6.	COMMITMENTS AND CONTINGENCIES

Purchase Commitments

The Company has future purchase commitments totaling $11.1 million at December 31, 2012, of which $10.3 million is expected to be incurred in 2013 and $0.8 million is expected to be incurred past 2013. These commitments are related to purchase orders, clinical and pre-clinical agreements, and other purchase commitments for goods or services.

Technology License Commitments

The Company has licensed from third parties the rights to use certain technologies in its research processes 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, 2012, the Company was committed to make the following fixed, estimated and cancelable payments under existing license agreements, in thousands:


Year Ending December 31,
2013	$	14,463
2014		1,563
2015		818
2016		773
2017		793
Thereafter		9,159

Total	$	27,569

Operating Leases

The Company leases office and laboratory space located at 300 Third Street, Cambridge, Massachusetts (the “Premises”) for its corporate headquarters and primary research facility under a non-cancelable operating lease agreement (the “Third Street Lease”) with ARE-MA Region No. 28 LLC (the “Landlord”). Under the Third Street Lease, the Company leases a total of approximately 129,000 square feet of office and laboratory space at the Premises. The term of the Third Street Lease expires in September 2016. The Company has the option to extend the Third Street Lease for two successive five-year extensions.

The Company separately agreed, with the Landlord’s consent, to sublease a portion of the Premises consisting of 34,014 square feet (the “Subleased Premises) beginning on September 1, 2010 pursuant to a sublease agreement between the Company and sanofi-aventis U.S. Inc. (“Sanofi”) dated August 3, 2010 (the “Sublease”). In November 2011, the Company and Sanofi entered into a first amendment to the Sublease, pursuant to which the Company agreed, with the Landlord’s consent, to extend the Sublease of the Subleased Premises through September 30, 2016 (the Sublease, as so amended by the first amendment, the “Amended Sublease”). Pursuant to the terms of the Amended Sublease, Sanofi has an option to terminate the Amended Sublease on December 31, 2013, with advance notice and payment of a termination fee to the Company. A one-time upfront payment from Sanofi, together with the future rental payments by Sanofi under the Amended Sublease will partially offset the Company’s obligations under the Third Street Lease through 2016 by approximately $10.0 million. In connection with the execution of the Amended Sublease, the Company and the Landlord entered into an amendment to the Third Street Lease (the Third Street Lease, as so amended, the “Amended Third Street Lease”) to, among other things, change the allocation as between the Company and the Landlord of Excess Income (as defined in the Amended Third Street Lease) received by the Company in connection with any assignment or subletting of any or all of the Premises (including the Subleased Premises).

On February 10, 2012, the Company entered into a non-cancelable real property lease agreement (“the BMR Lease”) with BMR-Fresh Pond Research Park LLC (“BMR”) for the Company’s manufacturing facility. Under the BMR Lease, the Company leases approximately 15,000 square feet of office and laboratory space located at 665 Concord Avenue, Cambridge, Massachusetts. The term of the BMR Lease expires August 31, 2017. The Company has the option to extend the BMR Lease for two successive five-year extensions.

From 2004 through 2008, the Company received $7.3 million in leasehold improvement incentives from the Landlord in connection with the Third Street Lease. In addition, the Company received $1.8 million in leasehold improvement incentives from BMR during the year ended December 31, 2012. These leasehold improvement incentives are being accounted for as a reduction in rent expense ratably over the Amended Third Street and BMR Lease terms. The balance from these leasehold improvement incentives is included in current portion of deferred rent and deferred rent, net of current portion in the consolidated balance sheets at December 31, 2012 and 2011.

Total rent expense, including operating expenses, under the Company’s real property leases was $6.4 million, $6.5 million and $6.4 million for the years ended December 31, 2012, 2011 and 2010, respectively.

Future minimum payments under the Company’s non-cancelable leases are approximately as follows, in thousands:


Year Ending December 31,
2013		6,065
2014		6,303
2015		6,550
2016		5,192
2017		364

Total	$	24,474

Litigation

University of Utah Litigation

On March 22, 2011, The University of Utah (“Utah”) filed a civil complaint in the United States District Court for the District of Massachusetts against the Company, Max Planck Gesellschaft Zur Foerderung Der Wissenschaften e.V. and Max Planck Innovation GmbH (together, “Max Planck”), the Whitehead Institute for Biomedical Research (“Whitehead”), the Massachusetts Institute of Technology (“MIT”) and the University of Massachusetts (“UMass”), claiming a professor at Utah is the sole inventor or, in the alternative, a joint inventor, of the Tuschl patents. Utah did not serve the original complaint on the Company or the other defendants. On July 6, 2011, Utah filed an amended complaint alleging substantially the same claims against the Company, Max Planck, Whitehead, MIT and UMass. The amended complaint was served on the Company on July 14, 2011. Utah is seeking changes to the inventorship of the Tuschl patents, unspecified damages and other relief. On October 31, 2011, the Company, Max Planck, Whitehead, MIT and UMass filed a motion to dismiss. Also on October 31, 2011, UMass filed a motion to dismiss on separate grounds, which the Company, Max Planck, Whitehead and MIT have joined. On December 31, 2011, the University filed a second amended complaint dropping UMass as a defendant and adding as defendants several UMass officials. In June 2012, the Court denied both motions to dismiss. The Company, Max Planck, Whitehead, MIT and UMass have filed an appeal of the Court’s ruling on the motion to dismiss for lack of jurisdiction and have filed a motion requesting that the Court stay the case pending the outcome of the appeal. In July 2012, the Court stayed discovery in the case pending the outcome of the defendants’ appeal. Oral arguments in the appeal are scheduled to be heard in early March 2013 in the United States Court of Appeals for the Federal Circuit.

