3.	SIGNIFICANT AGREEMENTS

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


	Year Ended December 31,
	2012		2011		2010
Roche/Arrowhead	$	37,318	$	55,978	$	55,978
Takeda		21,973		22,248		22,250
Cubist		2,777		2,467		2,363
Monsanto		1,954		—		—
Novartis		60		149		9,313
Government contract		—		152		4,335
Other		2,643		1,763		5,802

Total net revenues from research collaborators	$	66,725	$	82,757	$	100,041

Platform Alliances

Roche/Arrowhead 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, including delivery-related intellectual property existing as of the date of the LCA, to develop and commercialize therapeutic products that function through RNAi, subject to the Company’s existing contractual obligations to third parties. In November 2010, Roche announced the discontinuation of certain activities in research and early development, including its RNAi research efforts. In October 2011, Arrowhead announced its acquisition of RNA therapeutics assets from Roche, including the LCA. As a result of the assignment, Arrowhead owns all of the rights and obligations of Roche under the LCA. The license is initially limited to four therapeutic areas, and may be expanded to include additional therapeutic areas upon payment to the Company by Arrowhead of an additional $50.0 million for each additional therapeutic area, if any.

In consideration for the rights the Company granted under the LCA, Roche paid the Company $273.5 million in upfront cash payments. In addition, in exchange for the Company’s contributions under the LCA, for each RNAi therapeutic product developed by Arrowhead, its affiliates or sublicensees under the LCA, the Company is entitled to receive milestone payments upon achievement of specified development, regulatory and commercialization events, totaling up to an aggregate of $100.0 million per therapeutic target, together with a single-digit percentage royalty payment based on worldwide annual net sales, if any. The potential future milestone payments for each therapeutic target include up to $17.5 million for the achievement of specified development milestones, up to $62.5 million for the achievement of specified regulatory milestones and up to $20.0 million for the achievement of specified commercialization milestones. The Company could potentially earn the next development milestone payment of $1.0 million under the LCA based upon the initiation of the first Phase I clinical trial by Arrowhead for an RNAi therapeutic product. For purposes of potential future revenue recognition, the Company does not believe this milestone or any future milestones are substantive. Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development, the Company may not receive any milestone or royalty payments from Arrowhead. Under the LCA, the Company and Roche also established a discovery collaboration in October 2009 (“Discovery Collaboration”), subject to the Company’s existing contractual obligations to third parties.

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. Arrowhead 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. 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, the Company sold substantially all of the non-intellectual property assets of Alnylam Europe to Roche Germany for an aggregate purchase price of $15.0 million.

In summary, the Company received upfront payments totaling $331.0 million under the Roche alliance, which included an upfront payment under the LCA of $273.5 million, $42.5 million under the Common Stock Purchase Agreement and $15.0 million under the Alnylam Europe Purchase Agreement. The Company initially recorded $278.2 million of these proceeds as deferred revenue in connection with this alliance.

The Company determined that the deliverables under these agreements included the license, the Alnylam Europe assets and employees, the steering committees (joint steering committee and future technology committee) and the services under the Discovery Collaboration. The Company also determined that, pursuant to the accounting guidance governing revenue recognition on multiple element arrangements, the license and assets of Alnylam Europe are not separable from the undelivered services (i.e., the steering committees and Discovery Collaboration) and, accordingly the license and the services were treated as a single unit of accounting. When multiple deliverables are accounted for as a single unit of accounting, the Company bases its revenue recognition pattern on the final deliverable. Under the Arrowhead alliance, the steering committee services and the Discovery Collaboration services are the final deliverables and all such services ended, contractually, in August 2012, five years from the effective date of the LCA.

The Company recognized the revenue related to these agreements on a straight-line basis over five years because the Company could not reasonably estimate the total level of effort required to complete its service obligations under the LCA, and therefore, could not utilize a proportional performance model. At December 31, 2012, there was no remaining deferred revenue under the LCA as the Company recognized all remaining Roche/Arrowhead revenue during the quarter ended September 30, 2012. The Company will recognize future milestones under the LCA, if any, when such milestones are achieved.

