007
Services performed by Isis	$	5,260,736	$	665,770
Out-of-pocket expenses paid by Isis		830,630		341,178
Noncash stock compensation for Isis stock options		490,442		91,975
	$	6,581,808	$	1,098,923

The following table summarizes the amounts included in the Company’s operating expenses, which resulted from the Company’s transactions with Alnylam:

			Period from
			September 6,
			2007
	Year Ended		(inception) to
	December 31,		December 31,
	2008		2007
Services performed by Alnylam	$	396,958	$	113,596
Out-of-pocket expenses paid by Alnylam		81,222		8,000
Noncash stock compensation for Alnylam stock options		1,526,142		320,303
	$	2,004,322	$	441,899

14

Regulus Therapeutics LLC

Notes to Financial Statements (continued)

4. 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 the option, GSK will have an exclusive license to develop drugs under each program by the Company for the relevant microRNA target for further development and commercialization 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 million in upfront payments from GSK, including a $15 million option fee and a $5 million note. The Company is amortizing the $15 million option fee into revenue over the Company’s six year period of performance.

5. Convertible Note Payable

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. 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.

6. Subsequent Events

On January 2, 2009, the Company reorganized as a C Corporation. In connection with the reorganization, and in exchange for their respective ownership percentages, Isis and Alnylam received 7,599,000 shares and 7,301,000 shares, respectively, of the Company’s Series A Preferred Stock.

As part of the conversion to a C Corporation, the Company, Isis and Alnylam amended the Corporate Services Agreement and entered into an Investor Rights Agreement. The amended Corporate Services Agreement specifies specific services that Isis and Alnylam will provide to the Company.

15

Regulus Therapeutics LLC

Notes to Financial Statements (continued)

6. Subsequent Events (continued)

The terms of the Series A Preferred Stock and the Investor Rights Agreement provide Isis and Alnylam specific rights and privileges, including the right to:

• receive preferential distributions upon a sale or liquidation of the Company;

• separately approve transactions that materially affect the Company;

• each appoint up to two members of the board of directors; and

• approve the Company’s operating plan.

16