Although the Company believes it has meritorious defenses and intends to vigorously defend itself in this matter, litigation is subject to inherent uncertainty and a court could ultimately rule against the Company. In addition, the defense of litigation and related matters are costly and may divert the attention of the Company’s management and other resources that would otherwise be engaged in other activities. The Company has not recorded an estimate of the possible loss associated with this legal proceeding due to the uncertainties related to both the likelihood and the amount of any possible loss or range of loss.

The Company’s accounting policy for accrual of legal costs is to recognize such expenses as incurred.

Tekmira Settlement Agreement

On November 12, 2012, the Company, TPC, Protiva Biotherapeutics, Inc., a wholly owned subsidiary of TPC (“Protiva,” and together with TPC, “Tekmira”) and AlCana Technologies, Inc. (“AlCana”) entered into a settlement agreement and general release resolving all ongoing litigation, as well as a patent interference proceeding between the Company and Protiva. The terms of the settlement agreement include mutual releases and dismissal with prejudice of all claims and counterclaims in the following litigation between the parties: (i) Tekmira Pharmaceuticals Corp., et al. v. Alnylam Pharmaceuticals, Inc., et al., Civ. A. No. 11-1010-BLS2, pending in the Business Litigation Section of the Massachusetts Superior Court for Suffolk County; (ii) Tekmira Pharmaceuticals Corp. v. Michael Hope, et al., No. S117660, pending in the Supreme Court of British Columbia, Canada; (iii) Alnylam Pharmaceuticals, Inc., et al. v. Tekmira Pharmaceuticals Corp., Civ. A. No. 1:12-CV-10087, pending in the United States District Court for the District of Massachusetts; and (iv) Alnylam Pharmaceuticals, Inc., et al. v. Tekmira Pharmaceuticals Corp., Court File No. T-1783-12, pending in the Federal Court of Canada. In addition, as part of the settlement agreement, the parties agreed to a covenant not to sue one another in the future on matters released under the settlement agreement, as well as substantial liquidated damages to be paid by any party that breaches such covenant. The parties have also agreed to resolve any future disputes that may arise over the next three years through binding arbitration.

Pursuant to the settlement agreement, the Company and Tekmira also agreed to resolve the interference proceeding declared by the United States Board of Patent Appeals and Interferences between the Company and Protiva, captioned Protiva Biotherapeutics, Inc. v. Alnylam Pharmaceuticals, Inc., Patent Interference No. 105792.

Contemporaneously with the execution of the settlement agreement, the Company and Tekmira restructured their contractual relationship and entered into a cross-license agreement that supersedes the prior license and manufacturing agreements among the Company, TPC and Protiva. In connection with this restructuring, the Company incurred a $65.0 million charge to operating expenses for the year ended December 31, 2012. Specifically, the Company made a one-time payment of $30.0 million to Tekmira for the termination of, and its release from, all of its obligations under the manufacturing agreement with TPC, including without limitation the obligations to obtain materials and/or services from TPC. Further, the Company elected to buy-down certain future potential milestone and royalty payments due to Tekmira for certain of the Company’s RNAi therapeutics, formulated using LNP technology. Specifically, pursuant to the cross-license agreement, the Company made a one-time payment of $35.0 million to Tekmira, which amount constituted payment for the termination of the 2008 license agreements with TPC and Protiva and the parties’ rights and obligations thereunder, as well as the buy-down of certain milestone payments and the significant reduction of royalty rates for ALN-VSP, ALN-PCS and ALN-TTR. In addition, under the 2012 cross-license agreement, the Company will be obligated to pay TPC an aggregate of $10.0 million in contingent milestone payments related to advancement of ALN-VSP and ALN-TTR, which now represent the only potential milestones due to Tekmira for ALN-VSP, ALN-PCS and ALN-TTR lipid nanoparticle (“LNP”)-based RNAi therapeutics. Specifically, the Company will be obligated to pay TPC a $5.0 million milestone payment upon each of (i) the initiation of a Phase III clinical trial of an LNP-based ALN-TTR therapeutic, and (ii) the manufacture of ALN-VSP clinical trial material for use in China. The Company will expense these potential milestones when incurred and record them as research and development expense. A description of the Company’s cross-license agreement with Tekmira is included in Part I, Item 1, “ —Delivery-Related Licenses and Collaborations—Tekmira,” of this annual report on Form 10-K.

Indemnifications

Licensor indemnification — In connection with the Company’s license agreements with Max Planck relating to the Tuschl I and Tuschl II patent applications, the Company is required to indemnify Max Planck for certain damages arising in connection with the intellectual property rights licensed under the agreements. Under the Max Planck indemnification agreement, the Company is responsible for paying the costs of any litigation relating to the license agreements or the underlying intellectual property rights, including the costs associated with certain litigation regarding the Tuschl patents, which was settled during 2011. In connection with the Company’s research agreement with AlCana, the Company agreed to indemnify AlCana for certain legal costs, subject to certain exceptions and limitations, associated with the Tekmira litigation described above. These indemnification costs were charged to general and administrative expense. The Company has also 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.

The Company is also a party to a number of agreements entered into in the ordinary course of business, which contain typical provisions that obligate the Company to indemnify the other parties to such agreements upon the occurrence of certain events. Such indemnification obligations are usually in effect from the date of execution of the applicable agreement for a period equal to the applicable statute of limitations.

The maximum potential future liability of the Company under any such indemnification provisions is uncertain. However, to date, other than certain costs associated with the certain previously settled litigation related to the Tuschl patents, and the Tekmira litigation described in Part I, Item 3, “Legal Proceedings,” of this annual report on Form 10-K, the Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company has determined that the estimated aggregate fair value of its potential liabilities under all such indemnification provisions is minimal and has not recorded any liability related to such indemnification provisions at December 31, 2012 or 2011.