ALNY - APOLLO Hits A Bullseye And Alnylam Logs Another Major Clinical Win

• Alnylam's APOLLO-B study was a success, with the drug patisiran hitting the trial's primary endpoint and some secondary endpoints in the treatment of hATTR-CM.
• The APOLLO-B results should drive an FDA approval in 2023, expanding the drug's addressable market by 2x-3x-plus while also de-risking the HELIOS-B study of vutrisiran.
• The 50% move in Alnylam shares on the successful trial results certainly takes some near-term upside off the table, but the shares still look worth owning.

Alnylam Pharmaceuticals ( ALNY ) has already built an enviable record of clinical trial wins, and the company added another to the record books on August 3, with the news of success in the APOLLO-B study of patisiran (marketed as Onpattro).

The APOLLO-B study wasn't a make-or-break trial for Alnylam, but it was nevertheless a highly significant, high-risk/high-reward study for this leader in RNAi biotechnology. This successful outcome, assuming eventual FDA approval in 2023, brings substantially more addressable revenue into play with a market (hereditary ATTR amyloidosis characterized by cardiomyopathy, or hATTR-CM) that is at least 2x and quite possibly 3x or larger than the current hATTR polyneuropathy market that Onpattro serves.

I was already relatively bullish on Alnylam going into this trial read-out , so the impact to my fair value is perhaps less dramatic than for other analysts, but with a fair value of around $230 and multiple clinical read-outs over the next two years that could unlock more value, I believe these are still shares worth owning for investors willing and able to take the elevated risk that goes with biotech investing.

Not Perfect, But Very, Very Good

I can't say that the data from the APOLLO-B study were perfect, but I think they were about as good as could be reasonably expected, and certainly at the higher end of Street expectations - I'd argue the roughly 50% move in the share price corroborates that opinion.

Management had previously (and repeatedly) told the Street that it would only be providing p-values for the study at this first look, with more details to come later at a scientific meeting (in this case, the ISA meeting on September 8). Still, the information provided points to strong efficacy.

The primary endpoint of the study was a performance on a six-minute walk test (or 6MWT) at 12 months, and patisiran delivered a p-value of 0.0162 here. For the Kansas City Cardiomyopathy Questionnaire, a secondary endpoint, the p-value was 0.0397. The composite all-cause mortality and CV events weren't statistically significant (p-value of 0.0574), nor was all-cause mortality (p-value of 0.5609), but the study wasn't powered for statistical significance on CV mortality or hospitalization, and the Phase III ATTR-ACT study of Pfizer 's ( PFE ) tafamidis didn't show separation in CV outcomes/mortality either.

Even so, there was a positive trend in APOLLO-B, with a 2.2% mortality rate in the treatment arm versus a 5.6% rate in the placebo group. I'd also note that the rate of serious adverse events was similar between the treatment (33.7%) and placebo (35.4%) groups.

I do believe the presentation of full data in early September is still relevant to framing the opportunity for this drug. Going into the study, there were concerns about the risks from a healthier placebo patient population leading to less differentiation (patients in hATTR studies are healthier now, due to increased awareness/diagnosis and treatment with tafamidis), and if it turns out that the placebo group was healthier than prior studies and patisiran still delivered a strong positive benefit on the 6MWT, that would be a strong positive. Likewise, the performance of patients who were on tafamidis going into the study could be relevant for future combo therapies of tafamidis and Onpattro.

Less Near-Term Pressure On HELIOS-B

Given the positive outcome of the APOLLO-B study, and the likely approval of patisiran/Onpattro in hATTR-CM, I would expect less pressure on Alnylam management to conduct an interim analysis of the HELIOS-B study of vutrisiran (Amvuttra). Vutrisiran is a follow-on compound to patisiran, and one with a meaningfully improved dosing and tolerability profile.

Thus far, the clinical performance of vutrisiran has been broadly similar to that of patisiran. With that, I don't think it's unreasonable to regard the positive APOLLO-B results as a positive read on the HELIOS-B study of vutrisiran in hATTR-CM. That said, it's well worth noting that HELIOS-B is using cardiovascular outcomes as its primary endpoint, and I think it's premature to say that HELIOS-B has been completely de-risked.

Amvuttra was approved earlier this year for hATTR-PN, and management noted that two-thirds of its new patient starts for Amvuttra in the second quarter were patients switching over from Onpattro. With its improved side-effect profile and more convenient dosing, I expect Amvuttra to significantly surpass Onpattro in eventual total sales potential, but it will take years (and a successful HELIOS-B study) to drive that outcome.

Decent Q2 Earnings, And Additional Trial Read-Outs Are On The Way

Alnylam reported earnings in late July, and the results were modestly positive relative to expectations, but not thesis-changing. Although overall revenue was up just 2%, net product revenue rose 33% (or 40% in constant currency), with the difference largely due to the impact of partnership payments from Regeneron ( REGN ) last year.

Net product revenue was about 2% better than expected, with stronger than expected results from Onpattro/Amvuttra (up 35% yoy, 12% qoq) and Givlaari (up 47% yoy and 28% qoq) offsetting weaker results from Oxlumo (down 9% yoy, up 2% qoq). Oxlumo revenue is impacted by a smaller number of patients getting initial loading doses, and I think it's worth noting that I've said previously that Oxlumo is going to be a slow-building franchise, as patient identification/diagnosis will take time.

Management maintained its revenue guidance for the year but noted a risk to the lower end of the range ($870M-$930M) due to currency moves.

I do see some opportunities for Alnylam to outperform on stronger uptake of Amvuttra and better growth in Givlaari, but I would expect more potential upside from upcoming trial read-outs.

Before year-end investors should get a look at Phase I results from drugs targeting non-alcoholic steatohepatitis (or NASH) (ALN-HSD), early-onset Alzheimer's (ALN-AAP), and gout (ALN-XDH). While Phase I results are typically of limited value in biotech, Alnylam's biomarker-based approach has led to above-average trial success rates, so successful outcomes in these studies could have a larger impact on valuation than you'd normally expect from Phase I studies.

The Outlook

With the results of the APOLLO-B study in hand, my fair value estimate for Alnylam moves up about $25 to around $230. The difference in valuation is tied to a de-risked opportunity for Onpattro in hATTR-CM, as well as a higher likelihood of a successful outcome in the HELIOS-B hATTR-CM study. Successful results in the aforementioned upcoming Phase I read-outs could add $5-$10/share in fair value (each) depending upon the results and the clinical path forward.

The Bottom Line

Admittedly, Alnylam does not look dramatically undervalued now, given the 50% move in the shares after the APOLLO-B news and the relatively modest upward move in my fair value. Even so, I still believe these shares are worth owning, as the company has several compounds in early-stage trials that can drive future upside as clinical results de-risk the programs. Moreover, with a proven platform that has generated multiple successful drugs and that still has numerous high-value potential targets, I believe Alnylam has worthwhile long-term upside.

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