Takeda Alliance

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

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

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

The term of the Takeda 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 Agreement may be terminated by either party in the event the other party fails to cure a material breach under the agreement. In addition, Takeda may terminate the agreement on a licensed product-by-licensed product or country-by-country basis upon 180-days’ prior written notice to the Company, provided, however, that Takeda is required to continue to make royalty payments to the Company for the duration of the royalty term with respect to a licensed product.

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

The Company is recognizing the upfront payment of $100.0 million and the Technology Transfer Milestones of $50.0 million, the receipt of which the Company believed was probable at the commencement of the collaboration, on a straight-line basis over seven years because the Company is unable to reasonably estimate the level of effort to fulfill these obligations, primarily because the effort required under the Research Collaboration is largely unknown, and therefore, cannot utilize a proportional performance model. As future milestones are achieved, if any, the Company will recognize as revenue a portion of the milestone payment equal to the percentage of the performance period completed when the milestone is achieved, multiplied by the amount of the milestone payment. At December 31, 2012, deferred revenue under the Takeda Agreement was $52.8 million.

Monsanto Alliance

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

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

The term of the Monsanto Agreement generally ends upon the expiration of the last-to-expire patent licensed under the agreement. The Company estimates that its fundamental RNAi patents licensed under the Monsanto 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 August 27, 2013, Monsanto may terminate the Monsanto Agreement in its entirety upon 30-days’ prior written notice to the Company, provided, however, that Monsanto is required to continue to make royalty payments to the Company if any royalties were payable on net sales of a Licensed Product during the previous 24 months. The Monsanto Agreement may also be terminated by either party in the event the other party fails to cure a material breach under the agreement.

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

The Company received a payment of $29.2 million from Monsanto in August 2012, which was initially recorded as deferred revenue. Under the terms of the Monsanto Agreement, in the event that during the Exclusivity Period Monsanto loses certain patent rights, and such loss has a material adverse effect on the Licensed Products, then the Company would be required to pay Monsanto up to $5.0 million as liquidated damages, and Monsanto’s royalty obligations to the Company under the Monsanto Agreement would be reduced or, under certain circumstances, terminated. The Company has the right to cure any such loss of patent rights under the Monsanto Agreement. The Company has determined that this amount is not fixed and determinable and therefore, the Company has excluded this amount from its revenue model and is deferring the recognition of $5.0 million of revenue. The Company will continue to reassess when this amount can be considered fixed and determinable. If the achievement of a milestone is considered probable at the inception of the collaboration, the Company’s policy is to include the related payment in its revenue model. The Company has concluded that the receipt of the technology transfer payment of $2.5 million is probable, and has therefore included this amount in the Company’s revenue model. As future milestones are achieved, if any, the Company will recognize as revenue a portion of the milestone payment equal to the percentage of the performance period completed when the milestone is achieved, multiplied by the amount of the milestone payment. At December 31, 2012, deferred revenue under the Monsanto Agreement was $28.7 million.

Discovery and Development Alliances

Isis Collaboration and License Agreement

In April 2009, the Company and Isis amended and restated their existing strategic collaboration and license agreement (as amended and restated, the “Amended and Restated Isis Agreement”), originally entered into in March 2004, to extend the broad cross-licensing arrangement regarding double-stranded RNAi that was established in 2004, pursuant to which Isis granted the Company licenses to its current and future patents and patent applications relating to chemistry and to RNA-targeting mechanisms for the research, development and commercialization of double-stranded RNA (“dsRNA”) products. The Company has the right to use Isis technologies in its development programs or in collaborations and Isis agreed not to grant licenses under these patents to any other organization for the discovery, development and commercialization of dsRNA products designed to work through an RNAi mechanism, except in the context of a collaboration in which Isis plays an active role. The Company granted Isis non-exclusive licenses to its current and future patents and patent applications relating to RNA-targeting mechanisms and to chemistry for research use. The Company also granted Isis the non-exclusive right to develop and commercialize dsRNA products developed using RNAi technology against a limited number of targets. In addition, the Company granted Isis non-exclusive rights to research, develop and commercialize single-stranded RNA products. In August 2012, the Company and Isis amended the Amended and Restated Isis Agreement to provide for the discovery, development and commercialization of dsRNA products by the Company or its sublicensees in the field of agriculture.

In 2004, under the terms of the original 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 Isis’ intellectual property.

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

As part of the Amended and Restated Isis Agreement, the Company and Isis established a collaborative effort focused on single-stranded RNAi (“ssRNAi”) technology and the Company obtained from Isis a co-exclusive, worldwide license to research, develop and commercialize ssRNAi products. The Company paid Isis $11.0 million in license fees upon signing the agreement in connection with the ssRNAi research program. In November 2010, the Company exercised its right to terminate the ssRNAi collaborative effort, and all licenses to ssRNAi products granted by Isis to the Company, and any obligation thereunder requiring the Company to provide further research funding or pay additional license fees, milestone payments, royalties or sublicense payments to Isis for such ssRNAi products, also terminated. The termination of this collaborative effort did not affect the remainder of the Amended and Restated Isis Agreement, including the Company’s licenses to Isis’ current and future patents and patent applications relating to dsRNAs, which remains in effect.

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

During 2012, as a result of certain payments received by the Company in connection with the Monsanto and Genzyme alliances, the Company paid $2.5 million to Isis. These license fees were charged to research and development expense.

Novartis Alliance

In the second half of 2005, the Company entered into a series of transactions with Novartis, which included a stock purchase agreement, an investor rights agreement (the “Investor Rights Agreement”) and a research collaboration and license agreement (the “Collaboration and License Agreement”) (collectively the “Novartis Agreements”). The Collaboration and License Agreement had a five-year research term. In October 2010, the research program under the Collaboration and License Agreement was substantially completed in accordance with the terms of the Collaboration and License Agreement, subject to certain surviving rights and obligations of the parties.

In September 2010, Novartis exercised its right under the Collaboration and License Agreement to select 31 designated gene targets, for which Novartis has exclusive rights to discover, develop and commercialize RNAi therapeutic products using the Company’s intellectual property and technology, including delivery-related intellectual property and related technology. Under the terms of the Collaboration and License Agreement, for any RNAi therapeutic products Novartis develops against these targets, the Company is 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 annual net sales of any such product. For purposes of potential future revenue recognition, the Company does not believe these milestones are substantive. Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development, the Company may not receive any milestone or royalty payments from Novartis.

Novartis may terminate the Collaboration and License Agreement in the event that the Company materially breaches its obligations. The Company may terminate the Collaboration and License Agreement with respect to particular programs, products and/or countries in the event of specified material breaches by Novartis of its obligations, or in its entirety under specified circumstances for multiple such breaches.

The Company initially deferred the non-refundable $10.0 million upfront payment and the $6.4 million premium paid on the common stock of the Company purchased by Novartis. These payments, in addition to research funding and certain milestone payments, together totaled approximately $64.0 million, and are being amortized into revenue using the proportional performance method over the estimated duration of the Collaboration and License Agreement. Under this method, 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.

The Company believes the estimated period of performance under the Collaboration and License Agreement is ten years, which includes the five-year term of the agreement and limited support as part of a technology transfer until 2015, the fifth anniversary of the completion of the research term under the Collaboration and License Agreement. The Company continues to use an expected term of ten years in its proportional performance model. The Company reevaluates the expected term when new information is known that could affect the Company’s estimate. In the event the Company’s period of performance is different than estimated, the Company will adjust the amount of revenue recognized on a prospective basis. At December 31, 2012, deferred revenue under the Novartis Collaboration and License Agreement was $0.2 million.

At December 31, 2012, Novartis owned approximately 7.7% of the Company’s outstanding common stock.

Product Alliances

Kyowa Hakko Kirin Alliance

In June 2008, the Company entered into a license and collaboration agreement (the “KHK Agreement”) with Kyowa Hakko Kirin. Under the KHK Agreement, the Company granted Kyowa Hakko Kirin an exclusive license to its intellectual property in Japan and other markets in Asia (the “Licensed Territory”) for the development and commercialization of an RNAi therapeutic for the treatment of respiratory syncytial virus (“RSV”) infection. The KHK Agreement covers ALN-RSV01, as well as additional RSV-specific RNAi therapeutic compounds that comprise the ALN-RSV program (“Additional Compounds”). The Company retains all development and commercialization rights worldwide outside of the Licensed Territory.

Under the terms of the KHK Agreement, in June 2008, Kyowa Hakko Kirin paid the Company an upfront cash payment of $15.0 million. In addition, Kyowa Hakko Kirin is required to make payments to the Company upon achievement of specified development and sales milestones totaling up to $78.0 million, and royalty payments based on annual net sales, if any, of RNAi therapeutics for the treatment of RSV by Kyowa Hakko Kirin, its affiliates and sublicensees in the Licensed Territory. For purposes of potential future revenue recognition, the Company does not believe these milestones are substantive. Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development, the Company may not receive any milestone or royalty payments from Kyowa Hakko Kirin.

The collaboration between Kyowa Hakko Kirin and the Company is governed by a joint steering committee that is comprised of an equal number of representatives from each party. Under the agreement, Kyowa Hakko Kirin is establishing a development plan for the ALN-RSV program relating to the development activities to be undertaken in the Licensed Territory, with the initial focus on Japan. Kyowa Hakko Kirin is responsible, at its expense, for all development activities under the development plan that are reasonably necessary for the regulatory approval and commercialization of an RNAi therapeutic for the treatment of RSV in Japan and the rest of the Licensed Territory. The Company is responsible for supply of the product to Kyowa Hakko Kirin under a supply agreement unless Kyowa Hakko Kirin elects, prior to the first commercial sale of the product in the Licensed Territory, to manufacture the product itself or arrange for a third party to manufacture the product.

The term of the KHK 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 KHK Agreement may be terminated by either party in the event the other party fails to cure a material breach under the agreement. In addition, Kyowa Hakko Kirin may terminate the agreement without cause upon 180-days’ prior written notice to the Company, subject to certain conditions.

The Company has determined that the deliverables under the KHK Agreement include the license, the joint steering committee, the manufacturing services and any Additional Compounds. The Company has determined that, pursuant to the accounting guidance governing revenue recognition on multiple element arrangements, the individual deliverables are not separable and, accordingly, must be accounted for as a single unit of accounting. When multiple deliverables are accounted for as a single unit of accounting, the Company bases its revenue recognition pattern on the final deliverable.

The Company is currently unable to reasonably estimate its period of performance under the KHK Agreement, as it is unable to estimate the timeline of its deliverables related to the fixed-price option granted to Kyowa Hakko Kirin for any Additional Compounds. The Company is deferring all revenue under the KHK 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 KHK Agreement. At December 31, 2012, deferred revenue under the KHK Agreement was $15.5 million.

Genzyme Alliance

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

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

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

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

The Company has agreed to indemnify Genzyme for legal costs and other losses or amounts required to be paid by Genzyme, if any, in connection with or related to certain of the Company’s ongoing litigation matters. Unless terminated earlier in accordance with the terms of the agreement, the Genzyme Agreement expires on a Licensed Product-by-Licensed Product and country-by-country basis upon the latest to occur of (1) the expiration of the last valid claim of the Company patents or joint patents covering a Licensed Product, (2) the expiration of the Regulatory Exclusivity (as defined in the Genzyme Agreement), and (3) twenty-five years from first commercial sale of such Licensed Product in such country. The Company estimates that its fundamental RNAi patents covering ALN-TTR compounds under the Genzyme Agreement will expire both in and outside of the United States generally between 2016 and 2021. The Company also estimates that its patents covering ALN-TTR compounds under the Genzyme Agreement in the United States and elsewhere will expire in 2032. These patent rights are subject to potential patent term extensions and/or supplemental protection certificates extending such terms in countries where such extensions may become available. In addition, more patent filings relating to the collaboration may be made in the future. Either party may terminate the Genzyme Agreement in the event the other party fails to cure a material breach or in the event that development ends after a specified time period without regulatory approval of a Licensed Product. The Company may terminate the agreement upon patent-related challenges by Genzyme. Genzyme has the right to terminate the agreement without cause at any time upon six months’ prior written notice. Genzyme may also terminate the agreement upon forty-five days prior written notice if Genzyme determines that specified success criteria have not been met following the completion of a Phase II clinical trial.

During the period from the effective date of the Genzyme Agreement until the first commercial sale of a Licensed Product in a country in the Genzyme Territory, and thereafter during any period during which Genzyme is paying the Company any royalties on net sales of any Licensed Product in such country, neither party will, alone or with an affiliate or agreed upon third party, develop or commercialize in such country, any product for the treatment of ATTR, other than a Licensed Product or an agreed complementary product, without the prior written agreement of the other party.

The Genzyme Agreement originally provided that if development of a Licensed Product was terminated by the Company or Genzyme under certain limited circumstances, Genzyme would have the right to terminate the Genzyme Agreement and the Company would be required to refund amounts paid by Genzyme to the Company under the agreement prior to such termination. On February 19, 2013, the Company and Genzyme agreed to amend the Genzyme Agreement to remove this provision.

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

The Company is currently unable to reasonably estimate its period of performance under the Genzyme Agreement, as it is unable to estimate the timeline of its deliverables related to the deliverable for any additional TTR-specific RNAi therapeutic compounds. The Company is deferring all revenue under the Genzyme Agreement until it is able to reasonably estimate its period of performance. The Company will continue to reassess whether it can reasonably estimate the period of performance to fulfill its obligations under the Genzyme Agreement. At December 31, 2012, deferred revenue under the Genzyme Agreement was $22.5 million

Cubist Alliance

In January 2009, the Company entered into the Cubist Agreement to develop and commercialize therapeutic products based on certain of the Company’s RNAi technology for the treatment of RSV infection. Licensed products initially included ALN-RSV01, as well as several other second-generation RNAi-based RSV inhibitors. In November 2009, the Company and Cubist entered into an amendment to the Cubist Agreement (the “Amendment”), which provided that the Company and Cubist would focus their collaboration and joint development efforts on ALN-RSV02, a second-generation compound, intended for use in pediatric patients. In December 2010, the Company and Cubist jointly made a portfolio decision to put the development of ALN-RSV02 on hold. Pursuant to the terms of the Amendment, the Company continued to develop ALN-RSV01 for adult transplant patients at its sole discretion and expense and Cubist had the right to opt into collaborating with the Company on ALN-RSV01, subject to specified conditions.

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

In consideration for the rights granted to Cubist under the Cubist Agreement, in January 2009, Cubist paid the Company an upfront cash payment of $20.0 million. Under the terms of the Cubist Agreement, the Company and Cubist shared responsibility for developing licensed products in North America and each was responsible for one-half of the related development costs, subject to the terms of the Amendment. The Company’s collaboration

with Cubist for the development of licensed products in North America was governed by a joint steering committee comprised of an equal number of representatives from each party. Cubist had the sole right to commercialize licensed products in North America with costs associated with such activities and any resulting profits or losses to be split equally between the Company and Cubist.

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

The Company was recognizing the upfront payment of $20.0 million on a straight-line basis over approximately eight years because the Company was unable to reasonably estimate the level of effort to fulfill its performance obligations, and therefore, could not utilize a proportional performance model. At December 31, 2012, deferred revenue under the Cubist Agreement was $9.7 million. As a result of the termination of the Cubist Agreement in February 2013 and the end of the Company’s performance obligations thereunder, the Company expects to recognize the remaining deferred revenue of $9.7 million during the first quarter of 2013.